GTY Technology Holdings Inc.

Thank you, and good morning, everyone. I'm John Curran, GTY's CFO, and I'd like to welcome you to our fourth quarter and full year 2020 earnings conference call.

With me on today's call is TJ Parass, GTY's CEO. We will be presenting slides on today's call and encourage you to view the presentation found on our website at www.gtytechnology.com.

Please note that our earnings release is available on the GTY website. The release contains additional information about our financial result.

Any forward-looking statements we made in the earnings release or any that we may make during this call are based upon information that we believe to be true as of today. Things often change, however, and actual results may differ materially from those projected or anticipated.

Please refer to our cautionary statements in the earnings release under the heading Forward-Looking Statements. You should also refer to our SEC filings, including our most recent Form 10-K and our subsequent SEC filings for a list of risk factors applicable to GTY, including risks associated with COVID-19.

As you will hear in our comments, the pandemic is impacting our business today and for an undetermined time into the future. During the call, we may refer to non-GAAP financial measures if we believe they are useful to investors or if we believe it will help investors better understand our results or business trends.

You can see a reconciliation of our non-GAAP financial measures to their nearest comparable GAAP financial measure in Exhibit two of the earnings release. With that, I'll turn the call over to TJ.

Thank you, John. Good afternoon and thank you all for joining us.

We are pleased with our execution throughout the year and we ended 2020 on a high note with a solid quarter. Before, we dig into this quarter's results, I want to take a moment to remind everyone GTY's mission is a modernize governments and make them more efficient, best of breed cloud technologies.

Pandemic has highlighted the needs for government to move on to more modern solutions. Our focus is twofold to improve and modernize the citizens' experience with government front offices of every level and to bring modeling solutions to government employees.

So, they're able to achieve optimal efficiency. As John will discuss later in this call, our fourth quarter GAAP revenue grew 14% year-over-year, to $313.1 million, and grew 32% to $48.1 million for the full year.

From a non-GAAP perspective, revenue increased 10%, to $13.2 million compared to Q4, 2019, and grew 20%, $48.8 million for the full year. Most importantly annual recurring revenue or ARR grew 25% year-over-year to $41.4 million.

Finally, we had a very strong year in new customer additions, adding more than 100 new customers in the fourth quarter and over 350 new customers for the year. GTY provides our industry-leading cloud technologies through six brands that cover the front and back offices of state and local government organizations.

Let's start with our two front-office solutions CityBase and Open Counter. Open Counter enables any ordinary citizen to decipher the guarantee made [ph] for permits needed for projects or improvement.

And then process those permits online. These permits can be as simple as a tree removal permit to as complex as helping someone start a new business by walking them through the many permits that will be required.

Open Counter's momentum demonstrated considerable strength all year and accelerated in Q4 with five new customer wins and 11 for all 2020, a 30% gain in new customers year-over-year. Non-GAAP revenue grew for the year by 23% in a difficult environment.

Open Counter earned a lot attraction with new customers like the City of Omaha and most recently Miami, Florida. We're excited to have announced that the City of Miami will be incorporating Open Counter into eCivis initiative.

eCivis empowers ordinary citizens and entrepreneurs like to begin the process of opening their own business in the city directly from their mobile device 365 days a year, 24 hours a day. As part of this one-stop solution, eCivis allows applicants to check there zoning online, increase transparency around costs by offering accurate real-time visibility into fee estimates.

Open counter's new special event portal continue to gain traction with existing customers. We are very pleased that Orlando, Cincinnati and Salt Lake City expanded their engagements to include our special events portal.

Even though COVID-19 has impacted all aspects of City operations, forward-looking communities are planning for a return to in-person event and the need to manage these more efficiently. Moving on to CityBase, our government and utility payments platform.

CityBase solves the often complex process of how you make payments to your local government by harmonizing and automating all segments of the full payment cycle. Our replacing static, sprawling websites with a dynamic platform, CityBase makes cities and counties more efficient by increasing on-time revenue collection and speeding up the time of settlement while improving the overall citizens' experience.

CityBase reported a tremendous fourth quarter and full-year with our sales team funding up to more than 23 new state and local governments including 12 in the fourth quarter alone. One of these new customers was the City of Austin who select the CityBase payment platforms to enable residents and visitors the ability to pay bills and municipal fees online via mobile devices.

Another win was the expansion with the current cost of customer the City and County of Denver, this customer select CityBase as the payment partner to modernize and unified point of sale cash sharing and online payments for its more than 716,000 residents. Moving on to E-service, our grants management solution, E-service is used to help governments manage and distribute grant funding, and health organizations and government entities stay compliant with their use of funds.

With the global pandemic, local governments are using eCivis products to help manage and distribute critical federal finance assistance and COVID funding. eCivis finished the year with a solid momentum adding 22 new customers in the fourth quarter, bringing the total for the year of 61 new customers, approximately a 100% increase over 2019.

eCivis showed solid growth in the state government market with the addition of the California Department of Forestry and Fire Protection, Georgia Department of Community Affairs, and expanded services in California Department of Housing and Community Development. These agencies have all teamed with eCivis around key community and economic development programs imagine disaster recovery grants.

Moving on to Bonfire sourcing platform, Bonfire helps governments overcome the challenges of dealing with and selecting multiple vendors, complex RFP processes, and ensuring compliance. Bonfire had a terrific year adding 35 new customers in the fourth quarter to bring the annual total to 137 for 2020, an increase of 40%.

To name some of these new customers we sign on Harris County, Barnstable County, and the Toronto Waterfront Revitalization Corporation. Furthermore, Bonfire's premium rendering [ph] offering that was released in 2019 experienced significant growth in 2020 signaling the Bonfire continues to be the one of the fastest-growing platforms for both public procurement it seems as well as vendors seeking public sector bidding opportunities.

And finally, our budgeting units in Questica and Sherpa who are leading providers of cloud-based budget performance and transparency solutions for the public sector. Combined our budgeting units added 41 new customers in the fourth quarter, driving a year-end total of 123 new customers in 2020.

So, the value of our eCivis provide coupled with exceptional customer service resulted in a customer retention rate of over 98%. The notable customer wins this year highlight the scope of our budgeting solutions which range from the middle market with budgets ranging from $10 million to $250 million to the enterprise market ranging from budget of $250 million to $115 billion.

Customers like Fort Worth Housing Authority and the City of Abilene Texas in the middle market and the State of New Mexico and the City and County San Francisco the enterprise market to name just a few. In addition to the specific wins I mentioned, our mid-market team showed impressive growth this year.

And with that let me turn it over to John to review the financials, John.

Thanks, TJ. As TJ highlighted earlier, Q4 was a strong finish what was otherwise a challenging year.

Our GAAP revenues were up 32% to 2020 and we remain cash flow positive for the second quarter in a row. We saw strong demand for all of our products in Q4, as evidenced by the number of new logos that TJ discussed earlier.

I should also point out that our financial condition has improved significantly in the quarter as we raised over $18 million in new capital. Moving on to our financial results for the quarter, our GAAP revenue increased 14%, to $13.1 million in Q4 2020 compared with $11.5 million in Q4 of 2019.

On a non-GAAP basis, revenue was $13.2 million in Q4 2020 compared with $12 million in Q4 of 2019, an increase of 10%. A reconciliation between our GAAP and non-GAAP results is included in Exhibit 2 of our press release.

We'll provide a more detailed explanation of the change in revenue on a subsequent slide. Turning to our operating expenses, we continued our cost control efforts and saw a slight decrease sequentially in our total non-GAAP operating expenses.

Fourth-quarter 2020 GAAP operating loss was $11.1 million compared with $7.3 million in Q3 of 2020, and a loss of $42.6 million in Q4 of 2019. Our fourth quarter non-GAAP operating loss decreased to $1.1 million compared with $1.4 million in Q3 of 2020, driven primarily by quarter-over-quarter growth in revenue and the decrease in operating expenses.

For the full year 2020, our debt revenue increased 32%, $48.1 million from $36.4 million in 2019. And on a non-GAAP basis, revenue increased 20%, $48.8 million from $40.5 million in 2019.

For the full-year 2020, our GAAP operating loss narrowed to $42.7 million compared with $105.5 million in 2019. And our non-GAAP operating loss decreased to $11.1 million compared with $19.9 million in 2019.

Consistent with previous quarters, we wanted to provide a little more color on the change in non-GAAP revenue. As you can see in this chart, our recurring revenue grew by 15% on a quarter-over-quarter basis and grew by 25% on a year-over-year basis.

Q4 is the seasonal strong quarter for recurring revenues driven by payment volumes within our CityBase business. Recurring revenue for the full year grew by 27%.

Our service revenue can vary from quarter to quarter due to the timing of large projects. And we expect professional services to decline as a percentage of revenue as our base of recurring revenue continues to grow.

Other revenue includes sales of kiosks and software license sales that we also expect to decline as a percentage of revenue over time. We expect to see recurring revenue growing in the mid to high 20% range for 2021 and expect our services and other revenue will grow by roughly the low single digits compared with 2020.

Our recurring revenue growth will continue to be higher in percentage and dollar terms and service and other revenue as we continue to grow our base of subscription business. Taking a look at our balance sheet, there are three areas I would like to discuss.

The first is the change in our receivable which decreased by $500,000 this quarter driven by our continued strong collections. The second area is a decrease of $900,000, an accounts payable and accruals in the quarter, primarily due to severance payments.

The third area is deferred revenue associated with our subscription billing which increased $600,000. This increase represents the amount we have invoiced in excess of the amount of revenue we earned in the quarter.

From a cash perspective, we started the quarter with $6.2 million and ended in $22.8 million in cash. From an outflow perspective, our operating burn was roughly $100,000 this quarter down from $1.7 million in Q3.

We also paid out $600,000 in severance, $200,000 in CapEx and $300,000 interest in the quarter. From an inflow perspective higher than expected billings in the quarter and strong collections were the primary drivers behind our change in working capital at $1.4 million.

We also received about $200,000 in stimulus funding from U.S payroll tax deferrals. Finally, from financing perspective, we generated net proceeds $16.2 million this includes raising $11.3 million in additional debt and $7 million in new equity.

Based on our current view of sales activities, our ability to implement our products, the low churn rates we have experienced to date, and our cost reduction efforts, we believe we have sufficient cash, tariffs into 2022. Turning to our outlook for the first quarter and full-year 2021.

For the first quarter 2021, we expect total revenue to be in the range of $12.5 million to $13 million or approximately 10% year-over-year growth. For the full year 2021, we expect total revenue to be in the range of $57 million to $60 million or approximately 20% year-over-year growth.

ARR will grow faster than our overall revenue growth as we continue to build our base of recurring revenue. We remain concerned about material reductions in the budgets of our customers; we don't expect improvements in our business environment in the near-term.

We expect to be cash flow positive from operations for the full year 2021 excluding interest in severance. However, the seasonal distribution of our renewal invoicing is lower in the first half of the year than the second half which will cause us to be cash flow negative in the first half of the year and positive in the second half.

With that let's turn things back to TJ.

Thank you, John. As we look towards 2021, I wanted to take a moment to reflect on 2020 which was a very challenging year for our customers.

As a pandemic took hold, many of our customers scrambled as employees transition to working from home. Our customer's revenues are supported by a variety of taxes, however which are very stable like property tax.

But many others are variable and based on volumes of activity such as sales tax. The more variable tax base was significantly affected by the pandemic and created budget shortfalls for our customers.

Government reforms become more efficient, because of lower revenues and increased costs, all while continuing to provide core services to the constituents. The primary focus of efficiency has been on remote operations, contactless government services and COVID support.

Prior to 2020, there was an increasing trend for governments to move the cloud technologies. The pandemic has certainly increased the importance of this change [ph] to our customers.

Cloud solutions in general and GTY's solutions specifically, inherently designed to support overall operation and contactless government services. As we turn to 2021, we anticipate the economy will continue at its current pace until later in the year when the vaccine should be largely distributed.

We anticipate that most of 2021 will be about stabilizing the economy and ready to return in all of 2022. There are factors like stimulus spending and higher than anticipated tax revenues that could favorably impact our market opportunity.

While our 2020 forecast and currently anticipating these factors, we are keeping a close eye on them. We continue to be enthusiastic about the government trend to cloud solutions, and our core focus in 2021 will be in growing our company's organically, expanding our R&D efforts, and reviewing opportunities for inorganic growth.

I want to take a minute to thank everyone at GTY for their efforts over the last year. It's been a big adjustment with COVID and our staff have risen to the challenge.

In summary, it was a great quarter and a solid year. We achieved top-line double-digit growth, demonstrated strong cost management, achieved high customer satisfaction, and experienced continued strength by government's transition to the cloud.

GAAP revenues were up 40% in the quarter and 32% for the year and we achieved positive cash flow for the second quarter in a row. With that, thank you and I'd like to turn this over to the operator for questions.

Hi, TJ, and John. Congrats on a good quarter and thanks for taking the questions.

I have two, I guess, let's start off in the current environment. TJ you talked about now expecting much change here in the short-term versus maybe some more positive developments in the second half of the year.

How much of that is customers just unwilling to spend because maybe their processes are maybe not there internal processes to signing new deal or moving along as they should versus maybe some of the budgetary concerns that I think we all hear about for state and local governments?

Thanks, Scott. So, couple of answers to that, if we were to rewind back to early 2020, I would say it was like lot to do is just getting by you're working from home so processes were broken and they were getting back that.

Now were past that a lot of the eyes are on the budget and that work on both sides of the equation for us. If they are finding, they need to cut back on staffing or anticipating that they're looking for solutions to help improve their processes of fleet [ph] turning to automation and Cloud technology that goes.

And then, the other thing that we're keeping an eye on is we're trying to get a bit of reporting back that some states have not seen the budget shortfalls that they were expecting, and we're starting to keep a close eye on that. So I think a sense of how much they withdraw back in anticipation revenues declining and what actually happened.

So, as we start seeing the budgets being close up this year and we're watching those now and we've got a large budget business unit, they will see a lot of the budget information we're keeping a close eye on that.

Got it. Helpful.

And then from a follow-up perspective, John you talk in the guidance 10% revenue growth in the first quarter. In press release you talk about $57 million to $60 million for the full year, which I believe is, we'll use round numbers 20 %to 25% growth rate, which does mirror your ARR growth in the fourth quarter of ‘20.

But how should we think about kind of the shape and modeling the year and maybe your confidence that 10% growth rate is going to accelerate through part of the balance here in the year?

Sure. Yes, good question, Scott.

So, we have a little bit of a headwind coming out of Q4. So, we did actually see the CityBase payment volume tick up in the fourth quarter as we would normally see from a seasonality perspective and, it's going to decline from Q4 to Q1, again in their normal cadence.

So we're anticipating for the year that their seasonal pattern is going to come back. So, they would normally see lower Q1, higher Q2, lower Q3 with the highest period being Q4.

So, we are anticipating that pattern to re-emerge in 2021. So that explains why we've got a little bit of a headwind from Q4 to Q1 related to payment volumes dropping.

Great, helpful. Thank you.

Great, thanks for taking my questions. I've got several.

John as it relates to the revenue splits, I think you shared which is your Open counter I believe. Do you have the numbers for the other key products?

So budgeting combined 20%, eCivis just under 10%, CityBase 11%, and bonfire around 55%.

Okay, that's helpful. And then the Q1 guide what's implicit in there, you commented to the professional services being a lumpy what's implicit in terms of the Q1 expectation around services?

We're expecting it to be a little higher than Q4.

Okay. And then, I guess maybe TJ, as it relates to the bookings.

Just curious, I mean obviously we don't get a full bookings number and you may have few illusions you added a lot of customers. So, seemingly very, very good customer capture, I'm curious about the booking's value signed in the quarter versus maybe your expectations coming out of the September quarter?

So on a relative center?

Yes, just some sense on how did you compare to your expectations coming into the quarter. I mean, was this sort of in line with what you thought you'd post.

Did you see any variation as the quarter progressed?

Yes, good question. So, we were a little ahead of what we expected in Q4.

Okay. And then on the churn front; obviously as you said, it depends on what the end customers budget driver is right use tax versus property tax versus other and how stable there revenue flows are?

What from a churn standpoint did you see any, start there within the products? Did you see any variation in churn amongst the products in the quarter that was notable?

Yes, I was just actually looking over the churn numbers in the session [ph] we typically published, but I was comparing them relative to 2019, to see what the COVID effects were. Churn stayed just about the same as 2019, a little bit higher as we saw a little bit more contraction then churn like net churn then we saw in 2019 but overall, quite happy at the numbers.

Fair enough. And then the again, kind of looking at it by-product when you looked at the bookings certainly look like a very strong at least customer capture number year-end there for the budgeting side.

But maybe what was the standout, maybe it was budgeting in terms of bookings in the quarter and maybe what was the one that was most challenged and that might give us a glimpse into sort of the end customer, or you have the end customer drivers. So kind of just within the product stat, what did you see the most momentum and where do you see the most headwind in the quarter?

Well, in this quarter we saw, I mean you saw bonfire numbers are amazing this year. So, you've seen a consistent growth.

Cost good [ph] numbers are posted well, what you're seeing there is some of their mid-market, movement is starting to pick up. Some CityBase had some great sales in the last quarter, a lot of that as we've described in the past require that we onboard them in revenue flows in later.

So they've had a significant, so they kind of uptick in their sales. Our open counter had a good pick up this quarter.

They're the ones that have been because of the pandemic, the area of permitting has been a little bit down this year. So they are doing pretty good with what the year has been like and are up from last year.

So, I hope that gives you a little bit of an idea and certainly eCivis that grants is up this quarter also.

Yes. Okay, great.

And then just last one, TJ, is you're focusing on sales. What's on your to-do list in terms of maturing the sales org in ‘21 structurally just kind of what move should we think about in terms of your goals for structural change in ‘21?

Great question. So we've been really focused in the last year, making sure that sales team that we hired in the last Q4 2019 matured, they are mature -- our team now [indiscernible] through these bookings increases.

Second thing is now to focus on what's so successful there and start to expand on that; so expansion in growth of teams. You know, a lot of what I would call are cross-pollination, we call them internally call sales, Ted talks about learning what works, what doesn't work and making sure we're sharing those experiences across the different business units.

For 2021 we largely expect to keep the business units with their own sales teams, and it's a highly focus because we see so much greenfield organic growth in the teams that we want to make sure they stay focused on that.

Okay, great. Thanks for taking my questions.

Appreciate it.

I just want to say thank you everyone and look forward to talking next quarter.