Q2 - Earnings Call - Q4 2020
February 18, 2021
Transcript
Speaker 0
Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings Fourth Quarter and Full Year twenty twenty Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would now like to turn today's call over to Josh Yankovich, Investor Relations. Sir, please go ahead.
Speaker 1
Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year twenty twenty conference call. With me on the call today is Matt Flake, our CEO and David Meehaw, our CFO and Jennifer Harris. This call contains forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of Q2 Holdings. Actual results may differ materially from those contemplated by these forward looking statements, and we can give no assurance that such expectation or any of our forward looking statements will prove to be correct.
Important factors that could cause actual results to differ materially from those reflected in the forward looking statements are included in our periodic reports filed with the SEC, including our most recent annual report on Form 10 ks and subsequent filings and the press release distributed yesterday afternoon regarding the financial
Speaker 2
discuss today. Forward looking statements that
Speaker 1
we can make on this call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligation to update any such forward looking statements discussed on this call. Also, unless otherwise stated, all financial measures discussed on this call will be on a non GAAP basis. A discussion of why we use non GAAP financial measures and a reconciliation of the non GAAP measures to the most comparable GAAP measures is included in our press release, which may be found on the Investor Relations section of our website and in our Form eight ks filed with the SEC yesterday afternoon. Let me now turn the call over to Matt.
Speaker 2
Thanks, Josh. Today, I'll share some highlights from the fourth quarter and full year 2020. I'll then turn the call over to David Meehaw, our new Chief Financial Officer, for a more detailed look at our fourth quarter and 2020 financial results as well as guidance for the first quarter and full year 2021. In the fourth quarter, we generated non GAAP revenue of $109,700,000 up 24% year over year and 5% sequentially. Non GAAP revenue for the full year was $407,200,000 up 28% year over year.
We added approximately 700,000 registered users in the fourth quarter, ending the year with 17,800,000 users on our platform, a year over year increase of 22%. As these results indicate, the fourth quarter was a solid finish to an unprecedented year for our business. We continued to generate considerable expansion activity within our customer base. We onboarded new customers and users at an impressive rate, and we saw another surge in digital activity prompted by stimulus payments issued in December, which our teams and systems managed well. On the sales front, we had several notable wins in the quarter, including one enterprise and two Tier one deals.
One of the highlights from the quarter was an expansion deal with a Tier one retail banking customer. The $8,000,000,000 bank made the decision to replace their legacy commercial banking solution with Q2's corporate banking suite. In what was a highly competitive evaluation, the bank cited our execution against our corporate roadmap and the ability to manage all customer relationships from a single platform as key drivers in their decision. Along with the purchase of our commercial banking line, this customer opted to extend their existing agreement with Q2, providing another example of the mission critical nature of our solutions and the ability to identify other expansion opportunities given the far reaching benefits of our platform. The enterprise deal and second Tier one win in the quarter were both within Digital Lending.
The enterprise win was with The U. S. Subsidiary of a top 10 global bank, which selected us for our loan data and enterprise coaching solutions. I believe wins like these are an indication that our loan pricing solutions continue to gain traction in the market. During the fourth quarter, we also continued to see impressive cross sale and renewal activity across our customer base, which rounded out an already strong year of expansion performance.
The primary driver of this performance was renewal activity with both digital banking customers. As I stated throughout 2020, I have been tremendously encouraged by our customers' desire to proactively extend their relationships with us. And our expansion performance throughout the year has helped offset some of the macro driven slowdowns in net new decision making that we had previously discussed. The continued strength of our cross sale activity is partially attributable to the breadth of our product portfolio and the innovation of our teams continue to deliver. We saw strong demand for products like CardSwap, SentriX for risk management and our digital acquisition and onboarding solutions with traditional financial institutions and fintechs alike.
We're seeing a steady increase in interest for these products, which indicates to me that the pandemic has accelerated demand for digital acquisition, risk management and other digital features that provide for more comprehensive and seamless end user experience. In addition to our sales execution, the fourth quarter saw remarkable performances from our delivery and hosting teams. As our user growth from the quarter suggests, we continued to deliver our software to new customers at an impressive clip, while continuing to see steady organic user growth. I was particularly impressed by the fact that we had two of our largest customer go lives ever in the fourth quarter within a two week span. We launched an approximately $40,000,000,000 customer for retail and approximately $50,000,000,000 customer for commercial.
As I've said in the past, while our partnerships formally begin a contract signing, it's the implementation that dictates the tone of the relationship. And I believe our success with these projects puts us in a position to grow these customer relationships for years to come. As the year came to a close, many of our customers participated in the issuance of hundreds of billions of dollars in stimulus payments. We had our teams and IT infrastructure ready to go. I'm proud of the role we played in delivering funds from the stimulus relief package, and I want to recognize our customers and teams for their hard work in making the delivery of those much needed stimulus payments possible for users.
With the fourth quarter now in the books, I'll take a moment to reflect on 2020, which was perhaps the most unique year in our company's history. To begin with, I have been extremely proud of the resiliency of our employees, customers and the underlying business. The business environment for the year was tough and unexpected. But as we look back, I am very pleased with the results we generated and the lessons we'll take forward. The many economic implications of COVID-nineteen further emphasize just how critical our customers are to their communities and the functioning of the global economy at large.
It was a reminder that we need more than a few large banks in this country. Without the network of thousands of community and regional financial institutions, there's no way that hundreds of billions of dollars in stimulus payments and small business loans could have been efficiently delivered. The events of 2020 also demonstrated just how critical our solutions are for our customers to function in today's environment. Through our efforts to support and serve our customers, the Q2 team lived up to our mission to build stronger, more diverse communities by strengthening their financial institutions at the highest level. The amplified call for diversity, inclusion and equity in 2020 caused us to pause and consider our values and what our company means to our employees and the world.
While we've always believed in the value of different backgrounds and perspective, I'm proud of the way we've stepped up and participated in our communities, from the Juvenile Diabetes Research Foundation to local groups like Code to College and Black Girls Code, which are dedicated to creating opportunity and technology for underrepresented groups, to the hundreds of other groups across the globe in the many communities where Q2 team members live and work, and we're just getting started. In 2021, diversity inclusion efforts will remain a core focus across the company, and investors should expect to see more disclosure from us in regard to ESG initiatives throughout the year. On the business side, I was pleased with the way the team continued to perform after shifting to an all remote environment in March. The sales team forged ahead in spite of unforeseen headwinds, reaching new customers and expanding our relationships with existing customers, signing three enterprise customers, 13 Tier 1s, numerous Tier two and three deals and a record number of renewals and cross sales. I was also impressed with the innovation from our product and development team.
We designed and deployed a full PPP loan origination and forgiveness solution in a matter of weeks. We integrated various components of our portfolio to create and launch treasury onboarding. We were recognized by Ike as a best in class provider of commercial banking solutions, and we continue to add compelling functionality across the portfolio with a focus on user experience. Our delivery team implemented our software at a record pace, adding over 3,100,000 users in 2020, approximately as many as we had in total at the time of our IPO in 2014. And in spite of twenty twenty's challenges, it was our first full year with our combined product portfolio of end to end digital banking, digital lending, banking as a service and data driven solutions.
And our performance across those lines of business provides a glimpse into what we expect for 2021 and beyond. We ended the year with more than 1,700 employees and more than 1,000 customers, including leading financial institutions and fintech companies across the globe. We increased our footprint in all of our market segments and geographies. We saw record setting expansion activity across our customer bases and our solutions continue to generate substantial amounts of incredibly valuable financial data, approximately $3,700,000,000,000 in commercial loan pricing data and more than 4,000,000,000 logins into our digital banking system. With all of this in mind, I'm as confident as ever that we're uniquely equipped to help financial services providers across the globe digitally transform their businesses in 2021 and beyond.
With that, I'll welcome David Meehaw, our Chief Financial Officer to discuss our financial results and provide guidance for the first quarter and full year 2021. After which, I'll close the call with a few comments regarding our 2021 business outlook.
Speaker 3
Thanks, Matt. My first quarter as part of the Q2 team has clearly illustrated to me the talent of our team members and the strength of our solutions and financial model. I couldn't be more excited for the opportunities that lie ahead. We were pleased with our financial performance for the quarter as we exceeded the high end of our revenue guidance and were within the range of our adjusted EBITDA guidance. Before I begin providing more detail on the results, let me give you some clarification and quantification of a couple of items.
First, due to the maturity of our Cloud Lending business, during the fourth quarter, we aligned our accounting for professional services revenue to be recognized over time as services are performed rather than at the completion of those services. At the same time, we also align the costs associated with those professional services contracts to be recognized as they are incurred. This change resulted in an acceleration of recognition in the fourth quarter of $3,300,000 in revenue and $4,200,000 in cost of revenues, as well as the corresponding reduction in deferred revenue and deferred implementation cost balances. Second, during the quarter, we recognized a contract asset impairment related to the restructuring of a contract with one of our FinTech customers, resulting in a $2,800,000 negative impact to revenue and gross margin. Combined impact of the accounting adjustment and contract asset impairment resulted in a net increase to fourth quarter revenue of $467,000 Total impact to gross margin of these two adjustments was negative $3,800,000 or an approximately three seventy basis point reduction to our Q4 gross margins and an approximately 90 basis point reduction to our full year gross margins.
Throughout the remainder of my remarks, I will provide commentary on our financial results and where appropriate, the impact to our financial results from these adjustments. Now I'll review our results for the fourth quarter and full year of 2020 before finishing with guidance for the first quarter and full year of 2021. Total non GAAP revenue for the fourth quarter was $109,700,000 an increase of 24% year over year and up 5% sequentially. Total non GAAP revenue for the full year 2020 was $407,200,000 up 28% year over year. Both the sequential and year over year increases were positively impacted by an increase in subscription and services revenue associated with the deployment of new customers and incremental users on boarded to the Q2 platform.
The strong delivery performance, combined with an increase in organic user growth, resulted in a record number of digital banking users added in 2020, ending the year with approximately 17 users, an increase of over 3,100,000 users, representing 22% year over year growth. The year over year revenue increase also benefited from the contribution of PrecisionLender, which was acquired during the fourth quarter of twenty nineteen, also benefited from the expanding contributions of our other cloud based businesses and the benefit from our PPP solutions. Transactional revenue represented 13% of total revenue for the quarter, down from 14% of total revenue in both the previous quarter and prior year period. Transactional revenue represented 14% of the total revenue for the full year of 2020 compared to 15% for the full year mix of transactional revenue is attributable to the increased subscription revenue generated from PrecisionLender as well as continued slowing growth in traditional bill pay revenue. Turning to backlog, we delivered a sequential increase of $38,000,000 or 3% during the quarter, resulting in total committed backlog as of year end of $1,300,000,000 a 15% increase year over year.
In addition to the Tier one enterprise deals we booked during the quarter, sequential improvement was also due to another successful quarter of expansion activity, highlighted by renewals, including several Tier one customers as well as continued success in our cross sell activity. Our revenue churn for 2020 was 5.9%. As we indicated throughout the year, we anticipated that the macroeconomic impacts from COVID and increased mix of FinTech in all five customers could result in an increase in overall churn. Our digital banking churn for the full year remained below 5% despite the impact of the Q2 CARES initiative, which provided short term financial relief for our customers in exchange for extensions of their existing contracts. We expect churn levels to remain relatively consistent in 2021 despite the scheduled expiration of many of the PPP contracts we signed in 2020.
In addition, while there is a potential negative impact to churn in the event of increased bank M and A activity in 2021, this activity could also present opportunity for us as we've historically added more users to the Q2 platform through M and A and we have lost. At the end of the year, our Q2 platform installed customer count was four fifty, up from four fourteen at the end of twenty nineteen. The growth in customer count was attributable to large number of customer go lives in 2020 as well as reduced M and A activity within our existing customer base. We expect that the COVID related slowdowns on new buying activity we saw in 2020 as well as the potential increase in the level of M and A activity within our digital banking customer base in 2021 could negatively impact growth rates and the number of net customer additions in 2021. Our trailing twelve month net revenue retention rate for 2020 was 122%, up from 120% in 2019.
The revenue retention rate for 2020, excluding the impacts from PrecisionLender, which we acquired in the fourth quarter of twenty nineteen, was 116%. In 2021, I would expect our revenue retention rate to be within the 115% to 120% range that we've observed historically. Gross margin was 48.3%, down from 56.8% in the fourth quarter of twenty nineteen and fifty two point five percent in the previous quarter. For the full year 2020, gross margin was 51.9%, down from 54% for the full year of 2019. The Cloud Lending accounting adjustment and contract asset impairment charge discussed earlier negatively impacted gross margins, reducing them for the fourth quarter from 52 to 48.3% and for the full year from 52.8% to 51.9%.
The remaining sequential and year over year decrease in gross margins after factoring in these two items was attributable to investments associated with increasing levels of engagement across our various solutions. The year over year decline in gross margins was also driven by incremental implementation resources and employee related costs associated with delivering record levels of new customers and users throughout 2020. Total operating expenses were $50,100,000 up 17% from the prior year period and roughly flat from the previous quarter. The year over year increase in operating expenses was driven primarily by the hiring of additional team members concentrated within R and D. We ended the year with seventeen forty nine employees, up from fifteen seventy four at the end of twenty nineteen.
The sequential increase in R and D costs in the fourth quarter were largely offset by decline in sales and marketing expenses from the previous quarter due to the impact of a onetime event cancellation fee that we incurred in the third quarter. Adjusted EBITDA was $6,100,000 down from $10,600,000 in the fourth quarter of twenty nineteen and $8,100,000 in the previous quarter. Adjusted EBITDA for the full year was $22,200,000 up from $19,600,000 in 2019. Cloud Lending accounting adjustment and contract asset impairment charge discussed earlier negatively impacted adjusted EBITDA, reducing it from $9,900,000 $6,100,000 for the fourth quarter and from $26,000,000 to $22,200,000 for the full year 2020. We ended the year with cash, cash equivalents and investments of $539,100,000 up from $396,100,000 at the end of the third quarter.
The increase was largely a result of the net proceeds raised in November through the privately negotiated issuance of convertible notes due in 2025 and the partial exchange of our previously issued convertible notes maturing in 2023. This increased our net cash balance by $126,900,000 Our capital expenditures for the quarter were $7,200,000 driven by the investments to increase capacity and continued support elevated levels of digital engagement for our customers and their account holders. Cash flow from operations for the fourth quarter was $19,100,000 and we generated free cash flow of $11,600,000 Now let me wrap up by sharing our first quarter and full year guidance. We forecast first quarter non GAAP revenue in the range of $114,600,000 to $116,100,000 and full year non GAAP revenue in the range of $488,000,000 to $491,000,000 representing year over year growth of 20% to 21%. We forecast first quarter adjusted EBITDA of $8,500,000 to $9,100,000 and full year 2021 adjusted EBITDA of $34,500,000 to $36,500,000 We expect to see an increase in costs such as travel and marketing programs that were suppressed throughout 2020 due to the pandemic.
While the magnitude and timing in which these costs will return is dependent on the ongoing developments regarding COVID-nineteen, our guidance does assume a gradual resurgence in those costs beginning in the back half of the year as well as an increase in hiring throughout the year as compared to 2020. In summary, the strength, flexibility and resiliency of our financial model helped to deliver financial results in 2020 that strengthened our financial position and that we believe position us to capitalize on the long term market opportunities that lie ahead. And with that, I'll turn the call back over to Matt for his closing remarks.
Speaker 2
Thanks, David. In closing, I'm very proud of our performance in 2020. I believe we'll look back on this year as one of the most transformative in our history. And I'd like to thank our team members, partners and customers across the globe for their perseverance and commitment to their communities and to Q2. As we look ahead to 2021, I believe we've demonstrated that we're prepared to operate in this environment going forward.
While we clearly are not past the COVID-nineteen pandemic and its many implications, my conversations with our customers and prospects indicate that an accelerated technology refresh is on its way, with digital transformation being a key initiative across customers' businesses in 2021 and beyond. While it's unclear when the predictability of deal timing we enjoyed pre COVID will return, Our pipeline is strong and I expect to see continued incremental improvement in sales performance quarter over quarter as customers continue to adapt and return their focus towards digital initiatives. Finally, I believe the strength of our underlying business model showed itself in 2020. And in 2021, I believe we'll continue to sustain strong revenue growth while steadily improving the profitability of the business. Thanks.
And with that, I'll turn it over to the operator for
Speaker 0
And our first question is from the line of Sterling Auty of JPMorgan.
Speaker 2
Yes, thanks. Hi, guys. Before I ask my one question, I think Texas is getting hit with unprecedented weather and conditions. Didn't know if maybe you guys want to give us an update and hopefully you guys are holding up okay. Yes.
Hey, Sterling, thanks very much. I appreciate the question. Right now, it is a natural disaster with the splash of manmade. 2,500,000 Texans are without power, heat or water. 50% of our employees are without power, heat and or water.
So it's pretty crazy. From an earnings call perspective, we are all at our different locations, and I would just suggest that there's a reasonable chance that we will have some technical difficulties on this. So don't worry about us on the call. We'll all be fine. But it's a tough time down here, but we really appreciate the support everybody's given us.
And attitude is all you have right now, and we had a great q four. We had an amazing 02/2021 setting up to be really good. So if if everybody would try to keep the questions to one, we've got a hard stop at 08:30, so I'd appreciate it. But thanks for asking, Sterling, and and that's not gonna be your question. You get one question, so far away.
I appreciate it. So just on your closing remarks, and by the way, thoughts and prayers to all the families that are going through the situation. But in your closing comments, the demand from new customers for new solutions from Q2, You talked a little bit about it last quarter. You kind of made some comments here. I'm curious, are those potential customers actually budgeting for potential projects here in 2021?
What's the early kind of breadcrumbs that has you confident that we'll see an improvement in that new customer demand? Sterling. It's a great question. I think that's the real question I think that people need to get to. Everybody can talk about top of the funnel, but nobody cares about anything until it gets through the funnel.
So right now, what I'm seeing is, you know, tier two and tier three were pretty steady in 02/2020, and and what what they hit while they didn't hit the pre COVID plan, they came pretty close. It was the Tier one deals that just kind of dried up across the board on digital banking and lending globally. But what we're seeing now is that the Tier one pipe is back with deals that have committees, budgets, project plans and timelines. And so I think you're going to begin to see that materialize both on the lending and the digital banking side, into 2021. I don't know how quickly they're going to happen, but there are much more real deals with real engagement that's occurring right now.
So the Tier one pipeline is back. And I'm not just talking top of the funnel. There are deals that are out there that are active. I don't I wouldn't expect a floodgate to open in Q1, but I think you'll begin to see some of these happen to where hopefully it gets back to the cadence it was in 2017, 2018 and 2019. All right, great.
Thank Thanks, Sterling. Appreciate it.
Speaker 0
Your next question is from the line of Tom Roderick of Stifel.
Speaker 4
Yes, great. Thanks for taking my questions. And I'll echo Sterling's comments. Hope you and your families are staying safe down there and hopefully staying somewhat warm. Keep at it.
Appreciate you guys still holding this call this morning. So we've kind of go through this every single year where it's the cadence of the deals as they come in, and you had a great Q2 for big deals and a great Q4 for big deals, it seems like. And I was sort of hoping you could obviously, you gave Q1 guidance and the full year guidance. But David and Matt, if you wouldn't mind just sort of walking us through sort of the cadence of how that kind of plays into the numbers as we think about our models going through this year. I know you can't guide the Q2, Q3 exactly, but just how much of it is back end loaded and how we think about that.
And then maybe piggybacking on Sterling's question regarding the pipeline, as we think about this year, how do we think about when and how some of these sort of Tier one deals continue to come through? Because it seems like PrecisionLender and the lending intelligence side of the equation is really starting to the floodgates are breaking open on that. That might be a little bit different than we've seen in your past.
Speaker 2
Yes. So I'll take the first part, and David can kind of walk through how it plays out. First of all, I I would say that cadence isn't a word I would use for 2020 because there wasn't really a a steady cadence, but it it it did build, right? Q three was the trough, I believe, for us. And so those deals that we got this year this the fourth quarter was interesting because the momentum started Q4.
And then in the last three weeks of the year, we got hit with the COVID surge plus the stimulus program. But those deals rolled into January and we got them done. So you're beginning to see the timing of these things. I think you may get back to more a big Q2 and then a big Q4, a big second quarter and a big fourth quarter like it normally happens, I would be a little hesitant on the second quarter right now just because I want to see how things play out. But David, do want to walk through how that rolls out, how that plays out in the model?
Speaker 3
Yes, sure, Matt. And a couple of things I'll call out in that regard. First is we talked about the two big deals that we implemented in Q4. Those were November, December implementation. So you're going to get a full quarter of those in Q1.
So as you look at that Q1 guidance, it does assume a full quarter of those two large implementations. And then to Matt's point, as we look at the demand environment, first and foremost, it's great news that we're seeing the Tier 1s return to the pipe and those again are starting to materialize in a much more real fashion. We feel good about how those are starting to play out. And that's great for the long term profitability and revenue projectile of the business. However, the profitability aspect of that and when that turns into revenue because those are Tier one is typically, as you know, about a twelve to eighteen month lag.
So the implementation time factored in there. So as we see these deals start to materialize, we see them start to project out over the course of the year, we're not going to see that turn to revenue until, in all likelihood, 'twenty two. So great news that we're seeing those deals come through. We feel really good about our our prospects in many of them. However, you're not going to see those turn to revenue as we land them until 2022.
One other key point to factor into how you're thinking about things is we do have a bit of a headwind, about 100 basis point plus headwind when you look at the 2021 to 2020 excuse me, 2021 impact of the accounting adjustment we talked about. As you think about it, we're taking $3,300,000 that we would have recognized in 2021, pulling that off the balance sheet and recognizing in Q4 and then the year over year impact of both PPP and the CARES program. So you combine those three things, and that's a little bit over one point of a headwind of growth. So we still feel confident in our 20% to 21% even with that factored in there.
Speaker 0
Your next question is from the line of Brian Peterson of Raymond James.
Speaker 4
I hope you guys are staying warm and staying safe. So maybe just a follow-up on Tom's question. So Matt, obviously, some encouraging comments about the shape of the pipeline and how that's looking into 2021. I'm curious, is there anything in terms of customers maybe looking to try to accelerate implementations, right? I understand historically, it can be nine or twelve or eighteen months, but are they
Speaker 3
looking to get quicker in terms
Speaker 4
of make a decision and get that up and running? And is that something that's possible with remote delivery? I'm just any thoughts on that?
Speaker 2
Yes, Brian, it's a good question. Thanks for the comments. Speeding up implementations is just not typically how people think about it. There's there's a lot there's not the delivery of the software is one thing, but the organizational readiness that the the teams have to have, and I'm talking about the platform side of the business, It's just hard to speed it up. And as I've said before, they're usually trying to on the tier two and tier three, they're trying to time it with the expiration of the contract.
So I don't think that you'll see people speed up the implementation time line. Now I think that on the on PrecisionLender and Cloud Lending and the BaaS side of things, people are are trying to move a little faster on those because those applications, it's either a net on the BaaS side, it could be a net new application that nobody has used before. You don't have data conversion. And on PrecisionLender, it's the same way as well. So some of those, I think you'll see, people that want expedited implementations.
But on the digital banking side, it's a little bit of heart surgery, and and speeding up is typically not what people wanna do. Your
Speaker 0
next question is from the line of Terry Tillman, Truly.
Speaker 3
I'll go some of the other comments. Appreciate you all doing this call, given everything going on, and our thoughts are definitely with Q2 and Texas. Really, Matt, it kind of relates to some of the earlier questions people were kind of probing around bookings and how you think about that in 'twenty one, and you just mentioned heart surgeries on digital banking. What I'm curious about is what happened in 'twenty probably brought to light some really poor digital banking experiences that were occurring. I'm curious, as we're starting to fall out here in 'twenty one and beyond in terms of demand and people looking to do stuff, do you see a potential multiyear replatforming even on the retail banking side and or on the commercial banking side?
Just kind of curious if there's a theme that we could start seeing around the replatforming cycle?
Speaker 2
Thank you. Yes. Thanks, Terry. Not falling out yet, but we're getting there. So I would say that the replatforming ties into the digital transformation conversation that we're having with these customers, which is you can't do it all at once.
So you have to go and you're gonna do retail first and then commercial. Are you gonna do corporate first and then work to digital? Are you gonna do lending, you know, treasury onboarding? How does that all tie into it? So I I think that the the things that we're seeing from these tier ones we're talking about are strategic planning where we may sign a retail deal initially, and then you move to a corporate banking down the road, but it's part of the plan.
Now they may not contract for it initially, but if you deliver and you hit the schedules and and and they have a good experience and they get to know you, those are all the opportunities we've had. Adding the lending element to it is is interesting or building off of the lending element. We are seeing deals now that are a PrecisionLender deal that's becoming a platform deal for us in the pipeline. And we're seeing we have a team that sells off platform, so they're basically calling on customers that are not Q2 customers and they're selling our Centrix products, our digital acquisition products, our card swap products. Those are starting to land, and it's it's it's beginning to be a a meaningful number in a quarter, and we're reaching back out to those customers and seeing whether they wanna begin a digital engagement, replatforming of their digital banking and their lending solutions as well.
So there's a lot of cross pollination. I know we use that word a lot that's happening in the space, and that's leading to the conversations about whether it's replatforming or having a digital transformation road map that we can lead them on with our products because we have the broadest set of digital experience technology in the marketplace and we can give them a roadmap to how to get there. Thanks, Terry.
Speaker 4
All Thanks. Take care.
Speaker 0
Your next question is from the line of Andrew Schmidt of Citi.
Speaker 4
Hey guys, thanks for taking my question here. Let me echo everyone's comments.
Speaker 5
I hope everyone's staying safe.
Speaker 4
I want to touch on user growth briefly. I know talked about elevated user growth in the fourth quarter, and that seems to be a
Speaker 2
theme all year. But could
Speaker 4
you talk about kind of expectations for FY 2021? Should we expect to see elevated organic user growth? It seems, obviously, there's been a step up in digital engagement, customers being pushed on the digital platform. Just wondering how you guys are thinking about 2021 organic user growth relative to historical trends. Yes.
Speaker 2
Thank you. David, why don't you take that one?
Speaker 3
Yes. Sure, Matt. Thanks, Andrew. Yes, we actually have seen and I know that we talked about this in the last call, the organic user growth has been on the high end of what we've historically had as a range.
Speaker 4
And that range is typically a
Speaker 3
bit about 9% to 11%. We've seen that now for three straight quarters where we've been on the high end of that growth range. As we're looking out into 2021, we are we're very confident in our ability to continue to operate in that high end range. So as you're modeling it out for the remainder of the year, we think that 10% to 11% range is going to be much more aligned with what you will see in 2021 versus the 9%
Speaker 4
to 11% that we've seen historically.
Speaker 3
Got it. That's great to hear and good to hear
Speaker 4
the comments in the demand environment. Stay safe guys. Thanks a lot.
Speaker 2
Thanks, Andrew. Appreciate you.
Speaker 0
Your next question is from the line of Pete Heckmann with D. A. Davidson.
Speaker 4
Hey, good morning, everyone. Thanks for taking my question. Could you just talk about some of
Speaker 2
the circumstances around the impairment on the FinTech contract? Was that as a result of a customer being acquired or potentially just
Speaker 4
switching some of their focus?
Speaker 2
Yes. Thanks, Pete. David, why don't you take that one?
Speaker 3
Yes, you got it, Matt.
Speaker 2
Hey,
Speaker 3
Pete. First of all, I think it's important to make sure we're clear that the size and the scope of this impairment is unusual. It's not reflective at all about the strength of our FinTech partners as a whole. And just to walk through the journey on this one, we started to partner with FinTechs a couple of years ago. A lot of the partnerships we had were with early stage FinTechs.
And as you can imagine, those early stage FinTechs didn't have the strongest financial profile. As we've matured as a business, the strength of the solutions that we've had has allowed us to move the stack of fintechs that we're partnering with. The ones that we're partnering with today are very strong financially. They're very secure partners financially. And as we take a look at the top 10 fintech customers that we have, the mix has shifted dramatically to those that are larger, more financially secure.
And we feel like the exposure going forward is very low relative to any contracts like this. And just to give you a little bit more context, Pete, on your question around what was the situation, It was one of those early stage fintechs that we had partnered with, and we had to renegotiate some of the terms of that contract, given some financial instability that they had. But again, we feel really good about how the remaining customer base, if you look at those that are top 10 and or material and any exposure that we have to some
Speaker 2
of those lower end is very minimal. That makes sense. That makes sense. And does
Speaker 1
that contract contribute to the little
Speaker 2
bit higher Is that not included?
Speaker 3
It was about yes, it impacted churn by about $0.15
Speaker 5
All right. Thank you very much.
Speaker 2
Thanks, Pete. Have a great day. You too.
Speaker 0
Your next question is from the line of Dan Kurland of RBC.
Speaker 6
Thanks and good morning everyone. I just had a question kind of trying to reconcile Matt. The idea that Tier one banks are kind of back, I think you said they're in committee, these are real deals happening now. But then also a little bit more on the commentary around the possibility of churn being elevated, maybe because of slowdowns even still in terms of decision making, maybe more specifically around M and A. And so the question is just kind of reconciling how you deal with that this year.
And then secondly, to the extent that we do see higher churn rates as a result of M and A, can
Speaker 3
you just remind us how you are able
Speaker 6
to toggle the model in order to sustain kind of the 20% plus growth that you guys have laid out there? And I hope you guys stay safe.
Speaker 2
Yes. I mean, I think that we're anticipating we're trying part of this is just trying to set the right expectations. We just want to make sure that if churn ticks up because of M and A, that we're able to you guys don't surprise you at all. But I don't I think that one of the things that we've seen, and David said it in his comments, is that we are usually the winner in acquisitions because our customers are forward thinking, and they wanna use the next generation platform to compete, whether it's for lending or for digital banking. And so I think churn piece is is just something that we we have to manage through and we're trying to communicate ahead of it.
But I think that for us, I think we'll probably be the net beneficiary of a from a revenue perspective, adding more users onto the platform due to acquisitions in 'twenty one. But who knows whether there's going be more acquisition or not in 'twenty one. That's what people are saying, but we'll just see whether it happens. Then, David, I think the other part was for you.
Speaker 3
Yes. So Dan, I think the other parts do you want to just clarify exactly if there's something else you want me to make sure I touch on?
Speaker 6
No, was just talking about reconciling commentary around Tier one deals being strong and then again this kind of potential slowdown in bank. So I think you pretty much covered it all. I was just trying to understand what you're able to do in the event that some of these things don't play out to, as I said, kind of the toggle to get you to sustain the 20% growth rates. I guess, said another way, what are some of the things you got in the cookie jar that helps us be confident in that 20%?
Speaker 3
Yes. And the one thing I'd just add to that, Dan, is and we proved this out over the course of the last nine months, we've got a very resilient portfolio of business. And when we're struggling in one area of the business, as you know, there was indecisiveness and understandably some of our customers were distracted with some of the other things they had going on in their business and just that hurt net new. But what we are able to do was pivot towards renewals. We have a business critical solution for them, and we were able to reach out and make sure that they were extending the contracts that we have with them.
That helped us in terms of our backlog. The other thing that really helped was using the stickiness of our portfolio and the strength of our incremental solutions, which is why you saw the strength in upsells. So we have the ability to utilize those levers and make sure that we have the balance between all of those if one's not quite where we hoped or thought it would be. So that's the flexibility that we have, and that's the flexibility that we'll continue to leverage as we go forward into 2021.
Speaker 2
I'll just take a And look Dan, just keep in mind that when an acquisition happens, there's usually a term fee and some earn out that occurs the buyout process. It typically does and it takes twelve months to get them off the system. So it typically doesn't impact the year you're in as much as it does down the road. So thanks again for the question, Jay. Thank you.
Speaker 0
Your next question is from the line of Brett Huff of Stephens Inc.
Speaker 2
Good morning, guys. Again, hope you're both safe, Matt, and welcome, David. Quick question on organic growth. I want to make sure I got the organic growth roughly right for 4Q and then 2021. I think my gut it was maybe high teens organic in 4Q and that's accelerating kind of low 20s.
So I don't think there's anything inorganic in 2021. And just want to so number one. And then number two is, can you disassociate what is sort of maybe catch up, people signing deals later in the year and maybe seeing some of those come on versus sort of the ground swell of the digitization that you're seeing in terms of supporting that low 20s? Thank you. Dan, why don't you take the Yes. First
part of
Speaker 3
Yes, I'll start with the organic piece of that, Brett. And what I would tell you there is we haven't broken it out discreetly in terms of organic versus inorganic, but what we said is we anticipate that and this was reset when we did the post COVID plan. We anticipate that Precision Lending is going to be about 6% of our overall revenue. That's where we had targeted and that's where we essentially finished. And you're right, as we head into 2021, there's nothing that you need to normalize from an organic standpoint from an inorganic standpoint to get to an organic number.
So the numbers that you're seeing and the guidance that you're seeing for 2021 is the same for organic versus inorganic.
Speaker 2
Yes. And then, Brett, I didn't the other part of the question, was that the whole question?
Speaker 3
Yes. I just want
Speaker 2
to make sure that if you could just kind of piggyback on the last question, how much of the sort of acceleration organic growth is maybe some catch up as we get some deals implemented that maybe got pushed? And how much of it is more of a groundswell of maybe faster digitization because of the COVID, a more fundamental shift? Thanks, guys. Yes. Thanks, Brad.
I I don't know I don't know if I can I can break that out on this call here? I I think there's a combination of both that are occurring. There'll be some deals that have to catch up because they didn't do a deal last year. There'll be some deals that had to renew last year because they were in a pickle, and then you'll have a pickup around more users on the system. You'll have more more people using the system, and then there should be somewhat of a the groundswell of people that meet that realize the pain that they felt during during these times with lockdowns and everything else.
Thanks again, Brett.
Speaker 3
Great. Thank you.
Speaker 0
Your next question is from the line of Robert Napoli of William Blair.
Speaker 4
Thank you. Good morning. Glad to hear you're doing well. We have several family members in Austin, so
Speaker 7
we understand what's going on.
Speaker 4
Question on revenue per user, talking about user growth at the high end. What are your thoughts on revenue per user? Where is the growth of revenue per user coming from? Like which product is it from new products versus further penetration of your clients? And which new products are you most excited about?
Speaker 3
Robert. I'll answer that. So what I would tell you is we did see a slight decline in average revenue per user in FY twenty twenty. And part of that was, you remember the CARES program that we rolled out, where we did reduce some pricing per user. And in return, we got extensions of many of the agreements that we had out there.
We felt that was very beneficial to our customers to help them short term and then obviously extends the relationship we have, which benefits both of us longer term. As we look forward into 2021, we do feel like we're going to see a slight uptick in average revenue per user. And some of that is going to be driven by, I think this is what you're referencing, some of the new solutions and cross sell opportunities and some aren't just new, but they're enhanced with what we currently have. The SentriX product continues to be very strong in terms of the demand that we're seeing for that. We're seeing improved demand for our growth solutions as well.
Matt had talked last quarter about the treasury onboarding solution, which we're just now coming to market in a more aggressive fashion with. We think that, that could really get some legs as we get into Q2 and Q3 of this year. So we feel really good about the ability to cross sell and with that cross sell comes an enhanced average revenue per user profile.
Speaker 2
Great. Thank you. Thanks, Bob.
Speaker 0
Your next question is from the line of Joe Vruinck of Baird.
Speaker 5
Great. Hi, everyone. Just focusing on product innovation, I know it's always been at the core of Q2, but just given some of the things that have played out over the last year, not just PPP, but treasury onboarding, PrecisionLender has this new portfolio insights product that just came out. Do you feel like the velocity of the new products inside the organization is increasing? And given many of these things seem to be leveraging the newer cloud platforms, is there maybe the potential that some of those product innovation drives faster time to revenue and we start to see a change in kind of the dynamics of your revenue model where there is this potential to see more near term upside in growth?
Speaker 2
Yes, it's a good question. I think one of the things you'll see is, it's like I talked about earlier when Brian asked about when you can speed up the implementations. If you take the Digital Banking segment, I think it's very difficult to deliver Digital Banking faster than six months because the end user, the account holder or the bank doesn't wanna go through that much change that fast. And there's lot of it's not a technology delay as much as it is an operational organizational readiness prepared to roll it out. But if you look at PrecisionLender, our banking as a service, people people are are are riding against our our our our Corpro product in a week.
PrecisionLender is tied to the bank being ready to to roll and get it out. It can it can go live rather rather quickly. Cloud Lending, the PPP product was built in three weeks with forgiveness tied to it, and we had it rolled out out and up and running. So the technology is what people sometimes get wrapped around, but it's really the the process that the financial institution or the fintech has to go through. And if you don't have customers, when you're talking about moving, you know, a 100,000 digital banking customers from one system to another where they have to reset things up and log in with new passwords and what can happen with the call center, It's it's complicated, and and and and those are the crown jewels of the Bank of the Credit Union.
We wanna move them carefully, and they do too. So I think, yes, you will see an acceleration in the delivery of some of these things, but those businesses have to continue to get bigger to have more of a meaningful impact on on the revenue side of things. And and look, they are they are all I talked about earlier, Cloud Lending, banking as a service. Some of the other data insights products that we have are really gaining some traction, and we're starting to leverage the innovation. And the sales team, the relationship management team has really come together with this one q two message.
And January, we had a sales kickoff, and we really spent most of it just educating and case studies and talking about how they can go out and have these conversations. So there's gonna be a lot of leverage that comes out of that, and these conversations are gonna continue to drive more deal flow for us. And I think you'll end up seeing that some of these BaaS, these products that don't have nasty conversions to go through will begin to have significant traction and we'll get to revenue faster. But I don't know what the timing of that's going to be.
Speaker 0
Your next question is from the line of Josh Beck of KVCM.
Speaker 8
Thanks for taking the question, team. And certainly, I think we're all pulling for a speedy recovery there in Texas. I just wanted to ask a little bit about the go to market, Matt. You talked about more or less that you have lots of different inroads now. It could be retail, commercial, corporate lending.
There's a lot there. And so I'm curious, from a go to market point of view, are you leaning on more of a generalist sales model? Is it you have specialized forces in some of these areas, the hybrid? Just just curious about how you're approaching this as as we move forward.
Speaker 2
Yeah. I mean, you know, I'm I'm gonna be cute here, Justin. What I look for is I don't care whether you're 25 or 55. I want passionate people that wanna learn about how digital transformation is gonna happen within these banks and credit unions and how we can use how they can use our technology to go and sell these products. And that that passion is always translated, and people can see buyers know whether you believe it or not.
And our track record of delivering and innovating and taking care of customers is what I think will end up selling a lot of software for us. So the go to market is really based on the segment you're going after. So we've combined banks and credit unions now. So sales reps are going after both of those. You could have a a credit union in your patch, and you could have a bank in your patch.
You gotta be able to talk about digital transformation on both of them. You gotta be able to talk about lending, digital banking, digital acquisition, data, and it's hard. And so they've gotta get up to speed, and we're spending a lot of time educating them whether it's our office of strategy or our product team that's doing that. So go to market the interesting thing for me really is is in this in in the pandemic is the amount of coverage we're able to get with whether it's technologists, implementations people, product people, whatever it is where we can get them in front of these prospects more because and customers because we're not on airplanes. And so if you just eliminate the travel time, from these these these opportunities, we're able to have a product specialist get on a call with a prospect and go deep into how the technology works.
And that is a big advantage for us when we can do that because, there's a lot there's there's some new shiny objects that that don't go very deep when it comes to the operational side of the business, which is important. So, I I I don't think there's a big change in go to market. I think it's a matter of how we're educating our team and picking the right folks to go do it. So, not exactly what you asked, but I think that's my view on how we're going to market. I think 2021 is going be very interesting to see how it plays out.
Speaker 8
I Thanks, think that makes total sense. Thanks, Josh.
Speaker 4
Appreciate it.
Speaker 0
Your next question is from the line of Arvind Mamunani of Piper Sandler.
Speaker 7
Hi. Thanks for taking my question. And hopefully, you guys get the power back soon. So, you know, just kinda looking back in at the 02/2016, 02/2017, you know, in 02/2017, it was a very strong year given it was a post post election year. You know, can can you talk about the dynamics in 2021, which in the context of a post election year?
Or or is this kind of a very tough compare given that 2020 was was pretty unusual?
Speaker 2
Yeah. One of my objectives on these calls one of these days is to not use the word unprecedented because that's overused at this point. But, you know, the the election is the only thing that was similar that there was an election, the way the election played out. The pandemic is what is the difference, and that's the that I I can't really do like for like comparisons because, it's not like we're there's a new administration. Let's get back to business.
There's stimulus programs. There's COVID surges. There's all these different things that are happening, vaccine rollouts, delays, and and different issues. There's, what we're going through right now. So it's very difficult to compare the two of them.
I like where we are as a company in 2021 as opposed to where we were in 02/1637. The breadth of the products, the acquisitions are coming together, the digital transformation, the requirement of these banks to begin to or the credit unions to be able to deliver this technology remotely. It's we're just in a very good spot compared to some vendors that may be single threaded with single products. We don't have a lot of customers. We don't have a lot of the right customers.
So it's hard to compare them, Arvin, but I I I it's crazy as it may sound in a house with no power and no water that's frozen over, I like where we are in 2021 as opposed to where we were in 2016 and 2017 moving forward for the trajectory of this business. We've got time for one more question, and I appreciate the call the question, Amit.
Speaker 7
Great. Just, you you know, kinda, operationally, how are you thinking about staffing in this post post pandemic environment? You know, specifically, as employees start to travel and take take vacations at higher levels over the next twelve to eighteen months, you know, yet, are you staffing or kind of building your teams out for potentially, you know, higher levels of vacation?
Speaker 2
Not for higher levels of vacation. I mean, I think we try to be you know, we have a a unlimited PTO plan that people can use the company, but there there's no change for vacationing. I think the office space is the thing that, you know, we're trying to manage and figure out what we're gonna do moving forward. But, essentially, we have told our employees that we don't know when you're coming back to work or if you are coming back to work. We have to operate as this is the world we're living in today.
And so we will I'm certain people will start coming back in the office at some point, but I'm not gonna mandate that. I don't wanna be a pioneer on putting people back in the office. So staffing for us is we wanna try to find the efficiencies of what we can do. As I said earlier, whether it's salespeople, implementations people, keeping them where they're if if where they feel safe and they feel they can do their job productively. If they don't have to be on an airplane, I don't wanna make them be on an airplane.
If they wanna go to see people and those people wanna see them, then, you know, we'll approach that as well. But how we interact with large client conferences, those types of things, I think those are put on the back burner for a while. So no changes on the staffing model other than the real estate piece, which we're managing effectively. Effectively. Thank you, Arvind.
We've time for one more question.
Speaker 0
And your next question is from the line of James Faucette of Morgan Stanley.
Speaker 9
Great. Thank you very much. And you guys have mentioned resilience a few times. Hopefully, you start being able to be less resilient pretty soon personally. But just quickly, most of my questions have been answered.
But as far as international, clearly, a lot of the value you're bringing to your customers here in The U. S. Could also be applicable outside The U. S. So how are you thinking about that as a potential?
How would you start to address that either organically via acquisition? Just some thoughts there would be great. Thanks a lot.
Speaker 2
Yes. Thank you, James. So internationally, remember, we have a presence in Europe. We have an office in London, we have customers that are both lending customers over there. We have PrecisionLender, which is actually beginning to see some traction in the pipeline over there that I hope to see some deals in the second half of the year take place.
We will continue the potential BaaS opportunities in Europe, Asia. Also we have an office in Sydney, Australia. That team really had a pretty solid fourth quarter given that they it's their summer in December, they shut it down. So there's a lot of opportunities, not only in Australia, but Asia that we're working. We have some pretty large resellers.
They seem to be coming back online sooner. So we'll continue to invest in those regions and in the products in those regions. Digital banking is not something that we're taking to those places. We're really focused on North America. But, there's there's opportunities there, but we're we're going there in a very measured way.
That can be very expensive. And having big offices and spending a bunch of marketing when you don't really know exactly what you're doing is not what we're planning on doing. So we're gonna continue to push PrecisionLender and our lend our lending products in Europe and Cloud Lending in Europe and in Asia and Australia at the time. And I feel pretty good about where those are. I feel pretty good about where we are from the standpoint of we're not too heavy in those areas, and Europe really took a hit and slowed down.
So feel really good about international stuff. It's just going to take a little more time for us generate those. We'll be patient and measure them how we do this. So thanks for the question, James. I appreciate it, and thanks to everybody for joining us.
We will be on investor calls. We'll be at investor conferences over the next couple weeks, and also we'll be available in the coming days. So I appreciate everybody's patience. I'm just amazed we got through this without any technical difficulties based on how the power really behaved recently. So thanks, everybody.
I hope everybody has a great day and a great weekend. Stay safe.
Speaker 0
Thank you. This does conclude today's conference call. You may now disconnect.