Q2 Holdings Inc (QTWO) 2020 Q4 法說會逐字稿

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 2020 Financial Results Conference Call. (Operator Instructions)

I would now like to turn today's call over to Josh Yankovich, Investor Relations. Sir, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2020 conference call. With me on the call today is Matt Flake, our CEO; and David Mehok, 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 expectations 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-K and subsequent filings, and the press release distributed yesterday afternoon regarding the financial results we will discuss today.

Forward-looking statements that 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 8-K filed with the SEC yesterday afternoon.

Let me now turn the call over to Matt.

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 Mehok, 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 $109.7 million, up 24% year-over-year and 5% sequentially. Non-GAAP revenue for the full year was $407.2 million, up 28% year-over-year. We added approximately 700,000 registered users in the fourth quarter, ending the year with 17.8 million 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 2 Tier 1 deals. One of the highlights from the quarter was an expansion deal with a Tier 1 retail banking customer. The $8 billion 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 road map 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 yet 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 1 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 and lending customers. As I stated throughout 2020, I have been tremendously encouraged by our customers' desire to proactively extend their relationship 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 have previously discussed. The continued strength of our cross-sell activity is partially attributable to the breadth of our product portfolio and the innovation of our teams continue -- our teams continue to deliver.

We saw strong demand for products like CardSwap, Centrix 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 a 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 continue 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 2 of our largest customer go-lives ever in the fourth quarter within a 2-week span. We launched an approximately $40 billion customer for retail and approximately $50 billion customer for commercial. As I've said in the past, while our partnerships formally begin at 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 the end 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-19 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 in 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 Code2College and Black Girls Code, which are dedicated to creating opportunity in 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 and 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 3 enterprise customers, 13 Tier 1s, numerous Tier 2 and 3 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 solutions in a matter of weeks. We integrated various components of our portfolio to create and launch treasury onboarding. We were recognized by Aite 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 3.1 million users in 2020, approximately as many as we had in total at the time of our IPO in 2014. And in spite of 2020'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 $3.7 trillion in commercial loan pricing data and more than 4 billion log-ins 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 Mehok, 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.

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 on 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 aligned 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 $3.3 million in revenue and $4.2 million 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 $2.8 million 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 2 adjustments was negative $3.8 million or an approximately 370 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, note 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 $109.7 million, an increase of 24% year-over-year and up 5% sequentially. Total non-GAAP revenue for the full year 2020 was $407.2 million, 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 onboarded 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 17.8 million registered users, an increase of over 3.1 million 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 2019, 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 of 2019. A decline in the 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 million or 3% during the quarter, resulting in total committed backlog as of year-end of $1.3 billion, a 15% increase year-over-year. In addition to the Tier 1 and enterprise deals we booked during the quarter, the sequential improvement was also due to another successful quarter of expansion activity, highlighted by renewals, including several Tier 1 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 and Alt-FI 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&A activity in 2021, this activity can also present opportunity for us as we have historically added more users to the Q2 Platform through M&A than we have lost.

At the end of the year, our Q2 Platform installed customer count was 450, up from 414 at the end of 2019. The growth in customer count was attributable to a large number of customer go-lives in 2020 as well as reduced M&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 and the level of M&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 12-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 2019, 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 2019 and 52.5% in the previous quarter. For the full year 2020, gross margin was 51.9%, down from 54% for the full year of 2019. 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 2 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 $50.1 million, 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&D. We ended the year with 1,749 employees, up from 1,574 at the end of 2019. The sequential increase in R&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 $6.1 million, down from $10.6 million in the fourth quarter of 2019 and $8.1 million in the previous quarter. Adjusted EBITDA for the full year was $22.2 million, up from $19.6 million in 2019. Cloud Lending accounting adjustment and contract asset impairment charge discussed earlier negatively impacted adjusted EBITDA, reducing it from $9.9 million to $6.1 million for the fourth quarter and from $26 million to $22.2 million for the full year 2020.

We ended the year with cash, cash equivalents and investments of $539.1 million, up from $396.1 million 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 $126.9 million.

Our capital expenditures for the quarter were $7.2 million, 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 $19.1 million, and we generated free cash flow of $11.6 million.

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 $114.6 million to $116.1 million, and full year non-GAAP revenue in the range of $488 million to $491 million, representing year-over-year growth of 20% to 21%. We forecast first quarter adjusted EBITDA of $8.5 million to $9.1 million, and full year 2021 adjusted EBITDA of $34.5 million to $36.5 million.

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-19, 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.

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-19 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 questions.

(Operator Instructions) And our first question is from the line of Sterling Auty of JPMorgan.

Yes. Before I ask my one question, I think Texas is getting hit with unprecedented weather and conditions. I 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. 2.5 million 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 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's all you have right now, and we had a great Q4. We had an amazing 2020, and '21 setting up to be really good. So if everybody will try to keep the questions to 1, we've got a hard stop at 8:30, so I'd appreciate it. But thanks for asking, Sterling, and that's not going to be your question. You get 1 question. So fire 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 bread crumbs that has you confident that we'll see an improvement in that new customer demand?

Yes, 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 Tier 2 and Tier 3 were pretty steady in 2020. And they hit -- while they didn't hit the pre-COVID plan, they came pretty close. It was the Tier 1 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 1 pipe is back with deals that have committees, budgets, project plans and time lines. 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 1 pipeline is back, and I'm not just talking top of the funnel. The 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 '18 -- '17, '18 and '19.

Your next question from the line of Tom Roderick of Stifel.

Yes. Great. And I'll add to Sterling's comments. Hope you and your families are staying safe down there, and hopefully staying somewhat warm. But 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 to 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 1 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. So that might be a little bit different than we've seen in your past.

Yes. So I'll take the first part, and David can kind of walk through how it plays out. First of all, I would say that cadence isn't the word I would use for 2020 because there wasn't really a steady cadence. But it did build, right? Q3 was the trough, I believe, for us. And so those deals that we got this year, the fourth quarter was interesting because the momentum started Q4. And then in the last 3 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 you want to walk through how that rolls out, how that plays out in the model?

Yes. Sure, Matt, and a couple of things I'll call out in that regard. First is we talked about the 2 big deals that we implemented in Q4. Those were November, December implementations. 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 2 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 1, is typically, as you know, about a 12- to 18-month lag. So the implementation time line has to be 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, '22. So great news that we're seeing those deals come through. We feel really good about our prospects in many of them. However, you're not going to see those turn to revenue as we land them until '22.

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 20% -- 21% to 20% -- excuse me, 20% to 21% impacts of the accounting adjustment we talked about. As you think about it, we're taking $3.3 million that we would have recognized in '21, pulling that off the balance sheet and recognize it in Q4, and then the year-over-year impact of both PPP and the Cares program. So you combine those 3 things, and that's a little bit over a point of a headwind of growth. So we still feel confident in our 20% to 21% even with that factored in there.

Your next question is from the line of Brian Peterson of Raymond James.

So 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 9 or 12 or 18 months, but are they looking to get quicker in terms of make a decision and get that up and running? And is that something that's possible with remote delivery? And just any thoughts on that.

Yes, Brian, it's a good question. Thanks for your comments. Speeding up implementations is just not typically how people think about it. There's a lot -- there's not -- the delivery of the software is one thing, but the organizational readiness that the teams have to have, 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 2 and Tier 3, 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 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 speeding up is typically not what people want to do.

Your next question is from the line of Terry Tillman of Truist.

Yes, and I'll echo 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 '21. And you just mentioned heart surgeries on digital banking. What I'm curious about is, what happened in '20 kind of probably brought to light some really poor digital banking experiences that were occurring. And so I'm curious, as we're starting to kind of fall out here in '21 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 a replatforming cycle.

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 going to do retail first and then commercial. Are you going to do corporate first and then work to digital? Are you going to do lending, treasury onboarding? How does that all tie into it?

So I think that the things that we're seeing from these Tier 1s, we're talking about our 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 board initially, but if you deliver and you hit the schedules and they have a good experience as they get to know you, those are all the opportunities we've had.

Adding the lending element to it is interesting. We're 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 CardSwap products. Those are starting to land, and it's beginning to be a meaningful number in a quarter.

And we're reaching back out to those customers and seeing whether they want to 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 this 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 road map to how to get there.

Your next question is from the line of Andrew Schmidt of Citi.

And let me echo everyone else's comments, I hope everyone's staying safe. I want to touch on user growth briefly. I know you talked about elevated user growth in the fourth quarter, and that seems to be a theme all year. But could you talk about kind of expectations for FY '21? 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 to digital platform. Just wondering how you guys are thinking about 2021 organic user growth relative to historical trends.

Yes. Thanks. David, why don't you take that one?

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. And that range has typically been about 9% to 11%. We've seen that now for 3 straight quarters, where we've been on the high end of that growth range.

As we're looking out into '21, 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's 10% to 11% range is going to be much more aligned with what you will see in 2021 versus the 9% to 11% that we've seen historically.

Got it. That's great to hear. And good to hear your comments on the demand environment. Stay safe, guys.

Thanks, Andrew. Appreciate you.

Your next question is from the line of Pete Heckmann with D.A. Davidson.

Could you just talk about some of the circumstances around the impairment on the fintech contract? Was that as a result of a customer being acquired or potentially just switching some of their focus?

Yes. Thanks, Pete. David, why don't you take that one?

Yes, you've got that. 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 have were with early-stage fintechs. And as you can imagine, those early-stage fintechs didn't have the strongest financial profile. As we matured as a business, the strength of the solutions that we've had has allowed us to move up 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 of those lower end is very minimal.

That makes sense. That makes sense. And does that contract contribute to the little bit higher churn rate? Or is that not included?

It was about -- yes, it impacted churn by about a tenth.

Your next question is from the line of Dan Perlin of RBC.

I just had a question kind of trying to reconcile, Matt, the idea that Tier 1 banks are kind of back, I think you said they're in committees. 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, but maybe more specifically around M&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&A, can you just remind us how you were able 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.

Yes. I mean, I think that we're anticipating -- trying to -- part of this is just trying to set the right expectations. We just want to make sure that churn ticks up because of M&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 want to use the next-generation platform to compete, whether it's for the lending or for digital banking.

And so I think the churn piece is just something that 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 -- from a revenue perspective, adding more users onto the platform due to acquisitions in '21. But who knows whether there's going to be more acquisition or not in '21. That's what people are saying, but we'll just see whether it happens. And then, David, I think the other part was for you.

Yes. And 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?

I was just talking about reconciling the commentary around Tier 1 deals being strong and then, again, this kind of potential slowdown in banks. So I think you have 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 rate. So 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%?

Yes. And the one thing I'd just add to that, Dan, is, and we proved this out over the course of the last 9 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 some indecisiveness and, understandably, some of our customers were distracted with some of the other things they have going on in their business. And 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 solutions to add 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 '21.

Yes, and I'll add, Dan -- and Dan, just keep in mind that when an acquisition happens, there's usually a term fee and some earn-out that occurs in the buyout process. So it typically -- and it takes 12 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, Dan.

Your next question is from the line of Brett Huff of Stephens Inc.

Again, I 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 '21. 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 '21. And just want to -- so number 1. And then number 2 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 groundswell of the digitization that you're seeing in terms of supporting that low 20s?

David, why don't you take the first part of it?

Yes. 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 discretely 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 PrecisionLender 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 '21, there's nothing that you need to normalize from an organic standpoint. From an inorganic standpoint, you get to an organic number. So the numbers that you're seeing and the guidance that you're seeing for '21 is the same for organic versus inorganic.

Yes. And then, Brett, I didn't -- the other part of the question -- was that the whole question?

Yes. I just want to make sure that, if you could -- just kind of piggybacking 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 the groundswell of maybe faster digitization because of the COVID, a more fundamental shift?

Yes, thanks, Brett. I don't know if I can -- if I could break that out on this call here. 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 have a pickup around more users on the system. You have more people using the system. And then there should be somewhat of the groundswell of people that meet -- that realize the pain that they felt during these times, with lockdowns and everything else. So thanks again, Brett.

Your next question is from the line of Robert Napoli of William Blair.

Glad to hear you're doing well. We have several family members in Austin, so we understand what's going on. A 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 part, is it from new products versus further penetration of your clients? And which new products are you most excited about?

Yes, Rob, I'll answer that. So what I would tell you is we did see a slight decline in average revenue per user in FY '20. And part of that was, if 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 thought 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 '21, 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 Centrix 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.

Your next question is from the line of Joe Vruwink of Baird.

Great. 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 this 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?

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 6 months because the end user, the account holder or the bank, doesn't want to go through that much change that fast. And there's a 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 are riding against our CorePro product in a week. PrecisionLender is tied to the bank being ready to roll and get it out. It can go live rather quickly. Cloud Lending, the PPP product, was built in 3 weeks with forgiveness tied to it. And we had it rolled out and up and running.

So the technology is what people sometimes get wrapped around, but it's really 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 100,000 digital banking customers from one system to another, when they have to reset things up and log in with new passwords and what could happen with the call center, it's complicated. And those are the crown jewels of the bank or the credit union, we want to move them carefully in maybe 2.

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 the revenue side of things. And what 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 Q2 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 going to be a lot of leverage that comes out of that, and these conversations are going to 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 will get to revenue faster. But I don't know what the timing of that's going to be.

Your next question is from the line of Josh Beck of KBCM.

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 curious about how you're approaching this as we move forward.

Yes. I mean, I don't want to be cute here, Josh, but what I look for is I don't care whether you're 25 or 55. I want passionate people that want to learn about how digital transformation is going to 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 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 in now, so sales reps are going after both of those. You could have a credit union in your path, or you could have a bank in your path, you've got to be able to talk about digital transformation on both of them. You have to be able talk about lending, digital banking, digital acquisition, data, and it's hard. And so they've got to get up to speed, and we're spending a lot of time educating them, whether it's our office, our strategy or our product team that's giving that.

So go-to-market, the interesting thing for me really is, in this -- 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 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 some new shiny objects that don't go very deep when it comes to the operational side of the business, which is important.

So 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. And I think '21 is going to be very interesting to see how it plays out.

Your next question is from the line of Arvind Ramnani of Piper Sandler.

Hopefully you guys get power back soon. So just kind of looking back in -- at the 2016, 2017. And 2017 was a very strong year, given it was a post-election year. Can you talk about the dynamics in 2021, which -- in the context of a post-election year? Or is this kind of a very tough compare, given that 2020 was pretty unusual?

Yes. 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 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 -- I can't really do like-for-like comparisons because it's not like there's a new administration, let's get back to business. There's stimulus programs. There's COVID surges. There's always different things that are happening, vaccines, rollouts, delays and different issues. There's what we're going through right now, so it's very difficult to compare the 2 of them.

I like where we are as a company in 2021 as opposed to where we were in 2016 and '17. The breadth of the products, the acquisitions are coming together, the digital transformation, the requirement of these banks to begin to -- and 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, who don't have a lot of customers, who don't have a lot of the right customers.

So it's hard to compare them, Arvind. But 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 '21 as opposed to where we were in '16 and '17 moving forward to the trajectory of this business.

Great. Just operationally, how are you thinking about staffing in this post-pandemic environment, specifically as employees start to travel and take vacations at higher levels over the next 12 to 18 months? Are you staffing or kind of building the teams out for potentially higher levels of vacation?

Not for higher levels of vacation. I mean, I think we try to be -- we have a unlimited PTO plan that people can use in the company, but there's no change for vacationing. I think the office space is the thing that we're trying to manage and figure out what we're going to 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 going to mandate that. I don't want to be a pioneer on putting people back in the office.

So staffing for us is we want to try to find the efficiencies of what we can do, as I said earlier, whether it's salespeople, implementations people, keeping them where they feel safe and they feel they can do their job productively. They don't have to be on an airplane. I don't want to make them be on an airplane. If they want to go to see people, and those people want to see them, then 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, so -- which we're managing effectively.

And your next question is from the line of James Faucette of Morgan Stanley.

Great. 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? And how would you start to address that, either organically or via acquisition? Just some thoughts there would be great.

Yes. Thank you, James. So internationally, remember, we have a presence in Europe. We have an office in London, and we have customers that are both the 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 -- there's 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 -- their summer and 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 soon.

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 opportunities there, but 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 going to continue to push PrecisionLender and our lending products in Europe and Cloud Lending in Europe and Asia and Australia at the time. And I feel pretty good about where those are. And 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 to generate those. We'll be patient and measured in how we do this.

So thanks for the question, James. I appreciate it, and thanks, everybody, for joining us. We will be on investor calls. We'll be in investor conferences over the next couple of weeks, and also we'll be available in the coming days. So I appreciate everybody's patience. And 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.

Thank you. This does conclude today's conference call. You may now disconnect.