Last week, Unit4 published information about its 2019 performance under the leadership of Mike Ettling. This is the first time in many years that the company has released financial information and understandably so.
Unit4 is PE owned. In those ownership structures there is no reason why a firm should release any numbers. However, when you're competing in large markets, your financial performance is part of your marketing. In any competitive bid, I'd sure want to see numbers as part of due diligence under the 'survivor' topic. That's especially true for ERP buying where my expectation is that once installed, an ERP will last 10-20 years.
What did we learn? This from the blurbs:
- 14% annual growth (YOY) in total bookings with cloud bookings growth up 20% (YOY).
- 25% cloud subscription revenue growth in 2019 to $92.2m (€83.6m), with growth of 27% in Q4 over prior year to $25.7m (€23.2m).
- Total revenue for the year increased 5% to $412.8m (€372.2m).
- Unit4 saw the strongest order growth in the Professional Services vertical market globally, and significant growth in North America and Nordics markets.
- Major mid-market customer wins accelerate pace of growth with significant deals secured with RSM, Galileo Global Education, Expleo, Logan University, Stichting SBOH, LoopMe and MCIS Life.
You can readily argue that these numbers are hardly impressive when compared to others but based on our past understanding of the company, coupled with the current challenges it faces, it is a more than credible performance.
A big part of Unit4's problem centers around market perception. In 2017, I said this about comments made by then CEO Stephan Sieber:
On several occasions, Sieber trotted out what at first sounds like a suicidal message:
"Customers don't care about our software or technology. They care about the outcomes."
For me, this is a very good message for Unit4's target audience, which is the C-level buyer in the mid-market.
It is an acknowledgment that the relative ubiquity of high technology means that only a modest group of people care about the bits and bytes. In that context, enterprise apps are a bit like the car business. Who cares about the valves in a car engine other than gear heads? In much the same way, who cares about your data architecture other than nerds? Of course if you're running a fleet of cars with not-as-yet-offshored repair facilities then you might care a bit about the moving parts but by and large, you don't.
Even with the benefit of hindsight, I'd argue that was a fair assessment and something that Ettling acknowledges today.
I agree the Unit Who thing is an issue but we have successfully relaunched the brand and CMO Julie (Knight) has already brought us significant wins. We've done the necessary Gartner, IDC, Forrester work to get us firmly on the traditional analyst radar. The online cloud community has 6,000 individuals posting 1,500 interactions per day. That's from a standing start. We know we have strong stories in certain verticals - professional services is a stand out - and we're building storyboards and pitch decks that map to market differentiators.
So far so good but as I said to Ettling, the proofs will come in the customer stories which have been notceably absent in the past.
As might be expected from an ex-SuccessFactors executive, Ettling is keen to emphasize Unit4's cloud chops, noting that 95% of net new business is for cloud-based solutions although he is quick to ensure this is contextually positioned.
The cloud momentum is certainly encouraging, yes. In our mid-market, we are moving aggressively towards a partner model and away from a direct sales and service approach. That gets us a larger delivery footprint and positions us for scale. But then we, like others, are faced with multiple regulatory hurdles. For example, data residency for the Nordics is a gating factor but we will overcome that issue by the end of this year and early 2021.
On verticals, Ettling sees professional services generally and sub-verticals within that as ripe for the kind of innovation he believes Unit4 brings.
We're positioned as ERP but that's a broad category most associate with the back office. We have strengths in the middle office - examples might be revenue recognition, milestone recognition - these are key considerations in a vartiety of professional services scenarios like construction broadly, contracting and civil engineering in particular. But then there are nuances too. Architect businesses are different again and we have to handle those. In education, I'm especially pleased with the Galileo deal - it was a real landmark for us.
For those unfamiliar, Galileo Gobal Education is a network of 42 schools that claims to be:
Europe’s largest higher education group, in terms of both geographical spread and breadth of course offering. Its network includes pillars of excellence in education, such as the Paris School of Business (PSB), Cours Florent and Atelier de Sèvres in France, Instituto de Estudios Universitarios in Mexico, Macromedia University in Germany and Istituto Marangoni in Italy
On the topic of horizontal applications, Ettling knows the challenge of providing global payroll for people based businesses. He chose to be circumspect around detail but offered some clues.
You'll see some interesting work in how we tackle global payroll. Bear in mind I'm not trying to be an HCM provider, I want to have differentiation in the context of an end to end solution. Mid-market customers don't want multiple systems but they do want recommendations. We will have three different flavors, including our own, where that makes sense. I really want to be able to turn the decision away from a payroll driven decision but I still want options for global companies because that's where we want to be positioned.
Finally, I wanted to address the multi-tenant code line issue that is uppermost in many analyst minds when discussing ERP vendor transformations of legacy code. This is about having a way to deploy applications out to all customers at minimal cost and disruption while maintaining flexibility. Here Ettling is emphatic.
We'll get to a single multi-tenant code line, towards Q3 but we need to clean out customizations and that will take place over a couple of years.
The Unit Who issue remains but is one that's on the road to getting fixed.
My knowledge of Unit4 goes back to the CODA days and subsequently to the Agresso line. The company has always had great products and I always liked the way they thought about engineering for the finance department in particular. But life moves on and while Unit4 has made some excellent technology choices, it has always struggled with market perception, especially in the Americas.
Those of us who angst about the mid-market have long been waiting for an emergent leading vendor who 'gets' 21st-century requirements. It is a crowded marketplace and especially once you get into the weeds of sub-verticals. However, after what seems like a period of stagnation, the Unit4 investors have realized that living off of legacy maintenance revenue is not a sustainable business model and it certainly won't get the kind of valuation that pure play cloud vendors enjoy.
Ettling has the pedigree of cloud business and has wisely chosen to cast his executive search net far wider than is often the case. Of course, he draws on past success but equally, he draws from a broad spectrum of firms such as SAP, Workday, SuccessFactors, Ultimate, Microsoft, McKinsey, Infor and others. That suggests a purposeful approach to the next chapter in Unit4's life.
More broadly, Phil Wainewright's assessment back in October continues to ring true:
It's also interesting to hear Ettling talk about middle office as a differentiator. Being able to automate end-to-end processes is especially important in cost-conscious midmarket organizations. It makes sense that it's a competitive advantage to have tailored industry solutions. For many such organizations, this will prove even more compelling than the trendy people experience proposition.