The Sage Group plc (SGE) Earnings Call Transcript & Summary

Good morning. Good afternoon, everyone. I'm James Sandford, Head of Investor Relations at Sage. I'm pleased to welcome our CEO, Steve Hare, who will be hosting today's webinar on Sage Intacct and the digital network. Please note that we will not be giving a trading update as part of the session, and no new material financial information will be provided. There will be a Q&A session at the end of the presentation. You can ask questions at any time by typing them into the questions and answers box on your viewing platform. We will answer as many questions as we can today, and we'll take any additional questions off-line. I'd like to draw your attention to the important notice on Slide 2, and do please note that this event is being recorded. And with that, I'll hand over to Steve.

Thank you, James, and good afternoon to you all, and a warm welcome, and thank you for attending this webinar. Back in November, I said that we would host a series of events to provide more insight into Sage and to give wider exposure to the depth and capability of our leadership team. So today's webinar is the first of those events. And during this session, we're going to share with you the technology vision that underpins our strategic ambition and highlight the growth opportunity, particularly for Sage Intacct. Now as I think you all know, Sage Intacct was acquired by us in 2017 and is really flourished as part of the Sage Group, delivering consistent strong growth and becoming central to our offerings to the midsized businesses. So what I want you to take away from today's session is really 3 things. Firstly, that the digital network is here today and is benefiting customers and driving long-term value. Secondly, we have a clear technology and product strategy, which supports our strategic priorities. And thirdly, we're executing on our strategy, scaling Sage Intacct and driving significant growth. Now what I'd like to do is just introduce you now to the team that I have with me. So I'm delighted that I'm apart from James, joined here by Aaron Harris and by Dan Miller and by Walid Abu-Hadba. And so what I'd like to do is just allow each of the team members to quickly introduce themselves. And then once they've done that, I'll quickly whip through my introduction before handing over to Aaron and Dan to do their parts of the presentation, and Walid will be joining in to join us for the Q&A. So I just asked the team to introduce themselves and starting first with you, Aaron.

Thanks, Steve, and thanks, everybody, for joining us today. As Steve said, I'm Aaron Harris. I'm the Chief Technology Officer here at Sage. I'm joining you today from Henderson, Nevada. And my job at Sage is to establish with my team and with Dan and Walid our technology strategy and direction for the business, aligned with our purpose and our ambition, as Steve will describe here in a few minutes. I joke that I have a fairly short resume. I was prior to joining Sage, I was part of the founding team at Intacct going back to late 1999, and ran the technology organization at Intacct for the entirety of the time until we sold the business to Sage, as Steve mentioned, in 2017. I hand it over to Dan.

Hi, everyone. I am Dan Miller. I'm coming to you from San Jose, the offices at Sage, which are where Sage Intacct has been headquartered. I'm excited to be able to be with you all today. My experience, as you can see on this slide, is been in the financial software industry for quite some time. I have the claim to fame have been part of the original QuickBooks development team, helping design the user experience for the first versions of QuickBooks, but really found that my passion was in how we simplify lives of customers with great experiences and look to do that joining Intacct in 2010 to really simplify the lives of mid-market customers being -- and now being a part of the Sage team here leading the Sage Intacct business and looking for how we can do that at an even larger scale. And so with that, I'll hand it to Walid.

Thank you, Dan. Thank you, Aaron. Thank you, Steve. First of all, it's really an honor to be here. I'm the newest member to the Sage technology family. I've joined Sage about 9 months ago. But before that, I was 22 years with Microsoft. And after that, I was with Ansys as the Chief Product Officer. And I spent a couple of years before joining Sage with Oracle. My responsibility is the product engineering and IT organization and very proud to be part of this team and looking forward to meeting you in person, not just on -- in a webinar. Back to you, Steve.

Thank you, Walid. And just not sure I've got the slide yet. So you'll recall that we refreshed our strategic framework at the beginning of this financial year. And I just wanted to come back to this anchor slide because it is a very important anchor point. And it kind of helps us align around a lot of what we'll talk about in the rest of this presentation and around how we drive our growth and future success. Now it starts with our purpose, which is to knock down barriers so everyone can thrive. And this is important. This is our why and it starts with our customers. We sell to small, midsized businesses, that's who we serve. And a lot of what we're trying to do is create solutions to make their lives easier, remove barriers, remove friction so that they have the opportunity to drive their businesses and thrive. So taking that friction out and delivering insights. And by helping those small midsized businesses thrive, we enabled them to contribute more to the economy in most countries in which we operate, small midsized businesses are well over half the economy and create over 2/3 of the jobs, particularly during a growth phase. So these are a really, really important ingredient of any developed economy. Now our ambition expresses how we serve that purpose. Our ambition is to be the trusted network for small, midsized businesses. And you're going to hear a lot about this today, the network, the importance of that network effect. And it's also an important ingredient that, that network is an integrated experience of both digital and human connections. So in a digital world, creating, removing friction, automating, digitizing is an incredibly important part of the objective. But the human part is too, again, we're selling to small midsized businesses, human-to-human relationships matter, our customer service, the way that we support our customers and give advice to our customers, the way we support our partners, accountants. These are all very important ingredients in what we're doing at Sage. And we drive our ambition through 5 strategic priorities, a number of which we will talk about today. Stakeholders, it's not just shareholders, it's customers, it's colleagues, society and its shareholders. Serving all 4 of these groups is critical and front of mind whenever we're making decisions, as are our values. These are not just words, this underpins how we behave, how we think, it's part of our DNA. And we see our culture, our people, the way we engage in this human interaction, both with our customers and each other has been a key component of what makes Sage different. So I'm going to just touch on now for a minute the ambition and go a bit more into the trusted -- the ambition to be the trusted network for small, midsized businesses. Now our digital network connects organizations with everyone they need to connect with providing online services that digitize workflows to make our customer lives easier. The network is there to facilitate the smooth flow of work and money providing simple, seamless and unified ways of working. And we continually aim to make the digital experience richer for all participants in this network. And Aaron is going to talk a lot more about that in a moment. What I want to just touch on now is the strategic priorities, 5 strategic priorities: scaling Sage Intacct is central to the offering for small, midsized businesses -- sorry, for midsized businesses. And you're going to hear a lot more from Dan about this as we enhance Sage Intacct reach, both in existing markets but also into new markets. Continuing to expand medium beyond financials involves extending our capability into adjacent areas. This is to address the broader challenge that CFOs face. CFOs being our buying persona in this part of the market. So we're doing this through Sage Intacct and through other products in the Sage portfolio. Our third priority relates to the small business segment, where we're building a small business engine, refining our capabilities in the U.K., whilst developing our approach in other markets. Scaling the network, which I've already touched on, increasing participation accelerates the network effect. This enables customers to connect and capture real-world benefits that save them time and let them focus on adding value to their own business. And our final priority is learn and disrupt, investing in innovation so that we can create learn from and participate in future disruptive trends. And then on to Sage Business Cloud. Now this is key to unlocking the power of the digital network, moving customers to the cloud. This is something we've been talking about for a number of years. And as you can see, we've made significant progress over the last few years. We will continue to drive up our mix of the cloud business. We will also drive more customers to join Sage Business Cloud and participate in the network, creating more insights, which then in turn enables us to enrich the experience. So a critical building block in terms of the driving of the network. So what I'm going to do now is hand over to Aaron, who's going to talk in more detail how we're developing the network to benefit customers, drive innovation and growth across the group, Aaron?

Thank you, Steve. As I mentioned in my introduction, our technology strategy is designed to support the purpose and the ambition, as Steve just outlined, but it's equally important that our technology strategy reflects and responds to the environment in which our customers are operating. We must support our customers as the world around them is going through really dramatic change. And I want to highlight 4 really key pillars that drive our technology strategy. The first of those is around digital transformation. Prior to COVID-19, digital transformation was enabling companies to be more competitive, to be more efficient. Digital transformation was enabling new types of businesses like Uber and DoorDash. With COVID-19, digital transformation became an existential imperative. Businesses must digitize in order to continue to operate with their customers. Second, and this is very closely aligned with digital transformation, is the effect that, that digitization has on human work. There's natural anxiety that comes with digital transformation that today's jobs will be replaced. We would argue that digital transformation is replacing low-value repetitive work. And that with technology available today, we can empower humans to work on higher-value tasks that are more ideally suited to humans, decision-making, collaboration, analysis, managing exceptions. There's also more responsibility that businesses are assuming in that we at Sage must also assume as technology progresses and becomes more abundant and more available and less expensive. As we grow our business and as we support our customers in growing their business, we must do so in an environmentally and a socially responsible way. And then lastly, and this is an area that I feel personally quite strongly about, trust all around us or a trust in the world that our customers are operating within is eroding. So we believe that not only can we create greater trust and technology, but we can also use technology to create greater trust in the ecosystems and the markets in which our customers operate. So before I get on to describing what the digital network is, I thought it would be helpful to just get to a basic definition of digital transformation, which is really at the core of what we're designing here. Digital transformation is more than simply automating tasks within a business. It's completely redesigning the workflows, not just within the business, but across the entire ecosystem of the business. So the workflows with customers, with suppliers, with employees, workflows around compliance, around banking, around accounting functions. So it's completely reimagining these workflows, leveraging the digital capabilities that enable these new workflows to exist. And so we like to say that in the era of Software as a Service, the breakthrough architecture was multi-tenancy. Without multi-tenancy, we wouldn't have been able to create the kind of businesses that we did with great economics but also that enabled entirely new innovation that created the disruption that SaaS created. Now digital transformation doesn't replace SaaS, but it's very imperative that we continue to grow and nourish and add more customers to our SaaS products. But the digital network is now the breakthrough architecture that enables digital transformation in the digital era. It's an architecture that creates connectivity between individuals, organizations. It maps the relationships. It digitizes those connections and creates connections between people, technology and data. There's 4 basic components to a digital network. The first is that every participant in the network operates from a globally shared directory of digital identities and the relationships between these digital identities. Second, now that we've mapped those relationships, and we understand the individuals and organizations, we can create services that enable digital workflows across those relationships. And now for the first time with this network architecture, because we're digitizing the end-to-end workflows, we can record the transactions and the interactions of those relationships in a shared ledger that enables perfect end-to-end trust of these transactions as they stay on the network. And then lastly, and this is the great source of innovation is that by creating the connectivity across these ecosystems, across our products and services, we create a powerful infrastructure for capturing data that can then be used to innovate new AI/ML capabilities and new data-related products. It's really important also to note that in this digital era, where we're building solutions that are based upon network architectures, scale matters. In the Software as a-Service era, the barrier to entry for new entrants was capital and the big upfront investments required to build out online solutions. Much of that has been resolved with public computing -- public cloud computing from Amazon and Microsoft and others. And we know that there's investment in abundance. In the digital era, the barrier to entry is data and scale. And this is a really enormous opportunity for Sage. And so as we drive more engagements in the network, that network -- that engagement drives more data, more activity that we can then use to create better and more refined experiences for our customers, and this creates a virtuous flywheel for attracting more customers and therefore, more engagement, more data and more capabilities on the network. And this is where Sage has a huge opportunity. Just within our global business, we know that our customers are transmitting more than 10 billion invoices annually. We know we have well over 20 million employees that are paid globally by Sage Payroll products. And conservatively, we have 10 million Sage ID logins to network on a monthly basis. And of course, all of this is experienced globally across broad and diverse markets. And I would add that the data and the activity that occurs with our customers and is captured by our products creates highly trusted data sources, right? This is the data that customers use to prove compliance, it's data customers use to get access to credit and equity. And so therefore, we're starting with the foundation of data that is already highly trusted. Just within Sage Intacct, which we're going to talk about later, we have access to phenomenal customer activity. We know that Sage Intacct customers collectively are managing more than 65 million customer relationships, more than 36 million vendor relationships and that across those relationships, they've booked more than 25 billion transactions. On a monthly basis across those relationships, they're transacting more than 7 million payments to the tune of $85 billion of commerce per month. And through the combination of bringing new customers to Sage Intacct, and the continuous growth of existing Sage Intacct customers, this data asset is growing at more than 50% year-over-year. So it's really, really important for us to convey that the digital network is not a vision -- it's not merely a vision, it's actually here today. Customers are benefiting from the digital network today. And I'm going to give you a few examples of that. So first and most obvious is how we use the digital network to digitize workflows with banks, with customers in the form of processing payments, with suppliers in the form of processing payments out to suppliers, but also with regulatory authorities in the form of doing compliance. Now these services are in market. They're integrated with many Sage products. Just a couple of examples, with our banking service, which our customers use to digitize and automate bank reconciliation. We've connected our customers to more than 11,000 financial institutions. With compliance to give you a sense of scale. Within the United Kingdom, more than 25% on of MTD VAT returns are transmitted over the Sage Digital Network through our digital compliance service. And the data that flows across the network has been very valuable to us in innovating new capabilities, especially with artificial intelligence. So I'll give you an example of just a few capabilities that our customers are benefiting from now driven by this data. So first, in the area of accounts payable automation. So Dan is going to talk about this in more depth and how we've embedded these capabilities into Sage Intacct. But our customers feel a great urgency to streamline and make more efficient the relationship they have with their suppliers to not only automate the accounts payable process but to create more trust in the accounts payable process. And so we've been able to use AI automation to drive end-to-end automation of the accounts payable workflows. Now together with this automation, we've got a principle at Sage that as we increase automation, we must also increase trust. And so outlier detection uses artificial intelligence to continuously monitor the transactions that flow through a business to look for anomalies, to look for exceptions, to look for outliers, where we can then bring a human in to perform a review of the exception that AI finds. Supporting a lot of these workflows is generic capability for doing data extract from documents. Even today, most of the transactions that occur within our customers' businesses happen through analog documents. So getting world-class capabilities to extract and classify data from documents is critical to much of our ambition. And then lastly, and this is in direct response to some of the challenges small businesses are facing with COVID-19. We've learned that they really struggle with being effective in how they schedule their staff and how they support the ebbs and flows of the workforce. And so we've used AI to create absentees and forecasting for our small business customers. So they've got more confidence in their ability to schedule their staffs and more confidence in the accuracy of those schedules. I want to highlight one particular network capability that really illustrates our purpose as a company to knock down barriers so everyone can thrive and really illustrates the power of the digital network to be that trusted digital -- that trusted network for small and medium-sized businesses. One of the opportunities that we have in the United Kingdom has been to partner with Experian to essentially digitize access to employee pay history. Historically, the way that would work is that when an employee needed to get a loan, a mortgage to apply for credit, the lender would have to directly contact their employer to verify their employment and their pay history. With a digital network, we are now writing that pay history to a shared ledger between the employee and the employer. And we've directly given the employee the keys to enable digital access to that pay history. So not only is it taking the employer out of the workflow but it's also giving more power to the employee to harness the power of their personal data. So we're really, really proud of this capability. It's just recently launched. We believe it will have a material impact on the ability of employees and particularly employees who have been disadvantaged in the past to improve their access to credit and to speed with which they can access that credit. So to give you a sense of the scale, we now have more than 4 million employees on the network that are now connected to the services that are supported by over 300,000 employers. So again, we're just super excited about how this directly ties into our ambition and our purpose, but it also illustrates that within Sage's business, we have the scale and the engagement to create entirely new solutions with entirely new business models. So just to summarize, digital transformation is accelerating. It's become existential for our; customers. And to really support the digital transformation that our customers require, we have to create an architecture that enables all of these digital workflows. The unique advantage that we have at Sage is the existing scale in our business, not only in terms of the number of customers we have, but also in terms of the scale and the quantum of the data that our customers are storing in our products. And this data already is highly trusted, and so therefore, highly valuable for building more capabilities. This is not just a vision. The digital network is here, it's live, it's meeting customer needs, and we're far down the journey on creating new digital services and new AI/ML capabilities. based on the data and the engagement flowing across the network. So what I'd like to do now is hand over to Dan Miller, who is going to talk in more detail about what we're doing at Sage Intacct. He will give you some illustrations on how the digital network is directly impacting Sage Intacct customers. Dan?

Great. Thank you, Aaron. That's a really great intro to where I want to go next. I want to talk about, first, giving you all a foundation for the Sage Intacct business. So Sage Intacct was founded in 1999 on the principles of innovation and differentiation for customers being 1 of the first native cloud solutions, and it focused on the accounting professional. It's a professional-grade solution designed by accountants for accountants and that vision of serving that type of organization and then building out into mid-market businesses really power the early days of company. That Sage interact -- Intacct notice, and we brought together Intacct and Sage in 2017, and that really drove an acceleration of opportunities and successes for the Sage Intacct business. It enabled us to expand the footprint of the solutions that we offer to the office of the CFO, as Steve was talking about earlier, planning and new capabilities that are available to them, new verticals that we've been able to enter that I'm going to share with you some about, and new point solutions that are specific to the operational workflows. So there's a number of new key things that we can do, and we're doing this now across many geographies as well. As you can see from the quote that's on the slide, we -- in doing this, and the focus that we have on customers have really built loyalty in our customer base. They stay with us for long periods of time because we come alongside them and really build success in their organization. And just a little bit about the Sage Intacct business from a financials perspective. We've seen great growth in the business. We've seen ourselves grow at 30% plus year-over-year. We've doubled the size of the business in the last 3 years. And as we look at what's happened with COVID-19, we've been quite resilient as a business. While we've been able to come alongside customers looking for more automation capabilities and provide for a greater range of solutions for them as many of them are now operating in hybrid environments or operating remotely. We've seen that same kind of track record as we've launched internationally. We've been able to enter into 5 additional regions beyond the United States, seen great growth trajectories, and there's an opportunity for us to continue to expand into additional geographies. Just a little bit about us from the standpoint of how we looked from an industry analyst perspective and our customers. We continue to be recognized by thought leaders in the space like Gartner and IDC as a leader and visionary in the field. We have consistently been given great scores for the target customer we're going after for Gartner -- from Gartner over the last 5 years and serving lower, midsized businesses. And we've also been recognized across several different reports that IDC offers around where we really shine for specific kinds of businesses. We are the partner with the AICPA and providing their preferred accounting solutions to their constituencies. And from a customer standpoint, something that I'm particularly proud of is that our customers continually do recognize that the leadership that we have provided and how we serve them from both G2 and TrustRadius. And that means a lot to me personally because that means that we're achieving that mission of really knocking down barriers for them. A little bit about the -- how our footprint has -- of the solutions that we offer to the office of the CFO has changed over the last couple of years where we started in financials and really focused on the accounting portion of the business, we've expanded out into planning, analytics, payroll and HR as part of that core. We've added solutions that are focused on specific industry needs around the retail e-commerce operational space, manufacturing operations, for subscription-based businesses, subscription billing and revenue management for nonprofits, grant tracking and spend management. So just a whole series of capabilities that are specific to those needs. But we've also, from the very beginning, had this philosophy of being an open system where we can bring in marketplace solutions where we have over 200 solutions that we're able to bring to bear to provide for the specific business needs of a particular individual organization. And our customers adopt them over 75 -- with 75% of our customers integrating 2 plus of those marketplace available applications. When we look at the go-to-market approach that we have, our target customer is a small and midsized business from, say, 20 employees up to 1,000 employees. We look at specific verticals, which I'm going to talk about a little bit more on the next -- in the next coming slides. And we go to market in, I think, a pretty unique way where we have been able to build a collaborative environment between a strong direct sales and services organization in partnership with an industry-leading value-added reseller program, where we have over -- we have access to over 700 partners across North America and accounting firms and mid-market VARs including 35 of those VAR customers, our partners that are on the VAR 100 list in our CPA firm environment. 49 of those are in the top 100. When we look at how we go to market, we go to market vertically, but not just vertically, we look at the specifics of a micro vertical. And where that really matters is it allows us to do what we look at as being how we serve that specific kind of business with the needs that they have and be able to speak to them in a language that is unique to them and allows us to be able to build the business with a self-referencing community as well. So if we look at financial services, is just one of the verticals where we have industry depth. We're in the financial services industry, a single-family office or multifamily office is looking for capabilities around how they manage security and consolidations capabilities. But there's a lot of overlap with how a private equity firm looks at those same things where they may have similar needs, but they also need to be able to have insight that allows all of their investors to have visibility into how their money is performing. And we provide those kind of unique -- the unique capabilities that we need and speak to those specific kinds of markets, so customers know that we really know them. And we are continuing to expand into additional verticals, and we do this for each of the verticals that we go after. As we look forward, there are really 5 key pillars that represent our strategy. We are looking at how we build on the last slide that I was talking about and we extend our vertical reach, expanding beyond financials, how we expand the footprint of solutions that we offer into the operational world for specific kinds of businesses. How we scale internationally and solve for customers in additional geographies. How we make the solutions that we offer easier to adopt at an earlier life stage of that customer. And then that's all powered by the digital network and how we build on what Aaron was just sharing with you, and how we bring the connectivity from our customers to their customers, their employees, their suppliers. And I'm going to share with you some elements of how we accomplish each of these things. So first, looking at extending our vertical reach. Of all of the verticals that we're in, we're going to have -- I'm going to share with you today some of the plans that we have and the business we have around construction, retail and manufacturing. And so first, just taking a look at the construction business. In construction, we have a long history at Sage with over 40 years of industry leadership and experience. The Sage Intacct construction solution has access to -- provides a solution to -- for our 15,000 existing Sage customers, while also providing the opportunity for us to onboard a significant volume of new customers for financials and a broader set of offerings designed specifically for construction companies like project management and construction payroll. For future, we're going to continue to build out this vertical-specific functional needs, for example, AI billing and in-depth in our contract management capabilities that really help for businesses of this type to be able to take full advantage of the digital network. And we'll be building out additions, which I'm going to share more depth about how the additions work, but it's basically being able to provide a solution that's easy to adopt and then grow with over a period of time. So that's a little bit about the construction business. Second, we're going to talk about the retail space with our relatively recent acquisition of BrightPearl. The -- in the retail business, the -- we are now offering a highly configurable SaaS solution that's -- it's really the retail operating system, their order management and inventory management system as well as an inventory planning solution. This solution is differentiated in market with its focus on how we build the integrations into storefronts and providing them real-time visibility into how they help their customers be able to automate workflow and be able to manage that offering that inventory management so that they can make sure that they can fulfill across all the different storefronts that they're offering product through. The opportunity is significant with over 100,000 organizations that are in this space in -- there are $20 million in revenue for this business in 2021, which is up 50% year-over-year. This is -- and we're also -- as we look forward, we look at the opportunity we have to bring this operational system, integrated front office to back office, fully integrated with the depth of financial capabilities that we have in Sage Intacct Financials and that will provide real insight to those kinds of businesses, and we'll continue to expand our operational capabilities for go-to-market. And then lastly, I want to talk to you a little bit about Sage Intacct manufacturing. With Sage Intacct manufacturing like retail, this provides us an operational system to serve the manufacturer. It provides everything from order management to lightweight MES, that's a rich, deep solution. But we've looked at the needs of smaller manufacturers in the discrete manufacturing industry and what they really need to get up and running quickly, and we've embedded best practices into the solution to help them get on board quickly. We've -- this product opens the opportunity to the Sage Intacct ecosystem into the manufacturing space. And we've leveraged -- it's also a really great example of how we've leveraged the expertise across all of Sage, bringing in the expertise from the team that has built X3 in building this new solution that has enabled us to quickly get to launch this month in France. There's 150,000 organizations available to us now with this particular solution. And we're in the process of integrating -- as we launched into France, it's integrated with FRP 1000, a local best-in-class financial solution, and we're integrating it with Sage Intacct so that we are ready for launch into the U.K. and the U.S. later this year. So a little bit about moving on from verticals into how we're expanding beyond financials. Over the next couple of sections, I'm going to highlight how we're expanding into planning, analytics and also into AP. So let's first take a look at planning. In the planning space, we introduced a few years ago a Sage Intacct Planning solution. The Sage Intacct planning solution in a similar kind of mindset to what I just talked about with retail and manufacturing, we focused on onboarding and really how to get customers get up and running quickly. The solution is a great financial solution where you can quickly go from actuals -- financial actuals to a plan with literally in a matter of hours and with great flexibility in how you can -- you set that up. So a much richer solution than what many businesses are doing today in excel. It's been growing rapidly. The ARR is up 60% in FY '21, and it increases the value of this Sage Intacct customer by 38%. There's still a lot of upside in the customer base. We announced previously that it's about 10% penetrated in FY '21 into the Sage Intacct customer bases, a lot of opportunity for us. We're continuing to broaden the opportunity here, looking at how we expand into -- as we built it now so we can integrate with other Sage solutions to draw them into the network as well as the opportunity to bring customers on earlier in their life cycle when they may not have -- be ready for a general ledger migration, but they're ready for a planning solution so we can get customers before they might even be considering a mid-market financial application like Sage Intacct. And from an analytics perspective, I just want to share with you something a little more visual. I'm going to share with you a little video demo here of the analytics solution we have Interactive Visual Explorer. So can you go ahead and play the video? [Presentation]

So one of the things that I'm particularly excited about with the analytics solution is that because it's embedded directly into Sage Intacct's set of capabilities. Our customers have direct access to those tools where there's nothing additional they need to do. It's not -- they don't have to go look for an analytics platform. We provide that natively pre-integrated into our solutions. So next, I want to take a look at what we've been doing to scale internationally. We've been scaling internationally within the Sage Intacct business, but also as we look into what we're doing with planning and manufacturing, Sage Intacct Financials launched into Australia and the U.K. in 2019. And then in South Africa in 2020. And we've got a road map for continuing that into the future. It's been a great road over the last few years, bringing together many of the capabilities that Aaron was sharing there out from the digital network, compliance payments capabilities that have allowed us to accelerate into these markets and provide for the specific needs of companies within each of the regions. With Sage Intacct Planning, we -- it was launched into the U.S. in 2019, and we are now launched stand-alone in 2022. And -- we have plans to launch this product later this year into all of the geographies that Sage Intacct Financials is already in, Canada, the U.K., Australia and South Africa. And Sage Intacct Manufacturing launched into France, as I said a few minutes ago, and we are planning on launching Sage Intacct Manufacturing into the U.S. and the U.K. later this year. Our growing international capabilities take a -- there's a couple of key tenets here. We want to be able to sell for businesses that are already multinationals. They have unique capabilities that they require around how they bring their entities together for tier and partial ownership. We solve for their global consolidations, capabilities very, very well today. We're adding to those with differentiated capabilities and how we handle that for customers with these. We've launched capabilities in how we handle bank and payment gateway capabilities and continue to add to the richness of those capabilities. As we look at expanding the market, we look at the specific needs of each geography for a language -- from a language perspective as well as the specific accounting and compliance needs that they have. And then we have a go-to-market playbook that we use, where we've seen success in the model that we use for the U.S., we replicate that model in each of the regions that we go into and how we leverage our expertise in a direct sale but a collaborative channel proposition as well serving the micro vertical needs in each geography. As we look at how we drive earlier adoption, there's this concept that we've introduced around Sage Intacct additions. Sage Intacct addition is a package. Simply stated, it's a package that's designed where we put our best practices, our expertise from all of our learning into that package. It's designed around the idea that we have the expertise from all the customer conversations we've had to be able to preconfigure a solution that's going to be right for them at their size of business. So there's -- we are launching additions that are designed around business size, but also around the specific needs of verticals. And in some cases, around that subvertical, if there are unique needs for that sub-vertical. Would the -- there's a set of capabilities that are built into that, but also a sales methodology and an implementation methodology that gets that customer up and running very, very quickly post-sale. This is a significant opportunity for us to help customers move on to the platform very quickly, both from a new customer perspective, but also from a migration perspective for customers that are ready to move to the cloud. As we talk about the digital network and build out some of the examples that Aaron was talking about, and to start with AP automation. If you look at the inefficiencies that exist in the AP automation process, which is heavily paper-based, we know that we can reduce 80% of the processing cost of each individual vendor invoice or bill that they need to process from an estimated $15 to $3 with automation. It also allows them to identify problems that have existed that are result in cash savings as well. It's amazing to me that there is as much error as there is. I probably shouldn't be amazing. But we removed the manual process, we're able to help the customer focus on the higher-value activities that Aaron was talking about earlier. And so we've touched each of the pieces of the process and the automation in the bill process from capturing it at the front end is the -- where we -- from e-mail and scanning capabilities through how that gets digitized into the system for a review process to build trust and going through internal controls through the payment and reconciliation. It's important to highlight this whole workflow because this is 1 of the places where, because it's built natively into the core financial system, where we have differentiation in market because we're able to provide a way for a way for a customer to continue to operate within their current construct, but still gain the benefits of this automation but at a higher level of fidelity of the information because it's designed around the flexibility we have in our dimensionality of our system and our general ledger that provides great insight. And it also automates that reconciliation process at the end, which often gets left off. So there's a lot of value that we have to offer to our customers with this solution. So again, to bring this to life, we have a little demo that's been recorded for you. [Presentation]

So another solution I just want to highlight from a network perspective is what we've built natively into decision with outlier detection for the general ledger. Aaron touched on this earlier. This -- we introduced this a couple of years ago. It was the first real-time AI-driven outlier detection engine, and we built it in a way where it's designed to provide trust. So built directly into the general ledger process, we have the ability to highlight potential issues that need review so that a person can take a look at the potential problems that we've highlighted that highlight things, everything from unusual accounting treatments to amounts that seem off so that they can take -- they can go through a review process. To bring that to life, I just want to highlight some feedback we got from a particular customer and one of the great values that they got out of the solution, they identified a potential issue or actually a natural issue where they had miss-accounted for $350,000 in revenue. And they had previously missed this in their normal processes and the outlier detection caught this. This is now being used by 500 of our customers. There's a huge volume of transactions that are flowing through the system that allows us to tailor the engine to be able to look at the specifics of each individual customers' needs and be able to really help them how they really operationalize trust in their financials. So with that, I just want to highlight the takeaways. Sage Intacct is recognized as award-winning solution. We've got -- we have consistent growth in the U.S., and it's expanding internationally. We have a very clear strategy for how we're executing across our pillars for our future growth in our verticals, in our expansion beyond financials as well as supporting the digital network. And then we're using the Sage Intacct platform as a foundation for how we connect customers with their customers, their suppliers, their employees to more fully automate processes for them. And so with that, I'm going to hand it back to Steve.

Dan, thank you, and also thanks very much to Aaron. So I hope what that run-through is giving you is really a sense and insight into the fact that we have a lot of strengths here, we have a lot of ingredients here, which then give us this growth opportunity both for Sage Intacct but also linking into the network, which in turn gives us the strong foundations and underpins the ambition that we have. So that's the end of the formal presentation. And what I'm going to do now is hand over to James, who's going to lead us through the Q&A session. So over to you, James.

Thanks, Steve. We'll now begin the question-and-answer session. And as a reminder, you can submit your questions by typing them into the questions and answers box on your [indiscernible] platform. And our first question today is, can you please provide some color on the process and progress of integration of Sage Intacct into the Sage Group from both the technology and a cultural perspective?

Sure. I'll take that. I think -- so there's 2 parts to it. One is obviously the kind of geography, the go-to-market, and the second is the technology and capability. So Walid, if you can comment in a moment, is responsible for all of technology, product development, product engineering globally. And within that structure, there is a business unit called Sage Intacct, which Dan owns and runs reporting into Walid. Now -- but that is a global organization, i.e., fully integrated into the rest of Sage. And then from a go-to-market perspective, North America, just like any of the other geographies, also now has a singular go-to-market organization. So there is a head of North America, President of North America, and there is a President of effectively the rest of the world, Europe, Middle East, Africa and Asia. And when we sell our products like Intacct, they go through those global go-to-market organizations. So when we sell a Sage Intacct in the U.K. or we sell it in Australia, it goes through those organizations. Walid, anything you want to add?

Thank you, Steve. The technology integration is really impressive actually of how the team was able to actually bring the Intacct assets with the rest of the assets that we have in Sage. For example, a lot of the services that Dan was describing are being used in our services from Sage, for example, at the banking fees, a lot of the compliance services or actually service -- fabric services, which is digital network services. They Sage ID, the integration with Sage ID. All these services have been done very, very nicely through an API layer. So the progress on the technology side has been very impressive. The fact that we did Sage manufacturing, Intacct manufacturing and our ability to actually build that platform on top of Intacct and on top of the current existing Sage platforms shows the progress that we've made so far. So overall, technology integration has been very well done between the Intacct old products and the Sage -- the network and the Sage product lines. Back to you, James.

Thank you very much for that. The next question is Sage is clearly moving a lot of clients' data through the network. To what degree can Sage utilize this data, surely it belongs exclusively to the client?

Aaron, do you want to...

Yes, I'm happy to take that question. I guess what I would start with is, we've established a set of very clear principles for not only our organization but also our customers that describe how we will behave in respect to our customers' data. And the first statement is an unambiguous statement that our customers own their data. And we have rights to leverage that data to build customer features with their permission, with partnership with them based on a trusted relationship that we've established to our customers. Now getting more specific, there are 2 things here that are important. So the first is, in order to develop AI/ML capabilities, we have to access customer data so that our data scientists can run experiments, they can develop models, they can test the predictions of those models with our customers. And so to support that activity, we have a customer AI partner development program that customers opt into. They agree with us on how we can use their data. This data is then anonymized, any personal information is redacted and they join us in the process of developing these capabilities. Believe it or not, these programs are almost always oversubscribed, right? We have more customers interested in joining us in the process than we can handle because they believe in the outcomes we're trying to create for our customers. The second is that when customers choose to consume network services, right? They agree to what is required by Sage to enable those services. It doesn't always require Sage to directly access the data. So in the case of employment verification, there's actually never a need for Sage to access employee pay data. Our job is to put it into a secure form, give employees more control of it. And what makes us attractive is the scale that we bring to that, even without having to use the employee data or to access the employee data. But I guess the thing I want to make sure that is a clear takeaway from this is that we understand that our access to this data is only granted to us via the permission and the trust of our customers, and we must never breach that.

Terrific. Thanks very much, Aaron. The next question is, what is the rough split of R&D investment into Sage Intacct for further development versus the remainder of the Sage portfolio?

Walid, you want to...

Yes. So first of all, let me just give you a historical preview about R&D spend in Sage overall. Over the past 3 years, the R&D spend in Sage has increased by 50%. That's really an impressive growth in R&D to show what the company has kind of taken this investment. We don't break it down by particular product lines in there. However, I could tell you right now that Sage Intacct is getting its fair share and probably some of the team members would say a little bit more than fair share of its R&D investment. This is a growth engine for us that we are going to continue developing for the future, and our investment in that should be looked at also in the context of investing in the digital network because they both go hand-in-hand together.

Can you talk about the proportion of Intacct revenue from the ecosystem as opposed to the core accounting and payroll capabilities? Is the ecosystem the best way to think about the monetization of the network?

Yes. I mean I think the quick answer is that today, the revenue is coming from Intacct, the product. The monetization that will come through the ecosystem and through the digital network is very much something for the future. What we are gaining from that today is in the scheme of the group as a whole is immaterial.

Great. And is the ecosystem the best way to think about the monetization of the network going forward?

I think maybe ecosystem, we will, at some point, start to talk about the revenue, which is coming through the digital network. Now some of that will be generated through things that we do with partners and some of that will be generated through things that we do ourselves. So if you take ecosystem in its kind of widest sense, including what we do in terms of what we integrate into our products, then yes. But I think the way I would characterize it is, ultimately, the digital network is going to create a multiplier effect for the revenue that's generated by the products.

And Steve, if you don't mind, I'll add just one other comment here. We see our existing ecosystems, right? And the scale of partnerships that we have as a really great opportunity for us to drive the scale of the network, but also to give our partners in the ecosystem access to that network and the scale of the network provides. So we're very aligned on this vision that the ecosystem will play a really critical role in driving that scale in the future. But as Steve says, and I think this is particularly true with accounts payable automation, there is real value today that benefits our Sage Intacct customers, our Sage Accounting customers, our 50 customers, and the monetization will come directly through those products.

Great. Thanks, Aaron and Steve. What is the strategy for delivering cloud native multi-tenant SaaS solutions to Sage 50 and 100 customers? I think a couple of years ago, it seems as though expanding the capabilities in Sage Accounting was the preferred route. Is that still the case? Or is taking Intacct lower down the market, the new path?

Walid?

Steve. Yes. Great question. I love this question. Bringing this question a lot lately. And let me just be very crisp about the answer to that question. Every single 1 of our customers in Sage 50, Sage 100, Sage 300, they're all very important for them to participate in digital network. To that event, we need to do 3 things. Number one, we need to make sure we connect them all to our digital network. We need to make sure that every single customer we have, participate in that, so they could consume services from the digital network with their own choice. So some customers really want to stay with the desktop client. Some customers want to move away from the desktop client, and we're going to give them a choice, and I'll speak about that in a second. And some customers want to do it through mobile services. So the most important thing for us is to make sure that all our customer base moves with us at their own pace in terms of how to participate in the digital network. To that end, some Sage 50 customers want to stay on the desktop, and we can invest in that, and we're going to grow that franchise. Some of them actually will want to move to a cloud-native product like accounting product line. And some of them will graduate. And those graduate customers coming from either Sage 50 or Sage 100 and also our competitors, they want to move to our different product lines. For example, we have a product line that we are building that will be in Europe around what we call the upper small market, and they will transition to that. Some customers will transition to accounting. But we want to make it a choice. We want to be the trusted adviser for the customer, as Aaron and Steve said. What we don't want to do is a forced migration. I don't believe -- we do not believe that forcing a customer to move when they are not ready to a particular platform just because it is cloud platform is not the right element. However, we want to give them options to do that, similar to what we're doing with the Intacct franchise. There are some customers who are at the upper end of 50 that we know with Intacct is the right solution. This is why we did the additions for them. So our job is to make sure we give them the choice, but it's very important that we have them all participate and be active participants as part of the digital network. And that's how we're going to move them away from the concept, whether you're SaaS or not to the concept of your digital network enabled versus purely SaaS enabled. SaaS will always be there but we want them to be more digital network enabled and the consumer of the digital network services. Back to you, James.

Fantastic. When launching Sage Intacct into new markets, how do you decide which verticals to launch with?

Maybe one for you to pick up Dan.

Yes, sure. So when we're launching Intacct into a new geography, we look at the opportunity with that exists within that region to make -- look for the overlap with where we've had a historic success. And we will generally start with industries where we already know them well. So for example, in launching into the U.K., one of the most significant new markets for us was to look at how we serve nonprofits and how we do that with success as well as how we serve professional services organizations. And so because we already had playbooks for go-to-market that had worked quite successfully in the U.S. market and launching into the U.K. we picked up those playbooks, and we used those to build those businesses. But we also look at the uniquenesses of the region and look at how do we either solve natively a solution ourselves or how we work collaboratively with the ecosystem of partners in that region to be able to solve for something that might be unique to that region. So for example, [ the area ] is looking at how we solve for, say, mining in South Africa. So it's a collaborative effort in looking at so how are we going to win quickly for our customers that we already know how to serve and how do we look at the specific needs of a particular geography.

A question now on Intacct's competitive environment, a bit more generally. Can you please address the competitive situation for Intacct perhaps with some specific vendor commentary by vertical?

Yes. So again, I think one for Dan. I'll just make a couple of comments. I think we always say, particularly in the U.S., but it's true wherever we are, the consistent competitor is Oracle NetSuite. But it is worth bearing in mind that in different parts of the world and in different verticals, you do still see quite fragmented competition. So you get vendors who are particularly focused on a particular solution. But there is a real constant in terms of Oracle NetSuite. But Dan, do you want to say a bit more about that?

Yes, sure. I agree with Steve's comments there. Of course, we monitor what our competition is doing and NetSuite being one of the key ones. But as I said earlier on and what the kind of the DNA of the product, it's in the financial solution designed by accountants for accountants. We serve the office of the CFO. We designed to be a best-of-breed solution from early on, and that has helped us be very successful in competing against NetSuite. But it's broader than that. We know that we want to be able to be competitive in each of the verticals. This was asked -- that we're in. And so we look at the range of competitors in a particular vertical. I mentioned financial services before. And looking at financial services, it's not just NetSuite. It's some other legacy systems that have been more specific in that market and so making sure that we truly highlight where we have strength versus the -- those legacy systems. So competing against Archwave in that particular industry, as an example, or in financial -- in nonprofits against MIP and Blackbaud and making sure that we have real depth of capability around, say, grant tracking and our fund accounting capabilities and embedded really in that industry, the embedded analytics is a key capability. So I use those examples to kind of describe, we look at the specifics of an industry, look at where -- what the customer need is and then make sure that we have differentiated solutions that we can highlight for that particular industry. So we are a recognized visionary thought leader in that industry, not just a general financials solution.

Could you please explain the mix between organic investment and M&A in contributing towards Sage Intacct's success? And do you see M&A playing a key role in developing the product in new verticals and broadening beyond financials?

Yes. I think to date, the majority of what we've achieved through Sage Intacct has been organic. We have done some selective acquisitions. We created the sort of budgeting and planning module through an acquisition, which we then developed. And we've most recently done BrightPearl in order to enhance our capability within the vertical. And as we look forward, we see a similar pattern that the majority of what we'll deliver, will come through our organic capability. But both from a vertical perspective, so similar to what we did with BrightPearl, but also from a horizontal perspective. So Aaron has touched a few times on, for example, accounts payable capability, we will do a mixture of our own organic development and also potentially acquisitions. And of course, also, we will always through the ecosystem look to partner where we see that being appropriate. But I think the way to think about it is the horsepower, the core horsepower is coming from our organic capability, and we are enhancing and accelerating time scales accelerating time to market by selectively doing M&A.

We've got a question now on Sage's TAM. What do you think you've added by expanding into these new verticals, manufacturing, retail and CRE?

I'll let -- Dan, I'll let you comment in more detail. But I think I just kind of give a high-level flavor -- and it's worth just emphasizing that the absolute TAM numbers are -- they are expanding all of the time. The level of digitization that is taking place in the world is only increasing. And I think it's important to leave everyone with a very clear message that we are not TAM constrained. So we are adding capability and we are moving. We are increasing our functionality within these various verticals but we already have a very large TAM. Part of the reason that we enhance our capability, for example, into distribution and manufacturing is, of course, we want to acquire new customers, but we also are already present in those verticals. So Walid, and I think Dan already sort of mentioned Sage Intacct Manufacturing that we've launched in France, well, that's very important for us to do that, of course, to try and acquire new customers, but we already have a very substantial installed base within that vertical. So we have a lot of expertise within the manufacturing vertical. And so what we're doing is we're playing to our strengths. We're leveraging off those strengths that we already have within the team to create these compelling products. And I think -- I'll just hand over to Dan. I think Dan from memory, that manufacturing sort of distribution vertical, if you take the total TAM for Intacct, I think was something I might get this slightly wrong, but something around 1/3 or something like that is in those verticals.

That's accurate, Steve. The -- so that's right. And then kind of building on what you were talking about, we are not TAM constrained. The way we look at the opportunity is how do we drive accelerated growth rates that are bringing in more than our fair share of new market. So we're growing our market share in each of the verticals that we go after. And we are doing that in a way where it's the -- really, it's the fastest scale that we can achieve. I think that using retail is another example. I mentioned earlier that in FY '21, the retail solution, the BrightPearl solution, achieved $20 million in revenue. That was a 50% growth rate. we're expecting that business to continue to grow at those kinds of rates for the next several years. And that's an additional business on top of what we can do collaboratively in that industry, bringing in Sage Intacct Financials and Sage Intacct Planning. And so there's a set of solutions that we can bring as we to bear in for each of these target customer bases. I also mentioned -- I've to mention the retail case before that there's 111,000 customers that we now have access to. So we're not TAM constrained. We have the opportunity and that the focus for us is to drive the fastest possible growth rates that we can.

Terrific. Can you please explain the role that migrations are playing in supporting Sage Intacct's growth? Is there scope for these to accelerate? Or do you see your cloud connected and on-premise customers as happy where they are?

Yes. I think I'll let Walid add to this. But again, just a few high-level comments. I think the way to start really thinking about this is the thing that causes pain, if you like, for a customer is when they migrate their ledger. So when they migrate their kind of core general ledger, that requires effort, that requires an investment of time on behalf of the customer. And there has to be a reason for the customer to do that. Walid touched on this, that customers don't just move things for the sake of it. They move them because there's a reason and that might be because their business is expanding, it's going into new countries. They need different functionality, et cetera. But if it's working well for them, they resent being pressurized to move to something which they don't think they need. And so what's really critical is their ability to consume additional functionality such as consumer cloud services by pulling that functionality down from the network without having to change out their entire package. Now for the customer who's growing rapidly, has a change of circumstance, they've now got a CFO, they need more insight, et cetera. There is a natural path, which we can take them on to upgrade them, for example, from Sage 50 to Sage Intacct. But for many customers, that's just a step that isn't really near. And I think Walid touched on it earlier. And can maybe Walid, it's always useful to draw on those your Microsoft experiences because we sometimes use the analogy of similar to what we will do with office, right? The office suite gives us a lot more functionality now than it ever did in the past. But you weren't asked as a Microsoft office user to invest a huge amount of time to change all of your ways of working. What happened was your bundle increased over time, you've got teams, you've got all these various things that you started to use over time. And so for you, your customer experience and your customer journey was a very good one. And that's what we must always start with. What is it that we are -- we can do to enhance the customer journey and customer experience. It's not about forcing technology for technology's sake. It has to deliver something in terms of customer experience. Walid, do you want to add anything?

No, it's perfect, Steve. I mean, what you said is really perfect. Really, really think of our on-premise products in Sage 50 specifically or connected products, what we call, think of them just like the office -- the Microsoft Office Suite products in there. The most important thing for us is to give the customer a choice to consume digital services without much effort. That is really the critical part. That is why Aaron's vision that he explained and thus our product road map is critical to us. What we don't want to do is do something unnatural. What we don't want to do is force a migration for the sake of us just deciding that the technology deployment is the right thing to do. We want the customer to consume all digital services, banking services, compliance services, AI services. All these services that Aaron and Dan talked about, we want to give it to them in the best way they could consume it. And sometimes that means really the stock products and sometimes that may be a cloud product or could be totally an embedded experience through an ISV. So our strategy is about bringing everybody the digital capabilities and not just forcing someone to a migration path because it's just the way we decided that's the deployment mechanism they need.

It's probably just worth, James, just emphasizing, actually that -- of course, that anyone who moves to Sage Intacct, is moving from something. So it would be very rare for someone to go straight to Sage Intacct from nothing, i.e., from spreadsheets or from something manual. So there is a natural migration progress process, whether that be from competitors like Xero or Intuit, QuickBooks or from the Sage installed base. So before we bought Sage Intacct, there was a natural flow of customers from Sage 50 and indeed, in some cases, from Sage 200 as those businesses got -- there were these business catalysts to get them to migrate. And so there is some element of the growth of Sage Intacct, which comes from those migrations. But the message we're giving you is we're not accelerating the growth of Sage Intacct by aggressively pushing migration. What we're doing with Sage Intacct is actually what we've -- what Sage Intacct we're doing by themselves before we bought them, which is a mixture of driving new customer acquisition, targeting QuickBooks graduates, targeting other migrations. And also, at the same time, enhancing what we sell to our existing customers. So the renewal rate by value in Sage Intacct is an important leading indicator of how successful we are at cross-selling and getting the customer to consume more because these are customers who have more complex needs and have a propensity to want to consume more to make themselves more productive and more efficient, which is why having things like budgeting and planning and additional capability and functionality that we can bring into the bundle is so important.

That's great. That's great. Well, thank you very much. That brings us now to just over the 90 minutes, actually. Obviously, we need to wrap it up there. But Steve, Walid, Aaron and Dan, thank you very much. And to everybody who logged in, thank you very much for joining us. I hope you found the session informative. And we look forward to seeing or speaking with you again soon. Have a very good evening. Thank you, and goodbye.