 Live from Boston, Massachusetts, it's theCUBE, covering IFS World Conference 2019, brought to you by IFS. Welcome back to Boston, everybody. You're watching theCUBE, the leader in live tech coverage. This is day one coverage of the IFS World Conference. Darren Rousses here is the CEO of IFS. Darren, thanks for coming back in theCUBE. Great to be here again. So last year was your first year. You kind of laid out your vision at the World Conference. How's progress? Yeah, look, it's going incredibly well. We were really focused on how we go from being a pretty fragmented global business to being an integrated business where we were able to operate at scale globally in a very homogenous way where the customer experience was the same irrespective of where they engage with us. And we've made a tremendous amount of progress with that. So the business is growing really strongly. Net revenue is up 22% year on year. Our license revenue is up 40% year on year. Our cloud's up in the triple digits. So it's tough to be critical of how it's going so far. Well, that's great. You're growing faster than your peers. I think the stat was you gave us three X faster than the industry, which is awesome. Is that your primary benchmark? Do you want to gain share? You want to go faster than the big whales, I presume. I think two things. One is customer satisfaction, we believe is the key indicator of long-term success. So we're the number one ranked ERP and FSM on Glartner peer insights. That is and always will be my number one metric. Can we be, are we the number one from a customer satisfaction perspective? And then I believe the revenue stats will follow and that's where we are. So certainly if you look at our core peers, the big ERP vendors, all of them are flat and we're growing 22%. One of the things you mentioned in your CUBE interview last year was one of the things that you wanted to focus on was I'll call it regional alignment. Paul and I, we used to work for IDG. I worked for IDC. You were editor in chief of computer world and we worked for a company who had more offices overseas than IBM. And it was really hard to herd the cats and that was one of the things that you cited. Have you been able to get people generally pulling the ore at the same time and how has that affected your business? Yeah, look, I think the big challenge before I arrived was that there wasn't really a strategy or global strategy for the business. IFS had a way of working and there was a strong culture but there wasn't really a strategy and obviously it's difficult to be critical of people when they're not following the strategy when there isn't one. So, step one was really making sure that we had a strategy and that was really about being focused on the five industries that we focused on, focused on three solutions and focused on the segments of customer which was half a billion to five billion. So now globally, irrespective of the office that you go to, anywhere in the world, they're focused on those five industries. They're focused on those three solutions and they're focused on that customer segment. So, it helps when there's a clear message. That's a good start. I said during our preview video this morning that I've been around this industry as long as IFS has and until last year I'd never even heard of you. Is that just me being clueless or is there something there that needs to be addressed? We were just saying before we started that we're definitely the biggest software business you've never heard of. And that's common, I think. There are a couple of factors. One is that the business was very European centric and it didn't really engage in a tremendous amount of marketing and media presence. So, those are elements that I think we're doing a better job of now, but we have a long way to go. The challenge that we have is that where we compete, we win. When we get in and we're able to tell our story and we're able to show the value we win, we just don't get into as many deals as we need to and that's the challenge we have. There was a lot of talk this morning about the importance of those five pillars of those five industries. If you're going to become the next SAP, you're going to have to branch out beyond that. What is your thinking about diversifying? Yeah, so becoming the next SAP is definitely not my ambition. I think we remain focused on customer satisfaction and I think there's a different, whatever it is, leading them. It's not customer satisfaction. And you worked there for four years. And I worked there for four years, so I know. I think the big thing for me is, is that we've got to stay focused on that customer voice. Stay focused on what delivers value for our customers beyond just the rhetoric and hyperbole. I think when you listen to a lot of the complexity that our customers are facing today, any customers are facing companies are facing increasingly disruptive times and the tech industry is making life more difficult for them. The more best of breed solutions get built, the more fragmented that potential IT landscape is, the more complex it becomes for customers if they have to try and figure out how do we integrate these things and derive value from this highly fragmented landscape. So we're trying to solve that problem. How do we make it easier for customers to challenge in their industry and that's where this whole for the challenges hashtag comes from, how do we help them to be disruptive in their industry, have competitive advantage? There seems to be a sort of a fundamentally different thing about your approach, though, is this focus on those vertical industries. Most ERP companies did not do that. Is that something that is core to your values? Look, I think what we recognize is that as you move to the cloud, you have to drive fit to standard. That's just the reality of going to the cloud. And what's happening for the horizontal ERP vendors, so the likes of SAP and Oracle, is that they have one ERP solution that fits every industry. So if it's good for health insurance and it's good for a bank, then it's difficult to really get your head around the fact that it could be good for a defense manufacturer. The functional requirements is simply vastly different. And that means that you have to customize them. If you have to customize that they can't go to the cloud. So what we believe is that you have to have this vertical specialization. The five industries that we service all have a lot of commonality in the processes that they use. And that's why that vertical strategy is so key to our success. So you won't see us going into financial services or healthcare or retail with that core application. We may, in time, in many years to come branch out, but it will be a different solution, say. So you'll tailor that app or that module for that industry. You'll go deep, deep functionality, you're known for that. But at the same time, you're also messaging, you want your customers to be able to tailor for their environment. So square that circle for me there. Yeah. So I think when we talk about choice, and I think tailoring is the wrong word, when we talk about choice, we're talking about choice of deployment on-prem or in the cloud, choice of customer, choice of partner rather, who they're going to deploy with. And then the solution is really an industry solution that comes with that functional depth and we don't advocate that customers customize that at all. We really don't want them to customize it. What we explain to them in some detail is that the real value comes from adopting the solution fit to standard and staying on a vanilla application because that vanilla application, you're going to be able to withstand future upgrades, the total cost of ownership gets lower, the processes that are embedded in that application are best to breed out the box. That's what they're intended to do. And that works when you have a vertical application. When you have a horizontal application and you're trying to have it do things that it shouldn't naturally be doing, that becomes complex. Correct me if I'm wrong, wasn't that essentially the message SAP had when it went through its hyper growth in the late 90s? I mean, there was a Y2K thing there too, but a lot of the message was around do it our way and then you don't have to get stuck in a rut. Yeah, so I think that when SAP came out with that generation of application that certainly was what they had hoped would happen. But what happened in practice is that the system integrators came in and the whole business process re-engineering explosion happened. And that's not how it manifested itself. So what you see is you see these very large, monolithic SAP applications that were customized over, in some cases, decades. Not, you know, if a customer is deploying fit to standard then they should be able to deploy in a period measured in weeks. You know, we spoke about our deployment with Racing Point, the F1 team, and going live in 12 weeks. You know, we're a 700 million global business we deployed in IFS in 24 weeks. You know, if a customer's deploying fit to standard it's measured in weeks. As soon as they start to talk about two years or three years or five years or seven years they're customizing the solution significantly. Yeah, I mean it became just sort of a perpetual upgrade, maintenance. And now for the time it had a business impact, but boy, you think of cloud today, agility, you know, getting rid of waterfall approaches. I mean it's just antithetical to today's environment. I think, look, I don't point fingers here. I think that there's just maturity come with experience. The line of business applications, your CRMs and your HR solutions have taught people that you can, if you think about it, let's just look at CRM as an example. You had Siebel before and people would implement Siebel. They would customize Siebel. It would take long implementations. They were highly bespoke applications and then Salesforce came along and just destroyed them. And they destroyed them because what people learned very quickly was that there was a really easy to consume, really easy to use application that functionally might be inferior, but the compromises that you'd make from a functionality perspective were way outweighed by that time to value and ease of use. And the learnings from CRM and HR and procurement, those line of business applications have now been backed into in the ERP world. So in terms of capital allocation, you're owned by private equity, which is actually a public company, I'm interested in how you're allocating capital, R and D, where your emphasis is, you don't have to do stock buybacks, but describe that PE relationship. So look, one of my learnings as CEO of IFVS is that not all private equity firms are equal. They have different strategies. I'm very fortunate to be with EQT, who are a growth investor. They're known as a growth investor and they buy companies that are strong growth tech firms. And they've been hugely supportive of us investing because they understand that the investment in technology is important. So just looking at some detail, today we invest twice as much in R and D as we did three years ago, just to give you one data point. So there's a big focus on technology. And the thing is that we have to invest in technology to drive those attributes that I discussed earlier. How do we enable customers to adopt the solution, fit the standards so they can go live quicker? How do we enable customers to be able to sit down in front of the application like we do with a mobile phone and intuitively know how to use it? How do we reduce the total cost of ownership through automation? Those are capabilities that they don't come for free. We have to invest in them. So big investments in technology. Well, I think the private equity guys, at least the modern ones, have realized that why should the VCs have all the fun? They realize, hey, we can actually put some money into R and D, transform it, we can have a bigger exit and actually make much better returns than suck in the company dry. Yeah. Well, look, I think the other thing is is that in public companies, you have the downside of, there's this quarterly metric and there's quarterly cadence. And you see very compromising decisions being made because people can't afford to miss one quarter. There's no long-term planning that's done. And that's fundamentally not the case. In the private equity world, not unusual now for PE firms to hold companies for five, six, seven, eight years. And that allows you to take a very long-term strategic view. If a shift from perpetual to subscription is the right thing to happen, they can do that without worrying because of the dipping earnings or revenue that you're going to get gained by the market next quarter. And I think that that leads to, I think, better decision-making for the long-term. Well, a lot of companies are struggling with that. If you have the right PE firm, right? Absolutely. If you have the right PE firm, 100%. A lot of companies that are bought by PE firms eventually want to go public again. You're 100%. But you said something this morning that 50% of your customers each year are net new. How are you pulling that off? That's a pretty remarkable number. Yeah, so 50% of our license revenue. So we went about 300-odd new customers a year. Obviously that's growing, as I said, 40-odd per cent. But I think having done this for 25 years, there are companies that are good at extracting revenue from their install base. One of the analysts here has a hashtag wallet fracking is what he refers to it as, which I think is such a great term. So they're good at wallet fracking and I think the customers that are customers of those vendors know exactly who they are. And I think that for us to, the fact that we're able to go out and win 50% of our license revenue from net new name customers, I think is a really strong indicator of the health of the business. It's much harder to do than just extracting revenue out of the install base. We don't have a compliance practice. We've never charged a customer for indirect access. And these are principles that we stand by. And it's easier to say that you're customer centric and then get 80% of your revenue out of your install base because you're doing compliance rounds. But we put our money where our mouth is and that's not how we do it. Are these net new customers, are they migrating from QuickBooks or are they migrating from a competitor? No, because of the segment that we're in, there's half a billion to five billion, I would say the majority of them are what I would call first generation ERP solutions. So you're talking about the original generation of Microsoft acquisitions and the visions and the Xaptors and the Solomons and so on. And then SAP R2 and R3 customers, you're talking about customers sitting on the solutions that N4 hoovered up, the MAPIX, BIPIX type customers, AS400 customers. So they're first generation ERP solutions that simply don't have the flexibility to deal with the complexity and demands of a modern business world. From 2009 to about 2017, IFS was pretty acquisitive. And then just, actually I was going to ask you, what about in your tenure, you stopped it, right? But then today you announced an acquisition, small acquisition, but how should we think about M&A? So look, the first year for me was really about trying to build a functional business. We spoke about how fragmented this really heterogeneous business, and it just occurred to me, if we go out and we start to buy things, how do we integrate them into a business that's completely fragmented? That had no identity or culture. So the last year has been focused on how do we build that common understanding of what it is that we're doing. We now have a very clear strategy, five industries, three solutions, one segment. And when you have that clarity of vision, then it's really easy to guard and do M&A because you know what fits and what doesn't fit. You can understand exactly how you're going to build value for customers. And that's why the SDR deal is so good for us because we're now the undisputed leader in field service management. You know, 8,000 odd customers globally, which is way more than anybody else's got. And you know, you should absolutely expect more from us, but it will be in the five industries, three technology segments, and one customer-sized segment. Well, on the API enablement should obviously facilitate that. Yes, absolutely. I mean, I was just with a partner of ours now, and they have this amazing augmented reality solution. And you know, it'll be a combination of going out there to build market share, as well as finding really innovative solutions that can help us advance the technology that we provide customers. You have a new slogan this year for the challengers, which seems to be aimed at companies that imagine themselves as challenging the giants, which is great. But if you're not a company that sees themselves that way, are they still, they still have a home with IFS? Look, I think I was with a group of CEOs from one of the big analyst firms. And they had the portfolio companies, and they have a private equity firm and analyst firm. The CEOs of their companies are having a conversation with them about digital transformation. And I made a rather provocative statement, which you know, got unanimous agreement, which is that all of the CEOs there were either in an industry that was being disrupted and were trying to figure out how their response to that disruption, or they would soon not have a job. And they all acknowledged that they absolutely fit into that category. In other words, all of them were being disrupted. All of them were facing a challenge. It was kind of like, it is happening to all of us at a more rapid pace than we've ever had before. So my view is that if you're in the room and you're going, IFS might not be for us because we're not a challenger, yeah, the lights may not be on for long. So double click on that. What role does IFS play in terms of digital transformation specifically? So if I could just build on that question. Because the thing is there are leaders. In my mind, there are challengers and there are leaders. The leaders typically are going to go with the safe solution. They're going to go with one of the legacy ERPs. So I'm not suggesting that everybody necessarily is a challenger. There are leaders, you know. Nokia was a leader until they weren't because they were complacent. And I think they, you know, well they didn't run on IFS. So, you know, I think there are two segments. There are leaders and there are challengers and we're there for the ones that are ready to disrupt. Sorry, if I could just clarify that. No, no, good. So again, back to sort of digital transformation and disruption, what do you see as the role of ERP generally, but specifically IFS? Look, I think we, digital transformation is a lot of discussion about it on the stage this morning. I've just touched on it now. I think that it takes very different forms. What most industries are finding is that they're facing a lot of non-traditional competition and they're having to innovate around their business models. They can't go to market in the same way as they did before they're having to innovate because of this non-traditional competition and understanding your customers. Understanding your staff, understanding your supply chain, understanding your financials are all critical parts of being able to respond to whatever that changes and that's where an ERP solution comes into it. I think there's an interesting challenge now which is that as those applications have become more fragmented and you've got more best-of-breed cloud applications, a lot of the value of an ERP was that you had this integrated set of applications, that you had this one source of the truth and unfortunately for many customers today they don't have that because they've gone and bought all of these best-of-breed applications and they don't have one source of the truth. They have multiple invoices, made it multiple versions of their customer and their databases and we still stand for a single integrated ERP. So I think understanding those elements of your business is key. I was with a customer of ours in Nebraska a short while ago and they were talking about, existing IFS customer, they were talking about the steel import duties that were imposed through the trade wars with China and they were saying, look, they had been able to respond to that in a way that they had good visibility of their supply chain who was imposing the tariffs, how they were gonna impact them and when they were gonna impact them and because they had this integrated ERP they were able to pass those pricing changes onto their customers and they survived this what could have been a cataclysmic event for their business. Had they not had an integrated ERP if they had not been able to have this visibility into the supply chain and the customer base they may well have gone out of business just because of that one change. To me, Darren, it all comes back to the data. They're putting data at the core of their business that integrated data pipeline is essentially what they get out of that integrated ERP. Last question, so thinking about the next 18 to 24 months what are the milestones that observers should look for? What are the barometers that we should be watching? So look, in the next two years it's really about us building incremental scale. We have a four year plan which I built when I came in we're halfway through that plan. We've hit all of the metrics and exceeded most of the metrics that we had on that plan. It's really continue to focus on the strategy as I said. We focus on those five industries, continue to build market share, continue to focus on those three solution types and build market share and market dominance on those three solutions and in that segment that I defined before. So no change from a strategy perspective I think there's real value in the consistency that we bring on that talk track. And along the way we passed the billion dollar mark which we will do I think in 2021. Organically if we accelerate some of the M&A we'll pass the billion before. But you know the business, the margins continue to expand. We focus on customer satisfaction and it's a pretty straight traditional playbook that we have to execute on now. Well congratulations, it's a great playbook and you're growing very nicely. So love that. We really in honor to the last couple of years learn a little bit about your company and your industry so appreciate it. It's a pleasure to be with you guys. Thank you. All right and thank you for watching. Right back with our next guest. Right after this short break Dave Vellante with Paul Gillan, you're watching The Cube from IFS World Conference from Boston 2019. Right back.