Making Markets EP23: Delivering 4 Years of Double Digit Growth, Even in Tumultuous Times, with IFS CEO Darren Roos
In this episode of Making Markets, IFS CEO Darren Roos joins Daniel Newman to speak about the company’s recent billion dollar achievement. What are the forces that are driving IFS growth, and how will the company compete with the software giants that have long ruled the ERP space?
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Daniel Newman: A billion dollar software company that few have ever heard of. IFS is in focus after posting its first billion dollar year, as the demand for its ERP solutions continues to grow. CEO Darren Roos is on the show. And despite being a private firm, the company is very public about its business, including a full earning slate, which was shared last week. We get the scoop on IFS and why this is a company to watch in 2022. So stay right here, we’re back for another Making Markets.
Announcer: This is the Making Markets podcast brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies, bridging the gap between strategy, markets, innovation and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host principal analyst and founding partner of Futurum Research, Daniel Newman.
Daniel Newman: Darren Roos, CEO of IFS, welcome to Making Markets.
Darren Roos: Hi Daniel, thanks for having me.
Daniel Newman: Yeah, very excited to have this conversation with you. Always like to get high growth, exciting companies. Not every company on here on the show is necessarily a household name, but there’s a lot of excitement going on around IFS. So I’m going to start with that. I’m going to start with the fact that we’ve had the CEOs of companies like Honeywell, Qualcomm, HP, and of course I don’t necessarily have to do the intro. You’re a high growth company, you’re trending to a billion dollars, big numbers; not necessarily a household name. So give us the quick introduction to IFS so that everyone listening to the show can know a little bit more about you and the company you’re leading.
Darren Roos: Yeah, so we’ll do well over a billion in revenue in 2022. And we’re probably, as you say, the biggest software business you’ve never heard of. The reason for that is, is really that we operate in the enterprise software space, so enterprise customer segment space, as well as in the industrial industry space. So assets and service centric industries. So we’re not the kind of brand that most consumers would’ve heard of. But what is unique about IFS is that we’re a cloud business operating in the enterprise customer space in industrial verticals, but we’re a market leader, according to the analysts. If you look at the analyst’s ratings in field service management, we are the leader in asset management. We are the leader in ITSM. We are a leader, and in ERP we are a leader. So a really unique proposition to bring that leadership credential in the cloud, in the industrial segments. That’s what makes us truly unique.
Daniel Newman: As an analyst firm, we track the ERP space and the enterprise software space pretty significantly, among other areas. And I would definitely say, Darren, that as we learned about IFS, we were continually impressed with how you were able to carve out niches for the business that have created a really significant company. And like I said, was really excited to see that growth and that billion dollar hurdle, So few companies ever get there, so this is going to be a really big year. Now, it’s speaking of really big year, you also just reported your full year just this past week. So give us the rundown. There was some really impressive numbers, top line growth, cloud growth. What got you really excited? What are you most proud of? Break it down for me.
Darren Roos: Yeah, so we already said that we’re just a billion in revenue, but we’ve had four consecutive years of double digit growth. We grew software revenue 22% in 2021. We grew recurring revenue 30% year on year. We grew cloud revenue 105% year on year. And it’s a business where we continue to focus on profitable growth. So underpinning that growth, we’ve had a really strong financial performance on the bottom line too. So I think not dissimilar to what we’ve delivered over the last few years, frankly, and another strong year, which is a great testament to the customer satisfaction that we have.
And I guess it would be a logical follow on question you have, we managed to carve out this niche, because we’re growing at about three times the market on aggregate. And the way that we are winning that market share and outgrowing the market in that way, is that we’re recognized as the customer satisfaction leader in each of those segments too. So I talked about the fact that the analyst ranked us from a capability and execution ability as the leader, but we’re also the number one rank by customers, and that’s probably the thing I’m most proud of.
Daniel Newman: Yeah, and you should also be proud of just some of the overall top line growth numbers. For those out there that are listening to this, these are not narrow, double digit growth numbers. These are very significant, and in areas that people really care about. In software, you want software revenue. Sometimes it can get tied up in where is the growth coming from? Well, you’re seeing 22% recurring revenue, which is the holy grail for software companies right now. License based companies are all moving in this direction. So anybody that’s tracking the street, tracking numbers, tracking growth are all looking at how fast is recurring revenue growing? You were up 30% on the year, which is strong. Cloud revenue, now this was one that is a growing business for you. So people are going to want to see a big number, and you gave them one at 105%. Then service management performance also very high, double digit growth.
So you kind of hit it on all fronts. As I always like to say, especially in markets that are as tumultuous as they are right now with all these macroeconomic pressures and all these beliefs that higher interest and inflation are going to be somewhat of a squash to growth. I actually think these are strong indicators that the continuation is going to be in place. I also will continue to reiterate right here on this show, Darren, that I actually believe tech, the type of tech you’re in, is pretty much deflationary, although people don’t want to necessarily acknowledge that right now because it goes against the market narrative. But most companies that are going to be looking to streamline business, improve operations, margins, increase productivity are going to be looking at software. They’re going to be looking technology, automation, IPA, AI. And at the bottom of all, that has got to be a system of record, a system of record has to be there, so that puts you in a really good position.
So we talked about the fact that we do track the market, and there are some very successful companies. Some are very innovative, some are more monolithic. I won’t name names, but you guys have done a good job of competing. What do you attribute to, in terms of your strategy and the direction of the company, that’s been enabling you to be so successful competing?
Darren Roos: Yeah, I touched on this customer satisfaction metric as being a key thing that we track and that we attribute the success to. And that’s the root of it all. We talk about our ambition to help our customers to deliver outstanding moments of service for their customers. And obviously a very asset and service centric, and that’s fine, but the reality is, it comes down to our customers for these large enterprises, delivering moments of service to their customers. And that’s all about orchestrating resources, assets, their customers, their people. And when you’re orchestrating those things in what is becoming an increasingly complex landscape with lots of best of breed applications, it’s getting much more complex. And the industry, at large, has made it more difficult because the greater the proliferation of best of breed applications, the more heterogenesis those landscapes are becoming, the more complex it becomes for large customers with a multitude of applications to orchestrate great moments of service for their customers.
And what we look to do at IFS is, all of these capabilities that I’ve referenced with field service management, asset management, the ERP suite, is in really enabling customers to do all of those things on a single application. So IFS Cloud, which is our flagship product is a native cloud application that enables our customers to do all of these very complex things, orchestrate those very complex, different resources within the organization, but on a single application, single unified UX, single data model, single database. So you don’t have all of the complexity of, how do we manage this disparate cloud? How do we manage these disparate data sources? How do we keep our data clean? All of the things that most large enterprises are already struggling with, we make that super simple. And I think if you combine that with our industry expertise, because our applications are very industry focused, then that’s a winning formula and leads to customers being able to deploy the applications much faster than a traditional horizontal application, and deliver a much faster time to value at a much higher ROI.
Daniel Newman: Which are all important to the calculators going on in both at the executive and board level, but also of course, in the IT departments, with more and more becoming a strategic part of the decision process. And of course, ERP ties together three or four of those core groups. You got operations, you got finance, you got IT. Then of course everything from data, privacy, security, and these are all coming together in simplicity, flexibility, profitability are all top of the list for all those groups, you could argue.
One of the things I’ve found really interesting, Darren, about the company, and you mentioned this, but it is the focus of the company. There are dozens of industries, and depending on how you break industries down, some companies are actually tracking more than 20 in this enterprise software space. You have decided not to necessarily try to go down all those different routes. And in fact, you’ve reached this level of growth and success by really tracking on five. What’s at the foundation of making that choice of only focusing on five, as opposed to trying to go more horizontal and tap into more of those opportunities?
Darren Roos: I think that if you’re going to drive a faster time to value and a better customer experience, then there has to be something behind it. They can’t just be words. You can’t just say, “I’ve got an industry template,” or something like that. The application has to be built for that industry. And if we think about what we do from an R&D perspective, we think about what we do from a domain expertise perspective, we have that industry depth of knowledge. And that means that we can go up against most of our peers or horizontal application provided. And they’re trying to sell to customers that their ERP application or their asset management application, whatever it is, is the same application that they deploy into a bank, or into an insurance company, or into a discrete manufacturer or into an airline. And that’s nonsense. It’s absolutely nonsense, because the processes in those organizations are completely different.
So what we do is we stay very vertically focused, and because we then have a much greater level of functional capability that is unique to their customers requirements, it means that we are able to deploy faster, and therefore, they do see success faster and the ROI is better. I think the other thing that’s very important is I touched on the fact that we deploy all of these things on a single application, but over 80% of our customers don’t buy just one bundle of capability. So the industry has come up with these ideas of ERP, and FSM and EAM, but the reality is no customer wants to buy an asset management solution or a field service management solution. They have a business problem, and they’re trying to solve that business problem.
And what we’re able to do is, because all of these modules, this capability exist on a single platform, is that we can deploy what they need to be successful, irrespective of what acronym it fits into. That’s not the way we think about it. So that means that most of our customers that have what would’ve traditionally been a field service management problem, are also buying asset management capability, and supply chain capability, some HR capability, in order to deliver the right solution for that problem. But if they were to try and do that with a bunch of best of breed applications, they’d have to buy multiple applications, different release cycles, different UXs, different databases. They’d have to figure out how they integrate them, how they maintain them, and that would be impossible. And that’s why we are having the success that we are.
Daniel Newman: Yeah, there was a lot there. And a couple things you said that really grabbed my attention. One is, people don’t buy technology to solve technology problems, they buy it to solve business problems. So at the end, that domain expertise becomes incredibly important to being able to say, “Hey, we’ve got a solution that’s really focused on your vertical,” can resonate a big way. Now of course, you’re increasingly seeing your competition come out with these cloud for, I call it. It’s a cloud for strategy, cloud for manufacturing, cloud for retail, cloud for healthcare. And I imagine they’re all going to continue to do that because, what I always say, there’s the industry veneer, and then there’s the deep industry domain expertise. And I’m not suggesting that the companies that are building these cloud fors aren’t deep industry, but I think their first goal is always to create.
All right, well it’s always creating that veneer first, Darren, right?
Darren Roos: Yeah.
Daniel Newman: And over time, sometimes as business grows, and some of these are incredibly large companies that are doing huge revenues in these areas, but are now saying, “Oh, we need to have a cloud for this particular vertical, because we want that customer to feel special.” You also mentioned supply chain, which I think after ’21, and ’22 and the shortages, every company has put this at new level of focus saying, “What are the tools, the specific capabilities, analytics, machine learning, and algorithms, partner integrations, that can hopefully prevent the deep challenges that were created across almost every industry? And of course software alone, Darren, won’t fix it. Software alone isn’t going to solve this problem, but having the right technology and tools can certainly, when you’re doing things like multi-channel acquisition for supplies in the manufacturing process. You might have one source, two source, three sources. Can you opt optimize the sourcing, use the metrics of your sales forecasting to be able to order the right amount of supplies from the various different and get them on time?
Because the one thing we do know, Darren, is every company that’s done better, had a much better grip on their supply chain and understood their customers. The automotive industry, for instance, clearly had no understanding of its customer, of the customer’s demand, and made terrible decisions about its sourcing for chips.
Darren Roos: Daniel, you’re 100% right; it comes back to that orchestration. And the thing is that the orchestration critically is not just about the supply chain. I think your best of breed supply chain vendors would like you to believe that it’s all about the supply chain. And your CRM vendors would like you to think it’s all about CRM. And your HCM vendors would like you to think it’s all about HCM. And I could go on through the multitude of best of breed single solution clouds that are out there, but in reality, the customer needs an end to end solution. None of those things that you’ve just described, why didn’t they have the visibility into their supply chain? I bet you, every single one of those automation vendors is running a best of breed supply chain solution.
The problem is, is that they didn’t understand the demand, and they didn’t understand supply chain. It was that orchestration of the different pieces that becomes problematic. And that’s where we differentiate ourselves. I personally am a big believer that history is has repeated itself. We started off rather in a world, we had large monolithic applications that were natively integrated, that gave customers that benefit. Then the cloud has come along, it’s all fragmented. And I believe that it will reconsolidate. And we’re seeing that reconsolidation because you see salesforce.com broadening what they do. You see ServiceNow broadening what they do. You see Microsoft doing it, you see SAP doing it, you see Oracle doing it. None of them are saying, “We’re just going to stay in our best of bread niche.”
They’re all broadening it, but in their case, the way that they’re doing it is by creating a very fragmented heterogeneous collection of applications that are not synchronized, that are not integrated. They don’t have harmonized data models. They don’t have harmonized UXs. And they’re trying to flog that to customers under the guise of it being a single suite, which it’s not. And I think that, that’s where we differentiate ourselves. Now, if I may, what we recognize is that every single customer that we have, including ourselves as a customer of our own technology, will run multiple applications. We don’t believe that IFS will be the single solution that they run. And because of that, with IFS cloud, we’ve invested heavily in APIs and restful APIs, in order to ensure that we can be part of an application economy, but give customers that flexibility to say, “We’re going to consolidate a good chunk of this into a core that can reduce this complexity for us, somewhat.”
Daniel Newman: So I’ve got only a couple minutes left with you, Darren, and I really appreciate you spending the time with me here. And I want to finish on something that just struck me as you’re talking, because customer experience is clearly a big focus of yours, trying to be flexible. You mentioned about the APIs and the connectivity to other systems, which are all things that I think customers like. They are also all things that people like investors and outsiders look at and say, “Are those limiting? Are you limiting yourself? You have picked a select number of industries. You’ve chosen to be more flexible and not trying to be monolithic and not trying to solve every problem and every application. You’ve gotten to a billion, and that’s a big number, but now everyone’s saying, “Well, where does the next billion come from?” So I want to challenge you a little bit. So all those things you’re doing to be customer experience centric, and to be flexible and agile, how do you not allow those things to be limitations in your next wave of growth?
Darren Roos: Yeah look, I think we’re very fortunate in that the markets that we compete in are still huge. We have a roughly 107 billion, rather, TAM. $107 billion, and that TAM is growing 10%. We’re a very, very long way from having to think about how we diversify out of what we are doing at the moment. We’re very humble. We don’t take anything for granted. I see the billion only as a validation that the strategy is right. It means nothing else. We’re still largely irrelevant in the context of the mega vendors, but I’m confident that growing at a billion in revenue, growing at three times, the market validates the strategy. And we see that in the wins against all of those big vendors every single quarter.
And for me, lots of runway on the TAM. There’s no need for us to fragment that anymore. We’ll let the people that are great at the things that we don’t do, continue to be great at doing that, and focus on making sure that there are great adapters and integration points for those vendors, so that they solve problems for customers. And I’m fundamentally a big believer that if we focus on solving our customer’s problems as the number one priority, that we will win sustainably. And we’re fortunate. When I took over this business four years ago, we were subpar half a billion in revenue, and we didn’t have anything to prove. We didn’t have a 10 billion maintenance base, and analysts and customers expecting something of us. We were able to reinvent ourselves and we have the benefit of being able to just do the right thing.
And I hope it stays that way. I’m happy to be called to account by our customers. Every decision that we’ve made, since I’ve come to this business, whether it was moving to IFS Cloud. We still for customers that want to deploy IFS Cloud on frame, the option to do that. That’s an incredibly unpopular decision by conventional standards, but customers love it. We have invested heavily in our ecosystem in order to stimulate that ecosystem and give our customers optionality so that they can choose the type of partner they want implement with. That was very unpopular I was told when I started, but it was the right thing for our customers, and it’s proven to be the right thing for the business over the last four years. So I’m a big believer that there’s no wrong way to do the right thing, or right way to do the wrong thing, you just do the right thing by our customers, which is what matters most. Then our other stakeholders, our employees and our shareholders, will benefit.
Daniel Newman: That’s a really great way to end there, Darren. I did want to say something when you mentioned that you guys were able to have nothing to prove. It’s kind of a luxury position for a publicly traded company.
Darren Roos: So we’re not publicly traded, we’re privately owned, and that helps. The fact that we’re privately owned and I can sit with my investors for days and convince them that my strategy is right, is a luxury that I have, but it benefits our customers. And I don’t have to make a decision that compromises our integrity with our customers because I’m trying to hit next quarter’s number. And that helps a lot.
Daniel Newman: Yeah, absolutely. You know what, I need to eat my words there a little bit. What I was saying is you’re a company that publicly discloses your financials.
Darren Roos: That we do.
Daniel Newman: Like a publicly traded company, which obviously when you do that as a private company, you expose yourself to scrutiny that, of course, people can’t penalize you by shorting your stock or by a varying number of negative actions or activist investors. Of course, you have probably your backers and your money that’s in the company, but my point is, when you are a full disclosure … And that, by the way, is a very interesting decision by IFS and maybe something in a future episode I’d love to talk to you a little bit more about is, why do that if you’re not actually benefiting from the excitement and the positivity of reporting to the public market? Why put yourself through that?
Darren Roos: We can talk about it.
Daniel Newman: But we’ll do that next time, Darren, but I really appreciate you joining here on Making Markets. We’ll definitely have to have you back sometime soon. Congratulations on the run of form that you had in at 2021. And I guess let’s cross our fingers, another big year. Let’s hope those macroeconomic forces aren’t as disruptive as I’m hearing they’ll be, because my suggestion is, tech will carry on. So Darren Roos, CEO IFS, thanks for joining Making Markets.
Darren Roos: Thank you, Daniel.
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Daniel Newman is the Chief Analyst of Futurum Research and the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio