UKG Inc.

We expect fiscal 2021 revenue growth to be about 7%-8%, only slightly lower than 2020 levels. We expect subscription revenue growth to be about 15%-16%, similar to 2020 growth. The lower total expected revenue growth is driven by larger declines in the legacy on-premise Kronos products, with licenses declining 15% (2020: -5%) and support declining 13% (2020: -7%). We don't believe client-retention levels will deviate from historical levels and that the vast majority of this revenue will be recouped in the growing subscription segment. Our stable outlook on UKG reflects our view of its highly recurring revenue from its SaaS business model, and our expectation that the company will continue to grow its revenue base while maintaining stable EBITDA margins.

...With new customer acquisitions difficult to come by during COVID-19, fiscal 2020 growth came primarily from successfully selling back to its customer base. Pro forma revenue grew about 8.5% in fiscal 2020, about 200 basis points (bps) higher than our previous forecast. For historical comparison purposes, revenue grew about 10.7% in 2018 and 12.7% in 2019 after adjusting for the merger and change in fiscal year-end. We attribute the variance in our forecast to better-than-expected license revenue, which declined less than our expectations. With Ultimate products being 100% software as a service (SaaS), the license revenue volatility comes from users of legacy Kronos products choosing to maintain their existing on-premise infrastructure rather than migrate to the cloud during COVID. The negative license revenue growth is to be expected, as this segment (along with related support) is in secular decline as both new and existing customers sign on to the SaaS platform products. We expect license...

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