Q4 2021 Zuora Inc Earnings Call
Good afternoon, and welcome to <unk> fourth quarter and fiscal year 2021 earnings conference call joining us for today's call are sore as founder and CEO Teen show and CFO Cha Mcelhatton at.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
With that I would like to turn the call over to Carolyn bass Investor relations for introductory remarks.
Thank you good afternoon, and welcome to the worst fourth quarter and fiscal 'twenty 'twenty, One yearend earnings conference call George.
Joining me today are teens, though is the where is the founder and Chief Executive Officer, and Todd Medical Hatton, Zora's Chief Financial Officer.
The purpose of today's call is for US to review, our fourth quarter results as well as provide our financial outlook for the upcoming first quarter and fiscal 2022 year.
Some of our discussion on responses today will include forward looking statements. So as a reminder, our actual results could differ materially as a result of a variety of factors you can find information regarding those factors in the earnings release, we issued today and in our most recent filings with the SEC.
Finally, we'll be referring to several non-GAAP financial measures today and reconciliations to GAAP measures are included in our earnings press release.
Please note that in Q2 of fiscal 2020, one we began to exclude litigation charges and the benefits outside of the ordinary course of business from our non-GAAP financial measures for a copy of our earnings release links to our SEC filings and a replay of today's call or to learn more about SURA. Please visit our investor relations website at Investor.
<unk> Dot Zora dotcom.
And with that let me turn the call over to team.
Thanks, Carolyn I'd like to welcome everyone to our call. Thank you for joining us today on <unk> earnings call covering our fourth quarter and our fiscal year 2021.
Overall, we executed well in this quarter.
We exceeded expectations across our operating results, including total revenue subscription revenue non-GAAP gross margin and non-GAAP operating income.
We posted our first full quarter of positive free cash flow and.
We had a record upsell quarter, reflecting good momentum with our land and expand go to market strategy during.
During the past year, we solidified our leadership team improved our go to market with alliances and partnerships investing in our product roadmap, including our platform.
In short Q4, with a strong cap off to a year of transformation.
We coined the term subscription economy, and we intend to grow at the rate.
The subscription economy to be an index. If you will have one of the biggest trends of our time. This requires us to continue to make progress on solidifying our position as an indispensable solution provider to the best subscription businesses.
For example in previous quarters, we set our market opportunity resonated with bigger companies.
Customer preferences are changing and new survey from the Harris poll found that 78% of international adults currently have subscription services up from 71% just two years ago.
This is forcing big brands to rethink how they continue to drive growth in their revenues and turn their customers into subscribers.
To meet the growing demand from these bigger companies we.
We align our go to market efforts last year in our Q4 results reflect those efforts, we continue to see our messaging resonate with larger brands.
<unk> been having meaningful conversations with C level executives at some of the biggest companies in the world. They are coming to us for our expertise and staying with us for our technology.
We continue to close larger deals in Q4, we closed a record eight deals with an annualized contract value or ACB for $500000 or more.
Cheering the trend of Q3, when we closed the biggest deal in the company's history.
Our services team has adapted to this change during the quarter. We helped over 40 customers go live and many many of these were large price.
This is Mike Easter computers, Bridgestone tyres radial, Canada, and riverbed and one of the biggest Italian clothing brands and all the while doing this while we continue to bring down time to go live and delivering our customer value faster.
We continue to invest in cash.
Customer success. This year, we saw ourselves with some of our largest customers in automotive software in the media industries.
And all this is happening around the world geographies outside of the U S continue to be a growth opportunity for us as we're seeing increased uplift in Asia Pacific and in Europe.
Let me share two quick customer stories, which help illustrate the value we bring to our customers you're seeing us talk in previous quarters about our work in technology media manufacturing and utilities industries in Q4, we welcomed a new customer from the financial services industry.
If you read the press you May think that this is an industry under attack and being picked apart by Highflying fintech startups, but.
But the fact is veteran financial services institutions have the customers the brands and they have enormous resources at their disposal.
What they need is agility.
And that's where we come in today, we're hoping one of the world's largest and oldest banks take the offensive by launching competitive new consumer and corporate services offerings, we get.
For them the ability to launch new products and services in weeks instead of months or even years.
Laura has given them the digital agility and insights of a startup.
Similarly, one of the most dramatic shifts we are witnessing our manufacturers moving from one time product sales to selling recurring services to their customers.
Last year for examples revenues of companies in our subscription economy index grew 12%.
While revenues in the S&P 500 declined by 2%.
A great example of this shift is gruntal's the worlds largest water pump manufacturer. The grumble story is a great. Great example of digital transformation. This is a 75 year old company shifting from selling water pumps and boxes to delivering water as a service and they're using as to where to monetize that.
Usage data coming from the sensors on the pumps.
With new as a service offerings companies like <unk> or doubling down on a recurring subscription approach to cater to their customer demands for axis over ownership.
You can hear more strength like this that are annual subscription experienced events, taking place virtually for March 23rd two the 25th well, we're going to have leaders from Philips IBM, Microsoft Xerox and others that will showcase how they're using <unk> to help launch and scale their customer centric business models and growth their recurring revs.
Yeah.
In previous quarters, we've shared our enthusiasm for zoro revenue.
Revenue recognition in a subscription world is very complex.
<unk> for this complexity is challenging.
For a revenue enables our customers to achieving faster quarter close minimize compliance risk.
More precisely forecast the revenue impact of their business decisions.
Well in Q4.
We saw that the combination of billing and revenue is turning out to be a powerful one.
Approximately one quarter of our new customer wins in Q4 included both zoro billing and Zora revenue.
A good example is <unk> a world leader in the next generation Cyber security, who Q4 turns is worth to help with this quote to cash transformation by selecting the buying power absorbed billing is where our revenue <unk> to go to market faster with new price models and improved they're on.
Operational efficiency.
This is why we continue to powered many of SaaS Ipos this year.
For one of these SaaS customers, we decreased our close time from two weeks to two days. The combined resort revenue ends were billing solution is eliminating manual processes and automating reconciliation data gathering accounting validation and revenue recognition.
And in fact, our NPS and customer satisfaction surveys clearly show that our more our most satisfy customers are the ones using both billings and revenue.
In Q4, we also continued to add for our leadership team and.
In January I was incredibly pleased to welcome Sri Sri Boston, as our key product and Engineering officer.
<unk> joins the world with more than 25 years of engineering and product development experience, having played a key role in the SaaS transformations of multi billion dollar companies, including Cisco and Microsoft.
Sri has the perfect background for zoro.
Steeped in ERP, having worked on a running Microsoft dynamics as product line for over a decade.
Tremendous experience in scaling engineering teams worldwide.
The general managers mindset for example at Cisco He ran a $6 billion business unit with multiple Gms reporting to him and most importantly free has hands on experience in working with the biggest and best companies in the world.
We are thrilled that he's joined our leadership team.
In previous quarters, we share our system integration partners are a key component in our go to market strategy for <unk>.
Q4, we saw more of our Si actively influencing and sourcing new deal activity for Zoro as you know at the onset of last year, we realigned our alliances team to deepen our relationships with our ethos.
As a result in Q4 <unk> brought us into more deals with prominent marquee customers.
On the eight deals at over $500000 that I mentioned previously three quarters of those large deals are they're influenced or sourced by our system integration partners.
Sorry for driving successful deployments over 40% of our customer go lives in Q4 involve a systems integration partner.
And we're encouraged to see larger size, such as Pwc, Accenture and Deloitte building will be call prime practices, where they invest in and strengthen their absorbed practices and these cases are sales people are selling a long side, our Si partners and in fact during fiscal <unk>.
21, these primed S ideals more than doubled over the prior year.
These are all proof points that our strategy to move up market and leverage our Si channel is working.
We said before that our long term strategy is to work with the biggest and best companies in the world, both Disrupters and incumbents and we continued to execute against that plan. I also believe that last year with a truly pivotal year for <unk> marked a real inflection point for digital the celebration.
<unk> all been beating it in the headlines and you've seen in the market. According to KPMG for a majority of USD. He owes the pandemic has meant an acceleration in digital transformation by months or even years. The move to Digitization has decelerated and the benefits will be permanent there is.
Is no going back since our report.
And according to Mckinsey businesses at once match digital strategy and wanted to be or phases must now scale their initiatives in a matter of days or weeks and we are certainly seeing this market shift in terms of inbound request and rfps.
In summary.
We were pleased with our execution this quarter capping off an unprecedented year with a strong finish we continue to make steady progress on the operational improvements we've outlined in previous quarters. We continue to innovate and we laid out a solid foundation that has us entering fiscal 2022 with positive momentum.
While we have plenty of work ahead I believe that we are headed in the right direction and we are really pleased with our continued steady progress.
I kept my comments purposefully short today as we're planning on holding an analyst day on April 12, we will be showcasing our new senior management team.
Lenny you hear from some of our customers and partners and update you on our recent progress and plans as we look ahead.
We will issue a press release with more details in the coming week, but for now please mark your calendars for April 12.
And now I'll turn the call over to Todd to review our financials.
Tom.
Thanks, Jane and thanks to everyone for joining the call as gene noted our team executed well during the fourth quarter as demonstrated by our financial results exceeding expectations across all our key financial metrics.
In FY 'twenty, one we laid the foundation for long term growth I am pleased to see the incremental progress. We made in Q4 as we look ahead, we plan to continue to focus on growth predictability, improving net dollar retention and driving efficiency.
Let me first review our key metrics as Tim noted earlier Q4 was highlighted by traction in the large enterprise segment.
Looking at our customers at or over $100000 in ACB, we ended with 676 customers.
This customer group continues to represent 90% of our business.
During Q for the size of customer deals, we added was larger than our historical levels.
All of our continued success in moving upmarket to serve larger enterprises, we closed eight deals with ACB of $500000 or above a record for deals of this size and notably three quarters of these large deals were influenced or sourced by other Si partner.
Net dollar retention improved to 100% as a reminder, we track net dollar retention on a trailing 12 month basis and as a result of this it is a lagging indicator the higher churn level, we experienced in Q2 of fiscal 'twenty, one will weigh in on this metric until we lap it in that quarter.
Turning transaction volume or.
Our systems processed $17 billion worth of volume in the quarter. This represents a 30% year over year growth.
As a reminder process transaction volume is helpful. In understanding how much of our customers' business is running through our platform.
However, it does not track linearly with quarterly revenue as customers gain efficiencies as they scale.
Next let me review our financial results subscription.
<unk> revenue grew 19% year over year to $65 1 million.
Note that Q4 subscription revenue included a one time nonrecurring benefit of $1 2 million, which was not reflected in our Q4 guidance.
This was primarily due to legacy customers that elected to extend their on premise license as they transition to our <unk> revenue cloud offering.
Professional services revenue decreased 10% year over year to $14 $2 million. We view this as a positive trend given our success in shifting more of our services work to our system integrator partners. This is within line of our strategy to improve our mix towards more recurring subscription revenue.
In Q4 subscription revenue represented 82% of total revenue.
The highest level since our IPO. This resulted in total revenue growing to $79 3 million for the quarter.
Looking at our margins, we continue to make strides we had been successful at driving the mix of subscription revenue as a higher percent of total revenue.
As we drive more and more professional services to the Si channel our overall gross margin improves.
As a result of the success our blended gross margin reached another high.
Non-GAAP blended gross margins increased to 66%.
Meaningful improvement of 840 basis points from the prior year non-GAAP subscription gross margin reached 85%.
Which also was the highest in our company history as a public company.
Non-GAAP services gross margin was a negative 1% consists.
Consistent with what we shared in past calls.
We will continue to run services on a breakeven basis as we engage more with our trusted Si partners.
Non-GAAP operating loss was $1 $8 million in the quarter, reflecting an improvement of $9 million from the prior year.
This was driven by reduced spend on teeny events office spend as well as some onetime top line benefits and our improving gross margins.
This resulted in a non-GAAP operating margin of negative 2% ahead of expectations.
Now, let's turn to billings and free cash flow calculated subscription billings with $86 $4 million, reflecting a growth of 16% year over year and improvement on the prior quarter. We had expected this to be in the high single digits, but it was higher primarily due to our up market enterprise wins, however, approximately three points of this growth.
<unk> was due to a mix shift in payment terms and early renewals.
Looking ahead due to some of the early renewal activity. We saw on Q4. This will impact our subscription billing growth in Q1 as a result of this impact and our traditional seasonality in Q1, we expect calculated subscription billings to grow approximately 10% year over year.
For fiscal 2022, we expect calculated subscription billings to grow in the mid teens year over year.
Free cash flow was $2 $1 million driven by prudent spend management and strong collections activity. During the quarter. This was our first quarter with positive free cash flow capex for the quarter was $1 $1 million.
For Q1, we expect to be free cash flow positive driven by seasonality.
As I've mentioned in the past it is important that we continue to improve our operating leverage and create efficiencies in the business I'm pleased that we're making good progress in this area, which is showing up in our free cash flow.
Turning to cash we ended the quarter with $186 $6 million in cash and cash equivalents, an increase of $7 $8 million over the prior quarter.
We continue to be prudent with respect to spending levels and are pleased that we maintained a healthy cash position to manage the business.
Our fully diluted share count at the end of the quarter was approximately $134 6 million shares using the treasury stock method.
In Q4, we continued to execute and drive improved performance.
Our quarter over quarter pipeline is growing.
We're continuing to be very disciplined in our investments and going after larger customers and working with our Si partners.
Now, let's turn to our financial outlook, our subscription business model continues to be resilient and given the visibility of our model. We will guide for both Q1 and full year fiscal 2022.
During fiscal 'twenty, two we will accelerate our investments in go to market and product development, while absorbing costs. So we're not on a run rate last year. We also expect to be cash flow positive for the full year for.
For Q1, we currently expect.
Total revenue of $78 million to $80 million.
Subscription revenue up $63 million to $65 million non-GAAP operating loss of negative $5 million to negative $4 5 million.
Non-GAAP net loss per share minus for tomorrow.
Tobias <unk>, assuming a weighted average share outstanding of approximately $121 6 million.
As we look ahead to fiscal 2022, we will remain agile to quickly to respond to changes in the macro environment for.
For fiscal 2022, we expect total revenue of $335 million to $337 million subscription revenue of $272 million to $276 million.
Non-GAAP operating loss of negative <unk> 12 to negative $8 million.
Non-GAAP net loss per share of minus 10.
The minus <unk>, assuming a weighted average shares outstanding of approximately $123 9 million and.
In closing, we're very excited about <unk> long term opportunity as gene noted we will discuss our forward plans in more detail at our analyst day set for April 12th now Tina and I will open the call for questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or cash Keith Please standby, while we compile the Q&A roster.
Your first question comes from the line of Joseph <unk> with Canaccord. Your line is open.
Hey, guys.
Great results.
Results here nice to see the accelerating pace and cadence in the business.
We'd kind of maybe drill down a little bit in into your comment seen on a record upsell quarter. I know you said that a lot of initial deals had revenue as part of the mix I was wondering.
What what was in that upsell in the composition of it.
And.
You know obviously with net retention.
Trickling up there must be on an implication with the record up sell this quarter.
Combined with the trail off a little bit on a couple of quarters of headwinds.
Last year, and you know what that mean meaningful net retention in a couple of quarters and then I'll have a quick follow up thanks.
Sure.
I'll go ahead and feel that photography to jump in with some of the numbers.
I would say there was two different things. The first thing was we definitely saw strength in the zoro filling in for a revenue combination.
And a lot of those were going to be new deals new new companies coming on board, saying I want both products at once I see the combined strength for the product really being a big big advantage.
So that certainly felt really really good.
We also saw separate from that just just a strong upsell quarter I would say that really is a reflection of our investment in customer success, you heard us day in previous quarters, we restructured the sales team to avoid the old Hunter farmer thing, but really say.
If you close the customer you really on a customer for a long period of time, it helps build destroying strong customer relationships.
So the systems and.
Tools that we've been putting in place over the last year are really starting to kick in and you're absolutely right. The strong upsell quarter did help us tick net dollar retention number back up a point for many nine 100%.
Anything you'd add to that.
Yeah, you know I would hit.
Joe Thanks for the comments that we also did much better from a standpoint of improving the upsells coming from areas like add ons. So we have less volume dependents this quarter and we're seeing some of the other products coming out of the AR.
R&D group.
Great. Thanks, and then just maybe a couple of quick follow on to any color on the large wins this quarter on those greater than 500, K you know maybe industry breakdown among those eight and then secondly, as you kind of move through the noise.
On the net retention number that's for.
Fiscal year I'm, just wondering if you see there being a more close correlation between.
Net retention and.
On payment volume growth over time, thanks, a lot.
Yeah, when I look at the eight deals.
I would say outside of the fact, we called out there was one global bank.
That we worked with it is probably our strongest.
For a two day into the financial service industry, something we haven't talked about in the past before so we continue to see the expansion.
On the subscription economy, two industry after industry and that's a really important part of the overall investment thesis. If you will on us and so were glad to see that happen. The other ones I would say our standard mix technology manufacturing really across the board.
Nothing nothing specific to those specific changes.
Great.
Your next question comes from the line of Scott Berg with Needham Your line is open.
Hi, Tien and Todd Thanks for taking my questions here.
Todd I wanted to start on the Q1 guidance, especially for subscription revenues, even if I back out the $1 $2 million, one time benefit in the fourth quarter. There. Your Q1 guidance effectively flat from from that Q4 adjustment is there something else going on in the subscription revenues for the quarter. So I would've thought that number might be a little bit.
Better given what the billings number was in Q4.
Yeah. So Scott Thanks for the question. So two things you're right. We certainly had the $1 2 million of one time. The other thing I would direct you to is there's only 89 days in Q1. So those three days that we lose do hit us with several million dollars.
Got it helpful and then.
Tien from an upsell component you sound pretty positive, obviously, but I'd say the commentary on where our revenue were there other any other modules that had kind of good upsell on the quarter or was it really kind of focused.
Just on the commentary what that left though on on <unk>.
We have sales wells in new deals.
Yes, Scott that's a great question. It was not just for the door revenue was really across the board.
If you think of us.
Think of us as a multi product company everyday that passes we're increasingly becoming new billing certainly we have revenue we have a collect product and we have a platform product and all of those products, we're able to monetize and so when I look at the mix. It was it was a good set of customers.
Many different industries, many different sizes. It wasn't concentrated on a few customers and show.
Feel really good about the overall upsell engine kick.
Kicking in.
Dan.
One other thing too is as we announced that we can have this analyst day on April 12, and so our goal is to give you a lot more detail about the for key products that we have and break it down a little bit better.
Great looking for it to it and then I guess one last question for me Tien you had mentioned that you.
Do you expect the company to grow at the rate of the subscription economy now that we're through the pandemic or at least hopefully through the pandemic what is the growth rate of the subscription economy over the next maybe three to five year time horizon that you are striving for company growth.
Sure. That's a great question when we look at the subscription economy, you can certainly pick sectors other subscription economy.
Throw on fire Alright, So collaborative software is a great. One on kind of point you back for Sci Index, and it's something that we've been publishing over the last 345 years and it shows a good steady pace of growth of between 25 and 30% for last year. Certainly it was there was a COVID-19 hit where it only grew about I think for <unk>.
Low teens about 10% to 15%.
But we also said that in Q3 and Q4, we're starting to see that trend back up to to the pre <unk>.
Covid rates, if you will and so.
So when you look at the sector overall and you look at all of the industries that are shifting.
We would say that debt is growing in that in that 20% to 25% range on a on a year over year basis, and as a leader in that space on you know I wouldn't fault you for expecting us to really grow with S&P.
Hey, Scott I would also.
Scott I'd also add.
To change point is you know I think we gave some color that we expected for the year the acceleration of the calculated subscription billings for the mid teens and when we get together in April will give you some more color on how we see the next few years rolling out.
Got it Super helpful. Thanks for the color guys.
Again, if you would like to ask a question press star one on your telephone.
Our next question comes from the line of Brent Thill with Jefferies. Your line is open.
Hey, Todd and team. This is love Soto on for Brent Thill, Congrats on a nice quarter and thank you again for taking my questions.
The first question really was for teen now that you have free on board and he seems like an impressive higher.
Could you maybe talk about the trajectory of the platform.
<unk> already has or analytics that was launched.
Two quarters ago, and you announced some improvements in billings so what.
What can we expect in the future in terms of the platform and the product poorly.
We definitely continue to see good uptake on the platform and good contribution from the platform into the revenues.
For example, you have sales revenues that we saw really favorable shrink I mean, he comes to us with over 10 years of ERP experience he understands.
The shift from ERP systems that are based on products and orders to this new generation of ERP systems that are built around the subscription where the subscription object and this is <unk>.
Fulcrum across the entire business.
I would say Leo I'll look forward to seeing you on April 12, I think <unk> will be a big part of that day, Rob you will be a big big part of that day, and we look forward to to really unveiling. Some other thoughts that we've been putting together with Sri and the entire organization on the entire product organization and we're really excited about.
Got it on a kind of a quick follow up for Todd If I may.
Towards the sofa.
I look at the margin guidance.
It implies.
But how the leveraging for the first quarter, but for the full year.
Yeah.
Some of that leverage is is not as.
As big as the first quarter that we see is there are some investments that you're planning in the back half a day or be it in sales and marketing and R&D.
Okay.
We might not be that we might be missing.
Hey, Thanks, Lob. So you know as I said, we expect to be free cash flow positive for the full year and 2020 was really an odd year. We had a lot of expenses that didn't occur and we're also really prudent with our spend.
We're committed this year again to being free cash flow positive while absorbing those costs as we were open offices, but we're also accelerating investments in go to market initiatives and product development why absorbing the same cost and so I think that's why you're seeing.
Your.
For example on margin.
Got it perfect. Thank you again.
Your next question comes from the line of Chris Merwin with Goldman Sachs. Your line is open.
Alright, thanks, very much for taking my question I wanted to come back Windows eight large deals of 500000 or more can you talk a bit about the land dynamics with those for those with kind of like a fuller suite of your of your products and is that something that we should expect.
More going forward. Thanks.
Yeah, I like the fact that we have that flexibility alright, we want to really meet customers, where they are so we can land with the launch of just the billing system. We call Lynch launch with just revenue recognition, helping bring down the time to close but the combined product really really shows its strength.
If you look at those eight deals.
They're going to be less of a deal whether youre launching something.
More where we've already got an existing business, we've got $100 million on revenue, we've got $1 billion of revenue the way we're doing it whether it's through a homegrown system right a commercial system that maybe we scaled out off of or through manual processes right. The combined system is really what gives us the agility that we need to.
To take advantage of this this market discontinuity with digital acceleration and win in the marketplace and so I.
I would say you know it really shows the strategic aspect of what we do.
And when I look at 2020, if there's one takeaway that I would say looking well working with our customer base is in especially in a period of deep uncertainty, that's where the agility that our products provide really really shines.
Okay, great. Thanks very much.
Yes in terms of one other question I had was on verticals I know that I think for.
On a go to market perspective, there was an effort to focus on some of your core verticals. You know we've had a lot of success, but then obviously we're hearing about now.
Big deal on it and financial services sector.
Which is not historically, but I will say.
Biggest sector for you also can you just talk a bit about your vertical focus on our go to market perspective, and how that's playing out relative to your expectations.
Yeah, just to be clear, we never said, we're going to limit ourselves that these three verticals I would say if you look at the explosion of the subscription economy.
Theres, so many companies and so on so many industries that are seeing what do I do about this.
Alright, well, we want to do is we want to make sure that God.
We continue to have good productivity in our sales organization and so rather than saying, Hey, let's let's give the sales if the phone book and have them call. Every single company company. They want let's have let's be smart about where we're seeing the strongest traction and this isn't just a vertical sometimes there are some verticals inside of these rate in it.
B industrial manufacturing in Saudi entire manufacturing sector as an example, and so let's be smart about that if we can focus on our demand Gen efforts.
Vertical that we believe are growing the fastest and are the most ready to move that's going to make us that much more productive now that being said look.
A leader in the financial services industry is committed the subscription economy and is looking to transform right.
We're more than happy to engage with them and so because of the vertical strategy not as a way of limiting our focus but to really focus our go to market organization of where we see the most opportunity.
Alright, Thank you very much.
Todd Hey, Chris Tardy, I think I would add to what <unk> said is look the pipeline generation and the overall deals have been highly concentrated on that which gives us good economies of scale, but I think you need to have last three quarters. We've had significant wins that are outside of those vertical. So the verticals are certainly helping us be much more efficient on our go to market, but it doesn't limit us.
Understood. Thank you.
We have time for one more question. This question comes from the line of stands Watzke with Morgan Stanley. Your line is open.
Perfect. Thank you so much guys.
So the question I have is really just bigger picture right.
The subscription economy growth of 20% to 25% you guys are one of the leaders in this space.
First question is.
How do you estimate that the subscription economy is growing really 20% to 25%.
And when you think about the growth that you guys are.
Expecting for 2021.
When do you think we can start to see you guys start to approach the growth that we're seeing across the rest of the subscription economy just more broadly.
Yeah. So.
So we look at a bunch of different sources to answer your questions. How do we estimated we obviously have something we call the subscription economy index and the benefit is we actually see.
Some of the.
A lot of the revenues flow through our service and we cut across industries geographies. It's a subscription on index report on.
Our poor told us the subscription economy index last year grew at about 15% right and it had a COVID-19 impact not as bad as non non subscription businesses that youre seeing continue to see.
Dichotomy, but that's certainly what we saw.
You know look we were also said that debt in order to continue to grow there are some changes that we had to make right and you've certainly been have been been a part of listening to what we've been talking about over the last 345 quarters.
The move up market to focus on the size the reliance on the platform to new last mile customization I would say when I look at Q4 and before that when I look at Q3 weighted those changes that we were making on.
Are really starting to <unk>.
Take hold and it feels good it feels good in it.
It makes me see that we're going into FY 'twenty, two with a really really solid foundation and so.
Our goal is to continue to show incremental benefits on a quarter to quarter basis and continue the trend that we're seeing in Q3 and Q4 and.
And that's really what's behind the guide debt that we're giving.
Got it and just.
Looking out for in fiscal 'twenty, one 2020, right, there's not a whole lot of appetite from.
Prospects for having customers for that matter right to undertake big transformational projects such as.
Really you know roofing out the business model the way they have it right now and bring in a subscription business model that would.
Be powered by Zora.
When you look at your pipelines into fiscal 'twenty, two and calendar 'twenty one.
What are you hearing from prospects as far as just the appetite to do that kind of transformational.
Change within their organizations heading into the new year.
Yeah, Hey, Dan, but that's not what we're seeing we're seeing that debt. The appetite for these new business models is stronger than ever and in 2020 was a wakeup call to say if I had a business model that relied on selling product through physical distribution channels to get to my customer I'm incredibly vulnerable the flip side of it if I had a business model that.
Depending on usage consumption direct to consumer relationships and digital relationships I'm actually doing really really well and inside of these these these income and companies where they have a mix. They have the traditional product centric business model and they have a new digital subscription based business model, they're seeing where the growth rates are and so we're actually seeing many companies mean.
And now a lot of times they are new to this rate they need to be guided by this this is why one of the things that is important part of our strategies in calendar 2020 was the accretion of what I call. The subscribe strategy group, that's really guiding these companies and what did you rates Here's how you set up a.
On innovation arm huge how you move fast and in many ways.
Digital is about is saying there's this whole white space now of customer value that you can create that goes beyond which you traditionally done with your physical products and knowledge of products for connected the internet not that David digital aspect and so we guide them on how to do how to find a product market fit and how to find the right business models.
To monetize these new value areas that they can go into that is the story of caterpillar that is the story of vendor in many ways. That's also the story of zoom right Theyre seeing companies like Zoom. Just just just just go on fire and they're saying this is where the future is line and so whether I look at my pipeline, whether I look at my my request for proposals I'm, having converse.
She has directed the CEO level with Ceos around the world and multibillion dollar companies.
Again, they're really waking up to the power of this business model and they're leaning on.
Perfect.
I think that's a great.
Recap of what Youre seeing in for the year and thank you so much for giving it to us.
Absolutely.
Thanks, Dan.
There are no further questions at this time I will turn the call back over to team Joe.
Yeah.
Thank you everyone for joining us today and this was a great call and I hope and expect that you will all join US on analyst day on April 12th you'll get a chance to hear from additional senior executives as we dig deeper into our product into our plans for the future. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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