Q1 2022 Zuora Inc Earnings Call
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Okay.
Good afternoon, and welcome to <unk> first quarter of fiscal 2022 earnings Conference call.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time simply press Star then the number 1 on your telephone keypad. If you would like to withdraw the question press the pound key.
I would like to turn the call over to Lewanda Walsh head of Investor Relations for introductory remarks.
Thank you good afternoon, and welcome to <unk> first quarter fiscal 'twenty 'twenty 2 earnings conference call joining.
Joining me today I team zone source, founder and Chief Executive Officer, and Todd Megahouse Norris Chief Financial Officer.
We will also have Robbie traveler, our chief revenue officer, joining the Q&A session today.
The purpose of today's call is for US to review, our first quarter results as well, let's provide our financial outlook for the upcoming second quarter and fiscal 2022 year.
Some of our discussion and responses today will include forward looking statements. So as a reminder, our actual results could differ materially as a result of several factors.
You can find information regarding those factors in the earnings release, we issued today and our most recent filings with the SEC.
And Leslie.
We'll be referring to several non-GAAP financial measures today and reconciliations to related GAAP measures are included in our earnings release for.
For a copy of our earnings release links to the SEC filings a replay of today's call or to learn more about Zora. Please visit our investor Relations website at Investor Day, Zora Dot Com, Inc.
That let me turn it over to gene.
Thank you Anna and thank you everyone for joining us today on <unk> first quarter earnings call for fiscal 2022.
Overall, we had a strong start to the new fiscal year, we exceeded our guidance across our operating metrics, including total revenue subscription revenue non-GAAP gross margin non-GAAP operating income and we also posted another quarter of positive free cash flow.
Our execution is also improving our pipeline grew significantly highlighting the strength of our market.
System integration partners were involved in 2 thirds of our Q1, new business deals showing the strength of our partner strategy and we had a strong upsell quarter, which helped us reach a 103 net dollar retention up 3 points from the 100% we posted last quarter.
I'd like to give a huge thanks to our <unk> for their focus and dedication in Q1 day or the reason we delivered this quarter.
Today, we also announced the purchase of the intellectual property assets from live objects, a company that specializes in AI driven process optimization I'll discuss later, what this means but let me first give some color on the quarter.
Now I know many of you attended our recent 2021 Investor Day, just last month.
I'll keep my comments today brief for.
For those of you who didn't get a chance to attend I encourage you to watch the recorded at Investor day absorbed Dot com.
The headline for Q1, as we executed well on the corporate strategy that we laid out at our Investor day.
At Investor Day, we talked about how we now consider ourselves a multi product company, giving us multiple vectors for growth.
With our 4 current products anchored on our central platform, we have the ability to upsell and cross sell short installed base, while signing on new customers in.
In Q1. This strategy work, we continue to land new logos on our new verticals and manufacturing new wins included auto manufacturers to Dookie and publishing we welcomed domenici newspapers.
Technology, we added companies like game site now part of the Vista equity group in.
In Q1, we continued to make great progress Upselling, our existing products for example, the central Sandbox a key capability really helped drive platform Upsells, it's actually our fastest solution to reach a million dollars on sales and we doubled that in Q1 and.
Well, we continue to make great progress cross selling new products for example, the world's largest datacenter infrastructure provider with the Zora Zora billing customer and in Q1 day added zero revenue to automate the entire order to revenue recognition process.
Also seen early cross sell traction resort collect AI, our intelligence team in vitro module following its March launch.
In short.
Our land and expand go to market strategy is paying off we're seeing new products and capabilities become a greater proportion of the overall <unk> book in the quarter, we saw triple digit growth in installed base bookings year over year and as mentioned net dollar retention ticked up from 100% last quarter to 100.
<unk>, 3% in Q1 as.
As we said in Investor day, we believe that our installed base opportunity alone is a $250 million plus.
Our opportunity and we are laser focused on capturing this.
At Investor Day, we also talked about the importance of on Zoro Central platform. It is the anchor helping us transform from a 2 product company billing plus revenue to Recompete subscription experience cloud that manages our customers end to end subscriber experiences.
The central platform provides customers with meaningful insights. It supports that automate end to end business processes and it offers the agility and scalability that is required to succeed in the subscription economy and in Q1 adoption of our platform continued to growth, making us even more sticky as we speak.
On central to all subscription business processes for our customers over half of our customers are automating and simplifying their processes with our platform workflows, we processed over 8 million invoices on the peak day this quarter, a top of our platform and last quarter approximately half a billion workload cash.
Where executed saving our customers time, Inc.
On.
In this this is where the acquisition of lives objects intellectual property assets come in on our Investor Day, We said we'd be opportunistic in looking at tuck in acquisitions as a tool to accelerate our innovation and roadmap.
I am Super Super excited about this technology and how it will help us accelerate the central platform roadmap with.
With the <unk> team have built is an AI driven process in June.
We believe will allow our customers to the central platform.
To visualize the processes that are behind the Austin subscriber experiences that they are designing to.
To discover and map, new hidden processes, including the ones. The spin multiple systems like CRM, ERP or other fulfillment and provisioning systems and allow them to detect anomalies in these processes that may lead to customer dissatisfaction or inefficiencies.
We all know the customer expectations continue to rise.
The Amazon instant card effect in.
And those companies that offer the best subscriber experiences are the ones who will win.
The central platform, including the new capability that the live objects acquisition gives us is what enables our customers to deliver the differentiated subscriber experiences.
At Investor Day, we also laid out our enterprise alliances strategy as part of our growth upmarket and in Q1, we saw positive results of this strategy.
Partner Prime deals were up including our first partner Prime deal in Japan with Suzuki.
Partner influenced bookings were up 70% year over year and represented approximately 2 thirds of our new bookings in Q1.
We also saw triple digit year over year growth in new partner, driven pipeline and a considerable increase in zoro certified consultants quarter over quarter, Inc.
Great Great illustration of our partners' commitment to industry leading solutions.
The big 1 from the quarter was a billion dollar audio visual technology company.
Not only with 1 of the big 4 global <unk> involved in the deal with zoro the window. So highlights our multi product strategy at work the company chose billing collect and a central platform to enable its multichannel audio licensing business in short working with our global systems Integrator partners gives us more.
Scale and helps to accelerate our growth.
And finally at Investor Day, we explained by companies are not coming to US just for our technology, but also for our unique expertise on all things subscriptions. We translated our 13 years of experience at Triton and blueprints that we call the journey to user ship.
This blueprint is what we used to accelerate our customers on the path to building successful subscription businesses.
We gave you some examples of this during Investor day, but let me give you 3 others from Q1.
Our Q1, a global CPG company partner with our subscribed strategy group to completely revamp their companies subscription offerings, including its overall subscriber experience.
We also have a consumer robotics company partnering with SSG edgy keep their executives on the implications of recurring revenue on their financial metrics.
Finally, you know we worked with 8 of the top 10 automobile manufacturers 1 of them actually first team has worked for our expertise to optimize their telematics business in Europe and based on that success. They are now leaning on our knowledge of agile enterprise architectures to help them build a modern platform.
They can launch new offerings into the market faster than ever before.
In Q1, our subscribers strategy group engaged with over 20 companies.
Also partnering with firms like the Boston consulting group to publish original research based on this data.
And so in summary, we had a solid start to the year. The strategy. We laid out at last month's Investor day is delivering results. We continue to see our multi product sales motion. Our Si licensed partnership continues to deliver and our unique expertise continues to differentiate us with our customers.
With our clear strategy and focus we are well positioned to continue capturing the opportunity of the subscription economy.
Now I'll turn the call over to Todd to review our financials Tom.
Yes.
Thanks, <unk> and thanks for joining the call our team executed well during the first quarter as demonstrated by our financial results, having exceeded expectations across our key financial metrics last year, we laid the foundation for long term growth, it's great to see the incremental progress we made in Q1.
As we look ahead, we will continue to focus on improving net dollar retention meeting a target of a growth of 17% this fiscal year and managing topline growth and free cash flow margin by applying a rule of 40 framework that we outlined on Investor day.
Let me first review our key metrics.
Q1 was highlighted by success with multi product deals and solid contribution from ISI partners.
Looking at our customers at or over $100000 ACB.
Ended with 677 customers. This customer group continues to represent 90% of our business we.
We closed 5 deals with HCV half a million dollars or above compared to just 1 in the same quarter a year ago.
In Q1 net dollar retention was 103% a significant.
Improvement from 100% in the prior quarter.
We made meaningful progress George net dollar retention target, we set for fiscal 2022.
Net dollar retention is a lagging metric and track on a trailing 12 month basis.
Higher churn levels, we experienced in Q2 last year will weigh in on this metric until we lap it in this next quarter.
Turning to transaction volume, our systems process $17 billion in the quarter, representing 38% growth year over year.
Processed transaction volume is helpful in understanding how much of our customers' business is running through our platform.
It does not track linearly with our quarterly revenue as customer gains efficiencies as they scale.
Now, let me review, our Q1 financial results.
Ascription revenue grew 14% year over year to $65.1 million and represented 81% of total revenue.
As expected subscription revenue was essentially flat from the prior quarter.
Due to the daily revenue recognition, our Q1 has 3 fewer days versus Q4, which impacted our subscription revenue by approximately $2.1 million.
As you May recall, our Q4 FY 'twenty 1 subscription revenue included a onetime non reoccurring benefit of $1.2 million.
Professional services revenue decreased 11% year over year to $15.2 million.
As we've discussed previously our strategy and shifting more services to our system integrator partners continues to gain traction and we view the decline in service revenue as a positive trend.
This is in line with our strategy to improve our overall mix towards recurring subscription revenue.
Total revenue eclipsed the $80 million Mark in Q1 and grew 9% year over year.
Again, our overall revenue growth was impacted by our strategy to reduce the mix of our direct professional services towards our Si partners.
This not only enhances our go to market opportunity, but also benefits overall margins as.
As we drive more professional services to size, our overall gross margin improved average.
The result of the success non-GAAP blended gross margin was 65% a meaningful improvement on 400 basis points from Q1 in the prior year.
Non-GAAP subscription gross margin reached 79, 4% compared to 78, 6% in Q1 of the prior year, reflecting scale efficiencies non.
Non-GAAP services gross margin was breakeven.
With what we shared with you on past calls we will continue to run services on a breakeven basis as we engage more with our Si partners.
Non-GAAP operating loss was $2.5 million for the quarter, reflecting an improvement of $5.1 million from the prior year.
This was driven by top line growth and our improving gross margins. This resulted in non-GAAP operating margin of negative 3.2% a dramatic improvement from -10, 4% in Q1 of last year.
As I shared with you on the last earning call operating margins will be flat. This fiscal year as we absorb expenses, which werent incurred last year and accelerated investments in go to market and product now.
Now, let's turn to <unk> and free cash flow.
In Q1, our growth was 14% year over year.
Our growth represents the annualized value of all subscription contracts at the end of a given quarter compared to the IRR in the prior year, we continue to be focused on our target of AOR growth of 17% for fiscal year 2022.
Free cash flow was $8.6 million driven by record cash collections during the quarter for Q2, we expect cash flow to be slightly negative due to the seasonality of Q1 billings and the employee stock purchase plan.
Capex for the quarter was $1.6 million.
Looking ahead as we outlined during our Investor day, we're focused on accelerating topline growth while prudently managing the bottom line as such we introduced our rule of 40 framework as defined by the some of the annual subscription revenue plus free cash flow.
Free cash flow margin is calculated as free cash flow divided by total revenue.
Based on this rule of 40 framework, our objective is to be 15% plus this fiscal year and 40% or higher by the end of fiscal 2025, we managed to exceed this objective during Q1 due to significant cash collections and our typical seasonality of free cash flow.
Turning to the balance sheet, we ended the quarter with $197.4 million in cash and cash equivalents, an increase of $10.8 million from the prior year, primarily driven by strong cash collections.
We continue to be prudent with our spending levels and we've maintained a healthy cash position to manage the business.
Our fully diluted share count at the end of the quarter was approximately $136.1 million shares using the treasury stock method.
In Q1, we executed well and drove improved performance, we maintain discipline on our investments targeting larger prospects and working with our Si partners now, let's turn to our financial outlook. During FY 'twenty, 2 we will accelerate investments in go to market and product development initiatives, while absorbing <unk>.
Costs that were not in our run rate last year, we continue to expect free cash flow positive for the full year <unk>.
For Q2, we currently expect.
Total revenue of $82.5 to $84.5 million subscription.
<unk> revenue of 67, 5 to $69.5 million non-GAAP operating loss of -5 to minus $4.5 million non-GAAP net loss per share of -4 to -3.
Assuming a weighted average shares outstanding of approximately $123.1 million.
As we look ahead to the full year fiscal 2022.
We are raising our outlook and we expect total revenue of $337 million to $339 million subscription revenue of $274 million to $278 million non.
Non-GAAP operating loss of -12 time is $8 million non-GAAP net loss per share of -10 to minus <unk>, assuming a weighted average shares outstanding of approximately $124.1 million and.
In closing, we're pleased with our execution in Q1 and Bill we've laid a solid foundation for <unk> long term growth next we'll open the call for your questions as <unk> indicated earlier, Robyn <unk>, our chief revenue officer will be joining team and me for the Q&A session. Operator, Please open up the call for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number 1 on your telephone keypad. Your first question is from the line of Joe <unk> with Canaccord.
Hey, guys good afternoon, and nice to see the steadily accelerating results here others were this quarter.
We'd start kind of thinking a little bit more short term here on our next quarter I know.
I know you mentioned in your in your remarks Todd.
Theres, a big lapping of a headwind in net retention in Q2, and I know <unk> talked about from really good growth coming out of the install base as well.
Sounds like the setup is pretty good for a bump up in net retention next quarter.
I know youre, not providing that guidance now, but any color there would be appreciated and then I have a quick follow up.
Yes, Joe.
Go ahead Todd.
Hi, Joe So we're really pleased with the 3 point improvement that we had this most recent quarter I think it absolutely shows the strategy is working look we expect to have steadily improving performance over time and at this point, we feel that we are on track to hit our 105% plus net dollar retention for the year.
<unk>.
That's great.
That's good color.
Lee I thought maybe we could talk about your acquisition here a little bit.
Live objects, I think it's called and.
When how you see that product integrating what the timeline might be.
It sounds really great and I would assume that would be.
Add on purchase for our customers and when potentially that may be added to the sweep although I know it's early.
Sure Phil.
Debt.
This is something that we're really excited about.
Would kind of point you back to what we said at Investor Day, we have 4 core products.
Do you think of those 3 applications billing revenue collect.
Each of these.
Also on both on the platform, which we call the central platform and so we laid out a vision for the central platform with some core capabilities the subscriber graph process orchestration engine.
This is a tuck in technology now.
Help us make those capabilities inside of central platform stronger and to celebrate some of the things that we wanted to do in the central platform itself in those areas and so the monetization of that is still going to be the same way, we monetize the central platform, but we think this will make it the product even stronger.
Makerbot product, even stickier and.
To celebrate the growth.
Moving to deliver on the roadmap that we showed back from Investor day, that's the way to think about.
Okay. That's great. Thanks team and then maybe I'll just throw 1 more instance, Rob is on the line I know.
It sounds like from the commentary that debt.
The partners and systems integrators are.
Really starting to embrace this where our platform more I was wondering if you could provide some color on.
How your sales effort is kind of shifting are morphing relative to more uptake from from the partners. Thanks, a lot guys.
Yes, thank you sorry, but overall very very pleased with our progress.
Overall, when we first joined right on that.
There's very little progress so what we've seen though is low ground, we've covered around 3 quarters of on caroline's overall influenced or sourced by size.
And also we have massive growth in terms of the side of certified consultants on.
And that really investing in their customers' digital transformation.
So as we look across all of our GSI partners who've got really broad traction with eyes on I think longer term the opportunity to grow on penetrates to on new business overall.
Your next question is from the line of Andrew the gas per day with Bahrenburg.
Thanks for taking my question.
I guess the 1 I wanted to ask first on net retention rate I know you already asked it but in terms of the 1% to 3% would it be fair to say that if you.
We exclude the trend from Q2 of last year Youre already at 105 and over.
Andrew we're not giving any specific guidance on that but Mike I said, we should expect to have consistent improvement over the quarters as we go through the year and we're very confident that we'll be at the 105, plus as we exit the fiscal year.
Got it and then secondly on the <unk>.
You mentioned the ACB customers customers do close 5 deals with 500 tell you on above.
Just curious are you seeing overall penetration of your revenue collect on central platform.
It is meaningfully higher in your pipeline right now.
Then what you highlighted is currently the state and on the Investor Day.
So and some day.
Go ahead Tim.
Yes, all the products are in motion and Youre, absolutely right I mean, we love about our multi product strategy is we.
We don't have to sell the whole suite on Investor day.
Doug the CTO of Chegg and look what I really liked about your products on your platform as they don't have to take the whole thing at once right I could bite off the part that makes sense from me Lynn I've got a growth path. So every company is going to be in a different situation. We certainly sell billing I think the example, we highlighted on the call just now.
And then come back and up sell revenue, but there are other customers and then another 1 that we highlight that says you know what I want billing and collect upfront other customers that Mike.
As long as I'm doing this I wanted to do the billing and the revenue together.
Once upfront and so we can really meet the customers where they are but all the products are really really in motion.
Andrew the other color that I might add is we really are seeing very nice cross sell with the multi product strategy and in the past we've had probably a heavier weighting on volume and we saw a much better balance of other products being sold this quarter on that upsell number and so I'm really happy about that because.
As it shows customers are really embracing the entire or a platform and I believe that's going to make the platform more stickier and help us in future net dollar retention.
Thanks for that and maybe lastly in terms of end market strength, you mentioned manufacturing and several others was there anything surprising in terms of the pipeline.
No I think what we just outlined on Investor day, just as it was only gosh, there's only about $45.6 weeks ago 35 day 6 weeks ago.
No change there, we see ourselves as having 3 core verticals. We believe based on our data that these are the fastest growing vertical in the subscription economy of the fastest adoption of subscription business models. It's technology. It's me.
Media its manufacturing really driven by Iot.
But that being said, we continue to see other other industries starting to move but no change in our focus right. Those are our 3 verticals and we continue to.
To work with monitor what we'll call emerging verticals.
Great. Thank you.
Your next question is from the line of Chris Merwin with Goldman Sachs.
Hey, Thanks, so much for taking my question.
I just wanted to ask about the large customers I mean.
You mentioned, obviously I think they have million plus huge increase year on year evidence of the cross on notion of 100, K plus it seems like it slowed down a little bit, but again, you've got stronger momentum with your various largest customers. How do we think about that kind of directional trends of each of those metrics.
Anything else you can share on just about like.
Yes for expectations for for those metrics would be helpful too. Thank you.
Hi, Chris Todd I'll, I'll, maybe take that and if anyone else wants to weigh in we can go ahead and do that but look I think we always sees a little bit of seasonality in Q1.
And Q4 tends to end out our wipe out a lot of the pipeline and so we plan for that and we had quite a bit of upsell on the quarter and we were really pleased with that and I think it really shows that our strategy of moving up market and the enterprise is absolutely working and you are right 5 deals over <unk> 5 million.
We're really pleased about that we're seeing excellent traction in the installed base on I think we talked about that at Investor day on the huge opportunity that we see there and again net dollar retention.
Significantly improve we're up 3 points I guess, maybe the only other thing I would say is we also saw really nice growth on the pipeline and Robyn I don't know if theres anything you want to comment about the growth that we saw on the pipeline in Q1, Yes, I think on overall pipeline continues to feel good and it's growing really as expected I ended up.
<unk> is definitely the area in terms of focus on the verticals on going on to the enterprise.
Overall, the pipeline process on account based marketing all of that is working all of that is really kicking in and also on alliances Brian they.
They continue to provide vessels on that influenced deal flow.
So overall I think the bottom line. So it is really working well really plays.
A direction that I think the vertical focus of all of that is really helping us to support the.
Going on Mark.
Perfect and maybe 1 follow up would be on growth for attention. It seems like as you get bigger and bigger customers, you're selling more products I imagine.
On that metric is probably improving I know you don't disclose it but anything you can say about the directional trend of it order of magnitude improvement from the trough of Covid last year.
2 parts, starting with more cross sells but it seems like the grocery channel potentially I would think.
Improving as well.
Chris on currently.
Oh.
Yes, I'll jump in Robert Peters of color, but.
Last year was definitely an audi or because of COVID-19 because of just the uncertainty in those 2 months in Q2.
But I would say this I would say the customer success focus that Ravi has put in that we've talked about in the past we've talked about on Investor day by day part structure.
It has really really paid off and so youre seeing that not just in.
Our ability to to to manage churn, but also keep our customers engaged improving NPS.
Then.
Strengthened our bleed to continue to up sell them additional products additional modules.
And so on so forth. So I think ultimately it's really the focus on customer success.
But youre seeing flow through through the numbers.
For 2018, I'd, maybe just add a little bit.
A little bit of color here for Chris the churn level was actually below our historical average has been and we improved on a year over year basis. So we're making really good progress on those investments are absolutely paying off.
Great great. Thanks, so much.
And just to emphasize what Todd said, that's the raw dollar amount and so on a on a percentage basis it looks even better.
Your next question is from the line of standard Slutzky with Morgan Stanley.
Perfect. Thank you so much guys I actually I just wanted to get back to Chris's question from just 1 second.
Maybe just walk us through the dynamics of <unk> signed 5 new deals with 500, 100, K HCV and your net new customer accounts on VK improve increased by 1 does that mean the doors those churn or is there some kind of dynamics on the way that the metric is cash.
<unk>.
Obscure obscuring that.
Stan I would answer it as the following we had a few customers that actually had some down sells and they didn't drop out as customers, but they moved into lower the customers that we did have churn were low dollar churns and as we said we had a much higher focus this quarter on up sells.
I don't have any concern about that as I look forward to the next quarters, we have a really healthy pipeline and we expect to continue to be adding new names and in fact, we also talk to the Investor day about the really large.
Opportunity that we have in our install base to continue to grow and drive top line with.
Got it.
Not all of those deals were new logos I forget the exact count, but some of those where we're actually existing customers that purchased more than 500, K upsell from from from US and so it's a complicated thing to big picture. It is I think that number is just ebb.
And flows of the business quarter to quarter, a little bit of seasonality and it's not something that we're concerned with.
Got it and just mechanically isn't isn't upsell included in that so if somebody is up sold.
And then push them above the 100 K thresholds.
Yes.
I think there were more than 100 K already.
Alright, and then the dollar value of the ethanol was 1.500 K.
So it was a 500 plus ECB deal to an existing customer that was already over 100 day.
Got it and just wanted to dig in a little bit on the on the full year guidance, So revenue moving up.
A little bit more than the beat in the quarter, which is great.
The profitability guide, saying are staying within the parameters that you outlined in Q4.
The incremental investments going is it is it R&D sales and marketing is it maybe some sort of a going into the.
The acquisition you guys, just announced just kind of walk us through it.
So stay on what we're doing is we've talked about is we've got incremental investments in product and we are going to absorb the incremental cost from the <unk> acquisition and to our cost basis, we're investing and go to market and then we had a couple of expenses as everyone knows last year was up on a year and there were some expenses that we didn't.
That will be seeing this year, but we feel good about where we should land on the bottom line.
Got it perfect day. Thank you so much guys.
Your next question is from the line of Brent Thill with Jefferies.
Hi, This is love soda on for Brent Thill, Congrats guys on a great quarter.
Wanted to start out basking I guess, you mentioned on the large deal traction that youre getting.
As you move further up market into the enterprise space.
On the competitive front are you seeing anyone in that space are you, replacing existing solutions or is it more greenfield.
And in terms of the wins there.
Yes.
I'd say this I would say as we continue to go up market and we can.
2 to takeover mission critical parts of the system that are behind these subscriber experiences youre definitely going to see us start to collide with the with existing systems are in place right. We're not looking to replace ERP systems or replace CRM systems right, but there are functionality that might exist in those systems.
Might shift over to us.
No it is both.
So youre going to see us go into essentially a greenfield opportunity in a large company right. There are existing product business that could be a 10 to $15.30 billion business launching their subscription offering.
Or sometimes us subscriptions have already become strategic.
It's going to be.
Our replacement often have many different systems consolidated into 1 so that you can deliver that debt.
Net differentiator subscriber experience.
Got it and then a quick follow up.
But Todd I guess.
How do we think about profitability.
Maybe say you know your route or so.
Is that something you're headed towards.
I know you said free cash flow break on a positive for this year, but more like into the out years I guess.
So I would really refer you back to the Investor day, where we talked about where we saw us getting too and the rule of 40 framework out to 2025, So I would.
That's what we're seeing on what kind of see a consistent buildup to there, but thats the guidance that we've given right there for how we expect to see profitability of all.
Got it thank you.
And given how recent debt guidance was there's definitely.
There is no no there's no deviation from that and this is a small tuck in acquisition to so youre not going to see.
Any deviation from the acquisition either.
Okay.
And we have time for 1 last question from the line of Scott Berg with Needham.
Hi, everyone. Congrats on a good quarter and thanks for sliding me in here.
I guess first question Todd is on the guidance your second quarter subscription revenue shows a nice little acceleration after the <unk>.
Improved subscription billings last 2 quarters, which as you know.
Which I guess is to be expected given the sales levels, but your guidance for the second half implies that that growth rate drops by about 5 points, which I am a little bit surprised about not that it's not going to be conservative, but that magnitude seems to be a little bit big should we is there something going on with those numbers maybe around a renewal.
<unk> perspective, or maybe something else that we should consider on the back half of the year when looking at those numbers.
Okay.
So a few things Scott first is hanging on to refer you to the <unk> guidance and we said we exited last year at 12% growth. We bumped up this quarter. We are at a 14% growth at the end of the year, we expect to be at 17%.
So we're happy with that we are on track that confident that we will hit that the other thing that I would remind you is last year in the second half both in the third and fourth quarter, we had some nonrecurring impacts to revenue and if you look at that it's probably about 220 basis points in Q3 and about.
180 basis points in Q4 that impacted or that will impact what the growth rate looks like so again I go back to the IRR will continue to see consistent improvement through the year and there isn't any deceleration.
That's quite helpful. Thank you and then from a follow up perspective, I guess, maybe for Rob Your team as you look at the deal composition, today, which which seems to be good and healthy on.
Our customers buying more at the initial purchase or are you seeing that more really be I guess, a better up sell opportunity each day versus not necessarily a year ago, but maybe right before the pandemic.
Good luck thanks.
Thanks, Thanks, Dave.
Alright, and overall, we're seeing that this land and expand motion really is working very well for us. So it is that we're coming in I am saying that composition very much in terms of.
So we're getting the initial products in but and we're seeing that when our revenue for example follows a bidding.
And I think the overall, what we're saying is that people are coming in and then not going so march even tools volume, but actually looking at the upsells from added products as well.
Great. That's helpful. Thanks for taking my questions.
And there are no further questions I would like to turn it back over to management for any closing remarks.
I wanted to thank everybody for joining our call just to kind of summarize.
Q1 was a solid start to the year, we're doing what we said that shortly.
Recently, we announced on Investor day, I feel really really good about the business you are really good about.
The magnitude of the opportunity and we hope to see you.
90 days.
Thank you.
And that does conclude today's conference. Thank you for participating you may now disconnect have a great day.
On.
Yes.
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