Q4 2022 Zuora Inc Earnings Call
[music].
Good afternoon, and welcome to <unk> fourth quarter of fiscal 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again, thank you.
With that I would like to turn the call over to Luwana Wilke head of Investor Relations for introductory remarks.
Thank you good afternoon, and welcome to the fourth quarter fiscal 2022 earnings conference call. Joining me today are <unk> founder and Chief Executive Officer, Todd Mcelhatton, Laura Chief Financial Officer.
Robbie childbirth, our president and Chief revenue Officer will also be joining us for the Q&A session.
The purpose of today's call is to review, our fourth quarter results and provide a financial outlook for the upcoming first quarter and full fiscal year 2023.
Some of our discussion and responses today will include forward looking statements.
Minder, our actual results could differ materially due to several factors you can find information regarding those risk factors in the earnings release, we issued today and our most recent filings with the SEC.
And finally, we'll be referring to several non-GAAP financial measures and reconciliations to GAAP measures are included in the earnings release.
Copy of the earnings can be linked to the SEC filings a replay of today's call or to learn more about worah. Please visit our investor relations website at investor that door dotcom.
Now I'll turn the call over to Eugene. Thank you would want them and thank you everyone for joining US welcome <unk> fourth quarter fiscal 2022 earnings call, we had an outstanding quarter we.
We continue to innovate and deliver value to our customers.
Q4, we beat guidance for subscription revenue and non-GAAP loss from operations we.
We saw continued momentum with a strong upsell motion as well as a record breaking quarter signing on new logos.
Not only did we deliver top line growth, but we also saw growth in our bottom line.
2022 marked our first year, we were free cash flow positive.
This was a big year we.
We started the year with ambitious goals.
Round or.
Our our growth and dollar based retention rate and today.
Whenever reflect on the quarter and the year I am thrilled to share that we delivered.
I'm also excited to share the silverlake, a global leader in technology investing is partnering with us by way of a $400 million investments into the business.
Deniable momentum of the subscription economy in the clear leadership, we hold in the space what the catalyst to this relationship.
This investment allows us to pursue new initiatives, such as potential targeted acquisitions and other opportunities to broaden our product offerings and enable our customers to deliver exceptional subscriber experiences I could not be more thrilled about the partnership.
With that let me share some additional details about our results for the quarter in the year.
At the start of the year, we said that the biggest opportunity in the subscription economy lies with large companies both enterprise incumbents in the fastest growing disruptors and this year. We saw that this was absolutely. The case. These companies are recognizing the recurring revenue business models those are focused on.
Building ongoing relationships with their customers offer a faster path to growth.
Our latest subscription economy Index report, which analyzes anonymous aggregated data long term Saar billing customers just launched.
At this time, it's down the subscription businesses continue to outpace the S&P 500, growing four six times faster over the entire past decade.
Now, while some have wonder whether the stay at home growth phenomenon was temporary our data shows that overall subscription economy businesses are holding on to their pandemic subscribers and accelerating into the new year.
All of this continues to create a tailwind of opportunities for us as these companies turn to Europe to help them on their subscription journey for example in fiscal 'twenty. Two we brought on automotive leaders like Suzuki Motor Corporation, whose powering international connected car services. In fact today 12 of the top 15 la.
Largest auto manufacturers are now Zara customers.
Disruptors like Gusto, just one of many of our customers who are scaling and preparing for future ipos.
Brought an established global technology leaders like Hitachi Global manufacturing companies like Luxottica, the company behind eyewear brands like Oakley, Gucci and product.
Or kyocera, a Japanese multinational ceramics and electronics manufacturer.
And each M D global better known for making Nokia mobile phones, who chose Saar this year to help them transform and embrace new customer centric business models. In fact in Q4. Our continued focus on large companies resulted in eight deals over $500000 in annualized car.
Track value or <unk>, four of which were over $1 million.
We added a net 27 customers this quarter with average contract value over $100000 ending the year at 747.
This year, we said, we would accelerate our innovation and execute our multi product strategy.
And we delivered.
Our multi product strategy has become a critical differentiator.
Because more and more as companies look to monetize their digital services billing is only one key of the puzzle ultimately they need to manage the entire quote to revenue process to shape the broader subscriber experience now.
Now this is showing up in how companies are buying our software in fact in Q4, 18% of our first time customers purchased our entire suite, including our market, leading zora revenue product.
As a result of the successful integration between absorb billing resort revenue, we really saw an acceleration in the demand this year.
<unk> revenue.
Our second major product beachhead bookings for <unk> revenue nearly doubled in fiscal 2022.
This quarter, we launched real time revenue and enhancement to help our customers dramatically reduce their time to close the books and we've already turned it on for 20% absorbed revenue customers, who are now processing transactions in real time I'm also incredibly pleased to share that independent research firm <unk> research ranked zorba revenue as the.
Number one solution this year automated revenue management report.
That's why we saw new customers like AD trends provider of telecommunications networking equipment turn it to sort of revenue to automate their previously manual processes of revenue recognition.
And we also had a financial and investing media company purchase or a billing along with sort of revenue to help them scale their subscription business. This all tops off a year of innovation that we are extremely proud of fiscal 'twenty, two with a year of numerous launches, including unified monetization key PQ X.
Central revenue, new API in new software development kit, a brand new user interface and the universal custom payment Gateway development kit just to name a few we invested heavily in engineering talent to support our fast pace of innovation, including nearly doubling our engineering engineering.
Capacity this year and we delivered.
Now shifting to our go to market strategy. This year, we said, we would accelerate growth while increasing our dollar based retention rate with a land and expand motion and that is exactly what we did we.
We said, we would get to 17% <unk> growth by the end of the year and we surpassed this objective last quarter, we got the 19% in this quarter, we reached 20% <unk> growth.
We are making great progress towards our fiscal 2025 target of achieving 25% to 30% IRR growth.
We said, we saw a $450 million upsell opportunity just within our installed base and thereby going after this opportunity we would take our dollar based retention rate to 105% by the end of the year.
Well, we surpassed this delivering 110% in Q4, a full five percentage points ahead of our goal for the year.
In fact in Q4, we handled $21 billion in usage volume, bringing us to $75 billion for the entire year. In fact that is more in the GDP of over half.
Of the world's countries.
Finally.
As we laid out in our go to market strategy. This year, we said our systems integration partners will become an important driver for the business and that's exactly what happened in Q4, we marked a record quarter for partner influence bookings growing over 20% year over year. These firms continue to build out <unk>.
Practices and bring us into larger deals, helping us accelerate further into the enterprise space.
We also grew the number of globally certified consultants with our Si partners over threefold year over year and more than one third of our customer go lives in the quarter involve a system integrator partner.
I'll then it has been a momentous year for zoro and it has is more excited than ever about the opportunity that lies ahead, we see the subscription economy, continuing to expand into new industries and across new business processes, where we can expand our footprint.
After a transformational year, we are now in a fantastic position. We've got what I believe is the best management team in the business, who along with our Ceos are executing on our plan and we are accelerating.
And now we have the capital and the partnership with silver Lake to be able to lean in to the opportunity even further.
I will turn the call now to Todd to review, our financials, but let me give a shout out to all of our Ceos around the world and everything we've accomplished this year. We are now a very different company and how we started off.
With that I'll turn it over to Utah.
Thank you Jeanne and good afternoon, everybody our.
Our discussion today includes non-GAAP financial measures you can find details in today's press release, which includes a reconciliation table of selected GAAP to non-GAAP measures that reflect the adjustments made to both our current and prior year results.
As we close off a year of transformation at <unk> with strong results I am proud of what we've accomplished and I'm excited to have silverlake as our partner on the journey ahead.
Im happy to report that we finished the year by exceeding expectations for subscription revenue and beating guidance for non-GAAP operating loss at the beginning of last year, we outlined our plan to increase our pace of innovation and accelerate our go to market efforts to better serve our customers.
And today as we close our fiscal 2022 Q4 gives us yet another proof point that our strategy is working this.
This quarter, we closed several multi product deals we.
We delivered strong growth in the enterprise space with great go to market execution, a meaningful contribution from our Si partners.
We reached a new quarterly record for overall bookings and where free cash flow positive for fiscal 2022.
Let's review our top line performance for the quarter.
Total revenue was $90 7 million in the fourth quarter up 14% year over year.
Prescription revenue was $77 3 million.
19% year over year, driven by overall improvement in our go to market execution subscription.
Revenue represents 85% of total revenue.
Higher level since our IPO.
Professional services revenue was $13 4 million a.
A decline of 6% year over year.
This is consistent with our strategy to drive more services work to our system integrator partners and supporting our plan to improve our mix towards more recurring subscription revenue.
As a result of our success in driving professional services to our Si partners.
non-GAAP blended gross margin was 66% an improvement of 120 basis points year over year.
non-GAAP subscription margin was 80% a 20 basis point improvement over the prior year.
As a reminder, this includes the additional costs associated with our move to the public cloud.
non-GAAP professional services gross margin was negative 11%.
Given by an intentional step up in investments related to training, our Si partners and the timing of projects due to year end and holiday schedules we.
We have significantly increased partner certified consultants this past year, which has fueled contribution for partner sourced and influence deals.
Looking ahead, our objective is to run the services at or near breakeven.
non-GAAP operating loss was $6 million in Q4, compared with an operating loss of $1 8 million in the prior year.
This was driven by top line growth and improved gross margins.
This resulted in a non-GAAP operating margin of negative, 1% and an improvement of 160 basis points from Q4 of last year.
Our fully diluted share count at the end of the quarter was approximately 144 million shares using the treasury stock method.
Moving on to some of the key metrics for the quarter.
In Q4, we maintain our dollar based retention rate of 110% a strong improvement of 10 points year over year and ahead of our 105% that we guided at last year.
At the end of Q4 customers that spend at or above $100000. ACB reached 747, an increase of 27% sequentially.
This continues to represent 94% of our business.
Large enterprises continue to gravitate towards <unk> for our expertise and product portfolio.
We closed eight deals with ACB of $500000 or above flat year over year.
Four of those deals had ACB greater than $1 million versus two a year ago.
This is a testament to our strong grotto market motion and success with our system integrator partners.
The large multi year new business activity also is evident in our total remaining performance obligations or RP O, which grew 30% year over year.
Turning to building transaction volume our systems process $21 billion of volume in the quarter, representing 25% growth year over year.
Billing transaction volume is not indicative of our revenue growth rate, because our customers gain efficiencies as they scale.
Now looking at <unk> growth and free cash flow.
In Q4 are our growth grew to 20% year over year to repo volumes ahead of our 17% AOR growth objective for this fiscal year that we announced at our Investor day last year.
This was driven by another strong quarter of Upsells and record new business. We continue to focus on our objective to reach 25% to 30% and AAR growth by fiscal 2025.
I am happy to report that free cash flow was $7 6 million for the quarter, allowing us to reach our goal to be free cash flow positive for the entire year, we continue to invest in the business to foster sustainable growth, while tracking our progress towards the rule of 40.
Total capex for the quarter was $2 7 million.
As we assessed our real estate needs considering what the future of work is going to look like and our location strategy. We made the determination to reduce our bay area footprint by over 60% as a result, we incurred a noncash impairment charge of $12 8 million.
The space reduction will allow us to further reinvest in R&D and go to market initiatives, which generate more leverage and growth.
Turning to the balance sheet, we ended the quarter with a $215 million in cash and cash equivalents, an increase of $12 million over the prior quarter.
Fiscal 2022 was a transformational year for <unk>.
As we close out the year I want to acknowledge the amazing work of our Ceos, who made these results possible by keeping laser focused on our strategy now.
Now, let's turn to our financial outlook.
As noted on prior calls we continue to accelerate our investments in go to market and product development initiatives.
Turning to guidance for Q1 and fiscal 2023 as a reminder, our first quarter ending April 30 has three fewer days compared to the prior quarter, our free cash flow and EPS guidance does not include the impact from the silver Lake investment, we will update the free cash.
Flow and EPS guidance after the silver Lake investment closes.
For Q1, we currently expect total revenue of $91 million to $93 million subscription revenue of $77 million to $78 million non-GAAP operating loss of $1 million to breakeven non-GAAP net loss per share of two two <unk> per share.
Our weighted average shares outstanding of approximately $128 8 million, we expect to be free cash flow positive in Q1 for.
For the full year were rising we're raising our outlook. We currently expect total revenue of $402 million to $406 million subscription revenue of $338 million to $340 million non-GAAP operating loss of 2 million to breakeven non-GAAP net loss per share up seven.
<unk> to <unk> <unk> per share assuming a weighted average shares outstanding of approximately $132 8 million.
For the full year, we expect a growth of 21% or higher our dollar based retention rate of 112% or higher and we expect to generate free cash flow in the range of $14 million to $17 million to close off we're extremely excited about <unk> future our partnership with silver Lake.
And what fiscal 2023 will bring with that team Robin and I are happy to take your questions and we'll turn it over to the operator.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
First question comes from the line of Andrew de Gasperi with Bahrenburg. Your line is open.
Hi, This is Ellie on for Andrew. Thanks, So much for taking our question. So I think I look at your subscription economy index.
Mentioned earlier and that definitely showed some positive data that subscription and then 2000 22000.
'twenty, one and continued momentum and then pandemic recovery.
Or would you be able to elaborate on how that contributes to the way that you think about that.
Yes, Greg.
And also how does that fit.
How you think about your Tam in Oklahoma.
The team here. Thanks for that question. We're pretty excited this is a report as you know that we publish twice a year that we are doing it for five or six years in a row.
And the exciting thing is if you look at over the last decade.
Ascription businesses as represented by what we see through our system.
We grew at over a $4 six X rate than just traditional businesses and so it really really speaks to this is where the growth of the economy is this is where companies are going this is where the puck is going if you will and it tells us that we have a really long runway. It also tells US it's fully formed our go to market.
We believe that the exciting part of this marketplace isn't large companies both incumbents and Disruptors. We think that every day every quarter every month. We look there is another company in another industry that is shifting to the subscription economy.
And if you look at what we've done over the last year in terms of building and go to market organization building, an innovation machine that really satisfies.
And helps the best companies of the world when in the subscription economy. This is exactly what we've done and so we feel good about our long term trajectory and we also feel good about the numbers that Todd laid out for this upcoming year.
That's great. Thanks, a lot.
Your next question comes from the line of Joseph <unk> with Canaccord Genuity. Your line is open.
Hey, guys.
Terrific.
For the year here and its nice to see growing momentum in the business, maybe you could just drill down a little bit and the thought process on silverlake investment I mean, clearly a premier investment.
Shop and.
They are probably seeing some attractive.
Aspects to your business.
But.
No.
What what do you think youre going to do with some of those bonds.
Can it be more on M&A or.
Kind of more pedal to the metal on on perhaps internal initiatives and then just kind of the thought process in general about.
<unk>.
Taking the investment in in the first place and then all the follow up.
Yes. This is Tim here.
Thanks, Joe for the question I am incredibly excited I mean this is.
The preeminent technology investment firm and they haven't been in whole concept of technology investing I think they were the only for the first firm just solely invested in technology companies back in the nineties.
You see their name associated with Airbnb with Dell with unity with Vmware with Twitter and here's a company that I would say.
<unk> believed in the subscription economy.
And these days everybody has seen it but they certainly big big leaving the subscription economy. They liked what they saw they liked the leadership position that we had.
They did their due diligence they looked underneath the hood and they are excited about our path ahead, and we're really excited about having their network their expertise.
In their capital if you will on our side really to help us lean into the opportunity ahead.
As you can imagine.
M&A or acquisitions, we will certainly be a big focus of ours, we doubled our engineering team. This last year, we're innovating at a faster pace than ever.
I would say when I talk to our customers. They have an insatiable appetite for more and more technology is more solutions to help them build great subscriber experiences to help and build new business models monetize our digital offerings and we're excited about having silverlake on our side to what to really meet this growing demand.
That's great Jean and then.
It sounds like you had like.
I mean, you had a great bookings quarter again, this quarter and I know youre more focused on the enterprise and you got some from large deals.
How would you characterize the kind of breakdown of enterprise versus maybe pure subscription players.
In the quarter in terms of new logos.
We see pretty healthy.
<unk>.
Distribution.
If you look at what we do it's certainly it's technology companies as media companies manufacturing companies emerging verticals I would say it was in the technology space. We continue to power Disruptors I think we've talked about gusto being one of the companies that we sign on if you look at the SaaS companies that have gone public over the last 234 years, we power just so many of them.
And that continues to be important part of our business, but look I think more and more.
If you think about the phrase.
That I think mark increasing use software each the world every company is becoming a technology company I think what we're seeing is a parallel.
<unk>.
<unk>.
We're call it software as a service the business model there is eating the world and every company is waking up to become a subscription economy company, maybe Robin what would you say you saw in the quarter.
I think in terms of what we're saying.
Looking at the core of the technology, we have is totally differentiated in the way that the customers need it and the way they get value out of it.
And so long as we can see is really attractive it's growing.
And then the goal still the same thing with CRM players you've got the ERP players.
So the more best of breed smaller companies below that and I think what we're seeing.
There's just no enterprise ready, regardless surround the con handle the complexity and the scale.
And I've said it before team.
That's a matter is to buy cheap by twice in that essence of that I think there is something that we've really seen we're replacing competitors and especially in Q4 definitely the top and the senior replacing where they cannot scale. They could not meet the complexity and also the bottom end same reasons scale in particular.
Good Q4, and Thats what were seeing as we go enterprise overall.
That's great color Ravi Thanks, and then maybe just one for Todd I know I know your gross margin was off a bit year over year, despite kind of move to the public cloud.
It'd be kind of interesting to drill down on that additional public cloud cost a bit.
And perhaps kind of.
Got more to what.
What that investment means and public cloud and what perhaps a more apples to apples gross margin.
Expansion might've been in then.
Maybe I'll just have one more follow up.
Okay, Hey, thanks, Joe So on the cost of goods sold for the subscription business for the entire migration during the year, we ended up spending about $3 million and almost half of that was in the fourth quarter next year, we kind of expect overall margins to hold relatively constant we still got some other areas that <unk> going to invest into.
Give us greater efficiencies over time, so I would kind of expect to stay flat year over year, but then as we kind of go out between our 2025 guidance, we see ourselves going up maybe 100 basis points a year and then as we also talked about we would expect the overall services margins to be closer to breakeven next year and so that.
We will give us a little bit of margin acceleration at the gross margin level for fiscal 'twenty three.
That's great and then just one more I know you mentioned that youre going to reduce your bay area real estate footprint by 60% since assume a lot of your team is going to work virtual.
How are you feeling about that that transition and ultimately what what what what would that potentially mean in terms of.
Reduce real estate costs. Thanks, a lot guys.
So I think the primary place, where we've really looked at where we were out of whack with where people were was in the Bay area. The second thing that I would say is I think what we're seeing is what we're really talking about is we're giving people the ability to be flexible and what we're seeing is people are coming into the office for specific things and thats usually to collaborate so if youre going to be.
And as Zoom meeting all day Theres, no sense in coming and sitting in the office and you are going to traffic an hour each way to commute, but how you do that at home, but for example, like my team were putting earnings together everybody has been here for the last couple of days the engineering teams when they've got certain things going on the sales teams here during their <unk>. During closed is doing certain things are collaborating on and I think we're <unk>.
More and more of that but I think the last thing I would say is we've been very thoughtful this year and as we move forward about what is our location strategy look like and I think youre going to see us little bit more distributed and <unk> done a really good job as we've increased our engineering capacity doing that and more cost effective countries and so youll see us moving some of those roll.
<unk> are adding those roles not moving but adding those roles and places where we can get a better return on our investment.
Okay.
Thanks for that color great job guys. Thank you. Thanks, Joe Thanks, Joe Thank you.
Your next question comes from the line of Brent Thill with Jefferies. Your line is open.
Pantene ton and Ravi this is <unk> on for Brent Thill.
Thank you again for taking my questions.
Maybe first one for <unk>.
Could you maybe comment on the overall demand environment.
And we incurred.
Some commentary about the pull forward in demand.
And then software are you seeing any of that.
The appetite.
Among steel customers.
Continuing to.
And by software.
Yes.
I would tell you that im sorry.
I will say is as you can see already great Q4, and it was as we predicted as we had.
It looks at the business as a whole.
Really good spread across our focal areas and so you are saying it is anyway of a over but this is as we expect it to do and when I look overall our pipeline.
I look at that aspect, we feel very very good very good about where we are and also how we executed in Q4.
I mean, the only other thing I'd add love is March genuine to see building of the pipeline and when Rob talked about inbound demand for Mike Rfps RFID. That's also remains strong.
Got it.
One quick follow up for Todd if I may.
Dollar based net retention.
We maintained at 110%.
Do you think about it in the pathway to 112% or higher.
Over the course of the next year and any comments on churn.
So maybe I'll start with your last question, we feel really good about our customer retention matter of fact, our churn levels.
As we've talked about over the last year have really been kind of hovering around their all time lows and we credit a lot of that to the infrastructure investment that Ravi has put in place over the last quarters. The customer success team I think has had a tremendous impact on helping us there along with some of the improvements in product.
So we feel really good about that standpoint, I would tell you is we feel good about being able to increase the dollar based retention to that 112% plus.
<unk> that we talked about what I would say is going back to analyst day, we saw $450 million opportunity for cross sell and up sell and if anything as we've added new products and added new logos. This year, we're seeing that expand and we're seeing a very balanced out with people are very balanced adds again I think this is <unk>.
Maybe the third quarter in a row, where we continue to see nice growth in usage, but just as important it's very balanced with also getting really good take up of the new products. So I've talked about this in the past is kind of like the three legs of the store, we're retaining our customers were selling a new product and they are usually it's got more usage going through.
The platform and all of those things are helping us drive dollar based retention.
Got it thank you.
Thanks, Rob.
Your next question comes from the line of.
<unk> with Craig Hallum. Your line is open.
Great. Thanks for taking my questions. So a couple for me just drilling down on the on the last question on net expansion.
And just maybe maybe even qualitatively Todd.
Think kind of we're in a period where.
No.
That pricing and volume would potentially be a tailwind for us going forward relative to how we changed how we sold in all of that stuff in and got over the hump on the deals that were a headwind.
Was that the case this quarter in terms of pricing and volume uplift on on renewals and how did that play out relative to your expectations.
So I think to your point as we've seen during this last year, we didn't have some situation where customers had purchased more volume and needed. So that certainly helped us from a standpoint is what we are seeing the consistency of add ons, but again super balanced between volume and you've seen the volume on the platform grew 25% of the transactions it.
Went through so we're seeing nice volume there and that's continuing to give us a nice lift on the upsell and again, the new product take up.
Okay and just on the net expansion the 110, which clearly was above what you were targeting heading into the year, but I mean, you're effectively lopped off.
Ill.
Bad quarter, right, a year ago on a trailing basis and I assumed you replaced it with.
With a good quarter I mean is there is there anything we're missing on the net expansion side that debt.
Yeah.
Why net expansion.
Maybe even improved from last quarter.
No I think the thing you probably need to keep in mind. If you go back to our Q4 last year. It was really one of it was the first quarter, we really started to Reaccelerate and we add our Q4 at that time was the biggest quarter, we've ever had for up sells and still with a fantastic quarter. When we look back historically, so it's a really tough compare so that 110.
Growth or that one tenant expansion is leveraging off a really strong Q4, a year ago.
Got it fair point.
Yes.
Go ahead.
I think just.
We've taken a net dollar retention from a low point to 110%.
Every quarter it might be a little bumpy, but we are committed to continue to rise that right based on what Todd single quarter for the upcoming year.
Then maybe last one on the guide Todd so subscription.
Yes.
Effectively if we look at.
Kind of the midpoint I guess.
From a growth rate standpoint, I think you did 18% ish close to 19% this year subscription growth for the year that just ended and I think the midpoint, we're kind of at the same kind of level of growth I do recall that you had some upfront things that hit subscription last year.
Just kind of kind of how we should think about that and maybe the impact of those one time upfront deals and the quantification if you could.
Yeah. Thanks, Chad when I think about last year I would say a couple of things.
First of all one of the things we really wanted to do is get people focused on the AAR growth. It's the best forward looking metric in a subscription business and that's one of the things that we always talk to our customers about.
Bookings happen now and it takes 234 quarters until that starts showing up on the subscription revenue line and so we feel really good we actually had 20% growth you did mention in our rightfully. So as we look through the year, we've talked about the migration that we've had of customers moving off of our on Prem product and bizarre.
On cloud revenue offering and when we've done that we've had some customers that have had some one time, we benefited from some one time benefits as they've done their final renewal on their term license and so those are some benefits that we won't get and so that's maybe a 0.5 or so of impact that has headwinds year over year.
And the other thing I would keep in mind is we probably got a little maybe a point point and a quarter of headwinds of currency as we move into the year, but overall, we feel really good about exiting the year.
At that 21% plus <unk> growth.
Got it thanks, so much.
Your next question comes from the line of Joshua Reilly with Needham Your line is open.
Hey, guys. Thanks for taking my questions.
So congrats on the silver Lake investment I'm curious how did the investment in relationship coming about and then you mentioned potential acquisitions can you give us any color on whether that could be like a single larger transformational deal or should we expect potentially a series of smaller deals over a longer period of time.
Hey, Josh it's Todd So maybe I'll start with that and the team wants to add any color. He can.
Jump in.
I think the relationship really came about <unk> been talking about for quite some time as our growth started accelerating what would our balance sheet need to look like what did we need to do to really help accelerate the growth we've talked about the strength that youre seeing in the subscription economy and one of the things that we felt really strong about is we wanted to give ourselves.
We wanted to strengthen the balance sheet and as we started looking at different options.
Were introduced to the folks at silver Lake.
And we spent some time with them and we really liked them when we take a look at their industry knowledge.
Capacity that they have to assist us whether it be in M&A, our analysis, our product strategy and their partner ecosystem that they opened up it really became compelling as we started talking about what the balance sheet needs to look like.
One of the things that they offered us that was really compelling was the.
The ability to get $400 million, but to take that down in tranches. So the first tranche, we take down at $2 50.
And then we can take down the next 150 over 18 months that certainly gives us.
A lot of flexibility and so we feel really good about the relationship we feel like silverlake is going to be a great partner and really be able to help us accelerate our growth rates to get to those 25% to 30% rates from.
From a standpoint of M&A I think team mentioned it earlier our customers just are having an insatiable demand. There's lots of areas that are adjacent to us and I think at this point I'm not wanting to kind of go through and go through what we're looking at but I think we see a lot of opportunities and especially having a really strong balance sheet. In this volatile period, we think will turn out.
To be very helpful to us as we look to go through M&A.
Yes.
I think thats right I mean, we obviously have a roadmap that we're excited about I look I think the big picture is this I think the big picture is our business is going really really well.
What my bias view is the best management team in the industry. We've got the best product and we've got a customer base that I would say many of the companies are envious of and they view us really as a strategic partner and they are hungry for us because of our expertise because of our innovation because of our leadership too.
To give them more.
And so our roadmap is really based on close dialogue with our customers. We think theres a lot of white space in what they need in order to build fantastic subscriber experiences and monetize business models and we don't have anything to say right now of a size of transactions or anything else right, we're going to be led by our customers with.
With our new partner Silver Lake buyer side.
Got it and then just a follow up on that are their priorities for investment beyond acquisitions that.
It can be used with the funds from the convert and could that ultimately lead to accelerating growth investments here that are not currently factored into guidance and when you adjust after the deal closes could that make an adjustment beyond interest expense.
Now at this particular point, we feel really good about the operating.
Margin I think on the <unk>.
On the bottom line, we expect it to be 10, 10 $5 million of interest and amortization and then we're still finalizing the accounting on what the warrants will look like and so once the transaction closes we will give you the final guidance on the bottom line, but thats, where I would expect the only changes to be.
Got it that's super helpful. Thanks, guys.
Thanks, Josh.
There are no further questions I will turn the call back to CEO teen Sal for closing remarks.
Well. Thank you. Thank you today for joining us I would like to say a big Thank you to all our Ceos across the globe as we close the chapter on.
A fantastic FY 'twenty, two and look ahead towards a strong FY 'twenty three our people are.
And ultimately what makes <unk>, an incredible place to be and I am proud of what we've accomplished together not just in Q4 for the entire fiscal year I really like the position. We're in in fiscal 2023 is shaping up to be another exciting year. Thank you very much.
This concludes today's conference call. Thank you for joining you may now disconnect.
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