Q4 2022 ZoomInfo Technologies Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Good day.
Thank you for standing by welcome to the zone info fourth quarter and full year two.
2022 financial results.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
You will then hear an automated message and advising your hands raised.
To withdraw your question. Please press star one again.
Please be advised that today's conference call is being recorded.
I would now like to hand, the conference over to your speaker for today, Jerry because those ski. Please go ahead.
Okay.
Thanks, Lisa welcome to zoom into those financial results conference call for the fourth quarter and full year 'twenty two.
With me on the call today are Henry shock founder and CEO of Zoom info and Cameron Heizer our CFO .
After their remarks, we'll open the call to Q&A.
This call any forward looking statements are made pursuant to the safe Harbor provisions of U S securities laws expressions of future goals, including business outlook expectations for future financial performance and similar items, including without limitation expressions using the terminology may will expect anticipate believe and expressions, which reflect.
Something other than historical facts are intended to identify forward looking statements.
Looking statements involve a number of risks and uncertainties, including those discussed in the risk factors section of our SEC filings actual results may differ materially from any forward looking statements.
The company undertakes no obligation to revise or update any forward looking statements in order to reflect events that may arise. After this conference call, except as required by law for more information. Please refer to the cautionary statement in the slides posted to our Investor Relations website at IR docs humans, So dot com all.
All metrics on this call are non-GAAP unless otherwise noted a reconciliation can be found in our financial results press release or in the slides posted to our IR website with that I'll turn the call over to Henry.
Thank you Jeremy and welcome everyone a year ago, you join me on our earnings call as we talked about our expectations for 36% revenue growth for 2022.
A lot has happened between that initial guidance and now and even in the face of a more challenging economic environment, we continuously raise our guidance as we move through the year and delivered 47% revenue growth in 2022.
We delivered that relative efficiently with an adjusted operating income margin of 41% for the year and more than $450 million in Unlevered free cash flow.
In the fourth quarter, we delivered over $300 million in revenue with a 42% adjusted operating income margin, which was up 100 basis points sequentially and up more than 350 basis points from Q4 last year.
Structurally we are a profitable company and we remain committed to driving top line growth, while expanding profitability and efficiently growing free cash flow.
This combination of growth and profitability differentiates us from many other growth oriented software companies that have struggled with a clear path to profitability.
We have always operated with discipline efficiency and a focused that allowed us to generate profitable growth and we will continue to do so.
While these are good results, we can be doing better.
Customers are challenged by the current state of the economy.
Within our largest vertical software companies are laying off employees and cutting back spending money.
Many companies regardless of size or vertical have materially lower growth prospects and they did a year ago.
All companies are looking to do more with less we remain early in the digital transformation of <unk> sales and while our platform drive meaningful efficiencies for companies in all industries.
As our customers reduced their sales budget and head count they take a harder look at all of their spending.
As we had indicated earlier in the year the more challenging economic environment has impacted our upsell and cross sell motion with increased customer scrutiny, causing an elongation of sales cycles.
The economy has had a direct impact on our business to be sure but to continue to grow and scale through this time, we will be intensely focused on four priorities.
Surrounding ourselves with the right people.
Investing in enterprise solutions, delivering delightful product experiences and executing with excellence and efficiency.
I continue to dedicate my energy to those priorities every day.
And as I have communicated to everyone in the company. If it is not driving us forward across these four initiatives is not a priority.
With regard to the first priority I have made significant changes to the leadership team over the last few months, we announced last week that our CTO near Karen is leaving zoom info.
Near joined Zoom info in its startup phase and it's helped US grow the engineering team from its very earliest days.
I want to thank him for being a strong leader and a great partner.
The new executives, we have hired brings strong relevant experience, leading great teams driving customer success and building highly scalable world class products. These leaders and others across the organization will help create the foundation, we need to scale for the next phase of growth.
First Ali Darden joins us as our new Chief Technology Officer from Atlassian, where he was head of engineering for work management confluence truckload <unk> and Atlas he.
He is coming from an organization that is universally recognized as having the best product led growth motion supported by remarkably well integrated underlying platform and he brings more than two decades of experience scaling global technology companies.
We're excited to have him join the company and lead our innovation and development effort.
Also Dave Justice is joining zoom menthol as our chief revenue officer.
Dave has more than two decades of experience leading global sales in the software space, serving as Chief revenue Officer Pedro duty for the past three years.
Between Peyser duty Salesforce and Cisco. He has helped sales positions at all levels of the organization with a particular focus on enterprise sales.
We need the right people in the right roles focused on the things that matter, most and I believe we have that now.
With regard to the second corporate priority investing in our enterprise business. We recently surveyed thousands of zoom into all users to understand the impact our tools and data have on their day to day productivity and the value that they derive from the platform.
Their responses underscore just how in central we are at a time when companies are trying to hit their targets with fewer resources.
67% of sales leaders reported immediate topline revenue gains after implementing zoom info seltzer.
Sales development representative cut their time researching prospects in house account executives reduced deal cycles by nearly 40% and increased win rates by more than 45% Str's Aes and account managers increased quota attainment by more than 50% and the average.
Quota attainment with zoom info was more than 90%.
70% of marketers reduced spend due to more accurate targeting and the average recruiter using zoom info reduced the time to hire by 20%.
These results tell us that the zoom info platform is mission critical for our customers and delivered tremendous ROI.
With our platform marketers are able to reduce spend in target leads more accurately sales team spend less time researching and more time, selling and with more accurate data more than double the response rates.
Recruiters find better candidates and get them in the door faster when our customers win we win and we will continue to ensure their success as we cement zoom info as their central revenue operating system for efficient businesses.
Our net retention rate, which was 104% with a disappointment this year and in large part reflected the more difficult operating environment.
The biggest driver in terms of lower net retention in 2022 with a lower level of Upselling as the continued elongation of sales cycles impacted our rep's ability to sell more seats and more data into our install base.
Customers continue to renew as our gross retention rate remained in the nineties.
But upsell opportunities were diminished as customers look to cut costs, particularly in the second half.
We ended the year with 19, 126 customers, who spend more than $100000 annually with us up approximately 30% year over year and advanced functionality now represents 31% of ACD.
There is a tremendous opportunity with enterprise customers and we're making it even more of a priority to unlock that opportunity.
During the quarter, we closed transactions with leading organizations like Amazon Web services bank of the West Barclays Cigna, Edward Jones, Goodwin, Procter Fedex Panasonic service now the deck cell and waste management.
Companies are increasingly looking to work with fewer vendors and consolidate their tech stacks. They chose zoom info because of our integrated platform aligned sales and marketing team to optimize conversion and it can expand with them as they grow and develop a more sophisticated go to market strategy.
As examples a leading provider of human capital management solutions traditionally only leveraged company data from zoom info to drive their territory planning activities.
After our sale of <unk> pilot that delivered significant ROI in a short amount of time, they've rolled out sales are west of thousands of their account executive expanding their use of the platform.
One of the largest financial institutions in the world doubled its investment in zoom info, adding more sales OS seats and is now integrating our data into salesforce for their commercial banking unit, while leveraging intent data to improve their targeting effort.
We are focusing our 2023 development efforts on extending our lead in data excellence delivering a scalable enterprise experience developing and training customers on high impact plays that drive go to market efficiencies directly from the zoom info platform and investing behind more.
Led growth opportunities.
We will continue to invest in accuracy and coverage to further extend our data leadership and optimize our search experience. We will also invest in more robust bidirectional sync with CRM and API to meet the needs of our enterprise customers and an holistic signals and unified scoring mechanism to meet the need.
The sales and marketing teams that use zoom into what their shared source of data truth.
When I think about building a world class enterprise experience it comes down to the scalability and simplicity of our product to create a delightful experience for users.
As we move up market to serve larger global enterprises, and deliver predictable and efficient performance for our customers. Our product focus is shifting to driving scalability automating workflows and simplifying everyday tasks for our users and their admin, we will invest more in enterprise grade settings and permissions.
For Admins simplified account setups in the integration and product analytics and performance dashboards for leadership and a better self guided product on boarding experience to help unlock value along the user journey.
And the recent G to winter 2023 grid reports zoom info ranked in first place across 29 grids and was listed at the number one enterprise solution in eight different section for.
For the eighth straight quarter, we let all four of the sales intelligence marketing account intelligence account data management and lead intelligent enterprise grids.
We're also doubling down on our investments in marketing, we will continue to build out our advertising capabilities related to our proprietary <unk> demand side platform build deeper account based marketing functionality expand reporting capabilities and invest more in unified scoring mechanisms.
Marketing is a common upsell pathway after customers have successfully implemented <unk> and we are seeing more traction with sales and marketing team who want to share the same foundational data tools and processes.
We will also invest heavily in supporting our customers to execute high impact go to marketplace customers are looking to do more with less whether that means with smaller teams or fewer advertising dollars being able to take timely action on signals. It's key to successful and sustainable go to market motion we will.
<unk> to invest in both user level workflows enabled through sales and.
And marketing.
An organization wide workflows and workflow management through operations.
Scalable workflows supported by a ring lead and das offerings have been integral for companies looking to become more efficient and automate time consuming motion.
In closing I am confident that we have the team the platform and the strategy to win this market a huge opportunity remains ahead of us and we are well positioned to capitalize on it as more and more sales teams use data and insights to find acquire and grow customer.
Our customers are generating significant ROI and our users are reporting phenomenal phenomenal results as they leverage the zoom info platform. We've added a number of leaders who will continue to help us grow in scale and who bring a wealth of enterprise experience and a customer first mentality to the organization.
As I mentioned last quarter, while we can't control the macro we can control how we manage the business.
I'm all in the team is all in and we're ensuring that we're consistently delivering the result that you have come to expect from us.
While Cameron will be sharing our specific guidance for next year I will share with you. The framework, we used in developing our guidance.
We have assumed that the economic environment does not get better at the low end of the guidance, we have assumed that things get progressively worse.
We understand that while our new leadership is great for the long term, we may see some disruption while the team gets up to speed.
We remain steadfast in our belief that we will continue to expand profitability and we will continue to lead with efficiency focus focusing on compounding free cash flow growth over the long term with that I'll hand, it over to Cameron.
Thanks Henry.
In Q4, we delivered revenue of $302 million up 36% year over year, which implies 5% sequential growth compared to Q3 2020 to.
Excluding the impact of products acquired within the last 12 months, our organic revenue growth for the quarter was 34%.
Adjusted operating income in Q4 was $127 million a margin of 42% up 100 basis points sequentially and up 360 basis points compared to the fourth quarter of last year.
For the full year, we delivered revenue of $1 1 billion.
Up 47% compared to 2021 and meaningfully better than our initial full year guidance of 36% growth.
Organic revenue growth in 2022 was 41%.
Adjusted operating income was $448 million a margin of 41%.
And Unlevered free cash flow was $457 million we.
We were GAAP profitable for the year with net income of $63 million and GAAP EPS of <unk> 16 per share non.
non-GAAP EPS was <unk> 88 per share.
We are initiating guidance for 2023 with revenue growth at 17% at the midpoint.
With an implied NOI margin of 41% up 50 basis points compared to 2022.
For 2023, we expect to deliver $512 million in Unlevered free cash flow at the midpoint of guidance, which implies more than $450 million in free cash flow for the year.
It is no secret that the tech sector is seeing layoffs and companies regardless of vertical are being pressured to cut cost and drive efficiency.
We believe that our focus on driving an efficient go to market motion for our customers and the strong and near immediate ROI from our platform provides across verticals has enabled us to continue to deliver a leading combination of revenue growth and profitability even in this more challenging environment.
Longer sales cycles, and the increased time, our reps are spending on renewals has impacted our ability to upsell and cross sell existing customers, which was a meaningful driver of growth and net revenue retention expansion in the past.
As Henry indicated net revenue retention for the year was 104% as we operate in this more challenging economic environment.
Bridging from our prior net revenue retention the biggest driver approximately 10 points of the change was driven by reduced ourselves.
Similar to many other software companies our sales reps continue to spend more time on deals and renewals than they have in the past limiting their ability to drive more upsell opportunities with existing customers.
In addition to adding more capacity, we have shifted account loads reallocated resources to higher potential customers and our automated low end tasks, creating the potential to improve efficiency.
While we believe these efforts will yield positive results. We are cognizant of the ongoing macro challenges and acknowledged that our improvements could be offset by further deterioration in buyer sentiment and behavior.
As a result, we think it is prudent to model net revenue retention at lower levels for the foreseeable future.
New customer additions remain the larger driver of revenue growth in 2023, and our expectation is that we'll continue to be true in 2023.
International customers contributed 13% of revenue in the quarter, which grew 49% relative to Q4 of 2021.
International markets are seeing a similar and in some cases worse economic environment relative to the U S.
During the year, we grew our employee base, approximately 30%, which was slower than revenue growth in.
In the second half, we intentionally moderated the pace of head count growth raised the bar with respect to performance and eliminated some positions.
As a result, we are currently at a head count level below where we ended September .
In 2023, we expect to realize operating leverage in the business as we continue to grow our overall team less quickly than revenue, while focusing on adding sales capacity.
Turning to cash flow operating cash flow in Q4 was $120 million, which included approximately $6 million of interest payments.
Unlevered free cash flow for the quarter was $122 million or.
We're 96% of adjusted operating income.
For the full year Unlevered free cash flow was $457 million or 102% of adjusted operating income yielding a margin of 42%.
Going forward, we expect Unlevered free cash flow conversion in the range of 95% to 100% for the year.
With respect to the balance sheet, we ended the fourth quarter with $546 million in cash cash equivalents and short term investments at.
At the end of Q4, we continued to carry 125 billion in gross debt all of which is fixed or hedged interest rates.
With about half of that coming due in 2026, and the remainder coming due in 2029.
Additionally, we successfully transitioned from LIBOR to <unk> during the quarter.
We again drove an improvement to our leverage ratios with a net leverage ratio of one five times trailing 12 months adjusted EBITDA and one three times trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements.
This represents approximately a full turn improvement from the beginning of the year.
With respect to liabilities and future performance obligations unearned revenue at the end of the year was $420 million and remaining performance obligations or RPE over $1 1 billion of which $842 million are expected to be delivered in the next 12 months.
We believe that calculated billings bookings in <unk> and precise metrics to assess in period activity and forward momentum.
Because of the inherent noise in those metrics, we focus on days adjusted sequential revenue growth.
Which was 5% in the fourth quarter.
As we move to guidance, we have developed a prudent set of assumptions.
The low end of guidance includes an expectation that there is a further deterioration of the macro environment and buyer sentiment in 2023.
Well some near term disruption as we onboard new leaders.
With that I will provide our outlook for the first quarter and initial outlook for the full year of 2023.
For Q1, we expect revenue in the range of $299 million to $301 million.
Reflecting the fewer days of recognition revenue recognition in Q1 relative to Q4.
We expect adjusted operating income in the range of $118 million to $120 million and non-GAAP net income in the range of 12 or 21% to 22 per share.
Our Q1 guidance implies year over year revenue growth of 24% and an adjusted operating income margin of 40% at the midpoint of guidance.
We are providing initial full year 2022 guidance as follows we.
We expect revenue in the range of $1 $2 75 to $1 $2 85 billion.
Adjusted operating income in the range of 523% to $533 million.
And non-GAAP net income in the range of <unk> 98 to $1 per share based on $418 million weighted average diluted shares outstanding.
For Unlevered free cash flow, we expect to generate between 507 and $517 million.
Our full year guidance implies 17% revenue growth at the midpoint and both adjusted operating income margin and Unlevered free cash flow margin at or above 40%.
With that let me turn it over to the operator to open the call for questions.
Thank you.
One moment, while we prepare for our Q&A session.
First question that I have is coming from Mark Murphy.
Of JP Morgan Your line is open.
Yes. Thank you very much so I wanted to drill in just given your exposure to the software vertical I believe is around 40% of.
What are you embedding into the guidance there in other words do you assume that.
This wave of layoffs continues to intensify through the year, we hear of SDR teams being let go.
And in that that would put more pressure on seed expansion into the software vertical or.
Do you see a scenario, where perhaps separate that would kind of level off sometime in the next couple of quarters and then I have a quick follow up.
Yes.
Yes, Thanks, Mark and certainly our guidance contemplates that we continue to see a challenging macro environment and I think that would be continuing to see layoffs occur we did.
<unk> experience a bunch of that in Q4 as I'm sure you can imagine.
The guidance assumes that things will get worse as we go through the year.
Okay.
As a follow up that we had heard some feedback that seat growth is obviously very very sluggish.
Challenged out there broadly across the entire.
Software vertical.
But there are cases, where companies are continuing to can see them kind of the bulk credits or the data credits is that something that aligns with your observations or do you think the trajectories are pretty similar if we toggle between the two.
The seat growth and the bulk credit growth.
So I think that when you look at the.
Look internally at the results the bulk credit usage.
Is <unk>.
Performing better than the seat growth or the hour or NFC down sell that we see and part of our strategy for 2023.
Has been to focus on our data as a service offerings, our ring lead plus enrichment offerings. Our data breaks that are available inside a snowflake and Google Big query and Amazon AWS.
Those are performing better in this environment.
Okay.
Sorry, one one final question for you.
Cameron I believe youre guiding above actually on the Unlevered free cash flow for 2023, I know, it's above our model could you remind us what what is it that is underpinning your ability to preserve margin.
This and to drive free cash flow better than the rest of the industry, even when we have such challenges out there in the environment.
And we are continually.
Focusing on managing the business and driving.
Better margin.
Overall, I think our expectation is is that.
Operating income as a percentage of revenue will increase by about 50 basis points.
2023, we are expecting a little bit less.
Free cash flow conversion.
But overall obviously we're.
Laser focused on continuing to be efficient and drive efficiency in the business, which has been.
Our core core thesis of ours for since I've been here.
Excellent. Thank you very much.
Thank you one moment, while we prepare for our next question.
And our next question will be coming from Elizabeth quarter.
Of Morgan Stanley Great. Thank you so much for the question.
I first wanted to ask just about the management changes keep.
Can you provide some more clarity on what Dave is expected to changes in the sales organization and how we should think about the impact from disruptions.
That may take just a quarter to work through or is it going to extend through a greater period of time. Thank you.
Okay.
Yeah. So we're super excited about having Dave here.
If you followed his tenure at pager duty, Dave was known for building, a really strong land and expand motion and re architected that business for growth. He has a long tenure of enterprise leadership in air and that scenario, where we believe we have a tremendous amount of opportunity.
So we're we think we're going to get quick impact from Dave is really driving that land and expand motion within our customer base and really driving our opportunity within the enterprise, we are especially excited about that.
From a timing or or disruption perspective.
We're hopeful that Dave hits, the ground running quickly and he is making an impact right away, but that being said, we're being really conservative about that impact and when we guide forward were assuming.
Some time of disruption before we're feeling the full impact of heads.
10 year here.
Got it and then just as a follow up I think that the headwind on kind of the expansion of seats are pretty well understood.
Hoping you could give some more color on just the top of funnel demand trends and changes over the last three lines and kind of what the outlook on particularly the new customer side is that incorporated into guidance.
Okay.
Sure so with respect to guidance, we are expecting that.
<unk>.
Environment becomes more challenging in 2023 and that includes both the <unk>.
Customer side as well as our new sales side where were expecting.
Flat to lower new sales in 23 versus what we.
What we had in 2022 I think from a.
Pipeline perspective, we continue to see.
More pipeline than we've ever had on win rates or actually.
Modestly starting to improve if we look at Q4.
Relative to.
What we've seen previously.
Thank you.
Thank you one moment, while we prepare for our next question.
Our next question is coming from Raimo <unk> of Barclays. Your line is open.
Hey, Thank you.
Could we talk a little bit about seasonality.
That you guys are expecting for the year. So the issue on then.
Kind of missing up to or less up so is kind of something that should kind of play out as people come up for renewal. So should I just kind of think about that that's kind of.
Like a Q1 could you free Q4 until you go through this.
One one year of renewals.
Then we kind of there or is there other factors, we should think about.
So.
I think when you think about seasonality raimo.
I think that there is potential upside as we lap.
Will that have.
Maybe down sold because they went through a restructuring of their firm or.
Down sold for another reason as we get into the second half of the year, but thats not explicitly contemplated in terms of our guidance.
We don't see evidence of that happening yet and certainly.
While it may be upside I wouldn't we're not counting on that.
The big driver of growth this year.
Yes, and then and then if you think about the obviously.
We kind of have like every week, almost or IBD like an announcement, where people are looking at their internal kind of costa internal investment levels et cetera.
As Henry as you said you were always kind of a much more profitable and much more much better build like how do you think about this dynamic about like revisiting some of the stuff internally. Thank you.
And we have a process, where we do revisit.
Our kind of trajectory and plans on a monthly basis and make bigger moves on a quarterly basis. So I think thats a big part of the reason why we were able to look at our businesses. We are exiting Q2 and into Q3, adjusted many of our hiring plans and investments and drive to an improvement.
Uh huh.
And the.
And margin as we got through to the end of the year.
Sure.
Okay. Thank you.
Thank you one moment, while we prepare for the next question.
And then on.
Our next question will be coming from <unk> kind.
<unk> grew up.
Ms sorry.
Sorry, Mitch you Hill you can go ahead your line is open.
Hi, Citibank.
Thanks for taking my question.
Just wanted to ask on the <unk>.
104%, so looking at that and our up sell opportunity Henri.
What can you do to improve the up sell opportunity are you seeing the demand is it more on the company. You know go to market study changes that can drive demand or what's your view on upsell diving more up sell given the very voice platform you both.
Last couple of years.
Yes, I think the.
Part of the way that we're thinking about this is where do our where do we see the most opportunity within our customer base.
And we see a tremendous opportunity in the enterprise, we see it around our marketing OIS products in our das products, and so really making sure that our organization. Our go to market organization is designed to go after those opportunities is how we're thinking about it and so we've made a number of ships in the back half of the year to make sure.
Or that we're resource to drive.
To drive data as a service to drive marketing, our west which are higher dollar asps.
And to that enterprise and upper end of the mid market customer base.
We think that will drive efficiency and will use our resources the best when our customers buy our marketing platform. The ASP is over five <unk>, our average sales OSB pricing when our prospects by our marketing Oss platform. The asps over three XR sales outlets pricing and so it's looking for opportunities where the return.
On our resource investment is the highest and making sure that we have our resources dedicated to those areas.
And.
Thanks for that color and then what do you think about growth opportunity where does international expense since then.
What are you seeing right now.
On the international front.
We continue to have.
Our strong international team, that's driving new business.
An expansion, but certainly I think there are areas, particularly where we're most focused in Europe , where the economic environment might be more challenging than than in the U S. So I think that long term there is a real opportunity for international to be.
Much larger percentage of overall revenue, but that's not something that I think we've seen in the short term.
Great. Thank you.
Thank you Sir.
Thank you one moment, while we prepare for our next question.
And our next question will be coming from Brad Zealot of Deutsche Bank.
Your line is open.
Hi can you guys hear me.
Yes, and Ken excellent. Thank you so much for the question.
First for you Cameron just if we look at the Q1 sequential guide I believe you've guided to 2% sequential growth days. Adjusted so just curious what trends are you seeing in January that inform your view and if anything has really changed or downtick in terms of your view into customer budgets. This year.
Yes, So I think there are two things January .
Has gone reasonably well, we actually had less.
The change in linearity with respect to Q4, where there was less activity in the last couple of weeks of the of the year that is partial impact in Q1 as well and additionally, certainly.
Q1.
As the.
Kind of timeframe, where we are and always contemplating some disruption from the management changes that we have.
We've executed and therefore.
I think we want to make sure that we're prudent with respect to the guide there as well.
And I would add.
That our pipeline in January was the strongest it's ever been.
We generated more <unk> than we ever have in our history. So there is real demand out there in the market for our products.
But ultimately what we're ending up seeing as customers are waiting they are not making purchase decisions at that level the velocity levels as they were a year ago.
But there is real demand out there, we're generating we're generating that pipeline and so we'll continue to do that and feel like as the uncertainty fades.
We'll be in a really great position to accelerate through that.
That's helpful color and Henry maybe a follow up for you. Your message has been fairly consistent to say that the headwinds you faced to date are macro related which makes complete sense, but now you are bringing in a new CFO .
From the outside which youre, saying it could potentially be disruptive.
Why is now an external CRO, the right hire, especially by the way given your unique go to market.
You've got somebody externally, that's going to bring their experiences and I guess, what's the risk or opportunity frankly to modify your go to market under Dave to be more like some of the other great companies. He has worked for in the past.
I think the big thing that we know today is that.
Hi.
There is a real growth opportunity within our enterprise customer base today, we have 35000 customers and we're driving real growth across our enterprise customers, but when we look within the enterprise. We think we can significantly accelerate that and so bringing in a chief revenue on.
Officer, who has a ton of experience within the enterprise. This felt like the right time to do it we see that segment as the biggest growth opportunity and we wanted to bring somebody in who had significant experience in that land and expand motion and especially across the enterprise.
Thank you so much.
Thank you one moment, while we prepare for our next question.
And our next question will be coming from Brian Peterson of Raymond James.
One for Cameron just given the magnitude of the kind of up sell down sell dynamic of the 10 points you referenced I'd love to understand any linearity changes you can provide third quarter fourth quarter, how did that trend and I think you mentioned that we should be modeling a lower <unk>.
Forward what was the reference point on that is that versus the 104 I just want to make sure. We're all clear on.
What that comment that thanks, guys.
Yes.
<unk> point, there is against the 104, which reflects the activity that we saw for the year certainly most of our.
Sure.
Most of our backlog from.
2021 expired in the last four months of the quarter when we were seeing.
A lot of.
Macroeconomic pressure, so I think that we're expecting that that will continue and perhaps get worse.
In 2023, and therefore I think the expectation is is that.
At least base case.
Net revenue retention it could be lower in 2023.
Thanks anything on the on the linearity of how that trended over the course of the year I don't know if you could comment on fourth quarter versus third quarter or how that progressed over the course of the year.
Yes, I mean, it certainly got got worse as particularly in the last four months of the year.
That being said if you are.
Waiting the environment almost half of our.
Bookings from 2022 or 2021 were in those last four months, which is a good indication of when we are renewing those contracts as well.
Understood. Thanks, Kevin.
Okay.
Thank you one moment, while we prepare for our next question.
Our next question is coming from Vijay Yang of <unk>.
In accord Genuity your line is open.
Last one.
Of Piper Sandler Your line is open.
Hello can you hear me.
Alright.
Okay, perfect little confusion there maybe.
Maybe I'll start with your camera here as we think about.
It sounds like an increasing enterprise opportunity to either enterprise focus going forward.
What is the revenue split today as you think about customers over 100, K what are they generating overall of the mix versus the smaller customers.
One quick follow up for Henry if I could.
Yes, so the 100 K customers generated roughly 45% of.
Overall revenue and I think that the number of customers has grown but also the revenue on a per customer basis.
The highest level we've seen.
Got it Super helpful color, There and then Cameron I guess the $1.
My question here is.
Really how quickly.
What else are you contemplating besides the new CRM to really accelerate the pipeline and the pipeline build outside of software clearly you've built a great business de facto standard in that kind of software ecosystem. How do you replicate that outside of software and how fast can you pivot.
I think first we are.
The rest of the industries outside of software are growing.
Foster than our software and technology base of customers, we talked about companies like waste management and Barclays.
And ABM industries, who are large clients of ours capital one.
So we continued to grow our our share in non tech companies.
We also present, a really large opportunity for us in the enterprise that we're focused on will do some specific vertical mapping as well and the customer base and so for the first time, we'll have account managers, who are aligned to our financial services vertical and account managers, who are aligned to a <unk>.
And the services vertical so it's a little bit more specialized service that where they can build relationships with the customers and put ourselves in a position to continue to up sell within those non tech customer in that non tech customer base.
Makes sense helpful color. Thank you.
Thank you and what was the payer for the next question.
And our next question is coming from DJ Hynes of Canaccord Genuity. Please go ahead. Your line is open.
Alright, we're back Hey.
Hey, guys.
Look in the context of the layoffs were seeing in the tech space. When you have customers coming to you looking to trim back on their commitments.
What are the levers you have in place to stave off that partial churn like are you throwing in additional modules to preserve ACB like how often is that happening any any color on that front would be helpful. As we think about MLR dynamics.
So and certainly we've seen.
A reduction in seats, driven by layoffs and impacts both upsells and down cells and that definitely occurred in Q4.
We are always looking to run plays against that and those players obviously include additional functionality or.
Looking for other pockets of the organization that could benefit from our software.
But realistically those players haven't.
Worked as well as we want to particularly given that the buyer behavior is much more fragile in that moment when people are executing a restructuring.
And.
Yes.
Kind of worried about their own team.
Yes in some cases, we do see that work, but in many cases, particularly here in Q4, I would say that there was.
There was an impact related to that yes, okay. Okay.
And then Henry a follow up for you what's the appetite for M&A in 'twenty three I mean, you batten down hatches make sure of the houses in order first or.
Do you want to be opportunistic as the consolidator of some of your peers I'm sure are facing similar challenges.
But there is nothing on the near term horizon from an M&A perspective short term, we're really just focused on driving the business our criteria around M&A remains the same but I would tell you we have a much higher bar around this.
So the criteria around improving the customer experience fits within that go to market motion is accretive in the short to medium term, we're going to be.
Meaningfully more selective in this environment and again nothing on the near term horizon, and I'm pretty focused on making sure we're driving the business landing these executives.
And growing the topline doing that profitably.
Got it okay. Thank you guys for the color.
Thank you one moment, while we prepare for the next question.
Our next question is coming from Alex has been a wolf.
I'm sorry, the participant list jumped as Taylor Mackinnon of.
UBS.
Hi, Thanks, so much for taking the question. So it sounds like in terms of growth drivers. This year or is that new business is expected to hold up. So Cameron can you just give some color on the mix of new logo versus existing maybe implied in this growth guide this year and how that might compare to last year, our what we've seen historically.
Well when you look at the.
The organic growth of 34%.
In the quarter and net revenue retention at 104 that obviously implies that the remainder of that roughly 30% came from from new business in 2022, I think our guidance certainly contemplates that both new business and.
Net revenue retention will be challenged.
So I would expect that.
The new.
New business is likely flat to down.
Based on the a deteriorating level of buyer behavior in the macro environment and that.
Similarly, net revenue retention will be more challenged as well.
Got it thanks, and just one follow up is just on the margin so with the potential for NR to deteriorate and I guess some of the risks that you mentioned on the sales side and continued investments in capacity does that sort of at all a risk to the margin upside this year and if not maybe you can just talk about the areas of leverage that serve as an offset.
Yes. So we are always focused on being more efficient and harvesting the operating leverage thats natural in the business.
As you mentioned.
With a more challenging environment that obviously impacts our efficiency with respect to sales and marketing, but we do expect to be able to realize operating leverage from other areas of the business.
I expect cost of revenue.
Decrease as a percentage of revenue would probably be the biggest driver of operating leverage, but we'll also get some from from G&A and.
From R&D as we get further into the year.
Great. Thanks.
Thank you one moment, while we prepare for the next question.
Next question is coming from.
Alex Zukin of Wolfe Your line is open.
Okay got it sounds like.
Operator shoveled today.
But Henry first first question for you I guess.
With respect to the sales cycles of the demand environment do you feel like we've reached kind of peak uncertainty or at least the trough in terms of the demand and is it getting better or is it still.
The level of uncertainty persisting kind of in real time.
In the market and have you had to deal with more competitive intensity, particularly.
On calls as cost as often mentioned as an issue.
With respect to to actually getting deals done.
Yeah look there hasnt been any material change in buyer behavior that we're seeing out in the market as it relates to uncertainty or the macroeconomic environment.
So we haven't seen any change in that.
What I'll tell you from a.
Demand in pipeline generation perspective January we saw our largest pipeline we've ever generated.
We're generating more <unk> than we've had in our history when buyers are buying they're buying decisively and its strong asps.
And we're seeing less competition and our deals in Q4, and where we do see competition, primarily in the SMB segment of our business. We're seeing the highest end month win rate ever for a non end of the quarter months and so all of that tells me that while there is room for improvement from an execution perspective it really.
As customers uncertainty about the broader economic environment, that's holding us back from deliberate delivering more.
Top line growth so as the uncertainty fades I'm confident that we'll be in a great position to accelerate out we haven't seen that stating yes.
Perfect and then Cameron for you on the margin side, if I look at the free cash flow margin guide versus the operating margin guide there.
They are a little inverted from from where they've been previously historically free cash flow margins have exceeded operating margins. So just walk us through kind of what what.
What are the assumptions there and then in general obviously, we all love to see margin leverage, but with the growth moderating in modulating to the extent that it is do you kind of what is the decision point when you potentially unlock greater margin leverage is that in the cards.
Or not.
Sure.
With respect to the free cash flow conversion, we are expecting free cash flow conversion to be at nine.
<unk>, 95% to 100% this year as opposed to historically, where it was above 100%.
And the real big factors that impact that are really.
That are.
That our customers are shifting.
Shifting a little bit more to pay quarterly or at least not annually upfront and that certainly has an impact on the kind of cash flow.
Part of the.
The unlevered free cash flow conversion, and additionally, lower lower growth impacts the weighting of those upfront payments in the second half of the year.
So that is another impact.
With respect to unlocking the ultimate margin growth.
Certainly our expectation is is that.
We will be able to improve sales and marketing.
Efficiency over time, particularly as the environment stabilizes, a little bit more and that will enable us to either accelerate growth when we get to that stabilization point or.
Harvest more of that operating leverage that you would expect on the sales and marketing side.
Perfect.
Thank you guys.
Okay.
Thanks, Alan Thanks, Mark.
Thank you one moment, while we prepare for the next question.
Our next question is coming from Parker Lane of Stifel. Your line is open.
Yeah, Hi, guys. Thanks for taking the questions.
When you look at the cohort of customers that have announced layoffs or cost reduction plans can you give us a sense of the share of them that have already come up for renewal and as we think about 2023 do you expect that the impact of those renewals be evenly spread through the year are more skewed towards the third quarter fourth quarter timeframe.
You referenced earlier.
No I think that the.
The timing of those renewals.
Maybe slightly more.
Kind of set into Q4, so I think that's when we have a bigger cohort of software companies that are <unk>.
Renewing so we've seen.
A bunch of that either people are already announced and then come up for renewal or so.
Cases people, who are renewing with an expectation that something like that might happen, but.
Overall it is.
Not that heavily weighted to Q4, so I would expect that.
A similar percentage to the almost half of our customers that are renewing in the last four months of the year and the remaining.
Renew in.
Yes.
Yes.
First eight months of the year.
Got it and then a quick follow up here circling back to the head count reductions that you said that you did during the September to year end timeframe.
Pretty evenly distributed across the organization over there particular areas that faced a higher degree of head count Jeremy. Thanks.
Yeah.
We are super focused on continuing to raise the bar in terms of our performance expectations. So.
Well.
Yes.
It may have been somewhat more focused in.
R&D areas or G&A areas it was pretty.
Pretty consistent.
Consistent across the board.
In terms of.
Really making sure that we have the best team around us and that we have team members that are supporting the overall growth of the company.
Understood. Thanks again.
Yes.
Thank you one moment, while we prepare for the next question.
And our next question.
We will be coming from <unk>.
Yes.
Bank of America. Your line is open.
Yeah, Hey, guys. Thanks for taking the questions.
Well I wanted to go back to net revenue retention you ended the year at 104% and I believe you said, maybe a good place to start is a tad below that for 2023, So I guess, a tableau that call. It I don't know a 102.
Would you categorize that as an improvement from the exit NRI rate for the fourth quarter. So first question there and then thinking about the 17% guide for 2023, assuming that low single digit net revenue retention.
Mid teens growth coming from new customers I guess the question is maybe where are you. Most excited from a vertical perspective outside of software or maybe what products are you. Most excited about as growth drivers for 2023. Thanks guys.
So koji I'll start with the first part.
Yes, I think that.
Certainly in relation to our guidance.
One or two would be higher than.
Then whats implied there I think we're expecting particularly we're seeing environment.
We will see retention below that.
I'll, let Henry go into the kind of most exciting other verticals.
Yes, I think we're seeing a lot of <unk>.
Access and financial services, that's one of the key areas that we've reorganized special specialists across on the account management side.
Continuing opportunity there.
You see quotes in the slides we included from capital one that zoom. It does become an integral part of their business without it that would be a huge gap in the sales enablement strategy and that would be scrambling to figure out how to fill.
That that same sentiment applies to any financial services company that sells to other businesses and so we think we can really capitalize on that I think in addition to that I had mentioned the success, we're seeing and marketing OS our new ABM platform, where were seeing asps on the customer side.
At buybacks over average sales or pricing and were seeing asps on the new customer side prospect side at three acts over the sales or pricing and so people are really understanding the value unlock that you get when you deploy an ABM platform, but also the unlock you get when you align sales in March.
Getting together with sales on sales and marketing on marketing.
And in addition to that.
We continue to see a better net retention stats with our data as a service.
Platform and products and so we've continued to invest behind that and we see a good uptake of those.
<unk> products inside of the upper mid market and the enterprise and so we'll continue to focus on das which includes our enrichment solutions in <unk> and our marketing OS ABM platform, we see those at meaningful drivers in today's economic environment.
And we feel good about those.
Thanks, Henry Thanks Kamran.
Thank you.
While we prepare for the next question.
And our next question is coming from Michael <unk> of Wells Fargo. Your line is open.
Thanks I appreciate you taking the question. So I mean, there's some moving pieces in the guide for the full year relative to Q1, the optics or flat sequential growth in Q1, and then a return to sequential growth you've talked about days adjusted a little bit but also worsening macro. So can you just help us out by maybe spelling out how much the days adjusted.
A portion of impacts Q1, and what else we should be just taking into account from a model perspective and thinking through the sequential growth trend beyond for the rest of the year.
Alright.
So because there are fewer days.
In Q1, there 90 days versus 92 in Q4.
That's roughly a 2% headwind to the.
So the absolute level of revenue that Youll see you saw the.
Revenue guide at the midpoint implies a 2%.
Sequential growth improvement and our expectation is is that.
Particularly given that the linearity in Q4 is different than it normally would be that the seasonality of Q1 is a little different than what you would have normally seen historically.
And then I think just by.
Doing the math Youll see a slightly better sequential growth in the in the latter part of the year.
Based on getting to the 17% overall growth.
Okay, just I mean, just squaring the improving sequential growth with.
The worsening macro so just help us understand.
Just the inputs you are using and what informs that just.
So I think it's clear on the call.
So certainly I think.
Starting out the year, we do have.
Higher mix of.
Of ramped sales folks so our ability to go out.
Get through the pipeline that we have has improved and will continue to grow.
We continue to grow that capacity over the course of the year and then but then we do have a.
Sure.
An assumption embedded within the guidance that we will see some disruption in the.
In the early part of the year related to the management changes that we have.
But we have instituted.
Okay. That's helpful. Thank you.
Yes.
Thank you one moment, while we prepare for the next question.
And our next question is coming from Terry Tillman.
<unk> Your line is open.
Hey, guys. Thanks for taking the question. This is Joe Meares on for Terry.
First one in the context of the weaker economy can you give us some updated thoughts on your ability to drive vendor consolidation and disappoint displace point solution vendors in areas like conversational intelligence and sales engagement.
Yeah, definitely we're continuing to drive consolidation, particularly around sales engagement providers conversation intelligence products and ancillary data providers.
Data partners, we see that as a meaningful part of our strategy in 2023, and we'll be releasing in February an integrated experience that brings sales engagement and conversation intelligence natively inside of the <unk> platform and so we're excited about that and so we are continuing to look for in <unk>.
<unk> consolidation opportunities they are around those three things sales engagement conversation intelligence and then ancillary data providers.
Great. That's helpful. And then just as a follow up last quarter you noted.
Your expansion your largest expansion ever and you also had a $1 million plus land, which was your first ever.
I'm just curious if there are any more successes like these to speak of in the fourth quarter.
How does the macro effect the size of your lands of the logos. Thanks again.
Yeah, we didn't give.
The name of the company, but we talked about in HCM company that grew the group's thousands of additional seats across their sale.
Sales and account executive teams that was a seven figure transaction.
That happened in the quarter that leaves a lot of room for expansion to it in a typical deal what you would've saw on that transaction in Q4 was instead of being across call. It 2000 seats, you would've seen that be across seven or 8000 seats.
So it ratchets back in Q4, but we still see tremendous upside to grow there. So that's one of the examples that sort of large transactions we saw in the quarter.
Thank you for your question one moment, while we prepare for the next question.
And the next question will be coming from Jacob Saffell.
Of Goldman Sachs. Your line is open.
Alright, Thank you very much Henry and Cameron.
Guys are the probably arguably the first to see the impact of the downturn because people are cutting back on sales and even when they announce a lay off their intention is to clearly freeze activity on the front office side as it relates to productivity tools.
But to your product also has tremendous productivity at the same time whenever you feel awful lot of statistics. So what is holding back the customer because it is it is a very useful tool, especially in this economy right. Secondly, does that just go with that logic.
It is a very useful tool shouldn't we start to see deep.
The benefit because since youre early to see that the cutoffs and the lay offs Shouldnt you be the first just start to see the improvement, especially because I look at your <unk> in Q3 of 2022 that start to show. Some some signs of new business struggled. So we have easy comps coming up in third quarter, we will have cycled through the law.
Hopefully for the next couple of quarters industry property stabilizes. So wouldn't you see better business conditions in the second half based on this logic.
After lunch with this please let me know thank you.
And I think that logic, certainly outlines an upside case.
But.
The way we operate our businesses, we don't necessarily kind of hope for the upside I think we're looking more to drive better efficiency of our teams and ultimately I do think that as we do see stabilization in the environment.
Largely in terms of buyer behavior, but also the macro that there is an opportunity for us to accelerate I just.
I don't necessarily have the crystal ball to say that thats definitely coming in Q3 or whatever else.
But.
So I think we'll see when that occurs but certainly I think we are.
Really investing into the company at this point in order to have the potential to realize that upside when the environment stabilizes got it and I would add look it's still really early in this category.
It means that it's still an evangelistic sale our category is not a gardener blessed budget line item. So executives arent condition to think of our value add is table stakes for their organization.
And then we're selling into.
A challenging environment and our customer base within tech companies.
We have exposure there and the slowdown isn't unique to us if you look at other companies in our space, who sell sales products too.
BW organization, you see a similar trajectory.
And slowdown, we obviously don't expect that slowdown to last forever and we're incredibly confident that that uncertainty fades away that we're going to be able to accelerate through it got it.
If you take the non tech slice of your business, which just remaining 50, 60% what are the business trends there and what is the net new HCV, our revenue growth rate there and how much better is it relative to your guidance for the overall company. Thank you. So much that's it for me.
Yeah. So.
And it is better I wouldn't say that it's so meaningfully better that you would expect.
Totally different outcome I think for what we've seen in Q3 and Q4 is that.
Software is more impacted particularly from a layoff perspective.
But all companies are looking to cut costs. They are looking to.
Really managing to.
<unk>.
Perceived recession, that's coming.
So I think it's challenging regardless of vertical.
So if you don't have a recession, there's going to be a big pick up.
We hope so.
Yes.
Yes.
I definitely focus more on buyer behavior than I do on the macroeconomic I think.
Throughout this past year they have been.
Aligned but.
Yes, it's more a question of whether buyer behavior changes than just what happens in the economy got it.
Very useful.
Thank you.
<unk> concludes today's Q&A session I would like to turn the call back over to Susan <unk> for closing remarks.
Great. Thank you everyone for joining US Tonight, we look forward to sharing our continued progress with you at our upcoming investor events.
<unk>.
Thank you for joining today's conference call you may all disconnect and everyone enjoy the rest of your day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Okay.
Okay.