Q4 2023 Zuora Inc Earnings Call
Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to these are off fiscal year 2023 fourth quarter earnings conference call.
Today's conference is being recorded and 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 simply press the star key followed by the number one on your telephone keypad if.
If you would like to withdraw your question Press Star one once again.
Thank you and I will now turn the conference over to the Warner Walke, Vice President of Investor Relations you may begin.
Thank you good afternoon, and welcome to <unk> fourth quarter fiscal 2023 earnings conference call.
On the call today and have teams, though Laura <unk>, founder and Chief Executive Officer, and Todd Mcelhatton, North Chief Financial Officer, Robin <unk>, Our President and Chief revenue Officer will also be joining us for the Q&A session.
During today's call, we will make statements that represent our patients and the week concerning future events and maybe considered forward looking under federal Securities law.
These statements reflect our views only as of today and should not be relied upon as represented representative of our views as of any subsequent date.
Disclaim any obligation to update any forward looking statements or outlook. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations for further discussion of the material material risks and other important factors that could affect our financial results. Please refer to.
Filings with the SEC.
Finally, unless otherwise noted all numbers, except revenue mentioned today are non-GAAP .
Can find a reconciliation from GAAP to non-GAAP results in today's press release.
Our results press release, and a replay of today's call can be found Azores Investor Relations page at investors outdoor a dot com.
Now I'll turn the call over to Eugene.
Thank you Bill and thank you everyone for joining US welcome welcome to <unk> fourth quarter fiscal 2023 earnings call.
I wanted to start by thanking our del's for delivering another solid quarter. It's another quarter, where we came in ahead of guidance across our operating metrics, including revenue net dollar retention free cash flow and non-GAAP operating income.
In the fourth quarter subscription revenue grew by 20% in constant currency and 16% as reported <unk> grew 16.
16% as reported and net dollar retention ended the year at 100%.
We remain bullish on our long term vision and growth potential companies continue to come to absorb because they see the need for our mission critical solutions and we continue to execute against the strategy that we laid out at Investor day back in April 2021, our strategy anchored on.
Moving upmarket landing and expanding within our accounts and leveraging our ecosystem of system integrators.
Now, while we remain sharply focused on our growth as we highlighted last quarter. We're also putting more weight on profitability and free cash flow given the current macroeconomic environment and the year ahead, we are committing a strong improvement of free cash flow year over year, and we will closely manage our stock based.
Compensation.
I will discuss this in more detail later in the call, but first let me start with what we're seeing in the macro environment.
For the past quarter, we started seeing buyer behavior stabilized, especially in our installed base.
And certainly we saw in buyer behavior at the end of Q3 has not disappeared as certainly as lessons.
Even as companies settle into this extended period of higher interest rates and lower macro economic growth. They continue to prioritize digital transformation. They continue to launch and scale recurring revenue businesses and they continue to pursue growth in new revenue streams through these new.
Digital services as an example, the majority of deals that were pushed.
And then if our third quarter ultimately closed in Q4. In addition, we saw our win rates also improved quarter over quarter.
Let me give you some examples in Q4 of <unk>.
<unk>, a global leader in industrial software and one of the largest software companies in the UK with more than $1 billion in annual revenue. They selected <unk> to help us accelerate it's a lever flex subscription service with the goal of having more than 80% of its business coming through recurring revenue and adjusted.
Yes.
Donnelley financial solutions, otherwise known as deepen our leader in risk and compliance solutions came to us last quarter. After outgrowing their homegrown system. After a comprehensive review they chose <unk> full order to revenue suite of products. Following the implementation of billing revenue and resort platform.
Deepens, we'll be able to better manage multiple complex revenue streams from onetime transactions to recurring subscriptions and advanced consumption models or finally scout 24, who operates it will scale 24 in Germany and Austria. This is our residential and commercial real estate online market.
<unk> powering more than 20 million monthly users and they came to <unk> because we were the best option available to handle the fast growth in scale they needed.
For these companies.
We believe that our singular focus here is what gives us a competitive advantage now in the past we've seen large ERP and CRM vendors take multiple runs a copy what we do only to ultimately retreat and there are signs that this is happening yet again when uncertainty moons big.
Layers need to focus on their core competencies and in fact this quarter. We saw a major SaaS company, who declared zara to be their solution of choice after throwing in the towel on a large multi year deployments from using a billing system from a large CRM vendors no.
No matter the macroeconomic climate companies still need to manage their quotes so revenue processes at scale and in fact during fiscal 2023, our cohort of customers paying us over $1 million a year grew by over 33% compared to the prior year.
And so against this macroeconomic backdrop, there continues to be clear demand for our technology.
Let's talk next about our land and expand strategy you may recall this strategy laid out at our Investor day back in 2021 is based on the fact that billing and revenue recognition are very sticky products.
If we keep our customers happy if we get into a mission critical service that they can rely on they stay with us in fact last year, we had the lowest churn rates in our company history as a percentage of <unk>.
<unk> now.
Now all of this gives us an opportunity to deliver more value to our customers, enabling us to upsell and cross sell.
As we rollout new innovations and this strategy is working.
I'll give you some examples.
Less than six years ago, we acquired the technology that is now zero revenue and this continues to be the leading technology for the revenue recognition space and it is now an important part of our product portfolio.
Door revenue product is growing at a deep double digit rate.
We now have over 170 customers live on <unk> revenues, including with companies like Salesforce and Ford.
As of last quarter by combining the scale of Azure in Zoro, Microsoft is now using <unk> cloud SSP analyzer and important component of our <unk> revenue products.
The Atlantis, the world's fifth largest automaker of brands like Fiat Chrysler Jeep modern body, they are using Europe billing and revenue to monetize their connected services offerings.
We are an integral part of our customers' businesses and Thats, especially true for Saar revenues in today's climate that companies are not compliance if their revenue recognition does not work properly they cannot close their books.
Or as another example, our latest acquisition Zephyr is also supporting our land and expand strategy. It is another opportunity for our customers to grow with us and less than six months since <unk> joined Zora integrated with us they have beat their targets and now they are <unk>.
Is 35% larger than when we signed the deal and in fact in Q4, a global media leader with meters and more than 80 countries selected Zephyr to drive their personalized subscriber experiences such as enhancing their paywall and newsletter capabilities.
This land and expand strategy is not solely predicated on acquired technologies. We also continued to consistently launch organic innovations that our customers want and this past year was no difference in fast products released in the last 18 months contributed to over 20.
<unk> of our deals.
And here are just some examples of those innovations.
Unified monetization, we are taking our customers beyond simple pay as you go models in Q4, we added new advanced consumption models to this capability with our consumption billing and revenue recognition products our customers can handle the complexity that comes with these more sophisticated pricing and packaging models.
Our managed services. This is something we're seeing greater adoption for given the current environment last quarter, we doubled the number of managed services customers because it saves our customers time and money plus.
Plus owning everything end to end means we can set the bar even higher to create the right customer experience.
Finally, another innovation, we rolled out with Zara secured data share for snowflake, which extends <unk> data into snowflake data cloud without any custom integration. This solution is quickly gaining traction since launching just last July .
After years and years of focused product development and continued investment in our innovation engine is clear there is no shortcut.
Achieved what we have achieved today.
Finally.
Assistant integrator partnerships are a big part of our land and expand strategy in the last fiscal year, our partners consistently brought us into bigger deals.
In the last fiscal year as an example partner source new business deals were three times larger than those deals the key without a partner and those partner sourced deals have three X better close rates in.
In Q4, almost 80% of all new business deals with partner influence with the highest average selling price to date.
And finally I'm proud to say, we now have over 900 certified consultants, helping to bring us into these larger deals.
Lastly, as you may have seen in today's announcements, we do have an update to share about our leadership team.
<unk> Srinivasan, our chief product and Engineering officer as made the difficult decision to leak Zara at the end of this month.
<unk> has been at the helm ramping up the incredible innovation engine that you heard about earlier on this call.
<unk> decision aligns with his personal goals, which I fully support you'll be transitioning away from an operator role to a different type of leadership role at a private equity firm.
While we have already started the search for a permanent replacement I am incredibly confident in the team that she is leaving behind as well as the customer first culture that now permeates the organization and the innovation machine that continues to evolve our technology and launch new offerings at a rapid rapid pace.
Our chief customer officer, <unk> will take over as Chief product Officer, any interim Tom is an experienced product development leader who's been with us for almost eight years.
Three for your transformative contributions to <unk> over the past two years.
I want to thank our Ceos for their dedication as we wrap up another fiscal year, we continue to feel good about our position in the market buyer.
Buyer behavior is starting to normalize as customers settle into this new environment companies are still coming to us because our technology gives them the agility and capabilities they need looking to the new fiscal year, we remain committed to our strategy with an increased focus on balancing growth and profitability.
Now I'll turn the call over to Todd to review our financials.
Oh. Thank you team, we closed out the year with a solid Q4 as I discussed going forward, we will focus on a balance of growth and profitability.
While we adjusted for the buyer behavior, we experienced in Q3 I am pleased that we accomplished what we said we were going to do.
We exceeded our outlook for subscription revenue.
Total revenue and non-GAAP operating margin for the quarter.
We were also above guidance for both DVR and our growth.
While the macro has not improved materially from Q3 customers are adjusting to the new reality in fact, we saw the level of uncertainty start to normalize in Q4 with several projects that were on hold from the prior quarter, reaching completion.
We expect there may be some delays in decision, making however, <unk> products are critical for companies to launch and grow new revenue streams.
They are also bringing additional efficiencies, which are especially relevant in the current environment.
Let me give you some more color on our Q4 performance.
Subscription revenue was $89 5 million growing 20% year over year in constant currency and 16% as reported exceeding the high end of our guidance. We continued to experience FX headwinds during the quarter based on the strength of the U S dollar.
For the full year subscription revenue ended at $338 4 million up 20% year over year in constant currency and 18% as reported.
Professional services revenue was $13 5 million, an increase of 1% year over year.
This represented 13% of our total revenue.
We expect professional services revenue to be around 13% of total revenue going forward as we further strengthen our relationship with system integrators.
For the full year services revenue ended at $57 7 million down two.
2% year over year aligned with our strategy to leverage our Si partners or implementation services.
Q4 total revenue ended above the high end of the guide at $103 million up 17% in constant currency and 14% as reported.
Over a third of our revenue is international which created FX headwinds of approximately $4 million for the quarter.
For the full year total revenue ended at $396 $1 million up 17% in constant currency and 14% as reported.
Q4, non-GAAP subscription gross margin was 80% remaining flat year over year.
This was driven by our continued investments in our infrastructure to drive future margin expansion.
non-GAAP professional services gross margin was negative 8%, a 270 basis point improvement year over year.
This was driven by fewer billable days in the quarter due to the holiday season or.
Our non-GAAP blended gross margin saw an improvement of 180 basis points year over year, ending the quarter at 68%.
This illustrates the incremental leverage we have experienced in our model as we benefit from working with our partner Channel Q4, non-GAAP operating income was $2 2 million compared.
Compared to a non-GAAP operating loss of $6 million in the prior year.
This resulted in a Q4 non-GAAP operating margin of two 1%, a 275 basis point improvement over last year.
Fiscal 2023 marks our first full year of generating non-GAAP profitability with non-GAAP operating income of $2 5 million.
This was driven by continued top line growth and disciplined investment in the business.
We expect to continue generating non-GAAP operating income on a quarterly basis going forward.
Our fully diluted share count at the end of the quarter was approximately $162 3 million shares using both the treasury stock and if converted methods.
Now, let's dive into some of the key metrics. We ended the year with a one dollar based retention or DVR or of 108%, which includes two points of FX headwinds.
<unk> was one point reduction sequentially and a two point reduction year over year as reported.
The current buying trends and overall market uncertainty had an impact on our <unk>. We continue to see strong retention rates in Q4, we again improved our retention rate and for the full year, we had the lowest churn as a percentage of entering IRR in the company's history.
This illustrates how mission critical and sticky our solutions are.
At the end of Q4, we had 773 customers that spend at or above $100000 in average contract value up three sequentially and up 26 year over year.
In Q4, the $100000 cohort continued to represent 95% of our business.
This metric is less indicative of our overall execution as a cohort has grown since our IPO to become the vast majority of our business we.
We plan to provide investors with additional customer metrics on our next earnings call. We continued to close a number of large deals which illustrates our continued success in the enterprise space.
This quarter, we closed six deals with HCV of $500000 or more including two deals over $1 million.
And these customers are growing with us our systems process over $23 $8 billion of billing transaction volume in the fourth quarter, representing 13% growth in constant currency and 12% growth as reported year over year.
We have noted before that billing transaction volume processed alone is not indicative of our revenue growth for two reasons.
First.
Our customers gain cost efficiencies as they scale.
Second given the success of our multi product portfolio billing alone only accounts for a part of our overall revenue growth.
While our revenue Enzo or collect generate significant volume growth year over year.
Both of which are not reflected in our billing transaction metrics.
As a result, it's our intention to revisit our metrics and provide you additional visibility into other products during our next call.
Now looking at <unk> and free cash flow at.
At the end of Q4, <unk> was $365 million.
And grew 16% as reported.
With about two points of headwinds due to FX.
Free cash flow was negative $21 million for the quarter, which included nonrecurring severance payments associated with the workforce reduction.
And acquisition related costs with Zephyr.
As a reminder, free cash flow can fluctuate on a quarterly basis due to the timing of cash collections and seasonality.
We believe it's best to assess our cash flow performance over a longer term.
Total capex for the quarter was $2 $2 million.
Turning to the balance sheet, we ended the quarter with $386 million in cash and cash equivalents, a sequential decrease of $14 million.
Now, let's turn to our financial outlook.
With a reminder, that our Q1 has three fewer days in comparison to the prior quarter.
This creates a headwind of approximately $3 million of subscription revenue compared to the prior quarter.
Starting with our Q1 guidance.
While the demand for our products continues to grow we remain prudent on our outlook given the buying behavior, we've experienced over the past few quarters.
That said, we also expect to realize some benefits to our bottom line as a result of our December workforce reduction as well as some other cost cutting measures.
For Q1, we currently expect.
Subscription revenue of 88 to $89 5 million Rep.
Representing year over year growth of 13% at the midpoint.
Professional services revenue of 13% to $13 $5 million.
Total revenue of $101 million to $103 million.
Representing year over year growth of 9% at the midpoint.
For the full year, we currently expect subscription revenue of $374 million to $384 million.
Representing year over year growth of 12% at the midpoint.
Professional services revenue of $54 million to $56 million.
Total revenue of $428 million to $440 million, representing year over year growth of 10% at the midpoint.
non-GAAP operating income of 26% to $31 million and a non-GAAP net income per share of 7% to 11.
Assuming a weighted average shares outstanding of approximately $140 million.
Turning to our free cash flow, we are committed to operating in a disciplined manner and for the full year. We currently expect free cash flow to be at least $24 million.
A significant improvement of over $55 million from fiscal year 2023.
We are committed to delivering a minimum of 6% non-GAAP operating margin for the year, regardless of the macro environment.
Turning to dollar based retention rate and our growth, we expect <unk> of 107% to 109%.
Our growth of 12% to 15% for the year.
Finally, I would like to provide visibility into stock based compensation for fiscal year 2024, we expect to be under 5% and annual share dilution with a midterm target of 4% per year for.
For this purpose dilution is calculated as the number of equity awards granted net afford pictures during the fiscal year divided by the total shares outstanding at the end of the fiscal year.
To close off while the current macro environment remains challenging we continue to see benefits from the areas. We are focused on this includes our billing revenue collect and zephyr products.
We will continue to be disciplined and focused in fiscal 2024, our plan is to balance growth and profitability, while significantly improving free cash flow and delivering the most innovative products to our customers with that teen Robbie and I will take your questions and I'll turn it over to the operator.
Thank you.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And we will pause for just a moment to compile the Q&A roster.
Yes.
And we will take our first question from Adam Hotchkiss with Goldman Sachs. Your line is open.
Yeah.
Great. Thanks for taking my questions would be great to start by digging in a bit more on the customer behavior piece you mentioned.
With the existing rate base versus Q3, Todd I remember, you've talked quite a bit about volume commitments being the driver of slowing growth on the Q3 call. When you talk about the business stabilizing are you referring to this volume commitment dynamic or are there other areas of relative stability that we should be aware of when we think about that.
Adam Thanks, a lot for the question. So we are across the board on up sells did see a stabilization company has got a little more comfortable with how they thought the year was progressing and we saw folks have a more normal behavior from a standpoint of not only making commitments on.
<unk>, but other additional products that being said, it's certainly is muted and I wouldn't say, we were where we were 12 months ago.
Okay, Great. That's super helpful. Thanks, and then on the profitability guidance I know on the last call you had mentioned sort of the 6% plus on operating margins. When you think about the guidance that you've put out today what are some of the levers that you think you are still able to Paul over the next six to 12 months and your willingness to do so.
To outperform there.
Again, I think we've been very prudent on how we've been spending and how we're thinking about dollars that we're holding back and that we might put in in investments. If we see things move forward or if we see the economy continue to be challenged.
Challenge way, we'll put those dollars to the bottom line, but we've also got opportunities to make further reductions I think you probably saw this last quarter that we closed down our Atlanta office, we've shrunk the Boston office. There is other opportunities within the sales and marketing areas to do better and Youre also seeing the.
On the Cogs side on the.
Subscription piece, we're certainly rationalizing what our hyperscale, our spend looks like theres opportunities. There, we're getting more efficient on our support and last but not least we've also committed to be profitable.
On a non-GAAP basis on the professional services. So I think we've still got several levers that we have that we can use during the year.
This is <unk> here I'll just add.
One of the things I want to make sure. It doesn't get lost is because of what we do because of the product that we have because the customer base that we have.
We have the fortune of having a solid customer base and a very sticky product.
That gives us a level of.
A certainty and even in these unpredictable times and being able to manage the business, which is fortunate for us.
Okay really helpful. Thanks, Tien Thanks Todd.
Yeah.
We will take our next question from Chad Bennett with Craig Hallum. Your line is open.
Great. Thanks for taking my questions. So just trying to kind of reconcile and get a sense for.
That.
Stable and this I guess you would call it in the fourth quarter.
You talked about the majority of deals that pushed from Q3 into Q4 closed when rates improved and I think I heard record low churn for the year, which I assume means Q4, and then you just kind of reconciling with the net new add number of our over 100.
<unk> three deals.
Just kind of how that relative to whether you look at it year over year basis or whatnot.
So how should we view that that net new.
Number in the quarter.
Well, we're trying to say is.
Youll see the data out there you talked with lots of companies. There are certainly a macro level slowdown in tech. We are trying to highlight is if you look at what happened in breast in Q3, and specifically in the month of October which is end of Q3, it's felt like moon will be sent from our buyers.
That there was a lot more uncertainty in Q3 in October right and they weren't sure whether the economy has slowed down they weren't sure what the feds were going to do.
Well.
Wouldn't say that the tech industry is back to a growth mode right at least the level of uncertainty of what the fed is going to do and other factors are seem to be lower.
And so the uncertainty we saw in the pipe.
Has lessened I think thats what were trying to communicate because I know you all have a lot of questions about about what's going on at the macro.
Let me emphasize.
Hey, Chad I'd like to maybe emphasize a couple of other things. So one is remember we have a land and expand strategy and on the expand strategy I think it's really important team talked earlier in the call. We saw an increase of customers spending over $1 million with us that number of customers increased by 33%. This year that's been a huge.
Component and remember going back a couple of years ago, I think we absolutely made the right decision to focus on enterprise customers and we've talked about those customers that were landing our landing much larger and with a much larger ASP.
And so that's one of the things Thats also driving growth were certainly focused on new business and I would say the environment still remains cautious and people are being very thoughtful before they make incremental purchasing decisions, but we have a two pronged strategy here, we're certainly bringing on new customers and you saw this quarter. We had six deals that were over a half a million.
Two of those deals were over a $1 million so lands that we're getting especially with the Si strategy has moved to larger deals.
Okay, and then maybe a follow up just on on the dollar based net expansion expectation or a range for the year I think thats 107 to 109.
<unk>.
Effectively stable with where you ended this year.
Todd how are you thinking about that this year as it relates.
From the past year in terms of volume growth versus cross sell up sell any any material mix change there in terms of how youre thinking about net expansion.
Yeah. So thanks, a lot Chad. So yes, I think you are certainly looking at that range being stable and I think that also hits the back that we want to have balance we want to be bringing on new business, along with expanding our installed base from that being said, we're certainly being.
I would say very prudent on how we're thinking about the volume a big chunk of our business does come from technology, we've seen that slowing down. So we planned for that accordingly. The other thing I would point you out to is another comment that we made earlier in the call is 20% of our incremental billings last year came from products.
It has been developed in the last 18 months, so im going to expect to see things that have come out of the innovation engine. This year and things that will be coming out next year also driving that dollar based retention and maybe the last thing I would just add as I think about that for the year remember, especially I think in Q1 of last year, we've got a pretty strong compare that we're lapping so I think.
That's why I'm given the range of 107 to 109 for the full year.
Got it maybe one last one if I could sorry, just in terms of the partner traction Youre seeing and it seems like it's been very strong even even in a challenging environment and deal sizes are.
Enormous.
And when rates are higher which is all good stuff.
Do we have enough.
Time or duration in those deals those partner led deals too.
See kind of what net expansion is of those deals when they annualize in how that looks relative to the to the current net expansion rate and then I'll hop off thanks.
Yes, I think the only color that I would give you is when we take a look at some of our cohorts that we've landed over the last couple of years, they've actually had a better array of dollar based.
DVR and what we've seen on maybe some of the older cohorts going back several years.
Got it good to hear thank you.
Thanks, Chad.
And we'll take our next question from Brent Thill with Jefferies. Your line is open.
Hi, This is love soda on for Brent Thill.
Thank you Dean and Todd for taking my questions and Rob Me too.
Maybe one on.
I guess unearned revenue was a little bit lighter than expected.
Did you see I know you mentioned stabilization in the base, but did you see any new deals push.
From Q4 into future quarters.
Hello, Thanks for the question, we absolutely as we've talked about it it is a slower environment out there people are being very thoughtful and deliberate as theyre, making decisions. So we felt good about some of the things that had slipped into Q3, we closed the majority of those we closed deals that were in the pipeline for <unk>.
Q4, but as we had planned and I think we landed right about where we said we were going to.
It was a slower quarter for things coming through the pipeline, we expected that and we put that into our guidance as we move forward for next year I don't expect there to be a material change in that dynamic as we go through the next several quarters.
Got it and then.
Todd for you I guess how.
How would you position this guidance is it incorporating macro getting.
We're stabilizing or improving and then.
Any any color on dollar based net retention.
When should it bottom during the year. Thank you.
So I.
I would say this about the <unk>.
The guidance, we exited the year with $365 million worth of IRR, that's in the bank.
Low end of the guidance is 374, so that means we've got $9 million of net incremental revenue that we got to add and if you take a look at what we've added over the last.
Six to eight quarters I feel that is a very achievable.
Golar forget even if things worsen to get at the low end. So I feel that we've got a very reasonable guidance that we've given from a dollar based retention rate.
The things I would say is going back several years, we invested really big and our customer success programs. We've invested in innovation, making sure that our customers are getting the most out of the platform and our revenue and billing products and Thats, absolutely showing results and I think that shows up in the fact that every quarter I believe this year.
We improved our retention we had the lowest.
Level of churn since we've been a public company and then I'll hit you we talked about one of the big.
SaaS companies that had made a decision several years ago should they consolidate on a big CRM platform and move over and after going through this for multiple years. They took a $5 million write off and said we're all in on Zora. They had been using so it's the right solution. This other solution can't do what we're going to do and I think thats been consistent.
What we've seen so remember we have got.
Our install base is these large enterprise customers, they are getting bigger and bigger more and more all <unk> Zara and they're dependent on us for recognizing the revenue for doing their billing and their collections and those are mission critical type things and Theyre Sox compliant. So those are things that you don't make changes lightly on.
We feel really good about our position from a retention standpoint, and Hello. This is Gino I'll just add I know you've been following us for some time, we're a very different company than a few years ago, where the vast majority of our Upsells were based on volume today, we have a much more balanced the ability to grow within our accounts and Thats why we shared the data about 20%.
<unk> of our deals right in the past 12 months were based on products now were only recently developed in the last 18 months and so.
You'll see we have a much more balanced approach now to growth within our installed base.
Got it perfect. Thank you.
We'll take our next question from Jacob <unk> with Lake Street Capital markets. Your line is open.
Yeah, Hey, thanks for taking my questions.
Maybe just focusing on the European market.
I know you said, 33% of your revenue comes from the European market, but what trends are you seeing over there.
Similar to the U S.
So I'll, let Ravi take that but real quick Jacob.
About a third of our business is international so that's not all Europe , we've got other presence in Japan, and Asia Pacific, but Rob maybe if you want to give some color on what we're seeing in Europe .
As Wayne as you can see it in other places not payers have seen some softness.
In EMEA adjacent macro although we had good execution actually in our Q4 in that region.
Bottom line the thing that impacts overall, but we're still seeing continued interest in the products, we're still selling products.
Products that really provide true value base 10 mentions scale 24, as an example in a particular space too.
So.
Again, some of that softness has been there, but we continue to see growth there.
Okay.
Maybe just focus on gross margin.
What so you had mentioned there be some levers you could pull to increase subscription revenue margin.
Could you give any more color on what some of those levers might be.
Yes, I would give you maybe three things that we're thinking about first of all we are now multi cloud. So we've got our revenue product spun up on Azure. We then are also using AWS I believe that gives us opportunity for further leverage. The team has spent our engineering team has done a fantastic job of working from our standpoint.
Of how to get much better optimization out of the usage and we're seeing those spend dollars get more control and then the last thing is I think there's opportunities as we've spend investments on our support area.
<unk> get more efficient there not only and provide better customer satisfaction, but also to bring down cost in that area.
Okay got it.
Thank you.
And we will take our next question from Andrew de Gasperi with bearing Burns. Your line is open.
Thanks for taking my question I guess, just as a follow up to that kind of competitive win.
With nameless Josh.
I guess large implementation that was cancelled can you maybe explain a little more like.
Yes.
Sorry can you hear me.
Yes.
Hi.
I was going to just say like can you maybe elaborate a little more like what exact I mean, this is pretty drastic to take a charge of that size. After so many years of investing into our platform can you maybe explain like did you get any feedback as to what made them do that.
Yes, so Andrew that was the customer actually I knew and we've had an ongoing dialogue and basically we had a situation where the CIO would come in it was no longer at that organization came in and said Hey, I think it makes sense to centralize all on one platform and what they realized the complexities of that.
Business from not only our CPU product, but the difference from a <unk>.
Complexity of the different types of billing that they were going to have.
Could not just get it to work and it was something they had worked on for multiple years. It was truly a case of hey here is a product that had very basic functionality that was not matched at all with what that company needed and so after trying for several years and putting a lot into it. They finally came back to us and said hey.
To go upgrade to your most.
<unk> recent CPU, we worked with them doing that through our Q3 and Q4. They went live on it and at that point, then made the decision that they weren't going to continue this dual effort to try to move to a platform that didn't meet their business needs.
I think people does continue to underestimate how.
How complicated billing can be and we've seen companies like net suite before they were acquired by Oracle to three runs at trying to build suite billing.
New customers are unhappy and so we think really in this environment where.
You kind of have to focus on your core the good news for US is our core is subscription management. It is billing. It is revenue recognition. It is supporting all of these different types of charge models and taxes and Rev. Rec rules and so we feel really good about our position and we feel really good and if theres any complexity in your business.
And if youre growing there certainly will be that ultimately our technology is very differentiated and people eventually figure that out.
And it puts us in a really good position.
Andrew I would just use the analogy I think anybody can go out and play basketball and shoot the hopes not anybody not everybody can play like a world Championship game and.
When you start looking at some of the companies that we're working with they need that World Championship team. We have spent 14 years and approaching $1 billion of R&D and delivery.
To optimize our products for billing and revenue and Thats, just really where we're differentiated and why we are the best of breed and why we are the leader in this space.
Thanks, that's a good analogy I guess try to follow up on the streets departure just wondering.
What that means for integrating for example, zephyr presenting the platform.
Foresee any challenges on that front or on the kind of incubation.
New products for 2024.
Yes, I would say this is a 10 year I would say, we don't anticipate any challenges with Sri came in he has been fantastic EQM infer emission we accomplish that mission, we got our innovation machine going and created a world class team with.
Fantastic modern processes and.
Leaves behind.
<unk> infrastructure grid, <unk> technology platform and a great team I have every confidence in the team and.
Fully support this decision I'll Miss him, but I think I think leaves us in a really good place.
Hey, Andrew one more thing on Zephyr.
We're really pleased with how that's done that has over performed on the top line. We've kept over 90% of the employee product roadmap is absolutely on target and if you take a look at our bottom line from a standpoint of the non-GAAP operating margin. We are absolutely over achieved in Q3 and Q4. So I think we're showing that here was a great tuck in type of acquisition.
And that fit really well.
<unk>, our expand strategy and we did it in a very disciplined way.
That's helpful. Thank you.
We will take our next question from Joshua Reilly with Needham Your line is open.
Yes, hi, there.
If you look at customers that are more willing to buy would you say that.
We're in more of the media and manufacturing verticals or would you also say that like tech is buying out a bit as well.
Maybe one day at Sei.
Sure and thanks for the question, it's the mix right as the mix across all of these we had right. When do you think about it from a manufacturing standpoint, that's large pharma.
Top tier automotive electrical and test, but also in tech right. Some great wins, there as well and then even then.
<unk> transportation.
In information services. So it's the mix across all of these and we are just proving that out and seeing that normal.
I think it's all of the mix, we've got a good geographic mix, Josh along with the fact that we're working with enterprise companies and many of these companies regardless of where they are they are needing to make transformation. So even though there is a tough environment. There are still companies that are looking forward to what do I need to do to grow my business, what I need to do to support.
The year next year and the year after and so just that whole base of customers and where we're focused gives us a lot of opportunity even in a challenging environment.
Got it that's helpful. And then can you just give us a sense of.
Or maybe how much rfps or deals that you see in the market down year over year entering this year versus last year, even just qualitatively not quantitatively and how would you characterize your market share position.
At this point in the year versus a year ago as well do you believe that you have gained market share.
Relative to the broader market.
Outside of Ireland, and I think the overall.
Overall, our pipeline is up.
And we're looking at it in terms of.
Goodbye around as we forward into an <unk>.
As we progress Q1 overall.
We're seeing more traction and also from a partner perspective.
The momentum that we're seeing there and the increase in the sales pipeline and influenced by plumbing together is also proving out that momentum.
Okay got it and then maybe just one last quick one for Todd If you look at the guidance for 2004 I didn't see a comment in there about how much of the FX headwind.
Assumed in subscription revenue and <unk>.
Yes, So I think what we've done is we've put it in an as reported basis and we're going to assume that the rates are relatively constant from where they are today from a planning perspective.
Got it thanks guys.
Thanks, Josh.
And we have time for one final question and that will come from Joseph <unk> with Canaccord. Your line is open.
Hey, guys nice execution here this quarter a lot of questions already I just wanted to follow up I think <unk> on your comments relative to Microsoft and Azure and obviously, they're a partner, but it also sounds like there.
Moving to be a customer any extra color you can add there on that.
Yeah. So.
We're pretty excited about that Microsoft.
Customer several cases, but we have committed and delivered on our <unk>.
Revenue product on Azure and that's what Microsoft is using and so we are now.
A multi cloud environment, we're going to continue to move in.
In that direction, and we're pretty happy to have Microsoft as a customer and also the first customer of our Azure stack.
That's great.
And then any more color you can add there on I mean, obviously as or as is a huge platform in <unk>.
The ability to.
For them too.
To be a customer and.
And a great that solution is pretty wide as it is still small kind of pilot size or.
What's the roadmap look like in that opportunity to the extent you can talk about it.
Yes, so Microsoft obviously large company, we're talking to them in multiple places.
Maybe with the more exciting the question really is what is being on Azure open up.
And it does open up for us the entire markets. Our retailer base. If you are a Microsoft customer and you have an azure contract <unk> revenue on Azure you can actually use your azure credits as part of that transaction and so it's pretty exciting for us now to be in a position.
Where we can actually talk to Microsoft reseller channel.
And co sell with them into those accounts, perhaps incident, Microsoft dynamic space as an example.
Sure that's great and then just one other question it sounds like.
Zephyr deal is growing really nicely.
To what extent are kind of you're familiar systems integration partners aware of Zephyr at this point is it is it ready for them to.
To be included in kind of their sell of your products. Thanks, a lot guys.
Okay.
Yes, Joe.
There's definitely interest I mean meeting very very focused around the media.
Publishing area, specifically, there, but that interest is definitely growing across them, we had actually a large number from across.
The Lloyds Pwc, why RSM, Verizon way extension actually at our sales kickoff and actually came in versus the two days and they were extremely interested in what was a solution has to offer.
Great sounds like well.
But we're hearing more about that thanks guys.
And ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
Yes.
Yes.
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Sure.
Okay.
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