Q1 2023 WalkMe Ltd Earnings Call
Federal state and local governments on undergoing technology, I'm wondering monetization and the right for digital transformation. We've already have the state of Georgia with their my border page. The U S Department of Defense Defense traveling system. The department of Veterans Affairs with their HR modernization program and the city of general our he's done.
Along with dozens of other local organization and this is even before we were fully certified being certified is a big advantage of getting up a vast go to market motion that will capitalize in the years to come expect walk me in every government organization.
We also continued to execute well with our partner ecosystem, adding NTT data and Tech Mahindra is new 35 Global partners. The investment we've made in these segments are paying off and we're well positioned to capture additional market share in skin.
We now count 180 customers and <unk> customers, which we define as having four more application for an enterprise wide VM E D.
These customers have embraced digital adoption and are reaping the benefits and the benefits are monumental.
We recently ask IDC research firm to conduct a thorough objectives business via the ROI study and then tried to share the findings the.
The study concluded that on average over a three year period, our customers experienced 494% in ROI and estimated payback period was only five months. This is massive.
Found that as a result of faster ramping time for employees faster adoption of the software and features and the reduction in business areas employee satisfaction increased by 48% and an overall revenue grew by over $41 million for the customer surveyed.
I'd like to bring a separate example forward one of the largest retail commercial banking customers in the U S has embraced digital adoption to its full capabilities that <unk> has been central to their digital transformation and technology modernization project in.
<unk> one of the first deployment migrating 250000 employees to a new HR system, whereas your goal was to focus on our robust home service support for all team members and de lever the platform with minimal training.
After accomplishing this the customer rapidly expanded their use cases to becoming full DAP customers and scan their engagements with walk me. They now have a strong walk me central effects of an in house and deploy walk me on 37 application and growing nearly every employees engaging with walk me with over $40 million.
Erection just last month in 2022 based on the customer calculations, they translated to a direct value of over $44 million.
Walgreen's solving a multi million dollar problems in some of the most complex and secure environment and we're just getting started delivering this division to organizations across the globe.
As you see we're highly committed to our customer success through these times, we must focus on delivering our best and producing value to our customers.
Our commitment to them is second to none.
Like to take this opportunity and introduce our new chief customer officer, and even negative Centene has joined walk me to lead all postal functions, including customer success services and support and we'll be extremely focused on customer needs driving retention and overall customer satisfaction welcome to the team.
<unk> is a mission critical for organization now more than ever in Q1, Gartner feature adopt and walk me as key supporting component in the recently published innovation insight work style analytics group one.
One of the top 10 innovations profile for Gartner in 2023.
Style analytics helps drive digital and organizational change management via derived insight walk me was the only <unk> vendor named again proving our leadership in the market. Woken me was also mentioning garden's business quarterly review mentioned and adapt and work style analytics as two of the tools that have the most impact.
On the future of work.
Which brings me to our product I can be more proud of our R&D teams for the recent launch of Watchman discovery. This is an example of great agile execution woke me discovery helps organization unlock the visibility and consumption of dirt technology investment.
It is times like these it's super important for every CIO and department leaders to being full visibility and control of their software spend and utilization we launched a global campaign in May 1st two offer walk me discovery free of charge to new and existing customer through the end of the year, we're enabling our sellers to extend their reach.
And our customers to expand our value with Walker.
In a recent product Truman we've shared a glimpse into the future of work if fully automatic tech to action engine empowering any employee in the world to simply type where they want to do in our seed down automatically for then on top of Ami Enterprise application. We believe this is the key to the future of automation and warm weather.
For the five past years, we've been developing and training our deep UI AI model that understand user interface like a human does this is our core technology powering most of our products.
We are fulfilling our promise to close the gap between human computer interaction Walgreens constantly improving our Gui AI model. It is the most advanced in the world just in 2022 alone new process over $6 5 billion interactions between people and software.
Imagine the accumulated knowledge distributed to every employee in the world.
Type your what you need and walk me understand who you are what youre trying to accomplish and adapted for Ya hyper automation.
First.
We are using three engine intent orchestrator and generating Autonation, Inc.
Intend understand who and what the user wants orchestrator connect to our UI database and composed of relevant fields.
Generation of automation by using our Gcwi model does aimed for the user on top of any app without any API. We are super excited to continue working on new innovation and the future of work I'd like to acknowledge the detect to action engine instilling the work and will take a bit more time to fully mature as we start to work with design.
Partners to better it nothing excites me more than a great technology and great execution from our team.
These are the innovations that will drive walk me Doc and the future of four to the next frontier.
Before I pass it to Scott to give some insight from the CIO organization I want to reiterate how excited I am from the future of welcoming.
We continue to develop a proprietary technologies embracing the cutting edge enhancements to address the challenges organizations face today and the challenges that with our rice tomorrow.
We're growing the value we are delivering at scale to global organization, and we're doing that while building a profitable and scalable business model.
I want to thank all of our employees customers partners industry analysts and other ecosystem partners for their continued dedication and support in helping make the digital experience simpler for many people around the world.
With that I'll hand, it off to Scott.
You, Dan and good morning, everyone.
I am pleased with the team's improving execution as we began the new year.
We continue to make progress in sales process rigor forecast accuracy and pipeline creation.
Our key to success is choosing the right upmarket accounts, who are strong candidates for our DAP vision, because they have sophisticated software portfolios and opportunities for process improvement. These are the customers and prospects that we are laser focused to deliver in 2023 and beyond.
As we move forward in a new organizational structure, we are well positioned to deliver increasing sales productivity and effectiveness in our go to market organization.
Our team is focused on the enterprise segment in countries and regions with the highest ROI and we have very intentionally deferred investments in other areas and with other customer segments. So we can maintain our focus however, I do believe we have the sales capacity, we need to reaccelerate growth in the medium term.
For our overall go to market I am pleased to welcome Sunil to the team.
So Neil and I are already deep into the day to day work details and on partnering closely with him to improve and enhance our customer experience, which is so important to our expansion sales motion.
Successful implementations drive more adoption. So sales efforts are critical to our overall success.
As we noted in our Q4 2022 comments, we continue to face elevated scrutiny of our deals and increased pressure on both user counts and the number of applications license.
In this tough macro environment clients and prospects are expecting their vendors to help them build the economic business case to support their investment process as additional layers of approval or edit.
Our investment in this capability with the deal CTO business value consulting team is the linchpin for our ability to deliver this valuable consulting expertise and it is important to note that despite head count reductions elsewhere in the go to market organization in the first quarter. We actually grew this organization for 2023.
Other investments that we've made in the past few years are also paying off I'm incredibly proud that work being achieved Fred ramp ready status and we are moving forward with our plan to sell more broadly into the U S Federal government.
Our pipeline is growing and we expect to see the first fruits of that investment in second half of 2023.
Our early success in the U S. Federal space last year was with the support of our partners like S E T and IBM, because we needed their security status at the time.
Now that we have our own Standalone security confirmation, we have the license to hunt together with the entire federal partner community not only IBM in S E T, which is very exciting.
However, let's not forget about our sled business, we continue to make great strides there as well.
Rob will also help us accelerate and sled because many large sled entities looked at fed ramp status as a proxy for their own security confirmations.
The state and local team had a strong quarter with wins from the state of Colorado and the state of Ohio.
Higher education team signed deals with University of California.
The New Jersey Institute of Technology, and Southern New Hampshire University.
While our public sector business is small it is growing fast and we hope to see it become as much as 35% to 40% of our total business. When we are at scale.
Several have status is very important for federal GSI community and they are all very excited to see us reach that goal.
That was not the only good news in our partner ecosystem this quarter.
We also expanded our GSI partnerships with NTT data and with Tech Mahindra.
It will help fuel our pipeline growth for 2024.
I cannot be happier with the overall trajectory of our partner ecosystem at this point in our lifecycle.
That ecosystem is more important than ever for our entire business given the difficult macro backdrop and push for software rationalization that organizations across the globe are facing organizations.
Organizations are turning to us and our trusted partners for additional ways to gain efficiencies and reduce their costs across their tech stack.
With the recent release of walkway discovery, we are giving our partners and customers much needed visibility into the software they are running across their entire company, who is using it and how it's being used farmed.
Armed with this data they can make better choices about how to optimize their software spend.
Whether that be consolidating overlapping tools, redistributing or reducing licenses or paired with walkways other DAP capabilities driving digital adoption to improve software ROI.
Feedback I've heard from customers has been focused on driving greater visibility into their tech investments. We see this as a great way for customers to understand where they are failing to begin their digital adoption journeys. So that ultimately they can utilize the entire platform from walk me to drive the business results, they expect and demand.
Lastly, our direct sales team executed well with new customers at Accredo part of ever North Health services.
The Harris Health system Republic National distributing company and Exxon.
We saw good expansion motion with customers such as UC Riverside.
Tesco and AIA Singapore.
To thank our dedicated team our customers and our partner ecosystem for a good quarter I will now pass it over to <unk> to review the numbers.
Thank you Scott and thank you everyone for joining us today.
I'm proud of the accomplishments made against our strategic play Ortiz, including getting fed regulated steadily growing in the enterprise segment and taken steps to accelerate our path to profitability and free cash flow positive.
As we look forward to our financials strategic more data our leading guidelines all the rule of 40 is our north star, we Didnt emphases on the balance between growth and efficiency as we pave our path to profitability.
We have set in place of more data that support immediate and future scale as the economy recovers.
I am pleased to report that we've continued to achieve better operational excellence as we improved our operating loss by loading our opex on a non-GAAP basis sequentially, while driving to an 83% non-GAAP gross margin.
These results demonstrate the strength of our underlying unit economics, and the strength of our business and future scale.
As Dan mentioned, we took a decision to restructure our workforce with a reduction of approximately 10% of our global employee base to better align to the continued global economic headwinds and improve our operating margin. This reduction with of course, the organization and not focus on individual geography.
Department.
We expect to save approximately $7 million in 2020 slate.
We will continue to focus our resources in areas that can deliver the highest oi over the next two years, we are confident that with the team and structure in place, we will be able to scale and reaccelerate our growth into 2024.
Our total revenue for the quarter was $65 9 million up 16% year over year and above our initial guidance range. Our subscription revenue grew 18% year over year to $60 6 million. Our revenue growth was led by the strength of the enterprise and the Ducks segment.
Professional service revenue was $5 3 million compared to $5 5 million in the first quarter of last year.
Going forward, we expect 2020 sleep PS revenue to be lower than 2022 in line with scaling our partner ecosystem strategy.
Before turning to gross margin expenses and profitability I would like to know did I will be discussing non-GAAP results going forward well.
We're very proud of our focus on efficiencies and expense management, which drove improvement in our non-GAAP operating loss for the fifth consecutive quarter.
In the first quarter of 2023 gross margin was 83% up one percentage point from last quarter and five points from first quarter of last year, we have rigorously optimize our cloud infrastructure to deliver best in class secure and efficient cloud environment.
Our subscription gross margin remained above 90% compared to last quarter, which speaks to the inherent strength in our underlying business. Our professional services organization was nearly breakeven.
Q1, gross profit was $54 6 million up 24% year over year.
Turning now to operating expenses as we focus on free cash flow generation and impactful profitability, we will continue to optimize spend across the organization as our topline skills.
Sales and marketing expenses in defense quarter, with $39 8 million compared to $38 3 million in the first quarter of last year. This represents 60% of total revenue in the first quarter, a significant improvement from 67% last year and 62% in the previous quarter.
We expect our sales and marketing will continue to reduce as a percentage of revenue gaining leverage from the investment we have already made and increasing organizational productivity R&D.
R&D expense in the first quarter was $11 9 million compared to $12 1 million in Q4, 'twenty, two and $13 9 million in Q1 last year.
This represents 18% of total revenue versus 19% in Q4 and 24% in Q1 last year as the leaders of the digital adoption market. We will continue to invest in innovation and advancement of our platform insurance growing value to our customers.
G&A expense was $11 7 million for the first quarter compared to $11 8 million in Q4, and $10 5 million in the first quarter last year.
G&A was 18% of revenue versus 18% in Q4 and 19% in the first quarter of last year.
Operating loss in the quarter was $8 8 million compared to a loss of $18 6 million in Q1 last deal and $10 5 million in the last quarter Q1 operating loss margin was 13% compared to 33% in Q1 last year and 60% last quarter.
We have improved our operating margin on both dollar and percentage basis for five consecutive quarters and believe we will continue to do so throughout 2000 Twenty's Lee.
Net loss per share in the first quarter of 2023 was eighth since using 87 3 million weighted average shares outstanding compared to 22 cents in Q1 last year.
We improved level of free cash flow margin to a negative 13% compared to a negative 36% in Q1 last year free cash flow was negative $8 3 million in the first quarter compared to a negative 23 million in the first quarter of last year.
We will continue to improve our free cash flow as we gained leverage in our operating model and with our low Capex investment.
We ended the quarter with $299 6 million in cash cash equivalents short term deposits and marketable securities.
Given our sizable cash balance and improvement in our free cash flow, we are well capitalized to continue supporting our growth goals.
Turning now to guidance.
We are pleased with the continued improvement of our operating model, while acknowledging the challenging microenvironment, we continue to face a low without peers. Our guidance reflected these headwinds will continue throughout 2000 Twenty's Lee with.
With the action, we took to reduce our operating expense, we believe that our path to profitability is clear we remain committed to our expectation that we will be cash flow positive by the fourth quarter and for the full year of 2024. We also expect to end the year with an expense base that with continued scale, we will be <unk>.
<unk> for the full year of 2024.
For the second quarter of 2023, we expect revenue in a range of 65 million to 66 million representing growth of 8% to 10% year over year and a non-GAAP operating loss in the range of $7 5 million to $6 5 million and an operating margin loss of 12% to 10%.
One.
For the full year of 2023, we expect revenue in a range of 269 million to 276 million representing growth of 10% to 13% year over year and a non-GAAP operating loss in the range of 22 million to $19 million and an operating margin.
Most of 8% to 7%.
With that Dan Scott and I will take your questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Steve I'll take the first question from line.
That's why Rendez from JP <unk>. Thank you.
Okay.
Was that me.
It does tie all reasons that JMP. So congratulations on the fed ramp I think the question everyone's going to have is why is the Q2 growth only 8% to 10%.
And as I look.
At my model it seems like the number of customers with over 1 million and <unk> actually went down by 3% from 39% to 36.
Is that why and what happened to those three customers. Thank you.
Hey, Thanks. This is Dan so I will start with a 1 million and as we said last quarter and even in this quarter, we are seeing a macro headwind.
Those customers are still with us and some of them as dominant negative expansion, which moved them below the line of the 1 million daily average of those customer will do 700, K. So, it's hiseq seeger and our healthy customer, but obviously.
Some of them have some changes and then getting expansion and that's something that we saw I would say starting Q3 Q4 and regarding the guidance for Q2, I will hand, it over to hug. It yes. So as indicated in the script I think with respect to the guidance that we gave I would look into Q1 would be what.
Don just mentioned.
Ah.
For the quarter. So yes, we actually finished Q1 with the lower they are all this is the what we had expected.
Ingalls, so any equals indicated in mice.
As part of our revenue and our strategy to offload our two <unk> to our partner ecosystem, we expect to finish 2023 with the lowest revenue both on build out sizes. Both on the dental side also.
The reason for the guidance for future.
Okay, great. Thank you and then Scott if I can just ask you directly I mean, I think I think you answered, but so did the sales team hit their number in Q1 or the number you had for them and we're pretty deep into Q2, how does Q2 field so far.
Okay.
Yes for iPad. Good morning for Q1, we were weaker than we expected, but I still felt the team executed well considering the macro headwinds on Q2, so far.
We feel pretty good we had good linearity early in the quarter and as long as linearity holds together we feel good about Q2 right now.
Great. Thank you.
Thank you we will take the next question from Scott.
Your line is open now please go ahead.
Hi, everyone. Thanks for taking my question.
I wanted to maybe ask a slightly different routes of questioning on your sales and marketing efforts over the last six months I've seen walk me.
With a much bigger presence at a couple of different HR.
<unk> says can you talk about maybe your sales strategy through.
The type of customer or this type of opportunity with an HTM ecosystem.
A little different than the I think the go to market strategy that we saw at the time of the IPO.
I'll take that this is Scott I wouldn't say, it's necessarily different I mean from our perspective HR. The Chr ROE in the HR ecosystem is an important persona for us it's an important way in which we are we market to enterprise clients. They have significant problems, especially on the on the upper end of <unk>.
So we have made some changes in terms of the focus of the of the types of events that we go to but I don't wouldn't really call. It a change in terms of the actual persona and the business problems that we chase if that makes sense Scott.
Completely helpful and then following on the <unk>.
Sales line of thoughts.
Congratulations on the fed ramp achievement as well you all seem pretty positive on that especially look with success you've had.
Leveraging your partner's certifications there, but as you look at your sales pipelines and opportunities there <unk> seem a similar type of scrutiny that you're seeing.
What's your corporate customers or is the pipeline opportunity there, even maybe more enticing than what you see.
And the nongovernment verticals. Thank you.
Yeah, the federal business tends to be a little different than the commercial side of the house.
Based on their funding initiatives for any fiscal year, what I can say is that we've been making an investment in fed now for almost two years. So we're really excited for the opportunity for it to pay off and in our current planning our expectation that the pipeline that we built coming into the year should pay off for us in the second half that's our expectation as you.
As you May know the federal government's fiscal year ends in September we kind of call. It Super Bowl season. So we're excited for that process to come to conclusion for this fiscal year as well as looking into 'twenty four.
Great Thats all I have thanks for taking my questions.
Thank you we will take the next question from line.
Michael <unk> from Keybanc. Your line is open now please go ahead.
Hey, guys, let's begin.
On the <unk>.
Great.
Subject to us so when you talk about the floor, obviously, a big opportunity for you.
Just wondering again just like on the I'm, sorry did you say where <unk> come in for the quarter and then I know you said.
In the quarter below expectations, but what we end up with that.
The buildup of that no we don't disclose they are.
But the aitken below our expectation in Q1.
So can you talk about the net expansion rate.
Thank you for talking about a contraction with some of the large customers.
Where you're at 105 in quarterly <unk>. So so I assume that the components of it that you are saying.
No increase in the let's call it customer churn like actual loss of customers, but they are contracted.
How much of that reduction is less expansion that you're seeing how much of it is that is more contraction and work with that net expansion rate over the next few quarters to continue to go down and where does it bottom.
Yes overall, we're happy with the execution, we are seeing negative expansion as the macro eating our customers in different industries, if its banking tech and so forth and the positive side of that we're seeing those customers are staying with walkman and loving the product. Unfortunately in some areas.
I need to reduce it based on a number of them.
In line with what we saw in Q4, and having said that we have a lot of say amazing progress like fed ramp art. So we are building the growth engine, obviously for the second half.
And I would add to that is you certainly as you heard in my prepared remarks, we do believe that we did see rather a combination of both reduction in overall users as well as as well as in some cases reductions of applications. There's no particular pattern thats very specific to the client and some cases CIO, Washington says, Hey, I've got I've got to cut expense.
To the X amount of versus the X percent in some cases it comes down with overall headcount in some cases the cancel a project. So it's hard to make any it's hard to make any conclusions.
A particular account on the macro side, it's a combination of both.
Alright, yes.
I don't know if you can answer but I mean, we've had some companies that have gotten down to this level.
<unk> net expansion rate for some of the same type J J give a feeling about whether or not you can hold it above 100% or whether there is any risk of a calling below 100.
We believe that our net net retention will be net they are will be on about 100% moving forward.
But we don't expect it to be below that.
Okay, Alright, guys. Thanks very much.
Thank you we will take the next question from the line Joseph <unk> from Morgan Stanley . Your line is open. Please go ahead.
Thanks for the question.
I wanted to come back to <unk>.
Disclose anymore.
Gave us a real time look at demand just wondering like.
Should we be looking more closely now at billings.
Is that the sort of indicators that we should be focusing on.
Yes.
Yes, I think the customers that we're disclosing that will be the key metric for us as you remember we changed our strategy to go up market for large enterprise customers adopt these are best cohort.
The entire mission and basically are where we're putting our effort to.
To move as many customers as we can to be DAP customers to use the best of our platform, which is where they see them alright. This is where we're seeing domestic expansion obviously longer.
Contract length, and so on so I would say this is where we're seeing the company future indicated where were going I would say that customer is what they would look at obviously you have revenue and everything that we disclosed and another thing is the company is really focusing on long term sustainable growth and we did an amazing job to improve our cash flow.
And operating margin and as I mentioned, we are expecting to be profitable for the full year. In 2024. So this is big we pulled forward our path to profitability.
<unk> continued to expand our biggest customer so we're happy with it.
Okay got it.
Could you talk a little bit about walk me discovery some of the impact that Youre seeing there and then I have a follow up.
Sure. So the way, we're thinking about what can be discoveries like a treasure map.
Think about the company, putting walk me discovery, and we're able to give them visibility into their deck showing them exactly where they have issues and to be frankly help them with it I would say short term value, which is saving cost on licensed Beth and prioritize their retrofit.
Our technology is able to give them precise data about what's going on and we think this is amazing value to our customer we decided to give it free of charge.
And customers are new customers and in the end of the year, because one we want to help our customers and we understand the macroeconomic situation to for us to understand exactly where they are issue in that open market of opportunity for expansion for us because we understand exactly what's gone law and we'll launch it.
A week ago and it was amazing we had a lot of people register to a webinar already requesting them or obviously want to join the platform. So for US it's part of our digital transformation intelligently and we're very excited about it and I would just say our team, we're able to execute and deliver.
With almost no time that this show how strong these are fundamental and the data and the model that we have that we are able to go and really helping them adapt within few quarter.
Yeah remember we've always this is Scott remember we've always had this data it's just our ability to collate the data present back to the client in a way that they can actually action. So we're helping them with short term opportunities to us.
As Dan said save cost redistribute or reuse licenses renegotiate in some cases.
More importantly, these digital transformation opportunities the friction within their within their tax back is not going away and if they do the short term work. We're also helping them with a long term work decline the real value and the deployment of our platform to support their their goals. So we get a twofer out of it which was great.
Got it and my follow up on this is Jeff.
You said free for the rest of the year.
Could talk a little bit more.
How about the monetization strategy after that and then also just thinking about the top of funnel benefits, but thinking also.
Are the customers that are initially coming onboard with walk me discovery does it fit the DAP profile or are there.
Or does it.
Is it kind of consistent with the type of customer that you've been going after market.
So thats actually opened a new a new persona for us and this is why we're super excited and as mentioned before the way walk me scale adopt we're starting with one or two use cases.
Our final you name it and we're growing into that by offering that product automatically we're not focusing on one application we're focusing on the entire tech deck of the of the company.
And so for US this is a natural progression into that because we're showing that customer or that enterprise exactly all the data they need to know about the entire at outback, which help them with their digital transformation. So are our approach to monetize it would be one of its big immediate value to our customer.
But overall expanding that customer to that this is why we decided to give it for free because we're seeing it more as a lead gen than actual product because the value that it can bring as you scale. It and we use our entire platform is massive and I alluded to this in 19 is taking great.
And the our ROI from walking with 490%.
And the more you use it the more ROI you get that what we need to do is just to show you worried that potential.
Calling in the treasure map.
So we do think that that will actually accelerate the expansion to that with existing customers and even new customers that we'll be able to get that visibility in no time and Joshua this important nuance for us because we typically don't start with head of architecture or head of procurement or head to head of IP, we end up there.
Because were brought there by one of our traditional personna as head of sales head of HR head of finance. This allows us to begin the conversation in new prospects or expand the conversation of an existing customers to a persona group first that is going to take advantage of this of this opportunity. So it's a it's a different way an exciting new way for us to come.
A problem within a large organization and to be very specific to your question. It absolutely aligns with that DAP high end enterprise clients that we want to attract and retain its perfect for that space.
Thank you.
Thank you we'll take the next question from Michael Berg from Wells Fargo. Your line is open now. Please go ahead.
Hi, Thanks for taking my question.
I wanted to take another look at look forward looking metrics specifically.
Specifically at Billings I know you have said, it's not the most.
Accuray forward looking but it did revert to negative growth year over year. This quarter. So maybe can help me understand.
What happened there what are the puts and takes and maybe how to think about billings moving forward. Thank you.
Okay.
Yes. This is John I'll take that question, yes. So for billings, we don't we don't necessarily look at that as a forward indicator of our business is highly dependent on kind of when deals are signed and when they close versus when cash is collected.
It's not a great indicator as Dan had mentioned earlier, we would look at kind of our DAP customers as the leading indicator moving upmarket there as well as our 100 K customers, which we're very happy with and then you know as we continue to increase our focus on kind of balancing both growth and profitability looking at the rule of 40 as our <unk>.
Star, Idaho, improving our cash collections, which is helping on our free cash flow as well. So we would point you towards those metrics rather than billings.
Great. Thank you and then a quick follow up on the margin side of your.
Your non-GAAP operating income guidance for the whole year improved by $7 million the exact amount.
The military has saved from the <unk> is that the way to think about the improvement in the non-GAAP operating side or is there some conservatism baked in there with potential.
Upside from here given the Rev impact.
Yeah, we're always looking for places to improve and with the more efficient we do feel that there is some conservatism there where we approved obviously the operating margin and by by unlocking in our perspective, which is really really good and you were expecting to look for more places.
As to obviously say.
And we even have an amazing improvement obviously in the gross margin to 83% and that came from being a I would say, adding more technology to our cloud infrastructure. So everywhere, we can go and leverage and improve our operating margins. We will do it and answer to your question. Yes. We think there is a little bit of conservatism Darren.
We will see more improvement as we continue.
Thank you.
Thank you we will take the next question from Kevin Kumar from Goldman Sachs. Your line is open now. Please go ahead.
Thanks for taking my question.
Just curious on the new packaging model in kind of a starter package that was implemented I think last quarter. How is the reception then there and is that starting to impact the pipeline conversion rates are at all thank you.
Yeah. So it's still early stage and we started obviously two pilot with fewer for Rep say it will start to be in a larger scale starting in July .
So hopefully next quarter, we will be able to give you. Some initial results. So far are we happy with the structure. We think is the right structure.
And moving forward, obviously, we will be happy to share some data points right now.
More scale to actually give you information.
Yes, and for US we've started it in our commercial business, which is our mid enterprise and so we've got a very small start to it but so far the initial returns are good.
Got it that's helpful. And then just on kind of partner contributions I know that's been a big focus on it.
The ambitious goals in terms of kind of the mix contribution from partner just curious kind of how that's tracking or is that kind of in line with your expectations.
With the progress there. Thank you.
Okay.
Yes partners are incredibly important to our plans not only for this year, but also for $24 25, I would tell you. It's one of the areas that I'm, particularly pleased with the partner ecosystem growth as well as their contribution to our performance is in line with our expectations and I've got a I've got a big set of expectations.
I expect that team to do.
A significantly improved performance over last year and last year was good.
So I'm very excited about the partner ecosystem and so far we're tracking well.
Okay.
Thank you.
Okay.
Thank you we will take the next question from the line Brad Cooke from BMO. Your line is open now. Please go ahead.
Alright. Thank you for taking my question, you've talked a lot about reacceleration of growth.
Hum.
Even at the midpoint of your full year guide there are some reacceleration in the back half for the year.
Can you talk a little bit about the dynamics that sort of go into that one of.
Are you assuming any improvement in the buying environment is good.
Customers can move in Mexican up customized can you talk about sort of your <unk>.
Expectation, which for what.
We include that Reacceleration in not only go to the back half of the year, but medium term going forward. Thanks.
Sure sure. So obviously, we have seasonality in our quarter. It's like every enterprise company and with Q4 is our strongest quarter. In addition, we do expect obviously to have fed as Scott.
Scott mentioned of the Super Bowl season.
During September in addition, obviously, we have a renewal coming up in Q3 and Q4 worried then expansion events for us as those companies are continuing to add obviously users and applications, though obviously, we have a pipeline and pipeline coverage and the way we're actually measuring it so the way we forecast them looking forward.
We're thinking obviously that then our gross <unk> improved quarter over quarter, but based on our initial forecast though.
We're currently according to our plans as we see it and we're feeling very strong about.
Thank you we will take the next question from <unk> <unk> from Barclays. Your line is open now. Please go ahead.
Hi, Thanks for taking my question I think you May have mentioned this before I'm, sorry, if I missed that Mitch joined a little late but you.
<unk> February and Bob irrigation can you may be talk about somebody ankle incremental contribution that may be built into the guide the guide or is it more of.
I have an upside type of opportunity and then can you also just talk about what you've done on the sales side to kind of prepare for selling more into the government.
Yes, so I'll start and Scott can continue so one as we said we're expecting deals to come in on affecting the second half. So as you know it will be <unk>. So it will have an impact on the revenue, but slightly impact in 2023 months of the impact will go into 2024.
But having said that those would be probably be contract long haul truck like typically would take government contract regarding the team and I will let Scott.
Could continue we have the team in place before we got there before we got 30. So we build the team we've built the pipeline. We saw obviously the demand in parallel we work with our R&D and engineering team to get certified and run on Google Cloud then now everything <unk> got in place we got the Green.
Really fast they relatively to our company and we're Super Super Happy obviously with that we'd have achievement and now it's time for us to go and implement and show the value. We have customers that you already signed in Q4, we are now going live with them. So that wouldn't be a big milestone for us and they're already see the value and there is a great pipeline.
Federal law, and how do you want to add.
And it's important to remember that we've held that investment now for a long time. So it's been it's been sitting on the books and now it's time for it to pay off don't forget that we have also continued our investment on the partner side.
<unk> and our direct sales capacity go hand in hand.
Federal space, So I feel like we've got we've got our bench ready to go now they've suited up.
Step out on the pitch them go go sell and close and we've got a strong partner ecosystem to help us support that direct field sales team.
Thanks, I appreciate the color on that.
Any color.
Thank you.
There is no further question at this time I will hand, it back over to your host Dan to conclude today's conference.
And thank you everyone for joining I'm really excited for the future of Walkman Watts com.
And you can join US tomorrow to the Needham Conference and we will discuss obviously more about our future and what we're doing with AI and all the exciting things that we're doing in walkman, but thank you so much for joining us.
Yes.
Thank you for participating you may now disconnect.
Okay.
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