Q2 2023 WalkMe Ltd Earnings Call
Okay.
[music].
Thank you all for joining the walk by second quarter 'twenty 'twenty trade earnings call probably be informed that you will have the opportunity to ask questions. After the opening remarks. This can be done by pressing star one on your telephone keypad to register your question.
I'll now pass it to John Stripper head of Investor Relations for me. Thank you.
Thank you for joining our second quarter 2023 earnings call I'm, John Strep I head of Investor Relations at Walkman today, I'm joined by Dan <unk>, CEO and cofounder, Scott Little our Chief revenue Officer, and our Chief Financial Officer.
Certain statements we make today may constitute forward looking statements and information within the meaning of section 27, a of the Securities Act of 1933 section 21 E of the Securities Exchange Act of 1934, and the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995 that relate to our current.
And views of future events.
These forward looking statements are subject to risks uncertainties and assumptions some of which are beyond our control.
Actual outcomes may differ materially from the information contained in the forward looking statements as a result of a number of factors, including those set forth in the section entitled Risk factors in our annual report on form 20-F filed with the Securities and Exchange Commission on March 14th 2023, and other documents filed with or furnished to the SEC.
See our press release dated August 10, 2023 for additional information.
In addition, certain metrics, we will discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for financial and operational decision, making and as a means to evaluate period to period comparisons. We believe that these measures provide useful information about operating results enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by managed.
And its financial and operational decision, making.
Further throughout this call we provide a number of key performance indicators used by our management and often used by competitors in our industry for more information on the non-GAAP financial measures and key performance indicators, including the reconciliation table see our press release dated August 10th 2023, and with that I'll hand, it off to Dan.
Thank you for joining us today as we review our 2023 second quarter results, we had an amazing quarter and I'm Super excited to share all the progress with you today.
When the trending macro headwinds began a few quarters back we said that strategic company goal to be free cash flow positive and profitable growth organization. The outstanding work of our findings and go to market teams to develop a sustainable growth model focus on operational excellence has paid off and beyond thrilled to share.
That walk me is officially ended Q2 of 'twenty three as a free cash flow positive company two quarters ahead of our expectation our unit economics are excellent as we continued to advance our breath to profitability with our non-GAAP operating margins of negative three 5% and getting to nearly.
Breakeven.
GAAP net income.
Despite lingering global headwinds, we're seeing positive trends all across the business revenue was 66 million just above the high end of our guidance range. You know most strategic enterprise accounts, we saw positive expansion outcomes growing our million dollar plus accounts to a total of 38. It makes me extremely proud.
Today to share these achievements our path to profitability is clear and closer than ever with over $300 million cash in the bank strong unit economics improve internal execution and advancements in AI and product innovation, what can he is well positioned to increase market share and make the right investments as we shift.
Their focus towards profitable growth.
Turning now to our strategic growth drivers and customer value.
<unk> is all about the digital adoption of technology now as enterprises are flocking to adopt you AI powered technologies the demand for change management and employee productivity are on the rise.
In the public sector segment, we saw a great success in Q2 I'm Super proud of the team as we've extended our deal with the U S Army to over $8 million in T. C V and we're seeing an increase in deal flow pipeline from other agencies.
Our partner ecosystem strategy is working and we're laying down the foundations to distribute that globally, both directly and through our partners for years to come.
Positive territory expansion and further investments in depth this quarter, we extended our global agreement with Deloitte to now include New Zealand and India.
Deloitte is a great example of global organization that started utilizing woke me in 2019 as a customer and then as a strategic alliance today. The lightest thriving walk me center of Excellence and has deployed walk me to nearly 100 application internally that that's all area of its U S based business.
Yes.
Realizing the value to their own employees. The Lloyds formed a strategic alliance with walk me in 2020, one to deliver digital adoption solutions to their clients and the partnerships continue to grow globally. Since then.
Our chief customer officer, Sunil negative and our Chief revenue Officer, Scott lithium had been working hand in hand to increase value to our customer base. Our customer success organization is going through an important transformation with one thing in mind the success of our clients and we're already seeing the impact.
I want to share and now they're a great example of how adoptees impacting large enterprises.
One of the largest retailers in the U S with both the physical and digital footprint deployed walk me to ensure their call center agents consistently and accurately applying pricing discounting and returning credits to customers.
Our objectives were to increase policy compliance by prompting agents within the flow for to follow procedures provide consistent service and increase speed to resolution.
The customer expected to save $1 million in cost from their initial project I'm glad to share they've surpassed their goals only eight months into their deployment by 2.5 X with an estimated $2 $5 million in savings only in one use case someone being.
Being able to show value into that journey is essential for our path to expansion as we continue to execute with the top enterprises.
Turning to AI and product innovation, the hype and increase the awareness of recent AI investments have created an emerging tailwind from our enterprise customer base. They are accelerating their focus on employee productivity and organizational efficiency.
Enterprises are seeking to understand software usage patterns, they immediate action and deployed smart experiences to their employees in the flow of work.
As the rush to implement new AI solutions like in the past with digital transformation phase one they must rely on the adoption of their employees and staff to reap the benefits in our ROI from their investments compliance and the ability of AI are top of mind, our upcoming shadow.
I feature set embedded in walk me discovery will provide organizations with visibility into which a I tools are consumed internally and empower them to take immediate action right on top of these applications in the flow for.
Human error is the number one cause of data security incidents. The walk me for security and AI Dockets Ofer organization tools to take immediate measures and build guardrails notifications and alerts embedded right inside their enterprise employee journeys. They can now ensure no.
Sensitive data is being misused company policies and compliance are met and avoid potential phishing attacks as they scale the use of the technologies.
You need the strong data strategy before having an AI strategy data hygiene is the key for success without clean data while training day. It turns on a a more than sort of applications. The results wouldn't be bad predictions that suggestions bed calculations and bad outcomes.
We offer a wide array of data validation and hygiene enough capabilities to ensure that every single employee engaging with their daily software workflows is on track and entering the right information.
Specced, more AI innovation and data validation and hygiene from us very soon.
Walk me is distributed and visa, but via web desktop and mobile to all of our customers employees. We are scaling these assets to offer AI knowledge axis. We are releasing our next version of enterprise search powered by large language models, we launched enterprise search and workstation last year.
And already have millions of employees engaging with it to final organizational knowledge and get the job done faster by embedding elements employees will be able to extract any information in the flow of work.
We are also adding AI powered features to our own product to enhance the walk me build experience, including the launch of our new action Eddie Tour coming in Q3 currently named X being there that will make the build experience more innovative faster and simpler.
More on this in our next earnings call and product releases.
We've been heavily developing a proprietary Cory I D. P Y technology for the past five years to understand every employee interactions with every enterprise applications.
Just last year in 2022 we captured over $6 5 billion employee interactions from leading enterprise application.
A I D. P. Why technology is second to none the power that walk me has from being distributed to tens of millions of employees and understanding how they interact with enterprise software give us a unique offering in the islands.
As we continue to leverage this technology for all our largest product innovations, including our enterprise data product I'm extremely excited to share that our new data AI offerings of walked me discovery and user interface intelligence you I I have seen growth of over 100% quote.
Over a quarter in Q2. This is one of our fastest growing product lines. We launched the AI powered walk me discovery product to G. A last quarter. After a closed beta to help drive efficiency by unlocking usage data and visibility.
All enterprise applications and highlighting areas for potential improvement.
I'm, a big believer in integrating AI to drive operational excellence and employee productivity, we've been using walkman discovery internally to track progress.
K P I of becoming an AI integrated organization and I'm glad to share that 35% of our employees are already using AI tools on a weekly basis to do their job.
Look forward to seeing deeper AI adoption in the coming quarters.
UAE user interface intelligence part of the AIA data product line Leverages, our a I D. P Y technology to automatically identify all the critical enterprise processes within an application.
Specifically data entry and highlight frictions errors and wrong data entries.
One of her valued G to Kay customers has a robust center of excellence, that's committed to improve employee experience and reducing technology friction. There are currently live with walk me on over 80 application that's been all areas of the business.
C. G T K customer is extremely data driven and has enabled the U I intelligence for Successfactors and application used by 270000 employees globally. There are keen to understand employee trends and friction points to provide actionable advice to internal business owners about why they can improve how they can maximize their.
Value of their solution and remove barriers of completing common tasks.
Last but not least we continue to train our a I D. P Y technology to develop the next generation of our AI offerings, what we called techs to action automation.
Potential to magically automate any action on top of all enterprise applications will have a profound effect leveraging generate T V eye in the future of work.
We are evolving our corn conversational automation offering such as our action bought smart walk throughs and attendant automation into one new unique offering I'm absolutely confident that next to action will drive organization towards hyper automation faster more on this as we gradually starts rolling out to use cases.
It's been an exciting quarter to say, the least and they look forward for the upcoming months as we continue to scale towards a profitable growth company.
Is there a journey upmarket continues our teams demonstrated their ability to execute on the company's strategy we.
We delivered a great quarter advancing our commitment to being cash flow positive by two quarters, which encourages me on a continued journey off market.
We're in the middle of this journey and there are a lot more things to achieve we are focusing on enterprise and large enterprises with an emphasis on our delivery partners and customer success, while our subscription revenue is on par with plans, we're going to see that service revenue going to stay flat as we transformed the way we deliver.
Success to our customers.
<unk> will elaborate in her section.
Finally, I'm thrilled to welcome our entire ecosystem to join US on October 25th four realize our annual event. We're excited together customers partners and that professional to share and explore the future of digital adoption and how our customers are harnessing the power of data action and experience to make their.
<unk> is more effective will be highlighting the future of <unk> and how we think a I N. Our unique take effect to action will drive our industry to the next level of value realization.
With that I'll hand, it over to Scott, our CFO to share more details about our go to market efforts Scott over to you.
Thank you Dan we had a strong quarter in all three of our focus areas for 2023 public sector. The global partner ecosystem and the expansion motion and key named accounts segment. All performed well this quarter I was especially pleased with sales execution and our largest opportunities. We brought in a number of deals that were.
Both large in scale, but more.
Partly strategic in nature and <unk>.
Lines of business outcomes for our customers.
Overall, we're making progress on our execution, despite lingering economic headwinds during the last few quarters and throughout required adjustments from our personnel changes in April following the risks.
Our partner ecosystem continues its remarkable momentum as it impacts more and more of our deals globally, our systems integrator partners as well as our ISP partners continue to grow their impact on our business both sequentially and year on year.
We're seeing a greater contribution from recently announced partners as that group is activated and attributing business for walk me.
In addition to the major global partnerships, which often seem to garner the most headlines our regional partners across the globe are also standing tall in several key regions.
Charles Townhouse for example helped drive a very large expansion win with a top 10 global pharma customer in the U K.
Their expertise and intimate knowledge of the client was a true differentiator for the customer and helped us secure the deal on schedule.
On the ice V front, we achieved S E T certified integration with the S. E T success factors.
Integration and beds walk me functionality directly into their application, which will ease deployment for our joint customers and speed up our sales motion.
This certification demonstrates that walk these digital adoption platform was able to pass S. A piece stringent functional and performance benchmarks.
Enterprise grade protection and governance are table stakes for large enterprise organizations their security and privacy posture requires them to carefully vet the tools and applications used across their tech stack.
Our ISP partners recognize our world class capability in this area and we've seen growing momentum as they bring walking into deals that demand this kind of rigor and confidence.
Our public sector continues to ramp into the back half of the year and as Dan mentioned I'm thrilled we were able to expand our deal with the U S. Army. So quickly on the heels of our first win in 2022.
We remain optimistic for additional contribution from this team in H to their pipeline continues to expand every month and we expect to see them as an anchor for our growth in the medium term.
And the key named Enterprise segment, we had expansion deals with days are done Cisco and Caterpillar. These expansion show the strength of our enterprise solution to drive value for some of the largest organizations across the globe touching technology manufacturing and financial services.
Based on our feedback from customers and insightful recommendations from our partners and industry analysts over the last 12 months, we undertook a rigorous process to examine our buyer journey.
I'm proud to share that we've launched a new and optimized packaging and pricing model to make it easier for customers to get started with us providing multiple ways to land at a more flexible entry price.
It is also designed to make it easier for our customers to ramp their uptake of our capabilities as they go through their unique depth journey.
Customers are now able to purchase our core platform capabilities through walk me Court, which is designed for the enterprise and powered by our technological advancements harnessing our AI technology deep B y.
It includes everything that a client needs to start their data journey, including our data and analytics content creation and the complete employee experience all with enterprise class admin and security controls.
For customers requiring more advanced capabilities, we're offering advanced modules, which are easy to add options that allow customers to expand and customize their DAP journey. These include deeper analytics more advanced security and additional collaboration and customization tools.
Lastly, we've introduced walk me Essentials, which is a lean version of our walk me platform. That's meant to tackle the most popular and most critical workflows on specific target applications Walk me essentials pricing includes the services required to tailor Prebuilt walk me content to match any individual customer's needs are.
Experience has been that when we solve a critical problem for a customer really well there.
They are eager to expand with US walk me Essentials is designed to provide an easy initial land and short time to value.
This new packaging and pricing methodology will make us more competitive on the initial land help us accelerate our customers' time to value and broaden our expansion ability through apps users and modules as customers go through their data journey.
Finally, with the addition of Sunil Nag Dev as our Chief customer officer, the customer success Org is going through a process of transformation to drive deeper value for our customers and to align our support strategy to our customers' critical business outcomes.
We are examining and optimizing our delivery methodologies to enhance the overall customer experience.
This includes the move to outcome based P S delivery, which will drive our peers the organization to deliver significant customer ROI in 2024 to support our updated land and expand motions with faster time to value for our clients and to strengthen our relationship with our partner ecosystem, making them.
The experts and death.
And with that I'll pass it to Higgins.
Thank you Scott.
Oh sure that we have achieved our goal of becoming free cash flow positive close in demand two quarters ahead of plan, we generated $5 2 million in free cash flow in the second quarter compared to a burn of $12 2 million in the same quarter last year. This is an important milestone for walk me, we have seen improved cash collection is old.
Seeding our plan, we have adjusted our cost structure to improve efficiencies all across the business and we have been prudent with our cash management.
We have seen an improvement of our operating margin on both dollar and percentage basis for six consecutive quarters with a non-GAAP operating loss of $2 3 million or three 5% compared to a loss of 27, 8% last year.
Our financial backbone is stronger than ever and we have a new breakeven on a non-GAAP net income and our non-GAAP EPS. The improvement we have seen in our operating leverage is organization wide with an emphasis on our sales and marketing organizations.
Welcome is now well positioned to continue driving positive free cash flow. We are also committed to further improve our operating margin and accelerating revenue growth in 2024, we anticipate being profitable on a non-GAAP basis for the full year of 2024.
Before turning to Q2 numbers when he fell into gross margin expenses and profitability. Please noted I will be discussing non-GAAP results. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.
We grew subscription revenue by 13% Eagle to heal, but also growing our subscription gross margin to 92%.
Our improvement in subscription gross margin over the last few quarters and reflects our strong unit economics, and our ability to grow subscription revenue, while optimizing our cost structure.
We saw a decline of 17% and service revenue year over year with a positive gross margin of 0.5% driven by better work force utilization, we expect service revenue to remain at a similar dollar level throughout the second half of 2023 lower than 2022, and our plans for 2023.
This is a direct result of the transformation of our customer organization as mentioned by Scott The decrease of service hours and continued transition of services to all powerful ecosystem.
Our total gross margin was 84% up from 78% in Q2 last year gross profit was $55 4 million up 18% year over year. We believe we can maintain the gross margin for the rest of deal.
Our total operating expenses decreased by $5 7 million compared to the first quarter of 'twenty to 'twenty three.
We optimize our plan, which brought us closer to operating breakeven saving were mainly driven by label expenses related to the reef ongoing head count related and a more efficient cost structure.
We continue to invest in our R&D and maintain our expense level for Q1 with the $12 million, representing 18% of revenue as we enhance our strategic data and AI capabilities.
Our sales and marketing expenses were 35 million or 52% of revenue an improvement from 60% last quarter and 64% in Q2 last year.
We believe it out of court says capacity.
Fishing to support an accelerated growth in 2024.
The improvement from last quarter was driven by head count reduction and other sales activity that occurred in the first quarter.
G&A expenses were $12 million or 18% of revenue similar to the last quarter and below the 19% in Q2 last year.
Operating loss was $2 3 million or three 5% compared to 13, 4% last quarter and 27, 8% in Q2 last year. This is a leap P&L tactical affordability and I'm very proud of the walk me teams for their devotion and commitment to our company goes as success.
Yes.
Net loss for the quarter attributed to walk me was 0.3 million compared to $16 5 million in Q2 last year.
Net loss per share for the quarter was zero cents, using 88 6 million weighted average shares outstanding compared to a loss of 19% in Q2 last year.
We generated a $5 2 million positive free cash flow for the first time and improved our free cash flow margin to a positive 8% compared to a negative 20% in Q2 last year.
On free cash flow, we expect to maintain a positive level, but each will fluctuate given seasonality in our cash management cycle.
We ended the portal, which we hope it is $4 6 million in cash cash equivalents short term deposits and marketable securities.
Given our sizable cash balance and generating free cash flow, we are well capitalized to continue supporting our growth goals and explore strategic investment opportunities.
Turning now to guidance.
It's been a good quarter overall, we saw positive trends in our business metrics and financial results, becoming free cash flow positive with a clear path to profitability.
Our revenue growth was 10% year over year, driven by subscription revenue of 13%, while our service revenue declined by 17%.
We foresee a similar level of service revenues in the next two quarters, which is below our plan mainly due to the continued transformation and delivery methods of our customer organization and the continued transition of hours to our partner ecosystem. We are adjusting our guidance for the full year Accordingly, and we are improving our op.
That 18 loss guidance.
With that said for the third quarter of 2023, we expect revenue in the range of 66 million to 68 million and a non-GAAP operating loss in the range of $3 2 million.
For the full year of 2023, we are adjusting our revenue guidance and improving our expected operating loss range. We expect revenue in a range of 266 million to 270 million and a non-GAAP operating loss in the range of 16 million to $14 million, reflecting the.
The improvement in operating leverage in the second half of 2020 slate.
Looking at 2020 full we expect that the net new business will accelerate from 2023 levers and we anticipate to see the positive impacts of the transformation of our customer organization.
We reiterate our plan to be profitable and free cash flow positive for the full year of 2024 on a non-GAAP basis.
You and we will now take your questions.
Okay.
Thank you, ladies and gentlemen, if you would like to ask a question on todays call. Please press star one on your telephone keypad.
Thank you.
Well now take our first question from call. It back at Needham. Your line is open. Please go ahead.
Yes.
Hi, everyone. Thanks for taking my questions and congrats on the nice results here.
I guess I got a couple of things, let's start with something for either Dan or Scott you seem very I guess much more confidence in your sales execution execution in the quarter at least relative to your commentary last quarter.
I know, you're making a lot of changes in the go to market strategy, how far through those changes do you think you are and I know it gets comments said, you expect execution and demand to be better even next year, but how far are we kind of through that and as did easily changes kind of linger into next year. Thank you.
Hey, yeah. Thanks for the thanks for the question I am more confident than I was last quarter.
Last quarter was suffered this quarter was that.
From a timing perspective on the sales side of the house, we're farther down the path and the guys on the customer success side of the house salesmen in the job about 90 days, so changes that he's making honestly no effect made because of happy customers are the ones that want to expand so for us.
Farther down the path and he is he's got some work to do he feels like we'll be in a good position as we come into 'twenty four but second half is where he is going to be work hard.
Got it helpful and then.
Dan you and I had a chance to connect this summer and we had it we were talking about shadow AI and so many other opportunities within the AI kind of ecosystem. There I guess two questions on Shadow AI is one.
Do you price and package that separately from the core you'll walk me platform today or is that functionality just kind of embedded in what customers already get today, but then too as you think about some of these applications for AI more globally can you continue to develop similar use cases like what shadow does because I.
Imagine every corporate environment is concerned about what there are you know what their employees are doing with just generative AI solutions and that could be up.
A very big value add.
Sure. So if you remember last quarter, when we announced the discovery and we were very bullish because we understand obviously the volume it can give to our customers just buy you know unlocking visibility into their tech stack and obviously the world is a very dynamic and now we're seeing the opportunity with.
Sure the way I and we think that is even bigger than what we had with discovery. So our teams were able to release. Those features are very very quick and we'll go now officially launch it within this quarter. So this is something that we think is tremendous because what we're seeing today is the employees.
Are the weakest link in your security and compliance strategy.
And they are being offered to us. So many cool tools that will make their productivity much much better and what happens is that C. So C. I O is obviously in compliance officers completely losing their grip and by using walk me or.
Doing the same play with it with digital transformation, we're giving them visibility, we're showing them who is using what and how they are using that and we're allowing them to take action in order to prevent it.
Yes, we're obviously going to continue to invest.
Our R&D team with our one of the strongest things I ever had the chance to work with and we're going to continue and innovate and we think it's a huge opportunity for us and we said in the in the PR that we saw 100% increase.
Quarter over quarter and end users in our products and were just released discovery in may So super excited of the opportunities that will bring to us.
Okay.
Great. That's all I have thank you for taking my questions.
Thanks Scott.
Thank you and we'll now move onto our next question from Austin <unk> at JMP Securities. Your line is open. Please go the height.
Great. Thanks for taking the question. So Dan you mentioned the deal with the U S Army, reaching over $8 million in D. C. B and increased deal flow from other agencies is there any.
And so you can give us for the momentum behind behind that and and how that pipeline has developed since may.
Sure I'll start and Scott will continue so that was the additional two already.
Since we made the earlier this year. So the 8 million P. C V. That's on top of what we did that's not just the expenses. So we're super excited about it and yes, we're seeing federal it's growing pretty fast and we're the only vendor there.
Attunity theyre, great, but let's call it to expand on that.
As you know we were coming into the end of the U S fiscal year. So theres two pots of money that happened in the second half Theres flush money as I say money that that is sitting in the budget the clients need to spend as they exit the fiscal year and for the ones that have spent their money they get new money in October so typically the second half of the year is good for fed.
And the general sense from my team and as I ask around through our partners and of course everything if that goes through our partners is that a is that.
They expect a really good second half. So we're very optimistic that it's going to help us and give us some tailwind in the second half of the year.
Okay.
Great. Thanks, so much.
Thank you I will now move on to our next question from Midnight at Barclays. Your line is open. Please go the height.
Hi, just a couple for me.
Your second half guide, obviously does imply a little bit more pressure on in the second half and I, just kind of want to break it down a little bit I guess first on can you give us a sense of.
Growing 6% in the second half is that what's the split between kind of new logo contribution versus expansion from existing customers and then I also want to kind of reconcile some of your customer metrics like 100.
Million dollar customers on kind of ticked up but.
The same time enterprise staff adds were a little bit lower can you just kind of talk about that dynamic.
Local events.
Sure. So first I will.
That's the point on the guidance.
As Peggy mentioned in our script are one of the main reasons was on the P. S revenue professional services revenue actually subscription revenues in line and that's part of some of their transformational stuff that we're doing in the customer success organization.
And the services organization like Offloading hours to partners and obviously changing some of the packaging and so on so we're actually pleased because obviously, we're focusing on the subscription revenue regarding obviously the 1 million dollar accounts, we're happy because one we're seeing a growing and we're not just adding more $1 million.
The 1 million dollar accounts are growing so obviously, we're not sharing that debt metrics because of the metric is just how many are over 1 million.
But like U S Army they were already well over 1 million and now we added another $1 5 million. So that's something that we're seeing as well same with the 100 K regarding the adapt growth obviously that said different because we started selling that or at least recognizing that that product just in too.
<unk> thousand 19, so obviously the first few years, you will see massive acceleration and now it's basically normalizing, but it still what's pushing the company up and that's the growth driver for the company. So in all metrics that we're seeing in Q2, they were better in Q1, and we're seeing that acceleration. So we're happy with that.
I don't know if you want to comment the second park.
Oh sure.
With respect of the PFS events. So they think of it all we can say that although we have seen a decline this quarter was 17% and then you'll see the same to live in dollar wise in Q4.
Paul.
<unk> kept our gross margin breakeven quarter and I do believe that we will continue to execute in line with Ellison.
Okay, and just a quick follow up are you, saying that reduced the guidance basically completely due to the lower PFS. That's you're betting you do kind of a transition more to partners or is there.
A little bit of pressure or I guess, a little bit of conservatism in the guide just due to macro but just trying to understand the whole Omar.
Yeah. So as we said, obviously, we're still seeing headwinds, but I would say that mainly because of the services component.
And as I said Q2 was much better than Q1 and every borrower matter. So there is some conservatism obviously, but the main thing was a gap that we saw in the services revenue and some of it is just you into our recognizing it and how we're selling it and so this is why we're pleased.
With our results.
Got it thank you.
Okay.
Thank you we'll now take our next question from Michael that at Wells Fargo. Your line is open. Please go height.
Hi, there thanks for taking my question.
I just have a quick follow up on the comment of fiscal 'twenty four net new business is accelerating.
Are you, suggesting that as we exit the year and going into 'twenty for that.
Subscription revenue growth.
Simply can reaccelerate from here.
As a part of that how can we think about how youre thinking about the.
Net retention rate.
And from here. Thank you.
So the comment that <unk> made there about 2024 was related to a or what.
It seems obviously are indicators. So obviously revenue would follow up that so we believe the 'twenty 'twenty four would it be a better year than 2023 in terms of gross new way, our rns anyway, our R and Youtube many facts one as cord mentioned, we're seeing great David Williams from fed and partners and obviously.
Our direct motion, that's increasing and as we said, we're putting a lot of effort and our customer organization. So we do think that we'll see churn goes down. So the combination of two will give us an acceleration in our E. R. R. In 2024 revenue would probably be a lagging indicator, obviously, we're not commenting on that yet.
But.
And that will follow through after AOR will accelerate so that was the call it.
Okay.
Helpful. Thank you.
Thank you.
Our next question from Tyler Radke Citi. Your line is open. Please go ahead.
Yes, Thank you for taking the question.
Wanted to just understand kind of where you are in terms of the.
The renewal cycle with with some of your large contracts, obviously theres been some pressure both on AR.
Seat based perspective is as well as pricing, but do you feel like most of those are already in the rear view or are there you know some of your larger contracts. You're you know you're worried about in terms of top down sales in Q3 Q4 and do you think those are are largely behind.
Behind you as you head into 2024, which could.
Set up that acceleration thank you.
Yeah, Great question. So yeah, we do feel that most of it is in the rear view, having said that the way we're looking at it is Q1 and Q4.
Of last year, or I would say uncertain times for a lot of companies therefore, their budgets and the way they're planning the year was a little bit unclear.
One more thing things are set up and are basically much more predictable and companies know how much they spend they find where to put the walk me and obviously, we're coming in and helping them with so many different ways. So for us the uncertainty that we saw in the past I would say few quarters.
<unk>, India economy, it's what created obviously and the pressure of how much of the walking portion they would renew.
Q2 was way better than Q1, and not just on obviously new business, but on renewals as well because companies already have their plan for the next two to three years and so we're actually.
Very very confident that we know exactly how to continue improving in the second piece, we have a new chief customer officer, and Tom Obviously, I need the big change in terms of how many of our customers recovering what the cover methods and so on and so obviously, we're going to see incremental improvement quarter over quarter.
Water.
And we're going to go back and we're hoping to do is to early and to go back to the levels of net retention of course retention that we used to have in 2021 and 2022.
Great and a.
Follow up question just on the professional services so.
You know I understand your commentary around perhaps a further shift in.
In.
What what you're outsourcing to partners driving that reduction in the full year number I guess, if I look at professional services. This quarter it was down year over year.
And I think there was already some some initiatives too.
You know to to outsource more to partners. So can you talk specifically what what's different this time and then.
Maybe any way to kind of quantify them.
For Q3 Q4, the breakout of subscription revenue relative to services and.
You know what what maybe like the steady state services mix you are expecting for this business.
So I will start on time it will continue so that's like Keith mentioned in her script, we're going to keep the same level of professional services revenue throughout Q3, and Q4 and so around the 4748 that we had this quarter. So that's one the second thing. The second thing is that it's not just that.
Were all floating hours, it's the way we're packaging it and the way we're selling it for example minutes service and so on and that's we're just recognizing you have a little bit differently. So there are many and I would say different viral both regarding that.
And I'll add to that that is that's the way.
The difference the packaging we are seeing more.
So this is that we're sitting at a queen Margaret This is time and material and there isn't different than your competition or are they calling more than ever.
And also I think one of the outcomes of the our D. C E O.
The vision for a major transformation and the focus of those limitation. He goes out country. Then model. This is what we've seen in the past just anybody knowledge.
And I do believe that we have.
Oddly paying the price for that in the P. S revenue right now, but we will see the benefit coming in 2024.
Thank you.
Okay.
Thank you we'll now take our next question from Matt Saltzman at Morgan Stanley . Your line is open. Please go ahead.
Great. Good morning, So I just wanted to go back to to the DAP customer growth just kind of looking at the slowdown there over the last several quarters and I recognize.
Some of that can be macro impacted some of that is just as you.
You know as you get to.
Further further out in the maturity curve customer growth slows, but.
I'm curious if there are any drivers of this kind of beyond macro because on one hand, it makes sense in a budget constrained environment customers add fewer new tools, Arkansas consolidate the existing tool set but I would think that that actually helps from that standpoint around license optimization and application analytics out curious if there's kind of anything that you guys can give us.
Rental there that might be driving some of that slowdown in customer growth.
Well this is Scott I'm happy to give you my perspective, and I'll, let Dan follow up.
We had a change in our approach to positioning that as well and that took place at the end of 'twenty two coming into 'twenty. Three there were at least in 'twenty. One 'twenty two the desire in some cases cases to try to land at clients Wilson multi app first appointment.
And well that's possible to do it's more risky for us and it's more risky for a client to land that way. So one of the changes. We made was to go back a little bit back to the future and go back to more straightforward more targeted land environments. One to two applications instead of multiple applications at one time in order to get the clients up and running.
And receiving value faster and then going back to a more traditional expand motion, which is land for a couple of clients and get them happy in the first couple of projects and then get a mapping and move on to additional projects additional additional personas within the accounts. So part of it is a function of macro part of it's also a function of the style in which we're trying.
To land with clients today, we are very rarely landing at a.
As a DAP installation.
Our multi app installation does that makes sense.
Yeah, no that makes a lot of sense. Thank you.
I will now take our next question from Michael <unk> at Keybanc. Your line is open. Please go ahead.
Hi, This is Michael the Diavik on for Michael Thanks for taking my question just wanted to quickly follow up on the comments I guess from here what would you expect the metric to kind of trough and then when should we really expect an improvement as you expected revenue to Reaccelerate next year.
Talking about the net retention the trailing four quarters. So was that a trailing four quarter. So obviously, we'll see some lag as we're getting improved and obviously we were having some quarters are in the only thing that cohort.
We are focusing on the approval our gross our gross retention and once we will do that but we will see you will see that net retention starting to go up it will take few quarters. What are that's the trend that we're pushing for.
Okay, Great and then just a quick follow up on the walk me essentials.
That something you would expect.
A large portion of your customer potential customers to use our initial deployments or is that kind of more relevant towards.
The lower end Downmarket focused thanks.
So walk me essential is basically aimed for new customers blend new customers, then would grow to our platform. So it's less relevant so we're seeing them flow of existing customers. It's more relevant for lending motion and we launched it in July So we'll have more data to share with you probably in the upcoming <unk>.
<unk>.
But the idea is to allow companies that wants to have digital adoption platform do a crawl walk run and that's the crawl. So they can start fast with free premium content in essential and then just grow with us as to what we called Das deployment. So that's that's the a b and a.
Purpose.
And I would add this is Scott that MISO, which we're pretty excited about it. So again, we dropped it within the last 30 days, we will see how it goes but and we.
We didn't highlight that in my in my my comments, but it's also of course specific target applications. So it's not it's not a product designed to land in every target applications very specific targeted applications. So that does limit the applicability of it a little bit, but we've been smart about it it's the biggest applications in our portfolio.
And my team is excited about.
Michael any other questions.
No that's great. Thanks, guys.
You got.
Thank you that's all the time you had for Q&A I will pass it back to Dan <unk> for closing remarks.
Thanks, first I want to thank everyone for joining the call. It one of the things our customers partners and most importantly, the welcoming team, they're walking employees that help us drive such an amazing quarter I know that the it wasn't easy at the beginning of the year, but we had a goal to be cash flow positive and we did it together and I'm Super proud of you.
Yeah.
Okay.
Thank you ladies and gentlemen. This concludes today's call. Thank you for joining today's call stays safe you may now disconnect.
Yeah.
Hum.
Hum.
Mhm mhm.
Hmm.
Hum.
Hum.
Mhm mhm.
Hmm.
Mhm mhm.