Q3 2023 WalkMe Ltd Earnings Call
[music] good morning, and thank you for joining the walk me third quarter 2023 earnings call I'm, John <unk> head of Investor Relations for Walkman today, I'm joined by Dan <unk>, CEO and cofounder, Scott Little Chief revenue Officer, and <unk> <unk>, our Chief Financial Officer.
Before we begin a few housekeeping items first we're doing a new method of our earnings call. This quarter incorporating video element to help showcase our technology and some of the great things we are achieving here at work.
Encourage you to go to our IR website, IR Dot walk me Dot com to watch live or replay, which will be available following the conclusion of our presentation.
Second for the Q&A portion of the call. Following our prepared remarks, if you would like to ask a question. Please raise your hand, and the application or press star one on your phone call on each person in a mute your line at that time, you'll be prompted to unmet yourself either through the application or by pressing star six on your phone.
Certain statements we make today may constitute forward looking statements and information within the meaning of section 27, a the Securities Act of 1933 section 21 E of the Securities Exchange Act of 1034, and the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1095 that relate to our current expectations and views.
Future events. These forward looking statements are subject to risks and certainties 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 titled 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.
November 14th 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 financial information prepared and presented in accordance with GAAP. We.
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 our past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operation.
On decision, making.
Are there throughout this call we provided 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 November 14th 2023.
I'd like to hand, it off to Dan.
Thank you John and I everyone.
Like to begin by addressing the current situation in Israel.
On October 7th the Hummus duo reorganization.
Brutal attack against the Israeli civilians that was unlike anything our generation have experience in.
Hopefully something future generations will never experience again.
The tragedies will witness have left the Israeli in a constant state of Chris.
I want to extend our deepest condolences to the families who lost their loved ones and this brutal attack.
We also pray for the safe and Swift return of the men women and children keeping up team gather.
But if there is anything we've learned over these last few weeks is that we're strong and we will prevail.
I couldn't be more proud of our local and global teams who've been working tirelessly to ensure business continuity and the success of our customers.
While you are coming together to support one another in the most unique way.
Around 36 people off of workforce are currently in reserve and we pray for their safe return.
I've seen in the recent weeks the war thing humanity and their very best.
I'm extremely proud of our entire staff.
Thank you thank.
Thank you for your passion commitment through this very tough few weeks.
Turning now to our quarterly results, we had a milestone quarter a year ago, we set out on an important journey to be a profitable sustainable growth company and I am glad to report that we have achieved profitability on a non-GAAP basis for the first time ever head of plan.
Generating $1 6 million in operating profit and continued to drive our free cash flow higher to over $6 million.
On revenue, we grew our subscription revenue by 10% year over year to over 62 million. We've added 11, DAP customers, reaching a new high of 194 and gained another over $1 million or our customers, reaching our previous high of $39.
We're profitable and we're generating cash Q3 revenues met expectation as we continue to drive the right efficiencies and business processes needed to scale our business forward on the path to the rule of 40.
The strategic investments we've made over the past two years are paying off we had another fantastic quarter generating new business in the public sector. Our partner ecosystem continues to gain momentum as we saw higher contribution to both new business and the delivery of Dr to our customers.
In Q3, we launched our enterprise grade partner program propel offering existing and new partners Foundation to unlock enterprise scale revenue streams through a self serve best in class knowledge platform.
I'm very excited to share that with me is also being 35% for the AWS marketplace, where now customers can leverage cloud provider annual commitment toward experiments to walk.
I believe this partnership will drive shorter sales cycle for existing deals and renew on reducing the friction and also have a huge potential to unlock new business for walk me as we invest in the relationship with the cloud providers are.
Our partners are a huge part of the company's strategy and we will continue to invest to ensure our mutual success.
Digital transformation is at an all time high according to a recent IDC report.
I think three two trillion dollars why it of BCG are reporting that 70% of transformation project, our north meeting their objectives.
This paradox is resulting in more process complexity and lack of ROI.
In an Enbridge organization. There are now almost 1900 workflows and processes choking productivity agility, introducing risk and compliance issues.
As we March towards the AI transformation H, the speed and the volume of change management are increasing exponentially.
Everyone is using AI already early reports show a high percentage of employee use AI tools without our managers, even knowing about it.
Through walk me discovery, we're seeing over 6800 different AI application and use in enterprises.
<unk> once the benefit they'll generate dji are they're heavily concerned about risk and security compliance that is till the spring.
Hey, I spend is set to reach one five trillion dollars by 2030, According to precedents research.
Questions on every CEO mind is not should we adopt AI is how we do it safely and responsibly without hurting innovation if transformation was dragging before it's getting much more complex now.
Putting in place a true digital adoption strategy will ensure enterprises can manage through the transformation required it will align the management and the user expectation by unlocking data to business growth and technology adoption and taking immediate action on top of all of their customer facing and internal <unk>.
To deliver the best experience that now more than ever is a critical for organizations.
Q3, we sold two of our largest customers renew for additional three year period, signing multimillion dollar agreements. These renewals were a vote of confidence that the value achieved with woke me as high ROI and it's tied closely to the core of their business.
Shifting to product, we continued to heavily develop our proprietary <unk> technology for the past five years, it's an ml based model the clearance how users are engaging with all enterprise systems and workflows to do their jobs.
It's the underlying technology behind our entire digital our production platform.
Our new data AI offering of Walkman discovery and user interface intelligence AI powered by our <unk> technology have seen continued growth in Q3 of over 85% quarter over quarter and employee coverage with discovery, surpassing $3 8 million employees conference compared to <unk>.
$2 million in Q2, and <unk> $2 2 million compared to $1 3 million. In Q2. This continues to be one of our fastest growing product offerings to date.
The growth in demand is primarily due our new launched shadow AI capabilities as part of welcoming discovery I'm looking full visibility into all the application in use by employee within the organization and allowing the business to build a relevant strategy needed to guide employees to the right and secure.
Assets. This has been a game changer for our customers.
We're also implementing a wide array of generating AI capability throughout our platform offering our builders more content creation capabilities and offering the end user a new AI capabilities in the flow of forum.
With launching data, our AI answer product, allowing employees access to all the organizational knowledge at their fingertips.
They can now tap into all company resources and leverage enterprise grade security generated with AI to extract the relevant information they need to do their job. It's not just the search employees can also start exiting immediately and complete processes ancillary AI is a great addition to walk me to help drive employee productivity.
80.
We've also launched in better our patent pending data validation capability, which understanding real time why data users hurrying sprinting into any enterprise application and make sure. The data input is valid according to the company policy.
Data hygiene for enterprise is a key component of becoming a data driven organization. This new product leverages generate these AI in the flow of work in the most innovative way ensuring data high teens and compliance issues are solved.
We will continue to develop and launch more contextual copilot capabilities to enhance employee productivity and.
I'm happy to share that we just concluded realize our annual digital adoption event, where we shared our vision for <unk> critical role in helping companies drive the AI adoption, we reviewed our product roadmap and ensured use cases and insights from customers like Cisco GAAP service know Veolia TUI and lastly, we also highlight that.
Best practices from our partners, including Deloitte and take my Hindraf among others.
During the conference we had the privilege of hosting one of our valued customers.
<unk> hundred technology company.
They are leveraging walk me heavily to identify issues make changes quickly and streamline work processes.
They are executive we're concerned about the potential risk of inputting sensitive data into unsecured platform in reference to AI products. They leverage walk me discovery and Shadow AI to monitor all application use and redirect employees to the trusted application.
Just a few weeks they were able to cut down their use of frisky software by 30% and drove adoption to certified applications by 25% successfully avoiding potential millions of dollars lost in compliance fines and loss of customer Trust.
Another fortune 100 leader in consumer packaged good join us it realized and gave us a great overview of how they're applying walk me on a global scale with over 280000 employees.
<unk> faced a major challenge to enhance digital skills across their entire workforce and maintaining competitive advantage.
They began the rollout of walk me under HR platforms within six weeks, they achieved full compliance with security protocols reduced errors and boosts productivity.
Over the past year. This move saved in about 600000 hours of employee productivity.
With that welcome he has become a key part of your strategy.
They are also leveraged walk me discovery to address Shadow AI application and their rigs employees to secure improved AI solutions and.
I'm glad to see that our leading customer leveraging our new AI product clients as part of their digital transformation strategy.
It was a milestone quarter.
Our relentless focus on operational excellence strategic investments and enterprise grade products are paying off and pleased with the team's execution as we were able to move to profitability and cash flow positive to handle for our plans. This.
This is a testament to our strong unit economic and our ability to execute in the upcoming quarter. We will focus on actions that will help us reaccelerate new business growth.
With that I will hand, it over to Scott, our CFO to share more about our achievements of Q3.
Thank you.
Thanks, Dan our path to being a profitable sustainable growth company is clearer than ever we continued our momentum from Q2 and delivered a strong performance on our investment areas for 2023 or.
Our U S. Federal team had a solid quarter and we saw another large expansion in the big four GSI space.
I'm, particularly pleased that the majority of our six and seven figure deals. This quarter included significant contributions from our field CTO business value engineering team.
This team of seasoned business consulting experts helps our clients and partners analytically demonstrate the real value of digital adoption from both the cost savings and a topline expansion perspective.
When the field CTO team is engaged we see higher win rates and larger average deal sizes, when compared to pursuits without their help and it paves the path forward to delivering the true value of down throughout the customer lifecycle.
In Q3, we delivered both with our largest customers in the enterprise and through our velocity engine and the mid market.
We've grown our 1 million are customers to 39, and importantly continue to grow our DAP customer footprint, which is now 194.
Our DAP customers are the backbone of our installed base. They are the pioneers ensuring the success of their digital strategies by deploying walk me on top of critical business processes that typically span multiple applications and often spanned the entire enterprise tech stack.
These clients expand their depth deployments with us because they achieve real business value.
And in the process they expand the digital adoption ecosystem, because they invest in DAP professionals, who often go on to bring walk me to new deployments at new employers as their careers advance.
This quarter, we had more examples of the commitment of our debt pioneers.
Dan mentioned that two of our largest long term customers committed to walk me once again from multiyear renewals.
This only happens because of the consistent value that we've been able to deliver.
We also saw one of the largest expansions we've signed to date from our commercial mid market team.
This deal was amazing to see as the expansion came just a few short months after initial signing <unk>.
Highlighting our improving timeframe for value realization with our customers.
As always I am pleased to share some of our newest customers such as silver fern farms from our ANZ region.
And your storage in the Americas region, as well as expanded relationships with Suncorp and origin energy among many others.
Our public sector team had a great quarter meeting our expectations from local municipalities to universities to the larger deals in the U S Federal government.
Our unique position as the only provider with fed ramp status is paying dividends.
We have seen a significant increase in demand in this segment over the last year.
Due to the go to market promotion driven in the channel.
We now have multiple large system integrators embedding walk me as a value added discriminator into their offerings and oftentimes supporting multiple of size on the same bid RFP, which increases our chances of successfully deploying and the government Tech stack.
In sled, we continued our rapid pace of new logo acquisition by signing deals with the Ohio State University, John Hopkins University, and the city of Atlanta.
In federal we were very pleased to be awarded three new opportunities with the U S Army.
At the recruiting command at the training information systems group and a prototype for the enterprise business systems convergence program.
<unk> <unk> Dash C.
UBS Dash C program is the consolidation of the Army's multiple ERP systems down to a single system that focuses on improving force readiness, while improving overall user experience in other words strong use cases for walk these value proposition in support of the Army's digital transformation objectives.
No.
The federal transactions have a ramp in revenue recognition. These structures are favorable to us in the long run but have less initial revenue recognition than we previously anticipated.
In total we're very pleased with the progress of our public sector team has made over the last year and were optimistic on their continued growth in the fourth quarter and 2024.
Our partner ecosystem is expanding and we will continue to be an anchor of our commercial enterprise and public sector business moving forward.
More net new air ours being impacted by the ecosystem than ever before.
We expect that by the end of 2023 partners will have impacted over half of our net new <unk> companywide.
We on boarded another large group of global and regional partners in Q3.
We're now seeing our largest global system integrator partners, incorporating our solutions for driving digital adoption into their own first party offerings.
So the sign posts that are best in class digital adoption tool is proliferating in our ecosystem and our partners are expanding the reach of our platform.
I realize in October we were pleased to announce the walk me ecosystem partners of the year.
Congratulations again to all the winners and specifically to Deloitte and SAP concur for being named Walk me global partner and ISP partner of the year respectively.
And I look forward to the fourth quarter and into 2024, we have made tremendous progress to drive internal change in our organization and to improve execution.
I am pleased with how we are positioned to close the year and start 2024.
If the demand environment continues to improve we can take advantage of the opportunity.
Now I will pass it over to <unk>.
Thank you Scott and thank you to the entire walk me ecosystem and then proud to share that we've achieved our goal of being profitable on a non-GAAP basis generating $1 6 million in operating profit and continue to improve that with free cash flow to over 6 million. This quarter. This was a huge milestone for the company.
We work closely together as a global team to be more efficient and drive our unit economics high and we now expect to finish the year with a positive free cash flow and expect to continue to be profitable on a non-GAAP basis in the fourth quarter and for 2024.
In the last several quarters as part of our journey to profitability, we focus on optimizing our efficiencies and business processes, while setting the right priorities that fueled our success.
We have underwrite Pat the changes we have made will set the tone of our expected profitability and growth in quarters to come we have the right financial plan to continue to support the long term strategy.
Now turning to numbers when referring to gross margin expenses and profitability. Please note that we'll be discussing non-GAAP results. We have provided a reconsideration of GAAP to non-GAAP financials in our earnings release.
Our total revenue for the third quarter was 67 million, we grew subscription revenue by 10% year over year, while also growing our subscription gross margin to 96%.
Our improvement in subscription gross margin over the last few quarters reflects our strong unit economics.
Our professional services revenue were at a similar level as Q2 as expected and down 30% compared to Q3 last year. Our customer success organization continues to grow through the installation mainly with respect to the focus on outcome based services and the shift to recurring services model we are in.
Now forecasting a slight sequential decline in our PS revenue for the fourth quarter is the trend continues.
Professional services gross margin improved and was positive at 16% driven by better workforce utilization.
Our total gross margin was 85% up from 80% in Juicy last year gross profit was $57 2 million up 12% year over year. We believe we can maintain these gross margins for the rest of the year.
We remain on a positive trend for several quarters in a row, improving our operating leverage to achieve our goal of profitability ahead of schedule.
I'm incredibly proud of how the entire company came together to reach this milestone.
Our equivalent close talk show, we have best in class subscription gross margin combined with a scalable opex doctor that will allow us to achieve a flexible balance growth and profitability.
Our R&D expenses were $10 2 million, representing 15% of revenue, we will continue to invest in R&D as we enhance our strategic data and AI capabilities.
Our sales and marketing expenses were $34 5 million or 52% of revenue an improvement from 64% in Q3 last year the improvement year over year was driven by head count reduction earlier in the year better optimization of our marketing channels and improve efficiencies we did our go to market.
The organization.
G&A expenses were $10 9 million or 16% of revenue below the 17% we saw in Q3 last year.
We will continue to gain leverage scale and drive efficiencies across the organization by streamlining processes and workflows utilizing our own digital adoption solution.
Operating profit was one 6 million or two 4% of revenue compared to a loss of three 5% in Q2 and 19, 8% in Q3 last year.
Net income for the quarter attributed to walk me with $3 8 million compared to a loss of $12 2 million in Q3 last year.
Earnings per share for the quarter was four cents.
Using $92 seven media fully diluted weighted average shares outstanding compared to a loss of 14 cents in Q3 last year.
We generated $6 2 million in positive free cash flow an improvement from the $5 2 million generated last quarter and cash burn of $11 2 million in Q3 last year.
Our free cash flow margin for the quarter was 9% compared to a negative 18% last year.
On free cash flow, we expect to maintain a positive level, but it will fluctuate given seasonality in our cash management cycle.
We ended the quarter with $311 5 million in cash cash equivalents short term deposits and marketable securities give.
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.
Q3 was a positive quarter as we saw continued momentum from our strategic growth drivers and achieved a record milestone of being a profitable company for the first time.
Looking forward, we expect we will maintain our profitability in the fourth quarter and for the year of 2024.
Additionally, we expect to end 2023, with a positive free cash flow for the full year.
With that said for the fourth quarter of 2000 Twenty's fee. We expect revenue in a range of 67 to 68 million and a non-GAAP operating income in a range of $1 3 million to $2 3 million.
For the full year of 2023, we now expect revenue in the range of $266 1 million to $267 1 million, while improving now expected to open 18 dose range due to the outperformance in Q3 and the expected continued leverage in Q4.
We now expect our non-GAAP operating loss in the range of $8 3 million to $7 3 million.
Thank you and we will now take your questions.
Thank you Vicky.
Turning now to the Q&A session for the Q&A, if you'd like to ask a question. Please raise your hand and the application as a reminder, we will ask you to mute your line and you will receive a prompt to on mute yourself.
Our first question will be from Kevin Kumar from Goldman Sachs, followed by Josh Baer from Morgan Stanley.
Kevin Your line is now open.
Hi, Thanks for taking my question.
I wanted to maybe start with the guidance at the top line.
Our revenue guidance was reduced a little bit at the mid clients. So curious if you can maybe talk about some of the drivers there and Scott I know you had mentioned renewals with some large customers, but curious if you're seeing any lingering pressure from down selling more broadly within the customer base, particularly as some of your enterprise contracts up for renewal.
Our I hate to answer it first.
Thank you for the question.
Start with the.
Yeah.
Sherry.
The P S.
What we showed last quarter.
Changing how we.
Actually no.
Okay.
Yeah.
And moving to low and outcome based.
Lucia and low <unk>.
<unk>.
NPS revenue.
Recognize though that they conduct.
Livestock costs, though.
These debates.
The decline.
And also we continue to see the headwind.
Well Jake.
With me in.
We know that lead to a longer cycle.
Scott and Dan do you want to comment.
Mark go ahead.
Yes, I can jump in.
We've seen some alleviation in seed downsizing over the course of 'twenty three as the impacts of rips and layoffs that were prevalent in Q1, and Q2 seems to have trailed off.
We do see some up and <unk>.
Amortization of contracts that continues but we have seen in our quarter over quarter improvement throughout 2023, and it's a similar story for logo down sales.
Great. That's helpful. And then I wanted to ask about walk me Essentials, I know, that's still kind of early but.
Curious kind of the progress there, how that's resonating with new customers and if you're seeing positive net backs on the new customer side.
Yes, it's been a really nice positive impact.
Giving us the ability to compete for Lance I mean, I have to balance both sides of the house and need to continue to grow that DAP customer base.
And expansions remain.
And an important part of our plan, but I got to land new logos too. So it's been great to have that that tool with essentials. When we've needed. It we don't use it in every situation, but when we've needed. It has been nice to have it and like you said, it's early for us.
We expect it to continue to grow.
ROE into 'twenty 'twenty four.
Great. Thanks for taking my questions.
Thank you Kevin Our next question will come from the line of Josh Baer at Morgan Stanley followed by Scott Berg from Needham Josh Your line is open.
Great. Thanks, This is <unk> on for Josh.
So I'd love to just double click on the on the NR metric that you guys reported today.
On my math, it looks like 104% for.
So the customers that bought 500 employees as the largest sequential decrease that you've seen to date.
So recognizing that this is a 12 month trailing metric I'm curious if there's any commentary you can give on how that trended throughout the quarter, what I'm really trying to get out here is.
What's the exit rate there implying anything.
To the tune of maybe a bottom and NRO near term or did did that metric continued to deteriorate throughout the quarter.
This is that I would think of it so I can tell you that.
Q2 was better than Q1.
The delivery metrics in Q3 was better than Q2, almost in every metric so and.
I would say the decline that you see because I would say mainly affect Q1 and this year other than that we're seeing all the leading indicator metrics are improving quarter over quarter. So we're very happy with that.
Got it and maybe just as a follow up to that.
What is kind of the metric that you all would point to you that we should focus on to kind of prove out does.
Improvements.
Yes, so we're not disclosing.
Robert.
The only on a yearly basis, so hard to get those specific metrics.
Eventually, we will see and what we will focus on them.
Is that.
That's something that.
And really the growth there and then obviously next year guidance.
Loan growth for 2024.
Got it thank you.
Thank you, Matt and our next question will come from the line of Scott Berg from Needham followed by Tyler Radke from Citi. Scott. Your line is now open.
Hi, everyone. Thanks for taking my questions and wishing you the best of luck during a difficult time I'm sure.
First question is on such pipelines I don't know, if Dan or Scott wanted to take it I guess kind of a two part question there is one.
Good.
Did those opportunities meet or exceed your expectations in the third quarter, because I know youre pretty excited about the opportunities there and then the second part of the question is probably for <unk> has the Rev. Rec on those contracts work that's different than your initial expectations. Thank you.
Yes, I can take the first portion of that Scott.
Yes, it absolutely met our expectations and more importantly, we see the trend continuing into 2024. So we were hoping for a good quarter. We had a good quarter. So we were we were very very pleased by that.
He can talk about the revenue recognition piece, yes.
Then I wanted to add a few things one I want to remind everyone that we got this bedroom 35.
March this year and we're already has an $18 million.
We'll get some contract. So we're very happy specifically I've already answered your question and some of those deals specifically in this quarter and has the ramp up so it's not linear so overall on Rev. Rec.
Obviously recognizing only.
Multiple months so therefore.
<unk> revenue contribution was less than the full potential of the deal when we will see.
Next year, when we see a significant boost.
And the following year and the following year I want to remind us what.
Multiyear deals five plus year deals some of them and it became.
We're very pleased.
They are above our expectations as a result.
Federal and even further around pipeline and opportunity.
Sure.
Great and then from a power perspective, I know you released your new propel platform.
Realized I guess, you know maybe talk to us about how.
How that's going to help your distribution with your.
I guess in the ecosystem and then do you are you going to able to drive any direct economics for it or is that platform does it really just kind of help sell the broader suite. Thank you.
Yes, I can take that Scott first of all from a distribution standpoint. It does two things for US. It provides the ability to onboard partners quickly and efficiently for two reasons first for them to be able to deliver services in support of their own implementations and second and most interesting for me is the ability for them to learn how.
To sell and support the product from a resell and I and a recommendation perspective so.
I I win twice, because I get a clients I'm, sorry, I get part.
Or is that are good and I'm, putting my product I could happy customers and then I'm I get partners, who are willing in some cases, a resale and in most cases due to recommend my product and help us sell the story of DAP within their within their client base.
And then in terms of overall lift I don't expect any dish.
Additional lift in 'twenty four because of the resale portion of my business is very small, but youll notice we talked about well we.
About AWS as well as our relationship with Azure, so the cloud providers being able to provide the product on their stores as well as a focus on them.
Moving the product capability wise, so that it can be more systematically resold that's our focus for 24, and we expect to see that help us in 'twenty five but you got to start somewhere and that means you've got to have a consistent program and up until now we've never had a program.
So that's a tribute to a lot of hard work in 2003 to get the program launched and the initial response from our partners has been very good.
Excellent thanks for taking my questions.
Thank you Scott. Our next question will come from the line of Tyler Radke from Citi, followed by Pat Walraven from JMP Tyler Your line is open.
Yeah. Thanks for the question, so just going back to the comments on stabilization in Q3 is better than Q2, which Q2 is better than Q1, how should we just think about the bottom in terms of subscription revenue growth, 10% year over year this quarter.
I think sequential growth was slightly higher than Q2. So so do you feel like you can kind of hold double digit growth.
On subscription going forward.
And just can you can you elaborate if there was any.
Better linearity throughout the quarter, which would've driven the slightly better sequential growth in subscription revenue.
So the way we're looking at is obviously this was a transformational year for us.
We did a lot of great things in the level of investment and we focus our energy to be sustainable growth company.
We're more than pleased with the achieving cash flow positive last quarter on profitability. This quarter way ahead of the original plan as I said in the script that we're focusing on doubling down on how we can reaccelerate. Our resin obviously revenue is a lagging indicator to AOR.
So we will see an accelerated growth in <unk>.
Probably next year, followed by revenue growth.
So now that we've got the I would say the first mission done and we're a profitable company or units.
Fantastic Super stable over $300 million in the bank and we're ready to go and doubling down on where we think the opportunities are working it's causing the entirety of the team.
And the library of and there's a lot of.
I would say operation operational changes this year.
As data.
For continued growth.
Investing in the category of bedding partner selling the things that we need and walk me.
And we did it while we're becoming more efficient.
Generating cash and becoming profitable.
Makes a lot of pressure off which will allow us now as I said to really and.
Focus on what's working and hopefully we will see the growth coming in the upcoming quarter.
Yeah.
Okay, great and follow up for <unk>.
On the profitability side so.
Another strong quarter of operating income and operating cash flow it looks like.
Operating expenses were down again quarter over quarter.
Can you just talk about what what drove that was there was there kind of further head count reductions in.
If I look at the operating cash flow margins here the last two quarters, 11% and 9% is that is that kind of how we should be thinking about the operating cash flow.
Margins heading into 2024.
So it does maybe with the profitability just to remind us.
In the second quarter and all of that can continue.
Our focus on efficiencies and we continue to optimize our walk for Mr. <unk>.
In Q.
Q3, we see the full.
Impact of.
We've come along and we still continue and streamlining processes.
Many many other initiatives.
Opex improvement.
And we see that coming in also in Q3 and Q4.
I believe it was the same level as our cash flow.
We improved our.
Our position and we will continue to be cash positive in the coming quarter.
The flex two eight.
Seasonality around managing our risk.
Yes.
Okay. Thank you.
Thank you Tyler our next question will come from the line of Pat Walraven from JMP, followed by Keith Bachman from BMO Pat Your line is now open.
Okay, great. Thank you and first of all Dan our thoughts and prayers are with you and your families and the entire walk me family.
First question Scott So I mean federal was clearly good was.
Overall, the sales team meet expectations.
Yeah, we had a good quarter. So I was very pleased with our performance this quarter and again Q2 was better than Q1 Q3 was better than Q2. So.
Pat you we've talked about it before we expected said to anchor the quarter than they did but we had a good quarter across the board.
Terrific and then.
Secondly, so.
North of $300 million in cash and.
Our free cash flow positive. So can we talk a little bit about what to do with all that cash I mean, your stock is really depressed right.
So would you consider buying some back and then what are the strategic things you would like to do with it.
Yes, I would think is hey, Pat and thanks for thinking about it.
And so yes.
Position is amazing and we're going to look on M&A opportunities or not.
Look on the <unk>.
Buyback of stock buyback.
Especially when we don't have a lot of flow.
We are going through.
And as we are working on the annual plan for 2024.
One invest in things, where we're seeing a great deal a lot like federal like partners like certain region.
As I said, we're going to focus on how we can reaccelerate growth now that we have a very strong foundation with our cash and profitability.
That's probably what you mean e-commerce.
Sure.
And then as a follow up there I mean, what where do you see white space that you could fill with M&A is it just buying companies that have data scientist they can do more AI or where's the white space.
I would say all of the acquisitions, we made so far was pure tech acquisition.
Acquisition.
<unk> does that then obviously, we make those technologies to our product now we're looking not just at the deck and revenue opportunities.
In market.
And even though we say certain field that we believe that that can have.
They use it.
And in value.
And if we can go in and open a new market for us that's something that we look at so there is a lot of areas from automation to data obviously.
Workflows.
<unk>.
The AI and so there is a lot of opportunities right now, especially in the private market as well.
There was great companies out there.
We're going to obviously use the power that we have and the cash Bob.
Thank you.
Thank you Pat our next question will come from Keith Bachman of BMO, followed by Michael Berg of Wells Fargo. Keith Your line is now open.
Hi. Thank you this is bad Clark on for Kate.
I wanted to ask about the notable expansion that you highlighted during the quarter can you highlight any common themes, whether that be new department, new product lines, great employees that.
Pleasant immediate spansion toward a pop that can be replicated going forward amongst other notable clients. Thank you.
Scott I'll go ahead, Dan go ahead, yes, I will start putting Canada, alright, so and as we mentioned in the previous call. There is a journey to that Ryan there starting with one or two applications or use cases, and then obviously, we're showing the value and then we're going bigger and bigger and bigger.
And we're seeing that and we're feeling obviously, we wanted to do is more in the largest scale.
When he is working we're seeing amazing ROI. So it's not just those notable expansion I actually referred to it.
Unless groups, we had massive renewal.
On a three year contract that were multimillion dollar definitely those companies already work.
$2 million cut.
Customer for walk me and they were using additional three years that show us confidence some of it some of the renewal is must be vastly over $1 million and they are just on the renewal.
And basically we're focusing on value how we can create value for our customers and how we can measure rois. Once we're doing a great job, obviously that it will follow and that's what we saw this quarter on quarter I don't know if you want to.
Pushing one that yeah, I'd add a couple of things first of all.
Any time that a client is adding applications. That's good for us and the ones that tend to be the stickiest.
And the largest or when we have user workflows that cross applications right you do use our on boarding or you do order to cash.
They will typically be anchored in one of the big applications, like workday or successfactors or SAP, but they will cross multiple applications and that's when it gets interesting and thats when we see a lot of value and the second is when customers are rolling out major upgrades to large applications I mentioned one of the large.
March Big for GSI has that expanded with us it was a multimillion dollar expansion and for this portion of the group. It was specifically on a major upgrade process for them around SAP.
They were moving from SAP, ECC six or <unk>.
Three to 400 and you know it was critical for them that they have the right digital adoption.
Environment in place to do it it was driven completely by their desire to to make sure that they roll out a clean implementation of SAP.
And this particular member firm.
<unk>, which was.
It was in Europe is going to be the prototypes and we all go back to both the U S firm as well as the other firms in the rest of the and the rest of the world. So we will see another expansion that builds off this big update.
Update so for US those are the things we look forward because they tend to be large they tend to be complex sophisticated and that's when we shine.
Thank you very much.
Great. Thank you Brad our next question will be from Michael Berg from Wells Fargo, followed by Michael <unk> from Keybanc to round out the call.
Michael Your from your line is now open.
Hi, Thanks for taking my question I wanted to share my thoughts and prayers.
Walk Mckeeman all of Israel workout in this difficult time.
My question is on product you recently launched discover and also just discuss data validation capabilities and data obviously those are very new products, but from my standpoint.
Our highly intriguing, especially as we move into this trying to be a world with a lot of enterprises focusing on data readiness. So maybe you can help us through understand I guess early adoption or feedback from customers as well as how you think these two products can contribute in the near term or at least in 2024. Thank you.
Sure Great question. So as I mentioned those are one of the other two of the fastest growing product lines that we have and we're already growing theyre, almost 85% quarter over quarter covering Indian employees. So we're getting really good feedback.
And just to be fair, we offer these and in the end of the year for free. So next year, we're going to start seeing the conversion for us and that's basically the blueprints volume that's what we like to say that this measurement or giving the customers the data understanding exactly where they have an issue and where.
They have bottlenecks in there.
Nathan its Rob is the fact that we have that data and we're showing them the data silo immediate value like cost saving and optimization really help them shape.
The strategy for the upcoming years as Theyre, moving and pushing digital first let me add into that.
And then what we call shadow.
Allowing companies to understand to generate these ARU.
Our company add depth to the ability of walk me to actually guide, you and showing them what to do where actually boosting the <unk>.
<unk> will generate you've AI within our customer base and a huge huge priority for them. So we are looking at generating AI like digital transformation to point out and the fact that they're helping our customers.
Get on generators.
That will drive amazing outcome for that so thats, what were doing with discovery and instead, the way up and on.
The UI.
Hi.
It will be amazing, obviously, and we can show them exactly where they are issued open. It's only used cases for us by compliance and data validation data hygiene.
The generate ebay relies on clean data and the fact that we can tell them exactly where they have data issues commodity without doing anything this is something that.
Super valuable for them and this is our foundation to the next generation of what we call to action.
So overall, we're very very pleased.
And the usage and the adoption of those products were well above our expectation well well above our expectation and we're looking forward to continue investing there.
And making it part of the of the Dot platform and that will lead to obviously better use of walk me and what we're focusing on moving more and more and more what we use case based customers to be.
Great. Thank you and a quick follow up for Ricky.
Hey, John.
Down sequentially, a couple of times, presumably from the impacts of the Rev. Maybe you can help us understand how you're thinking about.
Going back to the higher end markets.
Nothing.
More directly for growth.
Now about.
Profitability.
Moving forward. Thank you.
I will take this one so obviously, we're looking at profitable growth.
We're constantly hiring some of the places we're having down because we're not seeing ROI and other places where it continued to grow.
So whenever just stop we're more like and I would say restructured and focused on the right thing as we're entering 2024, then they said we're going to look at the opportunities that will allow us to reaccelerate our growth and so obviously, we'll be hiring in the right places.
An example, obviously fed and partners, where we're seeing it.
Momentum, obviously in R&D and product teams, what we are seeing a great success in certain product. So we've got we're going to always balance based on profitable growth.
This is how we're looking at it and if we're seeing amazing opportunity always we have the cash and the power to go and that was done and this is how we're looking at it.
Yeah.
Thank you Michael.
Our last question will come from Michael <unk> from Keybanc, Michael Your line is now open.
Everybody.
Good could you see you and talk to you all and of course, that's in parallel with all of Israel.
I want to make sure first.
You said that each of the metrics have been improving sequentially. So I assume that I would assume that means they are as well.
In period <unk>.
<unk> as well, but.
Know that we still have the headwinds for macro in.
The servicer.
It wasn't the major breakdown.
For the year in terms of the back.
Quarter, one was incrementally more of a headwind that we saw that.
So everything was better in Q3 compared to Q2, and Q1 and one for Keith mentioned some of our deals and the deal.
That will close as we are very impressive and has a step up mechanism assuming fed so from revenue perspective, we're not recognizing that as their full potential. That's one the second piece is the weakness on the services.
And although Q3 was better than that.
In Q2.
Obviously.
Much much better and Thats where were pushing for.
So it was a great quarter and the sales being executed as Clarke mentioned, but we still had really big deals that pushed into Q4.
The theme that we saw from obviously the headwind, but we are seeing a constant improvement.
Metric.
But I would say the services. This is something that hits us immediately when we're not meeting.
Ed.
The revenue aspect.
And that's the reason.
Thanks, Ross if I could squeeze one more in for Scott, it's great to see what you've done.
I was just curious what the strategy is.
Obviously, an enormous set of opportunities if you could maybe talk a little about how you you focus we're thinking we're now are directed set about those opportunities on the civilian side potentially on the non civilian side and what types of agencies, what's really the way that they get as soon as and most effectively.
Yes, it's a very good question, while we're investing in this space I don't have 1000 sellers in the federal space. So exactly as you've laid out we've been trying to be very thoughtful about where we spend our money and our focus so we're doing well in the armed services on the Dod side of the house. So we have taken the work that we've done with the army and we springboard.
<unk> two opportunities at the Marine Corps as well as with the Navy.
Probably not going to invest in the intelligence community, because it's really expensive to get in and it takes a much longer time than to get in with one of the armed services on the civilian side of the house.
We're going where the money is so.
<unk> is already a large customer and we expect to see expansions from them next year.
We're looking at.
Justice, where looking at homeland.
Homeland security.
Not going to chase interior, probably not going to chase HUD not that are not that if something came to us from one of the large programs, we wouldn't be interested in it but I've got to be able to focus and so we're chasing the money on the civilian side of the house budget wise trying to leverage some of the work that we did with the VA and on the on the.
<unk> side is with the armed services and not intelligence.
Okay that makes sense.
That's helpful. Scott Good luck with everything.
I appreciate it.
Thank you Michael and that concludes our Q&A session with that I will pass it back to Dan <unk> CEO for closing remarks stand the floor is yours.
Thanks, I wanted to thank everyone.
First of all we're thinking about us and encouraging us and goes difficult one.
Take the stage.
I think our team is even more amazing work in the past.
So one of the things everyone that supports them.
Customers partners.
And looking forward to speak with you.
Thank you everyone.
Goodbye.