Q3 2024 Zuora Inc Earnings Call
Okay.
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed on music hold thank you for your patience.
[music].
Good afternoon, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the Zora fiscal year 'twenty for a third quarter earnings conference call.
Speaker 1: Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Zora Fiscal Year 24 third quarter earnings conference call.
Speaker 1: All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question I got and press Star one.
Speaker 1: After the speaker's remarks, still will be a question and answer session. If you would like to ask a question during that time, simply press star, followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now like to turn the conference over to Luana Wolk, Vice President of Investor Relations in ESG at Zerora. You may begin your conference.
I would now like to turn the conference over to Lewanda Walsh, Vice President of Investor Relations and ESG etcetera.
You may begin your conference.
Speaker 2: Thank you. Good afternoon and welcome to Zorro's third quarter fiscal 2024 earnings conference call. On the call we have Tim Zorro, Zorro's founder and chief executive officer and Todd McElhadden, Zorro's chief financial officer. Robbie Trauber, our president and chief revenue officer will be joining us for the Q&A session. During today's call we will make statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal securities law.
Thank you.
Good afternoon, and welcome to <unk> third quarter fiscal 'twenty 'twenty four earnings conference call.
On the call we have teams of all doors, founder and Chief Executive Officer, and Todd Mcelhatton doors, Chief Financial Officer, Robbie Traughber, our President and Chief revenue Officer will be joining us for the Q&A session. During today's call. We will make statements that represent our expectations and beliefs concerning future events that may be considered forward.
Looking under Federal Securities Law.
Speaker 2: These statements reflect our views only as of today and should not be relied upon as representatives of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlooks.
These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date, we disclaim any obligation to update any forward looking statements or outlook.
Speaker 2: These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations.
These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker 2: For further discussions of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC.
For further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC and finally, unless otherwise noted all numbers, except revenue mentioned today are non-GAAP you can find a reconciliation from GAAP to non-GAAP results for both the.
Speaker 2: And finally, unless otherwise noted, all numbers except revenue mentioned today are non-GAAP .
Speaker 2: You can find a reconciliation from GAP to non-GAAP results for both the current and the prior year periods in today's press release.
Current and prior year periods in today's press release.
Speaker 2: A press release and a replay of today's call can be found on Zora's Investor Relations website at investor.zora.com. Now I'll turn the call over.
Our press release and a replay of today's call can be found on doors Investor relations website at investor that Zora Dot com.
Now I'll turn the call over to Eugene.
Speaker 3: Thank you, Valada. Congratulations again. It's so great to have you back.
Thank you have a lot of them.
Graduations again, it's so great to have you back.
Speaker 3: And thank you everyone for joining us today. Welcome to Zora's third quarter fiscal 2024 earnings call.
And thank you everyone for joining us today welcome to <unk> third.
<unk> third quarter fiscal 2024 earnings call.
Speaker 3: Q3 was another quarter where we exceeded guidance on subscription revenue, total revenue, and operating income. And Q3.
Q3 was another quarter, where we exceeded guidance on <unk>.
Description revenue total revenue and operating income.
Q3.
Speaker 3: Subscription revenue rose to $98 million, up 14% in constant currency and 13% as reported.
Subscription revenue rose to $98 million up 14% in constant currency and 13%.
Speaker 3: ARR grew by 13%. non-GAAP operating income exceeded the high end of our guidance range by $5 million. And we exceeded our full year goal for adjusted free cash flow one quarter ahead of time.
Got it.
<unk> grew by 13%.
non-GAAP operating income exceeded the high end of our guidance range by $5 million and we exceeded our full year goal for adjusted free cash flow one quarter ahead of plan.
Speaker 3: I would say that the Q3 headline was our margin expansion.
I would say that the Q3 headlines what our margin expansion.
Speaker 3: RQ3 non-GAF operating margin was 15%. This is a huge increase from nearly a break-even position just one year ago.
Our Q3 non-GAAP operating margin was 15%. This is a huge increase from nearly breakeven position just one year ago.
Speaker 3: And as Todd will show our outlook for FY 24, illustrates that we plan to deliver a $65 million positive swing in our adjusted free cash flow for the year.
As Todd will show our outlook for FY 'twenty four illustrates that we plan to deliver a 65 million positive swing in our adjusted free cash flow for the year.
Speaker 3: We've done this while building a durable business that delivers a double digit growth even in this macro environment where budgets are scrutinized and deal cycles are taking longer.
We've done this while building a durable business that delivers double digit growth even in this macro environment, where budgets are scrutinized and deal cycles are taking longer.
Speaker 3: I would say there are two things that have allowed us to accomplish.
I would say there are two things that have allowed us to accomplish this.
Speaker 3: our enterprise customers, and our mission critical technology.
Enterprise customers and our mission critical technology.
Speaker 3: As you know, we chose to focus on the world's largest and fastest growing companies across industries and all around the world.
As you know we chose to focus on the world's largest and fastest growing companies across industries and all around the world.
Speaker 3: This gives us a customer base that many would be envious of. And in Q3, many of these companies are recommitted to Zuora. We saw several expansions with multi-year commitments that drove a 20% year over a year increase in our total RPO or remaining performance obligations.
This gives us the customer base than many would be envious of.
And in Q3, many of these companies are recommitted to zoro.
Several expansions with multi year commitments that drove a 20% year over year increase in our total ARPA.
Our remaining performance obligations.
Speaker 3: This also helps drive our dollar-based retention rates to 108% in Q3, up 1.25.
To help drive our dollar based retention rate to 108% in Q3 up one point quarter over quarter.
Let me give you some examples in Q3, we expanded our work with Google Google fiber alphabet high speed broadband Internet service that spans 15 states and counting.
Speaker 3: Now Zorro will power G-Fiber's full order-to-review process as they continue to grow.
No the zoro at power G fibers full order to revenue process as they continue to grow.
Speaker 3: Or, you all know, we power 12 of the top 15 automobile companies around the world. Well, in Q3, one of them, which is also one of our top five customers, renewed their commitment to Zora for another five years.
Or you all know we power 12 of the top 15 automobile companies around the world. While in Q3, one of them, which is also one of our top five customers renewed their commitment to Europe for another five years.
Speaker 3: Not only that, in one of the world's largest telecommunications and entertainment companies, we expanded to yet another business unit, signing a five-year, seven-digit deal, which also was a competitive replacement.
Not only that in one of the world's largest telecommunications and entertainment companies, we expanded to yet another business unit signing a five year seven digit deal, which also was a competitive replacement.
Speaker 3: Of course, this isn't just about our install base. Because of our technology, our people, and our vision, companies continue to choose Zuora to drive the growth of the recurring revenue business.
Of course, this isn't just about our installed base because of our technology, our people and our vision properties continue to choose Zara to drive the growth of the recurring revenue businesses.
Speaker 3: For example, in Q3, FreshBooks, a high growth, leading invoicing and accounting software built for business owners and accountants, came to Zorro after their previous legacy systems required complex manual intervention to meet their needs.
For example in Q3 fresh books, a high growth, leading invoicing and accounting software built for business owners and accountants came to Europe. After their previous legacy systems required complex manual intervention to meet their needs.
Now with Zora, they plan to streamline and simplify how they manage recurring revenue including consumption.
Speaker 3: As another example, a leading healthcare technology platform selected Zora to power their care services. We will be working with them to make their pricing and packaging more flexible along with driving operational efficiency.
As another example, a leading healthcare technology platform selected Zara to power their care services, we will be working with them to make their pricing and packaging more flexible along with driving operational efficiency.
Speaker 3: And of course, we continue to have amazing companies go live on Zorra. And Q3, LinkedIn, the world's largest online professional network, is now using Zorra for their LinkedIn subscription revenue stream. This is within their LinkedIn talent solution.
And of course, we continue to have amazing companies go live on Zoro and Q3 linked in the worlds largest online professional network.
Now using zora for their Linkedin subscription revenue stream.
Within their Linkedin talent solutions.
Speaker 3: After an in-depth search for the right partner, Lincoln selected Zora to minimize the need for manual intervention in the revenue recognition processes and expedite their time to market.
After an in depth searched for the right partner linked and selected <unk> to minimize the need for manual intervention in their revenue recognition processes and expedite their time to market.
This is why in Q3, we saw an uptick in both the number of large deals and the number of customers with an average contract value at or above $250000.
Speaker 3: We now have 453 of these customers, up by nine, quarter over quarter.
We now have 453 of these customers up by nine quarter over quarter.
Speaker 3: In this quarter, we saw seven deals with an ACB at or above $500,000 compared to six deals in Q3 of last year. Of those seven deals, two, for over $1 million.
This quarter, we saw seven deals with an ACB at or above $500000 compared to six deals in Q3 of last year.
Of those seven deals two for over $1 million.
And our relationship with our system integration partners continues to be incredibly important to help US move these large companies to zero in Q3, we continued to see solid growth for partner sourced pipeline.
The second thing that enables us to continue to deliver strong results is of course, our differentiated technology and our constant pace of innovation.
And I'm. So excited that this technology is more important than ever.
Why because we believe we are entering a new phase of the subscription economy, let.
Let me explain.
The past 15 years had been a great period of growth for subscription businesses, but today you have all heard of the phrase subscription fatigue. The idea that we all have too many streaming services subscriptions, where our companies are too many SaaS applications.
So does that mean the subscription era is over.
Well of course, not what it means however is that a shakeout is now happening and what we're seeing is the winners of the shakeout are using our technology to deliver not just recurring relationships or recurring revenue. They are using our technology to create recurring growth.
In fact, if you can't do any one of our described international events. For example, in New York, London, Paris, Munich, Stockholm, or Tokyo, We showed the two dominant strategies are emerging for how to create recurring growth.
The first is around consumption in fact argue research with BCG down in almost three X increase in adoption of hybrid consumption models over the last three years and so in Q3, we expanded zora core consumption to help companies take their unpredictable raw usage data better understanding.
<unk>, how their customers use their offerings and translate that to the right pricing model.
These like Aviva, a global leader in industrial software in Europe are adding Saar for consumption to give their customers visibility into consumption habits, and with that new transparency deliver new value to customers.
We're also seeing greater recognition of our product portfolio by third Party research firms IDC Research. For example has stated that Zora is providing the revenue platform of tomorrow, especially with these new consumption based capabilities.
The second dominant strategy, we're seeing emerge.
What I'll call strategic bundling and unbundling in this digital era companies like New York Times as an example, they no longer ask you to buy the entire newspaper instead, they unbundle their offerings, allowing people to subscribe to just gain or news or sports or cooking and more and this is.
They have grown to now more than 10 million subscribers and so in Q3, we announced new capabilities or Zephyr.
And that enables our customers to gain a deeper understanding of their subscribers to their own data combined with industry benchmarks across the entire resort customer user base, helping them drive conversion and retention through personalized offers.
All of this builds on our family of market, leading products Zora billing <unk> revenue Zora payments Zephyr and resort platform, including the <unk> warehouse with BYOB technology, Zora extension studio and Ozora Command center with a new integration hub.
In closing for Q3, I would like to thank every CEO for their work not just in the quarter, but for the entire year. We have built a fantastic customer base with the biggest and best brands, we have the right technology suite, which we're constantly innovating.
And we have a passionate team of Ceos in place to help us take the momentum that we've seen through Q3 into Q4 and into the new year.
Now I'll turn it over the call to Todd to review our financials.
Got it.
Okay.
Thank you <unk> and thanks to all for joining our call in.
In Q3, we once again did what we said we would do consistent what we've seen over the past few quarters. We continue to see extended sales cycles in Q3, regardless of the backdrop. We are committed to building a long term durable business that can post double digit growth, while delivering double digit operating leverage.
And generating healthy cash flow in fact, we exceeded our full year goal for adjusted free cash flow one quarter ahead of plan.
Our subscription revenue total revenue and non-GAAP operating income all exceeded the high end of our guidance range.
Let's start with our Q3 performance subscription revenue was $98 million growing 14% year over year in constant currency and 13% as reported.
Professional services revenue was $11 8 million.
A decrease of 19% year over year and represented 11% of total revenue.
System integrators remain an important piece of our strategy and similar to prior quarters, we leveraged our Si partners for implementation of our solutions.
Total revenue was $109 $8 million up 9% year over year.
non-GAAP subscription gross margin in Q3 was 83% an improvement of over 400 basis points year over year. This increase was driven by optimization of our cloud hosting and a one time vendor credit in the near term, we expect our subscription gross margin margins to be between 81 and <unk>.
2%.
non-GAAP professional services gross margin was negative 1%.
An improvement of over 30 basis points year over year.
Our long term plan is to run professional services at or near breakeven.
Professional services margin may fluctuate based upon investments, we make and customer support for near term subscription revenue growth.
Our non-GAAP blended gross margin was 74% an increase of over 650 basis points year over year.
We are very pleased to share that our non-GAAP operating income in Q3 was $16 million compared.
Compared to <unk> $6 million in the prior year.
And exceeded the high end of our outlook by $5 million. This.
This resulted in a Q3 non-GAAP operating margin of 15%.
A significant improvement of nearly 4500 basis points over last year.
This was driven by top line growth and our continued commitment to disciplined investment.
Our fully diluted share count as of the end of the quarter was approximately 178 3 million shares using both the treasury stock and if converted method.
The share count increased primarily due to the issues of our second tranche of convertible debt with silverlake.
Now, let's dive in some other key metrics.
Our base retention rate or DVR or ended at 108% up one point sequentially and a one point reduction year over year.
As Tim noted we saw contract expansions many of which were long term commitments driving our total ARPA.
To a 20% year over year growth and a non current RPI grew 28% year over year.
In addition.
We continue to see very strong customer retention rates.
As we deliver more innovative solutions and value, we're giving our customers more reasons to stay and grow with us driving continued improvement in retention as a percentage of IRR.
At the end of Q3, we had 453 customers that spend at or above $250000 in average contract value, which is up nine sequentially and 33 year over year. This cohort represents 83% of our business.
This quarter, we closed seven deals with HCV, a $500000 or more up from six in Q3 of last year.
This includes two deals over $1 million consistent with two in Q3 of the prior year.
Now looking at <unk> and free cash flow.
At the end of Q3, <unk> was $396 million and grew 13%.
Adjusted free cash flow was positive $12 $7 million in the quarter, a meaningful improvement of nearly $20 million over Q3 of last year.
Adjusted free cash flow is operating cash flow adjusting for capital expenditures acquisition related costs and non ordinary course litigation costs. We believe cash flow is best assessed on an annual basis as adjusted free cash flow fluctuate on a quarterly basis due to the timing of cash collections.
Vendor payments and seasonality.
As I noted earlier three quarters into the year, we have already exceeded our annual target, which demonstrates the health and durability of our business.
Total capex for the quarter was $3 1 million.
Turning to the balance sheet, we ended the quarter with $493 7 million in cash and cash equivalents, a sequential increase of 87 $5 million in Q3, we had two notable events that affected our cash balance we received a second and final tranche of our funding from Silver Lake partners and.
Additionally, we disbursed payment associated with the completion of a litigation settlement.
In Q3, the macro environment remains challenging and we anticipate this to continue through the near term.
As we discussed last quarter, our professional services business is now a smaller portion of our revenue mix as we support our partners in meeting customer implementations star.
Starting with our Q4 guidance, we currently expect subscription revenue of $99 $3 million to $103 million.
Professional services revenue up 10, five to 11 5 million.
Total revenue of $109 8 million to $111 $8 million we.
We expect non-GAAP operating income of $12 million to $13 million and non-GAAP net income per share a 4% to five assuming a weighted average shares outstanding of approximately $144 2 million.
For the full fiscal year, we're tightening the range for revenue and based on the outperformance in Q3, we're raising our guidance for non-GAAP operating income and adjusted free cash flow, we now expect.
Full year subscription revenue of 382, five to $383 5 million professional services revenue of $48 three to $49 $3 million total revenue of 438 to $432 8 million.
non-GAAP operating income of 43, 6% to $44 6 million and a non-GAAP net income per share of 25 to 26, assuming a weighted shares outstanding of approximately $141 million.
We continue to make headway on our goal of balancing growth with profitability.
For full year fiscal 'twenty four we are raising our adjusted free cash flow guidance from $28 million to $37 million or more this outlook is a nearly $65 million improvement in adjusted free cash flow over fiscal 'twenty three.
Similarly, we are increasing our outlook for non-GAAP operating margin, which we are raising from 8%.
To a minimum of 10% for the full fiscal year.
Recall at the beginning of the year, we expect it to be at an annual share dilution for fiscal 'twenty four at under 5% with a midterm target of 4%. We now expect fiscal 'twenty four to be closer to our mid term target of 4%.
For this purpose dilution is calculated as the number of equity awards granted net of forfeitures during the fiscal year divided by the total shares outstanding at the end of the fiscal year.
Turning to DVR or NAR growth for the fiscal year, we now expect DVR of 107% to 108% and a growth of approximately 12%.
Since Q4 is our largest booking quarter. We believe it is best to wait one more quarter to provide you with full guidance for fiscal year 2025.
Having said that we do want to share some color on the year ahead.
As I noted, we expect to end fiscal 'twenty four at approximately 12% our growth. We believe this can be the leveling point of our of our AOR growth in the near term based upon the current environment we.
We have the product and sales capacity to accelerate topline growth when the macro environment changes, but we believe it is wise to be prudent at this point I would also remind you that subscription revenue growth trails AOR growth by a couple of quarters.
Given the recent trends in our professional services business, we expect our Si partners to continue to take on more of the implementation work as such we expect our PS revenue mix to be approximately 10% of our total revenue.
Lastly, we are committed to driving incremental operating margin improvement regardless of the economic backdrop as you've seen this year, we have been quite aggressive and accelerating non-GAAP operating margin as the year progressed and we plan to continue this trend next year. Our objective is to exit fiscal 2000.
25 at a rule of 30 run rate as defined as the sum of the year over year subscription revenue growth plus non-GAAP operating margin.
In closing we delivered on our strategy and did what we said we would do Q.
Q3 has further illustrated that Saar is a durable double digit margin and growth business. We continued to expand our enterprise customer base, keeping our retention rates strong, while expanding profit margins and increasing free cash flow.
With that teen Robbie and I will take your questions and I'll turn it over to the operator.
As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Rob Oliver from Baird. Please go ahead.
Great. Thanks, very much Ken I had one for you on that Todd I had a follow up question for you. So to start this is the second quarter in a row, where you called out telecom win.
And I think in this one you talked about a competitive displacement.
For those who've been around a while they'll know that that market was dominated by another player just curious to hear your take.
Sure his success in telecoms, whether this is an opportunity for you guys to double down in a new market now with I think it was tell US you called out last quarter with some signature wins in this market and then I had a quick follow up thanks.
Yeah sure. Thanks, Rob Thanks for the question.
I don't think I'm ready to say that the telecom sector is is that this inflection point that we've seen in the manufacturing sector of the technology in the media sector I think what we do see is like all industries.
Pressure on subscription businesses and the agility that you need to execute especially these new services is only increasing and many of these companies are coming to us I'd say, if you look at tell US if you look at this other telecom company.
In many cases, it's not going to be.
The landline business is not necessarily be the mobile business has been around for 2030 40 years, it's going to be some of these newer services over.
Over the top of the services corporate services and alike, and I think thats really where we shine.
And Thats, where the differentiator that we bring to a telecom company.
Very much the same that we do say to a newspaper company or fast growing SaaS company.
Okay, great. Thanks, I appreciate that and then Doug just a question for you obviously great.
The work on the on the margin side and free cash flow side.
Just relative to the top line headed into the end of the year here just wanted to get a sense for.
Your view relative to the outlook weather.
Speaking of the ranges around.
Revenue is that conservatism has there been any change in the macro.
In the outlook.
For you guys in terms of customers just be curious to hear how should we should think about that thanks very much.
Yeah, Thanks, a lot Rob.
From the outlook perspective.
We are in that range after three quarters and three quarters away through the year I felt appropriate to take a look and say this is where we're going to end one at 12%, which is within the range. As we've said all year. We've seen elongated sales cycles. Nothing has changed we're still staying the same there and so I think I'd point for us to be thinking about not only how we.
This year, but how we go into next year.
I'd also say as we've talked through the whole year, what we had said at the beginning of the year was look we'd be approaching somewhere around a rule of 20 and if we didn't see an acceleration of top line. We would put dollars on the bottom line and that is exactly what we've done this year and you've seen a significant acceleration of that bottom line. So not only we have a durable top.
Double digit growth, but we also now have a double digit bottom line margin.
Great I appreciate it thanks, guys. Thanks, Rob.
Your next question comes from the line of Chad Bennett from Craig Hallum. Please go ahead.
Great. Thanks for taking my question so just.
Maybe for Tom just on the deferred Rev and billing side of the equation. This quarter I think deferred revs were down sequentially. When I think just historically they've been.
And I'm just not sure if there was anything related to timing or I think you guys alluded to.
Some multiyear deals where may be billing was was different from a duration standpoint than normal any any color into the billings this quarter.
Rob as we've talked to our I'm sorry, Chad.
We've chatted for awhile.
We really want to keep people focused on the ground thats. The absolute dollars that we have booked it's great way to model the business as we think about it going forward as you know there's just it's really messy when you take a look at the calculated billings numbers, there's FX numbers theres pull forwards theres different billing terms over time that certainly.
<unk> got to they are but we really think the best way to be looking at it is on the <unk>.
And as we did talk we'd had a really nice quarter from our standpoint, our largest renewable ever with one of the largest automobile manufacturers, we start when our largest software companies in the world not only extend with us but <unk>.
Expand that relationship same thing with Google fiber or some other software companies and so we had a really strong growth not only in the current RP O, but the long term RPI with people not only making those commitments and expanding but going out for a long term with us.
Yes, no the <unk> numbers were great.
Just just.
Just thinking you know Todd in terms of seasonality in the fourth quarter. Obviously, it's your biggest bookings quarter like most in software, but just whatever that normalized baseline is on deferred or whatever whatever youre looking at or RP O.
Does this feel like kind of a normal seasonality kind of sequential quarter from whatever that baseline is.
Yes, like I said, Theres, just ebb and flow every quarter you might have pull ins at one point during the quarter, we might have something with terms that are different.
There really isn't a whole lot of.
Consistency on that number and that's really one of the reasons that we've gone to giving the numbers. So people can model off of that.
Okay, and then maybe one quick follow up just I know on last quarter I think <unk>, you talked about new logos and maybe Todd also.
They were up like 35% last quarter and sales cycles decreased I think you talked about maybe sales cycles continuing to be be down, but just any any.
And I think you also talked about.
Resumption of volume growth also last quarter any any color into those items and then I'll hop off thank you.
Yes.
I'm curious maybe what you are asking maybe as many companies as a company as a whole are we seeing.
Things turning around are we seeing.
Things stabilize the economy coming round I would say look we are probably experiencing the same thing that every other company is experiencing but we want to be certainly very conservative.
We do see a lot.
Sort of opt more optimism in our customer base that has certainly led to these longer term contracts and some of the things that we tried to talk about his color on the call.
But.
I think there's still enough of unknowns out there in the marketplace that we would want to be mute.
Muted and our optimism.
The only other color that I would add to teams is one of the things. We said at the beginning of this year was we're going to have the agility to land both smaller lands that we have the ability to expand over time still going after the same enterprise customers that had a good runway in front of them and we did that and we actually saw the number of new logos is up year over year so that.
Feels like that is working well. In addition, you heard we had two deals over $1 million what was it seven deals over 500 K. So in addition to landing some things at a smaller space. We also have some nice meaty deals.
You can see that the key part of what we say, we do for our customers ready, we allow our customers to give their customers flexibility.
Engage and certainly we use our own technology to do the same for ourselves as well.
Thanks much.
Sure.
Thank you. Our next question comes from the line of Joshua Reilly from Needham <unk> Company. Please go ahead.
Okay.
Alright, thanks for taking my questions here.
Another kind of question on the.
Setup for the pipeline here for Q4.
Do you foresee the linearity shaking up in terms of all the month of January the critical to hitting that 12%.
Our guide or do you have some visibility of deal closing here in November and December which could take some pressure off that month of January.
I think I wrote Josh Hi, its Rory I Didnt wanted to make cases areas.
No I think pipeline for us grew quarter over quarter really well I think when we look at.
Especially also on La Palma side of it.
Really good view in terms of high quality pipeline that we saw in Q3 as being very very very good for us and that led to some of those new business win rates I.
I guess, Josh I'm, not sure that I am seeing anything different than what we usually do on linearity as you know pretty much every enterprise software company certainly sees a skewing to the back end of the quarter and ever since I've been in this business, it's always been that way and I would expect it would be this way again this quarter.
Got it that's helpful. And then just what are you seeing in terms of some of your obviously, we know tech into your largest vertical are you seeing some better trends with some of the BDC tech customers versus some of the <unk>. It seems like some of these <unk> subscription.
Services are doing a little bit better here are you seeing less of a volume.
Kind of headwind from those customers.
I think the big news that we're seeing across BDC and B to B and we tried to allude to that on the call.
Look where we win when market slowdown competition certainly increases people are chasing the <unk>.
Same pie versus a growing pie and we do see when you look at the entire market space, our customers and other companies.
There could be a shakeout and there could be a shakeout, where hey, which streaming services are you going to drop.
Newspaper subscription or you could drop with SaaS company, you're going to drop and so we're busy working with our customers on is look the best companies that are ones that I can hold on to their customers give their customers choice and Thats a key part of our technology. So if you look at the announcements will be made whether it's around consumption based billing whether its really bringing zephyr.
And to not just newspaper companies, but really any company I think those are the strategies that companies are using whether regardless of whether they are BDC or b to b to continue to be a long term grower.
For years and years to come.
Got it thanks guys.
Thanks, Josh.
Your next question comes from the line of Adam Hotchkiss from Goldman Sachs. Please go ahead.
Great. Thanks for taking my questions I, just wanted to touch again on the strength and current RPI sequentially could you just talk a little bit about where you're seeing the incremental momentum from a cross sell perspective, and what you view as the key catalysts here I guess, how much of this with some of your more seasoned products like Rev rack versus some of the newer launches like Zephyr and consumption.
Well I would say.
I'll, let Todd comment.
And what are you seeing but to me it really is a validation that our customers believe in us our customers believe in us our customers believe in our technology right and when you see an increase in <unk> a lot of that is going to be driven by look we're not just going to renew a year, but we're going to stick with you for many years to come and I think thats.
It's just a really strong statement to the fact that we have differentiated technology, we do a lot for our customers and they continue to say hey, we're committed to you.
Yes, I think the only other color that I would add to that Adam is we saw the largest renewal we've ever had when the world's largest automobile manufacturers not only did they go out for five years, but they accelerated their spend they're going to put a whole lot of volume through our system.
One of the world's largest.
Software companies again.
Pending how they are using our product taking on additional volume Google fiber came through so really I think it's been the customers that we've chosen these enterprise customers as they have used the system are getting value as we're innovating are just expanding their footprint with us and we are becoming part of their tech stack and a mission critical piece of their business.
Great. That's really helpful. And then just on that point Todd is there any commonality between these $1 million deals and your go to market and achieving this level of commitment how much visibility do you have.
When you look at the upsell cycles for companies that might be in the pipeline for this type of ACB overtime.
I think we have pretty good visibility to it I think there is a little bit of.
To close this quarter next quarter, and I think there's a little bit of variability onto what quarter. It closes, but I would say in general we've got good tight relationships with these customers. We have customer relationship managers that are attached to them. We spend a lot of time with them our executive spend a lot of time with them. They understand our roadmap a lot of times, they're giving us input on what they'd like to.
See on the road map so as we work together I think we have a good visibility of where that expansion goes over time I'm not sure that you can always and especially in this environment peg it down he will be this quarter next quarter the quarter after that but we do know that there are things that are coming and are highly confident of our ability to close that business. If I were to raise at a level we've been seeing for the last two or three years.
We made a strategic choice to really target the biggest and fastest growing companies in the world and we believe those companies give us runway I know at the start of the year. When we started talking about smaller deals that was a big question. You guys had right are you chasing smaller companies do we said note, which is the same customer base, we just want faster lands because what gives us confidence in that is everyone.
Of our companies.
Regardless of where they stand today has a potential to be a multimillion dollar a year ago.
Okay really helpful. Thanks, Steve Thanks, Todd.
Thanks, Adam.
Your next question comes from the line of Joseph Zavvi from Canaccord. Please go ahead.
Hey, guys good afternoon and welcome back.
Congratulations on coming back to Louisiana, how about.
Maybe one question on any change and we're paying a lands youre seeing now is are things gravitating toward.
A specific product just trying to get a feel for perhaps.
Revenue, which seems to be <unk>.
<unk> in this kind of environment.
Kind of where are you right now at this point.
And revenue penetration across the base now quick follow up.
Yes, just like we said one key part of our strategy is targeting really the best and fastest growing companies in the world. Another big part of our strategy is the multi product strategy and we're sitting here today and we're fortunate enough to have multiple products that are resonating in the marketplace and so that includes billing that includes revenue.
The Zephyr acquisition has turned out to be a homerun.
So in any given quarter Youre, certainly going to see puts and takes are ebbs and flows of one product versus the other.
And I would say that Thats, just the nature of whatever quarter that was going on in the quarter, but I feel really really good about all the products that we have and their ability to serve impacting the marketplace. Yes. The other thing I'd say is look we're still early on in the revenue.
Where we are from a standpoint of penetrating their we've certainly seen consistent growth over the last year or so, but there's a lot of opportunity for us to continue to accelerate that movement in some of the innovation that's coming out will help even more customers joined the revenue.
<unk> revenue product as we go through the next year or two.
Added to that as well.
Scenario consumption because of a FERC for us some leeway there we can actually use revenue almost lines is also really really exciting for us and our customers.
Great Thats, great commentary I appreciate that from all three of you and then.
Any commentary on the silverlake balance sheet infusion here I know it was kind of expected.
But how are you looking at the landscape here I would imagine it would be M&A centric again as it was with zephyr, but any comments there. Thanks a lot guys.
Yes, Joe.
Absolutely that was agreed upon deal we took the second tranche here during the most recent quarter were still very active in looking at things in M&A, we're going to be.
Extremely disciplined just as we were zephyr, making sure that we get the right product that we can expand it that it's growing faster than where we are growing and that the culture is right and it helps us on our land and expanded strategy. So we continue to look at things I think if theres a its an active market. We've got a lot of things and when we have something to announce we will announce it but I do feel.
Over the next couple of quarters, you'll see us have the ability to announce something.
What's encouraging great. Thanks, a lot Todd Thanks team. Thanks, Joe.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Next question comes from the line of Brent Thill from Jefferies. Please go ahead.
Okay.
Hello. This is elan liana <unk> on for Brent Thill. My first question is on net new IRR good to see some sequential improvement here.
But in that new IRR was still down 10% year over year in the quarter and the updated full year guide implies sequential improvement in <unk>.
Based on your pipeline and coverage.
What are you seeing out there in the market and what gives you confidence in the sequential improvement implied in the <unk> guys. Thanks.
Yeah. So thanks, a lot Avon, we've pretty much through the entire year said that here was a range, where we thought we would land on IRR. We've confirmed today that will end up the year at about 12%. That's what we've said all year being.
And three quarters, the way through and taking a look at the pipeline the conversion rates that we see we're comfortable that thats, where we.
And up landing and I think it's been pretty consistent every quarter. This year we've had.
A signal area.
Standard or a consistent increase of quarter over quarter on the <unk> and so that's.
That's what we're seeing the pipeline and the pipeline and the conversion rates certainly support that and so I would expect it will land at that approximately 12% growth for the overall year.
Okay.
Got it Super clear and just as a quick follow up regarding targeting faster smaller lands as the environment remains challenging can you shed some color on your progress here and what youre hearing from customers.
Well I think we've been pretty consistent throughout the whole year that says we're really pleased that.
We have the ability to do smaller lands.
Going back a year ago procedures without that we can do that but our products are very modular.
Revenue, we can that we're building there with zephyr.
If a company chooses we can enter the entire suite.
Flexibility is really been.
And an important part of our growth story. This year. So customers. Obviously appreciate that customers when whenever you give customers choice when you give customers flexibility.
Something that theyre going to value.
And we've been able to translate that benefit in Q2, our growth this year.
Thanks.
Your next question comes from the line of Jacob Steven from Lake Street. Please go ahead.
Yeah, Hey, guys. Thanks for taking my question.
I just wanted to focus on the quick land deals as well when you think about kind of the.
Our growth rate and you alluded to in <unk>.
By 'twenty five.
How are you thinking about these deals factoring in to that growth rate.
Yes, I mean that gives us.
Optimism that we can continue to be one of the things I alluded to on the call.
Look there's two dominant growth strategies that we're starting to see the best companies in the subscription economy use one of them was consumption is certainly something that we've done.
Our pricing model since since the beginning of the second one is what I call strategic on bundling bundling I gave an example that was up <unk> example, the New York Times.
A big Big part of their growth story is the fact that you don't have to subscribe to the entire newspaper anymore.
<unk> gains you can start with.
Let's start with news you can start with Schwartz missed the same analogy the play to a BBB SaaS companies.
You can start with US with revenue you can start with Zephyr you can start rebuilding.
I think any company, let's not really using these strategies is going to be at a disadvantage and I would say that our technology is a big big important part of allowing any company <unk>.
And so we certainly won't be the best examples of that in terms of how we use our own technology and Thats. What you are hearing us talk about on this call.
Yeah.
Got it that's helpful and maybe just kind of help me understand the.
Timeline for Si partners implementations kind of versus your your internal team.
The difference there.
Alright.
We really focused on being part of us.
And we continue doing.
<unk> aspects of it.
And if you look at the part of the mine.
<unk> pipeline continues to be two to build that Google fiber is a great example, right where they came in.
Both said they want to help us all the way through that process as well.
We keep on we will.
Implementation of <unk>.
<unk> why don't we will make sure that they are focused on that.
Yes, I think the other question Jacob maybe you're asking is from from a timeline perspective, and I think what we've seen as Ravi said is we're a partner first we're just seeing more and more of our pipeline. Some of the big deals that closed that were new deals during the most recent quarter or even expansion deals were brought to us by partners and our.
Our preference is hey, if the partners wanting to do the implementation that would be our preference to do it. We certainly have a services business and are capable of doing it but.
But as you know thats a breakeven business for us so we're more than happy for someone else to take that so as we said next year were about 11% mix right now Mexico, probably about 10% mix. So we're happy to see our partners continuing to take on more and more of that business.
Yes makes sense.
Well, that's all I had congrats on the scale here guys.
Appreciate it.
We have no further questions in our queue at this time and with that that does conclude today's conference call. Thank you for your participation and you may now disconnect.
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