Q4 2023 WalkMe Ltd Earnings Call
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Unknown Speaker: This meeting is being recorded. Please press 1 to provide your consent to be recorded.
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John Lewis Streppa: Good morning, and thank you for joining the Walkme fourth quarter and full year 2023 earnings call. I'm John Streppa, Investor Relations for Walkme, and today I'm joined by Dan Adika, CEO and co-founder, Scott Little, Chief Revenue Officer, and Hagit Ynon, Chief Financial Officer. Before we begin, a few housekeeping items.
Okay.
Thanks.
Yes.
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Good morning, and thank you for joining under warranty Force you provide your 2023 earnings call I'm, John Strapper Investor Relations for walk me and today I'm joined by Dan <unk>, CEO and co founder <unk>, joining our spending on our calls or in July providing Europe.
John Lewis Streppa: First, we're continuing to incorporate a video element to help showcase our technology and some of the great things we're achieving here at Walkme. I encourage you to go to our IR website, ir.walkme.com, to watch it live or to replay it, 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 in the application or press star nine on your phone. I will call on each person and unmute your line. At that time, you will also be prompted to unmute yourself, either through the application or by pressing star six on your phone.
To be recorded before we begin a few housekeeping items first we're continuing to incorporate a video element to help showcase our technology and some of the great things, we're achieving Garrett walked me Nick.
Heard 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.
For the Q&A portion of the call following our prepared remarks, she would like to ask a question. Please raise your hand and the application of our press star nine on your phone all collyn each person and on mute. Your line at that time, you will also be prompted to unseat yourself either through the application or by pressing star six on your fab.
John Lewis Streppa: Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward-looking statements are subject to risks, uncertainties, and assumptions, some of which are beyond our control. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a, See the section titled..., and your unformed 25 exchange commission on March 14th, 2023 and other documents filed with or furnished to the sec CR Press release dated February 21st, 2024 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.
Certain statements we make today may constitute forward looking statements and information within the meaning of section 27, a of the Securities Act of 1933 section 21 E of the Securities Exchange Act of 1934 in the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events.
These forward looking subject to risks uncertainties and assumptions some of which are beyond our control actual outcomes may differ materially from the information contained in the forward looking statements as a result of it.
Under the section titled.
In Europe on foreign poll.
Bob Exchange Commission on March 14th 2023, and other documents filed with or furnished to the SEC see our press release dated February 21, 2020 for four 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.
A substitute for or superior to enter information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision, making and as a means to evaluate period to period.
John Lewis Streppa: We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period, is provided useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Furthermore, throughout this call, we will provide a number of key performance indicators used by our management and often used by competitors in our industry. For more information on the non-GAAP financial measures and key performance indicators, including the reconciliation tables, see our press release dated February 21, 2024. Now, before Dan kicks off our regular prepared remarks, we wanted to share a brief clip from our sales kickoff event earlier this year, where we debuted a new company narrative to the organization. We trust you'll come away with a solid understanding of the broader market forces we are connecting ourselves to, how we're adding more specificity to the business problems we're solving, and helping companies prepare for the wave of change AI transformation is about to unleash. Please enjoy it.
This provide useful information about operating results enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.
Further throughout this call we will provide a number of key performance indicators used by our management and often used by competitors in our industry for more information on the non-GAAP financial measures and key performance indicators, including a reconciliation tables see our press release dated February 21, 2020 for now or for Dan kicks off our regular prepared.
March we wanted to share a brief clip from our sales kickoff event earlier. This year are we debuted a new company narrative to the organization retry steel come away with a solid understanding of the broader market forces. We are connecting ourselves to how we're adding more specificity into the business problems, we're solving and helping companies prepare for the wave.
With change AI transformation is about to unleash please enjoy.
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Unknown Speaker: After two decades of digital transformation, we find ourselves with a paradox. On the one hand, we have more and more powerful technology than ever, yet most digital transformation projects fail to meet their goals. There is a gap between the rate at which we've introduced these technologies and the value that we're getting. What we hear time and time again from customers is that their people aren't using the tools they have access to, and when they are, they're not using them to their full potential. And that's because we've been thinking about this problem the wrong way.
After two decades of digital transformation, we find ourselves with a paradox.
On one side, we have more and more powerful technology than ever.
Yes ma'am.
Digital transformation projects fail to meet their goals.
There is a gap.
Between the rate at which we've introduced these technologies and the value that we're getting.
What we hear time and time again and customers is that their people are using the tools they have access to it.
And when they are they're not using them to their full potential.
And that's because we've been thinking about this problem the wrong way.
Unknown Speaker: We thought we had a technology problem, but what we actually have is a change management problem. We've underestimated it.
We thought we had a technology problem.
What we actually have the.
Pain management problem.
We've underestimated the.
Unknown Speaker: The amount of change all this new technology would mean for our people. And as a result... We've introduced an unsustainable level of friction into our organizations. Friction that is hiding where your technology and your people meet, in the workflows that you've built to support your key business processes. For example, your HR workflows. [inaudible] in IT, purchase order creation, in finance, and the thousands of other workflows you might be running, and they're breaking. They're breaking.
The amount of change all of this new technology would mean for our people.
And as a result.
We've introduced an unsustainable level of friction.
Into our organizations friction that is hiding where your technology and your people me.
In the workflows that you've built to support the key business processes.
Your HR workflows.
Workflows lately.
And I think purchase order creation and finance.
Thousands of other workflows you might be running.
And they're breaking.
The braking, they're breaking from the weight of all of this technology change that you are asking your people to take on some workloads aren't being adopted at all others are being adopted incompletely or improperly.
Unknown Speaker: They're breaking under the weight of all of this technological change that you're asking your people to take on. Some workflows aren't being adopted at all. Others are being adopted incompletely or improperly. And even when your people are adopting those workflows correctly, it's simply taking too much time away from high-value activity. The consequences are getting in the way of you achieving your goals.
And even when your people are adopting those workflows correctly, it's simply taking too much time away from high value equities.
The consequences are getting in the way of you achieving your goals change fatigue has set in with your existing PC.
Unknown Speaker: Change fatigue has set in with your existing people, and it's taking way too long to ramp up new employees, so you're not getting the productivity gains that you expected. Risks are increasing as some of these workflows have key compliance and legal implications, which are tied up in software that's not used or is taking way too long to realize value from those investments. And all of this technology that was supposed to help you be more agile is actually getting in the way of your ability to adapt quickly as market conditions change, to remain competitive, and to execute on strategic shifts. Imagine that.
And it's taking way too long to ramp new employees, so youre not getting the productivity gains that you expected.
Risks are increasing at some of these workflows have key compliance and legal implications.
Gordon.
Tied up on software that's not us, we're taking way too long to realize value from those investments.
And all of this technology that was supposed to help you be more agile is actually getting in the way of your ability to adapt quickly as market conditions change to remain competitive and to execute our strategic shifts matching that.
Unknown Speaker: More change is coming. The average enterprise is already using 44 generative AI applications. This is going to explode as your existing applications introduce new AI capabilities and new AI-native tools enter the market. But, just like we saw with digital transformation. Success from AI transformation is not guaranteed. Last fall, Boston Consulting Group studied the impact of GenAI on its consultants. They found that consultants who use AI perform way better in certain kinds of tasks. But here's the rub.
More change is coming.
The average enterprise is already using 44 generative AI applications. This.
This is going to explode as your existing applications introduced new AI capabilities, and new AI native tools enter the market.
But just like we saw with digital transformation.
Success from AI transformation is not guaranteed.
Last fall Boston Consulting group studied the impact of AI on their consultants.
They found the consultants, who use AI performed way better in certain kinds of tasks.
But here's the rub. They also found a reduction in performance when generative AI with us on other kinds of tasks.
Unknown Speaker: They also found a reduction in performance when generative AI was used on other kinds of tasks. Change has always been with us. Our job as leaders has always been to help people use new technologies the right way for the right activities. But the AI transformation represents the biggest change to how we work in our lifetime. And it will be the biggest change management challenge organizations face in the next one to two years. And the same legacy approaches that have already failed us in digital transformation, like over-relying on traditional training or trying to manage change incrementally, aren't going to help you in a world where your applications, your workflows, and the people using them are constantly changing. That's because these legacy approaches are based on the flawed belief that change is a zero to one exercise.
Change has always been with us.
Our job as leaders has always been to help people use new technology is the right way the right activities.
But AI transformation represents the biggest change how we work in our lifetime.
And it will be the biggest change management challenge organizations face in the next one to two years.
And the same legacy approaches that we're already filling us in digital transformation like over relying on traditional training, we're trying to manage change incrementally.
Aren't going to help you in a world where your applications Youre workflows and the people using them are constantly changing.
That's because these legacy approaches are based on the flawed belief that change is a zero to one exercise.
Unknown Speaker: Change has no finish line. There is a better way to deal with it, and it requires three things. First, you can't solve a problem you can't see.
Change has no finish line.
There is a better way to deal with it.
And it requires three things.
First you can't solve the problem you can't see.
Unknown Speaker: 10 points: all the friction in your organization, workflow by workflow, task by task. Second, you need to create experiences with people at the center. Experiences that eliminate friction, automate mundane tasks, are consistent across your organizations, and optimized for the jobs your team needs to get done. Lastly, this is not just about your existing technology. You need a tool that will help you manage through the surge of change that technologies like generative AI are about to unleash. One that helps you make better choices about what technology you're going to buy in the future and how it's adopted consistently across your company. You cannot do this on your own.
Yes.
One points all the friction in your organization workflow by workflow task Micah.
Thanks.
Second you.
You need to create experiences with people at the firm.
Experiences that eliminate friction.
<unk> mundane tasks are consistent across the organization.
<unk> optimized for the jobs the team needs to get done.
<unk>. This is not just about your existing technology.
Need a tool that will help you manage through the surge of change with technologies like generative AI are about to unleash.
One that helps you make better choices.
About what technology, you're going to buy in the future and how it's adopted consistently across your company.
You cannot do this on your own.
Unknown Speaker: You need a system to help you manage the changes brought on by technology. [inaudible] Walkme is the undisputed leader in DAPT. We pioneered this category, and many of the biggest companies in the world rely on us because we are the required equipment for navigating constant change. Walkme's app sits on top of your tech stack, giving you information about the applications deployed across your company and who's using them. What? First, and where friction is preventing them from being executed.
You need a system to help you manage the change brought on by technology.
That system is called the digital adoption platform.
Walk me as the undisputed leader in depth.
We pioneered this category and many of the biggest companies in the world.
Lie on us because we are required equipment for navigating constant change.
What means that sits on top of your tech stack.
Giving you information about the applications deployed across our company who is using them.
Sure.
And where friction is preventing them from being executed.
Unknown Speaker: We then give you tools to automate routine tasks and deliver personalized guidance to people when and where they need it most. Your people get interactive in-app guidance at the moment of need. A conversational interface to kick off tasks and get answers through natural language.
We then give your tools to automate routine tasks and deliver personalized guidance to people when and where they need it most.
Your people interactive in App guidance at the moment of need.
<unk> interface to kickoff tasks and get answers through natural language.
Unknown Speaker: And helpful notifications to stay informed and remain compliant, all in. The Walkme platform is powered by DPY, our proprietary AI technology that understands software the way a human does. So it automatically adjusts to the constant changes in your underlying application and can make recommendations for eliminating friction before it becomes a problem.
And helpful notifications to stay informed and remain compliant all in.
Walk me platform is powered by <unk>, our proprietary AI technology that understands software away a human dose.
So without automatically adjust to the constant change in your underlying applications and can make recommendations for eliminating friction before it becomes a problem.
Unknown Speaker: It's delivered via web, desktop, and mobile, and prepackaged to support the key workflows where friction is most often hiding. Whether that be in one application, or more commonly, workflows that span multiple apps. So you know exactly where to get started.
It's delivered via web desktop and mobile.
And prepackaged to support the key workflows, where friction is most often heightened.
Whether that be in one application one <unk>.
Commonly workflows that span multiple apps.
So you would know exactly where to get started.
Unknown Speaker: And when you're ready, you can pick the workflows that you want to optimize next. These and 2,000 other global customers have turned to us. Because we have an unmatched data-first approach that lets you see all your biggest friction points, workflow by workflow across applications, you can customize KPIs and dashboards so that you and your leadership can keep track of how you're progressing against goals that you can define. Every year, we process over 7 billion transactions for our customers. Our security is enterprise-grade. In fact, we are the only FedRAMP-certified dApp.
And when you are ready you can pick the workflows that you want to optimize next this and 2000 and other global customers turn to us because.
Because we have an unmatched data first approach that lets you see all your biggest friction points workflow by workflow across applications.
Customized kpis and dashboards, so that you and your leadership and keep track of how you're progressing against goals that you can define it.
Every year, we processed over 7 billion transactions for our customers our.
Our security is enterprise great. In fact, we are the only fed ramp certified app.
Unknown Speaker: And we have the world-class professional services and support that enterprises like you demand. We've solved problems for almost every workflow and application out there. So when you come to us, you can be confident.
And we have world class professional services and support that enterprises like you demand.
We solve problems for almost every workflow and application out there. So when you come to US you can be confident we've seen it before and we know how to get you to value quickly.
Dan Adika: We've seen it before, and we know how to get you to value quickly. We have the strongest partnerships and the largest systems integrators in the world for regional partners you can work with, and we have the largest community of DAPT professionals, so you'll always be supported. This is why we're consistently rated the number one digital adoption platform among industry analysts and why our customers see close to a 5x return when they choose Walkme. But changes are constant, folks. Walkme can be the consistent partner to help you navigate through it. Good morning, everyone.
We have the strongest partnerships and the largest systems integrators in the world to regional partners you can work with.
And we have the largest community of that professionals. So youll always supported.
This is why we're consistently rated the number one digital adoption platform among industry analysts and why our customers see close to five X return when they choose bachman.
Change is a constant focus.
Walk me can be the consistent partner to help you navigate through it.
Okay.
Good morning, everyone. I Hope you enjoyed edrea shortly from our recent the scale even truly demonstrates how walk me is solving a mission critical problem for the largest enterprise companies in the world.
Dan Adika: I hope you enjoyed Adriel's short clip from a recent SKO event. It really demonstrates how Walkme is solving a mission critical problem for the largest enterprise companies in the world. With that, I would like to begin. 2023 was a transformational year for us. We concluded revenue with $267 million, consistent with our guidance last quarter. We ended 2023 with an ARR of $276 million. Although this was below our expectation at the beginning of the year, it was in line with our updated forecast. Macroeconomic headwinds put pressure both on renewables and new deals, mainly in the first half, and we needed to adapt fast.
With that I would like to begin.
2023 was a transformational year for US. We concluded revenue was 267 million consistent with our guidance last quarter. We ended 2023 within they are 276 million. Although this was below our expectation in the beginning of the year. It was in line with our updated forecast.
Macroeconomic headwinds food pressure, both on renewals and new deals mainly in the first test and we needed to adapt fast.
Dan Adika: We made a strategic decision to focus on operational excellence and become a profitable company while investing in future growth drivers, customer value, and our foundation. I'm super happy with how fast we were able to accomplish this transformation, and I'm happy to share some of the highlights. We shifted our business from burning $54 million in cash in 2022 to generating over $11 million in 2020. This is a $65 million improvement in our cash position. An outstanding achievement all around, and we did it within a few quarters.
We made a strategic decision to focus on operational excellence and become a profitable company, while investing in future growth drivers customer value and our foundation I'm Super happy with how fast we were able to accomplish this transformation and I'm happy to share some of the highlights today.
We shifted our business from burning 54 million in cash in 2022 to generating over 11 million. In 2023. This is a $65 million improvement in our cash flow outstanding achievement on around and we did it within a few quarters, we've been profitable company. Since Q3 2023 way ahead of our original plan.
Dan Adika: We've been a profitable company since Q3 2023, way ahead of our original plan. We optimized our internal structure and strengthened our executive leadership. We added Sunil Magdev as our Chief Customer Officer, and we are laser-focused on delivering customer value fast.
We optimize our internal structure and strengthened our executive leadership team.
We added some inactive as our chief customer officer, and we are laser focused on delivering customer value first.
Dan Adika: We continue to invest in our growth driver in order to accelerate our revenue growth in the upcoming year. We obtained FedRAMP certification, allowing us to sell deep into federal organizations and increase our time. It's already making a significant contribution to our ARR.
We continue to invest in our growth driver in order to accelerate our revenue growth in the upcoming years.
We obtained federal certification, allowing us to sell deep into their own organization and increasingly Tom it's already proving a significant contribution to our IRR, we signed a new global partnerships and expanded our relationships with some of our top partners, including Deloitte Accenture, taking mahindra among others.
Dan Adika: We signed a new global partnership and expanded our relationships with some of our top partners, including Deloitte, Accenture, and Tech Mahindra, among others. We launched a new partner program, Propel, which is already showing signs of early success. And we became an official AWS Marketplace seller, offering our customers the opportunity to buy Walkme through their AWS budget. On the product side, we launched Walkme Discovery for enterprises to unlock full visibility into their tech stack and have seen tremendous success now, covering over 7 million employees worldwide, growing more than 75% in Q4 over Q6. We continue to distribute Walkme Workstation to our top customers, who are utilizing it for their everyday enterprise workflow needs. We launch our unique AI offering focused on tracking shadow AI visibility and adopting new AI technology. We are a giving enterprises organization and foundation.
We launched a new partner program, propel which already showing signs of early success and we became an official AWS marketplace center offering our customers the opportunity to buy walk me through your AWS budgets.
On the product side, we launched walk me discovery for enterprises to unlock full visibility into their tech stack and they've seen tremendous success now covering over 7 million employees worldwide growing more than 75% in Q4 over Q3.
We continued to distributed won't be workstation to our top customers are utilizing <unk> for your everyday enterprise workflow needs.
We launched our unique AI offering focused on tracking shadowy ice's ability and adopting new AI technologies.
We are giving enterprises organizations the foundation they need to take immediate action and achieve change management at scale, while ensuring safety and privacy.
Dan Adika: They need to take immediate action and achieve change management at scale while ensuring safety and price. We continue to invest deeply in our advanced proprietary DeepUI AI technology. DPUI learns and understands every user interface like a human.
Continue to invest deeply in our advanced proprietary <unk> technology, <unk> learn and understand every user interface like a human it is the foundation of our existing product lines and our vision of a powerful AI <unk> solution on.
Dan Adika: It is the foundation of our existing product lines and our vision of a powerful AI-based text-to-action platform. In our market category, we saw the release of market guides from all the major analyst firms, including Gardner, IDC, and. This was a huge testament to the growing demand and DAP inquiries coming from Antwerp. We were named leaders and star performers in the Everest Peak Matrix and leaders of the Forster New World.
On a market category, we saw the release of market guidance from all the major analyst firms, including Gartner IDC and Forrester. This was a huge testament to the growing demand and DAP inquiries coming from enterprises.
We were named leaders and star performers in the ever speak metrics and leader of the Forrester New wave, we saw adapt featuring over seven different Gartner hype cycles, which demonstrate the depth of our technology use cases and its influence across the digital workplace.
Dan Adika: We saw DAP featured in seven different Gartner hype cycles, which demonstrate the depth of our technology use cases and its influence across the digital world. We're entering 2024 stronger than ever. We are better as a team, profitable, and generating cash with a very strong balance. We have a better product with a wider offering, and we're leading the dot market. These changes are felt in our Q4. We ended the year with a strong Q4, surpassing our expectations, generating $4.8 million in operating profit and $8.4 million in free cash flow on a non-gap basis. Another Record High Profitability Mile
We're entering 2020 for stronger than ever we are better as a team profitable and generating cash with a very strong balance sheet, we have a better product with a wider offering and we're leading did that market.
These changes are felt in our Q4 results. We ended the year with a strong Q4, surpassing our expectation generating $4 8 million, garnering operating profit and $8 4 million in free cash flow on a non-GAAP basis, another record high profitability milestone.
Dan Adika: We grew our subscription revenue by 8% year-over-year to over $63 million, and we reached a new high of 199 Dapp customers and 41 customers paying us over $1 million in ARR. We've proven in 2023 that with the required measures and the right processes in place, the Walkme engine can produce cash at. Q4 marks the end of our transformation. And now we turn to accelerating net ARR growth in 2020. Our path ahead is very clear, as we aim to double the 2023 net new ARR in 2024 to double digit ARR growth, which will drive revenue growth acceleration in 2020. We continue to invest in our strategic growth drivers, driving expansion opportunities from G2K enterprise companies, accelerating our DAB business, which showed its true strength in our GPM consistently throughout the last two years, delivering value faster for our customers by focusing on key enterprise work and on our partner ecosystem as a growing source of revenue. I'm excited about our upcoming product roadmap. We will focus on delivering greater value to our customer base with the launch of Workflow Accelerator. Workflow Accelerator is positioned to be a game changer in how we sell and deliver the Walkme value.
We grew our subscription revenue by 8% year over year with over 63 million and were reaching new high of 199 data customers and 41 customers paying us over $1 million in IRR, we've proven in 2023 with the required measure and the right processes in place the walk me Amgen can produce.
Cash at scale.
Q4 marks the end of our transformational phase and now we turn to accelerating net <unk> growth in 2024.
Our pass ahead is very clear as we aim to double the 2023 nephew a R. R. In 2024 to a double digit AOR growth, which will drive a revenue growth acceleration in 2025.
We continue to invest in our strategic growth drivers driving expansion opportunities from GTK enterprise companies accelerating our DAP business would show these true strength in our G. P. M consistently throughout the last two years delivering value faster for our customers by focusing on key enterprise workflows and on a partner.
The system is a growing source of revenue.
I am excited about our upcoming product roadmap, we will focus on delivering greater value to our customer base with the launch of workflow accelerators.
Throw accelerators is positioned to be a game changer in how we sell and deliver into walk me value.
Dan Adika: This will also be a big contributor to ensure faster customer value, which will result in higher customer retention and faster expenses. Another exciting product is our new version of our workstation product that is evolving into a true enterprise workflow co-pilot. We have many more exciting announcements coming up in the next few months regarding AI in the workplace and how the next generation of dApps will play a key role in enterprise technology. To summarize, 2024 will be a very exciting year.
It will also be a big contributor to ensure faster customer value, which will result in higher customer retention and faster expansion.
Another exciting product is our new version of our workstation product that is evolving into a true enterprise workflow copilot for employees.
We have many more exciting announcements coming up in the next few months regarding AI in the workplace and how the next generation of the App will play a key role in enterprise technology adoption.
Horizon 2024 will be a very exciting year for us and through for the upcoming innovations and the execution of the team aiming to accelerate our growth and deliver the top value to our customers. It's Ken.
Dan Adika: I'm thrilled about the upcoming innovations and the execution of the team, aiming to accelerate AOR growth and deliver the dubbed value to our customers. I want to take a moment and thank our employees for their amazing execution in 2020, and to all of our partners, customers, and investors, thank you for your continued support and belief in our vision and mission. We are shaping the future of the digital workplace, and we will continue to innovate and scale our business. Now, I'll hand it over to Scott, our CRO. Scott, it's over to you. Thanks, Dan.
I wanted to take a moment and thank our employees for their amazing execution in 2023.
And to all of our partners customers and investors. Thank you for your continued support and belief in our vision and mission. We are shaping the future of digital workplace and we will continue to innovate and scale our business now.
Now I'll hand, it over to Scott <unk>, our CFO Scott over to you.
Thanks, Dan I want to Echo Dan's sentiment. The go to market team is energized as we head into 2024 with a clear purpose to accelerate our net new <unk> growth.
Scott Little: I want to echo Dan's sentiment. The GoToMarket team is energized as we head into 2024 with a clear purpose, to accelerate our net new ARR growth. I've now had a full year in the seat of CRO, and we've made a lot of changes. In 2023, we streamlined our team priorities and realigned territories to focus on the highest quality accounts with the best expansion potential. Developing deep relationships with our customers. The sales team is now tightly coordinated with the revamped Customer Success Organization, which will foster happier customers experiencing the value of DAP. We're using value selling across the customer's life cycle to identify and deliver solutions based on critical business workflows, rather than just applications. This is a big change.
I've now had a full year in the ceded CRO and we've made a lot of changes in 2023, we streamlined our team priorities and realigned territories to focus on the highest quality accounts with the best expansion potential developing deep relationships with our customers.
The sales team is now tightly coordinated with the revamped customer success organization, which will foster happier customers experiencing the value of DAP.
We're using value selling across the customers' lifecycle to identify and deliver solutions based on critical business workflows, rather than just applications.
This is a big change the new outcome based discovery methodology creates the foundation for the handoff from our land to the successful implementation for our customers.
Scott Little: The new outcome-based discovery methodology creates the foundation for the handoff from our land to the successful implementation for our customers. We've shifted our services strategy to an outcome-driven model as well. Selling our services as a scope of work tied to business workflows accelerates the time-to-value. We started this transition in the third quarter, and we've already seen the time-to-deployment decrease by nearly 80%.
We've shifted our services strategy to an outcome driven model as well.
Selling our services as a scope of work tied to business workflows accelerates the time to value.
We started this transition in the third quarter and we've already seen the time to deployment decreased by nearly 80%.
Scott Little: We've redirected resources internally to improve the coverage of our customer success group across our renewal base, which was a big factor for Churn in 2023. We now have over 90% coverage for our renewal base in 2024, focused on highlighting successful value creation and expanding the scope of our platform to new workflow opportunities. This transformation across our sales and CS processes, focusing on outcome-based value for critical business workflows, will benefit us twofold. First, by reducing the risk of churn, and second, by increasing expansion opportunities. These benefits will enable us to accelerate our net new business throughout 2024. We're laser focused on top growth areas. Expanding with our G2K and large enterprise customers, the U.S. public sector, and partners. Our public sector team had a great year in 2023, from kicking off with FedRAMP-ready certification to landing multiple deals that were well above our expectations.
We've redirected resources internally to improve the coverage of our customer success group across our renewal base, which was a big factor for churn in 2023.
We now have over 90% coverage for our renewal base in 2024 focused on highlighting successful value creation and expanding the scope of our platform to new workflow opportunities.
This transformation across our sales and C. S processes, focusing on outcome based value for critical business workflows will benefit us twofold first by reducing the risk of churn and second by increasing expansion opportunities. These benefits will enable us to accelerate our net new business.
Our 2024.
We're laser focused on top growth areas.
Expanding with our G to K and large enterprise customers U S public sector and partners.
Our public sector team had a great year in 2023 from kicking off with fed ramp ready certification to landing multiple deals that were well above our expectation.
Scott Little: In 2024, we plan on doubling their contribution as we continue to expand our footprint in the U.S. public sector market. The U.S. federal market, in particular, is ripe with opportunity, and Walkme, being the sole FedRAMP-ready provider of DAP, is well-positioned to take advantage of this opportunity. Federal deals tend to be much larger than our traditional enterprise land deals and can extend for longer duration.
In 2024, we plan on doubling their contribution as we continue to expand our footprint in the U S public sector market.
The U S. Federal market in particular is ripe with opportunity and walk me being the sole fed ramp ready provider of depth is well positioned to take advantage of this opportunity.
U S federal deals tend to be much larger than our traditional enterprise land deals and can extend for a longer duration.
Scott Little: We're very excited about the progress that's been made so far. We're just getting started. Our partner program is an integral part of the entire organization. We've done a phenomenal job building out a world-class partner enablement program and expect their contribution will continue to grow our overall business. Our GSI partners are working on some of the largest business transformations in the world, and as a trusted contributor to their change management practices, we are an integral part of their strategies. Our partners sourced or influenced nearly 58% of our business in 2023, and they implemented over a third of our net new ARR. When we engage our partner ecosystem, we see stickier customers, greater value realized, and bigger opportunities for expansion. Partners source deals for us. We see an uplift of over 40% on the Average Deals New ARR. The impact in the public sector is even higher.
Very excited about the progress that's been made so far.
We're just getting started.
Our partner program is an integral part of the entire organization, we've done a phenomenal job building out a world class partner Enablement program and expect that their contribution will continue to grow our overall business.
Our GSI partners are working on some of the largest business transformations in the world and as a trusted contributor to their change management practices. We are an integral part of their strategy.
Our partners sourced or influenced nearly 58% of our business in 2023.
And they implemented over a third of our net new E. R. R.
When we engage our partner ecosystem, we see stickier customers greater value realized and bigger opportunities for expansion.
Partner sourced deals for us, we see an uplift of over 40% on the average deals new E. R. R.
The impact in public sector is even higher.
Scott Little: Lastly, our G2K customers are a key target for us to continue to expand. We ended the year with 410 G2K customers whose ARR represents over 50% of our total. On average, these customers are paying us over three times what our non-G2K customers are paying. This group represents a great opportunity for us to expand our customer base as we deliver value and enhance our workflow footprint. It is crystal clear.
Lastly, our GTK customers are a key target for us to continue to expand.
We ended the year with 410, GTK customers, whose air our represents over 50% of our total.
On average these customers are paying us over three times, what our non GTK customers are paying.
This group represents a great opportunity for us to expand our customer base as we deliver value and enhance our workflow footprint.
It is crystal clear when we prove value we expand.
Scott Little: When we prove value, we expand. I want to highlight an example customer from 2023. This global NASDAQ 100 pharmaceutical company first landed with Walkme to drive the implementation of a new procurement platform across over 12,000 global users. Through Walkme, they focused on increasing the percentage of transactions involving structured spend that go through the platform. Simplifying navigation.
Want to highlight an example customer from 2023 this global NASDAQ100 pharmaceutical company first landed with walk me to drive the implementation of a new procurement platform across over 12000 global users with walk me they focused on increasing the percentage of transactions involving structured spend that go.
Through the platform.
Simplifying navigation.
Is it.
Okay.
Scott Little: As they saw engagement with Walkme reach 86% of their interactions, they saw an improvement in their NPS score, and they directed their users to the right buying channel over 97% of the time, which was the intended outcome of their software investment. Following this success, the customer established a center of excellence focused on other workflows that could benefit from Walkme, and I am thrilled to say that they expanded with us in 2023 as they recognize the value we add to their mission-critical product. Accelerating these expansions is a great example of what we can do when we prove value.
They saw engagement would walk me reached 86% of their interactions. They saw an improvement in NPS score and they directed their users to the right buying channel over 97% of the time.
Which was the intended outcome of their software investment.
Following the success the customer established a center of excellence focused on other workflows that could benefit from walk me and I am thrilled to say that they expanded with us in 2023 as they recognize the value we add to their mission critical processes.
Accelerating these expansions is a great example of what we can do when we prove value the alignment between our sales customer success and professional services organization is accelerating our path to larger revenue streams in the fourth quarter, we added new customers such as CRO D. S. Smith <unk>.
Scott Little: The alignment between our sales, customer success, and professional services organization is accelerating our path to larger revenue streams. In the fourth quarter, we added new customers, such as Crow, DS Smith, and Big D Construction, among others. And we expanded with great clients such as BDO Canada, Core Hotel Group, Flight Center Travel Group, Republic National Distributing Company, and many more. We're now a cohesive go-to-market team, and we're excited about the opportunities ahead of us in 2024. We'll focus on execution this year with a clear purpose to drive value for our customers and, in turn, expand our capabilities to sell. With that, I'd like to thank our entire go-to-market organization and hand it over to Hagit. [inaudible] 2023 was a transformational year for Walkme, where we optimized and rebuilt our fundamentals to become a profitable company with a focus on operations. When it came to the role of CFO, Walkme was an unprofitable company burning cash. I'm proud to share that Walkme has been a profitable company since Q3 2023, with an improvement of 22 percentage points year over year on a non-GAAP operating margin and ending the year with a non-GAAP operating loss of $5 million, a huge leap compared to a loss of $58 million in 2020.
Big Deconstruction, among others, and we expanded with great clients, such as BDO, Canada or core Hotel Group Flight Centre travel Group Republic Nationale distributing company and many more.
We're now a cohesive go to market team and we're excited about the opportunities ahead of us in 2024.
We're focused on execution this year with a clear purpose to drive value for our customers and in turn expand our capabilities to sell.
With that I'd like to thank our entire go to market organization and hand, it over to Higgins.
Thank you, Scott and hi, everyone.
1023 was a transformational year for welcoming where we optimize and rebuild our fundamentals to become a profitable company with a focus on operational excellence and the role of CFO Walk me was an unprofitable company burning cash I am proud to share that welcome. He has been a profitable company since.
Q3, 2023, with an improvement of 22 percentage points year over year on a non-GAAP operating margin and ending the year with a non-GAAP operating loss of $5 million, a huge leap compared to a loss of $58 million in 2022.
Hagit Ynon: From a negative free cash flow of $54 million in 2022, we generated over $11 million of free cash flow in 2023, an improvement of over $65.5 million in just one year. This is a huge achievement for the entire company as we now have a clear path to scaling in a profitable way. These achievements are a direct result of our internal changes made in 2023, which focused on high-growth areas, adjusting our cost structure, and steering the entire organization towards operational excellence. We will continue on this path by improving our unit economics, focusing on subscription revenue with a higher margin of 90% as we continue the transition of our professional services business to our partner ecosystem in line with our strategy. By aligning our customer-facing teams and our go-to-market structure to be more effective and efficient with time-to-value top-of-mind, we are now positioned to accelerate growth and execution with our current investment in 2020. Our main priorities for 2024 are focused on ARR growth, improving customer retention, and driving DAP expansion with our customer base as we shift to outcome-driven value in key business models. As we continue to improve on the Rule of 40, we are balancing our incremental investment.
From a negative free cash flow of $54 million in 2022, we generated over $11 million of free cash flow in 2023, an improvement of over 65 million in just one year. This is a huge achievement for the entire company as we now have a clear path to scaling in it.
Profitable way.
<unk> achievements are a direct result of our internal changes made in 2020 suite, which focus on high growth areas adjusting our cost structure in steering the entire organization towards operational excellence.
We will continue on this path by improving our unit economics focus on subscription revenue with higher margin of 90% as we continue the transition of professional services business to our partner ecosystem in line with our strategy.
By aligning our customer facing teams and our go to market structure to be more effective and efficient with time to value of top of mind. We are now positioned to accelerate growth and execution with our <unk> investment in 2024.
Our main priorities for 2024, I'll focus on AOR growth, improving customer retention and driving depth expansion with our customer base as we shift to outcome driven value of key business workflows.
As we continue to improve and Hulu 40, we are balancing now incremental investments.
Hagit Ynon: Using Free Cash Flow Margin, we improved from 5 in 2022 to over 13 in 2021. We expect to continue to improve on this metric in 2024 and beyond. With that, let's turn to the numbers.
Using free cash flow margin, we improved from five in 2022 over 13th 2000 Twenty's fee. We expect to continue to improve on this metric in 2024 and beyond.
With that let's turn to numbers I would like to note that when discussing gross margin operating expenses operating and net income and free cash flow.
Hagit Ynon: I would like to note that when discussing growth margin, operating expenses, operating net income, and free cash flow, [inaudible] The total revenue for the fourth quarter was $68 million, and for the year $267 million, which represents 9% growth year-over-year. We grew subscription revenue for the quarter by 8% year-over-year, and for the full year by 12% year-over-year, with a subscription growth margin of 90%. We expect to maintain the subscription margin level throughout 2020. Our professional services revenue for Q4 was $4.5 million, slightly down compared to Q3, and down 26% compared to Q4 last year.
We've not.
The total revenue for the fourth quarter was $68 million and for the $267 million, which represents 9% growth year over year, we grew subscription revenue for the quarter by 8% year over year and for the full U by 12% year over year with subscription gross margin.
<unk> of 90%, we expect to maintain the subscription margin levels throughout 2024.
Our professional services revenue for Q4 was $4 $5 million slightly down compared to Q3 and down 26% compared to Q4 of last year.
Hagit Ynon: This is in line with our internal partner strategy and the shift to outcome-based projects. We are now forecasting a slight sequential decline in our PS revenue for the year ahead as the trend continues.
This is in line with our tailored part the strategy and the shift to outcome based project. We are now forecasting a slight sequential decline in our PS revenue for the year ahead is it trend continues.
Hagit Ynon: growth margin continued to improve to over 27% in Q4, driven by better workforce utilization as we reallocated resources to improve our coverage within the customer. Our total growth margin for Q4 was 86%, up from 82% in Q4 last year. Gross profit was $58.5 million, up 9% year-over-year.
Pes gross margin continued to improve to over 27% in Q4, driven by beta workforce utilization is really allocated resources to improve our coverage within the customer success.
Our total gross margin for Q4 was 86% up from 82% in Q4 last year.
Paul feed was $58 $5 million up 9% year over year, we expect to maintain this level of profitability throughout 2024.
Hagit Ynon: We expect to maintain this level of profitability throughout 2020. For Q4OPEX, we remain on a positive trend we have seen for the last eight quarters in a row, improving our operating leverage and profitability. Our flexible OPEC structure enables scale by balancing growth and profitability. R&D expenses were $10.3 million, representing 15% of revenue.
For Q4, Opex will remain on a positive trend we have seen for the last eight quarters in a row, improving our operating leverage and profitability our flexible opex structure enables scaled by balancing growth and profitability.
R&D expenses were $10 $3 million, representing 15% of revenue we continue to invest in our core platform strategic data product in AI capabilities.
Hagit Ynon: We continue to invest in our core platform, strategic data products, and AI capabilities. Sales and marketing expenses were $33.8 million, or 50% of revenue, an improvement from 62% in Q4 of last year. With our current sales and marketing structure, we now have the capacity to accelerate growth in 2024. GNI expenses were $9.6 million, or 14% of revenue, below the 18% we saw in Q4 of last year.
Sales and marketing expenses were $33.8 million or 50% of revenue an improvement from 62% in Q4 of last year.
We don't quote and sales and marketing structure, we now have the capacity to accelerate growth in 2024.
G&A expenses were $9 $6 million or 14% of revenue below the 18% we saw in Q4 of last year.
Hagit Ynon: I would like to note that this excludes a one-time gap expense of $3 million in connection with our Q4 settlement in principle of class action lawsuit claims related to the exempt classification of certain employees. This is a non-recurring expense. Q4 operating income was $4.8 million, or 7.1% of revenue, an improvement from 2.4% in Q3 and from a loss of $10.5 million, or negative 16.2%, in Q4 of last year. Net income for the quarter attributed to Walkme was $6.8 million, compared to a loss of $8.9 million in Q4 last year. Net income for 2023 was $3.7 million, compared to a loss of $56 million in 2020. Net income per share for the quarter was $0.07, using 94.2 million fully diluted weighted average shares outstanding, compared to a loss of $0.10 in Q4 of last year.
I would like to know that these exclude a one time GAAP expense of $3 million in connection with our Q4 settlement in principle of class action lawsuit claims related to exempt classification of certain employees.
This is a non recurring expense.
Q4, operating income was $4 $8 million or seven 1% of revenue an improvement from two 4% in Q3 inform a loss of $10 $5 million or negative 16, 2% in Q4 of last year.
Net income for the quarter attributed to walk me was $6 $8 million compared to a loss of $8 $9 million in Q4 last year.
Net income for 2023 was $3 $7 million compared to a loss of $56 million in 2022.
Net income to share for the quarter was seven cents using $94 2 million fully diluted weighted average shares outstanding compared to a loss of 10 cents in Q4 of last year.
Hagit Ynon: In Q4, we generated $8.4 million in free cash flow, an improvement from the $6.2 million generated in Q3, and a cash burn of $10.2 million in Q4 of last year. Our free cash flow margin for the quarter was 12% compared to a negative 16% 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 year with $322 million in cash, cash equivalents, short-term deposits, and marketable securities. Turning now to God. Given the headwinds we face with moderate growth in net new ARR in 2023 and the continued decline in our professional services revenue, we expect subscription revenue to accelerate on a year-over-year basis each quarter, while first quarter revenue growth to be in the low single digits in 2024.
In Q4, we generated $8 $4 million in free cash flow and improvement from the $6 $2 million generated in Q3, and a cash burn of $10 $2 million in Q4 of last year, our free cash flow margin for the quarter was 12% compared to a negative 16% last year.
Yes.
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 year with $322 million in cash cash equivalents short term deposits and marketable securities.
Turning now to guidance.
Given the headwinds we face with moderate growth in net new <unk> in 2023 and to continue declining proficient of services revenue, we expect subscription revenue to accelerate on a year over year basis each quarter.
While first quarter revenue growth to be in the low in 2024.
Hagit Ynon: Our PS revenue will show a slight decline as we continue our transition towards partner delivery in line with our strategy. On OPEX, we plan to maintain a similar level of OPEX from Q1 throughout the year with some fluctuation due to seasonality in sales and marketing events. We are now well positioned to accelerate our net new business while slightly growing our expenses at a lower rate than overall revenue growth. With that said, for the first quarter of 2024, we expect revenue in a range of $67.6 million to $68.6 million and a non-GAAP operating income in a range of $0.3 million to $1.3 million. For the full year of 2024, we now expect revenue in the range of $279 to $283 million and a non-GAAP operating income in the range of $8 to $11 million.
Our PS revenue will show a slight decline as we continue our transition towards partner delivery in line with our strategy.
On Opex, we plan to maintain a similar level of Opex from Q1 throughout the year with some fluctuation due to seasonality in sales and marketing events. We are now well positioned to accelerate our net new business, while slightly growing no expenses at a lower rate than overall revenue growth.
With that said for the first quarter of 2024, we expect revenue in the range of 67 $6 million to $68 $6 million and a non-GAAP operating income in a range of zero point $3 million to $1 $3 million.
For the full year of 2024, we now expect revenue in the range of $279 million to $283 million and a non-GAAP operating income in the range of $8 million to $11 million.
John Lewis Streppa: Thank you, and now we will take your questions. Thank you, Hagit. We will now turn to the Q&A portion of the call. As a reminder, if you would like to ask a question, please raise your hand in the application or press star nine on your phone. When called upon, I'll unmute your line, and you'll be prompted to unmute yourself.
Thank you and now we will take your questions.
Thank you <unk>.
Keith.
We will now turn to Q&A portion of the call. As a reminder, if you would like to ask a question. Please raise your hand, and the application or press star nine on your phone.
When called upon all on mute your line and you'll be prompted to on mute yourself. Our first question will be from Michael Berg from Wells Fargo.
John Lewis Streppa: Our first question will be from Michael Berg from Wells Fargo. Michael, I've unmuted your line. You're free to ask your question. The second question will be from Kevin Kumar from Goldman Sachs. Go ahead, Michael.
Michael I N years your line you're free to ask your question second question will be by Kevin Kumar from Goldman Sachs Go ahead Michael.
Michael H. Berg: Hi everyone. Congratulations on the call. And thanks for taking my question. I just wanted to dig into the reacceleration and what's driving that. If we can think about what's embedded in the guidebooks, what are the key drivers of this reacceleration between either, you know, macro improvement, go-to-market alignment, some of these new exciting products layering on the biggest help us understand those key drivers. Thank you. Sure, I will take it.
Hi, everyone. Congrats on the quarter and thanks for taking my question.
I just wanted to dig into the Reacceleration and what's driving that if we can think about what's embedded in guidance guidance. What are the key drivers of this re acceleration between either.
Macro improvement go to market alignment some of these new exciting products layering on biggest help us understand some of those key drivers. Thank you sure.
Dan Adika: Hi Michael. And so, as we said in the script, we saw the pressure mainly on H1. And we started to see improvement moving forward, both on the gross new ARR and improvement in churn. So as we're seeing the net new ARR improving, if we can grow the net new ARR, or, as we said, double the net new ARR in 2024 to 2023, we will see acceleration in revenue, mainly in the second half of 2025 on the subscription revenue. So as we're adding more net new ARR per quarter, that will drive revenue acceleration as the ARR is like a unique, helpful, and then a quick follow-up on the products you launched. In terms of, is that a meaningful change in how you're leveraging your technology and product, or more of just a go-to-market alignment strategy? I want to be clear on that. Thanks.
Sure I will take your timeline.
And so.
We said in the script.
The other pressure mainly on each one and we started to see improvement there moving forward.
Both on the gross and IRR and improvement in China. So as we're seeing the net ullr improving if we can grow the net new adds.
Our.
As we said Donald.
In 2024 to 2023, we will be accelerating revenue mainly on the second half and $1 25 on the subscription revenue. So as we're adding more net ARPA quarter and that will drive revenue acceleration.
We're always lagging indicator.
Helpful and then as a quick follow up on the products that you launched in terms of the Watson is that a meaningful change in how you're leveraging your technology product or the more of just a.
Go to market alignment strategy.
I'll just be clear on that thanks.
Dan Adika: So, as we always say, we're looking at Walkme as a full platform. And one of the main things we did is focus on enterprise and large enterprise customers. So, the feature sets that we're giving them, the visibility, the connection of data, action, and experience, that's what makes them go from a use case-based specific to a full platform, as we mentioned, that customer.
So as we always say, we're looking at walk me as a full platform and one of the main things. We did we are focusing on enterprise and large enterprise customer.
So the feature sets that we're giving them the visibility the connection of data. It's an experience that's what makes them going from it use case today.
<unk> two <unk> platform as we mentioned DAP customer. So that's a I would say a holistic approach to how we think companies to drive digital transformation and the more value, we're giving to those customers. The more they are expanding with us. So at the end of the day, we're selling them the entire platform will be due.
Dan Adika: So, that's, I would say, a holistic approach to how we think companies should drive digital transformation. And the more value we're giving to those customers, the more they're expanding with us. So, at the end of the day, we're selling them the entire platform. We did make a change to our pricing and how we price, and basically, we're much more flexible in letting those customers grow with us on a walk-around approach. So, overall, it's just a complete solution for that.
Change to our pricing and how we price and basically we are much more flexible and letting the customers grow with us while we work on the frozen so overall, it's Jeff.
A complete solution to that.
Yes.
Michael H. Berg: Thanks for the question, Michael. Our next question will be from Kevin Kumar from Goldman Sachs, followed by Josh Baer from Morgan Stanley. Kevin, your line is now up.
Great. Thanks for the question Michael Our next question will be from Kevin Kumar from Goldman Sachs, followed by Josh Baer from Morgan Stanley Kevin Your line is now open.
Kevin Kumar: Hi, thanks for taking my questions. I wanted to touch on net retention rate. Have we reached kind of a trough there in terms of kind of churn and expansion? And I guess, you know, how are you thinking about kind of, you know, 2024 and your expectations for kind of moving that up? And kind of what's implied in the guidance? Thanks. Hey, Kevin, Dan.
Alright, Thanks for taking my questions I wanted to touch on net retention rate.
We reached kind of a trough there.
In terms of kind of churn and expansion and I guess, how are you thinking about kind of <unk>.
'twenty 'twenty four and your expectations for kind of moving that up.
And then kind of what's implied in the guidance. Thanks.
Hey, Kevin then so yes, we think it's the trough.
Dan Adika: So yeah, we think it's cropped in Q4 2022 and Q1 2023. I would say we're in the lower quarter. So we're showing the data on trading for quarters. So as those quarters get out of the trading for quarters, we will see it bounce back. That's at least our expectation. And when we're saying that we're going to double the net new ARR, obviously, it will show up in the net retention numbers as well. That's great. And then maybe just on federal and an update there in terms of kind of how the pipe is developing and kind of how execution in the quarter and kind of how you're thinking about kind of 2024 here. I can take that one, guys.
Soft Q4, 2022 in Q1, 2023, I would say where the lower quarter. So we're showing the data on the trailing four quarters. So as those quarters. When you get out of the trailing four quarters, we will see it bounce back necessarily our expectation.
And when we're saying that we're going to dive into <unk> will show on the net retention numbers as well.
That's great and then maybe just on.
Federal an update there in terms of kind of how the pipe is developing and kind of how is that execution in the quarter and kind of how you are thinking about.
Kind of kind of 'twenty 'twenty four here.
I can take that one guys we.
Scott Little: We had a very good quarter from that perspective with federal. In my prepared remarks, better than we expected, which is always good to hear, and we have enough confidence in the pipeline that we're building that that team has taken on over double the expectation for 2024. So it's a big highlight and a big investment for us. It's one of the areas that I put additional resources into for the year in my annual operating plan. And like I said, we're just beginning. I'm very excited about it.
We had a very good quarter from that perspective with federal you saw.
In my prepared remarks, better than we expected, which is always good to hear and we have enough confidence in the pipeline that we're building that that team has taken on over double the expectation for 2024. So it's a it's a big highlight in a big investment for US is one of the areas that I'd put additional resources and for the year.
And my annual operating plan and like I said, we're just beginning very excited about.
Kevin Kumar: Great, thanks for taking my question. Thank you, Kevin. Our next question will be from Josh Baer from Morgan Stanley, followed by Tyler Radke from Citi. Josh, your line is now up.
Great. Thanks for taking my questions.
Thank you Kevin.
Our next question will be from Josh Baer from Morgan Stanley followed by Tyler Radke from Citi.
Josh Your line is now open.
Joshua Phillip Baer: Unknown Speaker: And your own digital adoption reports are just extremely impressive. Like you have customers that are saying they're saving hundreds of thousands in productivity hours, millions of dollars, quick payback time, huge ROI, just seems so attractive to an enterprise. So with that in mind, I'm hoping you could talk through some of the challenges in getting prospective customers to adopt and over the line, like, what are the main hurdles? And then what can you do to help improve that going forward? Sure, I will take it.
And like your own digital adoption reports are just extremely impressive like do you have customers that are saying, they're saving hundreds of thousands and productivity hours millions of dollars quick payback time huge ROI just seems so attractive to an enterprise so.
So with that in mind, hoping you could talk through some of the challenges in getting prospective customers to adopt and over the line like what are the main hurdles and then what can you do to help improve that looking forward.
Sure I would take it so.
Dan Adika: So, I would divide it into two. One, the ROI is phenomenal. I've heard a few reports, I think the latest one from the IDC, and we're in a new category. We invented the category, and there is a lot of market education. This is why, on today's call, we even opened with a company narrative. And so that's something that we're doubling down on. And the second piece was our shift to enterprise and large enterprises. That was something that we started, I would say, mid-end 2020 or beginning of 2021.
We provided 221.
Roy phenomenon very few reports I think the latest one thing the ITC and we're in a new category. We invented the category and there was a month of market education. This is why <unk> today's call will even opened with accompanying narrative.
That's something that we're doubling down and the second piece was our seat to enterprise and large enterprise that was something that we started I would say made in 2020, beginning of 2021 and we're seeing the result, so taking that having the entire company laser focused on that results product marketing.
Dan Adika: And when we're seeing the results, so taking that, having the entire company laser focus on that result, products, marketing, sales, partners, everything that we're doing, and it's starting to show results. And we're seeing it with customers over 1 million ERR. And it's not just the number; it's the average of how much they say is growing.
Sales partners everything that we're doing and it's starting to show results and we're seeing it.
The customers over 1 million there are and it's not just the number the average of how much they paid growing so when a customer is paying us over 1 million is not staying at the.
Dan Adika: So when a customer is paying us over 1 million, it's not staying in the low digits; it's actually starting to go up. So we have a lot of work to do. We're super pleased with the platform. We added more capabilities that will allow our customers to measure the ROI faster. And we added a lot of data products that are easier to deploy. So if today when you're doing a full deployment, you need to build the content, you need to have a full strategy for it. When you start with data products, we can actually show you where you have issues and actually have a faster ROI. The third piece is actually Elsonile, which started around May of 2023.
<unk> is actually starting to go up so we have a lot of work to do we're super pleased with the platform. We added more capabilities that will allow our customers to measure the ROI faster and we added a lot of data product that is easier to deploy so is today. When you were doing a full deployment walk me.
Need to build the content you need to have a fluid products unit. When you start with data product. We can actually show you, where you have issued and actually has set the ROI.
It's actually is as <unk> started that around may of 2023.
Dan Adika: And we set a goal to go live faster with our customers. We already had a few pilot groups when we were trying to go live between four to six weeks. And we have the data to show that the expansions are happening faster. And obviously, when we're delivering value fast, customers are happier. So as I said, 2023 was a transformational year; we put a lot of effort, not just on the financial side, when you see the results, but on the fundamentals of the business, how we deliver value, and how we as a company are laser focused on delivering value to our customers.
And we set the goal to go live faster with our customers who already had a few pilot group. One we're trying to go lives within four to six weeks and we have the data to show Debbie expansions are happening faster and obviously, when we're delivering body fat and the customers are happier. So as I said 2020 through the transformation linear we put a lot.
Therefore, not just on the financial side when the when you just saw the result, but on the fundamentals of the business, how we deliver value and how we as a company are laser focused to deliver value for customers.
Joshua Phillip Baer: Very helpful. And then I was just hoping you could comment on the competitive landscape, any changes to note, any response to your more flexible pricing. So we're seeing the same competitive landscape, and we're pleased that we are leaders and top performers. So we're by far leading the category, and I would tell you we want to see more. We want to see the category grow more, and we're putting a lot of effort into that. And so overall, for us, it's still a huge green field.
Got it very helpful. And then just hoping you could comment on the competitive landscape any changes to note in your response to your more flexible pricing. Thank you.
So we're seeing the same competitive landscape and we're pleased that we're a leader and star performer. So we are by far leading the category and I would tell you we want them to be more wanted to see the category growing more and we're putting a lot of effort on that and so overall.
<unk> seen a huge greenfield and our biggest competition companies that we are educating all the fact that they need.
Dan Adika: And our biggest competition is companies that we are educating on the fact that they need that. And we're doing really well. So from the pricing standpoint, what we did is we are allowing companies to actually start smaller. So we want to actually shorten the sale cycle on the land.
And we're doing really well so on the pricing standpoint, what we need is we are allowing companies to actually start smaller so we want to exit a shortening the sales cycle on the land and then once we're showing value we have a better and clear path forward the expansion so.
Dan Adika: And then once we're showing value, we have a better and clearer path for the expansion. So it's still early to share data. We launched it in the summer, but so far, we're pleased with the results.
It's still early to sharing the data with launches in the summer.
But so far we're pleased with the results.
Great. Thanks.
Joshua Phillip Baer: Great, thanks, Josh. Our next question will come from the line of Tyler Radke from Citi, followed by Pat Walravens from JMP. Tyler, your line's open. Hey team, this is Matt Pride on for Tyler.
Great. Thanks, Josh Our next question will come from the line of Tyler Radke from Citi.
<unk> by Pat Walraven from JMP Tyler Your line is open.
Hey, Tim This is Matt pride on for Tyler.
Matt Pride: Just curious what caused the slowdown in DAP customer growth? You know, I see 4Q has historically been a stronger quarter. You know, and secondly, should we anticipate a slowdown in DAP growth into next year? So we actually think it will accelerate as the next new ARR will accelerate as well. And overall, I would say that we saw some downfills across all the segments, and it came mainly from pressure from the macro.
Just curious what caused the slowdown in in DAP customer growth <unk> has historically been a stronger quarter.
Yes.
And secondly, should we anticipate a slowdown in in DAP growth into.
Next year.
So we actually think it will accelerate as the net.
And we will accelerate as well and overall I would say that we book them down so.
Across all the segments and you can mainly from pressure from the macro and as I said that was mainly an H one and we're still counting those quarters, obviously in our number and but as we said we think a trough and now as we're starting to accelerate.
Dan Adika: And as I said, that's mainly in H1. And we're still carrying those quarters, obviously, in our numbers. But, as we said, we think it's dropped.
Dan Adika: And now as we're starting to accelerate the next new ARR, we think those metrics will go up as well. Any reasons why the macro going forward? So I would just say that even after H1, it's become much better for us. I can tell you that everything in the macro is solved, and I'm not an oracle to foresee the future.
And we think those metrics will go up as well thanks.
Any regions the macro going forward.
So I would just say that.
Even after each one.
For us it's become much better I can tell you that everything in the micro and solve them im not an oracle to foresee the future and but I would tell you that we as a company adapt to that situation. So we're not spending here and waiting for democracy true, we have our technology and we bring value even in the downturn.
Dan Adika: But I would tell you that we as a company adapt to that situation. So we're not standing here and waiting for the macro to improve. We have our technology, and we bring value even in a downturning economy. Got it. And lastly, you know, you have over 300 million in cash on the balance sheet, and the story of free cash flow is accelerating. Any change to your appetite for M&A? And any specific areas or technologies that you'd be interested in, in, looking at?
Awesome.
Got it and lastly.
You have over 300 million of cash on the balance sheet accelerating free cash flow story any change to your appetite for M&A.
And any specific areas or technologies that.
That you'd be interested in.
In looking at.
Dan Adika: I would say our appetite stays the same, and obviously gives us much more confidence when we're generating cash quarter over quarter. We're looking for the right timing. And I will tell you that the way we're looking at the top category is massive. So there is a lot of room to grow organically.
I would say, Arkansas state the same obviously give us much more confidence when we're generating cash quarter over quarter. We're looking for the right timing and I would tell you that the way we're looking at the dock category massive so there is a lot of room to grow and organically, but obviously royalty interest being over.
Dan Adika: But obviously, if we see interesting opportunities, this is a vehicle that we will use. And I will tell you that obviously, there was a big macro headwind. But now when we're seeing that quarter over quarter, regenerating cash, and we're profitable quarter over quarter, yes, it's changing a little bit our confidence and how we're looking at it. But nothing else that I can add at this moment.
<unk>.
As a vehicle that we will use them.
I would tell you that obviously.
A big macro headwinds, but now when we're seeing that quarter over quarter, we are generating cash and we're profitable quarter over quarter. Yes. It is changing a little bit said confidence in how we're looking at it but nothing else that I can add the needed small.
Matt Pride: All right. Thanks, team. Thanks, Matt. Appreciate the questions. Our next call or next questions will come from Pat Walravens from JMP, followed by Scott Berg from Needham. Pat, your line is open. Hi there, this is Austin Cole on for Pat.
Alright, Thanks, Tim.
Thanks, Matt appreciate the questions. Our next call. Our next question will come from Pat Walraven from JMP.
Solid by Scott Berg from Needham Your line is open.
Hi, there this is Austin colon for Pat I. Appreciate you guys taking the question.
Austin Cole: Appreciate you guys taking the question. So I want to ask about partners. So these GSIs are a big tailwind behind your business. I'm wondering, is there, you know, more that you guys can do to leverage your partners in 2024? And, you know, how can Propel help you better manage those partners? Yeah, I'm happy to take that one.
So I wanted to ask about partners.
So these GSI there.
Big tailwind behind your business I'm wondering is there.
Is there more that you guys can do to leverage your partners in 2024 and.
How can propel help you better manage those partners.
Yes, I'm happy to take that one we absolutely believe there's more that we can do in the partner space and we've got more than first and then just the GSI is remember we have a wide variety of partners styles, we have regional.
Scott Little: We absolutely believe that there's more that we can do in the partner space. And we've got more than just the GSIs. Remember, we have a wide variety of partner styles. We have regional SIs that support us. We have our OEM relationships with SAP, for example.
S. Ais that support US we have our OEM relationships with SAP. For example, we have MSP relationships with with other partners. So we're trying to address all of it with propel and propel has two things for US one it streamlines the ability for us to onboard clients and for them to be self sufficient through the onboarding process.
Scott Little: We have MSP relationships with other partners, so we're trying to address all of it with Propel. And Propel does two things for us.
Scott Little: One, it streamlines the ability for us to onboard clients and for them to be self-sufficient through the onboarding process. And two, it gives them visibility into the pipeline that they generate with us and the support they need from us.
And two it gives them the visibility to the pipeline that they generate with us.
The support they need from us. So this was something that was required and needed to get it done we spent a lot of time and effort on it and we're very pleased but my plan for 'twenty four is improved performance.
Scott Little: We needed to get it done, so we spent a lot of time and effort on it. We're very pleased.
The overall business.
Some partners and then for 'twenty five we have an eye to the more revenue that is light touch. So an example would be the agreement we have with can occur in the ICP guys.
Scott Little: But my plan for 24 is improved performance overall, [inaudible] Sell Clients is something else, but the revenue that comes from that agreement is very light touch. And we're working on more of those kinds of relationships in 2024 with an eye to see more revenue that is light touch coming in for 2025. So hopefully that gives you a feel for it.
Concur does almost all of the marketing.
As always selling they do all the papering of the deal.
Through the implementation and we use that as a land to go try to call.
Sell clients something else, but the revenue that comes out from that agreement is very light touch and we're working on more of those kinds of relationships in 2024 with an eye to see more revenue that is light touch coming in for 2025. So hopefully that gives you a feel for it.
Austin Cole: Thank you. Thanks for the question, Austin. And our last question will come from Scott Berg from NETA. Scott, your line is now open. Hi, everyone. This is Michael Rackers. I'm on behalf of Scott Berg.
Thank you.
Thanks for the question Austin and our last question will come from Scott Berg from Needham.
Scott Your line is now open.
Hi, everyone. This is Michael <unk> on for Scott. Thanks for taking my question and congrats on the quarter was just wondering if you could double click on some of the go to market changes you talked about earlier and.
Michael Ethan Rackers: Thanks for taking my question. And congrats on the quarter. I was just wondering if you could double-click on some of the go-to market changes you talked about earlier.
Scott Little: And maybe how Salesforce is adjusting to these changes. Has the sales energy improved since the kind of shift or the change in strategy was initially announced? Thanks. Oh, yeah. Hey, listen, let me take it.
And maybe how the Salesforce is adjusting to these changes.
Has the sales energy improve since kind of the the shift did that change in strategy was initially announced.
Thanks.
Scott Little: I would tell you the energy is off the charts for us. It's rare when people who are not associated with sales come away from the sales kickoff saying, Hey, I was really impressed with not only what was presented but the energy and the focus. [inaudible] Listen, salespeople are pretty straightforward. They want to know what to sell, they want to make sure they have a good product to sell, they want to understand how they compete, and then they want to be turned loose with a good compensation plan to go make money. And I would tell you that that's what we did at our sales kickoff and that alignment with our counterparts in customer success and professional services, and our part. Our team was really good.
Oh, Yeah, Hey, listen let me take it I would tell you the energy is off the charts for us.
It's rare when people who are not associated with sales come up come away from our sales kickoff, saying, Hey, I was really impressed with not only what was presented but the energy and the focus.
South kickoff so for us at the end of January one of the best that I've ever participated in so very pleased with that and that is not easy to do when you're making significant changes throughout the year and then those changes, especially process changes culminate.
At S keynote <unk> announcements so.
Listen salespeople are pretty straightforward they wanted to what to sell they want to make sure they've got a good product to sell they want to understand how they compete and then they want to be turned to waste with a good comp planned to go make money and I would tell you that that's what we did at our sales kick off and that alignment with our counterparts in customer success and professional services and our partners.
Our team was really good but to double click on it for a couple of things that as I mentioned in my prepared remarks first and foremost we.
Scott Little: But to double-click on it for you a couple of things that, as I mentioned in my prepared remarks, first and foremost, we are moving to the workflow-driven discovery and that workflow-driven coordination to actually implementing for clients. It may seem obvious, but, Unknown Speaker, businesses have a problem that is related to a business process or to cash, fire to fire, whatever it is. But we've always thought about it in terms of the applications that we support. But what do we know about our debt clients? Our debt clients are our stickiest, they're our most profitable, and they're our largest. And they're that way for one really, really important reason.
We are moving to the workflow led discs.
Discovery and that worked a little lag coordination to actually implementing for clients.
It may seem obvious but.
That businesses.
<unk> related to our business workflow order to cash our fire whenever it is.
But we've always thought about it in terms of the applications that we support but what do we know about our DAP clients or that clients are our stickiness. There are most profitable on their largest and there that way for one.
Scott Little: They sell business workflows that tend to cross multiple applications. You know, if you're a sales organization, you're not just a Salesforce shop; you probably have Clary or Gong or DealHub or one of those other products. Oftentimes, a handful of products involved in your order to cash process.
Really really important reason they felt this was workloads that tend to cross multiple applications and up here.
Sales organization, you're not just the sales of our shop, you've probably got clarity or gone or deal one of those other products.
Oftentimes a handful of products involved in your order to cash Brian.
Scott Little: So we're good at both automation and real-time personalized support for workflows that cross multiple applications. And we've always done it that way. We've got tons and tons of successful implementations, but we haven't talked to the client in that way. And it's really important not just to talk to the client in that style, but when we create our statements of work and we implement for the client, it's important to tie that back so the client can easily understand the value that we're delivering for them. You know, in places where we did it really, really, really well, look We just kind of did it naturally and organically. We didn't do it systemically.
So we're good at all of the automation and the real time personalized support for workflows that cross multiple applications. So we've always got it we've got constant tons of successful implementations, but we haven't talked to the client in that.
Style and it's really important not just to talk a decline in that file, but when we create our statements of work and we implement for the client it's important to tie that back so that clients can easily understand the value that we're delivering for them in.
In places, where we did it really really really well look at partners sorry customers like Wells Fargo. We've talked about in the past, we were large clients and get significant value from us.
We just kind of didn't naturally inorganically, we didn't do it systemically.
Scott Little: And one of the major changes for us in 2024 is that we're doing it systemically. And that's a function of the fact that I've got a great partner in Simulant AgDev, you know, who is helping me with that transition from land to implementation to that first set of reports after we've got a client up and running, and they're successful. So you've got to have that good 360 view of the client
One of the major changes for us in 2024 as were doing it systemically and that's a function of the fact that I've got a great partner and sell Sydney on active.
It is helping.
With that transition from land to implementation to that first set of reports after you've got a client up and running and they're successful. Let's say you got to have that good 360 view of the client is great on a chart, which you've got operationalize it and that's what we've done in the second half of the year, that's what we highlighted.
Scott Little: It's great on a chart, but you've got to operationalize it. And that's what we did in the second half of the year. That's what we highlighted and educated our teams on in sales kickoff. And that's why we're so excited about those changes coming into 24, because that heavy work is behind us. And now it's kind of the more straightforward stuff.
And educated our teams on its sales kick off and that's why we're so excited about those changes coming into 'twenty four because that heavy work is behind us and now it's kind of a more straightforward stuff. We just got to go sell.
Michael Ethan Rackers: We just got to go sell it. Hopefully, that makes sense for you. Absolutely.
That makes sense for you.
Absolutely. Thanks, so much.
Michael Ethan Rackers: Thanks so much. Thank you for the question, Michael. And that will conclude our Q&A section. Thank you, everybody, for the questions. And now I will turn it back over to Dan Adika for closing remarks. Dan, the floor is yours.
Thank you for the question, Michael and that will conclude our Q&A section. Thank you everybody for the questions and now I will turn it back over to Dan <unk> for closing remarks, Dan floor is yours. Thank you.
Dan Adika: Thanks, John. So, as I said, for the first time in my career, I want to thank our employees for amazing execution in 2023, moving from losing over $50 million in 2022 to generating over $10 million in 2023. That's absolutely amazing. So guys, I know you're hearing this. So thank you. And obviously, for customers, investors, and partners, thank you for your support and belief in our vision. And thank you to everyone who joined the call and participated. See you next quarter. Goodbye.
John So as I said in my life group I want to thank our employees, our amazing execution in 2023, moving from losing over 50 million in 2020 with J P generating over 10 million in 2023 that absolutely amazing.
I know you're hearing us so thank you and obviously for customers investors partners. Thank you for the support and believe in our vision and thank you for everyone, who joined the call and participate in it.
In the quarter.
Yes.
Goodbye.