Q1 2025 Zuora Inc Earnings Call

Operator: Thank you for standing by. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora FY25 Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is Pam and I will be your conference operator today at this time I would like to welcome everyone to the zoo RF for FY 'twenty five Q1 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a quest.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Luana Wolk, Head of Investor Relations. You may begin.

Speaker Change: Janet and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the conference over to the one out walk head of Investor Relations you may begin.

Yeah.

Luana Wolk: Good afternoon, and welcome to Zuora's first quarter Fiscal 2025 Earnings Conference Call. On the call, we have Tien Tzuo, Zuora's Founder and Chief Executive Officer, and Todd McElhatton, Zuora's Chief Financial Officer. Robbie Traubert, our President and Chief Revenue Officer, will be joining us for the Q&A session.

Speaker Change: Good afternoon, and welcome to the worst first quarter fiscal 2025 earnings conference call.

Speaker Change: On the call we had seen so <unk> founder and Chief Executive Officer, and Todd Mcelhatton, George Chief Financial Officer.

Speaker Change: Ravi <unk>, our president and Chief revenue officer will be joining us for the Q&A session.

Luana Wolk: 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. 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. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations.

Speaker Change: 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.

Luana Wolk: So, for further discussion of the material risks and all the important factors that could affect the 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 current and the prior year periods in today's press release. Our press release and a replay of today's call can be found on Zuora's investor relations website at investor.zuora.com. Now I'll turn the call over to you, Dean.

Speaker Change: 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.

Speaker Change: Disclaim any obligation to update any forward looking statements or outlook. These statements.

Speaker Change: These are subject to certain risks and uncertainties that could cause actual results to differ materially from expectation 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.

Speaker Change: You can find a reconciliation from GAAP to non-GAAP results for both the current and prior year periods in today's press release, our press release and a replay of today's call can be found on <unk> Investor Relations website at Investor that Laura Dot Com now I'll turn the call over to Eugene.

Dean: Thank you, Luana, and thank you, everyone, for joining Zuora's first quarter fiscal 2025 earnings call. When I look back on the puts and takes this past quarter, I would say I feel good about the progress we continue to make against the macro environment facing the technology industry.

Thank you everyone and thank you everyone for joining <unk> first quarter fiscal 2025 earnings call.

When I look back on the puts and takes this past quarter I would say I feel good about the progress we continue to me against the macro environment facing the technology industry. We continue to deliver on our guidance, we continue to benefit from a solid enterprise customer base.

Dean: We continue to deliver on our guidance. We continue to benefit from a solid enterprise customer base with strong expansion opportunities. And, of course, we remain focused on our strategy to deliver profitable, durable growth. Let's start with the numbers.

Speaker Change: With strong expansion opportunities.

Speaker Change: Of course, we remain focused on our strategy to deliver profitable durable growth.

Dean: In Q1, subscription revenue was $99 million, up 10% year-over-year at the high end of our range. We exceeded guidance for non-GAAP operating income at $18.6 million, equating to a 17% operating margin, which is a quarterly record. Our adjusted free cash flow was at an all-time high of $31.4 million for this quarter, a significant increase from the $13 million we delivered in Q1 of last year.

Speaker Change: Let's start with the numbers in Q1 subscription revenue was $99 million up 10% year over year at the high end of our range.

Speaker Change: CD guidance for non-GAAP operating income at 18, 6 million equating to a 17% operating margin, which is a quarterly record.

Speaker Change: Our adjusted free cash flow was at an all time high of 31 4 million for this quarter a significant increase from the $13 million, we delivered in Q1 of last year.

Dean: And finally, against the Rule of 40 framework, which combines growth and profitability, we are on track to exit this fiscal year at $30, up from the $26 level that we hit at the end of last year. One highlight of Q1, I would say, is our install-based expansion. Our stable of large enterprise customers continues to anchor the durability of our business. Our customer satisfaction levels continue to rise, as measured by the Net Promoter Score.

Speaker Change: Finally against the rule of 40 framework, which combines growth and profitability. We are on track to exiting this fiscal year at 30 up from the 26 level, we hit at the end of last year.

Speaker Change: One highlight for Q1 I would say is our installed base expansion our stable of large enterprise customers continues to anchor the durability of our business our customer satisfaction levels continue to rise as measured by net promoter score customers continue to love our new innovations.

Dean: Customers continue to love our new innovations, and this is driving strong expansion opportunities. In fact, in Q1, we saw a year-over-year increase in cross-sells, with customers either adding another Zuora product or adopting our technology in new business units. For example, The Economist, a leading news magazine with over a million subscribers, is a Zuora billing customer that added Zephyr in Q1.

Speaker Change: This is driving strong expansion opportunities in fact in Q1, we saw a year over year increase in.

Speaker Change: Cross sells with customers either adding another is where our products are adopting our technology and new business units.

Speaker Change: Some examples our customers are adopting additional products like zephyr.

Speaker Change: Economists are leading news magazine with over 1 million subscribers Zora billing customer that added Zephyr in Q1 their digital subscriber base continues to grow and they will be using zephyr to enhance their dynamic paywall experience.

Dean: Their digital subscriber base continues to grow, and they'll be using Zephyr to enhance their dynamic paywall experience. Our customers are adopting us in new business units. One of the world's largest automakers expanded with Zuora to power another business unit, this time for its software suite that manages connected services and telematics for commercial fleets. Our Zuora revenue to Zuora billing cross-sells are working. Last quarter, we talked about Toast as a great example.

Speaker Change: Our customers are adopting thats, a new business unit is one of the worlds largest automakers expanded resort to power. Another business units. This time for its software suite that manages connected services and telematics for commercial fleets.

Speaker Change: Although our revenue <unk> ability cross sells are working last quarter, we talked about toast is a great example of this quarter. We saw another is all revenue customer a global leader in customer experience and contact center solutions with over $1 $2 billion in annual revenue they added zoro Billy with advanced.

Dean: Well, this quarter, we saw another Zuora revenue customer, a global leader in customer experience and contact center solutions with over $1.2 billion in annual revenue. They added Zuora billing with advanced consumption to help them analyze millions of customer usage data points and monetize their AI-powered support offering. We are supporting our customers to expand into new countries or regions in Q1. Global manufacturing brand Lexotica, they produce eyewear for brands like Oakley, Gucci, and Prada, and they have expanded with us to support their eyewear subscription service in new countries.

Speaker Change: Consumption to help them analyze millions of customer usage data point to monetize.

Speaker Change: High powered support offerings.

Speaker Change: We are supporting our customers to expand into new countries or regions in Q1 global manufacturing brand Luxottica.

Speaker Change: They produce eyewear for brands like hopefully Gucci and products and they expanded with us to support their eyewear subscription service in new countries.

Dean: So our install-based business was a highlight in Q1. In Q1, though, our new logo business continued to be affected by the macro headwinds, as we again saw companies delay large multi-million dollar projects at the end of the quarter. Now, as we mentioned on previous calls, we remain committed to our strategy of doing smaller, faster deals with great companies and brands. A good example in Q1 would be Mitsubishi Electric, one of the world's largest manufacturing companies with over $36 billion in revenue.

So our installed base business was a highlight in Q1.

Speaker Change: In Q1, though our new logo business continues to be affected by the macro headwinds as we again saw companies delayed large multimillion dollar projects at the end of the quarter.

Speaker Change: No as we mentioned on previous calls we remain committed to our strategy of doing smaller faster lands with great companies and brands.

Speaker Change: Good example, in Q1 would be Mitsubishi electric one of the world's largest manufacturing company with over $36 billion of revenue.

Dean: As Mitsubishi Electric continues to expand beyond hardware and complementary digital services for offerings like its air conditioning and factory automation systems, what they needed was a monetization suite that was built to support recurring revenue. Overall, however, the lack of large transformational deals coupled with the seasonality of the software business meant a lighter overall new logo quarter.

Speaker Change: As Mitsubishi electric continues to expand beyond hardware and complementary digital services for offering like its air conditioning and factory automation systems, what they needed was a monetization suite that was built to support recurring revenue.

Speaker Change: However, the lack of large transformational deals coupled with the seasonality of the software business meant a lighter overall new logo quarter that being said, we are getting more and more efficient in how we generate pipeline, we're switching to more digital and inbound techniques and we're already seeing positive leading indicators are showing.

Dean: That being said, we are getting more and more efficient in how we generate pipeline. We're switching to more digital and inbound techniques, and we're already seeing positive leading indicators that show improved response rates and lead generation efficiency. And so we believe that our opportunity remains strong as the year progresses.

Speaker Change: <unk> response rates and lead generation efficiency and so we believe that our opportunity remains strong as the year progresses.

Dean: The most exciting news of the quarter, however, is our acquisition of Togai. And so I'd like to spend a few minutes talking through why this announcement is so important. Now, we've seen an increase in demand for usage-based pricing, especially in the SaaS markets. Our advanced consumption solution is one of our fastest-growing products in terms of pipeline. As of Q1, we have over 50 customers that have selected our advanced consumption offering.

Speaker Change: The most exciting news of the quarter. However is our acquisition the toga and so I'd like to spend a few minutes talking through why this announcement is so important.

Speaker Change: Now we've seen an increase in demand for usage based pricing, especially in the SaaS market. Our advanced consumption solution is one of our fastest growing products in terms of the pipeline as of Q1, we have over 50 customers that are selected our advanced consumption offering and.

Dean: And usage-based models continue to accelerate even further with the explosion that we're all seeing of Gen-AI-based technology. But in supporting our customers around consumption strategies, we've also uncovered a huge need that engineering organizations have around capturing and metering their usage information. And this is where Togai comes in. Togai provides a leading metering and rating solution and enables developers to directly convert raw data into usage metrics through a three-step no-code configuration builder with the flexibility to monetize products in many, many different ways. This is really, really exciting.

Speaker Change: And usage based models continue to accelerate even further with the explosion that we're all seeing a gen AI based technologies.

But in supporting our customers around consumption strategy. We've also uncovered a huge need net engineering organizations have around capturing and metering usage information and this is where toga comes in sugar provides a leading metering and rating solution enables developers to directly convert raw.

Speaker Change: More data and usage metrics through a three step no code configuration builder with flexibility to monetize products in many many different ways.

Dean: But the last thing I'll say about Toga is that this isn't just about usage-based models; there's a broader strategy going on, one that I will call total monetization. So what do I mean by that? Well, you probably know Zuora as the company that predicted and led the shift to a subscription economy. Then this shift has happened.

Speaker Change: This is really really exciting, but the last thing I'll say about <unk> is that this isn't just about usage based models, there's a broader strategy going on one that I will call total monetization.

Speaker Change: So what do I mean by that well you probably know <unk> is the company that predicted and lead the shift to subscription economy and this shift has happened today.

Dean: Today, you and I, we're buying less and less stuff, and it sure seems like every week, the CEO of another Fortune 500 company is declaring a target of shifting some meaningful percentage of their business to recurring revenue models. But now that the subscription economy is here, this new world is a new normal, and people are asking, what's next?

Speaker Change: Today, you and I were buying less and less stock and assure it seems like every week. The CEO of another fortune 500 companies declaring a target of shifting some meaningful percentage of their business to recurring revenue models.

Speaker Change: But now that the subscription economy. This new world is a new normal.

Speaker Change: People are asking what's next while.

Dean: Well, we believe what's next is a concept that we call total monetization. This is no longer just about standalone subscription businesses with monthly fees. It's also about one-time transactions like product sales or pay-per-view, professional services revenues, or the usage and consumption model that Togai helps us power. Total monetization is about mixing multiple business models in a way that maximizes the value of your innovations in your target market. And so we see this with companies like the New York Times, which has transformed and unbundled how it offers products like games or cooking or news or sports alongside its traditional offerings.

Speaker Change: While we believe what's next is a concept that we call total monetization.

This is no longer just about standalone subscription businesses with monthly fees.

Speaker Change: So about one time transactions like product sales or pay per view toward professional services revenues or the usage and consumption models at toga helps us power.

Speaker Change: Total monetization is about mixing multiple business models in a way that maximizes the value your innovations and your target market and so we see this with companies like the New York Times, which transport that unbundle, how that offers products like games are cooking or news or sports alongside.

Speaker Change: It's traditional offerings and they've been able to see their annual digital subscription revenues with this strategy go beyond $1 billion a year.

Dean: And they've been able to see their annual digital subscription revenues go beyond a billion dollars a year. So if you look at the innovations and acquisitions that we have made over the last seven years, revenue recognition, payment orchestration, consolidated billing, Zephyr, consumption billing, and now usage metering and rating with the acquisition of Togai, we are no longer just a billing company. We are building what I'll call a total monetization software stack for powering any business model.

Speaker Change: So if you look at the innovation and acquisitions that we've made over the last seven years revenue recognition payment orchestration consolidated billing zephyr consumption billing now usage metering and meeting with the acquisition of Toga, we are no longer just a billing company.

Speaker Change: We are building what I'll call a total monetization software stack for powering any business model.

Dean: And what's unique about this platform is that it's totally modularized, so you can start with billing or metering or revenue or payment. And so when you look at our customer base, you see that we own the entire billing layer in some companies, and for other companies, we're the entire payments layer or the entire revenue layer. Ultimately, our strategy is to be able to land with a new logo where our customer's pain point is greatest, and then expand with them over time across the entire order to revenue process.

Speaker Change: What's unique about this platform is that it's totally modular rise. So you can start with billing or metering or revenue or payments.

Speaker Change: So when you look at our customer base, you see us owning the entire billing layer in some companies.

Speaker Change: Other companies, where the entire payments later or the entire revenue layer.

Speaker Change: Similarly, our strategy is to be able to land with a new logo, where our customers' pain point is greatest and an expansion with an over time across the entire order to revenue process.

Dean: In fact, this is our own total monetization strategy. And so, in summary, we believe that our bigger opportunity is to power a company's total modernization strategy and not just simply be a billing provider. We believe the innovations and acquisitions that we've made over the last few years put us in the best position to deliver all the technologies needed to capture this emerging opportunity, and Togai is another key step in that journey, especially around the usage-based models that are exploding due to Gen-AI and IoT.

Speaker Change: In fact, this is our own total monetization strategy.

Speaker Change: So in summary, we believe that our bigger opportunity is to power a company's total monetization strategy and not just simply be 8 billion provider. We believe the innovations in acquisitions that we've made over the last few years put us in the best position to deliver all the technologies needed to cash.

Speaker Change: This emerging opportunity and toga is another key step in that journey, especially around the usage based models that are exploding due to gen AI and Iot.

Dean: We believe our modular approach is critical to enabling the broader land and expand strategy within our growing product portfolio that you've heard us talking about in recent quarters. And finally, we are committed to driving sustainable, profitable growth as we lead in this new era. Finally, we hope you'll join us at subscribe live on June 26 in the Bay Area to learn more from our customers as we help them monetize every part of their business. With that, let me turn over the call to Todd to review our financial, [inaudible]

Speaker Change: We believe our modular approach is critical to enabling the broader land and expand strategy within our growing product portfolio that you've heard us talking about in recent quarters and finally, we are committed to driving sustainable profitable growth as we lead in this new era final.

Speaker Change: We hope you'll join US as described live on June 26 in the Bay area to learn more from our customers as we help them monetize every part of their business.

Speaker Change: With that let me turn over the call to Todd to review our financials.

Todd E. McElhatton: Thank you, Dean. And thank you everyone for joining our call. In Q1, our subscription revenue and total revenue were at the high end of our range as we continue to make strides in our profitability. We exceeded the range for our non-GAAP operating income and expanded our adjusted free cash flow by $18.4 million compared to last year. During the quarter, we continued to experience similar buyer behavior as we've seen in the last several quarters, with longer sales cycles and fewer transformational deals.

Scott: Scott. Thank you team and thank you everyone for joining our call.

Scott: In Q1, our subscription revenue and total revenue were at the high end of our range as we continue to make strides in our profitability we exceeded the range for our non-GAAP operating income and expanded our adjusted free cash flow by $18 $4 million compared to last year.

Scott: During the quarter, we continued to experience similar buyer behavior as we've seen in the last several quarters with longer sales cycles and fewer transformational deals.

Todd E. McElhatton: ARR growth and DBRR for the quarter were impacted by customer churn, including those discussed during our last earnings call. As a reminder, customer churn was already factored into our guidance for Q1, and we expect our growth to accelerate in the second half of the year. Despite these headwinds, we're making good progress towards exiting the year at a Rule of 30 run rate, including absorbing the expenses associated with our recent TOGAI acquisition. We had record quarterly performance for non-GAAP operating margin and adjusted freeze cash flow. Now, I'll run through our financial results.

Scott: Our growth and <unk> for the quarter were impacted by customer churn <unk>.

<unk> those discussed during our last earnings call.

Scott: As a reminder, the customer churn was already factored into our guidance for Q1, and we expect our growth to accelerate in the second half of the year. Despite these headwinds we're making good progress towards exiting the year at a rule of 30 run rate.

Scott: Including absorbing the expenses associated with our recent <unk> acquisition, we had record quarterly performance for non-GAAP operating margin and adjusted free cash flow.

Scott: Now I'll run through our financial results.

Todd E. McElhatton: Subscription revenue in Q1 was $99 million, growing 10% year over year. Professional Services revenue came in at $10.8 million, which was at the high end of our outlook, representing a decrease of 19% year over year. Professional Services revenue was 10% of total revenue. We expect our professional services revenue mix to slightly decrease over time as we continue to expand our partnerships with SI. Non-GAAP subscription gross margin in Q1 was 81%, up nearly 100 basis points year-over-year. This improvement is driven by continued efficiency optimization with our hyperscaler.

Scott: Subscription revenue in Q1 was $99 million growing 10% year over year professional services revenue came in at $10 $8 million, which was at the high end of our outlook, representing a decrease of 19% year over year professional services revenue was 10% of total revenue.

Scott: We expect our professional services revenue mix to slightly decrease over time as we continue to expand our partnerships with <unk>.

Scott: non-GAAP subscription gross margin in Q1 was 81%.

Scott: Nearly 100 basis points year over year.

Scott: This improvement is driven by continued efficiency optimization with our hyper scaler.

Todd E. McElhatton: As a reminder, in Q3 and Q4 of Fiscal 24, we benefited from one-time vendor credit. Non-GAAP professional services gross margin in Q1 was negative 14%, a decline from negative 3% in Q1 of last year. Similar to last quarter, this was expected as a result of our continued investment in customers. For the remainder of the year, you can expect margins to improve, with the professional services margin being in the negative mid single-digit range for the whole year.

Scott: As a reminder, in Q3 and Q4 of fiscal 'twenty four we benefited from one time vendor credits.

Scott: non-GAAP professional services gross margin in Q1 was negative 14% decline from negative 3% in Q1 of last year.

Scott: Over the last quarter. This was expected as a result of our continued investment in customers.

Scott: For the remainder of the year, you can expect margins to improve with professional services margin being in the negative mid single digit range for the full year.

Todd E. McElhatton: Our Q1 non-GAAP blended gross margin was 72%, an increase of over 230 basis points year-over-year. Our Q1 non-GAAP operating income was $18.6 million, exceeding the high end of our guidance by $2.6 million, representing a non-GAAP operating margin of 17%. During the quarter, we remain disciplined in our spending; expansion of our operating margin is a key objective toward our goal of exiting the year at a rule of 30 run rate. Our fully diluted share count at the end of the quarter was approximately 185.1 million shares using both the treasury stock and if converted method.

Scott: Our Q1 non-GAAP blended gross margin was 72% an increase of over 230 basis points year over year.

Scott: Our Q1 non-GAAP operating income was $18 6 million exceeding the high end of our guidance by $2 6 million.

Scott: Resenting, a non-GAAP operating margin of 17%.

Scott: During the quarter remained disciplined in our spending expansion of our operating margin is a key objective toward our goal of exiting the year at a rule of 30 run rate.

Scott: Our fully diluted share count at the end of the quarter was approximately $185 1 million shares using both the treasury stock and if converted method.

Todd E. McElhatton: Let's dive into some of our key metrics for the quarter. The dollar base retention rate ended at 104%, down two percentage points quarter over quarter and down four percentage points year over year. The decrease in DBR was primarily driven by the term we discussed in our last call and foreign exchange. Without the FX headwind, DVRR would have been 105%.

Scott: Let's dive into some of our key metrics for the quarter.

Scott: <unk> retention rate ended at 104% down two percentage points quarter over quarter and down four percentage points year over year.

Scott: The decrease in DVR was primarily driven by the churn we discussed in our last call and foreign exchange with.

Scott: Without the FX headwind DVR would've been 105%.

Todd E. McElhatton: In Q1, total RPO ended at $581 million, growing 15% year over year; noncurrent RPO was up 23% year over year to $256 million. We had a number of multi-year renewals in the quarter as customers continue to grow on our platform. At the end of Q1, we had 451 customers with an annual contract value at or above $250,000. This is up 15 customers year over year, but down 10 sequentially. During the quarter, some of the customers in this cohort downsized below the threshold, reflecting the impact of the macro environment on their business.

Scott: In Q1 total <unk> ended at $581 million growing 15% year over year.

Non current Rps was up 23% year over year to $256 million, we have a number of multi year renewals in the quarter as customers continue to grow on our platform.

Scott: At the end of Q1, we had 451 customers with an annual contract value at or above $250000.

Scott: This is up 15 customers year over year, but down 10 sequentially during.

Scott: During the quarter some of the customers in this cohort downsize below the threshold.

Scott: Correcting the impact of the macro environment on their business.

Todd E. McElhatton: We remain focused on the enterprise space, and this cohort represents 84% of our ARR. In Q1, we closed two deals with an ACB of $500,000 or more, down from four in Q1 of last year. This includes two deals over $1 million, up from one last year. ARR grew 8% in Q1, reaching $404.4 million. Adjusted pre-cash flow was $31.4 million for the quarter, a significant incremental improvement of over $18 million compared to Q1 of last year.

Scott: We remain focused on the enterprise space and Thats cohort represented 84% of our IRR.

Scott: In Q1, we closed two deals with ACB of $500000 or more down from four in Q1 of last year.

Scott: This includes two deals over $1 million.

Scott: From one last year.

<unk> grew 8% in Q1, reaching $404 $4 million.

Scott: Adjusted free cash flow was $31 4 million for the quarter, a significant incremental improvement of over $18 million compared to Q1 of last year.

Todd E. McElhatton: Like other SaaS companies, our Q1 typically benefits from Q4 higher billing seasonality, and we expect more normalized trends for the rest of the year. As a reminder, adjusted free cash flow does not include acquisition rating costs and other matters.

Scott: Like other SaaS companies are Q1, typically benefit from Q4 higher billing seasonality and we expect a more normalized trends for the rest of the year.

Scott: As a reminder, our adjusted free cash flow does not include acquisition related costs and other matters.

Todd E. McElhatton: Turning to the balance sheet, we ended the quarter with $547 million in cash and cash equivalents, a sequential increase of $33 million. Total CapEx for the quarter was $2.7 million. Before we discuss guidance, I'd like to provide some color on our recent token acquisition. As Tien noted, Togai will bolster our consumption capabilities, and we expect it will broaden our ability to land and expand.

Scott: Turning to the balance sheet, we ended the quarter with $547 million in cash and cash equivalents, a sequential increase of $33 million.

Total capex for the quarter was $2 7 million.

Scott: Before I discuss guidance I'd like to provide some color on our recent tuck in acquisition.

Tim: As Tim noted Tokai will bolster our consumption capabilities and we expect it will broaden our ability to land and expand.

Todd E. McElhatton: From a financial standpoint, Togai's revenue is negligible, and we expect to absorb their operating costs. We are assuming the current macro trends will continue, and this is reflected in our guidance. For Q2, we currently expect subscription revenue of $101 to $102 million, professional services revenue of $10.5 to $11.5 million, total revenue of $111.5 to $113.5 million, and non-GAAP operating income of $17.5 to $19.5 million. A non-GAAP net income per share of $0.09 to $0.10, assuming a weighted share is outstanding, of approximately $149.4 million.

Tim: From a financial standpoint, <unk> revenue is negligible and we expect to absorb their operating costs.

Tim: We are assuming the current macro trends continue and this is reflected in our guidance.

Tim: For Q2, we currently expect subscription revenue of $101 million to $102 million professional services revenue of 10, 5% to $11 $5 million.

Tim: Total revenue of 111, 5% to $113 $5 million.

Tim: non-GAAP operating income of $17 five to $19 5 million.

Tim: And non-GAAP net income per share of 9% to 10.

Tim: Assuming a weighted shares outstanding of approximately $149 4 million.

Todd E. McElhatton: For the full fiscal year 2025, we are maintaining our top line outlook and raising our non-GAAP operating income range while absorbing the operating expense impact of COGAI. We currently expect subscription revenue of $410 to $414 million and professional services revenue of $41 to $45 million. Total revenue of $451 to $459 million, non-GAAP operating income of $80 to $82 million, and non-GAAP net income per share of $0.41 to $0.43, assuming a weighted average share is outstanding, of approximately $151 million. For the fiscal year, we're maintaining our guidance for DBRR of 104 to 106% and ARR growth between 8 and 10%. However, we could slip slightly below the range in Q2 and Q3.

For the full fiscal year 2025, we are maintaining our top line outlook and raising our non-GAAP operating income range, while absorbing the operating expense impact of koga.

Tim: We currently expect subscription revenue of $410 million to $414 million professional services revenue of 41% to $45 million total.

Total revenue of $451 million to $459 million non.

Tim: non-GAAP operating income of $80 million to $82 million.

And non-GAAP net income per share of <unk> 41 to 43, assuming a weighted average shares outstanding of approximately $151 million.

Tim: For the fiscal year, we're maintaining our guidance for <unk> of 104% to 106% NAR growth between 8% and 10%. However, we could slip slightly below the range in Q2 and Q3.

Todd E. McElhatton: You will continue to see us drive our bottom line leverage and maintain our goal of exiting fiscal 2025 at a Rule 30 run rate. As a reminder, we define the Rule of 30 as a sum of year-over-year subscription revenue growth plus non-GAAP operating margin. We maintain our guidance of free cash flow of $80 million or greater for the full year. We continue to expect annual share dilution of approximately 4% for Fiscal 25. 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.

Tim: You will continue to see us drive our bottom line leverage and maintain our goal of exiting fiscal 2025 at a rule 30 run rate.

Tim: As a reminder, we define the rule of 30 as a sum of year over year subscription revenue growth plus non-GAAP operating margin.

Tim: We maintain our guidance, our free cash flow to be $80 million or greater for the full year.

Tim: We continue to expect annual share dilution of approximately 4% for fiscal 'twenty five.

Tim: For this purpose dilution is calculated as the number of equity awards granted net of forfeitures during the fiscal year.

Tim: <unk> by the total shares outstanding at the end of the fiscal year.

Todd E. McElhatton: We're committed to driving higher operating income and free cash flow. Acquisitions like Togai will allow us to attract new customers and accelerate growth for usage-based models across our customer base. We've shown consistent progress in our ability to drive improvements in profitability and adjusted free cash flow as a market leader in a mission-critical category. With that, Tien, Robby, and I will take your questions, and I'll turn it over to the operator.

Tim: We're committed to driving higher operating income and free cash flow acquisitions like <unk> will allow us to attract new customers and accelerate growth for usage based models across our customer base. We have shown consistent progress in our ability to drive improvements in profitability and adjusted free cash flow as a market.

Tim: Peter and a mission critical category.

With that team Robin I will take your questions and I'll turn it over to the operator.

Operator: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the team. And your first question comes from the line of Joshua Reilly with Needham. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Go ahead and joined the team if you would like to withdraw your question simply press Star. One again, if you are called upon to ask a question in our listening via loud speaker on your device. Please pickup your handset and sure that your phone is not on mute.

Speaker Change: And your question.

Speaker Change: Press Star one to join the team.

Speaker Change: And your first question comes from the line of Joshua Reilly with Needham. Please go ahead.

Joshua Christopher Reilly: All right, thanks for taking my questions. And nice job on executing on the profitability goals here. In terms of the macro, can you help us understand what the level of visibility you have right now and on demand is? And has that changed over the last couple quarters? And then, along with that, as partners have sourced more deals, I think you were kind of alluding to this in the script, has there been any change in your overall visibility into deal flow through partners?

Joshua Christopher Reilly: Alright, Thanks for taking my questions and nice job on executing on the profitability goals here.

Joshua Christopher Reilly: In terms of the macro can you help us understand what's the level of visibility you have right now into demand and has that changed over the last couple of quarters, and then along with that as partners and source more deals.

Speaker Change: I think you were kind of alluding to this in the script.

Speaker Change: Has there been any change in your overall visibility into deal flow through partners.

Dean: Yeah, I'll jump in, and Robbie, feel free to add any color. But we still have good visibility in the pipe. We still feel good about the pipe. There's still demand, certainly, for changing business models. We really try to highlight, though, especially when you look at new logos, that companies are cautious about large deals. And so, you know, you can define "large" in many different ways.

Speaker Change: Yeah I'll jump in then Ravi feel free to add any color.

Speaker Change: But we still have good visibility in the pipe, we still feel good about the pipe. There is still demand certainly for shifting this subscription business models and what we really try to highlight though especially when you look at new logos as companies are cautious about the large deals.

So you can define large many different ways, but if we will just say is these are seven digit deals youre seeing companies continue to hesitate to pull the trigger on signing up a new vendor at that seven digit level and so we're not seeing those deals necessarily go away but.

Dean: But if we'll just say these are seven-digit deals, you're seeing companies continue to hesitate to pull the trigger on signing up a new vendor at that seven-digit level. And so we're not seeing, you know, those deals necessarily go away. But we're continuing to see companies cautious about those deals. And certainly, if you compare where the business has been historically from a multiyear perspective, that does continue to be a drag.

Speaker Change: And we see companies cautious about those deals and certainly if you compare.

Speaker Change: Where the business has been historically from a multiyear perspective that does continue to be a drag.

Robert J. E. Traube: Yeah, I think, you know, Tien, to your point, they're a key part of our strategy and, you know, we have a very partner-first focus. The other thing is, you know, in the same way we closed toast, you know, as a deal, for example, in the previous Q4, last quarter, we closed an equally sized opportunity again, going from revenue, and it was co-sold with a partner. So we do see continued traction there. Yeah, maybe

Speaker Change: Yes and.

Speaker Change: I would say and to your point there are a key part of our strategy.

Speaker Change: We have a very partner first focus.

Speaker Change: The other thing as you know in the same way we closed.

Speaker Change: The deal for example in the previous Q4 last quarter, we close an equally sized opportunity again going from revenue and it was co sold with a partner. So we do see continued traction that yes, maybe just to bridge. The two comments there given that what we have done recently is too.

Dean: Yeah, maybe just to bridge the two comments there, given that what we have done recently is to bring partners more into our installed base. So you've seen as we focus on driving short-term growth by expanding our install base, the good news is we've got a solid enterprise customer base that has expansion opportunities, and we found some good success working with our partners in our install base, where perhaps two, three years ago, the focus there was primarily around new logos.

Speaker Change: Green partners more into our installed base, so you're seeing as we focus on driving short term growth from expanding our installed base. The good news is we've got a solid enterprise customer base that has expansion opportunities and we found some good success working with our partners in our installed base where perhaps.

Speaker Change: Three years ago. The focus there has been primarily around new logos.

Joshua Christopher Reilly: Got it, that's helpful. And then just on the sequential change in the customers above 250k being down 10 percent a quarter of a quarter. Can you just give us a sense for this? Should we expect this to continue to decrease throughout the course of the year? And, you know, how are you thinking about the importance of this metric, I guess, relative to historical?

Speaker Change: Got it that's helpful. And then just on the sequential change in the customers' above 250, K being down 10 quarter over quarter can you just give us a sense should we expect us to continue to decrease throughout the course of the year and.

Speaker Change: How are you thinking about.

Speaker Change: The importance of this metric I guess relative to historical.

Todd E. McElhatton: Hey, Josh, this is Todd. So thanks for asking the question. There are a couple pieces of color here that I think are really important to pick out. So I'm glad you asked about that.

Tod: Hey, Josh this is tod so thanks for asking the question.

Todd E. McElhatton: We did have a small group of customers that in this current cohort, small group, that had some challenges, and we've had to meet them where they are. And that was the primary reason that we saw a decrease in that. We might see a few more next quarter.

A couple of pieces of color. Good I think are really important to pick out. So I'm glad you asked about it we did have a small group of customers that in this current.

Nicole: And this curve and Nicole excuse me, we had a current.

Nicole: We had a group of customers in this cohort small group that have had some challenges and we've had to meet them, where they are and that was the primary reason that we saw a decrease in that we might see a few more next quarter happening, but the one thing that we really need to tease out of this metric that I don't think that Youre seeing is if you look at the ACB growth of our cohort of customers over.

Todd E. McElhatton: But the one thing that we really need to tease out of this metric that I don't think that you're seeing is that if you look at the ACV growth of our cohort of customers over 250K year over year, that is growing by more than 10%. And that's really important because that's one of the things that we said we wanted to land with the right customers. After we land with them, we have the ability to expand. And that's exactly what we're doing by focusing on the best customers so we can really maximize the revenue potential out of them over their lifetime.

Nicole: 250, K year over year that is growing by more than 10% and thats really important because thats one of the things that we said we want to land with the right customers. After we land with them that we have the ability to expand and that's exactly what we're doing with focusing on the best customers that we can really maximize the revenue potential out of them over the lifetime.

Dean: And philosophically, just to add to that, if there's a company that certainly, you know, needs a downsell, and we're looking at this $250K limit, our goal has to be to hold on to them as a longer-term customer, right? We've shown again and again that, when we hold on to customers for long periods of time, we're able to grow the account. So we're going to be smart about these things, but exactly what Todd said, if you look at the whole group as a cohort, they are expanding. And the other thing I'd add, Josh, is that our gross retention rate remains very consistent and just proves the stickiness of this product. And this is the mission-critical product that our customers are reliant on.

Speaker Change: And then it puts up quickly to just add to that when you look at look if there is a company that certainly.

Speaker Change: Needs the down sell and we're looking at this 2% to 50 K limit our goal has to be to hold onto that as a longer term customer right. We've shown again and again that when we hold onto customers for long periods of time, we are able to grow the account. So we're going to be smart about these things, but exactly what Todd said, if you look at the whole group as a cohort.

Speaker Change: Our expanded and the other thing I would add Josh is you know our gross retention rate remains very consistent and just proves the stickiness and it is a mission critical product that our customers are rely on time.

Unknown Attendee: Very helpful. Thanks, guys.

Speaker Change: Very helpful. Thanks, guys.

Josh: Thanks, Josh.

Adam R. Hotchkiss: Your next question comes from the line of Adam Hotchkiss with Goldman Sachs. Please go ahead.

Speaker Change: Your next question comes from the line of Adam Hotchkiss with Goldman Sachs. Please go ahead.

Adam R. Hotchkiss: Great, thanks for taking the questions. I guess to start, it would be great to get an update on the business churn, you know, some of the churn you mentioned last quarter. I know you mentioned two, and also, on the flip side of that, some multi-year renewals happening this quarter. So when reviewing some of your larger contracts and maybe some of your anticipated renewals for the rest of the year, what gives you confidence in the maintenance of DBRR and some of the other retention metrics versus where we are now?

Adam R. Hotchkiss: Great. Thanks for taking the questions I guess to start would be great to get an update on the business churn.

Unknown Speaker: Unknown Speaker

Speaker Change: Some of the churn you mentioned last quarter I know you mentioned too.

Speaker Change: And also on the flip side of that is multi year renewals happening this quarter. So when reviewing some of your larger contracts and maybe some of your anticipated renewals for the rest of the year. What gives you confidence in the maintenance of DVR and some of the other retention metrics versus where we are now.

Dean: Well, the number one thing is that it's a sticky product, and when we can certainly see the volume that customers are putting through the system, we know how much they contracted for. We have a sense of, look, are these companies doing well? Are they growing? Are they declining? Usually, for these subscription businesses, very few subscription businesses are actually shrinking. They're just not growing as fast as, you know, they might have been in previous years. And so, you know, that gives us a good, strong set of visibility into how the base should be performing for the next four quarters.

Speaker Change: Well the number one thing is it's a sticky product and when we can certainly see the volume that customers are putting through the system. We know how much. They contracted for we have a sense of look are these companies doing well are they growing or declining usually for the subscription business is very few subscription businesses are actually shrinking they're just not growing as fast as.

Adam R. Hotchkiss: They might have been in previous years, and so that gives us a good strong set of visibility into and to have the base should be performing for four called with next four quarters, yes, but I would just reemphasize here. Adam is there was no real change the expected churn that we talked about at the end of last year is what occurred we had a few customers that needed it.

Todd E. McElhatton: Yeah, but I would just kind of re-emphasize here, Adam, that there was no real change. The expected churn that we talked about at the end of last year is what occurred. We had a few customers that needed to do some right-sizing based upon the economics. Gross retention remains really consistent.

Adam R. Hotchkiss: Do some right sizing based upon the economics gross retention remains really consistent and we are comfortable with the 104 to 106 range for the full year.

Unknown Attendee: Okay, great.

Speaker Change: Okay great.

Speaker Change: Yes, that's one of the what I believe is the strength of our business the stickiness and the quality of our installed base.

Adam R. Hotchkiss: Got it. No, that's really helpful. Thanks. And then, you know, we've heard a lot from partners and businesses about the fairly rapid shift a lot of companies are making towards consumption billing. And I'd be curious if you could give us a sense of where we are there, maybe versus a year ago, on demand, and then what you've seen some of your larger billing competitors that maybe didn't play in the subscription space as a niche do, if at all, to address total monetization.

Speaker Change: Got it that's really helpful. Thanks, and then we've heard a lot from.

Speaker Change: From partners and businesses about the fairly rapid shift a lot of companies are making towards consumption billing and I'd be curious if you could give us a sense from where we are there maybe versus a year ago.

Speaker Change: On demand and then what you've seen some of your larger billing competitors that maybe didn't play in the subscription space is our niche.

Speaker Change: If at all to address total monetization.

Dean: Well, what we're so excited about this total monetization phrase is just to remind folks that, hey, you know, consumption is certainly on the upswing. But when you look over a long period of time, especially if you look at more mature industries like the telecom industry, you're going to always see a collection or a hybrid set of different ways of pricing, prepaid models, postpaid models, consumption, arrears, and advances, all sorts of things.

Speaker Change: Well they were.

Speaker Change: So excited about this total monetization phrase.

Speaker Change: Just to remind folks that hey consumption is certainly on the upswing, but when you look from a long period of time, especially if you look at more.

Speaker Change: Mature industries like the telecom industry, you're going to always see a collection or a hybrid set of different weaker pricing prepaid models postpaid models consumption arrears and advance all sorts of things.

Speaker Change: And so look we're excited about the capabilities that we have we talked about how our events consumption model.

Dean: And so, look, we're really excited about the capabilities that we have. We talked about how our advanced consumption model has, has, um, over 50 customers have signed up. One of the big drivers that Ravi talked about, right, a big call center application company that was a Zuora revenue customer that signed up for Zuora billing, that was also driven by the need to do consumption-based, you know, usage-based. So if you look at consumption-based models and you look at the call center market, you know, because of AI, it's one of the big areas where you're seeing consumption models explode, and we're certainly a beneficiary of that.

Speaker Change: Has.

Speaker Change: Over 50 customers signed up.

Speaker Change: One of the big drivers that Ravi talked about made a big call Center application company that was absorbed revenue customer they sign up resort billing that was also driven by the need to do consumption usage base. If you look at consumption based models. When you look at the call Center market.

Speaker Change: Because of AI, it's one of the big areas, where you see youre seeing consumption model to explode and were certainly a beneficiary of that and of course. The last thing was the <unk> acquisition right. When you look at these consumption models, we do a great job on that billing the rating capabilities, but more and more we're seeing developers hey, how do we even grab the data from our <unk>.

Dean: And of course, the last thing was the Togai acquisition, right? When you look at these consumption models, we do a great job on that billing, the rating capabilities, and more and more, we're saying to developers, hey, how do we even grab the data from our systems, put it in a place that can be metered, can be rated, where the salespeople can see it, and the customers can see it? And, you know, that turns out to be a big, big challenging space. Togai had a fantastic solution for it, and we're pretty excited about adding that company, that capability, and that new collection of great folks to our organization.

Speaker Change: Systems put into place that can be metered can be rated where the salespeople can see at the customers can see and that turns out to be a big big challenging space <unk> had a fantastic solution for it and we're pretty excited about adding.

The company that capability and that new collection.

Speaker Change: Great folks into our organization.

Unknown Attendee: Okay, that's great to hear. Thanks, Tien. Thanks, Todd.

Speaker Change: Okay, that's great to hear thanks, Steve Thanks, Todd.

Joseph Anthony Vafi: Your next question comes from the line of Joseph Vafi with Canaccord. Please go ahead.

Speaker Change: Your next question comes from the line of Joseph <unk> with Canaccord. Please go ahead.

Joseph Anthony Vafi: Hey guys, good afternoon. It's nice to see, you know, continued growth in the user base and some new logos here. Just one on Toga, I know you mentioned that current revenue there is kind of de minimis. I just wanted to drill down a little bit into, you know, how ready for prime Time the solution set is, given that they really don't have much revenue yet. Is it ready to sell and become part of your cross-sell efforts in the base now, or is there some more R&D that needs to be done before you roll it out? And then I'll have a quick follow-up.

Joseph: Hey, guys.

Good afternoon, and nice to see continued.

Joseph: Continued.

Joseph: Growth in the user base and some new logos here.

Speaker Change: One on <unk> I know you mentioned that current revenue there is kind of de Minimis, just wanted to drill down a little bit and too.

Speaker Change: How ready for Prime time that solution set is given that they really didn't have much revenue yet is it ready to sell and become part of our cross sell efforts in the base now or is there some more R&D that needs to be done before you roll it out and then I have a quick follow up thanks.

Dean: Yeah, look, this is when it comes to usage metering, you know, I'll call it usage capture metering rating. It's a fairly new space, you're really seeing two types of companies; you're really seeing young startups that are under two years old, and you're seeing maybe companies that could come out of the telecom sector that are 20, 30 years old, that they really have more dated old technology. We looked at them all, and I gotta say, we were most excited about the technology that this group of folks built. If you dig into their background, they're successful entrepreneurs; they've built successful companies in the past.

Speaker Change: Yes look this is when it comes to usage metering I'll call usage capture metering rating, it's a fairly new space you really seeing two types of companies, you're usually seeing John startups that are call. It under two years old and you're seeing maybe companies that could come out of the telecom sector that are 2030 years old that they really have more dated old technology.

Speaker Change: We looked at them all and I got to say we were most excited about the technology that this group of folks who built if you dig into their background their successful entrepreneurs. They build successful companies in the past we think it's a great product. We think it is ready for prime time, obviously, we're going to take.

Dean: We think it's a great product. We think it is ready for primetime. Obviously, you know, we're going to take, you know, call it weeks, not quarters, to do some integration of the products together. But we've already been showing this to our customer base and getting a lot of good positive responses.

Speaker Change: Call it weeks not quarters to do some integration of the products together, but we've been already obviously showing this to our customer base and getting a lot of good positive response.

Unknown Attendee: Unknown Attendee That's helpful. Thanks, Tien.

Speaker Change: Okay. That's helpful. Thanks, and then I know the large deal activity has slowed down but I think you did sign two in the quarter anything to note there on.

Joseph Anthony Vafi: And then I know the large deal activity slowed down, but I think you did sign two in the quarter. Anything to note there about kind of why those customers are moving forward? I guess a critical need or maybe, you know, changes in their operating environment that required it or whatever you want to add on that.

Unknown Attendee: Thanks.

Speaker Change: Kind of why those customers are moving forward I guess, a critical need or maybe no changes in their operating environment requires.

Speaker Change: Whatever you want to add on that thanks.

Dean: You know, other tasks and colors. I do want to stress that we are still seeing big deals. Where we're seeing big deals is in our customer base. And that really speaks to the quality, durability, and expansion potential that we have in our customer base. And again, I really do believe that that is the strength of the business. What we're seeing, though, is when a company is signing on a new vendor, they're going to be a little more cautious in that area. Yeah, I mean,

Speaker Change: Yes, I'll, let tod add some color, but I do want to stress that.

Speaker Change: We are still seeing big deals.

Speaker Change: We're seeing big deals is in our customer base and that really speaks to the quality durability and expansion potential that we have in our customer base.

Joe: We do believe that that is a strength of the business. What we're seeing though is when a company is signing on a new vendor, they're going to be a little more cautious in that area, yes, adding onto <unk> said, Joe as both of these were installed based customers and it really plays to the strength of the Saar product one of them, we're able to monetize as they continue to grow and take advantage of that and.

Robert J. E. Traube: Yeah, I mean, adding on to what Tien said, Joe, both of these were install-based customers, and it really plays to the strength of the Zuora product. One of them we're able to monetize as they continue to grow and take advantage of that, and the other one takes advantage of our having a multi-product portfolio. So they started with Zuora Revenue, and now we're moving them to Zuora Billing, and, in fact, that billing is a takeaway from a large competitor.

Joe: The other one takes advantage of our having a multi product.

Joe: Portfolio. So they started with zero revenue now, we're moving them to zoro billing and in fact that billing as a takeaway from a large competitor.

Unknown Attendee: Great. Nice win on that takeaway. And thanks for the call, guys. Much appreciated.

Speaker Change: Great Nice.

Speaker Change: Nice win on that takeaway and thanks for the color guys much appreciate it.

Speaker Change: Thanks, Joe.

Brent Thiel: Your next question comes from the line of Brent Thiel with Jessie's. Please go ahead.

Speaker Change: Your next question comes from the line of Brent Thill with Jefferies. Please go ahead.

Luv Bimal Sodha: Hi, this is Luv Sodha here for Brent Hill. Thank you, Tien and Todd, for taking my questions and Ravi as well.

Luv Bimal Sodha: Hi, This is love soda here for Brent Thill.

Speaker Change: Thank you Tina and Todd for taking my questions and <unk> as well.

Luv Bimal Sodha: Maybe the first one on ARR growth. So the sequential change in ARR declined pretty meaningfully this quarter. Could you help us parse out how much of the impact was from churn versus macro, and what gives you confidence that this could rebound in, you know, the second half of the year?

Speaker Change: Maybe the first one on AOR growth.

Speaker Change: So the sequential change in IRR was.

Speaker Change: It declined pretty meaningfully this quarter.

Speaker Change: Could you help us parse out.

Speaker Change: How much of the impact was from the churn versus macro.

And what gives you confidence that this could rebound.

Speaker Change: In the second half of the year.

Dean: Hello, thanks for the question. I didn't want to tease this out into three parts.

Speaker Change: Thanks for the question. So I don't want to tease this out into three parts. One is our expansion. The second is our new logo and a third of our churn and so on expansion. We felt we did really well there we did pretty much as expected and it really speaks to the quality of our customer installed base on.

Dean: One is our expansion. The second is our new logo. And the third is our churn. And so on expansion, we felt we did really well there; we did pretty much as expected. And it really speaks to the quality of our customer install base. On the new logos, we had a little bit of a slower start, but we always know that Q1 is our lightest quarter. And we're seeing a nice acceleration of the pipeline.

The new logos, we had a little bit of a slower start, but we always know that Q1 is our lightest quarter and we're seeing nice acceleration of the pipeline and that certainly is one of the things that gives us confidence for reaching the range for the full year and finally, the churn is what we talked about one time events, we talked about that last quarter and that played out as expected.

Dean: And that certainly is one of the things that gives us confidence about reaching the range for the whole year. And finally, the churn is what we talked about one-time events. We talked about that last quarter, and that played out as expected. So look, it's a challenging macro environment. But if I look at the quality of, especially our install base, which I think is going to drive an awful lot of our bookings this year, I look at our product, the pipeline, what happened, and what's happening with Togai, we believe we've got the material that we need to exit the year at 8 to 10% AR growth.

Speaker Change: So look if a challenging macro environment, but if I look at the quality of especially of our installed base, which I think is going to drive an awful lot of our bookings. This year I worked at our product the pipeline what happened what's happening with toga. We believe we've got the material that we need to exit the year at 8% to 10% AUR growth.

Luv Bimal Sodha: Got it. That's super helpful. And then just wanted to ask a quick follow-up on the efficiency initiatives that you have put in place. Could you just talk to us about what stage of the innings we are in, in terms of driving those efficiency initiatives, and is there more room in terms of pushing the inbound motion to deliver further profitability as the year goes on?

Speaker Change: Got it that's super helpful.

Speaker Change: And then just wanted to ask a quick follow up on the efficiency initiatives that.

Speaker Change: That you have put in place.

Could you just.

Speaker Change: Talk to us about.

Speaker Change: What stage of the innings are we in in terms of driving those efficiency initiatives.

Speaker Change: And.

Is there more room in terms of pushing the inbound motion to deliver further profitability as the year goes on.

Thank you.

Todd E. McElhatton: So thanks a lot, Luv, for that question also. I feel really good. We've done a lot of hard work on the cost structure. We have in place a very robust business. And frankly, you know, we've got the capacity to deliver a lot more revenue without adding a whole lot of incremental costs. That gives me a lot of confidence in being able to, you know, meet our profit objectives. In fact, as you saw, not only absorbing all of the tow guy costs, but I raised the midpoint of where our guidance is for profitability for the year. And we're never going to be done.

Speaker Change: So thanks, a lot low for that question also.

Speaker Change: I feel really good we've done a lot of hard work on the cost structure, we have in place a very robust business and frankly, we've got the capacity to deliver a lot more revenue without adding a whole lot of incremental costs. So that gives me a lot of confidence on being able to meet.

Speaker Change: Meet our profit objectives and back to you saw not only absorbing all of the <unk> cost, but I raised.

Speaker Change: The midpoint of where our guidance is for profitability for the year and we're never going to be done we're constantly taking a look at the where.

Todd E. McElhatton: We're constantly taking a look at where we are in the business, where we can sit there and make incremental improvements. And we're working on that. I think if you notice, for example, we are actually down about 10% in absolute dollars in our go-to-market spend. So we feel like there's still more room to continue to optimize and get more efficient. And we've also got the capacity to deliver a lot more revenue with the current structure we have in place.

Speaker Change: Where we are in the business, where we can sit there and get incremental improvements and we're working on that I think would be noticed for example, you know we actually in absolute dollars or down about 10% in our go to market spend so we feel like there is still more room to continue to optimize and get more efficient and we've also got the capacity to deliver a lot more revenue with the current structure we have in place.

Dean: Yeah, I mean, just in case, I'll ask for the maybe the flip side of the question, which I think is probably what you're asking. I'll give you a stat. We're generating more pipeline with fewer people than we did two quarters ago because we're just getting much more efficient and smart about it.

Speaker Change: Just in case.

Speaker Change: I'll ask maybe the flip side of the question, which I think is might be what you're asking.

Speaker Change: I'll give you a stat I think we're generating more pipeline with fewer people than we did two quarters ago, because we're just getting that much more efficient.

Speaker Change: And smart about it.

Luv Bimal Sodha: Got it. Perfect. Thank you.

Speaker Change: Got it perfect. Thank you.

Jacob Michael Stephan: We have time for one more question, and this comes from the line of Jacob Stephan of Lake Street. Please go ahead.

Speaker Change: We have time for one more question and this comes from the line of Jacob define of Lake Street. Please go ahead.

Jacob Michael Stephan: Hey guys, thanks for taking my questions here. Tien, I want to get some clarification. I think you made a comment about switching to kind of a new sort of lead generation strategy.

Jacob Michael Stephan: Hey, guys. Thanks for taking my questions here.

Keith: Keith I wanted to get some clarity I think you made a comment about switching to kind of a new sort of lead Gen strategy I just wanted to get any color that you have on that.

Speaker Change: Yes so.

Keith I: So I would say, it's an evolution not an entire change, but if you talk to other companies in the industry other SaaS companies.

Keith I: It feels like it up at a higher level rate in an industry level outbound cold, calling through business development reps does not paying off as well as it might have been 234 years ago, and if you look at our value prop.

Keith I: We certainly are the leading evangelists, the subscription economy, but youre seeing people really come to us for different needs. You can see we have a need now disservice to controller, we can service.

Keith I: <unk>.

Keith I: Our team we can service a developer and so we are switching more towards a classic inbound model and we're finding that to be much more efficient.

Keith I: And we're using more digital technologies versus human labor and as you might suspect AI tools are certainly a big big part of that as well. So we're just learning to be much more efficient in the current environment and how to generate pipeline and we think it is paying dividends.

Speaker Change: Okay, Yes understood.

Speaker Change: That's helpful maybe.

Speaker Change: Maybe just kind of the free cash flow question here you guys kept guidance at 80.

Speaker Change: Plus.

Speaker Change: You did 40% of that in Q1 here you guided up on adjusted operating income.

Speaker Change: Then you've also got a pretty sizable war chest on the balance sheet. So I mean, what are the capital allocation plans look like here.

Speaker Change: And in the future.

Speaker Change: Yeah. So thanks, a lot for the question. So Q4 remember we have a tremendous amount of billings.

Speaker Change: Billings as a lot of enterprise SaaS companies do so that drives a lot of our.

Collection activity that happens in the first quarter. So you always see a very strong Q1 that will normalize back to normal trends as we move through the year. So we're really comfortable about where the $80 million plus and so we're going to keep that where that is we're also absorbing the toga look we would expect to see from a capital allocation perspective similar.

Speaker Change: Let's say $3 million a quarter of Capex as we go through the rest of the year and then obviously you're right we've got a.

Speaker Change: A nice balance sheet, and we will continue to use out where it makes sense for acquisitions tuck ins like with co guy that will help us accelerate our growth and accelerate our product roadmap.

Speaker Change: I think thats exactly right I think the growth in free cash flow in the war chest as you put it are two big highlights to our story.

Speaker Change: It's a great time to have a lot of cash.

Speaker Change: Yes, yes, absolutely. Okay. That's helpful. Maybe just one more here.

Speaker Change: Todd you kind of mentioned Q2 and Q3.

Mike: Our growth Mike.

Speaker Change: While slightly below kind of that eight to 10 range.

Speaker Change: But just for clarification that the eight to 10 will be exiting the year I guess, what kind of gives you confidence in.

Speaker Change: The ramp up in Q4.

Mike: Yes, so we expect to exit the year at the 8% to 10% and as I said. It gives me confidence is extremely strong install base, what we're seeing from the needs from our customers. How we're seeing the pipeline develop and so when I look at pipeline development product installed based customers that gives us the confidence that we'll be able to exit the year at the eight to 10.

Mike: Present, AOR growth, including having a new meaningful product in our portfolio, let servicing this consumption billing demand certainly we're all seeing the marketplace.

Speaker Change: Okay got it that's helpful. Thanks, guys.

Tito: That concludes our Q&A session I will now turn the conference back over to Tito for closing remarks.

Tito: Thank you well. Thank you everyone for joining us today I want to offer up a big Thank you to all our Ceos, including the new Ceos that have joined us from Tokai <unk> commitment really is what powers our future in this new era of total monetization. Thank you all very much.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Dean: I just want to get any color that you have on that.

Dean: Yeah, so I would say it's an evolution, not an entire change. But if you talk to other companies in the industry, other SaaS companies, certainly, it feels like at a higher level, right, at an industry level, outbound cold calling through, you know, business development reps is not paying off as well as it might have been, you know, two, three, four years ago. And if you look at our value proposition, right, we certainly are the leading evangelist of the subscription economy.

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Dean: But you're seeing people really come to us for different needs; you can see, we have a need now to service a controller, we can service an AR team, we can service a developer. And so we are switching more towards a classic inbound model. And we're finding that to be much more efficient, and we're using more digital technologies versus human labor. And, you know, as you might suspect, AI tools are certainly a big, big part of that as well. So we're just learning to be much more efficient in the current environment and how to generate pipeline, and we think it's paying dividends.

Speaker Change: Yes.

Unknown Attendee: Okay, yeah, I understand. That's helpful.

Speaker Change: Okay.

Speaker Change: Yes.

Jacob Michael Stephan: Maybe just kind of, you know, I'll ask the free cash flow question here. You guys kept guidance at 80 million plus, you did 40% of that in Q1 here, and you got it up on adjusted operating income. And, you know, you've also got a pretty sizable war chest on the balance sheet. So, what do the capital allocation plans look like here in the future?

Speaker Change: Okay.

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Todd E. McElhatton: Yeah, so thanks a lot for the question. So, you know, in Q4, remember, we do a tremendous amount of billing, as a lot of enterprise SaaS companies do. So that drives a lot of our collection activity that happens in the first quarter. So, you know, you always see a very strong Q1, but that will normalize back to normal trends as we move through the year. So we're really comfortable about where the 80 million plus is going.

Todd E. McElhatton: So we're going to keep that where it is. We're also absorbing the tow guy. Look, we would expect to see, from a capital allocation perspective, similar, probably, let's say $3 million, a quarter of CapEx as we go through the rest of the year. And then, obviously, you're right; we've got a very nice balance sheet. And we'll continue to use that where it makes sense for acquisitions, tuck-ins like with Tow Guy, that will help us accelerate our growth and, you know, accelerate our product roadmap.

Dean: I think that's exactly right. I think the growth and free cash flow in the war chest, as you put it, are two big highlights in our story.

Todd E. McElhatton: It's a great time to have a lot of cash.

Speaker Change: No.

Speaker Change: Yes.

Speaker Change: Thanks.

Jacob Michael Stephan: Yeah, yeah, absolutely. Okay, that's helpful. Maybe just one more here. You know, Todd, you kind of mentioned in Q2 and Q3, ARR growth might fall slightly below kind of that 8 to 10 range. But just for clarification that the 8 to 10 will be exiting the year, I guess what gives you confidence in, you know, the ramp up in Q4?

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Todd E. McElhatton: Yes, so we expect to exit the year at 8 to 10%. And as I said, you know, what gives me confidence is the extremely strong installed base, what we're seeing from the needs of our customers, and how we're seeing the pipeline develop. And so when I look at, you know, pipeline development, and product install-based customers, that gives us the confidence that we'll be able to exit the year at 8 to 10% AR growth, including having a new,

Speaker Change: No.

Todd E. McElhatton: including having a new meaningful product in our portfolio that's servicing this consumption billing demand that we're all seeing in the marketplace.

Speaker Change: Yes.

Unknown Attendee: Okay, I got it. That's helpful. Thanks, guys.

Speaker Change: Yes.

Speaker Change: Okay.

Tien Tzuo: That concludes our Q&A session. I will now turn the conference back over to Tien Tzuo for closing remarks.

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Tien Tzuo: Thank you. Well, thank you everyone for joining us today. I want to offer up a big thank you to all our CEOs, including the new CEOs that have joined us from Togai. Our CEOs' commitment really is what powers our future in this new era of total monetization. Thank you all very much.

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Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. Please wait; the conference will begin shortly.

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