Q2 2025 Zuora Inc Earnings Call
zoora: good afternoon and welcome to zoora's second quarter of fiscal two thousand and twenty-five earnings conference call
Speaker Change: allline have been placed on mute to prevent any background noise
Speaker Change: and after the speaker's remarks so we'll be a question and answer session if you would like to ask a question during that time simply press star followed by the number one on your telephone ke pad and if youd like to withdraw that question again pressed star one
Luana Woke: thank you and with that i would now like to turn the call over to luana woke head of investor relations for introductory remarks please go ahead
Luana Woke: thank you good afternoon and welcome to zoroas secondquarter fit for two thousand and twenty five earnings conference call on the call had teenso nororth founder and chf executive officer
Speaker Change: tad to maccohattan stoorce chief financial officer
Speaker Change: robby taveer are president and two revenue officers will be joining us for the qna session
Speaker Change: during today's call will make statements that represent our expectations in the leefs concerning future events that may be considered forward-looking under federal securities law
Speaker Change: these statements reflects our views only as up today and should not be relied upon as representative of our views as of any subsequent date
Speaker Change: we disclaim any age obligation to update any forward-looking statements or outlook these statements are subject to several risks and uncertainties that could cause actual res to differ materially from expectations
Speaker Change: for further discussion of the material risks and other important factors that could affect our financial results please refer to a filings with the sec
Speaker Change: and finally unless otherwise noted our numbers except revenue mentioned today our non-gaap you can find a reconciliation from gaap to non-gaap results for both the current and the prior year period in today's press release
Youneam: our press release and a replay of today's call and the sound soor' investor relations website at investor that was wara com now i'll turn the call over to you ineam
ineam: thank you bolana and thank you everyone for joining zorrea second quarter fiscal two thousand andtwenty five earnings call
Speaker Change: looking back in the quarter i would say that this quarter was a solid follow up to our q one
Speaker Change: we continue to execute our land in expand strategy while navigating the current macro environment
Speaker Change: start with the numbers in q two description revenue was one hundred four million dollars of nine percent year-or-year
Speaker Change: we again exceed our guidance for non-gaap operating income coming in at twenty five point six million which acquis to a twenty two percent operating margin another quarterly record
Speaker Change: we generated adjusted free cash flow of twelve point two million dollars during the quarter
Speaker Change: and finally against the rule of forty framework which combines growth in profitability we closed the quarter at thirty-one
Speaker Change: this is a head of our goal for the full fiscal year
Speaker Change: looking beyond the numbers i would say that we continue to benefit from our customer base is some of the biggest invbestest companies in the world and this shows in two areas
Speaker Change: first this is the segment where the depth in breadth of our portfolio truly matters and second this install base continues to represent strong expansion opportunities for us that we can fuel through both ongoing organic innovations as well as targeted acquisitions
Speaker Change: on the first point let me give you an example from the quarter
Speaker Change: i am proud to welcome cambe as a new customer cama is a leading online design and visual communications platform they have over one hundred and ninety million monthly users that have created over twenty-five billion designs
Speaker Change: camppaa came disa as part of preparing for their next phase of growth across both their arebesc and enterprise offerings
Speaker Change: we made the difference to campup with our ability to combine billing and revenue to address their needs across the entire quote to revenue process and give them new speed and flexibility to drive their current and future pricing strategies
Speaker Change: in canva is not the exception in fact in q two half of our logos plought both resor of billy and orore revenue the power quote revenue
Speaker Change: on the second point once companiess like campaup become customers their growth in ever evolving needs represent strong expansion opportunities
Speaker Change: here are some examples of customers who expanded with us in q two
Speaker Change: for instance zillo group which includes the zilo truv and other brands that proves solutions to consumers and real estate professionals for buying selling financing and reking homes they began to use or a building a few years back in q two they added were revenue to automate their revenue recognition
Speaker Change: and additional sor payment modules provide customers with more flexible payment options
Speaker Change: another great example is a longtime customer aura a great example of fast-growing customer who has sold over two point five million smart rings thatattrack fitness level sleep and more they renewed and grew with us as our subscribedber base continues to grow
Speaker Change: we've also been working with a world leader in transportation e commerce and business services that generates over eighty billion dollars in annual revenue this customer is adopting usage bed billing models showing that this is not just a trend for technology companies
Speaker Change: and so in q two they added advanced consumption modules to turn their raw data into revenue with metering rating and billing
Speaker Change: how big are these expansion opportunity as well as you look at the two deals over one million dollars and more in acv that we've had in q two both came from within our installed base proof that our land in expand strategy is working
Speaker Change: and finally of course our enterprise customers realsots enhance our partnerships with leading system integrators in fact in q two more than half of our deals that were five hundred thousand dollars or more in acv were with in ssi partner
Speaker Change: now what's feelilling our land in expand strategy is of course our technology in our product portfolio
Speaker Change: last quarter i talked about how our vision is to build a complete monetization stack that helps our customers win with the strategy that we call total monetization
Speaker Change: what total monetization mean well there was a time
Speaker Change: a simpler time when a more traditional static subscription model was enough
Speaker Change: thekinds they are changing and so now we're seeing the best companies in the world introduce a wide range of monetization strategies such as maybe they allow customers to consume by the trip so called usage or consumption models that we talked about with this transportation companies
Speaker Change: or maybe they're unbundling and rebundling off their offerings to craft the perfect offering for each of other customers
Speaker Change: maybe they offer one time transactions
Speaker Change: such as keak review or single purchases before a custommer is ready to commit to something long termmaybe they offer prepaid models like the starbus called that manyof us of are familiar with that i used to buy my my coffees or maybe they employ hybrid model that nix match all of the above
Speaker Change: over time we believe the company will need to be able to monetize with any business model and this is what we mean by total monetization
Speaker Change: and we're seeing this concepts really resonates those of you who joined us at subscribe liveves in the bay area in june so these conversations are happening with our customers and prospects companies are coming to us and saying you captured the essence of what we're trying to do
Speaker Change: and so this vision is fueling our innovation
Speaker Change: three quick examples from the quarter
Speaker Change: first our advanced consumption billing vision in qtwo evvance consumption aling withone of our astest growing products and part driven by the rollout and monetization of ai features that you are seeing from almost all the technology vendors and a q two advance consumption billing is now totally enhanced
Speaker Change: with toguy the acquisition we announcedin q one in closing q two giving us some of the most advanced metering and rating technology in the marketplace today
Speaker Change: second in q two we also announce the acquisition of subbackxs to add new ai capabilities that will strengthen our zzeper products offering media companies in advanced ai powered paywall solution
Speaker Change: through reinforcement learning soubackx ce media companies but the right offer in front of the right customer maximizing subscribe acquisition in conversion all without manual testing and experimentation
Speaker Change: and since subx has already a or a partner with an integrated solution customers and immediately take aadmanantage of these new capabilities and in fact we already had joint customers like the financial times doing this today
Speaker Change: and third on the organic innovation side in q two we went deeper into intoizora payments enhancing our smart retri capabilities
Speaker Change: if a company is trying to collect a payment
Speaker Change: and that payment failed our smart re tri inzor payments analyzes over fifteen transaction characteristics such as you count monthly recurring revenue the currency to pving gateway to automatically wetry the fail tment at the most optimal time
Speaker Change: we're continuing to make the ai technology that power smch we try more and more advced than in q two alone we helped our customers recover over a one hundred and twenty million dollars in lost revenue with this mark retri capabilities that can increase
Speaker Change: of over forty percent year-over-year
Speaker Change: and finally this total monenzation strategy this message is resonating with the analyst community to
Speaker Change: earlier this month gardner one of the world's most respected andenttrusted inustry analyst runs recognized ora as a leader and a magic quadrant for recurring billing applications for the ora moonenzation ssuite
Speaker Change: facing us the furthest in completeness of vision
Speaker Change: that's not all all back in june we were rennamed a leader by isg research in some of you might know a former as b tenor research in all four of their subscription management fire guides b to b subscription management
Speaker Change: b to c subscription management description management platform and then all around description management offering ic classify zora as excentary out of twenty- four softw vendors we received the highest reading in each of the four buying guides
Speaker Change: and that's not all just last week orre revenue alter ranked and number one and product and strategy and ngi's twothreehundred and sixty ratings and fires guide in automated revenue management or a
Speaker Change: and now the last news from the quarter we released this quarter our latest global impact report showcasing the progress that we have made in our esc goals and initiatives
Speaker Change: we continue to be a carbon neutral company and in this year's report we took the next deep we committed to the science based targets initiative and are working on setting both near term and long-term greenhouse gas reduction goals including reaching net zero
Speaker Change: so to recap the quarter we continue to create new opportunities for our install base the land and expand with zorre as we build out our monetization stack
Speaker Change: this stack is helping the biggest and best companies in the world win with a total monenzation strategy
Speaker Change: our modular solutions both organic innovations and strategic acquisitions over the last few years give us what's needed to capture this opportunity and of course we continue to focus on delivering balanced growth and improved profitability
Tod: that i'll turn the call over to tod to review the financials for the quarter
Tod: thank you king and thank you everyone for joining our call in q two we' ceated guidance delivering solid results
Tod: we achieved the rule of thirty-two quarters ahead ofa plan including absorbing the expenses associated with a recent acquisition of toback as a reminder we define the rule thirty as a sum of year-over-year subscription revenue growth plus non-gaap operating margin
Tod: subscription revenue with one hundred four point one million dollars growing nine percent year-over-year
Tod: subscription revenue exceed expectations primarily due a higher revenue share from payment processor
Tod: professional services revenue came in at eleven point three million dollars representing a ten percent decrease yearover-year
Tod: professional services revenue was ten percent of total revenue and we continue to expect our professional services revenue mix to slightly decrease over time as we further expand our partnerships with si a little over a third of all book acv was partner influence
Tod: non-gaap subcription gross margin with eighty-two percent up over aone hundred and twenty-five basis points year-over-year
Tod: the improvement is driven by continued efficiency optimization with our hyper scalers as a reminder que three and q four of fiscal twenty-four we've been fitted from onetime vendor credits
Tod: non-gaap professional services gross margin was negative five percent consistent with q two of last year for aremainder of the year you can expect professional services gross margin to continue to be in the same range
Speaker Change: our non-gaap when the gross margin was seventy-three percent and the increase both over two hundred and sixty basis points year-over-year
Speaker Change: our non-gaap operating income was twenty five point six million dollars
Speaker Change: exceeding the high end of the guidance by six point one million dollars
Speaker Change: representing a record non-gaap operating margin of twenty two point two percent re research goal to operate at a rule of thirty two quarters earlier than plan while we expect to act of the yearu rule thirty run rate this metric can flxuate from quarter to quarter
Speaker Change: our fully diluted share count at theendofthe quarter was approximately one hundred and eighty five point nine million shares using both the treasury stock and if converted methods
Speaker Change: now let's dive into some of the key metrics for the quarter
Speaker Change: our dollar-based retention rate ended at one hundred and four percent flat quarter-over quarter and down three pointints yearover-year
Speaker Change: this decrease in ddrr year-over-year was primarily driven by the impact of churn which we cde out on prior calls
Speaker Change: as a reminder dvr is a trailing twelve month meter
Speaker Change: total rpo ended at five hundred and seventy- seven million dollars growing fourteen percent year-over-year
Speaker Change: noncurrent rpo was up twenty-one percent yearover-year to two hundred and fifty eight million dollars once again we had a large number of multiyear renewals in the quarter as customers continue to grow on our multiproduct platform
Speaker Change: at the m of q two we had four hundred and forty five customers with an annual conact value at or above two hundred and fifty thousand
Speaker Change: these customers represent approximately eighty-five percent of our err
Speaker Change: this is up one year over-year but down six sequentially
Speaker Change: we saw severalals or our customers consolidate into one contract due ammonade
Speaker Change: is worth noted that the to a r associated with the two hundred fifty thousand dollars greater cohort through by more than ten percent year overyear in addition customers in the five hundred thousand dollars great coalort they are grew by approximately seventeen percent
Speaker Change: we closed five deals with acd a five hundred thousand dollars or more down from seven in q two of last year
Speaker Change: this includes two deals over one million dollars up from one last year
Speaker Change: why we are still facing high levels of deals scrutiny especially a new business we are starting to see some positive trend on multiproduct deals as te noted half of our new local deals we closse included both revenue and billing
Speaker Change: r grew seven percent in q two reaching four hundred and twelve point three million dollars
Speaker Change: adjusted free cash flow was twelve point two mill dollars in the quarter up from four million dollars we generated last year
Speaker Change: and reminder adjusted free cash flow does not include acquisition-related costs and shareholder matters
Speaker Change: our adjusted free cash flow fluctuate on a quarterly basis through the timing of cash collections vender payment and seasonality
Speaker Change: as a result we believe it's best to assess our cash flow performance on an annual basis
Speaker Change: turning to the balance sheet
Speaker Change: we ended the quarter with five hundred and forty-three million dollars in cash and cash equivalent
Speaker Change: a sequential decrease of three point seven million dollars as a reminder we closed the toga acquisition in q two
Speaker Change: total capex for the quarter was three point three million dollars
Speaker Change: turning to guidance we assume the current challenging macro trend will continue into the second half with similar levels of gil scrutiny and along sales cylikeclus
Speaker Change: as second quarter of fiscal 2025 earnings conference call.
Unknown Attendee: as second quarter of fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise, and after the speakers remark, so we'll be a question and answer session. If you would like to ask a question during that time, simply press star, follow by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you.
Speaker Change: or q three we currently expect subscription revenue of one hundred and four pointy five to one hundred and five point five million dollars
Speaker Change: All lines have been placed on mute to prevent any background noise, and after the speakers remark, so we'll be a question and answer session.
Speaker Change: professional services revenue of ten point five to eleven point five million dollars
Speaker Change: If you would like to ask a question during that time, simply press star, follow by the number one on your telephone keypad.
Speaker Change: total revenue of one hundred and fifteen two one hundred and seventeen million dollars nineon-gaap operating income of twenty point five to twenty one point five million dollars
Speaker Change: And if you'd like to withdraw that question, again, press star one.
Unknown Attendee: And with that, I would now like to turn the call over to Luana.
Speaker Change: nineon-gaap net income per share of eleven to twelve cent assuming a weighted average shares outstanding are proctly one hundred and fifty two point five million
Luana Wolk: Luana Wolk, head of investor relations for introductory remarks. Please go ahead. Thank you.
Speaker Change: Thank you.
Tien Tzuo: Good afternoon and welcome to Zora's second quarter of fiscal 2025 earnings conference call. On the call, we had team Zora's founder and chief executive officer, and Todd McElhatton, Zora's chief financial officer.
Speaker Change: for the full fiscal year twenty-five we are raising both our revenue outlook and our non-gaap operating income ranges as well as increasing our target for adjusted free cash flow
Speaker Change: And with that, I would now like to turn the call over to Lou Luana Wolk, head of investor relations for introductory remarks.
Speaker Change: is worth noting that the subscription revenue includes the revenue share from payment processors that are not included in the ar for the operating income i want to point out that we're also absorbing the expenses from both of our recent acquisitition within the updated guidance
Unknown Attendee: Robbie Trauber, our president and chief revenue officer will be joining us for the Q&A session. During today's call, we'll make statements that represent our expectations and beliefs concerning future events that may be considered forward looking under federal security 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 dates. We disclaim any other obligation to update any forward looking statements or outlooks.
Speaker Change: Please go ahead.
Speaker Change: Thank you.
Speaker Change: we currently expect subscription revenue of four hundred and fourteen point five million to four hundred and sixteen point five million dollars
Speaker Change: professional services revenue of forty-one to forty-five million dollars
Speaker Change: total revenue of four hundred and fifty five point five a four hundred and sixty one point five million dollars
Unknown Attendee: These statements are subject to several risks and uncertainties that could cause actual reveals to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to a filing with the FTC. And finally, unless otherwise noted, our numbers except revenue mentioned today are non-GAP. You can find a reconciliation from GAP to non-GAP results for both the current and the prior year periods in today's press release.
Speaker Change: nineon-gaap operating income of ninety and ninety three million dollars nongaap net incomeper share of fifty six fifty eight cents assuming a weighted average shairres outstanding of aapproperately one hundred and fifty point ninein million
Speaker Change: based on current buying behavior we believe it is prudent to adjustour outlook for the fiscal year with dvr to be between one o three and one four percent and a r growth of approximately six percent
Tien Tzuo: A press release and a replay of today's call can be found on Zora's investor relations website at investor.zora.com. Now I'll turn to call over to you teams. Thank you, Volana.
Speaker Change: double clickking on a r we have a robust pipeline with and healthy opportunities within our install-based customers
Speaker Change: Good afternoon, and welcome to Zora's second quarter of fiscal 2025 earnings conference call.
Speaker Change: but given the current environment i remain prudent about how we said expectations for the second half as a precise timing can be difficult to predict
Tien Tzuo: And thank you everyone for joining Zora's second quarter fiscal 2025 earnings call. Looking back in the quarter, I would say that this quarter was a solid follow-up to our Q1. We continue to execute our land in expand strategy while navigating the current macro environment. Let's start with the numbers. In Q2, description revenue was $104 million, up 9% year over year. We again exceeded our guidance for non-GAP operating income, coming in at 25.6 million, which equates to a 22% operating margin, another quarterly record.
Speaker Change: On the call, we had team Zora's founder and chief executive officer, and Todd McElhatton, Zora's chief financial officer.
Speaker Change: we will continue to see us drive our bottom line leverage and maintain our goal of exc fiscal two thousand and twenty five at a rule of thirty run rate
Speaker Change: Robbie Trauber, our president and chief revenue officer, will be joining us for the Q&A session.
Speaker Change: During today's call, we'll make statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal security law.
Speaker Change: thank through our solid performance in q two we are increasing our guidance for adjusted free cash flow to be eighty two million dollars are greater for the full year
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 dates.
Speaker Change: We declare any other obligation to update any forward-looking statements or outlooks.
Speaker Change: to close out i speak with a lot of cfo and i'm convinced we have the right product to give companyies the tools and aagility needed to monetize the business models of today and tomorrow
Speaker Change: gardenner ig software research and ng i had declared our market leadership in this mission critical category
Tien Tzuo: We generated adjusted free cash flow of $12.2 million during the quarter. And finally, against the rule of 40 framework, which combines growth and profitability, we closed the quarter at 31. This is ahead of our goal for the full fiscal year. Looking beyond the numbers, I would say that we continue to benefit from our customer base as some of the biggest and best companies in the world. And this shows in two areas.
Speaker Change: These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: and the current environment we have taken the opportunity to dial in our cost structure and drive durable improvement and operating margins and free cash flow this will give us the ability to drive more efficient growth in the future while maintaining for expanding margins
Speaker Change: For further discussion of the material risks and other important factors that could affect our financial results, please refer to a filing with the FTC.
Speaker Change: And finally, unless otherwise noted, our numbers except revenue mentioned today are non-GAP. You can find a reconciliation from GAP to non-GAP results for both the current and the prior year periods in today's press release.
Speaker Change: A press release and a replay of today's call can be found on Zora's investor relations website at investor.zora.com.
Speaker Change: with that theam rob and i will take your questions and i'll turn it over to the operator
Speaker Change: Now, I'll turn the call over to you teams.
Speaker Change: thank you we will now begin the question and answer session if you would like to ask a question please press star one on your telephone ke hadad to raise your hand join the queq and if you like to withdraw that question again press star one your first question comes from adam hodchgis with goldman sas please go ahead
Speaker Change: Thank you, Volana, and thank you everyone for joining Zora's second quarter fiscal 2025 earnings call.
Tien Tzuo: First, this is the segment where the depth and breadth of our portfolio truly matters. And second, this install base continues to represent strong expansion opportunities for us that we can fuel through both ongoing organic innovations as well as targeted acquisition. On the first point, let me give you an example from the corner.
Speaker Change: Looking back in the quarter, I would say that this quarter was a solid follow-up to our Q1.
Speaker Change: We continue to execute our land in expand strategy while navigating the current macro environment.
Adam Hodchgis: great thanks so much for taking a question eight te i guess on the total monetization point you know you noted that business model changes particularly around consumption billing or something that that you're seeing and folks other folks in the industry are seeing
Adam Hodchgis: Let's start with the numbers.
Tien Tzuo: I am proud to welcome Canva as a new customer. Canva is the leading online design and visual communications platform. They have over 190 million monthly users that have created over 25 billion designs. Now Canva came to Zora as part of preparing for their next phase of growth across both their B2C and enterprise offerings. We've made the difference to Canva with our ability to combine billing and revenue to address their needs across the entire quote-to-revenue process and give them new speed and flexibility to drive their current and future pricing strategies.
Adam Hodchgis: what's the plan to take advantage of that from a a monetization perspective and when you look two or three years out what of the impacts of financials and sort of variables that you look at i get you excited about that business
Speaker Change: wellby the way i look at total monenzation and appreciate the question out him is it really allows us to continue the journey we bought them on in many ways you can think of it almost as an act to where the first pe of the company was really offering
Speaker Change: billing the companies that were pure subscription businesses right companies like zoom companies like new york times
Tien Tzuo: And Canva is not the exception. In fact, in Q2, half of our logos plot both Zora billing and Zora revenue to power quote-to-revenue. On the second point, once companies like Canva become customers, their growth in ever evolving needs represent strong expansion opportunities. Here are some examples of customers who expanded with us in Q2. For instance, Zillow Group, which includes the Zillow Trulia and other brands that provide solutions to consumers and real estate professionals for buying, selling, financing, and renting homes.
Speaker Change: In Q2, description revenue was $104 million, up 9% year over year.
Speaker Change: in total modernization is to say look
Speaker Change: now this subscription businesses and recurring build models becoming more publicouly
Speaker Change: We again exceeded our guidance for non-GAP operating income, coming in at 25.6 million, which equates to a 22% operating margin, another quarterly record. We generated adjusted free cash flow of $12.2 million during the quarter.
Speaker Change: companies are really looking to be much more sophisticated and blend
Speaker Change: these different business models together so it's not just about subdescription it's about consumption
Speaker Change: it's about one time fees it's the outcome based fees it's about really mixing all these things
Speaker Change: and customizing the right business model in the right pricing model for the customer is so i see this is an opportunity for us to really go beyond billing
Speaker Change: go beyond description revenue
Speaker Change: and we're seeing just that the message really resonate with our customer base and we're seeing the analyst community really hey total monetization makes sense
Tien Tzuo: They began to use Zora billing a few years back and in Q2, they added Zora revenue to automate their revenue recognition and additional Zora payment modules to provide customers with more flexible payment options. Another great example is a longtime customer Aura, a great example of a fast-growing customer who has sold over 2.5 million smart rings that track fitness levels sleep and more. They renewed and grew with us as their subscriber base continues to grow.
Speaker Change: we can see how you really need an and solution that billing revenue payments and more and so you know when i look at total monezation it's really a message just that's resonating with our customer base and really allows us to continue our leadership position ideally for many years to come
Tod: okay great that's really helpful and then tod just on the revisions lower on er r and n r for the year pparse it out for usa little bit how much of that is just
Tien Tzuo: We've also been working with a world leader in transportation e-commerce and business services that generates over $80 billion in annual revenue. This customer is adopting usage-based billing models showing that this is not just a trend for technology companies. In Q2, they added advanced consumption modules to turn their raw data into revenue with metering, rating, and billing. How big are these expansion opportunities? Well, if you look at the two deals over $1 million or more in ACB that we've had in Q2, both came from within our install base.
Speaker Change: added conservatim around the environment versus anything in particular you saw in the quarter you knowi guess we're just trying to understand to what extent you think sales cycles or or maybe a little bit more alongated and that's lasted a little bit longer than you previously thought you know versus just taking an added level of conservatism
Speaker Change: sure adam i really want to be prudent as we put together our forecast we take the guidance very seriously and we want to meet it on a quarter -by quarter basis
Speaker Change: if you take a look at what we're seeing here in have to as i mentioned we have some media deals they'rein our installed base and you know timing can be challenging to predict and so i really want to make sure that i give you something that we're very confident that we can absolutely achieve and based on the current environment at the six percent is the
Tien Tzuo: This is proof that our land in expand strategy is working. And finally, of course, our enterprise customers also only hand our partnerships with leading system integrators. In fact, in Q2, more than half of our deals that were $500,000 or more in ACB were with an SI partner. Now, what's fueling our land in expand strategy is, of course, our technology and our product portfolio. Last quarter, I talked about how our vision is to build a complete monetization stack that helps our customers win with the strategy that we call total monetization.
Speaker Change: is a reasonable place for us to be it certainly continues to be challenging i'd also notte at the same time we brought up our revenue we brought up and that's we're seeing other ways ' able to monetize our business such as monetizing payments from payment processors and other partners
Speaker Change: And finally, against the rule of 40 framework, which combines growth and profitability, we closed the quarter at 31.
Speaker Change: you saw that we brought up non-gaap operating at or a non-gaap operating margin or profit by ten and a half million dollars
Speaker Change: This is the head of our goal for the full fiscal year.
Tien Tzuo: Now, what does total monetization mean? Well, there was a time, a simpler time, when a more traditional static subscription model was enough. The times, they are changing. And so now, we're seeing the best companies in the world introduce a wide range of monetization strategies, such as maybe they allow customers to consume by the drip, so-called USage or Consumption models that we talked about with this transportation, and Rebundling. Or maybe they're unbundling and rebundling off their offerings to craft the perfect offering for each of their customers.
Tien Tzuo: Maybe they offer one-time transactions, such as pay-preview or single purchases before a customer is ready to commit to something long-term. Maybe they offer prepaid models like the Starbucks car that many of us are familiar with that I used to buy my mentee coffees. Or maybe they deploy hybrid models that mix and match all of the above. Over time, we believe that companies will need to be able to monetize with any business model.
Speaker Change: Looking beyond the numbers, I would say that we continue to benefit from our customer base as some of the biggest and best companies in the world.
Speaker Change: and you also saw that we had rpo that grew fourteen percent so when the environment improves i certainly feel that we're well positioned to aclerate growth but for environmentthat we're seeing right now we really felt it was kind of appropriate the reset what we're seeing
Speaker Change: And this shows in two areas.
Speaker Change: First, this is the segment where the depth and breadth of our portfolio truly matters.
Speaker Change: okay thanks so much
Speaker Change: your next question comes from the line of ad jeffan ree with craig halum please go ahead
Speaker Change: And second, this install base continues to represent strong expansion opportunities for us that we can fuel through both ongoing organic innovations as well as targeted acquisition.
Speaker Change: great thanks for taking the question the couple for me first maybe just been a second i can i thoughtthat was interesting and what was the competitive landscape their external vendors that might have been after that as well as what was the internal environment
Speaker Change: it always they had a homegrown system that really made a lot of sense when they were small and they were just really seing the cell servsurice environment but look the journey that any company goes on is the bigger you are the more successful you are the more complex you have
Tien Tzuo: And this is what we mean by total monetization. And we're seeing this concept really resonates. Those of you who joined us at Subscribe Live in the Bay Area in June. So these conversations are happening with our customers and prospects. Companies are coming to us and saying, you captured the essence of what we're trying to do. And so this vision is fueling our innovation. Three quick examples from the quarter. First, our advanced consumption billing vision.
Speaker Change: if you look at what they are today gr they sell that they sell direct they sell enterprise they sell consumers they sell the schools and so
Speaker Change: their homegwn system really wasn't working and you can imagine a company like that
Speaker Change: right they've donegot big plans they look at the market they look at every possible solution out there
Speaker Change: and i'm pleased to say that you know we really had a set of differentiating technologies that they thought was really really important the last thing they want to do is three years from now have to do with yet another implementation of a system and so we're pretty happy with with our ability to meet their needs
Speaker Change: On the first point, let me give you an example from the quarter.
Speaker Change: I am proud to welcome Canva as a new customer. Canva is the leading online design and visual communications platform. They have over 190 million monthly users that have created over 25 billion designs. Now Canva came to Zora as part of preparing for their next phase of growth across both their B2C and enterprise offerings.
Speaker Change: We've made the difference to Canva with our ability to combine billing and revenue to address their needs across the entire quote-to-revenue process and give them new speed and flexibility to drive their current and future pricing strategies.
Tien Tzuo: And Q2, advanced consumption billing was one of our fastest growing products and part driven by the rollout and monetization of AI features that you are seeing from almost all the technology ventures. And in Q2, advanced consumption billing is now totally enhanced with Toguy. The acquisition we announced in Q1 and closing Q2, giving us some of the most advanced metering and rating technology in the marketplace today. Second, in Q2, we also announced the acquisition of Sub-X to add new AI capabilities that will strengthen our Zephyr product, offering media companies in advanced AI powered paywall solutions.
Speaker Change: got and went on the payment processors it sounds like the payment processors was a source of the upside can use contrast that a little more color on what happened there and contrastedit to what you would expected to happen there
Speaker Change: And Canva is not the exception.
Jeff: sure you re jeff
Speaker Change: we've had agreements with our with many partners over time and frankly it's an area that we're revisiting we've not monetizeed it as effectively as we could we went back and did an audit with one particular one and there was a catch up that we had
Tien Tzuo: Through reinforcement learning, Sub-X health media companies put the right offer in front of the right customer, maximizing subscriber acquisition in conversion, all without manual testing and experimentation. And since Sub-X has already a Zora partner with an integrated solution, customers can immediately take advantage of these new capabilities. And in fact, we already had joint customers like the financial times doing this today. And third, on the organic innovation side in Q2, we went deeper into Zora payments and enhancing our smart retry capabilities.
Speaker Change: in addition that we adjusted it going forward and i would expect this you know we move through future quarters you're going to see this be a source of increased revenue for us as you know you know we have over fifty billion dollars for the payments that go to our system and we certainly feel this is an opportunity for us to further monetize our business
Speaker Change: yeah i mean just the atino ad i mean that wasn't the sole contributorattorney upside i just want to makesure youknowit was a one contributor but what we would early or turnnative fag is look the value of our customer base in the value that we built so far
Speaker Change: In fact, in Q2, half of our logos spot both Zora billing and Zora revenue to power quote-to-revenue.
Speaker Change: right really gives us ability to monetize in many many different ways and talps about our lat expand strategy that's working really welland you're going to see us continue to find you know other ways to monetize valuable customer base we have and this the first quarter we talked aboutthis but it's something that certainly has been in the mixture sometime
Tien Tzuo: If a company is trying to collect the payment, and that payment fails, our smart retry in Zora payments analyzes over 15 transaction characteristics, such as the account monthly recurring revenue, the currency, the payment gateway, the automatically retry the failed payment at the most optimal time. We're continuing to make the AI technology that powers smart retry more and more advanced in Q2 alone. We helped our customers recover over a hundred and twenty million dollars in lost revenue with the smart retry capability that can increase of over 40% year over year.
Speaker Change: and jeff i would expect that to be an ongoing revenue and that is not part of our er
Jeff: interesting okay great thank you
joshua viley: youknowor next question comes from the line of a joshua viley with natom in company please go ahead
joshua viley: i think for taking my questions one of the things that we've heard from some of your partners is you have a pretty strong pipeline of pre i po customers out there and maybe there' alittlebit hasn't to spend because they don't know the timing around when they're going to go public
Tien Tzuo: And finally, this total monetization strategy, this message is resonating with the analyst community too. Earlier this month, Gartner, one of the world's most respected and trusted industry analysts from recognized Zora as a leader and a magic quadrant for recurring billing applications for the Zora monetization suite, placing us the furthest in completeness of vision. And that's not all back in June. We were named a leader by ISG Research, and some of you might know formally as Ventana Research in all four of their subscription management, fire guides, B2B subscription management, B2C subscription management, which is rating in each of the four buying guides.
Speaker Change: just curious is that is that what you're hearing from some of these perspective customers and consistent just more generally in the marketplace that an interest rate c and a return of the po o cycle will help some of that new customer activity maybe just starting off there
Tien Tzuo: And that's not all. Just last week, Zora Revenue also ranked in number one in product and strategy and MGI's 360 ratings and buyers guide in automated revenue management or ARM. And now the last news from the quarter.
Speaker Change: i don't know that i want to say is it predict
Speaker Change: know when the ipo market isin the thought when when interestr get a cut but i would say if you look at these companies in cama is a good example of shshow ly many more
Speaker Change: i wouldn't say they' obessed with exactly when they go public
Speaker Change: i would say they're to decide and scaleright now we're going public at some point in the future is definitely in the charards for them and you know now 's a great time to prepare right we had a souwhole set of customers going back to the two thousand and eighteentwothousandand nineteen thousand and twenty
Speaker Change: that maybe when public rush in the marketplace and then went backwards
Speaker Change: and started of putting in revenue recognitions and building systems we talked about some of these anies in the past
Speaker Change: but i think a better approach right to do it right now
Speaker Change: where things are calm so that when the ipoal markets open
Speaker Change: youare you already would say that is the the primary mind set that these companies are may one more thing as well josh for if we look at it of people that we close bidding and revenue like canva why their future proofing
Tien Tzuo: We released this quarter our latest global impact report showcasing the progress that we have made in our ESG goals and initiatives. We continue to be a carbon neutral company. And in this year's report, we took the next step. We committed to the science based targets initiative and are working on setting both near term and long term greenhouse gas reduction goals, including reaching net zero. So to recap the quarter, we continue to create new opportunities for our install base to land and expand with Zora as we build out our monetization stack.
Speaker Change: i think ass one of the big things that we mentioned canad the last piece they're being by both solutions to future proof in the same way you know half of the new business the deal that we did we'will buy both bidd and revenue for that
Speaker Change: so ties en very well for people as they think about also future ario
Speaker Change: On the second point, once companies like Canva become customers, their growth in ever evolving needs represent strong expansion opportunities. Here are some examples of customers who expanded with us in Q2.
Speaker Change: but it certainly has been a headwind for us that you know as his i po market has been slowed down that you know it's something that has been a drag and as being loosen up that would certainly be something that would help us accelerate that we're not 're casting that at this particular point
Tien Tzuo: This stack is helping the biggest and best companies in the world win with a total monetization strategy. Our modular solutions, both organic innovations and strategic acquisitions over the last few years, give us what's needed to capture this opportunity. And of course, we continue to focus on delivering balanced growth and improved profitability.
Speaker Change: For instance, Zillow Group, which includes the Zillow, Trulia and other brands that provide solutions to consumers and real estate professionals for buying, selling, financing and renting homes.
Speaker Change: got it that's helpful and then just following up on the commentary or around the a r guidance update for the year as you look at you know this kind of six percent level can you just help us understand are you are you pulling back more on the expectations around new customer activity versus the cross sell or is it little bit lower assumptions around both cross sell and new customer activity thank gu
Todd Mcelhatton: With that, I'll turn the call over to Todd to review the finishes for the quarter. Todd. Thank you, Keane. And thank you everyone for joining our call. In Q2, we've seated guidance delivering solid results. We achieved the rule of 32 quarters ahead of plan, including absorbing the expenses associated with our recent acquisition of tow guys. As a reminder, we define the rule of 30 as a sum of year-over-year subscription revenue growth plus non-gap operating margin.
Speaker Change: i
Josh: i would say it's you know balance with both and you certainly reflected with the dvr guidance that we gave of one zo three to one four so we certainly see headwinds in both of those areas josh
Josh: They began to use Zora billing a few years back and in Q2, they added Zora revenue to automate their revenue recognition and additional Zora payment modules to provide customers with more flexible payment options.
Josh: got it thank you
Rob Oliver: here our next question comes from the line of rob oliver with bed please go ahead
Rob Oliver: great thanks guys for taking my questions my first one is just on what you guys are seeing in terms of pricing in the market sounds like there's someyou know really nice lands including obviously canam some other high profile stuff in the pipebut just be curious to hear kind of what you're hearing up pricing our people a little bit more price sensitive are you seeing that in your lands and i mean ihad quick follow up as well
Todd Mcelhatton: Subscription revenue with $104.1 million during 9% year-over-year. Subscription revenue exceeded expectations primarily due to higher revenue share from payment processor. Professional services revenue came in at $11.3 million, representing a 10% decrease year-over-year. Professional services revenue was 10% of total revenue. And we continue to expect our professional services revenue mix to slightly decrease over time as we further expand our partnerships with SI. A little over a third of all booked ACV was partner influence.
Speaker Change: yeah i wouldn't say that i said a domentrd there right obviously is competit but we have a sticky product a lot of times these customers
Speaker Change: that we're expanding with their already customers
Speaker Change: there's certainly a a bigger trend given the last two years of an inflationary environment where where companies that tended to increase their prices on a point of renewal our preference has been to say hey we have a lot of innovations
Todd Mcelhatton: Non-gap subscription growth margin was 82% up over 125 basis points year-over-year. The improvement is driven by continued efficiency optimization with our hyper-scalers. As a reminder, Q3 and Q4 of physical 24, we've been admitted from one-time vendor credit. Non-gap professional services growth margin was negative 5%, consistent with Q2 of last year. For remainder of the year, you can expect professional services growth margin to continue to be in the same range. Our non-gap blended ghost margin was 73%, an increase of over 260 basis points year-over-year.
Speaker Change: right if it a better way to increase the value of our contract to introduce new innovations and add more value to customers that's certainly are preferred way you're doing then than just a flat out price increase where you know they don't get additional
Speaker Change: capabilities but i wouldn't say thatwe're facing increased pricing pressure and we're managing the ability to grow our customers in a positive way
Speaker Change: gotok thank and then just one for you and this beenabch of questions on the and so you've ion but think to follow up there when you look at that that pipeline for the back half of the year you know when you look at the renewal profile other you know are are you candy appping some renewals that perhaps could be more challenging you know and perhaps of a spike conchurn or you know last questionions good oneon cross sellyou vers go sound mx up both but if you canhelp us understand what your thought is relative to know churn there that would also be helpful thanks lot
Todd Mcelhatton: Our non-gap operating income was $25.6 million, exceeding the high end of the guidance by $6.1 million. Representing a record, non-gap operating margin of 22.2%. Reresearch goal to operate at a rule of 30, two quarters earlier than planned, while we expect to exit the year at a rule of 30 run rate, this metric can flexuate from quarter to quarter. Our fully deluded share count at the end of a quarter was approximately 185.9 million shares using both the Treasury stock and if converted methods.
Rob Oliver: we have a robust pipeline rob for the second half and i feel very good about that however we've got some pretty large deals during the installed base
Todd Mcelhatton: Now, let's dive into some of the key metrics for the quarter. Our dollar-based retention rate ended at 104% flat quarter-over-quarter and down three points year-to-year. This decrease in DBRR year-to-year was primarily driven by the impact of churn, which we've called out on prior calls. As a reminder, DBRR is a trailing 12-month non-current RPO was up 21% year-over-year to $258 million. Once again, we had a large number of multi-year renewals in the quarter as customers continue to grow on our multi-product platform.
Rob Oliver: think we have a very high confidence that we will absolutely win those deals
Speaker Change: timimingss always a question
Speaker Change: and with whatwe're seeing the current environment it just felt appropriate that we should adjust because of one of those are two of those drop out
Speaker Change: it's not possible really to back fillit at the size of some of the transactions so from our standpoint that was like this is a really reasonable place for us to land in the second half maybe ill some color on top of whatod tod says look i' start with the bigger picture the bigger picture is
Speaker Change: on a multiyear basis or the shif terof recurring revenues is still very much trend that's in place it's going to disappear
Speaker Change: Another great example is a longtime customer Aura, a great example of a fast growing customer who has sold over 2.5 million smart rings that track fitness levels sleep and more. They renewed and grew with us as their subscriber base continues to grow.
Speaker Change: which you saw this quarter was continued recognition third parties of the analyst community specifically that that we've got clearly the best product in the marketplace
Speaker Change: We've also been working with a world leader in transportation e-commerce and business services that generates over $80 billion in annual revenue.
Todd Mcelhatton: At the end of Q2, we had 445 customers with an annual contract value at or above 250,000. These customers represent approximately 85% of our ARR. This is up one year-over-year, but down six sequentially, we saw several of our customers consolidate into one contract due to M&A. It is worth noting that the total ARR associated with the $250,000 or greater cohort grew by more than 10% year-over-year. In addition, customers in the $500,000 down from $7 in Q2 a last year.
Speaker Change: and overall we feel really good aboutsome of the rends that we're see in our ability to create pipe ourability to remain competitive and our ability to close customers like canva or customers
Speaker Change: expand with customers like deillow i think you know look i'll say it's for ta he heard from you all you know over the years that hey little stronger r guy compared to ittee what happened last year would be helpful and so we're happy through the year you know you might remember the start of the year there was some senseitat hey
Speaker Change: you know after q four s technology spend good a all is going to improve where would happ with you the here right now you're seeing the results with with other big big ac companies we're saying look and picture outthereis mixed
Speaker Change: and given out that the picture out there is mix that supplily good judgment and ultimately give you guys what you're looking for which is just a better sense of but what's going to happenin the back half of the year
Todd Mcelhatton: This includes two deals over $1 million up from one last year, where we are still facing high levels of yield scrutiny, especially in new business. We are starting to see some positive trends on multi-product deals. As team noted, half of our new logo deals we close included both revenue and billing. ARR grew 7% in Q2 reaching $412.3 million. Adjusted pre-cash flow was $12.2 million in the quarter, up from $4 million we generated last year.
Speaker Change: This customer is adopting usage based billing models, showing that this is not just a trend for technology companies. In Q2, they added advanced consumption modules to turn their raw data into revenue with metering, rating and billing.
Speaker Change: thereenough okay thank you guys very much appreciate
Speaker Change: db you' your next question comes from the line of jacob a stephen with a lake street please go ahead
Speaker Change: How big are these expansion opportunities?
Speaker Change: yeah thanks for takeking my questions
Speaker Change: maybe just touching on kind of the media vertical obviously you guys have made some investments there acquired subs i'd just like to get kind of your comments on what you're seeing in an ad vertical with new customers and just pipeline overall
Todd Mcelhatton: As a reminder, adjusted pre-cash flow does not include acquisition-related costs and shareholder matters. Our adjusted pre-cash flow fluctuates on a quarterly basis through the timing of cash collections, vendor payments, and seasonality. As a result, we believe it's best to assess our cash flow performance on an annual basis.
Speaker Change: i'm really excited about the media vertical in many ways if you look at b to b business models it' a technology vendors rightite the as companies
Speaker Change: that have led the way to teach the rest of the world how these recurring revenue models work in the b c space the media companyies especially the newspaper publishers
Speaker Change: the transformations they've gone through where they go i really do think the regis of the industry will follow i mean what we're seeing that sector is they've been successful setting a paywall
Todd Mcelhatton: Turning to the balance. Sheep. We ended the quarter with $543 million in cash and cash equivalent, a sequential decrease of $3.7 million. As a reminder, we closed the Toga acquisition in Q2. Total cap-backs for the quarter was $3.3 million. Turning to guidance, we assume the current challenging macro trends will continue into the second half with similar levels of deal scrutiny and elongated sales like this. 423, we currently expect subscription revenue of $104.5 to $105.5 million.
Speaker Change: they've been successful setting up these these dynamic paywalls with these what they call these propensity scores right how do we have a sen of based on data whether subscribers going the scriberor not
Speaker Change: we're seeing maybe callal pay ll three dooed strategies that are not a surprise ai driven
Speaker Change: right this says we don't want static scores right we want something that's dynamic we want something that's changing we want something that can look at the data giving where ai is and technology is there's no reason they can't do that
Speaker Change: and so we double down on our zeefper investment with with subx which really gives it an ai driven a decisiontree right using in i tech called reinforcement learning
Todd Mcelhatton: Professional services revenue of $10.5 to $11.5 million. Total revenue of $115 to $117 million. 9Gap operating income of $20.5 to $21.5 million. 9Gap net income per share of $11 to $12 cents, assuming a weighted average shares outstanding of approximately $152.5 million. For the full fiscal year 25, we are raising both our revenue outlook and our 9Gap operating income ranges as well as increasing our target for adjusted free cash flow. It is worth noting that the subscription revenue includes the revenue share from payment processors that are not included in the ARR.
Speaker Change: to figure out in breal time
Criber: hey this criber
Speaker Change: coming to your newspaper sayer atapp what do you want to do
Speaker Change: you want atthe artle want to put off in front of them you want to rossseall them
Speaker Change: althoughthose the recipes or what not and so it's and we believe look we're really focused on the media sector right now but we believe that these techniques are certainly not specific to that sector and every bto c company has a recurring revenue model ultimately will have to adopt these tpiccapabilities
Speaker Change: just think further to that you look at some of the customers you know we mentioned on the economists new york times you have one of the largest most probably media streaming companies
Speaker Change: that is absolutely growing significantly in that space and it spreads that out even more significantly so out
Todd Mcelhatton: For the operating income, I want to point out that we are also absorbing the expenses from both of our recent acquisitions within the updated guidance. We currently expect subscription revenue of $414.5 million to $416.5 million. Professional services revenue of $41 to $45 million. Total revenue of $455 to $461.5 million. 9Gap operating income of $90 to $93 million. 9Gap net income per share of $56 to $58 cents, assuming a weighted average share is outstanding of approximately $150.9 million.
Speaker Change: rightice a lot of about lapathisic of artic and they're taking advantage ofabsor capabilities for joan andmike pay forview event in addition to your ongoing you know monthly streaming cost you know i think redish ree example the total modernization
Speaker Change: out that that's helpful appreciate and then maybe just kind of wanted to touch on you know the new deal new product deals you know being half billing plus revenue i guess what are you see as we you know comes through q three here is that something similar that you're seeing
Speaker Change: well you ll look on a personal basis like you've heard to talk about fast land fat expand and you look at quarter and a lot of customers came to us and said not on know we want both products
Todd Mcelhatton: Based on current buying behavior, we believe it is prudent to adjust our outlook for the fiscal year with DVR to be between 103 and 104% and ARR growth of approximately 6%. Double clicking on ARR, we have a robust pipeline with some hefty opportunities within our installed base customers. But given the current environment, I remain prudent about how we set expectations for the second half as a precise timing can be difficult to predict.
Speaker Change: and we want them to start so look ultimately we're going to do where the customerers take us i'dlike the factthat we can land with bbuildilling
Speaker Change: we can land with just revenue we can wait and cross se other products later but you're seeing ultimately that that the combination of these two really is where a lot of the mag is right that's what canampa found that's what a bunchof other companies found i can't just live with just bing i need reue recognition as well
Speaker Change: Well, if you look at the two deals, over $1 million or more in ACB that we've had in Q2, both came from within our install base.
Speaker Change: Proof that our land and expand strategy is working.
Speaker Change: and when it's appropriate right they're saying ' ther do it both at once we're certainly going tosupport that decision
Todd Mcelhatton: We will continue to see us drive our bottom line leverage and maintain our goal of exiting fiscal 2025 at a rule of 30 run rate. Based on our solid performance in Q2, we are increasing our guides for adjusted free cash flow to be $82 million or greater for the full year.
Speaker Change: got it understood
Speaker Change: appreciate it
Speaker Change: your next question comes from the line of brent deield with jeffreys please go ahead
Brent Thill: thank you hi is love soda on for bren thank you teen robby and taud for taking my questions
Brent Thill: And finally, of course, our enterprise customers also enhanced our partnerships with leading system integrators. In fact, in Q2, more than half of our deals that were $500,000 or more in ACB were with an SI partner.
Todd Mcelhatton: To close out, I speak with a lot of CFOs and I'm convinced we have the right product to give companies the tools and agility needed to monetize the business models of today and tomorrow. Gardener, ISG software research, and NGI have declared our market leadership in its mission critical category. In the current environment, we have taken the opportunity to dial in our cost structure and drive durable improvements and operating margins and free cash flow. This will give us the ability to drive more efficient growth in the future while maintaining or expanding more.
Brent Thill: maybe the first one fourteen and robby i just wanted to unpack maybe the ar weakness i guess this quarter obviously it's the oneth to year low for you guys at seven percent
Brent Thill: Now, what's fueling our land and expand strategy is of course our technology and our product portfolio.
Speaker Change: justit sounds like the install base was pretty strong so could heyou just unpack i guess what what drove the weakness and errow growth this quarter
Speaker Change: and
Speaker Change: well i say if you compare the er growth this quarter with last quarter i think the picture looks strong and so i would say look
Unknown Attendee: with that theme, Robbie and I will take your questions and I'll turn it over to the operator. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you like to withdraw that question, again, press star one.
Speaker Change: in this environment you're seeing all sorts of company saying it is harder to close a new customer
Speaker Change: and and so we're certainly seeseenthat as well and you' seeseen good solid growth in install base but cva was a new logo but we certainly continue to close new logos and that feelals you know that feels good given the current environment
Adam Hotchkiss: Your first question comes from Adam Hotchkiss with Goldman Sachs, please go ahead. Great. Thanks so much for taking the question. Tien, I guess on the total monetization point, you noted that business model changes particularly around consumption billing or something that you're seeing and other folks in the industry are seeing. What's the plan to take advantage of that from a monetization perspective? And when you look two or three years out, what are the impacts to financials and variables that you look at that get you excited about that business?
Speaker Change: i got it and one forto if i may
Speaker Change: tod it seems like you've delivered a lot of profitability upside
Speaker Change: Last quarter, I talked about how our vision is to build a complete monetization stack that helps our customers win with the strategy that we call total monetization.
Speaker Change: the possibility of this sustaining into the back half of the year and into next year just any additional investments that you have planned any color would be helpful
Speaker Change: i think couple things love thanks for the question we've been really consistent on the fact that if we didn't think we could get a good return on investing in top line we would put dollars to the bottom line
Speaker Change: Now, what does total monetization mean?
Tien Tzuo: Well, the way I look at total monetization and appreciate the question, Adam, is it really allows us to continue the journey we bought then on. And in many ways, you can think of it almost as an act to where the first phase of the company was really offering. Billing the companies that were pure subscription businesses, companies like Zoom, companies like New York Times. And total monetization is to say, look, now that subscription businesses and recurring value models are becoming more prevalent, companies are really looking to be much more sophisticated and blend these different business models together.
Speaker Change: the cost structure that we have right now is absolutely sustainable and we believe there is future there's further leverage that we'll be able to gain
Speaker Change: Well, there was a time, a simpler time, when a more traditional static subscription model was enough.
Speaker Change: weare committed we will exitthe year at rule of thirty like we said so i have
Speaker Change: The times, they are changing.
Speaker Change: we're very confident about that so i'm not concerned about that
Speaker Change: And so now, we're seeing the best companies in the world introduce a wide range of monetization strategies, such as maybe they allow customers to consume by the trip, so-called usage or consumption models that we talked about with this transportation, from the commission company.
Speaker Change: and i do believe there are opportunities
Speaker Change: or additional leverage as we go out into next year so we certainly don't feel like this is a onetime deal
Speaker Change: Or maybe they are unbundling and re-bundling off their offerings to craft the perfect offering for each of their customers.
Speaker Change: i think this is we a baseline where we have the question becomes as when do we see an acceleration in top line and do we hold or do we expand margins further but i would not see us backtracking on margins as we saw top line accelerate
Tien Tzuo: So it's not just about subscriptions, it's about consumption, it's about one-time fees, it's about outcome-based fees, it's about really mixing all these things and customizing the right business model and the right pricing model for the customer. And so I see this as an opportunity for us to really go beyond billing and go beyond subscription revenue. And we're seeing just that message really resonate with our customer base. And we're seeing the analyst community really say, hey, total monetization makes sense.
Speaker Change: Maybe they offer one-time transactions, such as pay-preview, or single purchases before a customer is ready to commit to something long-term.
Speaker Change: Maybe they offer prepaid models like the Starbucks car that many of us are familiar with that I use to buy my mentee coffees.
Speaker Change: go thank you
joseph afy: we have time for one more question and that question comes from joseph afy with canaccord genanuity please go ahead
joseph afy: Or maybe they deploy hybrid models that mix and match all of the above.
joseph afy: Over time, we believe that companies will need to be able to monetize with any business model. And this is what we mean by total monetization.
joseph afy: hey guys good afternoon thanks for the opportunity to ask question here just you know we have maybe a lot of questions have been asked just get an update on to guy
Tien Tzuo: We can see how you really need an end solution that's billing revenue payments and more. And so when I look at total monetization, it's really a message that's resonating with our customer base and really allows us to continue our leadership position ideally for many years to come.
joseph afy: And we're seeing this concept really resonates.
joseph afy: and i guess more broadly given kind of the surgeon focus on ai do you think kind of the product set at this point can is holistic enough to
joseph afy: Those of you who joined us at Subscribe Live in the Bay Area in June.
Todd Mcelhatton: Okay, great, that's really helpful. And then Todd, just on the revisions lower on ARR and NRR for the year, could you parse that out for us a little bit? How much of that is just added conservatism around the environment versus anything in particular you saw in the quarter? You know, I guess we're just trying to understand to what extent you think sales cycles are maybe a little bit more elongated and that's lasted a little bit longer than you previously thought versus just taking an added level of conservatism.
joseph afy: So these conversations are happening with our customers and prospects.
joseph afy: Companies are coming to us and saying you captured the essence of what we're trying to do.
joseph afy: And so this vision is fueling our innovations.
joseph afy: Three quick examples from the quarter.
joseph afy: to capture the opportunity broadly around consumption -based pricing that's emerging with ai and then i'll quick followup
joseph afy: First, our Advanced Consumption Billing Vision.
Speaker Change: i feelar really good about what's going on with to guyide you we closed this quarter and so i think we're only two months and
Speaker Change: to be fair so it is earreally days
Todd Mcelhatton: Sure, Adam, I really want to be prudent as we put together our forecast. We take the guidance very seriously and we want to meet it on a quarter by quarter basis. If you take a look at what we're seeing here in in half to as I mentioned, we have some meaty deals there in our install base and you know timing can be challenging to predict. And so I really want to make sure that I give you something that we're very confident that we can absolutely achieve.
Speaker Change: but look we had a product in the marketplace we call it advanceced consumption billing that product is we talked about it being the fastest selling one of the fast selling products in the last you know in q two and to guy is really part of that
Speaker Change: In Q2, Advanced Consumption Billing was one of our fastest growing products, and part driven by the rollout and monetization of AI teachers that you are seeing from almost all the technology vendors.
Speaker Change: and so you can imagine engineers are really saying hey the two products you know can be integrated but there's something we can do now that it's one company to make the integration even stronger even more seamless
Speaker Change: And in Q2, Advanced Consumption Billing is now totally enhanced with Toguy.
Speaker Change: The acquisition we announced in Q1 and closing Q2, giving us some of the most advanced metering and rating technology in the marketplace today.
Speaker Change: Second, in Q2, we also announced the acquisition of Sub-X to add new AI capabilities that will strengthen our Zephyr product, offering media companies in Advanced AI-powered paywall solutions. Through reinforcement learning, Sub-X helped media companies put the right offer in front of the right customer, maximizing subscriber acquisition in conversion, all without manual testing and experimentation. And since Sub-X has already a Zora partner with an integrated solution, customers can immediately take advantage of these new capabilities, and in fact, we already have joint customers like the financial times doing this today.
Speaker Change: and even more out of the box
Speaker Change: And third, on the organic innovation side, in Q2, we went deeper into Zora payments and enhancing our smart retry capabilities. If a company is trying to collect the payment, and that payment fails, our smart retry in Zora payments analyzes over 15 transaction characteristics such as the account monthly recurring revenue, the currency, the payment gateway, the automatically retry, the failed payment at the most optimal time.
Todd Mcelhatton: And based on the current environment, I think 6% is the is a reasonable place for us to be. It certainly continues to be challenging. I'd also note at the same time we brought up our revenue. We brought up and that's you know, we're seeing other ways where we're able to monetize our business such as monetizing payments from payment processors and other partners. You saw that we brought up the up non gap operating cat or non gap operating margin or profit by ten and a half million dollars.
Speaker Change: and then what we get is we have an industry-leading billing solution that you've seeseen topperright corner all that from from all the analyst
Speaker Change: We're continuing to make the AI technology that power smart retry more and more advanced in Q2 alone.
Todd Mcelhatton: And you also saw that we had RPO that grew 14%. So when the environment improves, I certainly feel that we're well positioned to accelerate growth. But for the environment that we're seeing right now, we really felt it was kind of appropriate to reset what we're seeing.
Speaker Change: We helped our customers recover over a hundred and twenty million dollars in lost revenue with this smart retry capability that can increase of over 40% year over year.
Adam Hotchkiss: Okay, thanks so much.
Speaker Change: we're adding to that
Speaker Change: And finally, this total monetization strategy, this message is resonating with the analyst community too. Earlier this month, Gartner, one of the world's most respected and trusted industry analysts from recognized Zora as a leader and a magic quadrant for recurring billing applications for the Zora monetization suite, placing us the furthest in completeness of vision.
Speaker Change #100: meing and rating so what does that mean that means look you ' an engineering organization you want to do consumption basase bill do i think all this raw data always these events that are going on in my application capturing it in justesting it translating that transforming it ulonlyly applying a price to it right that's what we need by metering rating
Speaker Change #100: And that's not all back in June.
Speaker Change #100: We were named a leader by ISG Research, and some of you might know, formally, as Ventana Research, in all four of their subscription management, fire guides, B2B subscription management, B2C subscription management, participating in each of the four buying guides.
Speaker Change #101: and that's a capability that that to guy really you know giveave us a two year headststart in terms of what we can do just basically by ourselves so
Speaker Change #101: And that's not all.
Speaker Change #101: And just last week, Zora Revenue, also ranked number one in product and strategy and MGI's 360 ratings and buyers guide in automated revenue management, or ARM.
Speaker Change #102: we're still selling advanced conmion building like we do diip before well i think the vision of where that product is going
Speaker Change #102: And now the last news from the quarter.
Speaker Change #102: is now you know significantly stronger you know multi moulileple times better
Speaker Change #102: We released this quarter our latest global impact report showcasing the progress that we have made in our ESG goals and initiatives.
Jeff Rhee: Here next question comes from the line of Jeff Fran Rhee with Craig Halem. Please go ahead. Great, thanks for taking the question. So I'm a couple for me first. Maybe just spend a second on Cam, but I thought that was interesting. What was the competitive landscape there? External vendors that might have been after that as well as what was the internal environment? They had a homegrown system that really made a lot of sense.
Speaker Change #103: and it's getting really positive traction when we talk to our customers and prospects about it jry this is the point of that we had also subcribed live
Speaker Change #103: We continue to be a carbon neutral company.
Speaker Change #103: And in this year's report, we took the next step. We committed to the Science-based targets initiative and are working on setting both near term and long term greenhouse gas production goals, including reaching net zero.
Speaker Change #103: So to recap the quarter, we continue to create new opportunities for our install base to land and expand with Zora as we build out our monetization stack.
Speaker Change #104: we had great great interest there
Speaker Change #104: This stack is helping the biggest and best companies in the world win with a total monetization strategy.
Speaker Change #105: from all around the consumption
Speaker Change #105: Our modular solutions, both organic innovations and strategic acquisitions over the last few years, give us what's needed to capture this opportunity.
Speaker Change #105: area
Speaker Change #106: so i wor saying real greatright interest in that from both customers and from our prospects and also from our phas and i know like ai is a big driver we see it as well but we try to high le ving earnings call was that eighty billion dollar logistics company logistics transportation
Speaker Change #106: And of course, we continue to focus on delivering balanced growth and improved profitability.
Speaker Change #106: With that, I'll turn the call over to Todd to review the finishes for the quarter.
Speaker Change #106: Todd.
Jeff Rhee: When they were small and they were just really selling in the cell service environment. But look, the journey that any company goes on is the bigger you are, the more successful you are, the more complex you have. If you look at what they are today, they sell direct, they sell enterprise, they sell consumers, they sell to schools. And so their homegrown system really wasn't working. And you can imagine a company like that, right?
Speaker Change #107: you might not expectedit but we're seeing a lot of traction with usage-based consumption based models outside of the technology industry as well
Speaker Change #107: Thank you, Keane.
Speaker Change #108: sure that's all great color thanks team and robbyie and then maybe just finally on kind of re share coming from transaction processors it's kind of something that we haven't heard you got talk about that much
Speaker Change #108: And thank you, everyone, for joining our call.
Speaker Change #108: In Q2, we've seated guidance delivering solid results.
Speaker Change #108: We achieved the rule of 32 quarters ahead of plan, including absorbing the expenses associated with our recent acquisition of tow guys.
Jeff Rhee: They've got big plans. They look to the market. They looked at every possible solution. And I'm pleased to say that we really had a set of differentiating technologies that they thought was really, really important. The last thing they want to do is to three years from now have to do yet another implementation of a system. And so we're pretty happy with our ability to meet their needs. Got it.
Speaker Change #109: at this point so appreciate that color just kind of getting a feel for you know is there you know i guess we could call it your take rate or something off off payment volume here is there you know is there opportunity broadly to
Speaker Change #110: tocontinue to increase i guess what you might call it take right here off the gross dollar volumes that are running through your billing systems just any how you're looking at this overtime thanks
Speaker Change #110: As a reminder, we define the rule of 30 as a sum of your over your subscription revenue growth plus non-gap operating margin. Subscription revenue was $104.1 million during 9% year-over-year. Subscription revenue exceeded expectations, primarily due to higher revenue share from payment processors.
Jeff Rhee: And then on the payment processors, it sounds like the payment processors was a source of the upside. Can you just contrast that a little more color on what happened there and contrast it to what you would expect it to happen there? Sure, Jeff. We've had agreements with our with many partners over time. And frankly, it's an area that we're revisiting. We've not monetized it as effectively as we could. We went back and did an audit with one particular one.
Speaker Change #110: Professional services revenue came in at $11.3 million, representing a 10% decrease year-over-year. Professional services revenue was 10% of total revenue. And we continue to expect our professional services revenue mix to slightly decrease over time as we further expand our partnerships with SI.
Speaker Change #110: yeah joseph i know you've got deep experience in the payment space and the certainly something that you tal to us about but if i to lifted up level right we're asidze ofthe scale now where we represent a significant business
Speaker Change #110: A little over a third of all booked ACV was partner influence.
Speaker Change #110: Non-gap subscription growth margin was 82% up over 125 basis points year-over-year. The improvement is driven by continued efficiency optimization with our hyper-scalers.
Speaker Change #110: As a reminder, Q3 and Q4 of physical 24, we've been admitted from one time vendor credits.
Jeff Rhee: And there was a catch up that we had in addition that we adjusted it going forward. And I would expect is, you know, we move through future quarters. You're going to see this be a source of increased revenue for us. As you know, you know, we have over $50 billion for the payments that go to our system. And we certainly feel this is an opportunity for us to further monetize our business.
joseph afy: over one hundred billion dollars those through flows through our system every single year close to three hundred abill dollars if you include revenue recognition
Speaker Change #111: we've got some of the best brands and best companies in the world that many of the companies would die we d to have a chance to work with
Speaker Change #112: and the question right now is how can we translate that
Speaker Change #112: into a durable growth engine not that different than say you know apple is done obviously a much much larger scale right with the apstore or you know would sales force very involved in it really these is the appic change i think early days for us
Jeff Rhee: Yeah, I mean, just just to know, I mean, that wasn't the sole contributor to the upside. I just want to make sure, you know, it was the one contributor. But what we want to really return to flag is look the value of our customer base and the value that we built so far. Right, really gives us the ability to monetize in many, many different ways. We talked about our landing and expand strategy.
Speaker Change #112: certainly we're out asideide and scale now where we can find other ways to monetize our customers through the building of an ecosystem
Jeff Rhee: That's working really well. And you're going to see us continue to find, you know, other ways to monetize this valuable customer base we have. And this is probably the first quarter we talked about this, but it's something that this certainly has been in the mix for some time. And Jeff, I would expect that to be an ongoing revenue and that is not part of our ARR. Interesting. Okay. Great.
Unknown Attendee: Thank you.
Joe: and this is aclear joe we're putting a lot more attention on and to your point is it's early days but we do believe there's opportunity for us to get incremental revenue here and this was something that is not part of our r but it does hit the subscription line
Speaker Change #114: right and it does feel like this would be kind of superhigh profit revenue right is a going to live at it yes okay thanks for that guys
Joshua Reilly: Your next question comes from the line of Joshua Riley with Needham and company. Please go ahead. Yeah, I think for taking my questions. One of the things that we've heard from some of your partners is you have a pretty strong pipeline of pre IPO customers out there. And maybe they're a little bit hesitant to spend because they don't know the timing around when they're going to go public. Just curious, is that is that what you're hearing from some of these prospective customers and consistent just more generally in the marketplace that an interest rate code and a return of the IPO cycle will help some of that new customer activity maybe just starting off there.
Speaker Change #115: that concludes our question and answer session and i will now turn the conference over two teen z teieth executive officer for closing remarks
Speaker Change #115: Non-gap professional services growth margin was negative 5%, consistent with Q2 of last year.
Teenz Teieth: appreciate everyone for joining us in q two and look forward to seni you hopefully have subdescribed live in europe in the coming months in or to talk to you next quarter thank you very much
Teenz Teieth: For a remainder of the year, you can expect professional services growth margin to continue to be in the same range.
Teenz Teieth: Our non-gap blended-ghost margin was 73%, an increase of over 260 basis points year-over-year.
Speaker Change #117: this concludes today's conference call thank you for your participation and you may now disconnect
Tien Tzuo: Yeah, I don't know that I want to say predict, you know, when the IPO market is in a thaw, when the interest rates are going to get cut, but I would say if you look at these companies right in Canva is a good example, there's certainly many more, I wouldn't say they're obsessed with exactly when they go public. I would say they're at a side and scale right now, we're going public at some point in the future, is definitely in the cards for them.
Speaker Change #117: Our non-gap operating income was $25.6 million, exceeding the high end of the guidance by $6.1 million. Representing a record, non-gap operating margin of 22.2%.
Speaker Change #117: We reached our goal to operate at a rule of 30, two quarters earlier than planned. While we expect to exit the year at a rule of 30 run rate, this metric can flexuate from quarter to quarter.
Speaker Change #117: Our fully deluded share count at the end of the quarter was approximately 185.9 million shares, using both the treasury stock and if converted methods.
Tien Tzuo: And you know, and now is a great time to prepare, right? We had a total set of customers going back to the 2018-2019-2020, that maybe when public, you know, rushed in the marketplace and then went backwards and started putting in, you know, revenue recognitions and billing systems, we talked about some of these companies in the past, but I think a better approach right now is to do it right now where things are calm so that when the IPO markets open, you're ready.
Speaker Change #117: Now, let's dive into some of the key metrics for the quarter. Our dollar-based retention rate ended at 104% flat quarter-over-quarter and down three points year-over-year. This decrease in DBRR year-over-year was primarily driven by the impact of churn which we've called out on prior calls. As a reminder, DBRR is a trailing 12-month metric.
Speaker Change #117: Total RPO ended at $577 million growing 14% year-over-year.
Speaker Change #117: Non-current RPO was up 21% year-over-year to $258 million.
Tien Tzuo: I would say that is the primary mindset that these companies have. May I have one more thing as well, Josh, which is, if we look at it, a lot of people we close with are bidding and revenue, like Canva, why they're future-proofing. I think that's one of the big things that we mentioned Canva in the last piece, they've been by both solutions to future-proof in the same way, you know, half of the new business deals that we did were buying both bidding and revenue for that.
Speaker Change #117: Once again, we had a large number of multi-year renewals in the quarter as customers continue to grow on our multi-product platform.
Speaker Change #117: At the end of Q2, we had 445 customers with an annual contract value at or above 250,000. These customers represent approximately 85% of our ARR. This is up one year-over-year, but down six sequentially, we saw several of our customers consolidate into one contract due to M&A. It is worth noting that the total ARR associated with the $250,000 or greater cohort grew by more than 10% year-over-year.
Speaker Change #117: In addition, customers in the $500,000 great cohort, they are grew by approximately 17%.
Speaker Change #117: We closed five deals with ACV of $500,000 or more, down from seven in Q2, a last year. This includes two deals over $1 million up from one last year.
Speaker Change #117: While we are still facing high levels of deal scrutiny, especially in new business, we are starting to see some positive trends on multi-product deals. As team noted, half of our new logo deals we closed included both revenue and billing.
Tien Tzuo: So it ties in very well for people as they think about, also future IPO, but it certainly has been a headwind for us that, you know, as this IPO market has been slowed down, that, you know, it's something that has been a drag, and as things loosen up, that would certainly be something that would help us accelerate, but we're not forecasting that at this particular point.
Speaker Change #117: ARR grew 7% in Q2 reaching $412.3 million. Adjusted pre-cash flow was $12.2 million in the quarter, up from $4 million we generated last year. As a reminder, adjusted pre-cash flow does not include acquisition-related costs and shareholder matters. Our adjusted pre-cash flow fluctuates on a quarterly basis through the timing of cash collections, vendor payments and seasonality.
Todd Mcelhatton: Got it, that's helpful, and then just following up on the commentary around the ARR guidance updates for the year, as you look at, you know, this kind of 6 percent level, can you just help us understand, are you pulling back more on the expectations around new customer activity versus the cross-cell, or is it a little bit lower assumptions around both cross-cell and new customer activity? Thanks, guys. I would say it's, you know, balanced with both, and, you know, I've certainly reflected with the DVR guidance that we gave of 103 to 104. So we certainly see headwinds in both of those areas, Josh. Got it. Thank you.
Speaker Change #117: As a result, we believe it's best to assess our cash flow performance on an annual basis.
Speaker Change #117: Turning to the balance.
Speaker Change #117: Sheep.
Speaker Change #117: We ended the quarter with $543 million in cash and cash equivalent, a sequential decrease of $3.7 million. As a reminder, we closed the Toga acquisition in Q2s. Total cap-backs for the quarter was $3.3 million.
Speaker Change #117: Turning to guidance, we assume the current challenging macro trends will continue into the second half with similar levels of deal scrutiny and elongated sales like this.
Speaker Change #117: 423, we currently expect subscription revenue of $104.5 to $105.5 million, professional services revenue of $10.5 to $11.5 million. Total revenue of $115 to $117 million, nine gap operating income of $20.5 to $21.5 million.
Speaker Change #117: Nine gap net income per share of $11 to $12 cents, assuming a weighted average shares outstanding of approximately $152.5 million.
Speaker Change #117: For the full fiscal year 25, we are raising both our revenue outlook and our non-gap operating income ranges as well as increasing our target for adjusted free cash flow. It is worth noting that the subscription revenue includes the revenue share from payment processors that are not included in the ARR.
Rob Oliver: Here our next question comes from the line of Rob Oliver with Beard. Please go ahead. Great. Thanks, guys, for taking my questions. My first one is just on what you guys are seeing in terms of pricing in the market. It sounds like there's some, you know, really nice lands, including obviously Canva, some other high profile stuff in the pipe, but just would be curious to hear kind of what you're hearing on pricing are people a little bit more price-sensitive, or you seeing that in your lands, and then I had a quick follow-up as well.
Speaker Change #117: For the operating income, I want to point out that we're also absorbing the expenses from both of our recent acquisitions within the updated guidance.
Speaker Change #117: We currently expect subscription revenue of $414.5 million to $416.5 million.
Speaker Change #117: Professional services revenue of $41 to $45 million.
Speaker Change #117: Total revenue of $455.5 to $461.5 million.
Speaker Change #117: Nine gap operating income of $90 to $93 million.
Speaker Change #117: Nine gap net income per share of $56 to $58, assuming a weighted average shares outstanding of approximately $150.9 million.
Rob Oliver: Yeah, I wouldn't say that I would say the dominant trend there, right? Obviously it's competitive, but we have a sticky product. A lot of times these customers, you know, that we're expanding with our already customers. There's certainly a bigger trend given, you know, the last two years of inflationary environment where companies have tended to increase their prices at a point of renewal. Our preference has been to say, hey, we have a lot of innovations, right?
Rob Oliver: If a better way to increase the value of our contract is to introduce new innovations and add more value to customers, that's certainly our preferred way of doing them than just a flat-out price increase where, you know, they don't get additional capabilities, but I wouldn't say that we're facing increased pricing pressure, and we're managing the ability to grow our customers in a positive way.
Todd Mcelhatton: Okay, thanks Dean. And then Todd, just one for you and there's been a bunch of questions on the ARR. And so you've answered a lot, but just like I should follow up one there. When you look at that pipeline for the back half of the year, you know, when you look at the renewal profile, are there, you know, are you are you candycapping some renewals that perhaps could be more challenging, you know, and perhaps a bit of a spike in turn or, you know, I don't ask questions.
Todd Mcelhatton: A good one. And then cross sell, you know, versus new logo sounds like it's a mix of both, but if you can help us understand kind of what your thought is relative to, you know, turn there that would also be helpful. Thanks a lot. We have a robust pipeline, Rob, for the second half, and I feel very good about that. However, we've got some pretty large deals during the install base. I think we have a very high confidence that we will absolutely win those deals.
Speaker Change #117: Based on current buying behavior, we believe it is prudent to adjust our outlook for the fiscal year with DVR to be between 103 and 104 percent and ARR growth of approximately 6 percent.
Speaker Change #117: Double clicking on ARR, we have a robust pipeline with some hefty opportunities within our installed-based customers.
Speaker Change #117: But given the current environment, I remain prudent about how we set expectations for the second half as a precise timing can be difficult to predict.
Todd Mcelhatton: Timings always the question. And with what we're seeing in the current environment, it just felt appropriate that, you know, we should adjust because one of those or two of those drop out. It's not possible really to backfill it at the size of some of the transactions. So from our standpoint, it feels like this is a really reasonable place for us to land in the second half.
Speaker Change #117: We will continue to see us drive our bottom line leverage and maintain our goal of exiting fiscal 2025 at a rule of 30 run rate.
Speaker Change #117: Based on our solid performance in Q2, we are increasing our guides for adjusted free cash flow to be $82 million or greater for the full year.
Speaker Change #117: To close out, I speak with a lot of CFOs and I'm convinced we have the right product to give companies the tools and agility needed to monetize the business models of today and tomorrow.
Tien Tzuo: Maybe I'll add some color on top of what Todd says. Look, I start with the bigger picture. The bigger picture is on a multi-year basis, right? The shift of recurring revenues is still very much a trend that's in place. It's not going to disappear, which you saw this quarter was continue recognition from from, you know, third parties, the analyst community, specifically that we've got clearly the best product in the marketplace. And overall, we feel really good about some of the trends that we're seeing in our ability to create pipe, our ability to remain competitive, and our ability to close customers like Canva or customers will expand with customers like Dillow.
Speaker Change #117: Gartner, ISG Software Research, and MGI have declared our market leadership in its mission critical category.
Speaker Change #117: In the current environment, we have taken the opportunity to dial in our cost structure and drive durable improvements in operating margins and free cash flow. This will give us the ability to drive more efficient growth in the future while maintaining or expanding more.
Speaker Change #117: with that being Robbie and I will take your questions and I'll turn it over to the operator.
Tien Tzuo: I think, you know, look, I'll say this for Todd. He heard from you all over the years that, hey, a little stronger ARR guide compared to maybe what happened last year would be helpful. And so we're halfway through the year. You know, you might remember at the start of the year, there was some sense that, hey, you know, after Q4 technology spend going to thaw is going to improve. We're not halfway through the year right now.
Speaker Change #117: Thank you.
Speaker Change #117: We will now begin the question and answer session.
Speaker Change #117: If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you like to withdraw that question, again, press star one.
Speaker Change #117: Your first question comes from Adam Hotchkiss with Goldman Sachs.
Tien Tzuo: You're seeing the results with with other big, big sad companies who are saying, look, the picture out there is mixed. And given that the picture out there is mixed, that's applied good judgment. And ultimately, you know, give you guys what you're looking for, which is just a better sense of what's going to happen in the back after the year.
Speaker Change #117: Please go ahead.
Speaker Change #117: Great.
Rob Oliver: Fair enough. Okay. Thank you guys very much. I appreciate it.
Speaker Change #117: Thanks so much for taking the question.
Unknown Attendee: Thanks Rob.
Jacob Stephan: Your next question comes from the line of Jacob Steven with a lake street. Please go ahead. Yeah. Thanks for taking my questions. Maybe just touching on kind of the media vertical. Obviously you guys have made some investments there acquired some X. I would just like to get in kind of your comments on what you're seeing in that vertical with new customers and just pipeline overall.
Speaker Change #117: Tien, I guess on the total monetization point, you noted that business model changes particularly around consumption billing or something that you're seeing and other folks in the industry are seeing.
Speaker Change #117: What's the plan to take advantage of that from a monetization perspective and when you look two or three years out, what are the impacts to financials and variables that you look at that get you excited about that business?
Speaker Change #117: Well, the way I look at total monetization and appreciate the question, Adam, is it really allows us to continue the journey we bought then on.
Tien Tzuo: I'm really excited about the media vertical. You know, in many ways, if you look at B2B business models is the technology vendors, right, the SaaS companies that have led the way to teach the rest of the world how these recurring revenue models work. And the B2C space, the media companies, especially the newspaper publishers and the transformations they've gone through where they go. I really do think the rest of the industry will follow.
Speaker Change #117: And in many ways, you can think of it almost as an act to where the first phase of the company was really offering.
Speaker Change #117: Billing the companies that were pure subscription businesses, companies like Zoom, companies like New York Times.
Tien Tzuo: I mean, what we're seeing in that sector is they've been successful setting up paywall. They've been successful setting up these dynamic paywalls with these what they call these propensity scores, right. How do we have a sense of based on data, whether a subscriber is going to subscribe or not. We're seeing, you know, maybe call these paywall three dot O strategies that are, you know, not a surprise AI driven, right. That says we don't want static scores, right.
Tien Tzuo: We want something that's dynamic. We want something that's changing. We want something that can look at the data given where AI is and technology is. There's no reason they can't do that. And so we double down on our Zephyr investment with with sub X, which really gives it an AI driven a decision tree, right, using, you know, an AI technique called reinforcement learning to figure out in real time. Hey, this subscriber coming to your, you know, your new staper say your app, what do you want to do?
Tien Tzuo: You want to look at the article? Do you want to put an off in front of them? Do you want to cross all them puzzles or recipes or whatnot? And so it's, and we believe, look, we're really focused on the media sector right now, but we believe that these techniques are certainly not specific to that sector. And every B2C company that has a recurring revenue model, ultimately will have to adopt these type of capabilities.
Tien Tzuo: Which is something further than that. You look at some of the customers, you know, we mentioned in the economist New York Times. I don't even have one of the largest, most probably media streaming companies that is absolutely growing significantly with that space. And it spreads that out even more significantly.
Unknown Attendee: So yeah, very excited about that particular vertical. And they're taking advantage of Zora capabilities for doing like pay-for-view event in addition to your ongoing, you know, monthly streaming cost. No, I think I agree. For example, the total monetization. Yeah, that's helpful. Appreciate that.
Speaker Change #117: And total monetization is to say, look, now that subscription businesses and recurring value models are becoming more prevalent.
Speaker Change #117: Companies are really looking to be much more sophisticated and blend these different business models together.
Tien Tzuo: And then maybe just kind of wanted to touch on, you know, the new deal, new product deals, you know, being half billing plus revenue. I guess what are you seeing as we, you know, come through Q3 here? Is that something similar that you're seeing? Well, yeah, look, on a personal basis, like you've heard us talk about fast lands, fast expands, and you look at this quarter, and a lot of customers came to us and said, no, no, no, we want both products, and we want them to start.
Speaker Change #117: So it's not just about subscriptions, it's about consumption, it's about one time fees, it's about outcome based fees, it's about really mixing all these things.
Speaker Change #117: And customizing the right business model and the right pricing model for the customer.
Tien Tzuo: So look, ultimately we're going to do where the customers take us. I like the fact that we can land with billing. We can land with just revenue. We can wait and cross out other products later. But you're seeing ultimately that, that the combination of these two really is where a lot of the magic is, right? That's what can't be found. That's what a bunch of other companies found. I can't just live with just billing. I need revenue recognition as well. And when it's appropriate, right? They're saying, look, we'd rather do it both at once. We're certainly going to support that decision. Got it. Understood.
Speaker Change #117: And so I see this as an opportunity for us to really go beyond billing and go beyond subscription revenue.
Speaker Change #117: And we're seeing just that that message really resonate with our customer base.
Speaker Change #117: And we're seeing the analyst community really say, hey, total monetization makes sense.
Speaker Change #117: We can see how you really need an end solution that's billing revenue payments and more.
Speaker Change #117: And so, you know, when I look at total monetization, it's really a message that's resonating with our customer base and really allows us to continue our leadership position ideally for many years to come.
Speaker Change #117: Okay, great.
Brent Feel: Appreciate it. Your next question comes from a line of Brent feel with Jeffries. Please go ahead. Thank you. Hi, this is love soda on for Brent. Thank you, teen, Robbie, and Todd for taking my questions. Maybe the first one, 14 and Robbie. I just wanted to unpack maybe the ARR weakness. I guess this quarter. Obviously, it's a month or a low for you guys at 7%. It sounds like the install base was pretty strong.
Speaker Change #117: That's really helpful.
Brent Feel: So could you just unpack, I guess, what drove the weakness in ARR growth this quarter? Well, I'd say if you compare the ARR growth this quarter with last quarter, I think the picture looks strong. And so, and I would say, look, in this environment, you're seeing all sorts of companies saying it is harder to close a new customer. And, you know, and so we're certainly seeing that as well. And you're seeing good solid growth and install base. But can't be with a new logo. We certainly continue to close new logos and that feels, you know, that feels good given the current environment.
Speaker Change #117: And then Todd just on the revisions lower on the ARR and then RR for the year.
Speaker Change #117: Could you parse that out for us a little bit?
Speaker Change #117: How much of that is just added conservatism around the environment versus anything in particular you saw in the quarter?
Speaker Change #117: You know, I guess we're just trying to understand to what extent you think sales cycles are maybe a little bit more elongated.
Speaker Change #117: And that's lasted a little bit longer than you previously thought versus just taking an added level of conservatism.
Speaker Change #117: Sure, Adam, I really want to be prudent as we put together our forecast.
Speaker Change #117: We take the guidance very seriously and we want to meet it on a quarter by quarter basis.
Speaker Change #117: If you take a look at what we're seeing here in in half to, as I mentioned, we have some media deals.
Speaker Change #117: They're in our install base.
Todd Mcelhatton: Got it. And one for Todd, if I may, Todd, you know, it seems like you've delivered a lot of prosperity upside. You know, the possibility of this sustaining into the back half of the year and into next year, just any additional investments that you have planned, any color would be helpful. I think a couple things love. Thanks for the question. We've been really consistent on the fact that if we didn't think we could get a good return on investing in top line, we would put dollars to the bottom line.
Speaker Change #117: And, you know, timing can be challenging to predict.
Speaker Change #117: And so I really want to make sure that I give you something that we're very confident that we can absolutely achieve.
Speaker Change #117: And based on the current environment, I think 6% is the is a reasonable place for us to be.
Speaker Change #117: It certainly continues to be challenging.
Todd Mcelhatton: The cost structure that we have right now is absolutely sustainable. And we believe there is future, there's further leverage that we'll be able to gain. We are committed. We will exit the year at rule of 30 like we said. So I have, you know, we're very confident about that. So I'm not concerned about that. And I do believe there are opportunities for additional leverage as we go out into next year. So we certainly don't feel like this is a, you know, one time deal.
Speaker Change #117: I'd also note at the same time, we brought up our revenue.
Speaker Change #117: We brought up and that's, you know, we're seeing other ways where we're able to monetize our business, such as monetizing payments from payment processors and other partners.
Speaker Change #117: You saw that we brought up the up non gap operating cat or non gap operating margin or profit by 10 and a half million dollars.
Speaker Change #117: And you also saw that we had RPO that grew 14%.
Speaker Change #117: So when the environment improves, I certainly feel that we're well positioned to accelerate growth.
Speaker Change #117: But for the environment that we're seeing right now, we really felt it was kind of appropriate to reset what we're seeing.
Speaker Change #117: Okay, thanks so much.
Speaker Change #117: Here next question comes from the line of a Jeff Fran Rhee with Craig Hallem.
Todd Mcelhatton: I think this is, you know, a baseline where we have the question becomes is when do we see an acceleration in top line. And, you know, do we hold or do we expand margins further. But I would not see us backtracking on margins as we sell top line, accelerate. Thank you.
Speaker Change #117: Please go ahead.
Speaker Change #117: Great, thanks for taking the question.
Speaker Change #117: So I'm a couple for me first.
Speaker Change #117: Maybe just spend a second on Canva, I thought that was interesting.
Joseph Vafi: We have time for one more question and that question comes from Joseph Vafi with Can't Acquired Genuity. Please go ahead. Hey guys, good afternoon. Thanks for the opportunity to ask a question here. Just, you know, we have maybe a lot of questions have been asked. It's got an update on to guy and I guess more broadly, you know, you know, given kind of the surgeon in focus on AI. Do you think kind of the product set at this point can, you know, is holistic enough to to capture the opportunity broadly around consumption based pricing that's emerging with AI.
Speaker Change #117: What was the competitive landscape there?
Speaker Change #117: External vendors that might have been after that as well as what was the internal environment?
Speaker Change #117: They had a homegrown system that really made a lot of sense.
Speaker Change #117: When they were small and they were just really selling in the cell service environment, but look, the journey that any company goes on is the bigger you are, the more successful you are, the more complex you have.
Speaker Change #117: If you look at what they are today, they sell, they sell direct, they sell enterprise, they sell consumers, they sell to schools.
Speaker Change #117: And so their homegrown system really wasn't working.
Speaker Change #117: And you can imagine a company like that, right?
Speaker Change #117: They've got big plans.
Joseph Vafi: And then I'll quick follow up. I feel really good about what's going on with tow guy, you know, we close it this quarter. And so I think we're only two months in to be fair. So it is early days. But look, we had a product in the marketplace. We call it advanced consumption billing. That product is, we talked about it being the fastest selling, one of the fastest selling products in the last, you know, in Q2.
Speaker Change #117: They look to the market.
Speaker Change #117: They looked at every possible solution.
Speaker Change #117: And I'm pleased to say that we really had a set of differentiating technologies that they thought was really, really important.
Speaker Change #117: The last thing they want to do is to three years from now have to do yet another implementation of a system.
Speaker Change #117: And so we're pretty happy with our ability to meet their needs.
Speaker Change #117: Got it.
Speaker Change #117: And then on the payment processors, it sounds like the payment processors was a source of the upside.
Speaker Change #117: Can you just contrast that a little more color on what happened there and contrast it to what you would expect it to happen there?
Speaker Change #117: Sure, Jeff.
Joseph Vafi: And tow guy is really part of that. And so you can imagine engineers are really saying, hey, the two products, you know, can be integrated. But there's something we can do now that it's one company to make the integration even stronger, even more seamless and even more out of the box. And then what we get is, you know, we have an industry leading billing solution that, you know, you seen top right corner and all that from, from all the analysts.
Speaker Change #117: We've had agreements with our, with many partners over time.
Speaker Change #117: And frankly, it's an area that we're revisiting.
Speaker Change #117: We've not monetized it as effectively as we could.
Speaker Change #117: We went back and did an audit with one particular one.
Joseph Vafi: And we're adding to that metering and rating. So what does that mean? That means look, if you're an engineering organization, you want to do consumption based billing. How do I take all this raw data? All these events that are going on in my application, capturing it, ingesting it, translating that, transforming it, and ultimately applying a price to it, right? That's what we need by metering rating. And that's the capability that tow guy really, you know, gave us a two-year head start in terms of what we can do just basically by ourselves.
Speaker Change #117: And there was a catch up that we had in addition that we adjusted it going forward.
Speaker Change #117: And I would expect is, you know, we move through future quarters.
Speaker Change #117: You're going to see this be a source of increased revenue for us.
Joseph Vafi: So we're still selling advanced consumption billing like we do before. Well, I think the vision of where that product is going is now, you know, significantly stronger, you know, multiple times better. And it's getting, you know, really positive traction when we talk to our customers and prospects about it. The judges are the points of that. We had our subscribe live. We had great, great interest there from all around the consumption area.
Joseph Vafi: So now we're seeing real, great interest in that from both customers and from our prospects and also from our partners. And I know like AI is a big driver. We see it as well, but we try to highlight on the earnings call was that $80 billion logistics company, you know, logistics transportation. You might not expect it, but we're seeing a lot of traction with usage based consumption based models outside of the technology industry as well.
Joseph Vafi: Sure, that's all great color. Thanks, team and Robbie. And then maybe just finally, you know, on kind of revshare coming from transaction processors. It's kind of something that, you know, we haven't heard you got to talk about that much at this point. So appreciate that color. Just kind of getting a feel for you know, is there, you know, I guess we could call it your take rate or something off of payment volume here.
Joseph Vafi: Is there, you know, is there opportunity broadly to continue to increase, I guess what we might call a take rate here off, you know, the gross dollar volumes that are running through your billing systems. Just standing, you know, how you're looking at this over time. Thanks. Yeah, Joseph, I know you've got deep experience in the payment space and it's certainly something that you've talked to us about. But if I were to lift it up level, we're at the size of scale now, where we represent a significant business over $100 billion to throw us through our system every single year, close to $300 billion if you include revenue recognition.
Speaker Change #117: As you know, you know, we have over 50 billion dollars for the payments that go to our system.
Speaker Change #117: And we certainly feel this is an opportunity for us to further monetize our business.
Joseph Vafi: We've got some of the best brands and best companies in the world that many other companies would die, you know, would die to have a chance to work with. And the question right now is, you know, how can we translate that into a durable growth engine? Not that different than say, you know, Apple is done, obviously, a much, much larger scale, right? With the App Store or, you know, with Salesforce, I was very involved in the early days of the App Exchange.
Speaker Change #117: Yeah, I mean, just, just to know, I mean, that wasn't the sole contributor to the upside.
Speaker Change #117: I just want to make sure, you know, it was the one contributor.
Joseph Vafi: I'd say it's early days for us, but certainly we're at a size and scale now where we can find other ways to monetize our customers through the building of an ecosystem. And this is an area of joy. We're putting a lot more attention on. And to your point is, it's early days, but we do believe there's opportunity for us to get incremental revenue here. And this is something that is not part of our AR, but it does hit the subscription line. Right. And it does feel like this would be kind of super high-profit revenue, right? I know. That is a way to get it. Yeah. Okay. All right. Thanks a lot, guys.
Speaker Change #117: But what we want to really return to flag is, look, the value of our customer base and the value that we built so far.
Speaker Change #117: Right, really gives us the ability to monetize in many, many different ways.
Speaker Change #117: We talked about our landing and expand strategy.
Unknown Attendee: That concludes our question and answer session.
Tien Tzuo: And I will now turn the conference over to Dean Zo, Chief Executive Officer for closing remarks. I appreciate everyone for joining us in Q2. And look forward to seeing you. Hopefully you're subscribed live in Europe in the coming months in order to talk to you next quarter. Thank you very much.
Unknown Attendee: This concludes today's conference call. Thank you for your participation. And you may now disconnect. Please wait.
Unknown Attendee: The conference will begin shortly. Thank you.
Speaker Change #117: That's working really well.
Speaker Change #117: And you're going to see us continue to find, you know, other ways to monetize this valuable customer base we have.
Speaker Change #117: And this is probably the first quarter we talked about this, but it's something that this certainly has been in the mix for some time.
Speaker Change #117: And Jeff, I would expect that to be an ongoing revenue.
Speaker Change #117: And that is not part of our ARR.
Speaker Change #117: Interesting.
Speaker Change #117: Okay.
Speaker Change #117: Great.
Speaker Change #117: Thank you.
Speaker Change #117: Your next question comes from the line of Joshua Riley with Needham and company.
Speaker Change #117: Please go ahead.
Speaker Change #117: Yeah, I think for taking my questions, one of the things that we've heard from some of your partners is you have a pretty strong pipeline of pre IPO customers out there.
Speaker Change #117: And maybe they're a little bit hesitant to spend because they don't know the timing around when they're going to go public.
Speaker Change #117: Just curious, is that, is that what you're hearing from some of these prospective customers and consistent just more generally in the marketplace that an interest rate code and a return of the IPO cycle will help some of that new customer activity, maybe just starting off there.
Speaker Change #117: Yeah, I don't know that I want to say predict when the IPO market is in a thaw, when the interest rates are going to get cut, but I would say if you look at these companies in Canva is a good example, there's certainly many more, I wouldn't say they're obsessed with exactly when they go public.
Speaker Change #117: I would say they're at a side in scale right now.
Speaker Change #117: We're going public at some point in the future is definitely in the cards for them.
Speaker Change #117: And, you know, and now is a great time to prepare, right?
Speaker Change #117: We had a total set of customers going back to the 2018, 2019, 2020 that maybe when public, you know, rushed to the marketplace and then went backwards and started putting in, you know, revenue recognitions and billing systems, we talked about some of these companies in the past.
Speaker Change #117: But I think a better approach right is to do it right now where things are calm so that when the IPO market's open, you are, you're ready.
Speaker Change #117: I would say that is the, you know, the primary mindset that these companies have.
Speaker Change #117: May I have one more thing as well, Josh, which is if we look at it, a lot of people we close were bidding and revenue like Canva, why they're future proofing.
Speaker Change #117: I mean, that's one of the big things that we mentioned Canva in the last piece.
Speaker Change #117: They've been by both solutions to future proof in the same way, you know, half of the new business deals that we did were buying both bidding and revenue for that.
Speaker Change #117: It ties in very well for people as they think about also future IPO, but it certainly has been a headwind for us that, you know, as is IPO market has been slowed down that, you know, something that has been a drag and as things loosen up, that would certainly be something that would help us accelerate, but we're not we're casting that at this particular point.
Speaker Change #117: Got it.
Speaker Change #117: That's helpful.
Speaker Change #117: And then just following up on the commentary around the AR guidance updates for the year, as you look at, you know, this kind of 6% level.
Speaker Change #117: Can you just help us understand are you are you pulling back more on the expectations around new customer activity versus the cross sell or is it a little bit lower assumptions around both cross sell and new customer activity.
Speaker Change #117: Thanks, guys.
Speaker Change #117: I would say it's, you know, balanced with both.
Speaker Change #117: And you know, certainly reflected with the DVR guidance that we gave of 103 to 104.
Speaker Change #117: So we certainly see headwinds in both of those areas, Josh.
Speaker Change #117: Got it.
Speaker Change #117: Thank you.
Speaker Change #117: Here our next question comes from the line of rob Oliver with beard.
Speaker Change #117: Please go ahead.
Speaker Change #117: Great.
Speaker Change #117: Thanks guys for taking my questions.
Speaker Change #117: My first one is just on what you guys are seeing in terms of pricing in the market.
Speaker Change #117: Sounds like there's some, you know, really nice lands, including obviously canva, some other high profile stuff in the pipe.
Speaker Change #117: But just would be curious to hear kind of what you're hearing on pricing are people a little bit more price sensitive or you seeing that in your lands.
Speaker Change #117: And then I had a quick follow up as well.
Speaker Change #117: Yeah, I wouldn't say that I would say the dominant trend there.
Speaker Change #117: Right.
Speaker Change #117: Obviously it's competitive, but we have a sticky product.
Speaker Change #117: A lot of times these customers.
Speaker Change #117: You know that we're expanding with our already customers.
Speaker Change #117: There's certainly a bigger trend given, you know, the last two years of an inflationary environment where, where companies have tended to increase their prices on a point of renewal.
Speaker Change #117: Our preference has been to say, hey, we have a lot of innovations.
Speaker Change #117: Right.
Speaker Change #117: If, if a better way to increase the value of our contract is to introduce new innovations and add more value to customers.
Speaker Change #117: That's certainly our preferred way of doing them than just a flat out price increase where, you know, they don't get additional capabilities.
Speaker Change #117: But I wouldn't say that we're facing increased pricing pressure.
Speaker Change #117: And we're managing the ability to grow our customers in a positive way.
Speaker Change #117: Okay.
Speaker Change #117: Thanks, Dean.
Speaker Change #117: And then Todd, just one for you, and there's been a bunch of questions on the ARR.
Speaker Change #117: And so you've answered a lot, but just like I should follow up one there.
Speaker Change #117: When you look at that pipeline for the back half of the year, you know, when you look at the renewal profile, are there, you know, are you, are you candycapping some renewals that perhaps could be more challenging, you know, and perhaps a bit of a spike in turn or, you know, I don't, last question was a good one.
Speaker Change #117: And then cross sell, you know, versus new logo sounds like it's a mix of both, but if you can help us understand kind of what your thought is relative to, you know, turn there that would also be helpful.
Speaker Change #117: Thanks a lot.
Speaker Change #117: We have a robust pipeline, Rob, for the second half, and I feel very good about that.
Speaker Change #117: However, we've got some pretty large deals during the install base. I think we have a very high confidence that we will absolutely win those deals.
Speaker Change #117: Timings always the question.
Speaker Change #117: And with what we're seeing in the current environment, it just felt appropriate that, you know, we should adjust because one of those or two of those drop out, it's not possible really to backfill it at the size of some of the transactions.
Speaker Change #117: So from our standpoint, it feels like this is a really reasonable place for us to land in the second half.
Speaker Change #117: Maybe I'll add some color on top of what Todd says.
Speaker Change #117: Look, I start with the bigger picture. The bigger picture is on a multi year basis, right, the shift of recurring revenues is still very much a trend that's in place.
Speaker Change #117: It's not going to disappear, which you saw this quarter was continue recognition from, from, you know, third parties, the analyst community, specifically that we've got clearly the best product in the marketplace.
Speaker Change #117: And overall, we feel really good about some of the trends that we're seeing in our ability to create pipe, our ability to remain competitive and our ability to close customers like canva or customers or expand with customers like dillow.
Speaker Change #117: I think, you know, look, I'll say this for Todd.
Speaker Change #117: He heard from you all, you know, over the years that, hey, a little stronger ARR guy compared to maybe what happened last year would be helpful.
Speaker Change #117: And so we're halfway through the year, you know, you might remember at the start of the year, there was some sense that, hey, you know, after q4 technology spend going to thaw is going to improve.
Speaker Change #117: We're not halfway through the year right now.
Speaker Change #117: You're seeing the results with with other big, big sad companies were saying, look, the picture out there is mixed.
Speaker Change #117: And given that the picture out there is mixed, that's applied good judgment and ultimately, you know, give you guys what you're looking for, which is just a better sense of what's going to happen in the back after the year.
Speaker Change #117: Fair enough.
Speaker Change #117: Okay.
Speaker Change #117: Thank you guys very much.
Speaker Change #117: I appreciate it.
Speaker Change #117: Thanks Rob.
Speaker Change #117: Your next question comes from the line of Jacob Steven with a lake street.
Speaker Change #117: Please go ahead.
Speaker Change #117: Yeah.
Speaker Change #117: Thanks for taking my questions.
Speaker Change #117: Maybe just touching on kind of the media vertical.
Speaker Change #117: Obviously you guys have made some investments there acquired some X.
Speaker Change #117: I would just like to get kind of your comments on what you're seeing in that vertical with new customers and just pipeline overall.
Speaker Change #117: I'm really excited about the media vertical.
Speaker Change #117: You know, in many ways, if you look at B2B business models is the technology vendors, right, the SaaS companies that have led the way to teach the rest of the world how these recurring revenue models work.
Speaker Change #117: And the B2C space, the media companies, especially the newspaper publishers and the transformations they've gone through, where they go, I really do think the rest of the industry will follow. I mean, what we're seeing in that sector is they've been successful setting up paywall.
Speaker Change #117: They've been successful setting up these dynamic paywalls with these what they call these propensity scores, right?
Speaker Change #117: How do we have a sense of based on data whether a subscriber is going to subscribe or not?
Speaker Change #117: We're seeing, you know, maybe call it paywall 3.0 strategies that are, you know, not a surprise, AI driven, right?
Speaker Change #117: That says, we don't want static scores, right?
Speaker Change #117: We want something that's dynamic.
Speaker Change #117: We want something that's changing.
Speaker Change #117: We want something that can look at the data given where AI is and technology is.
Speaker Change #117: There's no reason they can't do that.
Speaker Change #117: And so we double down on our Zeffer investment with with sub X, which really gives it an AI driven a decision tree, right, using, you know, an AI technique called reinforcement learning to figure out in real time.
Speaker Change #117: Hey, this subscriber coming to your, you know, your new staper style, your app, what do you want to do?
Speaker Change #117: You want to let them look at the article?
Speaker Change #117: Do you want to put an off in front of them?
Speaker Change #117: Do you want to cross all them?
Speaker Change #117: Puzzles or recipes or what not?
Speaker Change #117: And so it's, and we believe, look, we're really focused on the media sector right now, but we believe that these techniques are certainly not specific to that sector.
Speaker Change #117: And every B2C company that has a recurring revenue model, ultimately we'll have to adopt these type of capabilities.
Speaker Change #117: Which I think further than that, you look at some of the customers, you know, we mentioned in the economists, New York Times.
Speaker Change #117: I don't even have one of the largest, most probably media streaming companies, but it's absolutely growing significantly with that space.
Speaker Change #117: And it spreads that out even more significantly.
Speaker Change #117: So yeah, very excited about that particular vertical.
Speaker Change #117: And they're taking advantage of Zora capabilities for doing like pay-for-view event in addition to your ongoing, you know, monthly streaming cost.
Speaker Change #117: No, I think actually, for example, the total monetization.
Speaker Change #117: Yeah, that's helpful.
Speaker Change #117: Appreciate that.
Speaker Change #117: And then maybe I'm just kind of wanted to touch on, you know, the new deal, new product deals, you know, being half billing plus revenue.
Speaker Change #117: I guess what are you seeing as we, you know, come through Q3 here?
Speaker Change #117: Is that something similar that you're seeing?
Speaker Change #117: Well, yeah, look, on a personal basis, like you've heard us talk about fast lands, fast expands and you look at this quarter and a lot of customers came to us and said, no, no, no, we want both products and we want them to start.
Speaker Change #117: So look, ultimately we're going to do where the customers take us.
Speaker Change #117: I like the fact that we can land with billing.
Speaker Change #117: We can land with just revenue.
Speaker Change #117: We can wait and cross out other products later, but you're seeing ultimately that, that the combination of these two really is where a lot of the magic is, right?
Speaker Change #117: That's what can't be found.
Speaker Change #117: That's what a bunch of other companies found.
Speaker Change #117: I can't just live with just billing.
Speaker Change #117: I need revenue recognition as well.
Speaker Change #117: And when it's appropriate, right?
Speaker Change #117: They're saying, look, we'd rather do it both at once.
Speaker Change #117: We're certainly going to support that decision.
Speaker Change #117: Got it.
Speaker Change #117: Understood.
Speaker Change #117: Appreciate it.
Speaker Change #117: Your next question comes from a line of Brent feel with Jeffries.
Speaker Change #117: Please go ahead.
Speaker Change #117: Thank you.
Speaker Change #117: Hi, this is love soda on for Brent.
Speaker Change #117: Thank you, teen Robbie and Todd for taking my questions.
Speaker Change #117: Maybe the first one, 14 and Robbie.
Speaker Change #117: I just wanted to unpack maybe the ARR weakness.
Speaker Change #117: I guess this quarter.
Speaker Change #117: Obviously, it's the month year low for you guys at 7%.
Speaker Change #117: It sounds like the install base was pretty strong.
Speaker Change #117: So could you just unpack, I guess, what drove the weakness in ARR growth this quarter?
Speaker Change #117: I say, if you compare the ARR growth this quarter with last quarter, I think the picture looks strong.
Speaker Change #117: And so, and I would say, look, in this environment, you're seeing all sorts of companies saying it is harder to close a new customer. And, you know, and so we're certainly seeing that as well.
Speaker Change #117: And you've seen good solid growth and install base, but can't be with a new logo.
Speaker Change #117: And we certainly continue to close new logos and that feels, you know, that feels good given the current environment.
Speaker Change #117: Got it.
Speaker Change #117: And one for Todd, if I may, Todd, you know, it seems like you've delivered a lot of profitability upside.
Speaker Change #117: You know, the possibility of this sustaining into the back half of the year and into next year, just any additional investments that you have planned any color would be helpful.
Speaker Change #117: I think a couple of things, love.
Speaker Change #117: Thanks for the question.
Speaker Change #117: We've been really consistent on the fact that if we didn't think we could get a good return on investing in top line, we would put dollars to the bottom line.
Speaker Change #117: The cost structure that we have right now is absolutely sustainable.
Speaker Change #117: And we believe there is future, there's further leverage that we'll be able to gain.
Speaker Change #117: We are committed.
Speaker Change #117: We will exit the year at rule of 30, like we said.
Speaker Change #117: So I have, you know, we're very confident about that.
Speaker Change #117: So I'm not concerned about that.
Speaker Change #117: And I do believe there are opportunities for additional leverage as we go out into next year.
Speaker Change #117: So we certainly don't feel like this is a, you know, one time deal.
Speaker Change #117: I think this is, you know, a baseline where we have the question becomes is, when do we see an acceleration in top line.
Speaker Change #117: And, you know, do we hold or do we expand margins further.
Speaker Change #117: But I would not see us backtracking on margins as we sell top line, accelerate.
Speaker Change #117: Thank you.
Speaker Change #117: We have time for one more question.
Speaker Change #117: And that question comes from Joseph Vafi with Can't Acquired Genuity.
Speaker Change #117: Please go ahead.
Speaker Change #117: Hey guys, good afternoon.
Speaker Change #117: Thanks for the opportunity to ask a question here.
Speaker Change #117: Just, you know, maybe a lot of questions have been asked.
Speaker Change #117: Just get an update on Toe Guy.
Speaker Change #117: And I guess more broadly, you know, you know, given kind of the surgeon in focus on AI, do you think kind of the product set at this point can, you know, is holistic enough to, to capture the opportunity broadly around consumption based pricing that's emerging with AI.
Speaker Change #117: And then I'll quick follow up.
Speaker Change #117: I feel really good about what's going on with Toe Guy.
Speaker Change #117: You know, we closed this quarter.
Speaker Change #117: And so I think we're only two months in to be fair. So it is early days.
Speaker Change #117: But look, we had a product in the marketplace. We call it advanced consumption billing. That product is, we talked about it being the fastest selling, one of the fastest selling products in the last, you know, in Q2.
Speaker Change #117: And Toe Guy is really part of that.
Speaker Change #117: And so you can imagine engineers are really saying, hey, the two products, you know, can be integrated.
Speaker Change #117: But there's something we can do now that it's one company to make the integration even stronger, even more seamless and even more out of the box.
Speaker Change #117: And then what we get is, you know, we have an industry leading billing solution that, you know, you seen top right corner and all that from all the analysts.
Speaker Change #117: And we're adding to that metering and rating.
Speaker Change #117: So what does that mean?
Speaker Change #117: That means look, if you're an engineering organization, you want to do consumption based billing.
Speaker Change #117: How do I take all this raw data, all these events that are going on in my application, capturing it, ingesting it, translating that, transforming it, and ultimately applying a price to it.
Speaker Change #117: That's what we need by metering rating.
Speaker Change #117: And that's the capability that Toe Guy really, you know, gave us a two year head start in terms of what we can do just basically by ourselves.
Speaker Change #117: So we're still selling events, consumption billing, like we did before.
Speaker Change #117: Well, I think the vision of where that product is going is now, you know, significantly stronger, you know, multiple times better.
Speaker Change #117: And it's getting, you know, really positive traction when we talk to our customers and prospects about it.
Speaker Change #117: Jarges is the point of that.
Speaker Change #117: We had our subscribe live.
Speaker Change #117: We had great, great interest there from all around the consumption area.
Speaker Change #117: So now we're seeing real, great interest in that from both customers and from our prospects and also from our partners.
Speaker Change #117: And I know like AI is a big driver.
Speaker Change #117: We see it as well, but we try to highlight on the earnings call was that $80 billion logistics company, you know, logistics transportation.
Speaker Change #117: You might not expect it, but we're seeing a lot of traction with usage based consumption based models outside of the technology industry as well.
Speaker Change #117: Sure, that's all great color.
Speaker Change #117: Thanks, team and Robbie.
Speaker Change #117: And then maybe just finally, you know, on kind of revshare coming from transaction processors.
Speaker Change #117: It's kind of something that, you know, we haven't heard you got to talk about that much at this point.
Speaker Change #117: So appreciate that color.
Speaker Change #117: Just kind of getting a feel for, you know, is there, you know, I guess we could call it your take rate or something off payment volume here.
Speaker Change #117: Is there, you know, is there opportunity broadly to continue to increase, I guess what we might call a take rate here off, you know, the gross dollar volumes that are running through your billing systems.
Speaker Change #117: Just standing, you know, how you're looking at this over time.
Speaker Change #117: Thanks.
Speaker Change #117: Joseph, I know you've got deep experience in the payment space, and it's certainly something that you've talked to us about.
Speaker Change #117: But if I were to lift it up level, we're at a size of scale now where we represent a significant business over $100 billion, close to our system every single year, close to $300 billion if you include revenue recognition.
Speaker Change #117: We've got some of the best brands and best companies in the world that many other companies would have a chance to work with.
Speaker Change #117: And the question right now is, how can we translate that into a durable growth engine?
Speaker Change #117: Not that different than, say, Apple is done, obviously, a much, much larger scale with the App Store or with Salesforce.
Speaker Change #117: I was very involved in the early days of the App Exchange.
Speaker Change #117: I say it's early days for us, but certainly we're at a size of scale now where we can find other ways to monetize our customers through the building of an ecosystem.
Speaker Change #117: And this is an area of Joe, we're putting a lot more attention on, and to your point is it's early days, but we do believe there's opportunity for us to get incremental revenue here.
Speaker Change #117: And this is something that is not part of our AR, but it does hit the subscription line.
Speaker Change #117: Right, and it does feel like this would be kind of super high profit revenue, right?
Speaker Change #117: I know.
Speaker Change #117: Yeah, okay.
Speaker Change #117: All right.
Speaker Change #117: Thanks a lot, guys.
Speaker Change #117: Second, please, our question and answer session.
Speaker Change #117: And I will now turn the conference over to Teen Zoo, Chief Executive Officer for closing remarks.
Speaker Change #117: I appreciate everyone for joining us in Q2 and look forward to seeing you.
Speaker Change #117: Hopefully, I subscribe live in Europe in the coming months in order to talk to you next quarter.
Speaker Change #117: Thank you very much.
Speaker Change #117: This concludes today's conference call.
Speaker Change #117: Thank you for your participation.
Speaker Change #117: And you may now disconnect.
Speaker Change #117: Please wait.
Speaker Change #117: The conference will begin shortly.
Speaker Change #117: Thank you very much.