Zuora Inc

and welcome to Zora's fourth quarter and fiscal year 2021 earnings conference call. Joining us for today's call are Zora's founder and CEO, Team ZO, and CFO, Todd McElhatton. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. With that, I would like to turn the call over to Carolyn Bass, Investor Relations, for introductory remarks.

Thank you. Good afternoon, and welcome to Zora's fourth quarter and fiscal 2021 year-end earnings conference call. Joining me today are Tin Tso, Zora's founder and chief executive officer, and Todd McElhatton, Zora's chief financial officer. The purpose of today's call is for us to review our fourth quarter results as well as provide our financial outlook for the upcoming first quarter and fiscal 2022 year. Some of our discussion and responses today will include forward-looking statements, so as a reminder, our actual results could differ materially as a result of a variety of factors. You can find information regarding those factors in the earnings release we issued today and in our most recent filings with the SEC. Finally, we'll be referring to federal non-GAAP financial measures today, and reconciliations to release GAAP measures are included in our earnings press release. Please note that in Q2 of fiscal 2021, we began to exclude litigation charges and the benefits outside of the ordinary course of business from our non-GAAP financial measures. For a copy of our earnings release, links to our SEC filings, and a replay of today's call, or to learn more about Zora, please visit our investor relations website at investor.zora.com. And with that, let me turn the call over to Tim.

Thank you, Carolyn. I'd like to welcome everyone to our call. Thank you for joining us today on Zora's Earnings Call, covering our fourth quarter in our fiscal year 2021. Overall, we executed well in this quarter. We exceeded expectations across our operating results, including total revenue, subscription revenue, non-GAAP gross margin, and non-GAAP operating income. We posted our first full quarter of positive free cash flow. And we had a record upsell quarter, reflecting good momentum with our land and expand go-to-market strategy. During the past year, we solidified our leadership team, improved our go-to-market with alliances and partnerships, and invested in our product roadmap, including our platform. In short, Q4 was a strong cap-off to a year of transformation. He coined the term subscription economy, and we intend to grow at the rate of the subscription economy, to be an index, if you will, of one of the biggest trends of our time. This requires us to continue to make progress in solidifying our position as an indispensable solution provider to the best subscription businesses. For example, in previous quarters, we said our market opportunity resonated with bigger companies. Customer preferences are changing. A new survey from the Harris Poll found that 78% of international adults currently have subscription services, up from 71% just two years ago. This is forcing big brands to rethink how they continue to drive growth in their revenues and turn their customers into subscribers. To meet the growing demand from these bigger companies, we realigned our go-to-market efforts last year, and our Q4 results reflect those efforts. We continue to see our messaging resonate with larger brands. I've been having meaningful conversations with C-level executives at some of the biggest companies in the world. They are coming to us for our expertise and staying with us for our technologies. We continue to close larger deals. In Q4, we closed a record eight deals with an annualized contract value, or ACV, of $500,000 or more, continuing the trend of Q3, where we closed the biggest deal in the company's history. Our services team, has adapted to this change. During the quarter, we helped over 40 customers go live, and many, many of these were large enterprises like Acer Computers, Bridgestone Tires, Radio Canada, and Riverbed, and one of the biggest Italian clothing brands, and all the while doing this while we continue to bring down time to go live and delivering our customer value faster. We continue to invest in customer success, This year, we saw upsells with some of our largest customers in automotive, software, and the media industries. And all this is happening around the world. Geographies outside of the U.S. continue to be a growth opportunity for us as we're seeing increased uplift in Asia Pacific and in Europe. Let me share two quick customer stories which help illustrate the value we bring to our customers. You've seen this talk in previous quarters about our work in technology, media, manufacturing, and utility industries. In Q4, we welcomed a new customer from the financial services industry. If you read the press, you may think that this is an industry under attack and being ticked apart by high-flying fintech startups. But the fact is, veteran financial services institutions have the customers, the brand, and they have enormous resources at their disposal. What they need is agility. And that's where we come in. Today, we're helping one of the world's largest and oldest banks take the offensive by launching competitive new consumer and corporate services offerings. We've given them the ability to launch new products and services in weeks instead of months or even years. Mazora has given them the digital agility and insights of a startup. Similarly, one of the most dramatic shifts we are witnessing are manufacturers moving from one-time product sales to selling recurring services to their customers. Last year, for example, revenues of companies in our subscription economy index grew 12%, while revenues in the S&P 500 declined by 2%. A great example of this shift is Grundfos, the world's largest water pump manufacturer. The Grundfos story is a great, great example of digital transformation. This is a 75-year-old company shifting from selling water pumps in boxes to delivering water as a service. And they're using Zora to monetize the usage data coming from the sensors on the pumps. With new as-a-service offerings, companies like Glencoe's are doubling down on a recurring subscription approach to cater to their customer demand for access over ownership. You can hear more stories like this at our annual subscription experience event taking place virtually from March 23rd to the 25th, where we're going to have leaders from Philips, IBM, Microsoft, Xerox, and others that will showcase how they're using Zora to help launch and scale their customer-centric business models and grow their recurring revenue. In previous quarters, we've shared our enthusiasm for Zora revenue. Revenue recognition in the subscription world is very complex, and solving for this complexity is challenging. Zora revenue enables our customers to achieve a faster quarter close, minimize compliance risk, and more precisely forecast their revenue impact of their business decisions. Well, in Q4, we saw a combination of billing and revenue that's turning out to be a powerful one. Approximately one quarter of our new customer wins in Q4 included both Azure billing and Azure revenue. A good example is Selfos, a world leader in the next generation cybersecurity, who in Q4 turns Azure to help with its quote-to-cash transformation. By selecting the combined power of Zora Billing and Zora Revenue, shoppers can go to market faster with new pricing models and improve their operational efficiency. This is why we continue to power many of the SaaS IPOs this year. For one of these SaaS customers, we decreased their close time from two weeks to two days. The combined Zora revenue and Zora billing solution is eliminating manual processes and automating reconciliation, data gathering, accounting validation, and revenue recognition. And in fact, our NPS and customer satisfaction surveys clearly show that our most satisfied customers are the ones using both billing and revenues. In Q4, we also continue to add to our leadership team. In January, I was incredibly pleased to welcome Sri Srinivasan as our Chief Product and Engineering Officer. Sri joined Zora with more than 25 years of engineering and product development experience, having played a key role in the fast transformations of multi-billion dollar companies, including Cisco and Microsoft. Sri has the perfect background for Zora. He is steeped in ERP, having worked on or running Microsoft Dynamics' product line for over a decade. He has tremendous experience in scaling engineering teams worldwide. He has a general manager's mindset. For example, at Cisco, he ran a $6 billion business unit with multiple GMs reporting to him. And most importantly, Sri has hands-on experience in working with the biggest and best companies in the world. We are thrilled that he's joined our leadership team. In previous quarters, we shared that system integration partners are a key component in our go-to-market strategy. In Q4, we saw more of our SIs actively influencing and sourcing new deal activity for Zorro. As you know, at the onset of last year, we realigned our alliances team to deepen our relationships with our SIs. As a result, in Q4, SIs brought us into more deals with prominent marquee customers. Of the eight deals at over $500,000 that I mentioned previously, three-quarters of those large deals were either influenced or sourced by our system integration partners. SIs are driving successful deployments. Over 40% of our customer goal logs in Q4 involve a system integration partner. And we're encouraged to see larger SIs such as PwC, Accenture, and Deloitte building what we call prime practices, where they invest in and strengthen their Zora practices. In these cases, our salespeople are selling alongside our SI partners. And in fact, during fiscal 2021, these prime SI deals more than doubled over the prior year. These are all proof points that our strategy to move up market and leverage our SI channel is working. We said before that our long-term strategy is to work with the biggest and best companies in the world, both disruptors and incumbents, and we continue to execute against that plan. I also believe that last year was a truly pivotal year for Zora and marked a real inflection point for digital acceleration. Evolving reading is in the headlines, and you're seeing it in the market. According to KPMG, for a majority of U.S. CEOs, the pandemic has meant an acceleration in digital transformation by months or even years. The move to digitization has accelerated, and its benefits will be permanent. There is no going back, says the report. And according to McKinsey, businesses that once mapped digital strategy in one to three-year phases must now scale their initiative in a matter of days or weeks. And we are certainly seeing this market shift in terms of inbound requests and RFPs. In summary, we were pleased with our execution this quarter, capping off an unprecedented year with a strong finish. We continue to make steady progress on the operational improvements we've outlined in previous quarters. We continue to innovate, and we've laid down a solid foundation that has us entering fiscal 2022 with positive momentum. While we have plenty of work ahead, I believe that we are headed in the right direction, and we are really pleased with our continued steady progress. I kept my comments purposely short today as we are planning on holding Analyst Day on April 12th. We will be showcasing our new senior management team, letting you hear from some of our customers and partners, and update you on our recent progress and plans as we look ahead. We'll issue a press release with more details in the coming week, but for now, please mark your calendars for April 12th. And now I'll turn the call over to Todd to review our financials. Todd. Thanks, Teen, and thanks to everyone for joining the call. As Teen noted, our team executed well during the fourth quarter as demonstrated by our financial results, exceeding expectations across all our key financial metrics. In FY21, we laid the foundation for long-term growth. I'm pleased to see the incremental progress we made in Q4. As we look ahead, we plan to continue to focus on growth predictability, improving net dollar retention, and driving efficiency. Let me first review our key metrics. As T noted earlier, Q4 was highlighted by traction in the large enterprise segment. Looking at our customers at or over $100,000 in ACB, we ended with 676 customers. This customer group continues to represent 90% of our business. During Q4, the size of customer deals we added was larger than our historical levels, primarily as a result of our continued success in moving up market to serve larger enterprises. We closed eight deals with ACV of $500,000 or above, a record for deals of this size, and notably three-quarters of these large deals were influenced or sourced by an SI partner.