This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: 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.
spk00: 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.
spk04: 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.
spk08: Net dollar retention improved. to 100%.
spk04: As a reminder, we track net dollar retention on a trailing 12-month basis. As a result of this, it is a lagging indicator. The higher churn level we experienced in Q2 of fiscal 21 will weigh in on this metric until we lapse it in that quarter. Turning transaction volume, our systems processed $17 billion worth of volume in the quarter. This represents a 30% year-over-year growth. As a reminder, process transaction volume is helpful in understanding how much of our customer's business is running through our platform. However, it does not track linearly with quarterly revenue as customers gain efficiencies as they scale. Next, let me review our financial results. Subscription revenue grew 19% year-over-year to $65.1 million. Note that Q4 subscription revenue included a one-time non-recurring benefit of $1.2 million, which was not reflected in our Q4 guidance. This was primarily due to legacy customers that elected to extend their on-premise license. Services revenue decreased 10% year-over-year to $14.2 million. We view this as a positive trend given our success in shifting more of our services work to our system integrator partners. This is within line of our strategy to improve our mix towards more recurring subscription revenue. In Q4, subscription revenue represented 82% of total revenue, the highest level since our IPO. This resulted in total revenue growing to $79.3 million for the quarter. Looking at our margins, we continue to make strides. We have been successful at driving the mix of subscription revenue as a higher percent of total revenue. As we drive more and more professional services to the SI channel, our overall gross margin improves. As a result of this success, our blended gross margin reached another high. Non-GAAP blended gross margins increased to 66%, a meaningful improvement of 840 basis points from the prior year. Non-GAAP subscription gross margin reached 80.5%, which also was the highest in our company history as a public company. Non-GAAP services gross margin was a negative 1%, consistent with what we shared in past calls. We'll continue to run services on a break-even basis as we engage more with our trusted SI partners. Non-GAAP operating loss was $1.8 million in the quarter, reflecting an improvement of $9 million from the prior year. This was driven by reduced spend on team E events, office spend, as well as some one-time top-line benefits, and are improving gross margins. This resulted in a non-GAAP operating margin of negative 2% ahead of expectations. Now let's turn to billings and free cash flow. Calculated subscriptions billings was $86.4 million, reflecting a growth of 16% year over year, an improvement from the prior quarter. We had expected this to be in the high single digits, but it was higher primarily due to our upmarket enterprise wins. However, approximately three points of this growth was due to a mixed shift in payment terms and early renewals. Looking ahead, due to some of the early renewal activity we saw in Q4, this will impact our subscription billing growth in Q1. As a result of this impact and our traditional seasonality in Q1, we expect calculated subscription billings to grow approximately 10% year-over-year. For fiscal 2022, we expect calculated subscription billings to grow in the mid-teens year-over-year. Free cash flow was $2.1 million driven by prudent spend management and strong collections activity during the quarter. This was our first quarter with positive free cash flow. For Q1, we expect to be free cash flow positive driven by seasonality. As I've mentioned in the past, it's important that we continue to improve our operating leverage and create efficiencies in the business. I'm pleased that we're making good progress in this area, which is showing up in our free cash flow. Turning to cash, we ended the quarter with $186.6 million in cash and cash equivalents, an increase of $7.8 million over the prior quarter. We continue to be prudent with respect to spending levels and are pleased that we've maintained a healthy cash position to manage the business. Our fully 34.6 million shares using the treasury stock method. In Q4, we continue to execute and drive improved performance. Our quarter of reporter pipeline is growing. We're continuing to be very disciplined in our investments and going after larger customers and working with our SI partners. Now, let's turn to our financial outlook. Our subscription business model continues to be resilient, and given the visibility of our model, we will guide for both Q1 and full year fiscal 2022. During fiscal 22, we will accelerate our investments in go-to-market and product development while absorbing costs that were not in our run rate last year. We also expect to be cash flow positive for the full year. For Q1, we currently expect total revenue of $78 to $80 million, subscription revenue of $63 to $65 million, Non-GAAP operating loss of negative $5 million to negative $4.5 million. Non-GAAP net loss per share, minus $0.04 to minus $0.03, assuming a weighted average share outstanding of approximately $121.6 million. As we look ahead to fiscal 2022, we will remain agile to quickly respond to changes in the macro environment. For fiscal 2022, we expect Total revenue of $335 to $337 million. Subscription revenue of $272 to $276 million. Non-GAAP operating loss of negative 12 to negative $8 million. Non-GAAP net loss per share of minus 10 cents to minus 6 cents, assuming a weighted average shares outstanding of approximately 123.9 million. In closing, we're very excited about Zora's long-term opportunity. As Tina noted, we'll discuss our forward plans in more detail at our analyst day set for April 12th. Now, Tina and I will open the call for questions. Operator?
spk03: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joseph Bappy with Canaccord.
spk06: Your line is open. Hey, guys. Great results here. Nice to see the accelerating pace and cadence in the business. Thought maybe we'd kind of maybe drill down a little bit into your comment team on a record upsell quarter. I know you said that a lot of initial deals had revenue as part of the mix. I was wondering, you know, what was in that upsell and the composition of it? And, you know, obviously with net retention trickling up, there must be an implication with the record upsell this quarter combined with the trail off a little bit in a couple quarters of the headwinds.
spk04: last year and you know what that may mean to net retention in a couple quarters then i'll have a quick follow-up thanks sure uh i'll go ahead and feel that but todd's be free to jump in uh with some of the numbers um i'd say there was two different things uh the first thing was we definitely saw strength in the zora filling in or revenue combination And a lot of those are going to be new deals, new companies coming on board saying, I want both products at once. I see the combined strength of the product really being a big, big advantage. And so that certainly felt really, really good. We also saw, separate from that, just a strong upsell quarter. I would say that really is a reflection of our investment in customer success strategy. You heard us say in previous quarters we restructured the sales team to avoid the old hunter-farmer thing, but really say if you close the customer, you really own that customer for a long period of time. It helps build strong customer relationships. And so the systems and tools that we've been putting in place over the last year are really starting to kick in. And you're absolutely right. The strong upsell quarter did help us take the net dollar retention. Now we're back up a point from 99% to 100%. Todd, anything you add to that? Yeah, you know, I would hit Joe. Thanks for the comments that we also did much better from a standpoint of improving the upsells coming from areas like add-ons. So we, you know, had less volume dependence this quarter, and we're selling some of the other products coming out of the R&D group.
spk06: Great, thanks. And then just maybe a couple of quick follow-ons. Any color on the large wins this quarter in those eight greater than 500K, you know, maybe industry breakdown among those eight. And then secondly, as you kind of move through the noise on the net retention number this fiscal year, I'm just wondering if you see there being a more close correlation between
spk04: um net retention volume growth over time thanks a lot yeah when i look at the eight deals um i would say outside of the fact we called out that there's one global bank that we worked with it's probably our our strongest um foray to date into the financial service industry something we haven't talked about in the past before so we continue to see the expansion of the subscription economy to industry after industry. That's a really important part of the overall investment thesis, if you will, on us. And so we're glad to see that happen. The other ones, I would say, are the standard mix, you know, technology, nothing specific to those specific changes. Great.
spk03: Your next question comes from the line of Scott.
spk08: Hi, Tina and Todd. Thanks for taking my questions here. I guess, Todd, I want to start on the Q&A guidance, especially the subscription revenues.
spk05: You know, even if I back out the $1.2 million one-time benefit in the fourth quarter, your Q1 guide is effectively flat from that Q4 adjustment. Is there something else going on in the subscription revenues for the quarter? Because I would have thought that number might be a little bit better, given what the billing number was in Q4.
spk04: Yeah, so, Scott, thanks for the question. So two things. You're right.
spk08: We certainly had the $1.2 million of one-time. with several million dollars.
spk05: Got it. Helpful. And then, Tiden, from an upsell component, you sound pretty positive, obviously. Were there any other modules that had kind of good upsell in the quarter? Or was it really kind of focused on the commentary with RevPro on the upsell as well as the new deals?
spk04: Yeah, Scott, that's a great question. It was not just Zora Revenue. It was really across the board. If you think of us, you know, think of us as a multi-product company, right? Every day that passes, we're increasingly becoming, we have billing, certainly, we have revenue, we have our collect product, and we have our platform product, and all those products were able to monetize. And so when I look at the mix, you know, it was a good set of customers that Many different industries, many different sizes. It wasn't concentrated on a few customers. And so I feel really good about the overall upsell engine kicking in. And, you know, one of the things, too, is we announced that we're going to have this analyst day on April 12th. And so our goal is to give you a lot more detail about the four key products that we have and break it down a little bit better.
spk05: Great. Looking forward to it. And I guess one last question for me, Tien. You had mentioned that you expect the company to grow at the rate of the subscription economy. Now that we're through the pandemic, or at least hopefully through the pandemic, what is the growth rate of the subscription economy over the next maybe three- to five-year time horizon that you're striving the company to grow at?
spk04: That's a great question. When we look at the subscription economy, you can certainly pick sectors. the subscription economy that are on fire, right? So collaborative software is a great one. I will kind of point you back to our SEI index, and it's something that we've been publishing over the last three, four, five years, and it shows a good, steady pace of growth of between 25% and 30%. Last year, certainly, there was a COVID hit where it only grew about, I think, below teens, about 10% to 15%. But we also said that in Q3 and Q4, we're starting to see that trend back up to the pre-COVID rates, if you will. And so when you look at the sector overall and you look at all the industries that are shifting, you know, we would say that it's growing in that 20%, 25% range on a year-over-year basis. And as a leader in that space, you know, I wouldn't fault you for expecting us to really grow at that same pace. Hey, Scott, I would also... Scott, I'd also add, you know, to Gene's point, you know, I think we gave some color that we expected for the year, the acceleration of the calculated subscriptions billing to the mid-teens. And when we get together in April, we'll give you some more color on how we see the next few years rolling out.
spk05: Got it. Super helpful. Thanks for the color, guys.
spk03: Again, if you would like, your next question comes from the line of Brent Till with Jeffery's. Your line is open.
spk01: Hey, Todd and team. This is Love Stoto. Congrats on a nice quarter, and thank you again for taking my questions. The first question really was for team. Now that you have Sri on board and he seems like an impressive hire, could you maybe talk about the truth that you have Zora Analytics that was launched? you know, say two quarters ago, and you announced some improvements in billings. So what can we expect in the future in terms of the platform and, you know, the product, really?
spk04: We definitely continue to see good uptake on the platform and good contributions from the platform into the revenues. For example, the upsell revenues that we saw, really excited about Street. I mean, it comes to us, you know, with over 10 years of ERP experience, the shift from ERP systems that are based on products and orders to this new generation of ERP systems that are description objects. And this is Sri's words. It's a fulcrum across the entire business. I would say, Leo, I look forward to seeing you on April 12th. I think Sri will be a big part of that day. Robbie will be a big part of that day. And we look forward to really unveiling some of the thoughts that we've been putting together with Sri and the entire organization, the entire product organization that we're really excited about.
spk01: Got it. And a quick follow-up for Todd, if I may. Todd, if I look at the margin guidance, you know, it implies a healthy leveraging for the first quarter, but for the full year, you know, it's, some of that leverage is not as big as the first quarter that we see. Is there some investments that you're planning in the back half of the year, be it in sales and marketing and R&D that, you know, that we might not be, that we might be missing?
spk04: Hey, thanks, Bob. So, you know, as I said, we expect to be free cash flow positive for the full year. And 2020 was really an odd year. We had a lot of expenses that didn't occur. And we're also really prudent with our spend. We're committed this year again to being free cash flow positive while absorbing those costs as we are open offices. But we're also accelerating investments in go-to-market initiatives and product development while absorbing the same cost. And so I think that's why you're seeing your example on margin.
spk01: Got it. Perfect. Thank you again.
spk03: Your next question comes from the line of Chris Merwin with Goldman Sachs. Your line is open.
spk07: Hi, thanks very much for taking my question. I wanted to come back to those eight large deals of $500,000 or more. Can you talk a bit about the land dynamics with those? Were those with kind of the fuller suite of your products? And is that something that we should expect more going forward? Thanks.
spk04: Yeah, I like the fact that we have that flexibility, right? We want to really meet customers where they are so we can land with the launch of just the billing system. We can launch launch with just revenue recognition, helping bring down the time to close. But the combined product really, really shows its strength. If you look at those eight deals, they're going to be less of a deal where you're launching something and more where we've already got an existing business, we've got $100 million of revenue, we've got $1 billion of revenue. The way we're doing it, whether it's through a homegrown system, right? A commercial system of maybe we scaled out off of or through manual processes, right? The combined system is really what gives us the agility that we need to, you know, to take advantage of this market discontinuity with digital acceleration and win in the marketplace. And so I would say, you know, it really shows the strategic aspect of what we do. And when I look at 2020, If there's one takeaway that I would say working with our customer base is, especially in a period of deep uncertainty, that's where the agility that our products provide really, really shines.
spk07: Okay, great. Thanks very much. In terms of one of the questions I had was on verticals. I know that I think From a go-to-market perspective, there was an effort to focus on some of your core verticals, and we've had a lot of success. But then, obviously, we're hearing about now a big deal in the financial services sector, which has not historically been as big a sector for you all. So can you just talk a bit about your vertical focus from a go-to-market perspective and how that's playing out relative to your expectations? Sure.
spk04: Yeah, just to be clear, we never said we're going to limit ourselves to these three verticals. I would say if you look at the explosion of the subscription economy, there's so many companies and so many industries that are saying, what do I do about this? And what we want to do is we want to make sure that we continue to have good productivity in our sales organizations. And so rather than saying, hey, let's give the sales rep the phone book and have them call every single company they want, let's be smart about where we're seeing the strongest traction. And this isn't just a vertical. Sometimes there's sub-verticals inside of these, right? It might be industrial manufacturing inside the entire manufacturing sector, as an example. And so let's be smart about that. And if we can focus our demand gen efforts in verticals that we believe are growing the fastest, that's going to make us that much more productive. Now, that being said, look, a leader in the financial services industry that's committed to this description economy and is looking to transform, right, you know, we're more than happy to engage with them. And so think of the vertical strategy not as a way of limiting our focus, but to really focus on the organization of where we see the most opportunity to be.
spk08: Great.
spk04: Todd? Hey, Chris, Tati, I think I would add to what Teen said is, look, the pipeline generation and the overall deals have, you know, been highly concentrated in that, which gives us good economies of scale. But I think you need to allow that are outside of those verticals. So the verticals are certainly helping us be much more efficient on our go-to-market, but it doesn't limit us.
spk08: Thank you.
spk03: We have time for one more question. This question comes from the line of Stan Zlotsky with Morgan Stanley. The line is open.
spk02: Perfect. Thank you so much, guys. The question I have is really just a bigger picture, right? The subscription economy growth of 20-25%, you guys are one of the leaders in the space. First question is,
spk08: And when you think about the growth that you guys are expecting for 2021, when do you think we can start to approach the growth that we're seeing across the rest of the subscription economy just more broadly? Yeah, so...
spk04: so we look at a bunch of different sources to answer your questions how do we estimate it we obviously have something we call the subscription economy index and and the benefit is we actually see some of uh a lot of the revenues flow through our service and we cut across industries geographies that the subscription economy index report our report told us the subscription economy index last year grew at about 15 percent right and it had a coveted impact not as bad as non-non-subscription businesses and so you're seeing continue to see that that dichotomy But that's certainly what we saw. You know, look, we're also sad that in order to continue to grow, there's some changes that we had to make, right? And you've certainly been a part of listening to what we've been talking about over the last three, four, five quarters today. the move-up market, the focus on SIs, the reliance on the platform to do last-mile customization. I would say when I look at Q4 and before that when I look at Q3, those changes that we were making are really starting to take hold, and it feels good. It feels good, and it makes me see that we're going into FY22 with a really, really solid foundation. And so... You know, our goal is to continue to show incremental benefits on a quarter-to-quarter basis and continue the trend that we're seeing in Q3 and Q4. And that's really what's behind the guide that we're giving.
spk02: Got it. And just... Look, in fiscal 21, 2020, there's not a whole lot of appetite from prospects, or even customers for that matter, to undertake big transformational projects such as really ripping up the business model the way they have it right now and bring in a subscription business model that would be powered by Zuora. When you look at your pipelines into fiscal 22 and calendar 21, what are you hearing from Prospect as far as just the appetite to do that kind of transformational change within their organizations heading into the new year?
spk04: Yeah, hey, Stan, that's not what we're seeing. We're seeing that the appetite for these new business models is stronger than ever. And 2020 was a wake-up call to say if I had a business model that relied on selling product through physical distribution channels to get to my customer, I'm incredibly vulnerable. The flip side of it, if I had a business model that was depending on usage, consumption, direct-to-consumer relationships, and digital relationships, I'm actually doing really, really well. And inside of these incumbent companies where they have a mix, they have a traditional product-centric business model and they have a new digital subscription-based business model, they're seeing where the growth rates are. And so we're actually seeing many companies lean in. Now, a lot of the times they're new to this, right? They need to be guided by this. This is why one of the things that's an important part of our strategies in calendar 2020 was the creation of what I call a subscribed strategy group that's really guiding these companies in what to do. Here's how you set up an innovation arm, a value that you can create that goes beyond what you've traditionally done with your physical products. Now that your products are connected to the internet, now that they have a digital aspect, and so we guide them on how to do how to find that product market fit and how to find the right business models to monetize these new value areas that they can go into that is the story of caterpillar that is the story offender in many ways that's also the story of zoom right they're seeing companies like zoom just just just just go on fire and they're saying this is where the future is lying and so whether i look at my pipeline whether i look at my My request for proposals, you know, I'm having conversations directly at the CEO level with CEOs around the world of multibillion-dollar companies. Again, they're really just waking up to the power of this business model. I think that's a great recap of what you're seeing into the air, and thank you so much for giving it to us.
spk09: Absolutely.
spk03: Thanks, Dan. There are no further questions at this time. I will turn the call back over to Team Zero.
spk04: Thank you, everyone, for joining us today. And this is a great call. And I hope and expect that you will all join us on Analyst Day on April 12th. You'll get a chance to hear from additional senior executives as we dig deeper into our product, into our plans for the future. Thank you very much.
spk03: Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disclaimer