Zuora Inc

Q1 2022 Earnings Conference Call

5/26/2021

spk09: Good afternoon and welcome to Zoar's first quarter of fiscal 2022 earnings conference call. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. If you would like to withdraw the question, press the pound key. With that, I would like to turn the call over to Luana Wolk, head of investor relations, for introductory remarks.
spk00: Thank you. Good afternoon and welcome to Zora's First Quarter Fiscal 2022 Earnings Conference Call. Joining me today are Team Zoe, Zora's Founder and Chief Executive Officer, and Todd McAhelton, Zora's Chief Financial Officer. We will also have Robbie Trauber, our Chief Revenue Officer, joining the Q&A session today. The purpose of today's call is for us to review our first quarter results as well as provide our financial outlook for the upcoming second 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 several factors. You can find information regarding those factors in the earnings release we issued today and our most recent filings with the SEC. And lastly, we'll be referring to several non-GAAP financial measures today, and reconciliations to related GAAP measures are included in our earnings release. For a copy of our earnings release, links to the SEC filings, 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 it over to Tim.
spk08: Thank you, Luana, and thank you everyone for joining us today on Zora's first quarter earnings call for fiscal 2022. Overall, we get a strong start to the new fiscal year. We exceeded our guidance across our operating metrics, including total revenue, subscription revenue, non-GAAP gross margin, non-GAAP operating income, and we also posted another quarter of positive free cash flow. Our execution is also improving. Our pipeline grew significantly, highlighting the strength of our market. System integration partners were involved in two-thirds of our Q1 new business deals, showing the strength of our partner strategy. And we had a strong upsell quarter, which helped us reach 103 net dollar retention, up three points from the 100% we posted last quarter. I'd like to give a huge thanks to our CEOs for their focus and dedication in Q1. They are the reason we delivered this quarter. Today, we also announced the purchase of intellectual property assets from Live Objects, a company that specializes in AI-driven process optimization. I'll discuss later what this means, but let me first give some color on the quarter. Now, I know many of you attended our recent 2021 Investor Day just last month, So I'll keep my comments today brief. For those of you who didn't get a chance to attend, I encourage you to watch the recording at investor.zora.com. The headline for Q1 is, we executed well on the corporate strategy that we laid out at our Investor Day. At Investor Day, we talked about how we now consider ourselves a multi-product company, giving us multiple vectors for growth. With our four current products anchored on our central platform, we have the ability to upsell and cross-sell to our install base while signing on new customers. At Q1, this strategy worked. We continued to land new logos in our new verticals. In manufacturing, new wins included auto manufacturers Suzuki, In publishing, we welcomed the Mainichi newspapers. In technology, we added companies like Gainsight, now part of the Vista Equity Group. In Q1, we continue to make great progress upselling our existing products. For example, the central sandbox, a key capability, really helped drive platform upsells. It's actually our fastest solution to reach a million dollars in sales, and we doubled that in Q1. In Q1, we continue to make great progress cross-selling new products. For example, the world's largest data center infrastructure provider is a Zora billing customer. And in Q1, they added Zora Revenue to automate the entire order to revenue recognition process. We're also seeing early cross-sell traction with Zora Collect AI, our intelligent payment retry module following its March launch. In short, Our land and expand go-to-market strategy is paying off. We're seeing new products and capabilities becoming a greater proportion of the overall AATBB book in a quarter. We saw triple-digit growth in install-based bookings year over year. And as mentioned, net dollar retention kicked up from 100% last quarter to 103% in Q1. As we said in Investor Day, we believe that our install-based opportunity alone is a $250 million-plus ARR opportunity, and we are laser-focused on capturing this. And in Investor Day, we also talked about the importance of our Zora Central platform. It is the anchor helping us transform from a two-product company, billing plus revenue, to a complete subscription experience cloud that manages our customers' end-to-end subscriber experiences. The central platform provides customers with meaningful insights. It supports and automates end-to-end business processes, and it offers the agility and scalability that is required to succeed in the subscription economy. And in Q1, adoption of our platform continued to grow, making it even more sticky as it becomes central to all subscription business processes for our customers. Over half our customers are automating and simplifying their IT processes with our platform workflows. We processed over 8 million invoices on the peak day this quarter atop our platform. And last quarter, approximately half a billion workload tasks were executed, saving our customers time, and money in this this is where the acquisition of live objects intellectual property assets come in at our investor day we said we'd be opportunistic and looking at tuck-in acquisitions as a tool to accelerate our innovation and roadmap i am super super excited about this technology and how it will help us accelerate this central platform roadmap with the live objects team have built is an AI-driven process engine that we believe will allow our customers in the central platform to visualize the processes that are behind the awesome subscriber experiences that they are designing, to discover and map new hidden processes, including the ones that span multiple systems like CRM, ERP, or other fulfillment and provision systems. And it will allow them to detect anomalies in these processes that may lead to customer dissatisfaction or inefficiencies. We all know that customer expectations continue to rise. Call it the Amazon or Instacart effect. And those companies that offer the best subscriber experiences are the ones who will win. The central platform, including the new capability that the live objects acquisition gives us, is what enables our customers to deliver those differentiated subscriber experiences. At Investor Day, we also laid out our enterprise alliances strategy as part of our growth upmarket. And in Q1, we saw positive results of this strategy. Partner prime deals were up, including our first partner prime deal in Japan with Suzuki. partner-influenced bookings were up 70% year-over-year and represented approximately two-thirds of our new bookings in Q1. We also saw triple-digit year-over-year growth in new partner-driven pipeline and a considerable increase in Zora-certified consultants quarter-over-quarter, a great, great illustration of our partners' commitment to Zora's industry-leading solutions. The big one from the quarter was a billion-dollar audio-visual technology company. Not only was one of the big four global SIs involved in the deal with Zuora, the win also highlights our multi-product strategy at work. The company chose billing, collect, and essential platform to enable its multi-channel audio licensing business. In short, working with our global systems integrated partners gives us more scale and helps to accelerate our growth. And finally, at Investor Day, we explain why companies are not coming to us just for our technology, but also for our unique expertise on all things subscriptions. We've translated our 13 years of experience into a proprietary blueprint that we call the journey to usership. This blueprint is what we use to accelerate our customers on the path to building successful subscription businesses. And we gave you some examples of this during Investor Day. But let me give you three others from Q1. In Q1, a global CPG company partnered with our subscribed strategy group to completely revamp their company's subscription offering, including its overall subscriber experience. We also had a consumer robotics company partnering with SSG to educate their executives on the implications of recurring revenue on their financial metrics. And finally, you know, we work with eight of the top 10 automobile manufacturers. One of the actually first teams has worked for our expertise to optimize their telematics business in Europe. And based on that success, they are now leaning on our knowledge of agile enterprise architectures to help them build a modern platform that can launch new offerings into the market faster than ever before. In Q1, our subscribed strategy group engaged with over 20 companies, but also partnering with firms like the Boston Consulting Group to publish original research based on this data. And so in summary, we had a solid start to the year. The strategy we laid out at last month's investor day is delivering results. We continue to see our multi-product sales motion. Our SI and license partnership continues to deliver, and our unique expertise continues to differentiate us with our customers. With our clear strategy and focus, we are well positioned to continue capturing the opportunity of the subscription economy. Now, I'll turn the call over to Todd to review our financials.
spk07: Todd. Thanks, King, and thanks for joining the call. Our team executed well during the first quarter as demonstrated by our financial results, having exceeded expectations across our key financial metrics. Last year, we laid the foundation for long-term growth. It's great to see the incremental progress we made in Q1. As we look ahead, we will continue to focus on improving net dollar retention, meeting a target of ARR growth of 17% this fiscal year, and managing top-line growth and free cash flow margin by applying a Rule of 40 framework that we outlined on Investor Day. Let me first review our key metrics. Q1 was highlighted by success with multi-product deals and solid contribution from our SI partners. Looking at our customers at or over $100,000 in ACV, we ended with 677 customers. This customer group continues to represent 90% of our business. We closed five deals with ACV a half a million dollars or above, compared to just one in the same quarter a year ago. In Q1, net dollar retention was 103%, a significant improvement from 100% in the prior quarter. We made meaningful progress towards net dollar retention target we set for fiscal 2022. Net dollar retention is a lagging metric and tracked on a trailing 12 month basis. The higher term levels we experienced in Q2 last year will weigh in on this metric until we lap it in this next quarter. Turning to transaction volume, our systems process $17 billion in the quarter, representing 38% growth year over year. Process transaction volume is helpful in understanding how much of our customer's business is running through our platform, but does not track linearly with our quarterly revenue as customer gains efficiency as they scale. Now, let me review our Q1 financial results. Subscription revenue grew 14% year-over-year to $65.1 million and represented 81% of total revenue. As expected, subscription revenue was essentially flat from the prior quarter. Due to the daily revenue recognition, our Q1 has three fewer days versus Q4, which impacted our subscription revenue by approximately $2.1 million. As you may recall, our Q4 FY21 subscription revenue included a one-time non-recurring benefit of $1.2 million. Professional services revenue decreased 11% year-over-year to $15.2 million. As we discussed previously, our strategy in shifting more services to our system integrator partners continues to gain traction, and we view the decline in service revenue as a positive trend. This is in line with our strategy to improve our overall mix towards recurring subscription revenue. Total revenue eclipsed the $80 million mark in Q1 and grew 9% year-over-year. Again, our overall revenue growth was impacted by our strategy to reduce the mix of our direct professional services towards our SI partners. This not only enhances our go-to-market opportunity, but also benefits overall margins. As we drive more professional services to SIs, our overall gross margin improved. As a result of this success, non-GAAP blended gross margin was 65%, a meaningful improvement of 400 basis points from Q1 in the prior year. Non-GAAP subscription gross margin reached 79.4% compared to 78.6% in Q1 of the prior year, reflecting scale efficiencies. Non-GAAP services gross margin was breakeven, consistent with what we shared with you on past calls. We'll continue to run services on a break-even basis as we engage more with our SI partners. Non-GAAP operating loss was $2.5 million for the quarter, reflecting an improvement of $5.1 million from the prior year. This was driven by top-line growth and our improving gross margins. This resulted in non-GAAP operating margin of negative 3.2%. a dramatic improvement from minus 10.4% in Q1 of last year. As I shared with you on the last earning call, operating margins will be flat this fiscal year as we absorb expenses which weren't incurred last year and accelerated investments in go-to-market and product. Now, let's turn to ARR and free cash flow. In Q1, ARR growth was 14% year-over-year. ARR growth represents the annualized value of all subscription contracts at the end of a given quarter compared to the ARR in the prior year. We continue to be focused on our target of ARR growth of 17% for fiscal year 2022. Free cash flow was $8.6 million, driven by record cash collections during the quarter. For Q2, we expect cash flow to be slightly negative due to the seasonality of Q1 billings and the employee stock purchase plan. CapEx for the quarter was $1.6 million. Looking ahead, as we outlined during our investor day, we're focused on accelerating top-line growth while prudently managing the bottom line. As such, we introduced a Rule of 40 framework as defined by the sum of the annual subscription revenue plus free cash flow. Free cash flow margin is calculated as free cash flow divided by total revenue. Based on this Rule of 40 framework, our objective is to be 15% plus this fiscal year and 40% or higher by the end of fiscal 2025. We managed to exceed this objective during Q1 due to significant cash collections and our typical seasonality of free cash flow. Turning to the balance sheet, we ended the quarter with $197.4 million in cash and cash equivalents, an increase of $10.8 million from the prior year, primarily driven by strong cash collections. We continue to be prudent with our spending levels, and we've maintained a healthy cash position to manage the business. Our fully diluted share count at the end of the quarter was approximately 136.1 million shares using the Treasury stock method. In Q1, we executed well and drove improved performance. We maintained discipline in our investments, targeting larger prospects, and working with our SI partners. Now, let's turn to our financial outlook. During FY22, we'll accelerate investments in go-to-market and product development initiatives while absorbing costs that were not in our run rate last year. We continue to expect free cash flow positive for the full year. 4Q2, we currently expect total revenue of $82.5 to $84.5 million, subscription revenue of $67.5 to $69.5 million, non-GAAP operating loss of minus 5 to minus $4.5 million. non-GAAP net loss per share of minus four to minus three cents assuming a weighted average shares outstanding of approximately 123.1 million as we look ahead to the full year fiscal 2022 we are raising our outlook and we expect total revenue of 337 to 339 million dollars Subscription revenue of $274 to $278 million. Non-GAAP operating loss of minus 12 to minus $8 million. Non-GAAP net loss per share of minus 10 to minus 6 cents, assuming a weighted average shares outstanding of approximately $124.1 million. In closing, we're pleased with our execution in Q1 and feel we've laid a solid foundation for Zora's long-term growth. Next, we'll open the call for your questions. As Luana indicated earlier, Robbie Trawler, our Chief Revenue Officer, will be joining team and me for the Q&A session. Operator, please open up the call for questions.
spk09: At this time, I would like to remind everyone, if you would like to ask a question, please press star then the number one on your telephone keypad. Your first question is from the line of Joe Vafi with Canaccord.
spk03: Hey, guys. Good afternoon, and nice to see the steadily accelerating results here out of Zora this quarter. Thought we'd start kind of thinking a little bit more short-term here, and next quarter, I know. I know you mentioned in your remarks, Todd, that, you know, there's a big lapping of a headwind in net retention in Q2, and I know Teen talked about some really good growth coming out of the install base as well. Sounds like the setup is pretty good for a bump up in net retention next quarter. I know you're not providing that guidance now, but, you know, any color there would be appreciated, and then I have a quick follow-up.
spk08: Go ahead, Todd.
spk07: Hi, Joe. So we're really pleased with the three-point improvement that we had this most recent quarter. I think it absolutely shows the strategy is working. Look, we expect to have steadily improving performance over time. And at this point, you know, we feel that we are on track to hit our 105% plus net dollar retention for the year.
spk03: That's great. That's good color. Secondly, I thought maybe we'd talk about your acquisition here a little bit, Live Objects, I think it's called, and how you see that product integrating what the timeline might be and It sounds really great, and I would assume that would be, you know, an add-on purchase for customers and, you know, when potentially that may be added to the suite, although I know it's early.
spk08: Sure. I'll go ahead and field that. It's something that we're really excited about. I would kind of point you back to what we said yesterday. We have four core products. Think of it as three applications, billing, revenue, collect. And each of these also are built on the platform, which we call the central platform. And so we laid out a vision for the central platform with support capabilities, the subscriber graph, the process orchestration engine. This is a tuck-in technology that will help us make those capabilities inside a central platform stronger and to celebrate some of the things that we wanted to do in the central platform itself in those areas. And so the monetization of that is still going to be the same way we monetize a central platform, but we think this will make the product even stronger, make our product even stickier, and accelerate the growth of our ability to deliver on the roadmap that we showed back in Investor Day.
spk03: That's the way to think about it. Okay. That's great. Thanks, team. And then maybe I'll just throw one more in since Robbie's on the line. I know. It sounds like from the commentary that the partners and systems integrators are really starting to embrace the Zora platform more. I was wondering if you could provide some color on how your sales effort is kind of shifting or morphing relative to more uptake from the partners. Thanks a lot, guys.
spk04: Yeah, thank you, Beth. So overall, very, very pleased with our progress here. You know, overall, when we first joined, there was very little progress at all. What we've seen, though, is the ground that we've covered, around three-quarters of our current lives overall are influenced or sourced by SIs. And also, we have massive growth in terms of the certified consultants. And they're really investing in their customers' digital transformations. So as we look across all of our GSI partners, we've got really broad traction with those. And I think longer term, the opportunity to grow and penetrate to our new business overall.
spk09: Your next question is from the line of Andrew De Gasperi with Berenberg. Thank you.
spk05: Thanks for taking my question. I guess the one I wanted to ask first on that retention rate, I know Joe already asked it, but in terms of the 103%, would it be fair to say that if you exclude the churn from Q2 of last year, you're ready at 105 and over?
spk07: Andrew, we're not giving any specific guidance on that, but like I said, you know, we should expect to have consistent improvement over the quarters as we go through the year, and we're very confident that we'll be at the 105-plus as we exit the fiscal year.
spk05: Got it. And then, secondly, on the – you know, you mentioned that ACV customers – the customers you close by deals with that are over 500K and above. Just curious – Are you seeing overall penetration of your revenue collect on central platform that is meaningfully higher in your pipeline right now than what you highlighted is currently the state on the investor day?
spk08: So, Andy, I think how I – oh, go ahead, Gene. Yeah, all the products are in motion. And you're absolutely right. I mean, what we love about our multi-product strategy is we don't have to sell the whole suite. On Investor Day, Chegg, the CTO of Chegg said, look, what I really like about your product and your platform is I don't have to take the whole thing at once. I could bite off the part that makes sense for me. Then I've got a growth path. And so every company is going to be in a different situation. We can certainly sell billing. I think the example we highlighted on the call just now, um and then come back and i'll sell revenue but there are other customers and another one that we highlight that says you know what i want billing and collect up front other customers might say as long as i'm doing this i want to do the billing and the revenue together once up front and so we can really meet the customers where they are but but all the products are really really in motion
spk07: Andrew, the other color that I might add is we really are seeing very nice cross-sell with the multi-product strategy. And in the past, we've had probably a heavier weighting on volume, and we saw a much better balance of other products being sold this quarter in that upsell number. And so I'm really happy about that because, as it shows, customers are really embracing the entire Zora platform, and I believe that's going to make the platform more stickier and help us in future net dollar retention.
spk05: Thanks for that. And maybe lastly, in terms of end market strength, you know, you mentioned manufacturing and several others. Was there anything surprising in terms of the pipeline?
spk08: No, I think what we just outlined at Investor Day, it was only, gosh, it was only about 45, six weeks ago, 45 days, six weeks ago. No change there. We see ourselves as having three core verticals. We believe, based on our data, that these are the fastest-growing verticals in the subscription economy, the fastest adoption of subscription business models. It's technology. It's media. It's manufacturing, really driven by IoT. But that being said, we continue to see other industries starting to move, but with no change in our focus. Those are our three verticals, and we continue to work with and monitor what we'll call emerging verticals.
spk05: Great, thank you.
spk09: Your next question is from the line of Chris Marwin with Goldman Sachs.
spk06: Hey, thanks so much for taking my question. I just wanted to ask about the large customers. I mean, you mentioned, obviously, I think it's a half million plus, a huge increase year on year, evidence of the cross on motion, 100K plus. It seems like it's slowed down a little bit, but, again, you've got stronger momentum with your very largest customers. How do we think about the kind of directional trends of each of those metrics? And anything else you can share just about, like, you know, forward expectations for those metrics would be helpful, too. Thank you.
spk07: Hi, Chris. Todd, I'll maybe take that, and if anyone else wants to weigh in, we can go ahead and do that. But look, I think we always use a little bit of seasonality in Q1, and Q4 tends to end out or wipe out a lot of the pipeline, and so we planned for that, and we had quite a bit of upsell in the quarter, and we were really pleased with that. And I think it really shows that our... Our strategy of moving upmarket in the enterprise is absolutely working. And you're right, you know, five deals over half a million dollars, we're really pleased about that. We're seeing excellent traction in the install base, and I think we talked about that at Investor Day, you know, the huge opportunity that we see there. And again, you know, net dollar retention significantly improved. We were up three points. I guess maybe the only other thing I would say is, you know, we also saw really nice growth on the pipeline. And, Robby, you know, I don't know if there's anything you want to comment about the growth that we saw on the pipeline in Q1.
spk04: Yeah, I think it's overwhelming. Pipeline continues to feel good, and it's growing really as expected. Again, the focus is definitely, you know, the area in terms of focus on the verticals, on going on to the enterprise. I think, you know, overall the pipeline process on account-based marketing, all of that is working. All of that is really kicking in. And also alliances, right? They continue to provide that source and that influence deal flow. So overall, I think Pipeline Todd is really working well, really pleased with the direction there. I think the vertical focus and all of that is really helping us to support the going up market.
spk06: Perfect. And maybe one follow-up would be on growth retention. It seems like as you get bigger and bigger customers, you're selling more products. I imagine that metric is probably improving. I know you don't disclose it, but anything you can say about the directional trend of it, order of magnitude improvement from the drop of COVID last year? I mean, I know it's a two-part story with more cross-sells, but it seems like the growth retention, I would think, is improving as well.
spk08: Yeah. Yeah, I'll jump in, Robbie, because of the color. But last year was definitely an odd year because of COVID, because of just the uncertainty in those two months in Q2. But I would say this. I would say the customer success focus that Robbie's put in, that we've talked about in the past, that we've talked about in Investor Day, right, the pod structure. um it really really paid off and so you're seeing that not just in our ability to to to manage churn but also keep our customers engaged improving mps and then strengthen our ability to continue to upsell them additional products additional modules um and so on so forth so i think ultimately it's really the focus on customer success uh that you're seeing flow through through the numbers
spk07: Hey, Tina, I'd maybe just add a little bit of color here for Chris. You know, the churn level was actually below where our historical average has been, and we improved on a year-over-year basis. So we're making really good progress, and those investments are absolutely paying off.
spk06: Great. Great. Thanks so much.
spk08: And just to emphasize here what Todd said, that's the raw dollar amount. So on a percent basis, it looks even better.
spk09: Your next question is from the line of Stan Slotsky with Morgan Stanley.
spk02: Perfect. Thank you so much, guys. I actually just wanted to get back to Chris's question for just one second. Maybe just walk us through the dynamics of if you signed five new deals with $100K ACV and your net new customer account greater than $100K increased by one, Does that mean that there was churn, or is there some kind of dynamics in the way that the metric is calculated that's obscuring that?
spk07: Stan, I would answer it as the following. We had a few customers that actually had some downsells, and they didn't drop out as customers, but they moved into lower. The customers that we did have churn were low-dollar churns. And as we said, you know, we had a much higher focus this quarter on upsells. But... I don't have any concern about that as I look forward to the next quarters. We have a really healthy pipeline, and we expect to continue to be adding new names. And, in fact, we also talked to the investor today about the really large opportunity that we have in our install base to continue to grow and drive top-line with.
spk08: Got it. Not all fabulous deals were new logos. I forget the exact count, but some of those were actually existing customers. that that purchased more than 500k uh upsell from from from us and so it's a complicated thing the big picture is is i think that number is just ebbing flows of the business quarter to quarter a little bit of seasonality and it's not something that that we're concerned with got it and and just mechanically isn't isn't upsell included in that um say if somebody is upsold
spk02: Wouldn't it push them above the $100K threshold?
spk08: I think they were more than $100K already. And then the dollar value was more than $500K. So it was a $500K plus ECB deal to an existing customer that was already over $100K.
spk02: Got it. And I just wanted to dig in a little bit on the full year guidance. So revenue moving up a little bit more than the beat in the quarter, which is great. The profitability guide staying within the parameters that you outlined in Q4. Where are the incremental investments going? Is it R&D? Is it marketing? Is it maybe some of it going into the acquisition the guy just announced? Just kind of walk us through it.
spk07: So, Stan, what we're doing, as we talked about, is we've got incremental investment in product, and we are going to absorb the incremental cost from the live objects acquisition into our cost basis. We're investing in go-to-market. And then we had a couple expenses, as everyone knows. You know, last year was a funny year, and there were some expenses that we didn't have that we'll be seeing this year. But we feel good about where we should land on the bottom line. Got it.
spk02: Perfect. All right. Thank you so much, guys.
spk09: Your next question is from the line of Brent Phil with Jefferies.
spk01: Hi, this is Love Soda on for Brent Phil. Congrats, guys, and a great quarter. I wanted to start out by asking, I guess, you know, you mentioned the large deal traction that you're getting. I guess as you move further up market and into the enterprise space,
spk08: um on on the competitive front are you seeing anyone in in that space are you replacing existing solutions or is it more green field in terms of the wins there yeah i i i'd say this actually as we continue to go up market and we can continue to to to take over mission critical parts of this system right that are behind these subscriber experiences you're definitely going to see us start to collide with with existing systems that are in place right we're not looking to replace erp systems or replace crm systems right but there are functionality that might exist in those systems that that they might shift over to us um now it is both and so you're going to see us going to essentially greenfield opportunity in a large company right their existing product business that could be a 10 15 30 billion dollar business where they're launching their first description offering Or sometimes as subscriptions have already become strategic, it's going to be a replacement often of many different systems consolidated into one so that you can deliver that differentiated subscriber experience.
spk01: Got it. And a quick follow-up for Todd, I guess. How do we think about profitability, maybe say, you know, year-round or So is that something you're headed towards? I know you said free cash flow break, you know, positive for this year, but more like into the out years, I guess.
spk07: So I would really refer you back to the Investor Day, Love, where we talked about where we saw us getting to in the Rule of 40 framework out to 2025. So I would tell you that's what we're seeing. We'll kind of see a consistent buildup to there, but that's the guidance that we've given right there for how we expect to see profitability evolve.
spk01: Got it. Thank you.
spk08: Given how recent that guidance was, there's definitely – There's no deviation from that, and this is a small fucking acquisition too, so you're not going to see any deviation from the acquisition either.
spk09: And we have time for one last question from the line of Scott Berg with Needham.
spk08: Hi, everyone. Congrats on a good quarter, and thanks for sliding me in here. I guess first question, Todd, is on the guidance. Your second quarter subscription revenue shows a nice little acceleration after the improved subscription billings last two quarters, which I guess is to be expected given the sales levels. But your guidance for the second half implies that that growth rate drops by about five points, which I'm a little bit surprised about. Not that it's Not going to be conservative, but that magnitude seems to be a little bit big. Is there something going on with those numbers, maybe around a renewal perspective or maybe something else that we should consider in the back half of the year when looking at those numbers?
spk07: So a few things, Scott. First, as I, you know, I'm referring to the ARR guidance. And we said, you know, we exited last year at 12% growth. We bumped up this quarter. We are at a 14% growth. At the end of the year, we expect to be at 17%. So we're happy with that. We're on track that confident that we will hit that. The other thing that I would remind you is last year in the second half, both in the third and fourth quarter, we had some non-recurring impacts to the revenue. And if you look at that, it's probably about 220 basis points in Q3. and about 180 basis points in Q4 that will impact what the growth rate looks like. So, again, I look back to the ARR. We'll continue to see consistent improvement through the year, and there isn't any deceleration.
spk08: That's quite helpful. Thank you. And then from a follow-up perspective, I guess maybe for Robbie, your team, as you look at the deal composition today, which seems to be good and healthy, are customers buying more at the initial purchase, or are you seeing that more really be, I guess, a better upsell opportunity today versus not necessarily a year ago, but maybe right before the pandemic? Robbie, I'll go ahead and let you deal with that.
spk04: Yeah, thanks. Thanks, Steve. I mean, overall, we're seeing that this land and expand motion really is working very well for us. So it is that we're coming in. I'm seeing that composition very much in terms of not only what we're getting the initial products in, but we're seeing that when a revenue, for example, follows a billing. And I think overall what we're seeing is that people are coming in and then not going so much even towards the volume, but actually looking at the outsourced of added products as well.
spk08: Great, that's helpful. Thanks for taking my questions.
spk09: And there are no further questions. I'd like to turn it back over to management for any closing remarks.
spk08: I want to thank everybody for joining our call. Just to kind of summarize, Q1 was a solid start to the year. We're doing what we said just shortly, recently announced on Investor Day. I feel really, really good about the business. I feel really good about the 92, the opportunity, and we hope to see you in 90 days. Thank you.
spk09: And that does conclude today's conference. Thank you for participating. You may now disconnect. Have a great day.
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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.

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