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.
spk04: Good afternoon and welcome to Zorro's fourth quarter of fiscal 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. With that, I would like to turn the call over to Luana Wolk, head of investor relations for introductory remarks.
spk02: Thank you. Good afternoon and welcome to Zora's fourth quarter fiscal 2022 earnings conference call. Joining me today are Team Zoe, Zora's founder and chief executive officer, and Todd McElhatton, Zora's chief financial officer. Robbie Traubert, our president and chief revenue officer, will also be joining us for the Q&A session. The purpose of today's call is to review our fourth quarter results and provide a financial outlook for the upcoming first quarter and full fiscal year 2023. Some of our discussions and responses today will include forward-looking statements. So as a reminder, our actual results would differ materially due to several factors. You can find information regarding those risk factors in the earliest release we issued today and our most recent filings with the SEC. And finally, we'll be referring to several non-GAAP financial measures and reconciliations to GAAP measures are included in earnings release. For a copy of earnings release, links to the SEC filing, a replay of today's call, or to learn more about Zuora, please visit our investor relations website at investor.zuora.com. Now, I'll turn the call over to you, team.
spk09: Thank you, Luana, and thank you, everyone, for joining us. Welcome. to Zoar's fourth quarter fiscal 2022 earnings call. We had an outstanding quarter. We continue to innovate and deliver value to our customers. In Q4, we beat guidance for subscription revenue and non-GAAP loss from operations. We saw continued momentum with a strong upsell motion, as well as a record-breaking quarter, signing on new logos. Not only did we deliver top-line growth, but we also saw growth in our bottom line. Fiscal 2022, marked our first year that we were free cash flow positive. This was a big year. We started the year with ambitious goals around ARR growth and dollar-based retention rates. And today, when I reflect on the quarter and the year, I am thrilled to share that we delivered. I'm also excited to share that Silverlake, a global leader in technology investing, is partnering with us by way of a $400 million investment into the business. The undeniable momentum of the subscription economy and the clear leadership we hold in the space was the catalyst to this relationship. This investment allows us to pursue new initiatives such as potential targeted acquisitions and other opportunities to broaden our product offerings and enable our customers to deliver exceptional subscriber experiences. I could not be more thrilled about the partnership. With that, let me share some additional details about our results for the quarter and the year. At the start of the year, we said that the biggest opportunity in the subscription economy lies with large companies, both enterprise incumbents and the fastest growing disruptors. And this year, we saw that this was absolutely the case. These companies are recognizing that recurring revenue business models Those that focus on building ongoing relationships with their customers offer a faster path to growth. In fact, our latest subscription economy index report, which analyzes anonymized and aggregated data of long-term Zora billing customers, just launched. And this time it found that subscription businesses continue to outpace the S&P 500, growing 4.6 times faster over the entire past decade. Now, while some have wondered whether the stay-at-home growth phenomenon was temporary, our data shows that overall, subscription economy businesses are holding on to their pandemic subscribers and accelerating into the new year. All this continues to create a tailwind of opportunities for us as these companies turn to Zora to help them on their subscription journey. For example, in fiscal 22, we brought on automotive leaders like Suzuki Motor Corporation, who's powering international connected car services. In fact, today, 12 of the top 15 largest auto manufacturers are now Zora customers. Disruptors like Gusto, just one of many Zora customers who are scaling and preparing for future IPOs. We've brought on established global technology leaders like Hitachi, Global manufacturing companies like Lexotica, the company behind eyewear brands like Oakley, Gucci, and Prada, or Kyocera, a Japanese multinational ceramics and electronics manufacturer, and HMD Global, better known for making Nokia mobile phones, who chose Zora this year to help them transform and embrace new customer-centric business models. In fact, in Q4, our continued focus on large companies resulted in eight deals, over $500,000 in annualized contract value, or ACV, four of which were over a million dollars. And we added a net 27 customers this quarter with average contract value over $100,000, ending the year at 747. This year, we said we would accelerate our innovation and execute our multi-product strategy, and we delivered. our multi-product strategy has become our critical differentiator. Why? Because more and more, as companies look to monetize their digital services, billing is only one key of the puzzle. Ultimately, they need to manage the entire quote to revenue process to shape the broader subscriber experience. Now, this is showing up in how companies are buying our software. In fact, in Q4, 18% of our first-time customers purchased our entire suite, including our market-leading Zora revenue product. As a result of the successful integration between Zora billing and Zora revenue, we really saw an acceleration in the demand this year for Zora revenue. As our second major product beachhead, bookings for Zora revenue nearly doubled in fiscal 2022. This quarter, we launched real-time revenue an enhancement to help our customers dramatically reduce their time to close the books. And we've already turned it on for 20% of Zora Revenue customers who are now processing transactions in real time. I'm also incredibly pleased to share that independent research firm MGI Research ranked Zora Revenue as the number one solution this year, automated revenue management report. And that's why we saw new customers like AdTran, provider of telecommunication networking equipment, turn to Zora Revenue to automate their previously manual processes of revenue recognition. And we also had a financial and investing media company purchase Zora Billing along with Zora Revenue to help them scale their subscription business. This all tops off a year of innovation that we are extremely proud of. Fiscal 22 was a year of numerous launches, including unified monetization, TPQX, central revenue, new API and new software development kits, a brand new user interface, and a universal custom payment gateway development kit, just to name a few. We invested heavily in engineering talent to support our fast pace of innovation, including nearly doubling our engineering capacity this year, and we delivered. Now, shifting to our go-to-market strategy. This year, we said we would accelerate growth while increasing our dollar-based retention rates with a land and expand motion. And that is exactly what we did. We said we would get to 17% ARR growth by the end of the year, and we surpassed this objective. Last quarter, we got to 19%. In this quarter, we reached 20% ARR growth. We are making great progress towards our fiscal 2025 target of achieving 25% to 30% ARR growth. We said we saw a $450 million upsell opportunity just within our install base, and that by going after this opportunity, we would take our dollar-based retention rates to 105% by the end of the year. Well, we surpassed this, delivering 110% in Q4, a full 5 percentage points ahead of our goal for the year. In fact, in Q4, we handled 21% billion in usage volume, bringing us to $75 billion for the entire year. In fact, that is more than the GDP of over half of the world's countries. Finally, as we laid out in our go-to-market strategy this year, we said that systems integration partners would become an important driver for the business, and that's exactly what happened. In Q4, we marked a record quarter for partner-influenced bookings, growing over 20% year over year. These firms continue to build out Zora practices and bring us into larger deals, helping us accelerate further into the enterprise space. We also grew the number of globally certified consultants with their SI partners over threefold year over year. And more than one third of our customer goal lives in the quarter involved a system integrator partner. All in, it has been a momentous year for Zora. and it has us more excited than ever about the opportunity that lies ahead. We see the subscription economy continuing to expand into new industries and across new business processes where we can expand our footprint. After a transformational year, we are now in a fantastic position. We've got what I believe is the best management team in the business who, along with our CEOs, are executing on our plan, and we are accelerating. And now we have the capital and the partnership with Silverlake to be able to lean in to the opportunity even further. I'll turn the call now to Todd to review our financials. But let me give a shout out to all our CEOs around the world and everything we've accomplished this year. We are now a very different company than how we started off. And with that, I'll turn it over to you, Todd.
spk08: Thank you, Gene. And good afternoon, everybody. Our discussion today includes non-GAAP financial measures. You can find details in today's press release, which includes a reconciliation table of selected GAAP to non-GAAP measures that reflect the adjustments made to both our current and prior year results. As we close off a year of transformation at Zoar with strong results, I'm proud of what we've accomplished, and I'm excited to have Silverlake as our partner on the journey ahead. I'm happy to report that we finished the year by exceeding expectations for subscription revenue and beating guidance for non-GAAP operating loss. At the beginning of last year, we outlined our plan to increase our pace of innovation and accelerate our go to market efforts to better serve our customers. And today, as we close off fiscal 2022, Q4 gives us yet another proof point that our strategy is working. This quarter we closed several multi-product deals. We delivered strong growth in the enterprise space with great go-to-market execution and meaningful contribution from our SI partners. We reached a new quarterly record for overall bookings and were free cash flow positive for fiscal 2022. Let's review our top-line performance for the quarter. Total revenue was $90.7 million in the fourth quarter, up 14% year over year. Subscription revenue was $77.3 million, up 19% year over year, driven by overall improvement in our go-to-market execution. Subscription revenue represents 85% of total revenue, the highest level since our IPO. Professional services revenue was $13.4 million, a decline of 6% year over year. This is consistent with our strategy to drive more services work to our system integrator partners and supporting our plan to improve our mix towards more recurring subscription revenue. As a result of our success in driving professional services to our SI partners, non-GAAP blended gross margin was 66%, an improvement of 120 basis points year over year. Non-GAAP subscription margin was 80%, a 20 basis point improvement over the prior year. As a reminder, this includes the additional cost associated with our move to the public cloud. Non-GAAP professional services gross margin was negative 11%, driven by an intentional step up in investments related to training our SI partners and the timing of projects due to year end and holiday schedules. We have significantly increased partner-certified consultants this past year, which has fueled contribution for partner-sourced and influence deals. Looking ahead, our objective is to run the services at or near break-even. Non-GAAP operating loss was $0.6 million in Q4, compared with an operating loss of $1.8 million in the prior year. This was driven by top-line growth and improved gross margins. This resulted in a non-GAAP operating margin of negative 1%, an improvement of 160 basis points from Q4 of last year. Our fully diluted share count at the end of the quarter was approximately 144 million shares using the Treasury stock method. Moving on to some of the key metrics for the quarter. In Q4, we maintained our dollar-based retention rate of 110%. a strong improvement of 10 points year over year and ahead of our 105% that we guided at last year. At the end of Q4, customers that spent at or above $100,000 in ACV reached 747, an increase of 27 sequentially. This continues to represent 94% of our business. large enterprises continue to gravitate towards Zora for our expertise and product portfolio. We closed eight deals with ACV of $500,000 or above flat year over year. Four of those deals had ACV greater than $1 million versus two a year ago. This is a testament to our strong grotto market motion and success with our system integrator partners. The large multi-year new business activity also is evident in our total remaining performance obligations, or RPO, which grew 30% year-over-year. Turning to billing transaction volume, our systems process $21 billion of volume in the quarter, representing 25% growth year-over-year. Processed billing transaction volume is not indicative of our revenue growth rate because our customers gain efficiencies as they scale. Now, looking at ARR growth and free cash flow. In Q4, our ARR growth grew to 20% year-over-year, three points ahead of our 17% ARR growth objective for this fiscal year that we announced at our investor day last year. This was driven by another strong quarter of upsells and record new business. We continue to focus on our objective to reach 25 to 30% in ARR growth by fiscal 2025. I'm happy to report that free cash flow was $7.6 million for the quarter, allowing us to reach our goal to be free cash flow positive for the entire year. We continue to invest in the business to foster sustainable growth while tracking our progress towards the rule of 40. Total capex for the quarter was $2.7 million. As we assessed our real estate needs, considering what the future of work is going to look like and our location strategy, we made the determination to reduce our Bay Area footprint by over 60%. As a result, we incurred a non-cash impairment charge of $12.8 million. The space reduction will allow us to further reinvest in R&D and go-to-market initiatives which generate more leverage and growth. Turning to the balance sheet, we ended the quarter with a $215 million in cash and cash equivalents and an increase of $12 million over the prior quarter. Fiscal 2022 was a transformational year for Zora. As we close out the year, I want to acknowledge the amazing work of our CEOs who made these results possible by keeping laser focused on our strategy. Now, Let's turn to our financial outlook. As noted on prior calls, we continue to accelerate our investments in go-to-market and product development initiatives. Turning to guidance for Q1 and fiscal 2023. As a reminder, our first quarter ending April 30th has three fewer days compared to the prior quarter. Our free cash flow and EPS guidance does not include the impact from the Silver Lake investment. We will update the free cash flow and EPS guidance after the Silver Lake investment closes. For Q1, we currently expect total revenue of $91 to $93 million, subscription revenue of $77 to $78 million, non-GAAP operating loss of $1 million to break even, Non-GAAP net loss per share of 2 to 1 cent per share, assuming a weighted average share is outstanding, of approximately 128.8 million. We expect to be free cash flow positive in Q1. For the full year, we're raising our outlook. We currently expect total revenue of $402 to $406 million, subscription revenue of $338 to $340 million, Non-GAAP operating loss of $2 million to break even. Non-GAAP net loss per share of $0.07 to $0.03 per share, assuming a weighted average share is outstanding, of approximately $132.8 million. For the full year, we expect ARR growth of 21% or higher, a dollar-based retention rate of 112% or higher, and we expect to generate free cash flow in the range of $14 to $17 million. To close off, we are extremely excited about Zora's future, our partnership with Silverlight, and what fiscal 2023 will bring. With that, team, Robbie and I are happy to take your questions, and we'll turn it over to the operator.
spk04: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Andrew DeGasperi with Burenburg. Your line is open.
spk11: Hi, this is Allie on for Andrew. Thanks so much for taking our question. So I took a look at your subscription economy index report, which you mentioned earlier, and that definitely shows some positive data about subscriptions in 2022 and 2021 and continued momentum amid pandemic recovery. Would you be able to elaborate on how that contributes to the way that you think about your growth targets moving forward? And also, how does that impact how you think about your TAM and overall market growth?
spk09: Thanks for that question. You know, we're pretty excited. This is a report, as you know, that we publish twice a year, and then we've been doing it for five or six years in a row. And the exciting thing is, if you look at over the last decade, description businesses as represented by what we see through our system grew at over a 4.6x rate than just traditional businesses. And so it really, really speaks to this is where the growth of the economy is. This is where companies are going. This is where the puck is going, if you will. And it tells us that we have a really long runway. It also tells us, and it's informed our go-to-market strategy. We believe that the exciting part of this marketplace is in large companies, both incumbents and disruptors. We think that every day, every quarter, every month we look, there's another company and another industry that's shifting to this description economy. And if you look at what we've done over the last year, in terms of building a go-to-market organization, building an innovation machine that really satisfies and helps the best companies in the world win in this discussion economy. This is exactly what we've done. And so we feel good about our long-term trajectory, and we also feel good about the numbers that Todd laid out for this upcoming year.
spk10: That's great. Thanks a lot.
spk04: Your next question comes from the line of Joseph Baffey with Canaccord Genuity. Your line is open.
spk00: Hey, guys. Terrific end to the year here, and it's nice to see growing momentum in the business. Maybe we could just drill down a little bit in the thought process on Silver Lake Investment. I mean, clearly, you know, a premier investment shop, and, you know, they're probably seeing some attractive, you know, aspects to your business. But, you know, What, you know, what do you think you're going to do with some of those funds? You know, is it going to be more on M&A or, you know, kind of more pedal to the metal on perhaps internal initiatives? And then just kind of the thought process in general about, you know, taking the investment in in the first place and then all the follow-up.
spk09: Yeah, this is Dean here. I'm, and thank you for the question. I'm incredibly excited. I mean, this is, you know, the preeminent technology investment firm. And they invented the whole concept of technology investing. I think they were the only, well, the first firm that just solely invested in technology companies, you know, back in the 90s. You know, you see their name associated with Airbnb, with Dell, with Unity, with VMware, with Twitter. And here's a company that I would say, you know, believed in the subscription economy. And, you know, these days everybody has seen it, but they certainly big, big believe in this description economy. They liked what they saw. They liked the leadership position that we had. They did their due diligence. They looked underneath the hood, and they're excited about our path ahead. And we're really excited about having their network, their expertise, and their capital, if you will, on our side really to help us lean into the opportunity ahead. You know, as you can imagine, M&A or acquisitions will certainly be a big focus of ours. You know, we doubled our engineering team this last year. We're innovating at a faster pace than ever. But I would say when I talk to our customers, they have an insatiable appetite for more, right? More technologies, more solutions to help them build great subscriber experiences, to help them build new business models, monetize their digital offerings. And we're excited about having Silver Lake on our side to really meet this growing demand.
spk00: That's great, Gene. And then, I mean, it sounds like you had like a, I mean, you had a great bookings quarter again this quarter. And I know you're more focused on the enterprise and you had some large deals. How would you characterize the kind of breakdown of enterprise versus, you know, maybe pure subscription players in the quarter in terms of new logos?
spk09: We see pretty healthy distribution. I'd say if you look at what we do, it's certainly, it's technology companies, it's media companies, it's manufacturing companies, emerging verticals. I would say within the technology space, we continue to power disruptors. I think we talked about Gusto being one of the companies that we sign on. If you look at, you know, the SaaS companies that have gone public over the last two, three, four years, we power just so many of them. And that continues to be an important part of our business. But look, I think more and more, If you think about the phrase that I think Mark and Tristan use, software eats the world. Every company is becoming a technology company. I think what we're seeing is a parallel path where we call it software as a service. The business model is eating the world. And every company is waking up to become a subscription economy company. Maybe, Robbie, what would you say you saw in the quarter?
spk05: I mean, in terms of what we're seeing today, Looking at the core, the technology we have is totally differentiated in the way that the customers need it and the way they get value out of it. And so look, the market as we can see is really attractive, it's growing. And then we've got still the same thing, the CRM players, you've got the ERP players, and you've got the sort of more best of breed, smaller companies below that. And I think what we're seeing is that they're just not enterprise ready. If we go into CRM, they can't handle the complexity and the scale. You know, I've said it before, team, the fact of the matter is, you know, to buy cheap, buy twice, and that essence of it, I think it's something that we've really seen. We're replacing competitors, and especially in Q4, definitely the top end, we've seen replacement where they could not scale, they could not meet the complexity, and also the bottom end. Same reason, scale in particular. So we had good Q4, and that's what we're seeing as we go enterprise overall.
spk00: That's great color, Robbie. Thanks. And then maybe just one for Todd. I know your gross margin was up a bit year over year despite the kind of move to the public cloud. It'd be kind of interesting to drill down in that additional public cloud cost a bit and perhaps kind of get more to what that investment means in public cloud and what perhaps a more apples to apples, gross margin expansion might have been. And then maybe I'll just have one more follow-up.
spk08: Okay. Hey, thanks, Joe. So on the cost of goods sold for the subscription business, for the entire migration during the year, we ended up spending about $3 million, and almost half of that was in the fourth quarter. Next year we kind of expect the overall margins to hold relatively constant. We've still got some other areas that Sheree's going to invest in to give us greater efficiencies over time. So I would kind of expect to stay flat year over year, but then as we kind of go out between our 2025 guidance, we see ourselves going up, you know, maybe 100 basis points a year. And then as we also talked about, we would expect the overall services margins to be closer to break even next year. And so that will give us a little bit of margin acceleration gross margin level for fiscal 23.
spk00: That's great. And then just one more, I know you mentioned that you're going to reduce your Bay Area real estate footprint by 60%. I just assume a lot of your team is going to work virtual and, you know, how are you feeling about that transition? And ultimately, you know, what would that potentially mean in terms of you know, reduce real estate costs. Thanks a lot, guys.
spk08: So I think the primary place where we've really looked at where we were out of whack was where people were within the Bay Area. The second thing that I would say is, you know, I think what we're seeing is, you know, what we're really talking about is we're giving people the ability to be flexible. And what we're seeing is people are coming into the office for specific things, and that's usually to collaborate. So if you're going to be in a Zoom meeting all day, there's no sense in coming and sitting in the office and going to traffic an hour each way to commute. But hey, do that at home. But for example, like my team, we're putting earnings together. Everybody's been here for the last couple of days. The engineering teams, when they've got certain things going on, the sales teams here, you know, during their QBRs, during closes, during certain things they're collaborating on. And I think we're seeing more and more of that. But I think the last thing I would say is we've been very thoughtful this year and as we move forward about what does our location strategy look like. And I think you're going to see us a little bit more distributed. And Sri's done a really good job as we've increased our engineering capacity doing that in more cost-effective countries. And so you'll see us moving some of those roles or adding those roles, not moving, but adding those roles in places where we can get a better return on our investment.
spk00: Thanks for that caller. Great job, guys. Thank you.
spk08: Thanks, Joe. Thanks, Joe. Thank you.
spk04: Your next question comes from the line of Brent Phil with Jefferies. Your line is open.
spk07: Hey, Tim, Todd, and Robbie. This is Love Soto on for Brent Phil. Thank you again for taking my questions. Maybe first one for Tim and Robbie. Could you maybe comment on the overall demand environment And we've heard, you know, some commentary about the pull forward in demand within software. Are you seeing any of that? And what's the appetite like amongst your customers for continuing to, you know, buy software?
spk05: Yeah, maybe I can take that. So, I think one thing is we had, as you can see, a really great Q4. And it was as we predicted, as we had looked at the business as a whole. Really good spread across our focal areas. And so I don't think it is any way of a pull. This is as we expected to do. And when I look overall at pipeline and I look at that aspect, we feel very, very good, very good about where we are and also how we executed in Q4.
spk08: I mean, the only other thing I'd add, love, is, you know, continuing to see building of the pipeline. And when Robbie's talked about inbound demand from RFPs, RFIs, that's also remained strong.
spk07: Got it. And one quick follow-up for Todd, if I may. Dollar-based net retention maintained at 110%. How do you think about the pathway to 112% or higher over the course of the next year? Any comments on churn?
spk08: So maybe I'll start with your last question. You know, we feel really good about our customer retention. Matter of fact, our churn levels, as we talked about over the last year, have really been kind of hovering around their all-time lows. And we credit a lot of that to the infrastructure investment that Robbie has put in place over the last quarters. The customer success team, I think, has had a tremendous impact on helping us there, along with some of the improvements in product. So we feel really good about that standpoint. I would tell you, as you know, we feel good about being able to increase the dollar-based retention to that 112% plus DBRR that we talked about. What I would say is, going back to Analyst Day, we saw a $450 million opportunity for cross-sell and up-sell. And if anything, as we've added new products and added new logos this year, we're seeing that expand. And we're seeing a very balanced ads again. I think this is maybe the third quarter in a row where we continue to see nice growth in usage, but just as important, it's very balanced with also getting really good take-up of the new products. So I've talked about this in the past. It's kind of like the three legs of the stool. We're retaining our customers, we're selling them new products, and they've got more usage going through the platform, and all of those things are helping us drive dollar-based retention.
spk10: Got it. Perfect. Thank you. Thanks, Love.
spk04: Your next question comes from the line of Bennett with Craig Hallam. Your line is open.
spk01: Great. Thanks for taking my question. So a couple for me just drilling down on the last question on net expansion. And just maybe even qualitatively, Todd, I think kind of we're in a period where you know, that pricing and volume would potentially be a tailwind for us going forward relative to how we changed how we sold and all that stuff and got over the hump on the deals that were a headwind. Was that the case this quarter in terms of pricing and volume uplift on renewals? And how did that play out relative to your expectations?
spk08: So I think to your point, you know, as we've seen during this last year, we didn't have some of the situation where customers had purchased more volume than needed. So that certainly helped us from a standpoint as well. We're seeing the consistency of add-ons, but again, super balanced between volume and you've seen the volume on the platform through 25% of the transactions that went through. So we're seeing nice volume there and, you know, that's continuing to give us a nice lift on the upsell and again, the new product take up.
spk01: Okay. And just on the net expansion, you know, the 110, which clearly was above what you were targeting heading into the year. But, I mean, you effectively lopped off, you know, a bad quarter, right, a year ago on a trailing basis. And I assumed you replaced it with a good quarter. I mean, is there anything we're missing on the net expansion side that, you know, would, you know, why net expansion wouldn't have maybe even improved from last quarter?
spk08: No, I think the thing you probably need to keep in mind, if you go back to our Q4 last year, it was really one of the, it was the first quarter where we really started to re-accelerate. And we had our Q4 at that time was the biggest quarter we'd ever had for upsells and still was a fantastic quarter when we look back at it historically. So it's a really tough compare. So that, you know, 110 growth or that 110 expansion is leveraging off a really strong Q4 a year ago. Good. Fair point. Go ahead.
spk09: Yeah, I think just, you know, we've taken a net dollar retention from a low point to 110%, and, you know, every quarter might be a little bumpy, but we're committed to continue to rise that, right, based on what Todd signaled for the upcoming year.
spk01: Okay. Then maybe last one on the guide, Todd. So subscription guide, you know, effectively, if we look at, you know, kind of the midpoint, I guess. You know, from a growth rate standpoint, I think you did, you know, 18%-ish, close to 19% this year subscription growth, the year that just ended. And I think the midpoint, we're kind of at the same kind of level of growth. I do recall that you had some upfront things that hit subscription last year. Just kind of, you know, kind of how we should think about that and maybe the impact of those one-time upfront deals and the quantification, if you could.
spk08: Yeah, so thanks, Chad. When I think about last year, I'd say a couple things. First of all, one of the things we really wanted to do was get people focused on the ARR growth. It's the best forward-looking metric in the subscription business. And that's one of the things that we always talk to our customers about. You know, the bookings happen now, and it takes, you know, two, three, four quarters until that starts showing up on the subscription revenue line. And so we feel really good. We actually did 20% growth. You did mention, and rightfully so, as we look through the year, we've talked about the migration that we've had of customers moving off of our on-prem product into Zora's on-cloud revenue offering. And when we've done that, we've had some customers that have had some one-time, we've benefited from some one-time benefits as they've done their final renewal on their term license. And so those are some benefits that we won't get. And so that's maybe a point and a half or so of impact. That is headwinds year over year. And the other thing I would keep in mind is we've probably got a little, maybe a point, point and a quarter of headwinds of currency as we move into the year. But overall, we feel really good about exiting the year at that 21% plus ARR growth.
spk10: Got it. Thanks much. Your next question comes from the line of Joshua Riley with Needham.
spk04: Your line is open.
spk06: Hey, guys, thanks for taking my questions. So congrats on the Silver Lake investment. I'm curious, how did the investment in relationship come about? And then you mentioned potential acquisitions. Can you give us any color on whether that could be like a single larger transformational deal or should we expect potentially a series of smaller deals over a longer period of time?
spk08: Hey, Josh, it's Todd. So maybe I'll start with that. The team wants to add any color. He can jump in. I think the relationship really came about, Tina and I have been talking about for quite some time as our growth started accelerating. What did our balance sheet need to look like? What did we need to do to really help accelerate the growth? We talked about the strength that you're seeing in the subscription economy. And one of the things that we felt really strong about is, you know, we wanted to give ourselves, we wanted to strengthen the balance sheet. And as we started looking at different options, you know, we were introduced to the folks at Silver Lake and we spent some time with them and we really liked them. When we took a look at their industry knowledge, the capacity that they have to assist us, whether it be an M&A or analysis or product strategy, and their partner ecosystem that they opened up, it really became compelling. And as we started talking about what the balance sheet needed to look like, One of the things that they offered us that was really compelling was, you know, the ability to get $400 million, but to take that down in tranches. So the first tranche we take down at 250, and then we can take down the next 150 over 18 months. That certainly gives us a lot of flexibility. And so we feel really good about the relationship. We feel like Silver Lake is going to be a great partner and really be able to help us accelerate our growth rates to get to those 25% to 30% rates. From a standpoint of M&A, I think, you know, Tien mentioned it earlier. Our customers just are having an insatiable demand. There's lots of areas that are adjacent to us. And I think, you know, at this point, I'm not wanting to kind of go through and go through what we're looking at. But I think we see a lot of opportunities. And especially having a really strong balance sheet in this volatile period, we think will turn out to be very helpful to us as we look to go through M&A.
spk09: Yeah, I'll just add to that. I mean, we obviously have a roadmap that we're excited about. Look, I think the big picture is this. I think the big picture is our business is going really, really well. We have what, you know, in my biased view is the best management team in the industry, the best product. And we've got a customer base that I would say many other companies are envious of. And they view us really as a strategic partner. And they're hungry for us because of our expertise, because of our innovation. because of our leadership to give them more. And so our roadmap is really based on, you know, close dialogue with our customers. We think there's a lot of white space in what they need in order to build fantastic subscriber experiences and monetize business models. And, you know, we don't have anything to say right now about size of transactions or anything else, right? We're going to be led by our customers with our new partner Silver Lake by our side.
spk06: Got it. And then just to follow up on that, are there priorities for investment beyond acquisitions that could be used with the funds from the convert? And could that ultimately lead to accelerating growth investments here that are not currently factored into guidance? And when you adjust after the deal closes, could that make an adjustment beyond interest expense?
spk08: No, at this particular point, we feel really good about the operating margin. I think on the bottom line, we expect it to be $10, $10.5 million of interest in amortization. And then we're still finalizing the accounting on what the warrants will look like. And so once the transaction closes, we'll give you the final guidance on the bottom line. But that's what I would expect the only changes to be.
spk06: Got it. That's super helpful. Thanks, guys.
spk04: Thanks, Josh. There are no further questions. I'll turn the call back to CEO Team Phil for closing remarks.
spk09: Well, thank you. Thank you today for joining us. I would like to say a big, big thank you to all our CEOs across the globe as we close the chapter on a fantastic FY22 and look ahead towards a strong FY23. Our people are ultimately what makes Sora an incredible place to be, and I am proud of what we've accomplished. together, not just in Q4, but the entire fiscal year. I really like the position we're in, and fiscal 2023 is shaping up to be another exciting year. Thank you very much. This concludes today's conference call.
spk04: Thank you for joining. You may now disconnect.
Disclaimer