Zuora Inc

Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Zora third quarter fiscal 2023 earnings 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw the question, Again, press the star 1. Thank you. Luana Woke, VP of Investor Relations, you may begin your conference.

Thank you. Good afternoon and welcome to Zora's third quarter fiscal 2023 earnings conference call. On the call today, we have Team Zora's founder and chief executive officer and Todd McElhatton, Zora's chief financial officer. Robbie Trauber, our president and chief revenue officer, will also be joining us for the Q&A session. During today's call, I will make several statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal securities law. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations. For further discussions of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. And finally, unless otherwise noted, all numbers except revenue mentioned today are non-GAAP. You can find a reconciliation from GAAP to non-GAAP results in today's press release. Our results, press release, and a replay of today's call can be found on Zora's Investor Relations website at investor.zora.com. Now, I'll turn the call over to you, team.

Thank you, Luana, and thank you, everyone, for joining us. Welcome to Zora's third quarter fiscal 2023 earnings call. Q3 was yet another quarter where we delivered on our guidance. We posted Q3 total revenue at the high end of our outlook, and we exceeded guidance for subscription revenue and non-GAAP operating income. That being said, the world certainly has changed. in the last 90 days. Given the macro level of certainty, we are accelerating our focus on profitability in our committee to delivering a non-GAAP operating margin of at least 6% for fiscal year 2024. What this means is today we announced a difficult decision to reduce our workforce by 11%. We've been thoughtful. and how we've approached this, making sure that we preserve quota capacity and continue to invest in innovation. As a founder and CEO of the company, I have not taken this decision lightly, but this was the right thing to do for our customers and our shareholders. And we're doing everything we can as a company to help with the transition for those affected. And I want to personally thank these CEOs for all that they've done for the company over the years. Now, let me take a few moments to add some more color on what we're seeing out there in the market. Talking to customers, of course, is a key part of my role. But in the last 90 days, I believe I've spoken to more customers across more geographies than in any time prior. And here's what I would say. First, digital customer experiences and subscription business models continue to be a priority. I was with the CIO of a $9 billion information services company, and he said that any project that streamlines the customer experience is still being funded. Companies continue to see subscriptions as the future, and we see this in our metrics. For example, our total pipeline continues to grow year over year. This is not a surprise. In times like these, companies that have well-established subscriber relationships are going to continue to outperform those that do not. This is consistent with our recently released Subscription Economy Index, or SEI snapshot, which found that even as the world faces economic uncertainty, subscription businesses in the SEI were resilient in the first half of 2022, with higher revenue growth compared to businesses in the S&P 500. These recurring revenue companies increased customer acquisition, and revenue growth during the first half of the year, and subscription cancellations continue to be lower than pre-pandemic levels. Just a few weeks ago, we had C-level executives from over 30 companies at a two-day offsite, including the top publishing brands, one of the biggest video streaming services, one of the biggest auto manufacturers, one of the largest SaaS companies, multi-billion-dollar technology companies, At the event, we had an incredible response to our vision for how Zephyr, the technology we acquired this past quarter, will help them deepen subscriber engagement and put the right offer in front of the right subscriber at the right time. Now, all this being said, this is absolutely a different world than just 90 days ago. The level of uncertainty that companies are facing has risen significantly, and this is certainly affecting parts of our business. Fail cycles are being extended in certain cases due to increased scrutiny on new software purchases. In other cases, some companies are simply putting larger scale transformation projects on hold as a way to get a better picture of what resources they will have. In our install base, some of our customers are finding it difficult to make longer term predictions about their own business, which may impact the level of volume commitments that they've historically made to our platform. Second, we are not seeing these trends impact all industries equally. For example, we continue to see good traction in the media industry. Advertising revenue is on the decline, and it's driving these companies to double down on their subscription business. Last quarter, we talked about how the New York Times is a prime example of what the playbook now looks like to build a modern digital media company on a foundation of a strong subscriber base. And this quarter, we added Gannett to the list, a leading publisher with 250 newspapers and 2 million subscribers. And they came to Zora with the goal of tripling their subscriber base in the next three years. They started with Zora Billing to give them the pricing and packaging flexibility they needed to continue their subscriber growth. And in Q3, they added Zora Revenue to help them automate their revenue recognition process so they can scale their entire order to revenue process to support their ambitious growth goals. The media industry is also where we're seeing our acquisition of Zephyr, which we closed in Q3, play a really important role. We learned a lot in our previous acquisitions, and I'm pleased to say that we are on track with our plans for company integration and for deepening the existing integration between our two products. It's exciting to see the initial traction we're seeing in the market as media companies and digital publishers realize how critical it is to deliver a differentiated subscriber experience. For example, News Corp Australia, one of Zephyr's customers, recently announced that their total subscriber base grew 13% year over year, with Zephyr being the piece of this success. As competition for these subscribers continues to grow, Zephyr is able to help our customers effectively optimize and personalize the subscriber experience to better drive conversion and revenue. Another industry that we're seeing is the auto manufacturing industry, where new business models are critical to unlocking growth for the next decade. This quarter, we are adding another auto manufacturing company to our roster. This is one of the largest Japanese car manufacturers in the world with $75 billion in annual revenue, and they chose Zora to enhance what they call the driver experience. They are launching new in-car services and helping to make billing effortless for offerings like parking, roadside assistance, maintenance, insurance, entertainment, and more. This marks now 13 of the largest 15 auto companies who have bet on Zora to take them into the next decade of growth. And in the broader manufacturing sector, we're seeing companies like global tire manufacturer Michelin come to Zora to launch its direct-to-consumer tire subscription, selecting Zora for both our unique technology and our expertise. Our product leadership remains the driving force. For those companies who need to launch and scale a recurring revenue business, Zora remains the only solution that can help them manage the entire process from delivering differentiated subscriber experiences to orchestrating the complete quote-to-revenue process. In fact, Zora was recently recognized for the third time as a leader by the IDC Marketscape, a testament to our leadership. IDC noted, and I quote, that Zora has a comprehensive and enterprise-grade subscription and usage revenue management solution to intelligently automate the quote-to-revenue process, end quote. A good example where this came to play from the quarter is EnerCare. Enercare is one of Canada's largest energy solutions companies. They provide water heaters, furnaces, air conditioners, and related services to more than 1.4 million customers. When it came time to replace their billing system, they evaluated both traditional ERP providers and SaaS solutions, and it became clear that only Zora could provide a complete and agile order-to-revenue solution. The Zora platform would not only replace their existing billing system, but will enable new capabilities and a stronger customer relationship for their subscription product, rental, and maintenance plans. Finally, in this environment, we are fortunate to also have a strong value proposition around reducing costs and accelerating cash. We have a broad product portfolio and one that delivers a high level of automation across the entire quote-to-revenue process. This has enabled us to shift a lot of our messaging with products like Azure Revenue that helps companies take costs out of their business through automation, whether it's headcount costs or audit fees, or Collect that helps companies increase collections at a time when that matters more than ever. Some examples include Vivint, a leader in smart home solutions and a longtime Azure Ability customer, selected Azure Revenue to automate their revenue recognition processes. Vivint's entire order to revenue process and $1.6 billion in revenues will be automated on Zora's monetization platform. Or GitHub, the leading integrated software development platform, signed up with ZoraCollect to help them optimize electronic payment authorization and recovery rates. Or lastly, a multi-billion dollar subscription streaming service where in one quarter, Zora collects HealthRecover $4.3 million in otherwise lost payments, all flowing directly to their bottom line. So to net all of this out, our long-term vision and opportunity remains intact. We continue to see strong interest in Zora's products, and we remain confident in our long-term opportunity, even with the current headwinds. Given the uncertainty in the macro environment, we are accelerating our path to profitability, and committing to delivering at least 6% non-GAAP operating margin next fiscal year. The approach we are taking in making this change is built on our conviction of our long-term opportunity, thereby preserving our quoted capacity and our ability to continue to invest in innovation. The bets we have placed on growth initiatives over the last two to three years give us a great roadmap that we're to find the right growth opportunities while at the same time allowing us to expand our margins. Today is a difficult day for Zora as we say goodbye to many of our fellow CEOs. But we remain unwavering in our commitment to our customers and our vision of the world described. Now, I'll turn the call over to Todd to review our financials and outlook.