Zuora Inc

ladies and gentlemen good afternoon my name is abby and i will be your conference operator today at this time i would like to welcome everyone to the zora fiscal year 2023 fourth quarter earnings conference call today's conference is being recorded and 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, and I will now turn the conference over to Luana Wolk, Vice President of Investor Relations. You may begin.

Thank you. Good afternoon, and welcome to Zora's fourth quarter fiscal 2023 earnings conference call. On the call today, we have Team Joe, 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, we will make 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 discussion of the material risks and all the important factors that could affect our financial results, please refer to a filing 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 page at investor.zora.com. Now, I'll turn the call over to you, James.

Thank you, Gawana, and thank you, everyone, for joining us. Welcome, welcome to Zoar's fourth quarter fiscal 2023 earnings call. I want to start by thanking our CEOs for delivering another solid quarter. It's another quarter where we came in ahead of guidance across our operating metrics, including revenue, net dollar retention, free cash flow, and non-GAAP operating income. In the fourth quarter, subscription revenue grew by 20% in constant currency, and 16%, as reported. ARR grew 16%, as reported, and net dollar retention ended the year at 108%. We remain bullish on our long-term vision and growth potential. Companies continue to come to Zora because they see the need for our mission-critical solutions, and we continue to execute against the strategy that we laid out at Investor Day back in April 2021. a strategy anchored on moving up markets, landing and expanding within our accounts, and leveraging our ecosystem of system integrators. Now, while we remain sharply focused on our growth, as we highlighted last quarter, we're also putting more weight on profitability and free cash flow, given the current macroeconomic environment. In the year ahead, we are committing to strong improvement of free cash flow year over year, and we will closely manage our stock-based compensation. Todd will discuss this in more detail later in the call. But first, let me start with what we're seeing in the macro environment. Over the past quarter, we started seeing buyer behavior stabilize, especially in our install base. While the uncertainty we saw in buyer behavior at the end of Q3 has not disappeared, it certainly has lessened. Even as companies settle into this extended period of higher interest rates and lower macroeconomic growth, they continue to prioritize digital transformation. They continue to launch and scale recurring revenue businesses, and they continue to pursue growth and new revenue streams through these new digital services. As an example, the majority of deals that were pushed at the end of our third quarter ultimately closed in Q4. In addition, we saw our win rates also improve quarter over quarter. Let me give you some examples. In Q4, Aviva, a global leader in industrial software and one of the largest software companies in the UK with more than $1 billion in annual revenue, they selected Zor to help accelerate its Aviva Flex subscription service with the goal of having more than 80% of its business coming through recurring revenue in just three years. Or Donnelly Financial Solutions, otherwise known as DFIN, a leader in risk and compliance solutions, came to us last quarter after outgrowing their homegrown system. After a comprehensive review, they chose Azure's full order-to-revenue suite of products. Following the implementation of billing, revenue, and Azure platform, DFIN will be able to better manage multiple complex revenue streams from one-time transactions to recurring subscriptions and advanced consumption models. Or finally, Scout24, who operates ImmoScout24 in Germany and Austria. This is a residential and commercial real estate online marketplace powering more than 20 million monthly users. And they came to Zorb because we were the best option available to handle the fast growth and scale they needed. For these companies and more, we believe that our singular focus here is what gives us a competitive advantage. Now, in the past, we've seen large ERP and CRM vendors take multiple runs at copying what we do, only to ultimately retreat. And there are signs that this is happening yet again. When uncertainty looms, big players need to focus on their core competencies. In fact, this quarter, we saw a major SaaS company who declared Zora to be their solution of choice after throwing in the towel on a large multi-year deployments from using a billing system from a large CRM vendor. No matter the macroeconomic climate, companies still need to manage their quotes to revenue processes at scale. And in fact, during fiscal 2023, our cohort of customers paying us over a million dollars a year grew by over 33% compared to the prior year. And so against this macroeconomic backdrop, there continues to be clear demand for our technology. Let's talk next about our land and expand strategy. You may recall this strategy laid out at our investor day back in 2021 is based on the fact that billing and revenue recognition are very sticky products. If we keep our customers happy, if we give them a mission-critical service that they can rely on, They stay with us. In fact, last year, we had the lowest churn rates in our company history as a percentage of entering ARR. Now, all this gives us an opportunity to deliver more value to our customers, enabling us to upsell and cross-sell them as we roll out new innovations. And this strategy is working. Let me give you some examples. Less than six years ago, we acquired the technology that is now Zora Revenues. And this continues to be the leading technology for the revenue recognition space. And it is now an important part of our product portfolio. Zora revenue product is growing at a deep double digit rate. We now have over 170 customers live on Zora revenue, including with companies like Salesforce and Ford. As a last quarter, by combining the scale of Azure in Zora, Microsoft, is now using Zora's Cloud SSP Analyzer, an important component of our Zora revenue product. And Stellantis, the world's fifth largest automaker of brands like Fiat, Chrysler, Jeep, Maserati, they are using Zora billing and revenue to monetize their connected services offerings. We are an integral part of our customers' businesses, and that's especially true for Zora revenue in today's climate. If companies are not compliant, If their revenue recognition does not work properly, they cannot close their books. Or as another example, our latest acquisition, Zephyr, is also supporting our land in expand strategy. It's another opportunity for our customers to grow with us. In less than six months since Zephyr joined Zora, integrated with us, they have beat their targets, and now their ARR is 35% larger than when we signed the deal. In fact, in Q4, a global media leader with leaders in more than 80 countries selected Zephyr to drive their personalized subscriber experiences, such as enhancing their paywall and newsletter capabilities. Finally, this land and expand strategy is not solely predicated on acquired technologies. We also continue to consistently launch organic innovations that our customers want. And this past year was no different. In fact, products released in the last 18 months contributed to over 20% of our deals. And here are just some examples of those innovations. Unified monetization. We are taking our customers beyond simple pay-as-you-go models. In Q4, we added new advanced consumption models to this capability. With our consumption billing and revenue recognition products, our customers can handle the complexity that comes with these more sophisticated pricing and packaging models. Managed services. This is something we're seeing greater adoption for, given the current environment. Last quarter, we doubled the number of managed services customers because it saves our customers time and money. Plus, owning everything end-to-end means we can set the bar even higher to create the right customer experience. And finally, another innovation we rolled out was Zora Secure Data Share for Snowflake, which extends Zora's data into Snowflake's data cloud without any custom integration. The solution is quickly gaining traction since launching just last July. After years and years of focused product development and continued investment in our innovation engine, it's clear there is no shortcut to achieve what we have achieved today. Finally, system integrators partnerships are a big part of our land and expand strategy. In the last fiscal year, our partners consistently brought us into bigger deals. In the last fiscal year, as an example, partner-sourced new business deals were three times larger than those deals that came without a partner. And those partner-sourced deals have 3x better close rates. In Q4, almost 80% of all new business deals were partner-influenced, with the highest average selling price to date. And finally, I'm proud to say we now have over 900 certified consultants helping to bring us into these larger deals. Lastly, as you may have seen in today's announcements, we do have an update to share about our leadership team. Sri Sreenivasan, our Chief Product and Engineering Officer, has made a difficult decision to leave Zora at the end of this month. Sri has been at the helm, ramping up the incredible innovation engine that you heard about earlier on this call. Now Sri's decision aligns with his personal goals, which I fully support. He will be transitioning away from an operator role to a different type of leadership role at a private equity firm. While we've already started the search for a permanent replacement, I am incredibly confident in the team that Shui is leaving behind, as well as the customer-first culture that now permeates the organization and the innovation machine that continues to evolve our technology and launch new offerings at a rapid, rapid pace. Our chief customer officer, Tom Crackler, will take over as chief product officer in the interim. Tom is an experienced product development leader who's been with us for almost eight years. Thank you, Shui, for your transformative contributions to Zora over the past two years. To close out, I want to thank our CEOs for their dedication as we wrap up another fiscal year. We continue to feel good about our position in the markets. Buyer behavior is starting to normalize as customers settle into this new environment. Companies are still coming to us because our technology gives them the agility and capabilities they need. Looking to the new fiscal year, we remain committed to our strategy with an increased focus on balancing growth and profitability.