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spk06: Good afternoon. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Zora fiscal year 24 third quarter 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 that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Luana Wolk, Vice President of Investor Relations and ESG at Zorora. You may begin your conference. Thank you.
spk05: Good afternoon and welcome to Zorra's third quarter fiscal 2024 earnings conference call. On the call, we have Team Zorra's founder and chief executive officer and Todd McElhatton, Zohar's Chief Financial Officer. Robbie Trauber, our President and Chief Revenue Officer, will 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 outlooks. 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 for both the current and the prior year periods in today's press release. A 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.
spk02: Thank you, Vala. Congratulations again. It's so great to have you back. And thank you, everyone, for joining us today. Welcome to Zora's third quarter fiscal 2024 earnings call. Q3 was another quarter where we exceeded guidance on subscription revenue, total revenue, and operating income. In Q3, subscription revenue rose to $98 million, up 14% in constant currency and 13% as reported. ARR grew by 13%. Non-GAAP operating income exceeded the high end of our guidance range by $5 million. And we exceeded our full year goal for adjusted free cash flow one quarter ahead of plan. I would say that the Q3 headline was our margin expansion. Our Q3 non-GAAP operating margin was 15%. This is a huge increase from nearly a break-even position just one year ago. And as Todd will show, our outlook for FY24 illustrates that we plan to deliver a $65 million positive swing in our adjusted free cash flow for the year. We've done this while building a durable business that delivers a double-digit growth even in this macro environment where budgets are scrutinized and deal cycles are taking longer. I would say there are two things. that have allowed us to accomplish this, our enterprise customers and our mission-critical technology. As you know, we chose to focus on the world's largest and fastest-growing companies across industries and all around the world. This gives us a customer base that many would be envious of. And in Q3, many of these companies recommitted to Zuora. We saw several expansions with multi-year commitments that drove a 20% year-over-year increase in our total RPO, or remaining performance obligations. This also helped drive our dollar-based retention rates to 108% in Q3, up one point quarter-over-quarter. Let me give you some examples. In Q3, we expanded our work with Google, Google Fiber, Alphabet's high-speed broadband internet service that spans 15 states and counting. Now, Zora will power G-Fiber's full order-to-revenue process as they continue to grow. Four, you all know we power 12 of the top 15 automobile companies around the world. Well, in Q3, one of them, which is also one of our top five customers, renewed their commitment to Zora for another five years. Not only that, in one of the world's largest telecommunications and entertainment companies, we expanded to yet another business unit, signing a five-year, seven-digit deal, which also was a competitive replacement. Of course, this isn't just about our install base. Because of our technology, our people, and our vision, companies continue to choose Zora to drive the growth of their recurring revenue businesses. For example, in Q3, FreshBooks, A high-growth leading invoicing and accounting software built for business owners and accountants came to Zora after their previous legacy systems required complex manual intervention to meet their needs. Now with Zora, they plan to streamline and simplify how they manage recurring revenue, including consumption. As another example, a leading healthcare technology platform selected Zora to power their care services We will be working with them to make their pricing and packaging more flexible, along with driving operational efficiency. And of course, we continue to have amazing companies go live on Zora. In Q3, LinkedIn, the world's largest online professional network, is now using Zora for their LinkedIn subscription revenue stream. This is within their LinkedIn talent solutions. After an in-depth search for the right partner, LinkedIn selected Zora to minimize the need for manual intervention in their revenue recognition processes and expedite their time to market. This is why in Q3 we saw an uptick in both the number of large deals and the number of customers with an average contract value at or above $250,000. We now have 453 of these customers, up by nine. quarter over quarter. In this quarter, we saw seven deals with an ACB at or above $500,000 compared to six deals in Q3 of last year. Of those seven deals, two were over $1 million. And our relationship with our system integration partners continues to be incredibly important to help us move these large companies to Zora. In Q3, we continue to see solid growth for partner source pipelines. The second thing that enables us to continue to deliver strong results is of course our differentiated technology and our constant pace of innovation. And I'm so excited that this technology is more important than ever. Why? Because we believe we are entering a new phase of a subscription economy. Let me explain. The past 15 years have been a great period of growth for subscription businesses, but today, You have all heard of the phrase, subscription fatigue, the idea that we all have too many streaming services subscriptions, or our companies have too many SaaS applications. So does that mean the subscription era is over? Well, of course not. What it means, however, is that a shakeout is now happening. And what we are seeing is the winners of the shakeout are using our technology to deliver not just recurring relationships, or recurring revenue. They are using our technology to create recurring growth. In fact, if you came to any one of our Subscribed International events, for example, in New York, London, Paris, Munich, Stockholm, or Tokyo, we showed that two dominant strategies are emerging for how to create recurring growth. The first is around consumption. In fact, our new research with BCG found an almost 3x increase in adoption of hybrid consumption models over the last three years. And so in Q3, we expanded Zora4 consumption to help companies take their unpredictable raw usage data, better understand exactly how their customers use their offerings, and translate that to the right pricing model. Companies like Aviva, a global leader in industrial software in Europe, are adding Zora for consumption to give their customers visibility into consumption habits, and with that new transparency, deliver new value to customers. We're also seeing greater recognition of our product portfolio by third-party research firms. IDC Research, for example, has stated that Zora is providing the revenue platform of tomorrow, especially with these new consumption-based capabilities. The second dominant strategy we're seeing emerge is what I'll call strategic bundling and unbundling. In this digital era, companies like New York Times, as an example, they no longer ask you to buy their entire newspaper. Instead, they've unbundled their offerings, allowing people to subscribe to just games or news or sports or cooking and more. And this is how they've grown to now more than 10 million subscribers. And so in Q3, we announced new capabilities for Zephyr that enables our customers to gain a deeper understanding of their subscribers through their own data, combined with industry benchmarks across the entire Zora customer user base, helping them drive conversion and retention through personalized offers. All of this builds on our family of market-leading products. Zora Billing, Zora Revenue, Zora Payments, Zephyr, and Azure platform, including Azure Warehouse with BYOB technology, Azure Extension Studio, and Azure Command Center with the new integration hub. In closing, for Q3, I would like to thank every CEO for their work, not just in the quarter, but for the entire year. We have built a fantastic customer base with the biggest and best brands. We have the right technology suite, which we are constantly innovating. And we have a passionate team of CEOs in place to help us take the momentum that we've seen through Q3 into Q4 and into the new year.
spk03: Now, I'll turn over the call to Todd to review our financials. Todd. Thank you, Dean, and thanks to all for joining our call.
spk12: In Q3, we once again did what we said we would do. Consistent with what we have seen over the past few quarters, we continue to see extended sales cycles in Q3. Regardless of the backdrop, we are committed to building a long-term, durable business that composes double-digit growth while delivering double-digit operating leverage and generating healthy cash flow. In fact, we exceeded our whole-year goal for adjusted free cash flow one quarter ahead of plans. Our subscription revenue, total revenue, and non-GAAP operating income all exceeded the high end of our guidance range. Let's start with our Q3 performance. Subscription revenue was $98 million, growing 14% year-over-year in constant currency and 13% as reported. Professional services revenue was $11.8 million, a decrease of 19% year-over-year, and represented 11% of total revenue. System integrators remain an important piece of our strategy, and similar to prior quarters, we leveraged our SI partners for implementation of our solutions. Total revenue was $109.8 million, up 9% year over year. Non-GAAP subscription gross margin in Q3 was 83%, an improvement of over 400 basis points year over year. This increase was driven by optimization of our cloud hosting and a one-time vendor credit. In the near term, we expect our subscription gross margins to be between 81% and 82%. Non-GAAP professional services gross margin was negative 1%, an improvement of over 30 basis points year over year. Our long-term plan is to run professional services at or near break-even. Professional services margin may fluctuate based upon investments we make in customer support for near-term subscription revenue growth. Our non-GAAP blended gross margin was 74%, an increase of over 650 basis points year over year. We are very pleased to share that our non-GAAP operating income in Q3 was $16 million compared to $0.6 million in the prior year. and exceeded the high end of our outlook by $5 million. This resulted in a Q3 non-GAAP operating margin of 15%, a significant improvement of nearly 1,400 basis points over last year. This was driven by top-line growth and our continued commitment to disciplined investment. Our fully diluted share count as of the end of the quarter was approximately 178.3 million shares. using both the Treasury stock and if converted methods. The share count increased primarily through the issues of our second tranche of convertible debt with Silver Lake. Now, let's dive in some other key metrics. Dollar-based retention rate, or DBRR, ended at 108%, up one point sequentially and a one point reduction year over year. As team noted, we saw contract expansions, many of which were long-term commitments, driving our total RPO to a 20% year-over-year growth and a non-current RPO grew 28% year-over-year. In addition, we continue to see very strong customer retention rates. As we deliver more innovative solutions and value, we're giving our customers more reasons to stay and grow with us. driving continued improvement and retention as a percentage of ARR. At the end of Q3, we had 453 customers that spend at or above $250,000 in average contract value, which is up nine sequentially and 33 year over year. This cohort represents 83% of our business. This quarter, we closed seven deals with ACV of $500,000 or more. up from six in Q3 of last year. This includes two deals over $1 million, consistent with two in Q3 of the prior year. Now, looking at ARR and free cash flow. At the end of Q3, ARR was $396 million and grew 13%. Adjusted free cash flow with positive $12.7 million in the quarter, a meaningful improvement of nearly $20 million over Q3 of last year. Adjusted free cash flow is operating cash flow, adjusting for capital expenditures, acquisition-related costs, and non-ordinary course litigation costs. We believe cash flow is best assessed on an annual basis as adjusted free cash flow fluctuates on a quarterly basis due to the timing of cash collections, vendor payments, and seasonality. As I noted earlier, three quarters into the year, we have already exceeded our annual target, which demonstrates the health and durability of our business. Total CapEx for the quarter was $3.1 million. Turning to the balance sheet. We ended the quarter with $493.7 million in cash and cash equivalents, a sequential increase of $87.5 million. In Q3, we had two notable events that affected our cash balance. We received a second and final tranche of our funding from Silver Lake Partners. Additionally, we dispersed payment associated with the completion of a litigation settlement. In Q3, the macro environment remained challenging and we anticipate this to continue through the near term. As we discussed last quarter, our professional services business is now a smaller portion of our revenue mix as we support our partners in leading customer implementations. Starting with our Q4 guidance, we currently expect subscription revenue of 99.3 to $100.3 million, professional services revenue of $10.5 to $11.5 million, total revenue of $109.8 million to $111.8 million. We expect non-GAAP operating income of $12 to $13 million, and non-GAAP net income per share of 4 to 5 cents, assuming a weighted average shares outstanding of approximately $144.2 million. For the full fiscal year, we're tightening the range for revenue, and based on the outperformance in Q3, we're raising our guidance for non-GAAP operating income and adjusted free cash flow. We now expect full-year subscription revenue of $382.5 to $383.5 million, professional services revenue of $48.3 to $49.3 million, total revenue of $430.8 to $432.8 million, non-GAAP operating income of $43.6 to $44.6 million, and a non-GAAP net income per share of $0.25 to $0.26, assuming a weighted shares outstanding of approximately $140.1 million. We continue to make headway on our goal of balancing growth with profitability. For full year fiscal 24, we are raising our adjusted free cash flow guidance from $28 million to $37 million or more. This outlook is a nearly $65 million improvement and adjusted free cash flow over fiscal 23. Similarly, we are increasing our outlook for non-GAAP operating margin, which we are raising from 8% to a minimum of 10% for the full fiscal year. Recall, at the beginning of the year, we expected to be at an annual share dilution for fiscal 24 at under 5%, with a mid-term target of 4%. We now expect fiscal 24 to be closer to our mid-term target of 4%. For this purpose, dilution is calculated as the number of equity awards granted, net of forfeitures during the fiscal year, divided by the total shares outstanding at the end of the fiscal year. Turning to DBRR and AR growth. For the fiscal year, we now expect DBRR of 107 to 108% and AR growth of approximately 12%. Since Q4 is our largest booking quarter, we believe it is best to wait one more quarter to provide you with full guidance for fiscal year 2025. Having said that, we do want to share some color on the year ahead. As I noted, we expect to end fiscal 24 at approximately 12% ARR growth. We believe this to be the leveling point of our ARR growth in the near term based upon the current environment. We have the product and sales capacity to accelerate top-line growth when the macro environment changes, but we believe it is wise to be prudent at this point. I would also remind you that subscription revenue growth trails ARR growth by a couple of quarters. Given the recent trends in our professional services business, we expect our SI partners to continue to take on more of the implementation work. As such, we expect our PS revenue mix to be approximately 10% of our total revenue. Lastly, we are committed to driving incremental operating margin improvement regardless of the economic backdrop. As you've seen this year, we've been quite aggressive in accelerating non-GAAP operating margin as the year progressed, and we plan to continue this trend next year. Our objective is to exit fiscal 2025 at a rule of 30 run rate, as defined as the sum of the year-over-year subscription revenue growth plus non-GAAP operating margin. In closing, we delivered on our strategy and did what we said we would do. Q3 has further illustrated that Zora is a durable double-digit margin and growth business. We continue to expand our enterprise customer base, keeping our retention rate strong while expanding profit margins and increasing free cash flow. With that, team Robbie and I will take your questions, and I'll turn it over to the operator.
spk06: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Rob Oliver from Baird. Please go ahead.
spk10: Great. Thanks very much. Teen, I had one for you, and then Todd, I had a follow-up question for you. So, Teen, to start, this is the second quarter in a row where you've called out a telecom win. And I think in this one you talked about a competitive displacement. I think for those who've been around a while, they'll know that that market was dominated by another player. I'm just curious to hear your take on Zora's success in telecoms, whether this is an opportunity for you guys to double down in a new market now with, I think it was Telus you called out last quarter, with some signature wins in this market. And then I had a quick follow-up. Thanks.
spk02: Yeah, sure. Thanks, Rob. Thanks for the question. I don't think I'm ready to say that a telecom sector is at this inflection point that we've seen in, say, the manufacturing sector, the technology, and the media sector. I think what we do see is, like all industries, the pressure on subscription businesses and the agility that you need to execute, especially these new services, is only increasing. And many of these companies are coming to us. I'd say if you look at Telus, if you look at this other telecom company, in many cases, it's not going to be, you know, the landline business. It's not going to necessarily be the mobile business that's been around for 20, 30, 40 years. It's going to be some of these newer services over the top of the services, corporate services and the like. And I think that's really where we shine. And that's where the differentiator that we bring to a telecom company is very much the same that we do, say, to a newspaper company or a fast-growing SaaS company.
spk10: Okay, great. Thanks. Appreciate that. And then, Todd, just a question for you. Obviously, great work on the margin side and pre-cash flow side. Just relative to the top line headed into the end of the year here, just wanted to get a sense for your view relative to the outlook, whether the tweaking of the ranges around ARR and revenue is that – Conservatism, has there been any change in the macro or in the outlook for you guys in terms of customers? Just be curious to hear how we should think about that. Thanks very much.
spk12: Yeah, thanks a lot, Rob. From the outlook perspective, we are in that range after three quarters and being three quarters away through the year. I felt appropriate to take a look and say, this is where we're going to end when it's 12%, which is within the range. As we've said all year, we've seen elongated sales cycles. Nothing has changed. We're still staying the same there. And so I think that's a good point for us to be thinking about not only how we end this year, but how we go into next year. I'd also say, as we talked through the whole year, what we had said at the beginning of the year was, look, we'd be approaching somewhere around a rule of 20. And if we didn't see an acceleration of top line, we would put dollars in the bottom line. And that is exactly what we've done this year. And you've seen, you know, a significant acceleration of that bottom line. So not only do we have a durable top line double-digit growth, but we also now have a double-digit bottom line margin. Great. Much appreciated. Thanks, guys. Thanks, Rob.
spk06: Your next question comes from the line of Chad Bennett from Craig Hallam. Please go ahead.
spk04: Great. Thanks for taking my question. So just, you know, maybe for Todd, just on the deferred rev and billing side of the equation this quarter, I think deferred revs were down sequentially when I think, you know, just historically they've been up. And I'm just not sure if there was anything related to timing or I think you guys alluded to you know, kind of some multi-year deals where maybe billing was different from a duration standpoint than normal. Any color into the billings this quarter?
spk12: Rob, as we've talked for, I'm sorry, Chad, as we've chatted for a while, we really want to keep people focused on the ARR growth. That's the absolute dollars that we have booked. It's a great way to model the business as we think about it going forward. As you know, it's really messy when you take a look at the calculated billings numbers. There's FX numbers, there's pull forwards, there's different billing terms. Over time, that certainly evens out to the AR, but we really think the best way to be looking at it is on the AR. And, you know, as we did talk, we had a really nice quarter from a standpoint. Our largest renewal ever with one of the largest automobile manufacturers. We saw one of the largest software companies in the world. It can not only extend with us, but expand that relationship. Same thing with Google Fiber, some other software companies. And so, you know, we had a really strong growth, not only in the current RPO, but the long-term RPO with people not only making those commitments and expanding them, but going out for the long-term with us.
spk04: Yeah, no, the RPO numbers were great. Just thinking, Todd, in terms of seasonality in the fourth quarter, obviously it's your biggest bookings quarter like most in software. But just whatever that normalized baseline is on deferreds or whatever you're looking at or RPO, Does this feel like kind of a normal seasonality kind of sequential quarter from whatever that baseline is?
spk12: You know, like I said, there's just ebb and flow every quarter. You might have, you know, pull-ins at one point during a quarter. We might have something with terms that are different. So, you know, there really isn't a whole lot of, you know, consistency on that number. And that's really one of the reasons that we've gone to giving the ARR number so people can model off of that.
spk04: Okay. And then maybe one quick follow-up. I know on last quarter, I think, Teen, you talked about new logos and maybe, Todd, also, I think they were up like 35% last quarter and sales cycles decreased. I think you talked about maybe sales cycles continuing to be down. And I think you also talked about you know, a resumption of volume growth also last quarter? Any color into those items? And then I'll hop off. Thank you.
spk02: Yeah. I'm curious maybe what you're asking, maybe asking many companies is, hey, as companies as a whole, are we seeing things turning around? Are we seeing, you know, things stabilize, the economy coming around? I would say, look, we're probably experiencing the same thing that every other company is experiencing, but we want to be Certainly very conservative. We do see a lot of more optimism in our customer base that's certainly led to these longer-term contracts and some of the things that we try to talk about as color on the call. But I think there's still enough unknowns out there in the marketplace that we would want to be muted in our optimism.
spk12: I guess the only other color that I would add to teens is, you know, one of the things we said at the beginning of this year was we were going to have the agility to land both smaller lands that would have the ability to expand over time, still going after those same enterprise customers that had a good runway in front of them. And we did that, and we actually saw the number of new logos is up year over year. So that feels like that is working well. In addition, you know, you heard we had two deals over a million dollars. What was it, seven deals?
spk02: over 500k so in addition to lending some things at a smaller space we also have some nice meaty deals and that's important you can see that's a key part of what we say we do for our customers right we allow our customers to give their customers flexibility and how they engage and certainly you know we use our own technology to do the same for ourselves as well thanks much you are next thanks
spk06: Your next question comes from the line of Joshua Riley from Needham and Company. Please go ahead.
spk08: All right. Thanks for taking my questions here. Another kind of question on the setup for the pipeline here for Q4. How do you foresee the linearity shaking up in terms of will the month of January be critical to hitting the 12% ARR guide or do you have some visibility of deals closing here in November and December? which could take some pressure off that month of January.
spk00: I think overall, Josh, hi, it's Robbie. I think one of the big pieces there is, I think pipeline for us grew quarter over quarter really well. I think as we look at, especially also on our partner side of it, I think that there's really a good view in terms of that higher quality pipeline that we saw in Q3 has been very, very, very good for us. And that led to some of those new business win rates.
spk12: But I guess, Josh, you know, I'm not sure that I'm seeing anything different than what we usually do in linearity. As you know, pretty much every enterprise software company certainly sees, you know, a skewing to the back end of the quarter. And, you know, ever since I've been in this business, it's always been that way. And I would expect it would be this way again this quarter.
spk08: Got it. That's helpful. And then just what are you seeing in terms of some of your, you know, obviously we know tech is your largest vertical. Are you seeing some better trends with some of the B2C tech customers versus some of the B2B? It seems like some of these B2C subscription services are doing a little bit better here. Are you seeing less of a volume kind of headwind from those customers?
spk02: I think the big news that we're seeing across B2C and B2B, and we try to allude to that on the call, is when markets slow down, competition certainly increases. People are chasing the same pie versus the growing pie. And we do see, when you look at the entire market space, our customers and other companies, that there could be a shakeout. There could be a shakeout where, hey, which streaming services are you going to drop? Which newspaper subscription are you going to drop? Which SaaS company are you going to drop? And so what we're busy working with our customers on is, Look, the best companies that are ones that can hold on to their customers, give their customers choice, and that's a key part of our technology. So if you look at the announcements that will be made, whether it's around consumption-based billing, whether it's really, you know, bringing Zephyr into not just newspaper companies, but really any company, I think those are the strategies that companies are using, regardless of whether they're B2C or B2B, to continue to be, you know, a long-term grower for years and years to come.
spk03: Got it. Thanks, guys. Thanks, Josh.
spk06: Your next question comes from the line of Adam Hodgkiss from Goldman Sachs. Please go ahead.
spk07: Great. Thanks for taking my questions. I just wanted to touch again on the strength and current RPO sequentially. Could you just talk a little bit about where you're seeing the incremental momentum from a cross-sell perspective and what you view as the key catalyst here? I guess, how much of this with some of your more seasoned products like RevRec versus some of the newer launches like Zephyr and Consumption?
spk02: Well, I would say, you know, I'll let Todd comment on what he's seeing. But to me, it really is a validation that our customers believe in us. Our customers believe in us. Our customers believe in our technology. Right. And when you see an increase in RPO, a lot of that is going to be driven by, look, we're not just going to renew a year, but we're going to stick with you for many years to come. And I think that's just a really strong statement to the fact that we have differentiated technology. We do a lot for our customers and they continue to say, hey, we're committed to you.
spk12: Yeah, I think the only other color that I would add to that, Adam, is we saw the largest renewal we've ever had, one of the world's largest automobile manufacturers. Not only did they go out for five years, but they accelerated their spend. They're going to put a whole lot of volume through our system. One of the world's largest software companies, again, expanding how they're using our product, taking on additional volume. Google Fiber came through. So really, I think it's been the customers that we've chosen, these enterprise customers, as they've used the system, are getting value as we're innovating, are just expanding their footprint with us. And we're becoming part of their tech stack and a mission-critical piece of their business.
spk07: Great. That's really helpful. And then just on that point, Todd, is there any commonality between these $1 million deals and your go-to-market in achieving this level of commitment? How much visibility do you have when you look at the upsell cycles for companies that might be in the pipeline for this type of ACV over time?
spk12: I think we have pretty good visibility to it. I think there's a little bit of, you know, does it close this quarter or next quarter? You know, there's a little bit of variability onto what quarter it closes. But I would say in general, you know, we've got good, tight relationships with these customers. We have customer relationship managers that are attached to them. We spend a lot of time with them. Our executives spend a lot of time with them. They understand our roadmap. A lot of times they're giving us input on what they'd like to see on the roadmap. So as we work together, I think, you know, we have a good visibility relationship. of where that expansion goes over time. I'm not sure that you can always, and especially in this environment, peg it down. Hey, we'll be this quarter, next quarter, a quarter after that. But we do know that there are things that are coming and are highly confident of our ability to close that business.
spk02: Yeah, if I were to raise it a level, we've been saying for the last two or three years, right, that we've made a strategic choice to really target the biggest and fastest growing companies in the world. And we believe those companies give us runway. I know at the start of the year, when we started talking about smaller deals, That was a big question you guys had, right? Are you chasing smaller companies? And we said, no, we're chasing the same customer base. We just want faster lands because what gets us confidence in that is every one of our companies, regardless of where they stand today, is a potential to be a multi-million dollar a year account.
spk07: Okay, really helpful. Thanks, team. Thanks, Todd. Thanks, Adam.
spk06: Your next question comes from the line of Joseph Vafi from Canaccord. Please go ahead.
spk01: Hey guys, good afternoon and welcome back. My congratulations on coming back to Luana. How about maybe one question on any change in the kind of lands you're seeing now is, you know, are things gravitating toward a specific product, just trying to get a feel for, you know, perhaps revenue, which seems to be resonating in this kind of environment and Kind of where are you right now at this point in revenue penetration across the base? And then I'll have a quick follow-up.
spk02: Just like we said, you know, one key part of our strategy is targeting really the best and fastest growing companies in the world. Another big part of our strategy is the multi-product strategy. And we're sitting here today, and we're fortunate enough to have multiple products that are resonating in the marketplace. And so that includes billing. That includes revenue. The Zephyr acquisition has turned out to be a home run. And so any given quarter, you're certainly going to see, you know, puts and takes or ebbs and flows of one product versus the other. And that's, I would say that that's just the nature of whatever quarter is going on in that quarter. But I feel really, really good about all the products that we have and their ability to have impact in the marketplace.
spk12: Yeah, the other thing I'd say is, look, we're still early on in the revenue where we are from a standpoint of penetrating there. We've certainly seen consistent growth over the last year or so, but there's a lot of opportunity for us to continue to accelerate that movement, and some of the innovation that's coming out will help even more customers join the revenue or purchase the revenue product as we go through the next year or two.
spk00: I think added to that as well, Joe, is consumption is a big focus for us, and the way that we can actually use revenue on those lines is also really, really exciting for us and our customers.
spk01: Great. That's great commentary. I appreciate that from all three of you. And then any commentary on Silver Lake balance sheet infusion here? I know it was kind of expected, but how are you looking at the landscape here? I would imagine it would be M&A centric again, as it was with Zephyr. But any comments there? Thanks a lot, guys.
spk12: Yeah, Joe, absolutely. That was an agreed-upon deal. We took the second tranche here during the most recent quarter. We're still very active in looking at things in M&A. We're going to be extremely disciplined, just as we were with Zephyr, making sure that we get the right product, that we can expand it, that it's growing faster than where we are growing, and that the culture is right and it helps us on our land and expanded strategy. So we continue to look at things. I think it's an active market. We've got a lot of things. And when we have something to announce, we will announce it. But I do feel that over the next couple quarters, you'll see us have the ability to announce something.
spk01: That's encouraging. Great. Thanks a lot, Todd. Thanks, team. Thanks, Joe.
spk06: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Brent Thiel from Jefferies. Please go ahead.
spk09: Hello. This is Alon Leone on for Brent Phil. My first question is on net new ARR. Good to see some sequential improvement here, but net new ARR was still down 10% year over year in the quarter, and the updated full year guide implies sequential improvement in 4Q. Based on your pipeline and coverage, what are you seeing out there in the market, and what gives you confidence in the sequential improvement implied in the 4Q ARR guide? Thanks.
spk12: Yeah, so thanks a lot, Alon. We pretty much through the entire year said that here was the range where we thought we would land on ARR. We've confirmed today that we'll end up in the year at about 12%. That's what we've said all year. Being three quarters of the way through and taking a look at the pipeline, the conversion rates that we see, we're comfortable that that's where we end up landing. And, you know, I think it's been pretty consistent every quarter this year. We've had, you know, a significant... a standard or consistent increase of quarter-over-quarter on the ARR. And so that's what we're seeing. The pipeline and the conversion rates certainly support that. And so I would expect it will land at that approximately 12% growth for the overall year.
spk03: Got it.
spk09: Super clear. And just as a quick follow-up, regarding targeting faster, smaller lands, as the environment remains challenging, Can you shed some color on your progress here and what you're hearing from customers?
spk02: I think we've been pretty consistent throughout the whole year that says we're really pleased that we have the ability to do smaller lands. Maybe going back a year ago, I think there's some doubt that we can do that. But our products are very modular. We can land with Revenue. We can land with Billy. We can land with Zephyr. Or if a company chooses, we can land with the entire suite. And that's flexibility. has really been an important part of our growth story this year. So, you know, customers obviously appreciate that, right? Customers, when, you know, whenever you give customers choice, when you give customers flexibility, it's something that they're going to value. And we've been able to translate that benefit into our growth this year.
spk03: Thanks.
spk06: Your next question comes from the line of Jacob Steven from Lake Street. Please go ahead.
spk11: Yeah, hey guys, thanks for taking my question. I just want to focus on the quick land deals as well. You know, when you think about kind of the ARR growth rate you alluded to in FY25, you know, how are you thinking about these deals factoring in to that growth rate?
spk02: Yeah, I mean, that gives us optimism that we can continue this path. I mean, one of the things I alluded to on the call is, look, there's two dominant growth strategies that we're starting to see the best companies in this description economy use. One of them was consumption. It's certainly something that we've done in our pricing model since the beginning. The second one is what I call strategic unbundling. Bundling, I gave an example. That was a B2C example with the New York Times. A big, big part of their growth story is the fact that you don't have to subscribe to the entire newspaper anymore. You can start with games. You can start with news. You can start with sports. It's the same analogy applied to a B2B SaaS company setting. You can start with us with revenue. You can start with Zephyr. You can start with billing. And, you know, I think any company that's not really using these strategies is going to be at a disadvantage. And I would say that our technology is a big, big, important part of allowing any company, B2B or B2C, to do this. And so we certainly want to be the best examples of that in terms of how we use our own technology. And that's what you're hearing us talk about on this call.
spk11: Got it. That's helpful. And maybe just kind of help me understand the, um, you know, timeline for SI partners implementations kind of versus your, your internal team. What's the difference there?
spk00: I think the, um, you know, the main thing is we really focus on being partner first. I mean, I will continue, uh, doing aspects of it. Again, but look at the part of the moment, the source pipeline, He continues to build that. Google Fiber was a great example, right, where they came in and an SI sourced it. They were able to help us all the way through that process as well. And, look, we keep on. We will, you know, push implementation work to our SIs. And we will make sure that they are focused on that too.
spk12: Yeah, I think the other question, Jacob, maybe you're asking is from a timeline perspective. And I think what we've seen, as Robbie said, is, you know, we're partner first. we're just seeing more and more of our pipeline. Some of the big deals that closed that were new deals during the most recent quarter, or even expansion deals were brought to us by partners and our, um, Our preference is, hey, if the partner is wanting to do the implementation, that'd be our preference to do it. We certainly have a services business and are capable of doing it. But as you know, that's a break-even business for us. So we're more than happy for someone else to take that. So as we said, next year, we're about 11% mixed right now. Next year, we'll probably be about 10% mixed. So we're happy to see our partners continuing to take on more and more of that business.
spk11: Yeah, it makes sense. Well, that's all I had. Congrats on the the scale here, guys. Appreciate it.
spk06: We have no further questions in our queue at this time. And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
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