Zuora Inc

Good afternoon. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Zora fourth quarter fiscal year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker marks, 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 your question again, press the star one. Thank you. Luana Walk, Vice President, Investor Relations. You may begin your conference.

Thank you. Good afternoon and welcome to Zora's fourth quarter fiscal 2024 earnings conference call. On the call, we have Team Zora, Zora's founder and chief executive officer, and Todd McElhaden, Zora's chief financial officer. Robbie Trauber, the 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 view 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 on the material risks and other important factors that could affect the 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 in today's press release. Our 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, Dean.

Thank you, Luana, and thank you, everyone, for joining Zora's fourth quarter fiscal 2024 earnings call. I'd imagine there are quite a few questions based on the information we shared in our filing a few weeks ago. You all saw that our Q4 ARR growth fell short of where we were trying to land. We'll go through the details of the quarter, but the bottom line is this. In an uncertain year, we strengthened our position in the marketplace by focusing on what was in our control, namely, accelerating new logo acquisition, continuing to innovate our market-leading multi-product portfolio, investing in the success of our customers, and delivering balanced growth and profitability. For the full fiscal of 2024, subscription revenue was within the high end of guidance. at $383.4 million, up 13% year-over-year. ARR grew 10.4%, falling short of we were hoping to land. And the trailing 12-month DBRR ticked two points lower, primarily from one large term, which I'll talk about later on the call. At the same time, non-GAAP operating income improved by over $44 million year-over-year, exceeding the high range of our guidance by nearly $3 million, a big, big highlight for the year. And our adjusted free cash flow improved $72 million year-over-year, allowing us to generate over $44 million of cash in a year. In Q4, we also saw the biggest year-over-year increase in new logos that we've seen in eight quarters. And in the quarter, nearly 60% of our customers who renewed in Q4 actually increased their spend with us. To put all this in context, let's go back to the start of the fiscal year. Like many other companies, one year ago, we were seeing signs of a general slowdown in IT spending. Many expressed that the office of the CFO was an area that could be affected. And there's a general consensus that there was going to be a slowdown in the digital transformation projects that have driven technology spending over the previous few years. And so we adjusted. Specifically, we said we would do two things. First, as we've been highlighting in the last few earnings calls, we shifted to doing faster lands at a lower ACV. But of course, still focus on what we believe is the sweet spot of the markets, large enterprises and fast-growing disruptors. In other words, the leaders of today and of tomorrow. Second, we said we would strike a good balance between growth and profitability, and we committed to making progress towards the Rule of 40 framework. As it turns out, this was the right approach. As the year progressed, we did indeed see a pause in digital transformation projects. In FR24, we saw fewer seven-digit ATV new logo deals, and in Q4, we did see these deals continue to push. However, our strategy of pursuing smaller, faster lands allowed us to sign almost 30% more new logos in fiscal 24 as compared to the previous year. In fact, if you just look at Q4, we signed on over 40% new logos compared to Q4 of last year. And this is with some fantastic companies, including Sony Network Communications, who will be bringing on approximately 1.5 million subscribers. Or Infor. A global leader in business cloud software for industry-specific markets with over $3 billion in annual revenue. One of Europe's largest airlines. They selected Zora to scale their exclusive travel program with new strategic offerings. Or one of the leading brands of private member clubs and hotels with over 70 locations around the world. Or even a leading marketing SaaS platform used by 80% of the Fortune 1000. Fantastic companies all around. We also saw sales cycles shorten. In fact, when I look at new logo deals between 100K and 500K in ACV, these deals closed 25% faster as compared to FY23. Now, while this new logo strategy meant lower top-line growth, we also executed on our commitment to deliver balanced growth and profitability, and we did it by rapidly expanding our bottom line. In fact, we ended the year at 24 against the rule of 40 metric, which exceeded what we initially set out to do. When you net down the year, we executed on the strategy we set out at the start of the year. We were agile and able to quickly adapt to market conditions. We focused well on the things that were in our control, specifically profitability and free cash flow. And as such, we now enter FY25 in a stronger position. Now, what enabled the strategy, of course, is our differentiated technology and our amazing customer base. First, our products are built on a differentiated cloud architecture, one that I call loosely coupled but tightly integrated, meaning our customers can start with any of our products, but then as they add additional products and modules over time, everything just works together. So you can start with revenue or start with billing or Zephyr or payments and then expand within our portfolio. Here's just two examples from Q4. The first one is Toast, a leading restaurant technology management software company used by approximately 106,000 restaurant locations with over $3.9 billion in annual revenue. Now, Toast was a Zora revenue customer, and in Q4, I'm proud to say that they added Zora billing. Toast needed an enterprise-grade monetization platform that can keep up with their rapid growth and a flexible solution capable of managing their dynamic business models. The second example is the Globe and Mail, Canada's leading national news brand with over 6 million monthly users. After going live with Zora, building in Q4, they added Zephyr to help them accelerate the growth of their digital news description through greater pricing and bundling flexibility. Second, we put a lot of work this year into shortening our deployment times to get our customers live on our monetization technology even faster. For example, you might remember early in the year, we announced a new deal with Telus Corporation, Canada's second largest communications technology company with more than $20 billion of annual revenue. And in Q4, they went live in just around 90 days, which is pretty amazing. Fourth, the Associated Press, an independent global news organization that reaches 4 billion people every day. In Q4, they went live on Zephyr with its new donations capability as they continue to grow their direct-to-consumer offering. Third, our product is sticky and allows our customers to grow with us. This past year, we had the best retention rate since we went public. We are at the core of what our customers do. And once we are live, we become an important part of their DNA. And we've seen that when we sign on a new customer, they become a long-term growth engine. As we look at our cohorts, even after five years and beyond, these companies continue to show consistent growth with us. And this is why we describe ourselves as a long-term, durable business. In fact, we saw it in Q4 when the leading CRM platform renewed with Zora Billing. And over time, as our customers, they have increased their billing volume by over 8x. Or after a longtime customer, Bridgestone, the world's largest tire and rubber company, acquired Azuga's fleet management platform, they expanded their work with us. In Q4, Azuga went live on Zora to power its software solutions as Bridgestone progresses towards their goal to drive 20% of their revenue from recurring services by 2025. Finally, we have a proven committed field organization, which in my biased view is the best in the industry to help ensure our customer base continues to benefit from our technology. And here's how we saw this come to life last year. Our customers with multiple products, as well as our highest ARR accounts, they have the highest level of customer satisfaction. Our customers say our platform is flexible and powerful, but still easy to use. In fact, one of our top 10 customers recently awarded us as their top innovation partner, recognizing how our innovation enabled them to introduce new licensing metrics that drove a greater impact on their business. So now let's look forward to FY25. The headline is, we remain committed to our strategy of faster, lighter lands and adding great new logos to our install base. This is the right strategy and over the long run, it makes us a stronger company. Let me highlight three areas that we are focused on of improvement and one potential area of opportunity. First, Unfortunately, there are two large churns that are affecting our revenue growth for this upcoming fiscal year. It's important to call out that we do not believe these indicate a broader trend across our business, but I believe it's important to highlight to you all. The first instance we saw in Q4 was a large customer that had experienced macro headwinds in their industry and they faced digital transformation and budget cuts. It's important to note that this customer was not yet live. That being said, as we reflect on what we could have done better, we do believe that faster go-lives will continue to reduce the likelihood of these events. And so you will see us continue to focus on this area. The second one is a change that we are going to see in Q1, and this is factored into our guide. This is a company that signed on a number of years ago, and they had a digital transformation vision that unfortunately has not yet become a reality, and their processes are still very much traditional one-off transactions. Now, these anomalies do not change the strategy we have in place, but they do highlight the continued need for us not only to close the right type of customer, but also continue to focus on reducing time to go live. Second, another area we are working on is what I'll call consumption billing. Now, we've had consumption billing since day one. But, of course, we cannot rest on our laurels. In fact, we believe as more technology companies adopt AI, artificial intelligence, they will need to shift more of their pricing model to consumption-based pricing models. And so you're going to see this is an area that we will double down on. And I'm pleased to announce that since we launched advanced consumption back in June, we've had over 40 customers purchase the product, including seven go-lives. Third, fiscal 25 you're also going to see us continue to focus on improving our go-to-market efficiency you're going to see us leaning into higher quality demand generation and efficient pipeline capabilities and we've made changes in our marketing and alliances leadership to drive this we will continue to invest in our partnerships with leading system integrators to help us down this journey the last thing is the potential opportunity and it's around the office of the cfo When you look at the horizontal application stack, almost every application area has gone into the cloud with one big exception, and that is a company's core ERP systems. Now, most people will say that at some point in the future, a trend has to kick in to move ERP into the cloud. And obviously, when that happens, we believe this is something that will benefit us. Now, we're not saying it's going to happen this year, and we're not going to fill that into our plan. What we are going to do is continue to focus on signing on some great new logos with the confidence that this will only make us stronger if and when the market for ERP projects reflect. To summarize, as I look back on fiscal year 24, the strategies we put in place at the start of the year have put us in a good position for fiscal year 25. We will continue to add new logos at a faster pace. We will continue to invest in our market-leading multi-product portfolio that has been proven over and over again to be critical for driving success with the recurring revenue models. We will continue to invest in amazing customer success, and we will continue to commit to delivering balanced growth and profitability. Finally, I want to thank all of our CEOs that contributed to our success in FY24. We would not be who we are today without your vision and your commitments. With that, I will pass the call over to Todd to review our financials.