Good afternoon. My name is Chantal [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora Fourth Quarter and Full Year Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator instructions] Thank you. I will now turn the call over to Joon Huh, VP of Investor Relations. You may begin your conference..

Thanks, Chantal [ph]. Good afternoon and welcome to Zuora's fourth quarter and full year fiscal 2019 earnings conference call. Joining me today are Tien Tzuo, Zuora's Chief Executive Officer; and Tyler Sloat, Zuora's Chief Financial Officer.

The purpose of today's call is for us to provide some color on our fourth quarter and full year results, as well as provide our financial outlook for the upcoming quarter and fiscal year 2020. Some of our discussion and responses today will include forward-looking statements.

So as a reminder, our actual results could differ materially as a result of a variety of factors. You can find information regarding those factors in the earnings release we issued today, and the most recent 10-Q filed with the SEC. Now, I do want to call out one item for this quarter and that's ASC 606.

As of February 1, 2019, we've adopted the new revenue recognition standard, ASC 606, and we're adopting it using the full retrospective method, and we're using our own RevPro product to do so. To make sure you can do the year-over-year comparisons, I want to highlight a few points on the full retrospective method.

First, we're providing the historical numbers under ASC 605 today. Second, we're giving our forward-looking guidance under both, ASC 606 and ASC 605. And third, starting next quarter, there will be no more ASC 605, we'll only present numbers under ASC 606. We'll also provide all the retrospective numbers under ASC 606.

This approach will minimize the time where you have to deal with two sets of numbers. Finally, we'll be referring to several non-GAAP financial measures today, and reconciliations to the related GAAP measures are included in our earnings release.

For a copy of our earnings release, links to our SEC filings, a replay of today's call, or to learn more about Zuora, please visit our Investor Relations website at investor.zuora.com. And with that, let me turn the call over to Tien..

Thank you, Joon. Welcome to our fourth quarter and our fiscal '19 earnings call. Q4 was another strong quarter and a fantastic finish to the year. We grew our subscription revenues by over 35% year-over-year as we continue to execute against our business model, and our total revenue now puts us at an annual run rate of over $0.25 billion.

This is also our fourth call as a public company. Yes, it's now been almost a full year since we went public, and what a difference a year makes.

Most of you know our vision; it's a vision of the future that we call the subscription economy and our claim that the limitations of today's ERP systems in this new world has created an opportunity for us to build a long-term durable multi-decade growth company.

Today, I can say unequivocally, that we are more confident than even just 12 months ago that the subscription economy will become the business model for all companies that we've only extended our leadership in delivering the technologies required for success in this new world and strengthened our competitive mode against the entrenched ERP players.

I'm excited to share with you today, my reflections on the past year, to put what we've seen this quarter including our financial performance in a context, and to share with you some thoughts on fiscal 2020, our upcoming year. But before I start, let me first hand it over to Tyler to cover the high level financial results..

Thanks, Tien. Tien mentioned, we had another solid quarter. We now have 4 consecutive quarters of consistently delivering strong financial results as a public company. I'll go into further detail later in the call, and also provide our initial outlook for the upcoming year but for now, let me provide some quick highlights from Q4.

We grew subscription revenue by 35% year-over-year to $46.7 million. We grew total revenue by 29% year-over-year to $64.1 million. Non-GAAP operating loss was $11.6 million, coming in ahead of our guidance and expectations, and all this led to non-GAAP net loss per share of $0.11.

We delivered another quarter of solid results above or at the high end of our guidance range across all of these metrics. A couple of notable items that we are seeing. First, our deal sizes are getting bigger. We signed more than 30 new deals over $250,000 in the past year, up nearly 50% from the prior year.

Second, customers are putting more of their business on our platform. In Q4, transaction volume through our billing system grew 56% to $10.8 billion. I mean, our customers now rely on us to process over $40 billion of annual subscription billings. All this indicates that subscriptions are becoming more strategic to our customers growth strategies.

One thing we've always said is, as a system of record for subscription management and revenue automation, our performance is essentially a portfolio of the entire subscription economy. We expect to continue to benefit from the shift to subscriptions as we become more central to our customers business models and long-term growth.

Now, let me turn it back to Tien to talk about what we've been seeing over the past year..

Thanks, Tyler. I've said it before and I'll say it again; what a difference a year makes. When we first went on our roadshow 12 months ago, many investors hadn't yet given much thought to the idea of subscriptions.

Subscriptions they thought were only limited to just SaaS companies, companies like [indiscernible], Docusign or Hub Spark or [Zoom] [ph], maybe a few streaming media companies thrown in. But today everywhere you look the topic of subscription seems to be popping up all over the place. Jim Cramer talks about it on CNBC.

Jim Hackett at Ford is talking about it. In the last quarter, IKEA announced that they were letting you subscribe to furniture; Philips announced you can now subscribe to toothbrushes, in fact just last week even Burger King announced a subscription program.

On our last call you heard us say we are behind the connected car initiatives, the 6 of the Top 10 auto-manufacturers around the world. This quarter, we added yet another. So now we're powering 7 of the Top 10 connected car initiatives. On our last call you heard us talk about the media sector of how we landed in this industry 8 years ago.

We called the ship early, and since then our growth from the sector has averaged 35% a year for the past 7 years and now represents approximately 13% of our revenues.

Well, you may have noticed that we've recently announced that we're working with a new sports streaming service from Fox Sports in Australia called Kayo dubbed locally as the Netflix of sports, and there is many more to come. In the last 12 months we've seen the subscription market expand internationally.

In Q4 we have fantastic subscriber conferences in Milan, in Tokyo, and even in Munich with companies like Volkswagen and [indiscernible] Battery. Now, I know you guys like to make fun of me when I talk about my book, Subscribed; but in Japan, the book is actually on it's 8th printing.

Now this all just speaks to the fact that there is a real global appetite for the best companies in the world on how to learn and how to build successful subscription businesses. Now I do believe however that it's still early days. Some companies have gotten it, some are getting it, some have yet to join the revolution.

Not every subscription service is going to be successful.

For every Spotify, or Kayo, there will be subscription ideas that don't quite stick but when subscriptions work, boy, do they work! You may know that we publish twice a year a subscription economy index and the latest one from the fall shows that over the past 7 years subscription businesses grew their revenues 5x faster than the S&P 500 with Europe actually growing slightly faster than North America, and IoT exploding as a new emerging vertical.

I encourage you to go ahead and download the full report for all the details. And here is the thing, the secret to that growth, well it turns out the best subscription businesses are built around dynamic customer relationships.

Tying your pricing model to usage or users and driving greater and greater engagement from your subscribers, this is what leads to growth. And how do we know? Well, it's in our data, it's in the $10 billion of quarterly transaction volume as we see.

In last fall, we reported that our data science team sifted through this information and has found that subscription companies that employ usage based billing models actually grow 50% faster than companies without usage based billing.

And subscription companies that average just one subscriber change per subscriber per year, think of a renewal and add-on product, more users or change of plans, these companies actually grow 3x faster than companies that have seen no changes at all.

Now, it turns out you guys actually know this; it's actually -- this is what you love about SaaS companies. SaaS companies are able to grow with their customers, this is how they deliver positive net dollar retention rates, and this is why ERP system simply do not work.

Yes, maybe in the short-term you can hack an ERP system designed for shipping product and make it work if you simplify your business, but then, you sacrificed growth.

ERP system simply cannot keep up with a business model that depends on dynamic customer relationships that are constantly active and constantly changing, and this is why we've seen company after company coming to Zuora because we have built a unique set of technologies; Ricoh, Kayo Sports, eMoney at Fidelity, WorthPoint.

We are the only game in town if you're looking for a complete end-to-end subscription platform including billing and revenue recognition. In Q4 we're pleased to say we added Shutterstock, Fiat Chrysler, Cannon, Harley-Davidson and Newstar amongst our customers. And our lead on the competition continues to grow.

In this past year we've launched new billing and revenue capabilities, we've launched an entire orders module and advanced invoice settlement capabilities, workflow and much, much more.

We've even launched a new product that we call Collect which target as an add-on product into our installed base which helps B2C companies recover lost revenue from credit card declines. Today we already have over 50 customers on Collect.

We have one customer recover over $700,000 in just 3 months and so you can see the ROI on this product means that it pays for itself multiple times over. And the market has recognized our leadership. In the past year we continue to come out on top in every third-party evaluation. Forrester’s Wave for recurring customer billing management.

IDC’s MarketScape for subscription relationship management, or MGI’s most recent report on agile monetization solutions, we are on top every single time and our lead is only growing wider. And this continues to translate into the growth of the company.

A year ago we just had over 900 ZEOs, today we have over 1,200 and we put a lot of new feet-on-the-street, opening up brand new offices in Stockholm, Milan and [Melbourne] [ph]. In the past year we were also recognized twice as one of the best places to work by both, Glassdoor and the research firm, Great Place to Work. Our ZEOs are awesome.

We're involving our communities with ZEOs working for veteran's causes, for the disabled, for climate change and for LGBT rights. We’ve also funded a foundation to support charitable causes which we'll be talking more about in the coming months.

Finally, I want to share with you a story that I really think cements why I'm so bullish on the opportunity ahead. It's a story about a company that was founded well over 100 years ago. It's a story about multi-billion dollar hardware manufacturing company that sells point of sale terminals among other things.

But what's exciting is that this could be a story of just about any company. Now back in 2011, like a lot of other manufacturing companies, they were facing shrinking margins, commodification, as well as competition from new startups. The product-based business model simply wasn't working.

But here was the silver lining, when they spoke to their customers, they realized their customers wanted something different. You sell us a product their customers said but you also sell us a service contract and you take care of the equipment; why can't we just subscribe to the whole thing.

And so they launched essentially a hardware driven SaaS service which grew pretty quickly, and that's when of course when they started working with us putting us in between salesforce as a CRM, and Oracle as their general ledger. Starting off as an account worth probably between $200,000 and $300,000 to us.

Now fast-forward 7 years, today that business has now grown to 10% of their overall revenues, and given our business model, they are now easily a multi-million dollar ACV account.

But more importantly, what they are telling us is hey, we’re already 10% of our revenue is on you, that's the part that's growing fastest and we need the other 90% of our revenues to work just like that 10%.

So, why am I excited about this? Here is a manufacturer that's been around since the 1800s and subscriptions are now absolutely central to their growth strategy, and I think this story could easily apply to any company that's yet to make the leap to a truly customer-focused business model.

Just think of all the thousands of big manufacturers out there that are still selling products off-the-shelves to strangers, the stakes are very high for these companies; they are seeing a lot of digital disruption in the marketplace.

So when I look past on the year and I think about the story, what does this all mean? We are seeing the long-term opportunity for Zuora is absolutely enormous.

We may be in the early stages, the vast majority of business models have had to eventually transition to subscriptions, some faster and more effectively than others but we believe this will happen. And for the ones who get it, they are achieving growth rates that are changing the game against their competition.

And in the end, they choose us because they see our knowledge, they see our customer base and the over $40 billion of annual transaction volumes that we're already processing, and they see the competitive advantage that our technology brings and how we can help them extend their lead into the future.

This is why I could not be more excited about the year and the opportunity ahead. Now, let me turn it back over to Tyler to talk how our business progress and product momentum is reflected in our operating and financial metrics..

Thanks, Tien. It's clear we're making progress on the huge opportunity ahead of us. I'll start by reviewing our key operating metrics, then our financial results and I'll finish with our outlook for Q1 and fiscal year '20.

For our key metrics we saw healthy growth of 27% year-over-year in our key customer metric of customers with $100,000 of ACV or more. During Q4 we ended with 526 customers with over $100,000 of ACV increasing by 22 over Q3.

This customer base continues to drive the vast majority of our business as it now represents over 85% of our annual recurring revenue. Turning to dollar-based retention, as expected, this key metric ended in 112%, this is at the high-end of the range we mentioned on our prior calls.

We've clearly made good progress on dollar-based retention over the past several years and we're pleased with where we ended up for fiscal year '19.

Given the seasonality of our business we may see quarterly fluctuations in dollar-based retention but we continue to believe that 108% to 112% is the appropriate long-term range for our business, given the nature of how we land with our products and the steady expansion that we see with our customers.

Let's talk about where our ACV growth came from this past year. During a roadshow we said that in fiscal year '18 roughly half of our ACV bookings came from new logos while half came from upsell. We also said that roughly 40% of bookings or 80% of the upsell was from transaction volume.

In fiscal year '19 we saw very similar 50-50 bookings mix between new logos and existing customers which we think is healthy. For the existing customer bookings, we did see a shift towards product add-on sales which we view positively as well since this shows our add-on strategy is working.

Now turning to transition volumes, our business model is designed to allow us to land with a meaningful recurring revenue from the beginning but also grow as our customers experience growth.

As we have mentioned, we have a mix of customers who are just starting their subscription economy journeys like the auto industry, and those that have been built from the start to think about subscriptions like SaaS. Regardless, for all of our customers our software becomes a mission-critical system of record for their customer transactions.

We talk about transaction volume because it demonstrates that our customers are using us to run their businesses, as well as an indicator for our capability to continue to experience growth through that usage.

As I mentioned earlier, we processed over $10.8 billion in transaction volume through our billing platform in Q4 which was $2 billion above prior quarter levels and represented 56% growth compared to the prior quarter.

Much of this increase was driven by a few large customers that were deployed in Q3 but really started moving meaningful transaction volume through our systems in Q4. And on a full year basis, transaction volume showed a steady increase to 45% growth compared to 42% growth from the prior year.

Now let's talk about how all these operating metrics translate to our financial results. As Joon mentioned at the beginning of the call, we ended fiscal year 2019 on the historical revenue accounting standard, ASC 605. As of February 1, 2019, we've adopted a new revenue standard, ASC 606 and we report our fiscal '20 figures under ASC 606.

I'll talk about our Q4 full year 2019 results on this call according to ASC 605 but we'll provide forward-looking guidance according to the new standard. For comparative purposes, in our earnings release we also provide Q1 and fiscal year '20 figures as if we were still under ASC 605, as well as a reconciliation between the two.

Next quarter we will also publish a full retrospective under ASC 606 for comparative purposes. Now for Q4, total revenues grew 29% to $64.1 million driven by strong subscription revenue growth of 35%. Professional services revenue grew 13%.

You may recall from previous earnings calls that in the second half of our fiscal year '18, we saw demand for our professional services related to helping our ASC 605 customers adopt ASC 606.

But since this was not related to new business supplementations, our professional services revenue in those periods were higher in what we would consider our normal run rate. This demand was highest in Q3 and Q4 of our fiscal year '18 and has resulted in lower year-over-year compares with professional services growth rates.

In Q4 of fiscal year '18 we recognized $2.3 million of professional services revenue related to this activity. But the professional services related to these migrations was only $500,000 this past Q4. This amount has continued to dissipate each quarter and we expect it to have a minimal impact going forward.

Looking at the full year, total revenue grew 40% to $235.2 million with both subscription revenue and professional services revenue also growing at 40%. Over the past year we have been asked what the organic growth rates were for our business, excluding the impact of a Leeyo acquisition or RevPro product.

Although we're not planning to provide a lot of detail, our annual organic growth excluding RevPro was healthy in over 30%. Turning to margins, non-GAAP subscription gross margin maintained a consistent rate of 78% for both Q4 and the full year.

We are happy with this number and although we expect to realize more improvements over time, there may be slight fluctuations in Q1 as gross margins are impacted by the lower number of revenue base in the first quarter. In Q4, non-GAAP operating margin was negative 18%.

For the full year, non-GAAP operating margin was negative 20%, as this was a big investment year for the company across all functions including G&A as we need to build the operating infrastructure to support being a publicly traded company.

We're focused on growing [indiscernible] business, and as we scale, we expect to gain leverage in our operating model. Compared to Q3, we maintained our efficiency in sales and marketing spend as measured by our GEI or growth efficiency index at 1.9 in Q4.

As a reminder, our goal is to maintain or improve the GEI over time while achieving our long-term growth rates. We've made meaningful progress in our GEI over the past several years and we are pleased with where we are today. Going forward, we may see quarterly movements to this metric given the seasonality of our business.

Now let's move to billings; for billings we generally focus on the trailing 12 months billings growth because it's a better reflection of the business as quarterly billings can fluctuate. In fact, that's what we saw in Q3 and Q4 as we highlighted in our last earnings call.

We also understand that 12-months trailing numbers still impacted by the Leeyo acquisition made in May 2017. So for right now the trailing 6-months growth more accurately approximates our normalized billings growth. As of January 31, trailing 6-months calculated billings was $146.8 million or 27% year-over-year growth.

Using professional services revenue as a proxy for professional services billings, this results in calculated trailing 6-months subscription billings of $112.4 million or 33% year-over-year growth.

Going forward to fiscal year '20, we expect subscription billings growth to track similarly to our subscription revenue growth with Q1 billings growth approaching 30%. Over time, we expect 12-months trailing subscription billings to grow in-line with our long-term revenue growth rates of 25% to 30%.

In regards to cash flow, Q4 free cash flow is negative $9.8 million, similar to the prior quarter and for the year we did much better than our original expectations. For Q4, free cash flow came in better than we anticipated as the facility spend for our headquarters expansion was pushed into this fiscal year.

Speaking of which we entered into a lease agreement for our new headquarters. This space will allow us to consolidate two of our bay area offices and expand our operations to better handle our future growth and help us lower our real estate cost per employee over time.

However, this year we expect that this will increase operating expenses by $4.5 million and increase the use of cash by approximately $10 million which includes CapEx. These impacts will mainly be in the second half of the year.

Including the facilities related spend for the year, we expect our free cash flow to be negative $42 million for fiscal year '20. If you exclude the facility spend, our normalized free cash flow will be negative $32 million, that represents a $5 million improvement from last year.

We enter fiscal year '20 with approximately $180 million in cash and investments, and as a reminder, during our roadshow we said we were 3 years to cash flow breakeven. We're still on-track to reach that goal of 3 years remaining and are fully-funded against our current operating plan.

One other item to note for your models, our fully diluted share count as of January 31, 2019, was approximately 124 million shares using the treasury stock level..

So netted down, we feel really good about the past year, we're scaling our business and getting more efficient while we're doing it. But of course, don’t assume that we'll have the same improvements every quarter, there will be some movements from quarter-to-quarter.

Tyler, should we turn now to guidance and future expectations?.

Yes, sounds good. As a reminder, we are now reporting our results under ASC 606. In our earnings press release, we provided a comparative table that shows the differences between ASC 606 and ASC 605. But before we get into guidance let's talk about those differences.

Our expectations are based on the preliminary estimates as we have not yet completed the historical ASC 606 prior year audit process. KPMG, our external auditor, is working on this as we speak and this will be completed prior to our Q1 earnings release. So what's the impact? The headline is, we do not view the differences to be material.

We also expect the year-over-year subscription revenue growth rates to be similar under ASC 605 and ASC 606. Under ASC 605, our fiscal '20 guidance forecast subscription and total revenue growth rates of 28% and 26% respectively. And of course, this adoption has no impact on cash flow.

The revenue differences we outlined in the press release are primarily caused by; first, historical business practices from the Leeyo acquisition which included term license conversions and pricing amortizations. And second, reallocations of subscription revenue into prior periods of professional services revenue.

The operating loss differences are smaller or negligible as it changed to commission expense amortization under ASC 606 largely offsets the revenue impact.

For Q1 we're estimating $1.5 million of impact to subscription and total revenues with approximately half of the impact coming from historical business practices of Leeyo and half from reallocations of subscription revenue. For operating loss, we expect a smaller impact of $500,000. For fiscal year '20 the impact is smaller -- is similar, sorry.

We're estimating a $5 million impact to subscription revenues with half of the impact coming from historical business practices of Leeyo and half from reallocations of subscription revenue. We expect a $4 million impact of total revenue and very little impact to operating loss. Now for guidance under ASC 606.

For Q1 we are currently expecting total revenue of $63.5 million to $64.5 million. Subscription revenue of $46 million to $46.5 million. Non-GAAP operating loss of $15 million to $14 million. And non-GAAP net loss per share of $0.14 to $0.13 assuming weighted shares outstanding of approximately $108.5 million.

For the full year fiscal '20 we're currently expecting total revenue of $289 million to $293.5 million. Subscription revenue of $209 million to $211.5 million. Non-GAAP operating loss of $49 million to $45 million, and non-GAAP net loss per share of $0.44 to $0.40 assuming weighted shares outstanding of approximately 110.1 million.

Factoring in the seasonality in our business and the timing of spend throughout the year, we expect to see similar levels of operating loss in the first two quarters with improvements in the second half of the year. All right, now let me turn it back over to Tien to talk about our focus areas for the upcoming year..

Thanks, Tyler. So we're comfortable we have [indiscernible] for the future. The first thing I'd say is, I will love to invite everyone of you to our flagship user conference Subscribed in San Francisco on June 4 and June 5. You know we run these Subscribed conferences around the world and throughout the year but San Francisco is the big annual one.

On the second day of the conference will also be holding our very first Investor Day for analysts and investors. We're looking forward to it and hope to see you there; this is where we will give an update on our strategy, both on the product side and the go-to-market side. But for now, let me give you a quick preview.

First, we plan to continue to land -- to execute our land and expand strategy in our core verticals like technology, media, auto, manufacturing while keeping an eye out on emerging industry shifting to the subscription economy. Second, we'll also continue to expand our SI Partner network.

We saw steady progress in partner-led deals throughout the year, and we expect that to grow this year. Third, of course, we're not resting on our laurels. We have a big vision and we will continue to invest in extending our technology leadership. To give a hint as to where we want to go, don't look at Oracle or SAP or other ERP systems.

Now those of you that know the telecom space know that the telcos run on what they call a BSS-OSS stack; these systems are at the center of their business operations, from the moment the service is ordered through the billing and the revenue recognition out into the general ledger.

The subscription economy essentially means that every company is becoming a service provider which means that they all will need the modern equivalents of a BSS-OSS stack, one designed for dynamic customer-centric business models.

We built the subscription management platform that can apply to any company and any industry around the world and we are just at the very beginning of this journey. And finally, we will continue to invest for growth. You can see from our office expansions and our headcount that we're making investments, particularly in our field organization.

We're adding sales and marketing talent in order to put feet-on-the-street and talk to all the companies that are making the shift to subscriptions. And as Tyler can attest, we're also being very disciplined and thoughtful in how we're managing these investments as we scale and grow the business. And with that, we're happy to take your questions.

Joon?.

Chantal [ph], I think we're ready to take questions from our callers.

[Operator Instructions] Your first question comes from Scott Berg with Needham..

Congrats on the good quarter. Two questions here. One of the metrics that Tyler talked about was new deals, especially over 250K that were up more than 50% year-over-year, there is [new land] [ph].

Can you help us understand maybe what's driving that growth because that's significantly faster than your -- than the company subscription revenue growth?.

Yes. I mean, if you look at that stat and you couple it with just the amount of transaction volume that is going through our system I think what it really signals and what we see is the maturity of the subscription economy.

Yes, it's early days, there is so many more companies that still have to shift but the ones that are doing so are seeing that this shift drives growth and drives competitive advantage and they are treating these project seriously, compared to say maybe 5-6 years ago where it was more of a science experiment, now they are absolutely committed to it, they see that this is the future and then they are putting a lot more investment dollars behind these type of projects..

And then I guess from a follow-up perspective, one of your initiatives this year is to expand your partnerships with the system integrators out there. In our work we've seen that they've been an integral part of your business to-date.

I guess what more can they help you with going forward? And from a historical context, any color in terms of what they've impacted your new bookings historically? And then how should we think about that opportunity maybe going forward?.

I think this is one of the areas that we hope to drill into a lot more in June and the Investors Day but there is no doubt that these are digital transformation projects and we're really, really important component to it.

But there is a whole host of other things, right, there is changed management, there is go-to-market strategies, rethinking your salesforce, rethinking your back office and processes. And so these SIs are already talking to the best companies in the world about their digital transformations.

And so we're already working with them, and so obviously, if they are going in there and we're embedded into their stack very much like Deloitte embedded us into their manufacturing stack that they announced in Dreamforce a few months ago, that is going to be a much easier sales cycle.

And so regardless, we do see system integrators becoming increasingly important to us, we see them as core-core partners in helping companies shift to the subscription economy and you should see us talking a lot more about this going forward..

Your next question comes from Richard Davis with Canaccord..

Two quick questions. One, your new customers. I remember you guys were talking about helping your clients kind of anticipate and proactively reduce churn and [indiscernible] churn, if you can reduce churn, it's like really good incremental margin.

So A) how is that going? And B) Tyler, can you remind us again kind of, of the cohort analysis for you guys because one of the questions we get sometimes is what happens in kind of years two and three in terms of profitability of your various cohorts? Thanks very much..

We have 10 years of data now with some of the best companies in the world, this is the $40 billion plus that we're doing on an annualized basis of billing volumes and so we're sitting on a gold mine of information, insights and data.

And you're starting to see see us really mine this information, and so some of the stats that I refer to on the call was really to hark back to that, we have a team of data scientist and they are looking into it.

And not just looking at what's driving down churn but what's driving growth, right, they are two sides of the same coin and applying less is where we call these our SEI benchmarks if you will but this is what customers are hungry for, right, seeing what type of pricing models work.

Should I do usage based pricing models or not? And why do I want to drive customer interactions back versus the old sell it and forget it models, right.

And being the show that, look, this type of customer -- company grows 2X faster, this type of company grows 3x faster, this type of company grows 50% faster has been an amazing source of data that our customer base really values and we're going to continue to publish these types of things.

And then, obviously, we mentioned they turn into automated tools that they can run for themselves..

I'll take the second question there, Richard. So from a cohort analysis, clearly, on a net retention perspective, at 108% to 112% range, our entire customer base is growing and we've talked about that. We've also talked about how this is really an efficient growth for us because we've designed our pricing model, it allows us to grow as they grow.

And transaction volumes have been historically one of the biggest drivers of that. We did mention that we have a little higher mix now of our add-on products and that strategy is also working which we're really excited about now.

Within that whole mix of customers, we have sensed some customers that we can land pretty heavy on, but their subscription economy businesses might actually take a little while to grow and we mentioned today like auto might be an example of that, right.

So we get to grow with them maybe through add-on products and some slight transaction volume but we're really in it for the long game.

Where we have other customers that are growing really, really fast and then that transaction volume upsell comes in a lot earlier, and -- so we have this whole portfolio that we get to go, enjoy and actually be a part of across all these different industries..

Your next question comes from John DiFucci with Jefferies..

Tien, these results look good, metrics were strong across everything, deal size, momentum, transaction volume. Your subscription revenue did decelerate a little bit against but this is the most difficult comp of the year.

I guess was there anything in the quarter that hasn't been mentioned regarding the business momentum that we should be thinking about? And the reason I asked, I mean, listen the stock market moves in all different ways and I can't predict it but the stock is down like 11%, and I'm just wondering what people are thinking about? I'm just wondering if there is something missing..

When I look at the last quarter, I see nothing but enthusiasm and excitement. And when I look at the past year, everything that we've really talked about and since the roadshow, the last four quarters with you and our other investors, it's all coming to fruition, right.

I think the governing factor for us is going to be the growth of the subscription economy itself. And -- but the important thing for us is, we're becoming increasingly strategic to subscription economy, we're seeing more and more interesting companies enter the subscription economy.

We are really the only choice when it comes to putting the platform to drive that growth and companies are increasingly realizing why we're so important, right, why ERP systems are simply not sufficient to deliver on these growth strategies or everything we talked about the usage based billing models, the number of customer engagements, these are the things that all break ERP systems and everything we've seen in this past quarter is a reinforcement of everything we've said.

And so we're really excited, we thought it was a great quarter and we're incredibly excited about the future..

And then, Tyler, for the guidance, that sort of difference between 605 and 606, especially with the -- in the subscription numbers, you mentioned sort of Leeyo subscription reallocated under 606 versus 605.

Can you explain that a little bit more because it was my understanding anyway that any true like SaaS revenue, SaaS subscription wouldn't really be affected by 606 although I think RevPro is probably better at it than I am.

Can you just expand on that a little bit as to why that's different?.

We've said about half of the differences were coming from historical selling practices from the Leeyo business before we bought down and then half was through allocations, the reallocations.

The historical business practices were really term license deals that were sold before and then kind of ramped deals that had no real difference in the price -- in the value per year but differences in the durations.

And those term licenses are just like any other kind of perpetual software which we don't sell anymore, these were a long ago, all the revenue gets pulled forward..

We were catching a company that was bootstrapped into the middle of an on-premise to cloud transition. And so the immediate thing we did was stopping on premise sales, right, but being a small company, unfunded, they still had customers that said, look, we'll take it on-premise just in case, all right, something happens to your company.

And all that disappeared when we acquired them, so these are just legacy contracts, we're converting as many of these guys over and over to cloud contracts.

We obviously don't do that in our core business and so that's why Tyler called out, we don't really see this as material, these are one-time reallocations that affect all years and they don't change the outlook of the company in any material way..

Obviously, there is no change to cash flow either, and economically, we see there is no change.

The other thing John is that, we obviously take 606 really seriously, we use our own product, and we're doing it down to the deal level which is the technical requirement, and when you do that you have these SSP reallocations from subscription to services, and so we can see that from the deal to deal level.

Now what we said is we think the growth rates are going to be similar because when we publish our kind of -- full retrospective last year's numbers, you will see little bit of difference in last year's number too. So we don't think it's going to impact the growth rates overall, either..

That's really clear and I forgot about ramp deals. So thank you very much guys and nice job..

Your next question comes from Stan Zlotsky with Morgan Stanley..

This is Hamza Fodderwala in for Stan Zlotsky. Just a couple of quick ones from me. It sounds like there is a really big opportunity out there with the subscription economy.

And Tien, where do you feel you are in terms of -- from a sales execution standpoint? What's left as far as sales hiring, where are you hiring, and particularly around aligning the existing RevPro sales force and the Zuora billing sales force, where are you there as well?.

We feel really good, I mean we have a whole team in place now that's taking our learnings of how to make this business model work.

And we have two big competitive modes, one is obviously the technology and the other we believe is just as important is our go-to-market expertise of how to engage with companies and how to help them understand what are the elements. You've got to remember that a lot of these companies are brand new to the subscription economy.

What we need to do is to temper it, on the other hand -- on the one hand, there is enormous amount of signals where you hear -- I hear Burger King announcing subscriptions and you say "Gosh, how far can this thing go." But a lot of these companies are kicking the tires and in the new stages and so we've got a fairly disciplined process where we need enough people, feet-on-the-street to talk to these companies.

But how do we make sure that we're engaging with companies that are ready to launch something, that have a good probability of success in their offerings, right, because ultimately, our revenue grows when these are big strategic projects, companies put their energies behind it and are committing to building a growing business and that's why I shared the story of that manufacturing company because I think it's such a perfect story for us.

But we've taken that knowledge, we've got a whole team that knows how to find the right folks, bring them onboard, we're doing a good job of hiring, we're doing a good job of [indiscernible], we scale this worldwide already, in the way it was important for us to break through the international learning's actually before we went public and so you're seeing our international business growing really, really well.

But we feel good about where it is, the question is just how do we continue to add feet-to-the-street but to do that in a disciplined way..

And then you mentioned international, that was actually my follow-up question. On the top of the call you mentioned you're seeing faster growth in Europe. What do you think is driving that? Do you think you’ve reached an inflection point in Europe in terms of subscription adoption because I think that's historically lagged the U.S.

So any color there would be really helpful..

Yes, I'll give you the color and maybe Tyler can give - share some numbers. There is nothing about the subscription economy, that's a U.S. centric thing, all right.

The subscription economy, whether you're a startup and you're looking to disrupt an industry and steal the customers or you're an incumbent with the customers saying I can do this transformation and build a different relationship with my customers, there is nothing about that that's specific to U.S. companies.

And so we're seeing fantastic traction internationally, we saw this early. And the other thing is, if you look at the macro thing is going on where every company is becoming a tech company, [indiscernible] U.S. tech, where tech companies have been dominated by the U.S.

But if every company is becoming a tech company then all companies around the world are going through that same transformation. So, I know we've said that international is 25% of revenues on the roadshow..

So now we did say international is about 25% of our business, now it's approaching 30% and it's growing really well. What's interesting is a lot of our international customers are making sizeable bets but they are not -- those bets aren't just for their local geographies, right, they are selling internationally themselves.

And so we're increasingly seeing that we're enabling companies no matter where we close them geographically to go sell around the globe..

[Operator Instructions] Your next question comes from Chris Merwin with Goldman Sachs..

So just in terms of transaction volume, I think we saw some really strong growth there, 56% year-on-year and then actually accelerated from 37% last quarter. If we look at net expansion, it’s still at the top of your range that you talked about longer term but it was down a little bit on a sequential basis.

And I know you monetized the volume-based upsell, so maybe could you just help us understand some of those moving pieces there, the acceleration and volume of the [indiscernible] expansion?.

When we talk about the transaction volume, not as a corollary to in-period upsell but really talk about it because of two things. One, it's an indicator that our customers are running their businesses on us and once that volume there it’s incredibly sticky, right. We are that mission critical system of record.

Secondarily, as it continues to grow, it's an indicator that we will have the opportunity to continue to grow with those customers now -- customers will typically buy transaction volume and subscribe to it before they use it, right, because if it was the inverse, they'd be going into an overt situation.

So it's not necessarily a correlator of -- like in the period of bookings, often times, so like we've said, some of it was driven by customers who deployed in Q3 and actually started putting meaningful transaction volume in Q4. So you could see that that could be a transaction that predates the actual volume being going through our system..

So, that's right. I mean, the essence of this company -- the bullet down is, this is the long-term bet that subscriptions will take over the world and John talked about stock price, right, but we're focused on where the stock price will be 3 years from now.

And so we like to show the transaction volume because it is a proof-point to the bet, the bet is that subscriptions are important, the bet is that the best companies in the world are going to shift to this business model, and this business model is working for them.

And so the combination is showing the transaction volume showing will be called -- the SEI, the subscription economy index show these companies are growing. It really gives us confidence and hopefully you all confidence that the shift is happening for real and we are a big, big part of that shift..

Just as a quick follow-up, also on net expansion. I think one of the things you mentioned in the prepared remarks that one of the drivers there was -- you were seeing actually an increased shift towards product add-on.

So maybe can you talk a bit more about that what products are seeing increased uptake and then it may become specifically on RevPro just in terms of what you saw there in the 4Q from a sales perspective?.

So the way we want you to visualize, we acquired a new logo. And because of what we do, the cost of sale of acquiring new logo tends to be higher.

And so we've complemented and that's why you get the 50-50 bookings with a team that engages with our installed base and we want to give them multiple avenues to grow our customers, to grow our footprint within our customers; part of that is volume, part of that is cross-sell, part of that is add-on.

One thing we did highlight this quarter was to collect product and I know this is a product we've talked about in previous quarters, we decided that look, it's time to share some information and so we talked about how that product is already in the hands of over 50 customers.

The current version of that product is primarily focused on our B2C customer base, as a reminder, we're probably the only company billing system that can focus on both on B2C and B2B; but we started with B2C customers, it's already got over 50 customers and delivering an enormous amount of value.

And so a combination of that, a combination of the cross-sell strategy, RevPro to billing and vice versa is really what's driving that shift..

There are no further questions at this time. I will now turn the call back over to the presenters..

Great. Thank you so much for joining us. We hope to see you the next quarter and at our Subscribed conference in June. Thank you..

Thank you..

This concludes today's conference call. You may now disconnect..