Good afternoon. And welcome to Zuora's Third Quarter of Fiscal 2022 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].

With that, I would like to turn the call over to Luana Wolk, Head of Investor Relations, for introductory remarks..

Thank you. Good afternoon. And welcome to Zuora's third quarter fiscal 2022 earnings conference call. Joining me today are Tien Tzuo, Zuora's Founder and Chief Executive Officer; and Todd McElhatton, Zuora's Chief Financial Officer. Robbie Traube, our Chief Revenue Officer, will also be joining for the Q&A session.

The purpose of today's call is for us to review our third quarter results and provide our financial outlook for the upcoming fourth quarter and full-year fiscal 2022. We'll also provide our preliminary outlook into fiscal year 2023. 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 several factors. You can find information regarding those risk factors in the earnings release we issued today and our most recent filings with the SEC.

And finally, we will be referring to several non-GAAP financial measures and reconciliations to related GAAP measures are included in our earnings release. For a copy of our earnings release, links to the SEC filings, a replay of today's call or to learn more about Zuora, please visit our Investor Relations website at investor.zuora.com.

Now, I'd like to turn the call over to Tien..

Thank you, Luana. And thank you everyone for joining us. Welcome to Zuora's third quarter fiscal 2022 earnings call. The headline is we delivered yet another strong quarter.

We exceeded guidance across our key financial metrics, including total revenue, subscription revenue and non-GAAP loss from operations This quarter, we delivered a dollar-based retention rate of 110%. That's up from 108% last quarter and 99% last year. And this is the highest level the dollar based retention rate has been over the last 10 quarters.

This quarter, our ARR growth rate continued to rise, closing the quarter at 19%, up from 12% growth this time last year. This quarter, we continued to innovate. Our new product introductions continue to generate strong customer interest, powering the highest upsell quarter in Zuora's history.

This quarter, we continued to deliver on the goals that we set out at the beginning of the year, that we shared with you at Investor Day back in April. I'd like to do a shout out to all the ZEOs around the world. I am incredibly proud of our team and our continued focus and execution.

Now, let me add some more color to the quarter in three specific areas. First, the continued evolution and growth that we are seeing in our market. Next, this quarter's exciting new developments in our product portfolio. And finally, an update on the progress that we're making with our go-to-market strategy. Let's start with the market.

You've heard me say this, but it's worth repeating. Last year, companies woke up to the power of the subscription economy. Businesses across more and more sectors recognize the need to shift to digital service models. We continue to believe that this shift is what is powering our momentum today.

Zuora continues to be the go-to subscription management solution for both innovative disruptors and large enterprise incumbents alike. These companies are coming to us for the breadth of our capabilities, the scale of our platform, and the expertise that only we are able to bring to help guide them on their journey into the future.

Let's look at disruptors. You've heard us talk about hyper growth companies, like the Zoom, Vivint or CLEAR. We're managing millions of subscribers on our platform. This quarter, we continued to bring on new fast scaling disruptors. For example, we brought on an online education platform that helps people learn from world famous experts.

With over 2 million subscribers, this disrupter came to Zuora for a billing and revenue recognition platform there they are confident will support their continued scale for years to come. Our existing disruptors, of course, are also continuing to scale.

In fact, this quarter, a leading business communications platform used by millions of developers around the world expanded its work with Zuora to power an additional business unit after a recent acquisition. As they continue to grow, Zuora billing and collect will enable this new volume and scale.

On the incumbent side, you've heard us talk about dominant brands like Honeywell and Caterpillar, who come to Zuora to gain the agility they need to innovate and compete in the new digital economy. This quarter, we added another Fortune 500 world leader in agriculture and construction products to that list.

Today, this company is seeing incredible growth as they are no longer just manufacturing and selling products. Today, they also sell a subscription-based service that enables their customers to manage their equipment portfolios more effectively.

By modernizing their billing with Zuora, they're better positioned to implement new monetization strategies to power this new exciting area of growth. Now, some of these, of course, are long-term bets. So, we continue to sow the seeds that will power our growth for years to come. As an example, automotive.

You've heard of say that we power 8 of the top 10 auto companies, including companies like General Motors, Ford and Toyota. And in recent months, you've heard many of them announce growth target for these new digital services. In fact, these digital services are forecasted to generate $86 billion by 2025 from in-vehicle payments.

Disruptors, incumbents, today's leaders and tomorrow's, we focus on the best companies in the subscription economy. We power the growth of their new customer-centric business models, and you can see that growth and the continued increase of our transaction volume that flows through our system.

In Q3 alone, we handled $19 billion in usage volume, representing a year-over-year growth rate of 28%. Shifting to products. The last few years have been an exciting time for Zuora's technology team. We've transformed our core technology stack into a modern micro services platform.

Just last month, we shifted 100% into the cloud and plan to shut down our 14-year-old data center in Q4 and expect us to increase our uptime, our scalability, and our long-term gross margin expansion.

Under our Chief Product and Technology Officer, Sri Srinivasan, we've also increased our engineering capacity by 40% since the start of the fiscal year. Now, all of this is propelling our innovation, many of which we announced this quarter.

This quarter, we announced an entirely revamped set of APIs and SDKs that enable our customers to launch with Zuora up to five times faster and reduce their coding hours by up to 80%. We launched Unified Monetization, an all-new set of capabilities to let our companies to manage subscriptions, as well as product offerings on our platform.

More and more, you're going to hear a new mantra from us – subscription first, but not subscription only. This quarter, we launched CPQ X, a new version of our CPQ solution that lets sales teams work up to 35% faster.

But this quarter, I really want to talk about Zuora Revenue, our product that helps companies automate the complexities of their revenue recognition process in real time. We have now had three quarters of triple-digit top line growth for Zuora Revenue, and its average ACV has nearly doubled in size from just one year ago.

In fact, this past quarter, Braze, the customer engagement platform for multichannel marketing, successfully went live on Zuora Revenue. This launch was a key milestone in their ITO journey as they continue to simplify and maintain their revenue reporting. And today, finally, I have some other news to share.

This is a particularly exciting announcement for me because I was part of this organization in the very early days. This quarter, I'm pleased to say that the biggest SaaS company in the world, none other than salesforce.com, has signed a multiyear renewal with us to automate all of their global revenue recognition with Zuora Revenue.

Finally, let's take a look at go-to-market. Now, two years ago, we set out to transform the way we sell to the biggest enterprises in the world. We made a deliberate decision to move upmarket. And in Q3, what you saw is that that effort continues to pay off.

In addition to salesforce.com, we continue to sign fantastic new and upsell deals, such as Hitachi and Toshiba. Our number of customers with ACV at or above $100,000 increased by 26 last quarter. This customer cohort now constitutes 94% of our business. This is also leading to larger deal sizes and greater customer lifetime value.

This past quarter, we signed 10 deals with ACV at or over $500,000, including two deals over $1 million. In short, our strategy to focus on growth within the enterprise segment of the market is working. Finally, the investments we've made in our broader ecosystem of system integrators and strategic partners continue to show results.

Let me give you a few examples. We now have over 200 globally certified consultants within our SI partners versus just 52 a year ago. Over 40% of customer go-lives in the quarter involve a system integration partner. Finally, on a dollar basis, bookings from SI-influenced deals in Q3 grew by over 130% year-over-year.

Beyond our SI partners, we're also starting to expand our ecosystem of strategic technology partners. Now you may have seen early in q3, we announced an exciting collaboration with Microsoft. We'll be working to integrate our products into Microsoft Dynamics. So, users of that product can also use Zora.

We'll also be taking advantage of Microsoft Azure platform, as well as Power BI to drive more innovation and value within our own products for our customers. Over time, we expect this will open up the opportunity to connect further into the Microsoft ecosystem as potentially a new distribution channel.

It's still early days, but we are very excited about the potential of this collaboration. To wrap it up, I want to thank again our ZEOs for another very strong quarter. The focus and the alignment that I am seeing across Zuora is truly remarkable. Our market continues to expand and companies are turning to us to guide their transformation.

Our innovation engine is accelerating, creating further separation between us and legacy ERP vendors. And our upmarket strategy and go-to-market operations that we put in place two years ago continue to deliver results. Now, I'll turn the call over to Todd to review our financials.

Todd?.

Thank you, Tien. And thanks, everyone, for joining today's call. I want to start by acknowledging the exceptional work that our employees have done since I joined Zuora 18 months ago. I have seen tremendous focus on our product and go-to-market strategy and continuous execution.

We've rallied together to overcome the pandemic challenges, and I have great pride in being a ZEO. Now let's review the results for Q3, our guidance for Q4 and our preliminary outlook for fiscal 2023. Our discussion includes non-GAAP financial measures.

You can find the details in today's press release, which includes a reconciliation table of selected GAAP to non-GAAP measures that reflects the adjustments made to both our current and prior-year results. Q3 was another strong quarter across our key financial metrics.

We again exceeded expectations and subscription revenue, total revenue and non-GAAP operating loss. Q3 is another proof point that the strategy we laid out in investor day back in April is working.

This past quarter, we closed several multi-product deals, had solid growth in the enterprise space, with both strong go-to-market execution and great contribution from our SI partners. Let's dive into our top line performance. Total revenue was $89.2 million in the third quarter, up 16% year-over-year.

Subscription revenue was $73.8 million, up 19% year-over-year, driven by overall improvement in our go-to-market execution. Subscription revenue represented 83% of total revenue. Professional services was $15.5 million, flat year-over-year as we continue to ship services to our system integrator partners.

As a result and our success of driving professional services to our SI partners, non-GAAP blended gross margin was 66%, an improvement of over 300 basis points year-over-year. Non-GAAP subscription margin was 79%, a 199 basis point improvement over the prior year.

As a reminder, this includes the additional costs associated with our move to the public cloud. Non-GAAP professional services gross margin was negative 1%, driven by investments in training our partners. Our objective is to run services at or near breakeven.

Non-GAAP operating loss was negative $1.2 million in the quarter compared to an operating income of $0.2 million in the prior year. This was driven by our planned investments in sales, marketing, and R&D. This resulted in a non-GAAP operating margin of negative 1%, a decrease from breakeven in Q3 of last year.

Our fully diluted share count at the end of the quarter was approximately 144 million shares using the treasury stock method. Now, let me take you through some of the key metrics for the quarter. In Q3, expansion across our customer base drove our dollar based retention rate to 110%, an impressive 11-point year-over-year improvement.

Customers spending at or over $100,000 in ACV closed the quarter at 720, an increase of 26 sequentially. This represents 94% of our business. We continue to have success in moving upmarket. We closed 10 deals with ACV of $0.5 million or above versus 6 a year ago.

Two of those deals had ACV greater than $1 million, including the transaction with salesforce.com that Tien mentioned earlier. This was also evident in our total remaining performance obligations, or RPO, growing 31% year-over-year and our non-current RPO which grew fix 50% year-over-year.

This is a testament to our strong go-to-market motion and success with our system integrator partners. As Tien noted, we've now surpassed 200 globally certified consultants, which has doubled since Investor Day. Turning to transaction volume, our systems processed $19 billion of volume in the quarter, representing 28% growth year-over-year.

As you'll recall, while process transaction volume is helpful in understanding how much of our customers business is running on our platform, it does not track linearly with quarterly revenue as customers gain efficiencies as they scale. Now looking at ARR and free cash flow.

In Q3, our ARR grew 19% year-over-year, 2 points ahead of our 17% ARR objective for this fiscal year. This was partially driven by our best upsell quarter ever. We continue to focus on our objective to reach ARR growth of 25% to 30% by fiscal 2025.

Free cash flow was negative $1.7 million, which includes our accelerated investments to move into the public cloud. We continue to expect to be free cash flow positive for both Q4 and this fiscal year. Total CapEx for the quarter was $2.3 million.

Turning to the balance sheet, we ended the quarter with $203 million in cash and cash equivalents, a $2.4 million increase over the prior quarter. We feel good about the progress we've made over the past year and look forward to Q4 and fiscal 2023. So, let's turn to our financial outlook.

As noted on prior calls, we continue to accelerate our investments and go-to-market and product development initiatives while absorbing costs that were not in a run rate last year. For the full year, we're raising our outlook. We currently expect total revenue of $345 million to $346 million. Subscription revenue of $285.5 million to $286.5 million.

Non-GAAP operating loss of $10 million to $9 million. Non-GAAP net loss per share of $0.11 to $0.10 per share, assuming a weighted shares outstanding of approximately 124.3 million.

For Q4, we currently expect total revenue of $90 million to $91 million, subscription revenue of $75 million to $76 million, non-GAAP operating loss of $2.5 million to $1.5 million, non-GAAP net loss per share of $0.03 to $0.02 per share, assuming a weighted average shares outstanding of approximately 127.4 million.

Looking ahead, while we've not finalized our fiscal 2023 planning cycle, we'd like to provide a preliminary outlook for next year. We remain confident in our execution, Zuora's strong product portfolio and our leadership position. As always, we'll update you on our regular cadence as we move through the year.

For fiscal 2023, we currently expect total revenue of $401 million to $405 million, subscription revenue of $337 million to $339 million, non-GAAP operating loss of negative $2 million to breakeven. For the year, we also expect a dollar-based retention rate of 112% or better and ARR growth of 21% or better.

To close off, I'm very pleased with our performance in Q3. We continue to deliver strong execution upon the foundation we laid out and are making progress toward Zuora's long-term objectives. With that, Tien, Robbie and I are happy to take your questions, and we'll turn it over to the operator..

[Operator Instructions]. Your first question comes from Chad Bennett with Craig-Hallum..

Nice job on the quarter. I'm not sure who this is for, Todd or Robbie or Tien. I don't know. But just in terms of where we are evolution-wise on the whole upsell versus down-sell and working through the downsells, and I assume we're at the tail end of those. And it was great to see the fiscal year 2023 outlook.

Didn't expect that, but it's great to see the acceleration on net expansion in ARR. So, just can you give me an update on where we are on the headwind there from the downsells and if that's behind us..

Todd here. Look, the DBRR of 110%, that really puts us in an entirely different neighborhood, and we're really pleased with that. We're past the downsells. Last year, we talked to Q2, we've now lapped that for a full year, and so we feel that we are in the area of being able to accelerate our DBRR.

We are talking to our long-term ranges to be 112% to 115%. And as I shared today, our expectation is we'll be 112% plus next year. So, again, we feel really good about our ability to continue to upsell..

I think you indicated, Todd, and maybe, Tien, that this quarter was, I think, your strongest upsell quarter. And I think you've had a few of them in the last year, to be honest with you. So, it seems like the momentum isn't going away.

In terms of – if you rank order, I guess, if you want to look at it like that, what is really driving the upsells? You've introduced a lot of product in the innovation over the last year, whether it's the Revenues module or it's CPQ. I know Unified Monetization is new, so it's probably more pipeline than bookings driven.

What's really driving it from the upsell standpoint?.

It's really across the board. I'll give you sort of three core reasons. One, certainly, is the restructuring of the sales organization that we talked about, even going back to last year, right, when it's more customer centric focused, the ones that focus on long-term relationships, right? It's the entire go-to-market model that Robbie has put in.

And Q3 is just yet another quarter of demonstration that that strategy is working. The second really is the innovation.

And so, I would say there's been a pent-up potential in our innovation that we built, all the things that we built, when you marry that with a resurgent sales organization that's focused on long-term customer success, that's what you're really seeing.

And the third thing I'd say is sometimes there's a misunderstanding of us as a replacement of legacy ERP. We're really attacking an entirely new business model that ERP systems don't really handle it. I see this as an enormous amount of whitespace that we can go attack from an innovation standpoint.

And whether that's revenue, whether that's collect, whether that's the platform capabilities, that's what we're really excited about, that the subscription economy is growing, there's a new set of tools that sets up the whitespace. And we're really the clear leader, building the innovation and the solutions that are needed in this space. .

It's really balanced on the upsell. As Tien said, the new products coming in with Central Sandbox, Revenue, premium support, all those are really….

Volume upsells….

And we continue to get the usage that comes through. So, it's really nice and balanced. Where if you went back five or six quarters ago, we were heavily reliant on volume. So, again, the innovation engine that's firing up, we're seeing nice take from the customers on that. .

Next question comes from Joshua Reilly with Needham. .

Nice job on the quarter here.

Maybe digging in a little bit more on the ARR growth and what was driving that, how much of the improvement, would you say, here is from the improving macroeconomy and demand environment versus the internal changes that you've made to the sales organization and product over the last year?.

I would say it's both. But, on a short-term basis, I would credit the execution and the changes that we're doing. On a long-term basis, I would credit the macroeconomy. There was really a significant change last year in terms of companies' appreciation of the subscription-based business model.

But I would say that the translation of that intent and that direction into demand for us does take time. It's not they're just taking compute power and shipping it to the cloud overnight. This requires companies to build new innovations, launch new capabilities, which are doing on us.

And so, I think the short-term improvements that you're seeing is really on our execution, but the long-term macro trends are also in our favor as well..

The net 26 customers added with ACV over $100k, that's a really strong number on both a seasonal and absolute basis.

If you look at the profile of these customers, though, how should we think about the mix? Is it net new larger customers that are being added? Or is it existing customers that you're expanding to additional products? Is there balance there? How should we think about that mix?.

You're going to see a balance. And, Robbie, feel free to chime in here. But, we talked about disruptors and we talk about incumbents. A lot of times we do still grab disruptors and bring them on board when they're smaller companies, right? You talk about how we power Zoom, but we started working with them when they were $30 million.

We started working with Box. Congrats to Aaron over there having a great day yesterday. But we started working with them when they were $3 million. So, those deals tend to start small and are going to grow as those companies have success. But if you look at incumbents, $100,000 is a small deal to many of these companies.

And oftentimes, we'll start at a higher point too. So, you're really going to see both effects in that 26 number..

Can I sneak one more in there? Oh, sorry.

Did I cut you off there?.

I was just going to say, again, the mix was right. It's what was expected. It's what we've sort of seen going forward as well. But it's as we expected, as we've seen going forward..

Maybe just sneak one last quick one in there on ERP migrations. I know you said that that's not necessarily key to what you're doing.

But how much of a tailwind has that been here in the second half? And how much more do you think that can accelerate into the next fiscal year?.

ERP is definitely one of the key [indiscernible]. But the subtlety is, we're not like – we're not replacing the existing financial system with another financial system. We're really powering new business models that ERP systems are never built to power.

So, a company like Caterpillar will keep their ERP systems for their core business, which is selling tractors and excavators, but they're fast growing digital businesses, subscription businesses, Cat Connect, that's the business that they're putting on us. Same with GM, right? We're not touching the car sales specifically.

But we're powering the billions of dollars of connected car sales that they have today and they expect to grow in the coming years..

I'd say it's part of the digital transformation. We're seeing that a lot also with our system integrators. This is a really, really good direction that we're seeing – I think many are seeing in our market, but we're part of that piece to it as well. So, just to encapsulate what Tien was saying. .

Your next question comes from Brent Thill with Jefferies..

This is Luv Sodha on for Brent Thill. Congrats on a great quarter. Great to see the momentum that you guys are seeing. Maybe the first question I had was follow up to Josh's question before.

On the net new adds that you saw in this quarter, over 100k, I guess, Tien, are you seeing more adoption outside of the core verticals that Zuora has historically been strong in? Are you seeing new verticals adopting the Zuora solution, if you will?.

I'd say our three core verticals are still our core verticals. Those verticals are high tech, manufacturing and media. But you're absolutely right, we continue to see strong interest in new verticals. We've talked about financial services in the past. We continue to be really, really excited about it.

It sure feels like the retail sector, if you read some of the news, is starting to get their act together and realize that the future is not about stores versus ecommerce. It's about customers first, meeting customers where they are, both online and in-store. But I would say, right now, our three core verticals still remain what they are.

But we have a healthy, healthy interest in outside of those three verticals as well. In the big picture, Luv, love you know this, right? We believe that really every industry, every company in every industry will be shifting to the subscription economy.

It's just a matter of time, and we need to make sure we're in a position to help them with that transformation..

Maybe one quick one for Todd. The guide for next year is very encouraging. For subscription revenue, I'm guessing it implies 18%. But at the same time, you're guiding to ARR growth of 21% or more.

So how should we think of ARR growth and how that would trend towards subscription growth over the long term?.

Luv, you know subscription revenue certainly lags ARR which is why we've been reporting off of that. And so, you would expect subscription revenue to catch up to ARR. But Todd, I'll let you add some more color on that. .

Luv, we feel really good about the guidance that we're giving for next year. And what I would say to you is, just as Tien said, we gave the metric of the ARR growth and we've done, I think, really well with that. We started off last year, ended at 12% growth. Today, we reported at 19%. We said we'll be at 21%. That is the leading metric.

Revenue is lagging. It lags by several quarters. And so, I feel like, at this time, we've given you some really good guidance. It's early. I want to be prudent. And like we've always said, we'll continue to update you on a quarter by quarter basis..

The best subscription business is run off of ARR. So, that's why we would point you at that number, obviously. And you know that. .

Congrats..

Your next question comes from Andrew DeGasperi with Berenberg..

Just had one question maybe on the Microsoft announcement that you had a few weeks ago. Just wondering, besides the integration, I think you mentioned that you're looking forward to expanding the relationship.

Should we think about that as maybe expanding, like the business relationship on the go-to-market side? Can you just elaborate on that?.

Well, I think the big picture here is that, we've got to where we are today really by figuring out a brand new market and, in many ways, going it alone in that marketplace.

And what you heard from us over the last 18 months is, maybe 24 months, is a big change in tone, where we do believe that that to get to where we can in this marketplace, billion dollars or more, part of that is really building and focusing on a healthy ecosystem. We started with the GSIs.

You hear us talking about our system integration partnerships, Accenture, Deloitte, PwC, EY, IBM, quarter-over-quarter progress on that. What we really added to that really is a secondary focus or a parallel focus on technology vendors. And we've chosen to really start with Microsoft as a place to start.

That, being a technology vendor, does require stronger integration. And so, what you're seeing is the first phase of that partnership focused on technology integration. If we do our part, we do believe that should open up the Microsoft install base and potentially their distribution channel.

But I would say it's early days and, right now, we're focusing on step one, which is the technology integration..

Maybe, Tien, it's encouraging that you renewed the salesforce for Revenue. .

That sounds good..

I was wondering, what was the dynamic around that, if you can maybe elaborate a little bit? I know that they have a competing solution on billing. I'm just curious. Maybe some background on that..

salesforce got to where it is because it's certainly – the history this company is, I used to run the billing system at salesforce. And so, salesforce really got to where to be from really having no constraints on their ability to innovate on their business models.

And so, when you look at the size, the scale, the global nature of what they have, I would say that this was a competitive process. I would say that they did look at the marketplace and did a full scan of possible solutions with close advisers outside of the organization as well.

They came to the conclusion that our product was really the only one that can handle their size, scale and needs. And so, I'm pretty happy with the results. And it's great to be able to say that we power really the biggest company in the world. .

The other thing I would say, Andrew, is we feel really good. Deals like that are things that are helping the RPO grow. We've talked about it in the comments. 31% year-over-year, non-current growing 50%. So, these larger deals, longer durations are really helping us on the RPO..

[Operator Instructions]. And your next question comes from Joseph Vafi with Canaccord..

Great results. Good to see the continued increasing momentum in the business. Maybe just following up on that last comment. Todd, what you were saying on RPO versus billings versus ARR.

Maybe a little bit early days, but just thinking about the size of deals that you're seeing and just maybe frame visibility you have in the business now versus a year ago? It looks like that RPO is really moving forward here..

I still think the one thing that we want to push everybody to is that ARR growth. It is the best industry leading indicator of how the business is going to do. And so, I'd like to keep people focused on that.

That being said, as we move to these larger deals, if I look at my top 10 deals, they were all – the vast majority of them were almost three-year deals. And those larger deals, longer duration contracts are really helping us build up the RPO. And that's something that we've been focused on.

That was one of the things that Robbie and I worked on, making sure we align with the sales teams on and we feel good about the progress that we've made there. That's an area that we'll continue to focus on, is how do we build with these longer term, longer duration, higher value agreements with customers..

I'll just add one thing, Joe. I would say this really shows that the subscription businesses – and you know this, they're no longer those side experiments that people are doing with 12-month contracts, right? But these are mission critical systems. These are long-term decisions.

The salesforce decision for using Zuora Revenue was certainly a long-term decision. And that naturally is going to lead to longer-term deals, right? They, obviously, want to lock into longer-term contracts. .

Just one more follow-up on the salesforce deal. They clearly have a big ecosystem of their own other software vendors, just like Microsoft Dynamics. I know, Tien, you mentioned that. Just wondering, with this expanded deal there, is that an opportunity on selling into the Salesforce ecosystem and software vendors that are integrated there. .

salesforce has been a partner since the early days. We have a deep integration to the salesforce product as well. We have a CPQ system that's built natively on Force.com. And so, I would say that that's always existed and that's always been an important part of our business. I'd say that we're expanding to other ecosystems as well.

We're pretty excited about the Microsoft ecosystem. But I think the salesforce deal, really, to me, is a proof point that we have the best product in the marketplace for running subscription businesses and that's something that I'm the most proud of. .

That's great validation. And then, if we look at that Unified Monetization platform and what it means to the business, because, clearly, most software companies are not just selling subscription. There's other sources to their revenue line.

It would be helpful to frame what the value proposition was before and where you might have been boxed out and what it means now, just to understand how holistically some of those customers could embrace your platform because there's no constraint around what you're billing for?.

That's a great question, Joe. I appreciate you asking it. I think if you look at the roots of our company, we started with pure subscription businesses, right? SaaS companies that were 100% subscriptions, streaming companies that were 100% subscription businesses.

But as we get into larger companies, Caterpillar, General Motors and the like, those, obviously, are companies with mixed business models, with many, many types of business models.

So, it was important for us with Unified Monetization to reach a point where we can say that, yes, we want to be subscription first because we believe the future is the subscription economy, but we don't want to be subscription only.

So, whether you're a pure subscription business that has evolved to the point where you're Zoom and you're starting to sell hardware, you're a streaming company, you're starting to sell pay per view in addition to that $10, $12 a month, or you're a hardware company that's looking to sell subscription services, but you're looking to create bundles across the two things, we need to be able to do that.

And so, the Unified Monetization announcement, actually, is a really, really important announcement for us. It's a great milestone. And it means that, going forward, we can really support all types of business models as companies embrace this digital future. .

Just maybe one at a high level strategically. It really sounds like the software suite has come together really nicely here at this point. What's next? It sounds like the APIs, new set of APIs, all the products seem to be being embraced in the market.

Is M&A back on the table at this point? What are you thinking about in expanding the opportunity because, clearly, it's moving very fast?.

Joe, we think we've got a lot of opportunity still left in our three beachheads and then platform. That being said, our plan is not incumbent upon doing any M&A.

But of course, we are always looking out at the market and if there's areas where we can use that to accelerate our product development or areas where we can help companies in the subscription experience or we're open to that and we look at things constantly. But at this time, no change in what we've talked about in the past. .

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

Congratulations on the very strong results. Two questions from my end. And my apologies, I'm jumping back and forth between earnings, if this was already asked.

But the strong results that you're seeing this year, how much of that, if at all, is driven by a resurgence of ERP migrations to the cloud? And also maybe, if that's a factor that you're thinking through as you gave your fiscal 2023 guidance as well? And then, I have a quick follow-up?.

Stan, I would say, I rather you think of two parallel trends that are going on. One of them certainly is we want to move financial systems and ERP systems into the cloud, so much other software has moved into SaaS models into the cloud. And you're seeing ERP systems do the same thing.

We're probably more of a parallel effort, right, which is more, I've got these new business models that ERP systems simply cannot handle. And so, I want to move away from a traditional ERP centric system that's built for selling products to something that's more about monetizing digital services. That's really where we sit.

And when I look at it that way, that trend or that demand never really slowed down in 2020. There might have been a short-term pause in March or April or 2020, but companies realize that digital subscriptions, these new business models of the future and that's really causing our demand and that's really what's causing what you see the results in.

As a good example, the dollar based retention rate that we've talked about in the past, really puts us in a whole new neighborhood. .

Actually, I just wanted to come back to the dollar based net retention rates, the 112% infection for next year, certainly, very nice continuation versus the trend we've been seeing through this year.

As far as what the drivers are of that continued improvement through next year, is it selling more products into the existing customer base, is it customer base moving up price SKUs, is it just more volume flowing through? If you kind of walk us through the puts and takes. .

Stan, one thing I felt really good that we've continued this year and we continue seeing on to next year is really a balance on what's driving that net dollar retention. First off is we're seeing new products coming out, we're seeing great take on that, the innovation engine is really taking off and customers are buying those products.

Secondly, as you said, we continue to see usage move forward. And that's being a driver, the volume going through the platform this quarter up 28%. And then last, but not least, we've talked about revenue and we're really seeing revenue on fire. That product has grown triple digits for three quarters in a row.

And again, this quarter was another driver of that net dollar retention. So, we continue to see a balanced performance against the upsells as we move into fiscal 2023. .

Internally, we call that our multi-vector land and expand strategy. And I would say that we're really pleased of how that' come together. And we believe that gives us a sustainable growth strategy in the quarters to come. .

There are no further questions at this time, I'll turn the call back to Tien Tzuo for any closing remarks. .

Thank you. Well, I'd like to say thank you, again, to everyone on the call and a big, big thank you to all our ZEOs. It's our people that make Zuora an incredible place to be and I'm proud of what we've accomplished together in this quarter. The subscription economy continues to have a lot of room for upside.

And it's clear from our dollar-based retention performance and our ARR growth that our land and expand enterprise strategy is working. With that, we look forward to Q4 and FY 2023. Thank you for joining us today. .

This concludes today's conference call. Thank you for your participation. You may now disconnect..