Zuora Inc (ZUO) 2019 Q3 法說會逐字稿

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora Fiscal Q3 20189 Earnings Call. (Operator Instructions)

I will now turn the call over to Joon Huh, VP of Investor Relations. You may begin your conference.

Thanks, Mike. Good afternoon, and welcome to Zuora's Third Quarter 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 third quarter results as well as provide our financial outlook for the fourth quarter and the remainder of the year. 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 our most recent 10-Q filed with the SEC.

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 it over to Tien and Tyler.

Thank you, Joon. This is Tien. Welcome to our third earnings call as a public company.

And good afternoon, everyone. This is Tyler. Thank you for joining us today.

I am very excited today to talk about our third quarter. Let me start by saying that it was a great quarter. In Q3, we continued to deliver very strong financial results. We came in ahead of expectations across all our metrics, subscription revenue, total revenue, operating income and EPS. Growth continues to be strong.

In Q3, we continue to see expansion in our total addressable market. Our market is predicated on not just more and more companies launching subscription services but entire industries shifting. Over the last few months, we signed on Toyota as well as Kia Motors, along with our existing customers, GM, Ford, Peugeot and Renault, we are now behind the connected car initiatives of 6 of the world's top 10 auto manufacturers. This is an entire new vertical for us that didn't even exist 5 years ago. That's a great, great example of how our strategy of landing and expanding within entire industries can lead to long-term durable growth.

In this quarter, we continue to see strong demand for our products, billing and RevPro, both recognized as the leading solutions in their space. Regarding RevPro, now that the deadline for ASC 606 compliance is past for many companies, you might think that demand for this product has significantly slowed. That is not what we're seeing. And we'll give some example from the quarter demonstrating that revenue automation continues to be a big, big growth opportunity.

Finally, this quarter, we continue to see growing momentum with our system integration partners, especially Deloitte and PwC. And I'll touch a bit on that as well. But before I continue, Tyler, why don't we open with the high-level results for the quarter?

Sure thing. As you mentioned, when we look at Q3, we had another really good quarter. Later in the call, I'll go deeper into our key metrics and our operational and financial details. I'll also provide some financial outlook and guidance for the future.

For now though, let me provide the highlights. In Q3, we grew subscription revenue by 43% year-over-year to $44.5 million. We grew total revenue by 33% to $61.6 million. As a quick reminder, which we highlight previously, the reason that total revenue grew slower than subscription revenue is that we had a big onetime uptick in professional services revenue last year related to our RevPro business. We have this year-over-year anomaly in Q4 as well, but we believe it should normalize in Q1.

We were able to accomplish this revenue growth while bringing our non-GAAP operating loss down to $10.6 million, an improvement of $1.7 million versus the prior quarter. As we scale, we continue to gain more leverage in our business model.

All this led to outperformance on non-GAAP EPS, resulting in negative $0.10. We delivered results above our guidance range across all of these metrics.

Thanks, Tyler. Really, really proud of our quarter. Now let me give you some color on what we're seeing in the quarter, which continues to give us confidence that we can sustain this level of growth over an extended period of time, years, if not decades.

The fundamental bet that this company is built on is the continued wide spread of the Subscription Economy that we're all seeing will lead to continued strong demand for the unique technology solutions that only we have delivered. The strategy behind this bet is what we call our land-and-expand strategy. Now where others SaaS companies talk about landing and expanding within a single company, we focus our land and expand on entire industries.

Let's look at the technology sector, namely, software and hardware, which is our first core vertical that still represents about half of our business. The shift in subscription here is well known. It's led by the adoption of SaaS, cloud and the preferences companies now have for these pay-as-you-go models. Today, we're behind both the SaaS companies, so Zendesk, New Relic, DocuSign, Avalara, Salesforce, as well as the more established players like Symantec, [PEC] and NetApp. Now you all know how fast these guys are growing. The key here is now that we are behind these leading companies in this sector, as the entire industry continues to shift to subscriptions, this is automatically powering our growth.

Now the same thing has played out in the media industry starting with newspapers. Now after going through years of hurt, newspapers today are finding growth again through the digital subscriptions. Now we saw the shift early and began to focus on this industry years ago. We started working first with News Corp UK in 2011, and they publish The Times of London and The Sun. That helped us land the Financial Times later that year, then Fairfax Group of Australia in 2012, The Guardian in 2014, The Wall Street Journal and The Telegraph in 2014 -- '15 and then The Seattle Times, the Boston Globe, The Straits Times of Singapore, The Bonnier Group, which publishes the biggest newspapers in the Nordics. We also landed magazine publishers, like Time U.K., which is now TI Media; Bloomberg and Penske Media who owns Rolling Stone and Variety Magazine. So you're seeing a network effect really starting to take hold.

And we also expanded to other media companies like HBO, Perform Group and also B2B publishing companies like S&P Global. Today, we're working with about 20 major newspaper publishing groups. We helped launch new digital offerings, experiment with new bundles, scale their businesses and handle different payment methods around the world like Amazon, PayPal or direct debit.

Now how do we know this sector is growing? Well, we can actually see it in our servers. Transaction volumes for the segment through the Zuora billing system has grown over 30% on average over the last 5 years. The perception that people won't pay for news turn out to be wrong. In fact, millennials are now the fastest growing demographic. A 2018 Reuters report showed that the majority of news subscription over the past couple of years is coming from people under the age of 35, and this signals long-term structural growth for the industry.

But what does that all mean for us? It means that our early bet on newspapers has turned into one of our major growth engines. The growth engine, the -- growth rate that we've seen in subscription revenue for media and publishing companies has averaged about 35% a year over the last 7 years and has become one of our largest verticals, representing approximately 13% of our overall subscription revenue. So you can see, we're helping industries unlock growth through subscription business models which then powers our growth over an extended period of time.

So newspapers and publishing is a great example of our land-and-expand strategy within an industry: We land a few key accounts and enable them to execute against their growth initiatives. Then they close the other industry participants as they see the inevitable business model changes becoming pervasive amongst their competitors.

While some would say that a vertical like publishing, which is a traditional subscription industry, naturally aligns itself the digital subscription-based business model, what we've seen in recent quarters, and this is playing out in other verticals, one vertical Tien will highlight, which most people don't think of when they think subscriptions or consumption-based models, is automobiles.

That's right. Yes, as I mentioned on the top of the call, we now have 6 of the top 10 auto manufacturers, with Toyota on board. But what's going on here? It's probably obvious to anyone who's used Uber and Lyft that we are all very likely going to buy fewer and fewer cars over the next years and decades. Self-driving cars, when they come, will only accelerate this trend. So the major manufacturers, they all know this, and they're all turning to services for growth, content services, navigation services, diagnostics, analytics. A 2016 McKinsey report said that the services could actually expand auto revenue pools by 30%. And if you've ever been down the mall below the World Trade Center, Ford has a whole exhibit that showcases their vision for morphing from a car company to a mobility services company.

Now we started seeing this a few years ago and began to execute the same land-and-expand playbook, expand -- picking up early leaders and then becoming the overall leader for the vertical. Today, in addition to the 6 of the top 10 OEMs, we also have Daimler Trucks as well with connected services like Volkswagen's [Wheel Service] in Europe, OnStar and SiriusXM. I think it's fair to say we are now the leading provider of subscription solutions for the entire automobile industry.

So what you're seeing is the same dynamics that play in autos as we did in newspapers just staggered by about 5 years. An industry facing disruption looks to subscription revenues for growth, and they come to us not only to handle the revenue complexity but also to help them spin up new services and get to market faster. We then become the system of record for a portfolio of well-known customers, and we're set to grow with them with the verticals -- with that entire vertical for decades to come.

Now I just highlighted 2 verticals. We hope to highlight further industries in future calls to come. Quick example, it's still early days, but we're seeing that we're starting to land billing customers in utilities and financial services. They're all experimenting with these new services and subscription options. We've also got other membership-based organizations like the YMCA that are in the midst of reinventing themselves to a wide range of new service models.

So to reemphasize, this is our core strategy: identify industries that are in the earlier stages of transitioning to a subscription business model, lock in the leaders for that industry, and as their subscription revenues grow, we get to grow with them, and others in the industry follow suit. All this is in line with our intent of delivering consistent 25% to 30% growth over a very long period of time.

The strategy is working. Now what makes the strategy work, of course, is our technology. And we have not 1 but 2 flagship products that we can use to land these customers: billing and RevPro. They're both based on a simple concept to automate the financial complexities generated by subscription models that are highly, highly differentiated and mission-critical for our customers.

Now most people know us for our billing product, widely recognized as the best in market, but let's talk about RevPro. It's also recognized as the best product in the market. So for example, according to MGI Research, RevPro is the top-ranked solution for revenue recognition software. For the last 90 days, we've heard a number of you ask for an update on the market demand for RevPro, especially now that many companies seem to be past this ASC 606 deadline.

So what we're finding is that many public companies rush to get compliance, but a lot of them did so manually with spreadsheets, and they found this to be a short-term Band-Aid solution. These companies are realizing that the real problem with never ASC 606. The bigger, more systemic trend is that these companies were struggling to scale their revenue operations because of all these new flexible-consumption recurring models that the companies were launching, and they couldn't do it with a manual Excel-based approach. ASC 606 was the thing that only highlighted the problem.

So let's give an example. A great example from this past quarter was Aviva. Now most of you know Aviva. They're a leader in the life sciences space, a fantastic SaaS success story and I suspect it's in many of your portfolios. Aviva, it's been public for a while. They're now talking about hitting the billion dollars of revenue next year. And what ASC 606 really put a spotlight on is how complicated revenue recognition has become for them. They spent a lot of effort to become ASC 606 compliant last year from using manual operations, and then this year, they came back to putting in an automation solution, and they selected RevPro this quarter to help them efficiently scale this part of the business.

So you can see that the underlying demand hasn't gone away, but our value proposition is now more centered around automation and efficiencies versus simply compliance. [It's nice to see] this quarter, we also signed on other public companies like Carbonite and Pivotal who both chose RevPro all because we got the best revenue automation platform on the market, and there's a big, big difference between being compliant and being competitive.

And that was the reason to bring on the RevPro product in the first place. The need for revenue automation is not just driven by ASC 606 compliant. It's a larger issue with many of these companies as the complexity of revenue recognition limits their ability to efficiently scale and meet their business goals. That's why we continue to see good demand for our RevPro product.

One last thing to talk about what we saw the business in Q3, and that's with our system integrators. I mentioned on the last call how Deloitte Digital helped bring us a significant enterprise deal with Clarivate, which is a spinout of Thomson Reuters. You may have seen this announcement earlier that Deloitte Tohmatsu Consulting in Japan recently announced a collaboration with Zuora to help companies in Japan shift to a subscription-based business. This announcement is a great next step in our growing partnership with the global Deloitte network.

Second, we're building stronger ties with audit firms, our strategic partners for our RevPro solutions. So it's [close to a real] acquisition. Actually, about a quarter of our new RevPro customers have actually come through these partner channels. For example, PwC and Zuora have a joint business relationship focused on addressing the growing demand for revenue automation software. In fact, PwC has established a center of excellence to help customers succeed in using RevPro.

Now I want to say we're still in the early innings of building and leveraging these relationships, but we've got some great, great partnerships and system integrators around the world, and we really believe that over time, this can turn into a healthy channel for our business.

So in summary, what we're seeing this quarter is good momentum in the market, continued expansion of the Subscription Economy across industries, which leads to an expansion of our TAM; continued traction for our solutions; and a growing ecosystem.

At this point, let me turn it over to Tyler to show how that's reflected in our financial results for the quarter.

Thanks, Tien. I'll start with our key operating metrics and then I'll move on to our financial results and then guidance.

We saw really healthy growth in both of our key operating metrics in Q3. Customers over 100k ACV maintained a solid growth rate of 30% year-over-year, improving on our Q2 growth rate of 28%. We added 30 more of these customers in the quarter and ended with a total of 504. This metric is important as this customer base continues to represent over 80% of our total ACV. In addition, we are continuing to grow with this set of customers as they grow as 28% of them had a transaction volume upsell in Q3.

Our second key metric is dollar-based retention. In Q3, dollar-based retention increased 115%. This is driven by incremental improvement to gross churn coupled with robust upsell activity. Last quarter, we talked about our long-term dollar-based retention settling near the high end of the 108% to 112% range. Given our recent outperformance of this measure, dollar-based retention may end up at the high end of this range or slightly better for fiscal year '19.

In addition to our 2 key metrics, we also saw transaction volume continue to expand to the Zuora billing platform. In Q3, we processed approximately $8.6 billion in transaction volume, representing 37% growth year-over-year, and nearly $1.2 billion above Q2. This is important because that pricing model is designed to allow us to grow as our companies -- as our customers process more transaction volume through our system.

So now let's talk about how this translates to our financial results. Total revenue grew 33%, led by robust subscription revenue growth up 43%. Professional services grew at 12% for the quarter to $17.2 million. We mentioned previously that professional services growth would moderate this year as the ASC 605 to ASC 606 upgrade activity dissipates over time. In Q3, this upgrade amount was 600k, and we expect it to be even less in Q4.

Turning to margins. Non-GAAP subscription gross margin was 78% for the quarter, in line with Q2. And non-GAAP professional services margin was negative 2% in Q3. We expect Q4 non-GAAP subscription gross margin to be similar to Q3. We improved our non-GAAP operating margin by another 4% sequentially as we have been creating operating leverage in our cost structure as we grow the business.

An example of this operating leverage is the continued improvement in our growth efficiency index, which measures the efficiency of our sales and marketing spend. We measure our GEI by comparing our trailing 12-month non-GAAP sales and marketing expense of $89.1 million versus year-over-year increase in trailing 12-month subscription revenue of $45.9 million. For the GEI, the lower the number, the better. In Q3, GEI continued to improve to 1.9 compared to 2.1 in Q2. As we said all along, our goal is to maintain or improve the GEI while achieving our long-term growth rates.

Thanks, Tyler. So what you're seeing in our numbers is us balanced between investing for future growth while continuing to drive overall efficiencies in our business.

Tyler, it's probably worth spending some time talking about cash flow in billings as investors often have questions about these numbers.

So let me start with cash flow. In our prior earnings call, we mentioned that we pushed some of our spend into the second half of the year. In Q3, we saw some of this spend come through, resulting in a free cash flow of negative $10.3 million. We will see some more of this delayed spend in Q4. In addition, we'll [tie in] core income spend from Q1. For example, we made a significant deposit related to new office space, and that would hit the cash flow. As a result, we continue to expect free cash flow of negative $42 million for fiscal year '19, in line with what we said last quarter.

Now turning to billings. We've been consistent in our views that because of fluctuations from one quarter to another, in the long run, we believe focusing on the trailing 12-month subscription billings growth is a more accurate reflection of the overall business. And we expect this growth rate to settle and grow in line with our long-term revenue growth rate of 25% to 30%.

As of October 31, trailing 12 month calculated billings was $245.1 million, representing 51% year-over-year growth. Using professional service revenue as a proxy for professional services billings, calculated trailing 12-month subscription billings was $180.7 million, or 46% year-over-year growth.

One thing to note, part of our strong billings in Q3 is that we saw a higher mix of annual billings terms, and some Q4 billings were pulled into this quarter based on customer-driven timelines. On the Q2 call, we provided a 12-month billing growth number of low 30s percentage for fiscal year '19. Given our outperformance in Q3, we're increasing our expectations of trailing 12-month calculated billings growth to 35% for fiscal year '19.

Now let me finish the numbers with our current views on guidance and future expectations. For Q4, we're currently expecting total revenue of $62.3 million to $63.3 million. Subscription revenue of $45 million to $45.5 million; non-GAAP operating loss of negative $12.5 million to $11.5 million; and non-GAAP net loss per share of $0.12 to $0.11, assuming weighted shares outstanding of approximately $107.3 million. This translates to full year fiscal year '19 expectations of total revenue of $233.4 million to $234.4 million; subscription revenue of $167.1 million to $167.6 million; non-GAAP operating loss of $49.1 million to $48.1 million; and non-GAAP net loss per share of $0.56 to $0.55, assuming weighted shares outstanding of approximately 91.2 million.

Tien, those are the numbers.

Thanks, Tyler. Now as I mentioned at the top of the call, we consider Zuora to be a portfolio play for the entire Subscription Economy. This was a secular shift that started 20 years ago in software that took over digital media. And today, it's in the midst of completely transforming manufacturing transportation, retail and so many other industries. And I'm not just saying that because of headlines that we read every day. I'm saying it because we can see it in the rapidly expanding and diversified nature of our customer base.

We talked a little bit about newspapers and the auto industry on this call, and we'll continue to highlight key verticals as we see them continuing to build momentum. I'm proud of the fact that we called it early, and we've got a 10-year head start on the competition. We've got the best solutions in the market for billing and revenue automation with a growing ecosystem of system integrators and other partners. We're in the early stages of a major shift towards recurring revenue in digital transformation that's going to take decades to fully realize, a vision that we call the world subscribed, and this is what's fueling our ability to build a long-term durable growth story. It's been 10 years, but in many ways, it feels like we're just getting started.

We're happy to take your questions now. I'll turn it over to you, operator.

(Operator Instructions) Your first question comes from John DiFucci from Jefferies.

John?

And the next question comes from the line of Richard Davis from Canaccord.

Two quick questions. One, I think you've talked about this in some of the conferences and stuff like that, but how do you feel like if I've been using Zuora, what kind of tools am I going to get that are going to give me heads up that someone's going to turn off? And then related to that, when I think about myself or anyone when you subscribe to something, there's a moment in time when you're kind of like, "Wow. Should I renew or not?" That could be true for Netflix or Amazon Prime. Talk about a little bit of your customer success teams and how you make sure you kind of keep people right at that moment of transition. Because once you're in, I think it's pretty sticky, but you've seen this cycle before.

Yes, so one of the key things about the Subscription Economy, I was just on the phone, on a conference call this morning with a major Fortune 500 -- Global 500 company launching new subscriptions, really transitioning. They're a product company today, and -- but their customers, both their B2B customers and their B2C customers are all starting to demand for the subscription services. And that was the question is how do we know -- what does success look like? Right. You've got a chance to work with thousands of companies around the world, and one of the things we talked about is the swing factor in the business model winds up being the churn relationship with the customers. These are active relationships, and you can tell based on the level of activity how strong they are. So the key thing to all these things is really to put together a view of history of which customers are churning, which customers have an upsell capability and marry that with the internal measurements that you have. And I would say most, if not all of our customers, are using information from our system in order to do that. It's really, really part of being successful in this new business model.

Yes, Richard, I would just say that also the upsell is as important as the churn, right? Being able to identify through usage pattern and things like that from data that you can get out of Zuora on which customers you should be engaging with and based on how they assign utility to your product, and you learn over time and you can change the pricing and packaging to kind of optimize for that.

And I'll give you a quick example of that. We have talked about this in our Subscribed conference earlier, but our data that we could see across our customers shows, for example, 2 lessons, and you can go to the website for more information, but companies that do a usage-based model versus a fixed model grow faster. But there's actually a balancing act of how much of your business model is based on fixed and how much of it is based on consumption. And then companies where their customers come back and modify their subscriptions, right, they're actively involved in their subscriptions, if you will, grow faster. And on average, if 1 out of your -- out of 10 customers actually come back and modify their subscriptions, those customers seem to grow twice as fast. And the companies where, on average, every customer does a modification to their subscriptions every year, those companies grow 3x faster. And so we can actually see this in our servers. We publish all this information to our customer base, but that's why people come to us, right? People come to us because they see subscription business models as a big, big growth driver for their business, and they're looking to us to help them optimize how to capture that growth.

Your next question comes from Stan Zlotsky from Morgan Stanley.

This is Stan Zlotsky. Hey, apologies, we're handling a couple of different calls today. So from my end, and part of this has already been asked, the Q4 billings, right, how should we be thinking about as we start to lap the Q4 billings and the inorganic contribution from a year ago as well as just the big shift to prepayments? And then maybe just a higher-level question. The partner ecosystem, right, it's a very important aspect of your overall go to market right? How are you guys thinking about continuing to build out that partner ecosystem? What does it take to continue to get more certified professionals involved? And where do you see the contribution from the partner ecosystem really heading as we move forward?

Yes, I'll get the partner one, and I'll turn it over to Tyler to talk about billings. We chose to really highlight the partner ecosystem because we can definitely say that it's growing in importance, and whether it's on the revenue recognition side, right, these are projects deep into the CFO department, the VP, revenue departments, and the auditing companies are very much involved in these. And so we highlighted that, that 25% of the businesses is actually coming through that channel. On the billing side, it's a little more complicated. These are digital transformation projects. You're going to see Accenture there, you're going to see Deloitte, you're going to see a bunch of these other companies, right. And so what I would say is we're working with a lot of these companies. We have certification programs in place, and you're going to see us talking more about that in the future, but it's something that we're pretty excited about.

And Stan, this is Tyler. Let me just touch on your billings question. I think you asked about Q3 and Q4 billings and what to expect there. So look, Q3 was a really good billings quarter. We called out 2 things that also contributed to that, which was kind of a pull-in little bit of Q4 billings into Q3, which we do see some of that every quarter. We saw a decent amount in Q3, but also, there's a change in our kind of billing terms that we normally see. And it's just some quirky things and fluctuations from quarter-to-quarter that we'll see over time. In general, though, we're very pleased with the billings growth. We actually raised the guidance to 35% for the year, the trailing 12 months, and we want everybody to focus on that trailing 12 months, but that's also the reason we raised.

Your next question comes from the line of Scott Berg from Needham.

I guess a couple here. Tien, you guys called out net dollar retention being better for a couple of reasons, but one of them was around gross retention being better. Can you guys put anything, any systems or anything in place to actively manage that to be a bit better, I guess, to something that's maybe sustainable over the next quarters to the next couple of years?

So you obviously understand SaaS companies with subscription model, churn is going to have a big swing effect. So it's something that I wouldn't say there's anything that we put in place in the last 90 days, but it's obviously a huge focus of ours, and we hope to continue to show continuous improvements year-over-year on these numbers. And so we feel really good. I think we benefited from the fact that we have a very sticky product, and when you look at our product, once it goes in, whether it's on billing on the revenue recognition side, right, it's sticky. It's running company's core operations. It's the heart of the businesses. And so the 2 factors for us that influence churn are, one, how are well are we doing bringing customers live, and that's where we continue to show improvements year-over-year. The second, probably more subtle, is -- are these businesses surviving? And I say every year that passes, that the importance of subscription revenue streams to the companies that are launching them increases. And so I think 5, 6 years ago, these might have been science projects where they tried something, they shut it down after year or 2. We're not really seeing that happening anymore, right? These are strategic initiatives that are part of a company's digital transformation initiative. And so that really points to the fact that, that as the Subscription Economy continues to mature, and we want to emphasize that it's still early innings, right, then that gives us an enormous amount of tailwinds on our business.

Got it. Helpful. Then from a follow-up perspective, with a partner answer that was a question that was just answered is, obviously, the last couple of years, partners are becoming a bigger influence into your business. One of the things that I think I've picked up over the last 6 months is that these deals that partners wrapping around your solution are getting larger and you're significant component of it, which I think talks all a lot about the value of what Zuora platform holds for these customers. But sometimes I get worried as these deals signings get significantly larger, it can actually slow down sales cycles because they just take longer to get approved and whatnot. Is that something you're seeing or worried about? Or is the momentum in these larger deals just all-around goodness for the business?

Yes, so you're absolutely right. No, these are big digital transformation initiatives which requires a set of systems that go in. If you look recently at Dreamforce, Salesforce's conference, Deloitte actually announced a manufacturing stack, if you will, a manufacturing digital transformation stack, and we're embedded in that stack. And I think there was an announcement from Deloitte during the time at Dreamforce around that. And so that's a lot of positive news for us. The second part is, does that mean these deal cycles are growing longer? I think what happens is, is we manage our sales organization, our pipeline very carefully and so only when there is a budgeted project that we know is going to happen do we actually then call that a deal. And when that happens -- that's how you keep your deal cycles short, right? Because it's a known project companies that companies are going to do something, there's a known decision time frame. And if there's broader interest but not they're not ready to move, we put that in our marketing bucket, if you will. So you can see we engage with our customers, we invite them to our events, but you have to build a sales process, right, that allows you to have conversations with customers before they're ready but really measure them as true deal cycles when they're ready. And that's how we keep our deal cycles pretty consistent regardless of the size of the projects or whether a system integrator is involved.

Your next question comes from the line of John DiFucci from Jefferies.

Sorry about the technical difficulties. I am a technology analyst, but I can't work a phone. Sorry about that. So I wanted to come back to Scott's first question on the net retention which is pretty -- that's a lot better than we've talked about over the years and even last quarter. So can you tell us, Tyler, like how much of that -- like we know the net retention like all of last year was in the S-1 was 110%, and I'm just curious like so now 115%. The delta there, like, how much of that is from the gross improvement? And then on top of that, the upsell part of it, is that more from existing customers coming back and, let's say a billings customer comes back and buys RevPro or even CPQ or Collect or something, another product? Or are they primarily by more capacity in what they started with, whether that's billing or RevPro?

Yes, so to answer your question, John. I think there's 2 questions embedded in there, so how are we doing on kind of a gross churn there and where on the upsell side that's a contribution to net retention, where is it coming from. So we've said in the past we're really happy about what we've been able to do on the gross churn site, and we keep getting better at it. And Tien mentioned earlier because Scott asked, what have you done. It's nothing in the last 90 days, but it's all about these are more serious projects for customers, so they end up true initiatives for them. Second, we're getting really good at implementing customers. And then kind of lastly, they're growing with us. And so that gets the second piece, which is where is the upsell coming from. We mentioned we got upsells from cross-sells of products, and that is RevPro and billing. We've highlighted a few customers for RevPro that are also billing customers. Nothing's changed in terms of the less than 10% overlap still, which we think in the long run, all of our customers are going to need both of these products. They're very, very synergistic, and we've been very open about focusing not necessarily on the cross-sell of that but closing new deals. The continual majority of our upsells still comes from transaction volume, which is one of the reasons we highlight that number. The over $8 billion is just a really good number. And that it just -- it's a testament to that customers are using the system, but that we're going to continue to be able to grow with them as they continue that transaction billing.

Great. Could you just tell us, is it 1 percentage point? Is it 2% from the gross improvement? Like, even year-over-year, the delta in those -- I know I'm pushing, but it's an important number to me anyway.

Yes, your growth churn rate, I mean, John you and I talked a lot about this, and I think, again, we're not going to give the exact percentage, but we just keep getting better and better at churn, and we're really happy with it.

Yes, I agree because the thing is it's not one or the other. It's a combination of both together that really drive the benefit, right? The reduction in churn and also the ability to grow with our customers as they put in transaction volume. I think that's why we chose to highlight what we call the land-and-expand strategy, right, and most companies think of land and expand as starting inside of company and growing larger. And not to mention, we tend to have a larger demand -- a larger land. But across an industry, that's the way we like to look at it, right? We go into newspapers, we going into auto, we have a fair deal like gets them in and helps them launch their services faster, helps them iterate, helps them be successful, and then we can grow as the industry grows. And so that's how we're building multiple growth engines inside of the company. We've got a growth engine in tech. We've got a growth engine in media. We've got a growth engine that's emerging in auto, and we're going to continue to see that, and you are going to see is really talk like that. And the net dollar retention is really -- you can see that as a number that's really part of that strategy.

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

Great. Thank you very much for joining us, and we look forward to hearing from you and talking to you throughout the quarter. Thank you.

Thank you.

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