All set? All right. Well, good afternoon and welcome to the Needham Technology and Media Conference. My name is Josh Reilly, and I'm an Analyst on the Enterprise Software team here at Needham. I'm excited to have Chief Product and Technology Officer Pete Hirsch for a product-focused discussion today. Pete, thanks for coming and making the trip from. Yeah. Well, thank you, Josh. Across the country here. So you came to Zuora about a year ago now. Can you just highlight what you found attractive about the opportunity at Zuora, and some details maybe about your background as well? Yeah, absolutely. So yeah, for the last 10+ years or so, I've been around the Chief Financial Officer, the Office of the CFO. I started with Ariba, which was a part of SAP at the time, in an area called Procure-to-Pay, the Chief Procurement Officer. I then was with Ellie Mae in the fintech space, so got to know loan origination, everything. And then most recently, I was with BlackLine in the Record-to-Report space around financial close. And so it was interesting because while I was there, I had the opportunity, because I also had IT as well as product and technology at the time, to be building out the company's Quote-to-Cash. And of course, we were a customer of Zuora. And so I got to know Zuora really well. And this was another space that I was familiar with, but I had not been in before. I had a chance to interact with my predecessor, Sri Srinivasan, in that context, and Tien Tzuo, the founder and CEO. I really fell in love with the space. We got a chance, we had the opportunity to talk about the opportunities. I could personally see the incredible impact that this would have on customers in terms of their monetization, in terms of how they price and package their products, the impact on the internal customers, and everything. So when I got the opportunity to join Zuora, I was just very excited. So there's just a real opportunity there. Awesome. All right. Maybe we can just start off with an overview of some of Zuora's key products, Billing, Revenue, and Payments, and the most recently acquired Zephr and Togai acquisitions. Yeah. I'm saying Togai, correctly? Togai. Absolutely. Yeah. Very excited about that acquisition. We just announced that last week, the week before, and it closed last week. Yeah. So Zuora got it started in 2008 around the notion of subscription Billing. So it started very single -focused. We had our Tien essentially wrote the book on the subscription economy, literally. And it was just a very, very interesting space. Expanded from subscription Billing into overall Order-to-Report with the acquisition of a Revenue product from RevPro. And over time, the company has really expanded from there. The notion of subscriptions became so compelling, not just to SaaS companies, but to larger enterprises, that they started adding in their own subscription capabilities and started opening us up to opportunities around non-recurring Revenue as well. And so we went into a little bit of a broader view of Billing, and that really opened up the doors. And then most recently, there's been a big trend towards consumption billing, usage billing. And that's really broadened the focus of the company now to what we call Total Monetization around the notion of a Total Monetization system for all of your Billing from the front of your quoting and your omnichannel all the way to the back end to the ERP. So very broad perspective on the total products that a company sells. Got it. All right. So starting with the Billing module, a question I often get is, why can an ERP platform easily build this functionality, and why choose Zuora versus trying to build custom workflows into your ERP? Yeah, I get that question. Well, and it's near and dear to my heart because I was at SAP for several years, so I know ERPs very well. It's interesting because what an ERP does really well is it serves as the system of record for a company, for an organization, keeps consistency, a consistent view of your data across all of the organizations, does a really good job of that. What it does not do is the workflows, the business workflows around providing the capabilities, the flexibilities that the end users need to go into to make the changes, to be agile with what they need, not having to go through IT and expensive projects just to make changes in product catalogs, in billing, and all that kind of stuff. The other thing that I saw was most companies have more than one ERP. So there's a cardinality problem. I've seen companies with as many as 100 different ERPs. And so these will be ERPs of different versions, different brands. And it makes it very difficult if you want to have a common enterprise system for being able to provide consistency across all of your users, because you have all that complexity, all the topology complexity. And so what you can do with a Billing system, an Order-to-Revenue system, is you can provide that consistency, the agility for your users to be able to maintain the system, to provide the capabilities, the agility to really be able to stay on top of that. So that's why we believe that it belongs outside of an ERP. Of course, most ERPs provide some limited capabilities themselves, but if you want the best, you really have to go outside. Got it. As you look at the competitive landscape for billing, it seems there's more entrance to the market over the last year. What are you doing from a product perspective to maintain your leadership position with enterprise customers? Yeah, there has been a lot of innovation in our market. It's been exciting. I think it's great for customers. It's great for the industry overall. There's been a lot of disruption around the notion of consumption, about usage-based billing. That's been driven largely by GenAI. I mean, you talk about the large language models. You talk about all the things that are driving transformation of business and everything. So it's been really good for the industry. But on the other hand, point solutions just have a real problem keeping up with that. They're great for the specific use case in mind, for the new pricing mechanism or the new capabilities. We feel that's important. That was what helped motivate the acquisition of Togai. What we're doing more broadly in innovation is really around three points. The first is consumption. Consumption is disruptive in our industry. It's adding a lot of capabilities. Most of the companies that we looked at before acquiring Togai were venture-backed companies and not PE-backed companies, venture-backed companies. And so this is where a lot of the innovation is really driving. And we believe there's a lot of opportunity, we're going to be continuing to invest in consumption and the usage-based billing. The second is around the large enterprise. So all of these changes are also impacting the larger enterprise, the complex manufacturing, the much larger companies. They're having big impacts on how they do this. And we already have a sizable percentage of our customers that are already on SAP and Oracle. And yet, if you look at the fraction of the revenue that they do through us, it's a tiny fraction. So it represents a huge opportunity to expand, even if we didn't get a single additional customer, a huge opportunity to go into the large enterprise. And so we're making big investments into that as well. And then the final area that we're investing in very heavily is on the notion of commerce, foundation for commerce. This is really important because it extends all the way to the consumer. It has to do with your product catalogs. It has to do with how you price and package your offerings. And so we see big opportunity in that area as well. So those are the three primary areas of investment that we're making. Of course, all of this is driven by AI as well. Exactly. Yep. Within billing, we are seeing, as you've already mentioned here, an increasing number of usage-based pricing models coming into existence. You just made the Togai acquisition. Can you help us understand how Togai enhances your functionality around usage-based pricing models? Yeah. We're very excited about Togai. It is a fantastic company. It's a small company, but they've got a really leading set of products, and they have a fantastic team. And what they bring is the metering and rating, right? It's the front end. It is the ingestion portion of your data. So if you are going into usage-based pricing, you need to look at your data, right? And so these are the hooks that you point to your data centers or your data warehouses so that you can meter and transform that data into usage-based billing events. And so they bring a product that not only extends it, but it also operates independently from our main suite. So it can be sold independently from that. And so it really completes our notion around usage-based billing with a strong product. And we're seeing incredible demand. You mentioned that we introduced our first advanced Consumption Billing capability. We announced it last summer. We didn't ship GA until January of this year, our end of fiscal year. And yet, we had already had over 40 customers that had adopted that already. And it continues to be one of our hottest-selling products. And so Togai just completely extends that. Got it. So, just building on that a little bit, will Togai's functionality be fully integrated into the Zuora platform and the name Togai disappear, or will it remain a separate SKU with its own branding? Well, we will be fully integrating it from a functionality point of view, but we really like the branding. We really like the approach that they bring to Zuora. They've really focused not only on a great set of products, but they also have a focus on the developer, which is a new ICP for Zuora. We have traditionally focused on the finance buyer. Togai focuses on developers and engineers, which we've found since we announced last summer that that's an incredibly important persona. If you're in finance and you're wanting to monetize your products, you're wanting to have a usage-based model, your first stop is going to be to your developers. It's like you're going to talk to your engineers. You're going to have them take a look at the products that are available. You're going to have them play with the products and experiment. And so they've become a real strong voice in the overall process. And Togai brings that, right? And so that's what they started on. And so that's what we want to continue building on in terms of not just their products, but how they market, how they build APIs, how they appeal to the developers, and all that kind of stuff. So it's really important. So not only is it a fantastic product, and we looked at virtually all of the companies who were out there before we selected Togai, but they also bring a mindset. They bring innovation and energy into the company that we're very excited about. Got it. So, taking a step back for usage-based models, can you help us understand is it primarily tech customers with these business models today, or is it spreading to other verticals as well? And then, if you look at your mix of customers today, can you give us a sense of the growth of the consumption-based module that you introduced last summer and already mentioned once here? Yeah. Yeah. No, it's doing well. I mentioned that we're already up to 40 customers. And that was at the end of last fiscal year. We haven't announced this quarter yet, so I can't talk about it. But it continues to be really strong. But yeah, no, it continues to drive a lot of the internal innovation that we're focused on. And we're going to continue to innovate around that. But what we want to do is we want to keep Togai independent as a separate product so that it doesn't have to be sold with Billing. It can be independently sold. It can be much more of a modular approach to selling with our customers. And that's really important because as we got to know this market a lot better, we looked at how companies are changing from seat-based pricing to usage-based pricing. It's a big change in how they think about it. So at a corporate level, you can think of, "Okay, we want to move to a usage-based pricing model." So the direction you want to go to is obvious, and even maybe some parameters. We want to charge based on these different metrics of how our product is used. But you don't really have all the details yet. And so by having an independent product that you can sell to point at the data, it allows companies to get a jumpstart on really understanding their data. They can look at their data. They can look for patterns in their data. They can decide on how to charge the prepaid drawdown, the commit levels. It gives them a chance to get to know their data and formalize their pricing structures before they connect it up with their Billing. Whether it's our Billing or somebody else's billing, we intend to be completely interoperable with other products as well. So it provides that flexibility of being able to have customers get to know their data before they go on to updating their contracts with all the customers and factoring that into the rest of their pricing. Got it. And then just on the first part of that question, following up on that, are you seeing non-tech customers increasingly adopt usage-based models? Because I know historically, if you look at it, it's been mostly tech customers. Just curious what your thoughts are. Yeah. No, absolutely. So I mean, most recently, I mean, of course, it's been big in tech for a long time and stuff, but it started outside of tech. It started in utilities and telcos. So you can imagine it's already in a number of other industries. And we are seeing a lot of the large manufacturing companies using consumption, using usage-based billing in some very unique ways. There's one customer that we have. They manufacture large tractors, and they want to have intelligent IoT-based weed sprayers so that instead of spraying everything, they can just be very, very laser-specific on what they go after. And so this can be kind of a consumption-based pricing model. So we're seeing it broadly, well beyond tech. Got it. And then just following up on the functionality of Togai, you mentioned that they have this great metering and upfront kind of ingestion of the data. Can you just maybe touch on why that's important, given the complexity that's out there in different business models? Is that the concept kind of high -level? It is. We call it metering and rating. That's the front end. It's ingestion of millions or billions of data points. You can imagine the challenges there because you have to deduplicate. You have to filter. You have to provide auditability, traceability. You've got to aggregate the data at the end. You can imagine if you have a system in place and your customer calls and wants to dispute some bill or whatever, you've got to have the traceability back to a system of record with all that usage data. So maintaining that integrity, maintaining the traceability, the auditability is really important. And so that's a big part of it. Awesome. So let's hit on everybody's favorite topic next, which is AI, including GenAI. How are you incorporating AI into Zuora's products? And what's the opportunity more broadly to either create new products or optimize Zuora's business by incorporating AI? Yeah. It's changing everything we do. It is really exciting. We've got a number of different areas. I mean, we're not just getting started on this. We got it into our Payments product back in 2021 with intelligent retry and fraud protection. We've continued to invest. Most recently, we've come out with a natural language Copilot that gives you an opportunity not just to get assistance in the applications, but also to ask it for special reports, to ask it for creating invoice templates, to do things that would be very difficult to do or time-consuming. You may not understand how to do it. That's an important thing. We're investing in AI-based single standalone pricing, SSP, for allocations across bundled products. That goes into our Revenue product. That's incredibly important for customers. We're investing in automatic configuration and new payment gateways to accelerate time to value for customers and simplified configuration. And then, of course, we've got this broad data set. We've got over 500 million subscriptions that are under management. We have 15 years of this rich data, so that we can apply that to helping our customers understand their customers even better. And so that's a big part of what we're doing. Got it. Investors like to lump companies kind of into this AI winner or AI loser bucket. How would you characterize Zuora's position relative to AI longer term, and how are you positioning the company to benefit from AI from a product perspective? Yeah. Well, I consider AI definitely a tailwind for us. It is forcing the modernization of companies, the way they price and package their products. I mean, it's really a critical factor. It's driving a lot of modernization. And of course, with GenAI, it's just been afterburners on this. Companies are compelled to introduce new offerings. They've got big expense around usage of LLMs for themselves. So they've got to understand that expense. There's an opportunity to monetize AI. In fact, I think we have a big event coming up with PwC and AWS later this month to be able to talk about monetizing your AI. So, to us, we're not only a user of AI. We can be a driver of AI in helping companies monetize their own usage. Got it. Yeah. That's interesting. For those less familiar, Zuora typically starts by selling a good, better, best platform along with individual modules like billing, revenue, etc. In terms of the platform and enhancements you've made over the last couple of years, can you discuss how you're enhancing the value proposition of the platform, including APIs for integrations? I know there's a lot there. I can go back on it. Yeah. Well, if you think about Order -to -Report or more broadly, your commerce foundation for your business, it's the foundation of your business, right? It is incredibly important. And so you need a platform that supports everything that you need there. The reference to good, better, best is from our CFO, Todd, who talks about the three different levels of pricing and how we support that. But at its core, the platform is important, and it's a big differentiator for us. It provides everything from integration upfront. We provide up to 80 out-of-the-box connectors to help you integrate with your CRMs, with your ERPs, with your data warehouses, with other systems. It provides a development capability for your developers to do custom models for how you map to their unique data sets. It provides a complete DevOps capability for taking that development, pushing it into sandbox, doing your testing into UAT sandboxes to promote into production. It provides the security. It provides BYOK, bring-your-own-key encryption for companies that have those specific needs. It provides all the monitoring and the capabilities for your administrators to be able to monitor how data is moving through the system. So really important. And the referenced APIs. So APIs, we're an API-first company. So everything we develop has to be exposed through APIs because it does need to be configurable for our end users. And again, the tieback to the new ICP that we're really focused on developers, it's critical that we continue to build on that so that we can meet the needs and make sure that they have everything that they need. Are you seeing more that developers are involved in the Billing process, whereas just for background, it might have been more financial people previously? Are they kind of tying the two groups together more closely than? I don't know that. I think that if I saw anything at BlackLine, it was that there are so many stakeholders. In the total system from beginning to end, when I was a customer of Zuora, I got to see how many different stakeholders and their stakeholders. So decisions about the metering and rating and all the data upfront, that is definitely a developer that's involved there. And so they will consult and defer to the developers in that case. And then along the way, there are other parts that are really important. So it's a critical stakeholder, and it would even be the stakeholder that might buy that front end. But they will be consulted in other parts of it to various degrees. Got it. That's super helpful. I believe one of your most popular add-on modules is the Snowflake data integration. Can you just discuss why that's been important for customers? And how has the uptake been of the bring-your-own-data warehouse? And what other data warehouses are you seeing get requests from customers? Yeah. It's really unique. Yeah. Bring-your-own-data warehouse. I mean, I love that. So yes, we integrate with Snowflake. It's a fantastic integration. We have a number of customers who are getting a lot of value out of it. It doesn't stop there. We integrate with Databricks. We integrate with BigQuery and integrate with Redshift. So all these data warehouses, because all this data that comes into our system, we maintain our own data warehouse as well. And it streams in. It's usage-based, or it'll be transaction-based. And so we've got a lot of analytics around that. But what customers want to do is they want to plug in their own data warehouses. So they want to be able to either stream that data into their data warehouses or be able to just unify our internal warehouse and their internal warehouses. We provide a number of data query tools that can query across that whole landscape so that you can have better data for predicting churn, for looking at upsell events, for really getting to know your data better. It's a very popular integration. We've got a good partnership with Snowflake. Are you going to be building out additional data warehouse integrations as well? I know before you told me it's kind of based on requests and interest. I think it will happen, especially now with the strong focus on consumption. I think it's undoubtedly going to happen because people are going to be storing their data in other data warehouses. So we will just monitor how that goes. Got it. So moving to the Zuora Revenue product, the competitive landscape for this product, in my opinion, is pretty favorable. Can you just discuss why this has been a difficult product to replicate by your competitors? And how much ongoing innovation is there in this module for managing revenue recognition? It is a very difficult space. That is one of our competitive differentiators because you think about the complexity when you've got an existing contract with a customer, and it's progressed some time, you're partway through the contract, and now there's an addition to that, or there's a removal or a change in a SKU, and you want to maintain coterminous contracts with the lifecycle of the contract, you want to make all these changes. There are allocations. I talked about SSP allocations across your products. You need to be able to manage all those changes and be able to flow that data into your ERPs seamlessly. It continues to be a really important area. We're investing in data models. We're investing in that AI-based SSP and a number of other areas. And again, back to the notion of modularity and interoperability, which continues to be a real strong theme for us, we want to make sure that our products work interoperably with other products as well. So there are other companies out there that are very interested. And they may have their own Billing solution, but they don't have revenue. And so it provides a great way for us to develop a relationship to land, but also get a relationship with that other customer. Why do you think just following up on the competitive aspect of it, why do you think it's been difficult for competitors to kind of replicate? Is it the complexity that's involved with all the different rules around revenue recognition? Or why is that barrier to entry a little bit higher? I think it is. One of the things that I've seen in prior companies is that there's an art to bringing in the domain with the engineers. And it's really challenging because in this case, you need the accountancy. You need strong, deep domain experience. It's not just something you can read in a book. You need to actually hire former controllers. You need to hire people that have been there, done that, lived the real world. It's not just academic. It's real-world processes. And then you need to be able to communicate with your product management and your engineers. And so it's like this Venn diagram with three circles. And it's really challenging to hit the right balance with getting that. One of the questions I often get is, will Zuora move more into Payments over time? Can you just discuss what areas of Payments it might potentially make sense, given your current credit card retry functionality? And would you consider a larger acquisition in the payment space? Yeah. Well, first of all, we love Payments. We've got some pretty large customers in Payments. And so we really like that space. But we are not a payment provider. We're a payment orchestrator. So we've partnered with many or most of the leading payment gateway providers, making sure that we integrate seamlessly, all that. We have not looked seriously at becoming a payment provider. That is always an option. But right now, we want to stay focused on being as efficient for our customers as possible. You can imagine the complexity with if you've got multiple gateways, and you're in different countries, and there are different pricing incentives for each of those gateways to provide intelligent rules and orchestration, even AI-based orchestration, on which payment gateway to use for which purchases in order to save you the most cost. And we found that we can provide significant cost savings with that. And then, of course, we partnered with Microsoft with their fraud protection to be able to provide that at a top-level layer, so that if you are using multiple gateways, that you're not paying that first of all, you have fraud protection. But second, that you're not paying that fraud protection for every different gateway if you're trying. So the way we've architected it is really seamlessly. And Payments are really important in the overall Order-to-Report process. So it fits into our process. But the point is, there's more areas for the orchestration aspect of Payments versus becoming a Payments provider that you've explored and are looking at. We have looked at it. Yeah, I don't think we want to get into that business at this point. Yep. Got it. So, following up on M&A, the Togai acquisition, it is focused on enhancing the Billing platform within Zuora. As you're evaluating new deals from a product perspective, is the goal to enhance the current product set or also consider whole new product areas beyond Billing and Revenue? Or maybe it's both. Help us kind of understand what you think in that. Yeah. By virtue of the fact that Togai is independent from the billing, and those can be sold independently, it gives us a lot of capabilities. So metering and rating, data ingestion, all the analytics that you can provide on that doesn't have to be just for Billing. There are other uses. You can imagine telemetry. You can imagine understanding your users a lot better, so that there are a number of other areas. It is primarily for billing, but we do see other opportunities. As we look more broadly into the M&A landscape, it really is across those areas that fit in well with our kind of vision of Total Monetization, everywhere from the omnichannel front end where we're integrating with Apple Pay and Google Pay, and we become a system of record for companies that want to have that kind of omnichannel, all the way back through Order-to-Report, cash management into the ERP at the back ends, or just this broad perspective of opportunities out there. And so yeah, Togai was an important acquisition. It's not going to be our last. Got it. So Zuora has always had a strong customer base in media. But with the Zephr acquisition, it seems that there's a bit of a renewed focus on this space. Can you tell us a little bit about why media and their customers are important to Zuora? Yeah. Yeah. Media is important for a couple of reasons. One is that it's one of the originators of the notion of subscription. It is a little bit of a commoditized space. So it's critical in media to be able to understand your users, be dynamic in your bundling and unbundling of content, being able to look at how you monetize across families, or number of devices, or kind of when you put in a dynamic offer for customers. So we can learn a lot from that. It's also important because it is consumer-facing. That's really important. We started the company almost strictly around B2B SaaS. We've expanded broadly since then. B2C is now a pretty important segment for us. So you get into Payments. You get into beautiful user interfaces or embeddable payment forms that companies can use in their digital front ends. It becomes very important. It's important to us for a couple of reasons. We've gotten great value out of the Zephr acquisition. Awesome. Maybe just stepping back from a high level for those less familiar, your primary source of new customers is from those moving away from custom homegrown solutions. You're now moving to smaller lands to get customers to value quicker. Help us understand from a product perspective what you've done to get customers to value quicker? Yeah. And so that's right. That's a really important set of customers for us. Typically, when you get a customer that's replacing their back end, it's such a big transformation that it can be very complex, and it can take a long time. So what we've done is we've taken an approach to making everything modular and interoperable. And by doing that, it provides flexibility for customers to be able to start with what makes most sense to them, start with it, may be billing, it may be revenue, it may be Payments, it may be a front end. And so what that does is it reduces risk. It also accelerates time to value. So you can have implementations as short as 3-6 months. Especially with interest rates where they are, I think companies are being very diligent in how they invest and how they manage their risk, to wanting to make sure that they can get time to value quickly. And so that whole approach of modularization and interoperability with the systems that they may already have is really a key part of our strategy. All right. Maybe to wrap up here, just reiterate the key areas of focus for you relative to product investments over the next year and any other items that you'd like to highlight for Zuora relative to your product investments. Yeah. No, I'm just really excited about the future right now. I talked about the complexity, the vision we have with Total Monetization, the foundation for business, and our ability to really impact and help companies modernize their overall offerings. And so the really critical areas where we're investing that will be important not only for Zuora, but for those customers is going to be around the notion of consumption, heavy investments in consumption-based billing, and other types of consumption usage. We see the large enterprise, tremendous opportunity with the large enterprise. And we're investing heavily in that. And then more generally, in a foundation for commerce. Think about product catalogs. Think about front ends. Think about headless commerce. I mean, these are things that we're investing in very aggressively because we see big opportunities there. And so no, I think it's an exciting market. AI, again, is a fantastic forcing function for lots of change throughout the entire industry. It's certainly factored into everything we do. No, I think it's an exciting industry ahead. Awesome. All right. Well, with that, thanks, Pete, for the time and making the trip over. Great. Well, thank you. Yeah. All right. All right.