Zuora (ZUO) could be a solid choice for investors given its recent upgrade to a Zacks Rank #1 (Strong Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tracked by the system.Since a ...

Zuora (ZUO) shares ended the last trading session 6.1% higher at $9.38. The jump came on an impressive volume with a higher-than-average number of shares changing hands in the session. This compares to the stock's 5.4% loss over the past four weeks.Zuora continues to benefit from an expanding clientele.In the fiscal third quarter, the number of customers with an annual contract value (ACV) equal to or greater than $250K was 453, up from the 420 reported in the year-ago quarter. Seven of the deals that close ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-38451 _____________________________ Zuora, In ...

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew by 13% to $396 million, with subscription revenue reaching $98 million, up 14% in constant currency and 13% as reported [8][14][43] - Non-GAAP operating income was $16 million, significantly up from $0.6 million in the prior year, resulting in a non-GAAP operating margin of 15%, an increase of nearly 1,400 basis points year-over-year [38][15] - Adjusted free cash flow was positive $12.7 million, a nearly $20 million improvement over Q3 of last year, exceeding the full-year goal one quarter ahead of plan [33][43][50] Business Line Data and Key Metrics Changes - Professional services revenue decreased by 19% year-over-year to $11.8 million, representing 11% of total revenue [35] - Total revenue increased by 9% year-over-year to $109.8 million [34] - Dollar-based retention rate (DBRR) ended at 108%, up one point quarter-over-quarter, with total Remaining Performance Obligations (RPO) growing by 20% year-over-year [40][16] Market Data and Key Metrics Changes - The company continues to expand its customer base, with 453 customers spending at or above $250,000 in average contract value, up nine sequentially [42] - The company secured seven deals with an average contract value (ACV) of $500,000 or more, including two deals over $1 million [42][20] Company Strategy and Development Direction - The company focuses on the largest and fastest-growing companies across industries, which has led to multi-year commitments and expansions [16][9] - The company is entering a new phase of the subscription economy, emphasizing consumption-based models and strategic bundling/unbundling to drive recurring growth [22][28] - The technology suite includes Zuora Billing, Zuora Revenue, Zuora Payments, Zephr, and Zuora Platform, with ongoing innovation to enhance customer offerings [30][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macro environment but expressed confidence in the company's ability to maintain double-digit growth and profitability [33][46] - The outlook for Q4 includes expected subscription revenue of $99.3 million to $100.3 million and total revenue of $109.8 million to $111.8 million [47] - For the full fiscal year, the company raised its guidance for adjusted free cash flow from $28 million to $37 million or more, indicating strong business health [50] Other Important Information - The company received a second tranche of funding from Silver Lake Partners, which will support future M&A activities [45][109] - The company is committed to maintaining a balance between growth and profitability, with a target of exiting fiscal 2025 at a rule of 30 run rate [56] Q&A Session Summary Question: Opportunities in the telecom market - Management noted that while the telecom sector is not at an inflection point, there is increasing pressure on subscription businesses, leading to more companies seeking Zuora's services [60][61] Question: Outlook and conservatism in guidance - Management clarified that the adjustments in guidance reflect a conservative approach due to elongated sales cycles, but they remain confident in achieving the ARR target [62][63] Question: Deferred revenue and billing trends - Management emphasized focusing on ARR growth as the best metric for modeling the business, despite fluctuations in deferred revenue [73][75] Question: Trends in new logos and sales cycles - Management reported an increase in new logos and emphasized the importance of flexibility in their offerings to adapt to customer needs [77][80] Question: Pipeline visibility for Q4 - Management indicated that the pipeline grew quarter-over-quarter, with confidence in closing deals in Q4 to meet ARR guidance [86][87] Question: Incremental momentum from cross-sell opportunities - Management highlighted strong customer commitment and expansion, particularly with large enterprise customers, as key drivers of RPO growth [92][93] Question: Changes in land strategy and product resonance - Management confirmed a multi-product strategy is resonating well, with strong performance across various product lines [104][105] Question: M&A strategy and Silver Lake funding - Management reiterated their disciplined approach to M&A, looking for opportunities that align with their growth strategy [109][108] Question: Net new ARR and market conditions - Management expressed confidence in achieving the ARR target, supported by a strong pipeline and conversion rates [113][114] Question: Smaller land deals and customer feedback - Management noted success in securing smaller land deals, which provide flexibility and choice for customers, contributing to growth [115][116] Question: Implementation timelines with SI partners - Management emphasized a partner-first approach for implementations, allowing for more efficient project execution [120][121]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) Presents Zuora's unaudited condensed consolidated financial statements, covering balance sheets, comprehensive loss, equity, cash flows, and related notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes Zuora's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Assets (in thousands) | July 31, 2023 | January 31, 2023 | | :-------------------- | :------------ | :--------------- | | Cash and cash equivalents | $323,281 | $203,239 | | Short-term investments | $82,953 | $183,006 | | Total current assets | $528,913 | $518,552 | | Total assets | $681,852 | $668,598 | | Total current liabilities | $302,600 | $311,619 | | Total liabilities | $569,125 | $571,438 | | Total stockholders' equity | $112,727 | $97,160 | - Cash and cash equivalents increased by **$120.0 million** from January 31, 2023, to July 31, 2023, while short-term investments decreased by **$100.0 million**[15](index=15&type=chunk) - Total stockholders' equity increased by **$15.6 million**, from **$97.2 million** to **$112.7 million**, primarily due to an increase in additional paid-in capital[15](index=15&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Details Zuora's financial performance, including total revenue, gross profit, and net loss for specified periods | Metric (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $108,048 | $98,775 | $211,143 | $191,974 | | Gross profit | $70,267 | $60,126 | $136,016 | $117,090 | | Loss from operations | $(18,239) | $(30,190) | $(38,418) | $(53,845) | | Net loss | $(22,562) | $(29,910) | $(41,857) | $(53,078) | | Net loss per share, basic and diluted | $(0.16) | $(0.23) | $(0.30) | $(0.41) | - Total revenue increased by **9%** for the three months ended July 31, 2023, and by **10%** for the six months ended July 31, 2023, compared to the respective prior-year periods[17](index=17&type=chunk) - Net loss decreased for both the three-month and six-month periods, indicating improved operational performance, with net loss per share improving from **$(0.23)** to **$(0.16)** for the quarter and from **$(0.41)** to **$(0.30)** for the six months[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Outlines changes in stockholders' equity, including additional paid-in capital and accumulated deficit, over specified periods | Stockholders' Equity (in thousands) | Balance, January 31, 2023 | Balance, July 31, 2023 | | :---------------------------------- | :------------------------ | :--------------------- | | Additional paid-in capital | $859,482 | $917,081 | | Accumulated deficit | $(761,417) | $(803,274) | | Total stockholders' equity | $97,160 | $112,727 | - Additional paid-in capital increased by **$57.6 million** during the six months ended July 31, 2023, primarily due to stock-based compensation and ESPP issuances[19](index=19&type=chunk) - The accumulated deficit increased by **$41.9 million**, reflecting the net loss incurred during the six months ended July 31, 2023[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents cash inflows and outflows from operating, investing, and financing activities for specified periods | Cash Flow Activity (in thousands) | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $19,981 | $2,182 | | Net cash provided by (used in) investing activities | $95,021 | $(146,506) | | Net cash provided by financing activities | $5,727 | $238,428 | | Net increase in cash and cash equivalents | $120,042 | $93,429 | - Net cash provided by operating activities significantly increased to **$19.98 million** for the six months ended July 31, 2023, from **$2.18 million** in the prior year, driven by increased customer collections and timing of payments[24](index=24&type=chunk)[177](index=177&type=chunk) - Investing activities shifted from a net cash outflow of **$146.5 million** in 2022 to a net cash inflow of **$95.0 million** in 2023, primarily due to net maturities of short-term investments[24](index=24&type=chunk)[179](index=179&type=chunk) - Financing activities decreased substantially from **$238.4 million** in 2022 to **$5.7 million** in 2023, mainly due to the issuance of convertible senior notes in the prior year[24](index=24&type=chunk)[181](index=181&type=chunk) [Note 1. Overview and Basis of Presentation](index=12&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) Provides an overview of Zuora's business, its cloud-based platform, and the basis for preparing interim financial statements - Zuora, Inc. provides a cloud-based subscription management platform to help companies monetize new services and operate recurring revenue business models, automating quote-to-cash and revenue recognition processes[28](index=28&type=chunk) - On September 2, 2022, Zuora acquired Zephr, a subscription experience platform for digital publishing and media companies[29](index=29&type=chunk) - The unaudited condensed consolidated financial statements are prepared in conformity with GAAP and SEC rules for interim reporting, reflecting all normal recurring adjustments[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=13&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) Highlights Zuora's significant accounting policies and confirms no material changes or new pronouncements impacting statements - There have been no significant changes to Zuora's accounting policies during the six months ended July 31, 2023[37](index=37&type=chunk) [Note 3. Investments](index=13&type=section&id=Note%203.%20Investments) Details Zuora's short-term investments, including U.S. government securities, corporate bonds, and commercial paper | Short-term Investments (in thousands) | July 31, 2023 Fair Value | January 31, 2023 Fair Value | | :------------------------------------ | :----------------------- | :-------------------------- | | U.S. government securities | $18,571 | $34,488 | | Corporate bonds | $7,977 | $41,785 | | Commercial paper | $56,405 | $102,720 | | Foreign government securities | — | $4,013 | | Total short-term investments | $82,953 | $183,006 | - Total short-term investments decreased from **$183.0 million** as of January 31, 2023, to **$82.95 million** as of July 31, 2023[38](index=38&type=chunk) [Note 4. Fair Value Measurements](index=14&type=section&id=Note%204.%20Fair%20Value%20Measurements) Presents fair value measurements for financial instruments, including cash equivalents, short-term investments, and warrant liabilities | Financial Instruments (in thousands) | July 31, 2023 Total | January 31, 2023 Total | | :--------------------------------- | :------------------ | :--------------------- | | Money market funds | $247,500 | $184,580 | | Treasury bills | $24,864 | — | | Total cash equivalents | $272,364 | $184,580 | | Total short-term investments | $82,953 | $183,006 | | Warrant liability (Level 3) | $7,585 | $2,829 | - The warrant liability, classified as a Level 3 measurement, increased from **$2.8 million** to **$7.6 million** during the six months ended July 31, 2023, reflecting a change in fair value[40](index=40&type=chunk)[41](index=41&type=chunk) [Note 5. Prepaid Expenses and Other Current Assets](index=15&type=section&id=Note%205.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Details the composition and changes in Zuora's prepaid expenses and other current assets | Prepaid Expenses (in thousands) | July 31, 2023 | January 31, 2023 | | :------------------------------ | :------------ | :--------------- | | Prepaid software subscriptions | $7,651 | $7,533 | | Taxes | $4,234 | $3,860 | | Prepaid insurance | $2,907 | $3,225 | | Total | $26,124 | $24,285 | - Total prepaid expenses and other current assets increased slightly from **$24.3 million** to **$26.1 million**[44](index=44&type=chunk) [Note 6. Property and Equipment, Net](index=16&type=section&id=Note%206.%20Property%20and%20Equipment%2C%20Net) Summarizes Zuora's property and equipment, net of accumulated depreciation, including software and leasehold improvements | Property and Equipment (in thousands) | July 31, 2023 | January 31, 2023 | | :------------------------------------ | :------------ | :--------------- | | Software | $35,520 | $32,778 | | Leasehold improvements | $15,267 | $15,254 | | Computer equipment | $11,787 | $11,780 | | Total, net | $25,915 | $27,159 | - Total property and equipment, net, decreased by **$1.2 million**, primarily due to accumulated depreciation and amortization[45](index=45&type=chunk) - Total depreciation and amortization expense for property and equipment was **$4.98 million** for the six months ended July 31, 2023, up from **$4.37 million** in the prior year[45](index=45&type=chunk) [Note 7. Purchased Intangible Assets and Goodwill](index=17&type=section&id=Note%207.%20Purchased%20Intangible%20Assets%20and%20Goodwill) Details Zuora's purchased intangible assets and goodwill, including amortization and foreign currency translation effects | Intangible Assets (in thousands) | July 31, 2023 Net Carrying Amount | January 31, 2023 Net Carrying Amount | | :------------------------------- | :-------------------------------- | :----------------------------------- | | Developed technology | $9,379 | $10,377 | | Customer relationships | $1,681 | $1,962 | | Trade name | $664 | $862 | | Total | $11,724 | $13,201 | - Purchased intangible assets, net, decreased by **$1.48 million**, primarily due to amortization[46](index=46&type=chunk) - Goodwill increased from **$53.99 million** to **$57.15 million**, with effects of foreign currency translation contributing **$2.65 million** to the increase[46](index=46&type=chunk) [Note 8. Accrued Expenses and Other Current Liabilities](index=18&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Outlines Zuora's accrued expenses and other current liabilities, including litigation settlements and warrant liabilities | Accrued Liabilities (in thousands) | July 31, 2023 | January 31, 2023 | | :--------------------------------- | :------------ | :--------------- | | Litigation settlement | $75,500 | $75,000 | | Warrant liability | $7,585 | $2,829 | | Accrued contingent consideration | — | $4,420 | | Total | $98,770 | $103,678 | - The litigation settlement accrual increased to **$75.5 million**, representing the combined settlement of federal and state securities class action matters, pending final court approval[47](index=47&type=chunk) - Accrued contingent consideration decreased to zero, indicating the payment of **$4.42 million** during the period[47](index=47&type=chunk) [Note 9. Debt](index=18&type=section&id=Note%209.%20Debt) Describes Zuora's debt obligations, including convertible senior notes, their terms, and related interest expenses - Zuora issued **$250.0 million** in convertible senior notes (Initial Notes) in March 2022 and agreed to issue an additional **$150.0 million** (Additional Notes) in September 2023[48](index=48&type=chunk) - The 2029 Notes bear interest at **3.95%** per annum (cash) or **5.50%** per annum (in kind) and are convertible into Class A common stock at **$20.00** per share[50](index=50&type=chunk) | Debt (in thousands) | July 31, 2023 | January 31, 2023 | | :------------------ | :------------ | :--------------- | | Initial Notes principal | $250,000 | $250,000 | | Unamortized debt discount | $(35,599) | $(39,597) | | Carrying value | $214,401 | $210,403 | - Interest expense related to the Initial Notes was **$8.94 million** for the six months ended July 31, 2023, up from **$6.15 million** in the prior year[55](index=55&type=chunk) - Zuora has an undrawn **$30.0 million** revolving credit facility maturing in October 2025[56](index=56&type=chunk) [Note 10. Deferred Revenue and Performance Obligations](index=19&type=section&id=Note%2010.%20Deferred%20Revenue%20and%20Performance%20Obligations) Details revenue recognized from deferred revenue and the total remaining non-cancellable performance obligations | Revenue Recognized from Deferred Revenue (in thousands) | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :------------------------------------------------------ | :----------------------------- | :----------------------------- | | Revenue recognized from deferred revenue | $126,548 | $115,461 | - Total remaining non-cancellable performance obligations were approximately **$507.9 million** as of July 31, 2023, with **58%** expected to be recognized over the next 12 months[57](index=57&type=chunk) [Note 11. Geographical Information](index=20&type=section&id=Note%2011.%20Geographical%20Information) Provides a breakdown of Zuora's revenue by geographical region, highlighting the contribution of the United States | Revenue by Country (in thousands) | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | United States | $134,755 | $124,227 | | Others | $76,388 | $67,747 | | Total | $211,143 | $191,974 | - The United States accounted for **64%** of total revenue for the six months ended July 31, 2023, with no other individual country exceeding **10%**[58](index=58&type=chunk) [Note 12. Leases](index=20&type=section&id=Note%2012.%20Leases) Summarizes Zuora's lease liabilities and right-of-use assets, including operating lease costs and future maturities | Lease Liabilities (in thousands) | July 31, 2023 | January 31, 2023 | | :------------------------------- | :------------ | :--------------- | | Operating lease right-of-use assets | $26,628 | $22,768 | | Total operating lease liabilities | $47,760 | $47,164 | - Operating lease cost for the six months ended July 31, 2023, was **$4.41 million**, a decrease from **$5.25 million** in the prior year[61](index=61&type=chunk) - Future maturities of operating lease liabilities total **$55.9 million**, with **$5.53 million** due in the remainder of fiscal year 2024[62](index=62&type=chunk) [Note 13. Commitments and Contingencies](index=21&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) Details Zuora's commitments and contingencies, including legal proceedings, settlement agreements, and contractual obligations - Zuora has bank-issued irrevocable letters of credit for **$4.5 million** as of July 31, 2023[63](index=63&type=chunk) - Zuora agreed to settle the Federal Class Action for **$75.0 million** and the State Class Action for an additional **$0.5 million**, with **$6.6 million** expected to be funded by insurance; preliminary court approval was received in August 2023[68](index=68&type=chunk) - Derivative litigation matters were settled for **$2.0 million** in plaintiffs' attorney fees, paid by insurance carriers in August 2023, with preliminary court approval in July 2023[73](index=73&type=chunk) - A contractual obligation of **$17.1 million** exists for cloud computing services purchases by September 2024[74](index=74&type=chunk) [Note 14. Income Taxes](index=23&type=section&id=Note%2014.%20Income%20Taxes) Presents Zuora's income tax provision, loss before income taxes, and effective tax rates for specified periods | Income Tax (in thousands, except percentages) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss before income taxes | $(21,975) | $(29,381) | $(40,801) | $(52,241) | | Income tax provision | $587 | $529 | $1,056 | $837 | | Effective tax rate | (2.7)% | (1.8)% | (2.6)% | (1.6)% | - The effective tax rates for both periods were negative, primarily due to no benefit being provided on pretax losses incurred in the United States, as a full valuation allowance is maintained on federal and state deferred tax assets[75](index=75&type=chunk) [Note 15. Stockholders' Equity](index=23&type=section&id=Note%2015.%20Stockholders%27%20Equity) Details Zuora's common stock structure, voting rights, and accumulated other comprehensive loss components - As of July 31, 2023, Zuora had **132.4 million** shares of Class A common stock and **8.1 million** shares of Class B common stock outstanding[79](index=79&type=chunk) - Class A common stock holders have one vote per share, while Class B common stock holders have ten votes per share[78](index=78&type=chunk) | Accumulated Other Comprehensive Loss (in thousands) | January 31, 2023 | July 31, 2023 | | :-------------------------------------------------- | :--------------- | :------------ | | Foreign currency translation adjustment | $(343) | $(1,030) | | Unrealized loss on available-for-sale securities | $(576) | $(64) | | Total | $(919) | $(1,094) | [Note 16. Employee Stock Plans](index=24&type=section&id=Note%2016.%20Employee%20Stock%20Plans) Outlines Zuora's employee stock plans, including shares reserved, stock option, and RSU activity, and compensation expense - As of July 31, 2023, approximately **29.3 million** shares of Class A common stock were reserved for issuance under the 2018 Equity Incentive Plan[81](index=81&type=chunk) | Stock Option Activity (in thousands) | Balance, January 31, 2023 | Balance, July 31, 2023 | | :----------------------------------- | :------------------------ | :--------------------- | | Shares Subject To Outstanding Stock Options | 7,761 | 6,637 | | Weighted Average Exercise Price | $9.28 | $8.87 | | RSU Activity (in thousands) | Balance, January 31, 2023 | Balance, July 31, 2023 | | :-------------------------- | :------------------------ | :--------------------- | | Number of RSUs Outstanding | 12,504 | 14,951 | | Weighted-Average Grant Date Fair Value | $12.98 | $10.64 | - Stock-based compensation expense totaled **$51.87 million** for the six months ended July 31, 2023, an increase from **$51.04 million** in the prior year[89](index=89&type=chunk) [Note 17. Warrants to Purchase Shares of Common Stock](index=26&type=section&id=Note%2017.%20Warrants%20to%20Purchase%20Shares%20of%20Common%20Stock) Describes warrants issued to Silver Lake, their exercise terms, and the revaluation of liability-classified warrants - Zuora issued warrants to Silver Lake to acquire up to **7.5 million** shares of Class A common stock, exercisable at prices ranging from **$20.00** to **$24.00** per share[90](index=90&type=chunk) - A portion of the warrants is classified as a current liability due to certain settlement provisions, with a fair value of **$7.585 million** as of July 31, 2023[91](index=91&type=chunk)[40](index=40&type=chunk) | Revaluation of Liability-Classified Warrants (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :---------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Loss) gain on revaluation | $(4,786) | $4,524 | $(4,756) | $8,896 | [Note 18. Net Loss Per Share](index=27&type=section&id=Note%2018.%20Net%20Loss%20Per%20Share) Presents Zuora's net loss per share calculations, including weighted-average shares outstanding and potentially dilutive securities | Net Loss Per Share (in thousands, except per share data) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(22,562) | $(29,910) | $(41,857) | $(53,078) | | Weighted-average common shares outstanding, basic and diluted | 138,605 | 130,280 | 137,417 | 129,384 | | Net loss per share, basic and diluted | $(0.16) | $(0.23) | $(0.30) | $(0.41) | - Basic and diluted net loss per share are the same due to the company being in a net loss position, making all potentially dilutive securities anti-dilutive[95](index=95&type=chunk) | Potentially Dilutive Securities (in thousands) | July 31, 2023 | July 31, 2022 | | :--------------------------------------------- | :------------ | :------------ | | Unvested RSUs | 14,951 | 14,591 | | Initial Notes conversion | 12,500 | 12,500 | | Warrants | 7,500 | 7,500 | | Issued and outstanding stock options | 6,637 | 8,098 | | Unvested PSUs | 2,855 | 2,905 | | Shares committed under ESPP | 290 | 208 | | Total | 44,733 | 45,802 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on Zuora's financial condition, operational results, key metrics, liquidity, and critical accounting estimates [Overview](index=28&type=section&id=Overview) Introduces Zuora's cloud-based subscription management platform, its capabilities, and the company's vision for recurring revenue businesses - Zuora offers a leading monetization suite that serves as an intelligent hub for businesses to manage and orchestrate the complete quote-to-cash and revenue recognition process for subscription and consumption-based models[100](index=100&type=chunk) - The solution helps companies launch, manage, and scale subscription businesses, automating quoting, billing, collections, and revenue recognition, and improving subscriber experience[100](index=100&type=chunk) - Zuora's vision is 'The World Subscribed,' focusing on providing technology for customer-centric, recurring revenue businesses[103](index=103&type=chunk) [Fiscal Second Quarter Business Highlights and Recent Developments](index=29&type=section&id=Fiscal%20Second%20Quarter%20Business%20Highlights%20and%20Recent%20Developments) Summarizes key business achievements and developments during the fiscal second quarter, including customer growth and ARR - Customers with Annual Contract Value (ACV) ≥ **$250,000**: **444** as of July 31, 2023, up from **407** as of July 31, 2022 - Seven deals closed in Q2 FY2024 had ACV ≥ **$500,000**, with one exceeding **$1.0 million** - Dollar-based retention rate: **107%** as of July 31, 2023, down from **111%** as of July 31, 2022 - Annual Recurring Revenue (ARR): **$384.2 million** as of July 31, 2023, up **14%** YoY from **$337.6 million** as of July 31, 2022[106](index=106&type=chunk) [Fiscal Second Quarter Financial Performance Summary](index=29&type=section&id=Fiscal%20Second%20Quarter%20Financial%20Performance%20Summary) Presents a concise overview of Zuora's financial performance for the fiscal second quarter, including revenue, gross profit, and operating loss - Subscription revenue: **$95.5 million**, an increase of **14%** YoY (**16%** on a constant currency basis) - Total revenue: **$108.0 million**, an increase of **9%** YoY (**11%** on a constant currency basis) - Gross profit: **$70.3 million**, or **65%** of total revenue, compared to **$60.1 million**, or **61%** of total revenue in the prior year - Loss from operations: **$18.2 million**, or **17%** of total revenue, compared to a loss of **$30.2 million**, or **31%** of total revenue in the prior year[107](index=107&type=chunk) [Key Operational and Financial Metrics](index=29&type=section&id=Key%20Operational%20and%20Financial%20Metrics) Details key operational and financial metrics, such as customer growth, dollar-based retention rate, and annual recurring revenue | Metric | July 31, 2023 | July 31, 2022 | | :------------------------------------ | :------------ | :------------ | | Customers with ACV ≥ $250,000 | 444 | 407 | | Dollar-based retention rate | 107 % | 111 % | | Annual recurring revenue growth | 14 % | 20 % | - The number of customers with ACV equal to or greater than **$250,000** increased, indicating broader adoption by larger organizations and expansion within the existing customer base[110](index=110&type=chunk) - The dollar-based retention rate decreased to **107%**, reflecting the ability to retain and expand revenue from existing customers, though at a slower pace than the prior year[111](index=111&type=chunk) - Annual Recurring Revenue (ARR) grew by **14%** year-over-year to **$384.2 million**, indicating continued growth in the annualized recurring value of active subscription contracts[112](index=112&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Explains the various components of Zuora's revenue and operating expenses, and their expected trends - Subscription revenue is derived from fees for platform access, use, and customer support, typically recognized ratably over one-to-three-year non-cancelable agreements[114](index=114&type=chunk) - Professional services revenue comes from implementation, configuration, and optimization services, recognized as performed, with a strategic shift towards system integration partners expected to decrease its percentage of total revenue[115](index=115&type=chunk) - Cost of subscription revenue includes data center, third-party hosting, employee compensation, and amortization of capitalized software, with continued investment expected[119](index=119&type=chunk) - Operating expenses, including R&D, Sales & Marketing, and G&A, are expected to remain relatively consistent or decrease as a percentage of total revenue for the remainder of the fiscal year[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Provides a detailed comparison of Zuora's financial results for the three and six months ended July 31, 2023, versus 2022 | Metric (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription revenue | $95,473 | $83,811 | $185,184 | $162,311 | | Professional services revenue | $12,575 | $14,964 | $25,959 | $29,663 | | Total revenue | $108,048 | $98,775 | $211,143 | $191,974 | | Gross profit | $70,267 | $60,126 | $136,016 | $117,090 | | Loss from operations | $(18,239) | $(30,190) | $(38,418) | $(53,845) | | Net loss | $(22,562) | $(29,910) | $(41,857) | $(53,078) | - Subscription revenue increased by **14%** for both the three and six months ended July 31, 2023, driven by customer base growth and increased transaction volume[144](index=144&type=chunk)[158](index=158&type=chunk) - Professional services revenue decreased by **16%** for the three months and **12%** for the six months, reflecting the strategy to shift work to system integration partners[145](index=145&type=chunk)[159](index=159&type=chunk) - Gross profit increased, with subscription gross margin improving to **78%** (3 months) and **77%** (6 months), while professional services gross margin decreased to **(31)%** (3 months) and **(28)%** (6 months)[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) - Loss from operations significantly improved, decreasing from **$(30.19) million** to **$(18.24) million** for the three months and from **$(53.85) million** to **$(38.42) million** for the six months[128](index=128&type=chunk) [Non-GAAP Financial Measures](index=34&type=section&id=Non-GAAP%20Financial%20Measures) Explains Zuora's use of non-GAAP financial measures, their exclusions, and reconciliation to GAAP results - Zuora uses non-GAAP financial measures to supplement GAAP, providing consistency and comparability for evaluating performance, budgeting, and strategic decisions[131](index=131&type=chunk) - Exclusions from non-GAAP measures include: stock-based compensation, amortization of acquired intangible assets, charitable contributions, shareholder litigation expenses, asset impairment, change in fair value of warrant liabilities, acquisition-related transactions, and workforce reduction charges[133](index=133&type=chunk) | Non-GAAP Metric (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Non-GAAP gross profit | $76,460 | $66,469 | $148,365 | $128,803 | | Non-GAAP income (loss) from operations | $9,559 | $(151) | $15,630 | $(307) | | Non-GAAP net income (loss) | $10,022 | $(4,394) | $16,947 | $(8,436) | | Non-GAAP net income (loss) per share, basic and diluted | $0.07 | $(0.03) | $0.12 | $(0.07) | | Adjusted Free Cash Flow (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted free cash flow (non-GAAP) | $4,024 | $(7,461) | $17,003 | $(3,719) | | Constant Currency Revenue (in thousands) | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription revenue on a constant currency basis | $97,505 | $83,811 | $189,957 | $162,311 | | Total revenue on a constant currency basis | $110,051 | $98,775 | $216,024 | $191,974 | [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses Zuora's cash position, financing activities, and management's assessment of liquidity to meet future obligations - As of July 31, 2023, Zuora had **$406.2 million** in cash, cash equivalents, and short-term investments[170](index=170&type=chunk) - Operations are financed through customer sales, proceeds from 2029 Notes (**$250.0 million** raised, **$150.0 million** expected), warrants, and a **$30.0 million** undrawn revolving credit facility[171](index=171&type=chunk) - Management believes existing liquidity will be sufficient for at least the next 12 months, covering working capital, capital expenditures, debt servicing, and litigation settlements[172](index=172&type=chunk) | Cash Flows (in thousands) | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $19,981 | $2,182 | | Net cash provided by (used in) investing activities | $95,021 | $(146,506) | | Net cash provided by financing activities | $5,727 | $238,428 | | Net increase in cash and cash equivalents | $120,042 | $93,429 | - Total contractual obligations as of July 31, 2023, were **$435.7 million**, with **$95.9 million** committed within the next twelve months[182](index=182&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Identifies key accounting policies and estimates requiring significant management judgment in financial statement preparation - The preparation of financial statements requires management to make estimates and assumptions, particularly regarding revenue recognition, deferred commissions, valuation of stock-based awards, convertible senior notes and warrants, allowance for credit losses, goodwill, long-lived assets, and deferred income tax assets[35](index=35&type=chunk)[36](index=36&type=chunk)[185](index=185&type=chunk) - No recently issued accounting pronouncements not yet adopted are expected to have a material impact on the financial statements[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Outlines Zuora's exposure to market risks, primarily foreign currency exchange rates and interest rates, and their potential financial impact - Zuora is exposed to foreign currency exchange risk, particularly from GBP, Chinese Yuan, and Indian Rupee fluctuations, as a portion of operating expenses are incurred in foreign currencies[191](index=191&type=chunk) - A hypothetical **10%** change in foreign currency exchange rates would not have a material impact on financial statements for the six months ended July 31, 2023 and 2022[191](index=191&type=chunk) - Zuora is exposed to interest rate risk on its cash, cash equivalents, and short-term investments, but its 2029 Notes have a fixed interest rate[192](index=192&type=chunk) - A hypothetical **10%** relative change in interest rates would not have a material impact on the value of cash equivalents and short-term investments or interest owed on outstanding debt for the six months ended July 31, 2023[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Details management's evaluation of Zuora's disclosure controls and internal control over financial reporting, concluding on their effectiveness - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of July 31, 2023, providing reasonable assurance for timely and accurate reporting[195](index=195&type=chunk) - There were no material changes in internal control over financial reporting during the period covered by the report[196](index=196&type=chunk) - Control systems, by their inherent limitations, can only provide reasonable, not absolute, assurance that objectives are met[197](index=197&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 13 for detailed information on Zuora's legal proceedings, including class action and derivative litigation settlements - Information regarding legal proceedings is incorporated by reference from Note 13. Commitments and Contingencies[200](index=200&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) Outlines significant risks that could adversely affect Zuora's business, operating results, and financial condition across various categories [Risks Related to Our Business and Industry](index=44&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Identifies risks associated with customer acquisition, growth management, market development, competition, and debt obligations - Inability to attract new customers and retain/expand sales to existing customers could slow revenue growth, exacerbated by longer sales cycles and reduced discretionary spending due to macroeconomic conditions[203](index=203&type=chunk)[206](index=206&type=chunk) - Failure to effectively manage growth and profitability plans, impacted by macroeconomic conditions, could adversely affect business, operating results, and financial condition[212](index=212&type=chunk) - Slow market development for monetization platform software and related solutions, or slow consumer adoption of subscription products, could hinder growth[213](index=213&type=chunk) - Inability to successfully execute strategic initiatives, such as increasing sales to large enterprises and strengthening partner relationships, could adversely affect the business[215](index=215&type=chunk) - Failure to recruit or retain senior management and key personnel, or maintain corporate culture, could impede business strategy execution[218](index=218&type=chunk) - Currency exchange rate fluctuations, particularly a stronger U.S. Dollar, may adversely affect reported results[220](index=220&type=chunk) - Intense competition in the monetization solutions market could harm operating results if Zuora fails to compete effectively[224](index=224&type=chunk) - History of net losses and anticipated increased operating expenses mean Zuora may not achieve or sustain profitability[226](index=226&type=chunk) - Revenue growth and profitability depend on increasing sales force productivity, which faces challenges in hiring, training, and retention[231](index=231&type=chunk) - Reliance on a limited number of products means failure to gain or maintain market acceptance could harm the business[236](index=236&type=chunk) - Debt obligations, including convertible senior unsecured notes and warrants, could adversely impact cash flow and financial condition[238](index=238&type=chunk) - Operating results may fluctuate quarterly due to numerous unpredictable factors, making future results difficult to predict[241](index=241&type=chunk)[242](index=242&type=chunk) [Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy](index=52&type=section&id=Risks%20Related%20to%20Information%20Technology%2C%20Intellectual%20Property%2C%20and%20Data%20Security%20and%20Privacy) Highlights risks concerning security breaches, data protection laws, intellectual property, solution defects, and reliance on third-party infrastructure - Security breaches or unauthorized access to data could lead to customer loss, reputational damage, regulatory investigations, and significant liabilities[204](index=204&type=chunk)[267](index=267&type=chunk) - Privacy and security concerns, along with evolving global data protection laws (e.g., GDPR, CCPA), increase compliance costs and may reduce solution effectiveness[275](index=275&type=chunk) - Failure to protect intellectual property (patents, copyrights, trademarks, trade secrets) could weaken competitive position and adversely affect operating results[281](index=281&type=chunk) - Errors, defects, or disruptions in Zuora's solution, or reliance on third-party software/infrastructure, could diminish demand, harm financial results, and lead to liability[289](index=289&type=chunk) - Any disruption of service from public cloud providers (AWS, Azure) could interrupt service delivery, harm business, and financial results[292](index=292&type=chunk) - Vulnerability to intellectual property infringement claims from others could result in monetary liability or business disruption[295](index=295&type=chunk) - Failure to comply with open source software license terms could restrict ability to sell solutions or require costly re-engineering[298](index=298&type=chunk) [Risks Related to Legal, Regulatory, Accounting, and Tax Matters](index=52&type=section&id=Risks%20Related%20to%20Legal%2C%20Regulatory%2C%20Accounting%2C%20and%20Tax%20Matters) Covers risks from litigation, regulatory compliance, revenue recognition, customer payments, tax laws, and the need for additional capital - Adverse litigation judgments or settlements, including ongoing class action and derivative lawsuits, could expose Zuora to significant monetary damages or operational limitations[205](index=205&type=chunk)[303](index=303&type=chunk) - Failure to satisfy data protection, security, privacy, and other government/industry-specific requirements could harm growth and incur significant liability[304](index=304&type=chunk) - A lack of subscription renewals or new agreements may not be immediately reflected in operating results due to revenue recognition over contract terms[305](index=305&type=chunk) - Failure to meet service level commitments in customer contracts could lead to credits, refunds, contract terminations, and adverse operating results[306](index=306&type=chunk) - Customers failing to pay in accordance with agreements could adversely affect operating results and financial position[308](index=308&type=chunk) - Ability to use net operating losses (NOLs) to offset future taxable income may be limited, potentially increasing tax liability[309](index=309&type=chunk) - Need to raise additional capital for growth, which may not be available on favorable terms or at all, potentially diluting stockholders[310](index=310&type=chunk) - Failure to comply with anti-corruption and anti-money laundering laws (e.g., FCPA, UK Bribery Act) could result in penalties and adverse consequences[312](index=312&type=chunk) - Non-compliance with governmental export control laws and regulations could adversely affect business and operating results[314](index=314&type=chunk) - Uncertainty regarding sales, use, and other tax laws, or adverse changes/applications of existing laws, could subject Zuora to additional tax liability and increase service costs[318](index=318&type=chunk) - Changes in GAAP principles or interpretations could adversely affect reported financial results[320](index=320&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=52&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Addresses risks concerning stock price volatility, dilution, analyst coverage, dual-class structure, dividend policy, and anti-takeover provisions - The market price of Class A common stock has been and may continue to be volatile, leading to potential loss of investment[205](index=205&type=chunk)[322](index=322&type=chunk) - Substantial issuance or sale of Class A common stock (e.g., from convertible notes, warrants, equity awards) could dilute existing stockholders and depress stock price[325](index=325&type=chunk) - If securities or industry analysts do not publish research, or publish inaccurate/unfavorable research, the stock price and trading volume could decline[328](index=328&type=chunk) - The dual-class common stock structure concentrates voting control with Class B holders (including the CEO), limiting influence of Class A holders on corporate matters[332](index=332&type=chunk) - The dual-class structure may adversely affect the trading market for Class A common stock by limiting inclusion in certain stock indices[334](index=334&type=chunk) - Zuora does not intend to pay dividends for the foreseeable future, requiring investors to rely on stock price appreciation for gains[336](index=336&type=chunk) - Provisions in charter documents and Delaware law could make company acquisition more difficult and limit stockholder influence[337](index=337&type=chunk) [General Risk Factors](index=92&type=section&id=General%20Risk%20Factors) Discusses broader risks such as political developments, economic uncertainty, public company requirements, and catastrophic events - Political developments, economic uncertainty, or downturns (e.g., armed conflict, inflation, rising interest rates, banking system instability) could adversely affect business and operating results[344](index=344&type=chunk) - Requirements of being a public company may strain resources, divert management attention, and affect ability to attract/retain executive management and board members[349](index=349&type=chunk) - Failure to maintain an effective system of disclosure controls and internal control over financial reporting could impair ability to produce timely/accurate financial statements or comply with regulations[354](index=354&type=chunk) - Adverse effects from natural disasters, pandemics, catastrophic events, or man-made problems (e.g., terrorism) could disrupt business operations, and business continuity plans may be inadequate[358](index=358&type=chunk) - Investor expectations regarding environmental, social, and governance (ESG) factors may expose Zuora to new risks and additional costs[360](index=360&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) States that this section is not applicable for the reporting period, indicating no unregistered equity sales or use of proceeds - This section is not applicable for the reporting period[363](index=363&type=chunk) [Item 5. Other Information](index=77&type=section&id=Item%205.%20Other%20Information) Details Rule 10b5-1 trading arrangements adopted by Zuora's directors and executive officers for stock sales - Directors and officers generally trade Zuora stock under Rule 10b5-1 trading arrangements, subject to compliance with regulations and company policies[364](index=364&type=chunk) - Robert J.E. Traube (President and Chief Revenue Officer) adopted a 10b5-1 plan on May 31, 2023, for the sale of up to **31,024** Class A shares and net shares from **453,444** RSUs and **150,000** PSUs, expiring August 30, 2024[365](index=365&type=chunk) - Andrew Cohen (Chief Legal Officer) adopted a 10b5-1 plan on June 21, 2023, for up to **53,893** Class A shares and net shares from **154,167** RSUs and **75,000** PSUs, expiring August 30, 2024[366](index=366&type=chunk) - Todd McElhatton (Chief Financial Officer) adopted a 10b5-1 plan on June 21, 2023, for up to **80,000** Class A shares, **50,000** RSU shares, and net shares from **350,000** PSUs, expiring September 20, 2024[367](index=367&type=chunk) - Tien Tzuo (CEO and Chairman) adopted a 10b5-1 plan on June 22, 2023, primarily to exercise up to **250,000** Class B stock options quarterly and sell net shares from **341,665** RSUs and **350,000** PSUs, expiring September 6, 2024[368](index=368&type=chunk) [Item 6. Exhibits](index=79&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Form 10-Q, including offer letters, certifications from the CEO and CFO, and Inline XBRL documents - Exhibit 10.1*: Offer Letter, dated May 18, 2023, between Peter Hirsch and the Registrant - Exhibit 31.1: Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act - Exhibit 31.2: Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act - Exhibit 32.1**: Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Exhibit 32.2**: Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE: Inline XBRL Taxonomy Extension Documents - Exhibit 104: Cover Page Interactive Data File[369](index=369&type=chunk) [Signatures](index=80&type=section&id=Signatures) Contains the required signatures for the Form 10-Q, certifying its submission on behalf of Zuora, Inc - The report was signed by Todd McElhatton, Chief Financial Officer (Principal Accounting and Financial Officer), on September 6, 2023[374](index=374&type=chunk)

Zuora, Inc. (NYSE:ZUO) Q2 2024 Earnings Call Transcript August 23, 2023 5:00 PM ET Company Participants Carolyn Bass - IR Tien Tzuo - Founder and CEO Todd McElhatton - CFO Robbie Traube - President and CRO Conference Call Participants Adam Hotchkiss - Goldman Sachs Joshua Reilly - Needham Chad Bennett - Craig-Hallum Rob Oliver - Baird Andrew DeGasperi - Berenberg Jacob Stephan - Lake Street Capital Markets Luv Sodha - Jefferies Joseph Vafi - Canaccord Operator Good afternoon, and welcome to Zuora's Second Q ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 001-38451 _____________________________ Zuora, Inc. ...

Financial Data and Key Metrics Changes - Subscription revenue for Q1 was $89.7 million, growing 18% year-over-year in constant currency and 14% as reported, exceeding guidance [28] - Total revenue was $103.1 million, up 14% in constant currency and 11% as reported year-over-year, slightly ahead of guidance [29] - Non-GAAP operating income was $6.1 million, compared to a loss of $0.2 million in the prior year, resulting in a non-GAAP operating margin of 5.9%, a 600-basis-point improvement [31] - Adjusted free cash flow for Q1 was $13 million, with a cash balance of $396.9 million at the end of the quarter [35][36] - The company raised its fiscal 2024 guidance for subscription revenue to $337 million to $384 million, representing a year-over-year growth of 12% at the midpoint [152] Business Line Data and Key Metrics Changes - Professional services revenue was $13.4 million, a decrease of 9% year-over-year, representing 13% of total revenue [58] - Non-GAAP subscription gross margin improved to 81%, a 140-basis-point increase year-over-year [59] - Non-GAAP blended gross margin improved by nearly 290 basis points year-over-year, ending the quarter at 70% [60] Market Data and Key Metrics Changes - The dollar-based retention rate (DBRR) was 108%, flat sequentially but down 2 points year-over-year [4] - The number of customers with an average contract value of $500,000 or more grew 26% year-over-year [15] - ARR at the end of Q1 was $373.9 million, growing 15% as reported [35] Company Strategy and Development Direction - The company is focused on balancing growth and profitability, emphasizing the importance of subscription business models [38][100] - Zuora continues to innovate and expand its product portfolio, with a commitment to ESG and renewable energy initiatives [27][56] - The company is adjusting its go-to-market strategy to focus on smaller, faster deals in response to the macroeconomic environment [13][51] Management's Comments on Operating Environment and Future Outlook - Management noted that buyer behavior remains cautious, consistent with previous quarters, but expressed confidence in achieving growth targets [12][49] - The company expects continued acceleration in ARR growth in the second half of the year, despite current macroeconomic challenges [86][130] - Management highlighted the importance of their technology in enabling customers to adapt to changing business models [21][100] Other Important Information - The company processed $87 billion in billing transaction volume, representing 16% growth year-over-year, and $190 billion in revenue volume, growing 20% year-over-year [64] - Zuora plans to provide new disclosures on transaction volumes annually, reflecting the depth and breadth of its solutions [64] Q&A Session Summary Question: Can you elaborate on the guidance and assumptions for operating margin performance? - Management indicated that the guidance reflects leverage in the business and disciplined spending [6] Question: Are you seeing any trends diverging between the U.S. and European markets? - Management acknowledged that the European IT market may recover before the U.S. due to earlier recession impacts [7] Question: How do you view the impact of smaller deals on long-term growth? - Management believes smaller deals can still lead to significant long-term customer value and expansion opportunities [72][80] Question: What are the expectations for net new ARR growth moving forward? - Management expects net new ARR to accelerate in the second half of the year, reflecting a strong pipeline and customer interactions [86][130] Question: Can you discuss the impact of AI on your products? - Management highlighted ongoing investments in AI to enhance customer experiences and operational efficiency [127]

```markdown PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Zuora, Inc. provides a cloud-based subscription management platform designed to help companies monetize new services and manage recurring revenue models... - Zuora offers a cloud-based **subscription management platform** that automates quote-to-cash and revenue recognition, enabling dynamic recurring revenue models for businesses across diverse industries[25](index=25&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company's vision is **'The World Subscribed'**, aiming to provide technology for customer-centric, recurring revenue businesses[28](index=28&type=chunk) - Key products include **Zuora Platform**, **Zuora Billing**, **Zuora Revenue**, **Zuora Collect**, and **Zephr**, which collectively support subscription orchestration, billing, revenue recognition, payment optimization, and digital subscriber experience[29](index=29&type=chunk)[42](index=42&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - Growth strategy focuses on **acquiring new enterprise customers**, **expanding existing customer relationships** through increased transaction volume and cross-sells, **entering new vertical markets**, and **leveraging global system integrators**[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) Customers with ACV ≥ $100,000 | As of January 31, | 2023 | 2022 | 2021 | | :---------------- | :--- | :--- | :--- | | Customers | 773 | 747 | 676 | - The market for subscription management is **highly competitive**, with competitors including traditional ERP providers (Oracle, SAP), CRM applications (Salesforce), niche billing systems (Amdocs), payment platforms, and in-house solutions[62](index=62&type=chunk) - As of January 31, 2023, Zuora had **1,549 employees**, with **53% located outside the United States**, primarily in Asia, Europe, and Australia[65](index=65&type=chunk) - The company relies on **patents (33 issued, 34 pending)**, **copyrights**, **trademarks** (e.g., Zuora, Subscription Economy, Zephr), **trade secrets**, and confidentiality agreements to protect its intellectual property[76](index=76&type=chunk) [Overview](index=6&type=section&id=Overview) Provides a general overview of the company's operations and strategic direction [Business Benefits of Using Our Solution](index=6&type=section&id=Business%20Benefits%20of%20Using%20Our%20Solution) Highlights the advantages and value proposition of the company's subscription management platform [Products](index=7&type=section&id=Products) Details the core products and services offered by the company [Competitive Strengths](index=8&type=section&id=Competitive%20Strengths) Outlines the key advantages that differentiate the company in the market [Growth Strategy](index=8&type=section&id=Growth%20Strategy) Describes the company's plans for expanding its customer base and market presence [Our Customers](index=9&type=section&id=Our%20Customers) Provides insights into the company's customer base and target markets [Sales and Marketing](index=9&type=section&id=Sales%20and%20Marketing) Explains the strategies and activities used to promote and sell the company's solutions [Competition](index=9&type=section&id=Competition) Analyzes the competitive landscape and the company's position within it [Human Capital](index=10&type=section&id=Human%20Capital) Discusses the company's workforce, talent management, and employee-related information [Intellectual Property](index=12&type=section&id=Intellectual%20Property) Describes the company's efforts to protect its proprietary technologies and brands [Compliance with Government Regulations](index=12&type=section&id=Compliance%20with%20Government%20Regulations) Addresses adherence to relevant laws and regulatory requirements [Corporate Information](index=12&type=section&id=Corporate%20Information) Provides general corporate details and organizational structure information [Available Information](index=12&type=section&id=Available%20Information) Indicates where additional company information can be accessed [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) Zuora faces significant risks including slower revenue growth due to inability to attract and retain customers, economic uncertainty, and ineffective growth management... - Inability to attract new customers and retain/expand sales to existing customers could **slow revenue growth**, exacerbated by longer sales cycles and reduced spending due to macroeconomic conditions[96](index=96&type=chunk)[98](index=98&type=chunk) - Current and future **economic uncertainty**, including recession, inflation, and rising interest rates, along with global banking system instability, may **limit business growth** and **negatively affect operating results**[101](index=101&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk)[231](index=231&type=chunk) - The company has a history of **net losses ($198.0 million in fiscal 2023)** and anticipates increasing operating expenses, making **sustained profitability uncertain**[116](index=116&type=chunk) - Reliance on a **limited number of products** (Zuora Platform, Billing, Revenue, Collect, Zephr) means failure to gain or maintain market acceptance for these products would **significantly harm the business**[115](index=115&type=chunk) - International operations, which generated approximately **35% of total revenue in fiscal 2023**, expose the company to risks such as **currency fluctuations**, compliance with diverse laws, and **political instability**[142](index=142&type=chunk)[143](index=143&type=chunk) - **Security breaches** or unauthorized access to customer/employee data, or perceived insecurity of the solution, could lead to **loss of customers**, **reputational damage**, regulatory investigations, and **significant liabilities**[153](index=153&type=chunk)[154](index=154&type=chunk)[156](index=156&type=chunk) - The **dual-class common stock structure** (Class B has **10 votes per share**) **concentrates voting control** with holders of Class B common stock, including the CEO, limiting other stockholders' influence on corporate matters[215](index=215&type=chunk) - In March 2023, Zuora agreed to a **$75.0 million settlement** for a federal securities class action litigation, which was accrued as of January 31, 2023, with approximately **$6.6 million expected from insurance**[187](index=187&type=chunk)[317](index=317&type=chunk)[538](index=538&type=chunk) [Risk Factors Summary](index=13&type=section&id=Risk%20Factors%20Summary) Summarizes the principal risks and uncertainties affecting the company's business [Risks Related to Our Business and Industry](index=15&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Details specific risks associated with the company's operations and market sector [Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy](index=29&type=section&id=Risks%20Related%20to%20Information%20Technology%2C%20Intellectual%20Property%2C%20and%20Data%20Security%20and%20Privacy) Addresses risks concerning technology, data protection, and intellectual property [Risks Related to Legal, Regulatory, Accounting, and Tax Matters](index=35&type=section&id=Risks%20Related%20to%20Legal%2C%20Regulatory%2C%20Accounting%2C%20and%20Tax%20Matters) Covers risks arising from legal, regulatory, and financial compliance issues [Risks Related to Ownership of Our Class A Common Stock](index=39&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Outlines risks pertinent to holding the company's Class A common stock [General Risk Factors](index=43&type=section&id=General%20Risk%20Factors) Presents broad risks that could impact the company's overall performance [Item 1B. Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Item 2. Properties](index=46&type=section&id=Item%202.%20Properties) Zuora's corporate headquarters are in Redwood City, California, occupying approximately 50,000 square feet. The company also leases facilities globally and believes current spaces are adequate for near-term needs, with additional space available for future growth - Corporate headquarters are in **Redwood City, California**, utilizing approximately **50,000 square feet** of office space[246](index=246&type=chunk) - The company leases facilities in other U.S. and international locations, believing current space is adequate for near-term needs and that suitable additional space will be available for future growth[246](index=246&type=chunk) [Item 3. Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 13. Commitments and Contingencies in the financial statements - Legal proceedings information is detailed in **Note 13. Commitments and Contingencies**[247](index=247&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Zuora, Inc PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Zuora's Class A common stock trades on the NYSE under 'ZUO' since April 2018, while Class B common stock has no public market. As of February 28, 2023, there were 82 record holders for Class A and 48 for Class B. The company has never paid cash dividends and does not expect to in the foreseeable future, prioritizing earnings for business development. The performance graph shows the cumulative total return of Zuora's Class A common stock against major indices from April 2018 to January 2023 - Class A common stock trades on the **NYSE under 'ZUO'** since **April 12, 2018**; Class B common stock has **no public trading market**[251](index=251&type=chunk) Shares Outstanding and Holders of Record (as of Feb 28, 2023) | Class | Shares Outstanding (millions) | Holders of Record | | :---------------- | :---------------------------- | :---------------- | | Class A Common Stock | 127.4 | 82 | | Class B Common Stock | 8.1 | 48 | - The company has **never declared or paid cash dividends** and does not expect to in the foreseeable future, intending to **retain earnings for business development** and general corporate purposes[218](index=218&type=chunk)[253](index=253&type=chunk) Cumulative Total Return ($100 Initial Investment) | Company/Index | April 12, 2018 | Jan 31, 2019 | Jan 31, 2020 | Jan 31, 2021 | Jan 31, 2022 | Jan 31, 2023 | | :---------------------------- | :------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Zuora | $100 | $108.20 | $73.75 | $73.75 | $83.15 | $39.60 | | S&P 500 Index | $100 | $103.08 | $125.44 | $147.07 | $181.33 | $166.43 | | NASDAQ Composite | $100 | $102.83 | $130.63 | $188.22 | $206.38 | $169.34 | | S&P 500 Information Technology Index | $100 | $101.26 | $147.92 | $202.85 | $256.45 | $216.20 | [Market Information for Common Stock](index=47&type=section&id=Market%20Information%20for%20Common%20Stock) Provides details on the trading market for the company's common stock [Holders of Record](index=47&type=section&id=Holders%20of%20Record) Lists the number of record holders for the company's common stock [Dividend Policy](index=47&type=section&id=Dividend%20Policy) States the company's policy regarding dividend payments to shareholders [Performance Graph](index=47&type=section&id=Performance%20Graph) Compares the cumulative total return of the company's stock against market indices [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on equity securities sold without registration and how proceeds were utilized [Issuer Purchases of Equity Securities](index=48&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Details any repurchases of the company's own equity securities [Item 6. [Reserved]](index=48&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Zuora's financial performance in fiscal 2023 showed an 18% increase in subscription revenue and 14% in total revenue, reaching $338.4 million and $396.1 million respectively. However, the company reported a net loss of $198.0 million, significantly higher than the previous year, partly due to a $75.0 million litigation settlement accrual and increased operating expenses. Key operational metrics like dollar-based retention rate decreased to 108%, while Annual Recurring Revenue (ARR) grew 16% to $365.0 million. The company continues to invest in its platform and workforce, while managing macroeconomic uncertainties and foreign currency headwinds Fiscal 2023 Financial Performance Summary (YoY Change) | Metric | FY2023 (GAAP) | FY2022 (GAAP) | Change ($M) | Change (%) | | :--------------------- | :----------------- | :----------------- | :---------- | :--------- | | Subscription Revenue | $338.4 million | $287.7 million | $50.6 | 18% | | Total Revenue | $396.1 million | $346.7 million | $49.3 | 14% | | Total Cost of Revenue | $153.2 million | $140.1 million | $13.1 | 9% | | Loss from Operations | $(187.5) million | $(96.2) million | $(91.3) | 95% | | Net Loss | $(198.0) million | $(99.4) million | $(98.6) | 99% | Key Operational Metrics (as of Jan 31) | Metric | 2023 | 2022 | YoY Growth (2023) | | :----------------------------------------- | :---- | :---- | :---------------- | | Customers with ACV ≥ $100,000 | 773 | 747 | 3% | | Dollar-based retention rate | 108% | 110% | -2% | | Annual Recurring Revenue (ARR) | $365.0M | $313.9M | 16% | - Subscription revenue growth was primarily driven by an **increase in the customer base**, including new and existing customers, contributing approximately **$20.7 million from new customers**[307](index=307&type=chunk) - Professional services revenue **decreased by 2%** due to a **strategic shift towards leveraging systems integrator partners** for implementation work, focusing on recurring subscription revenue[308](index=308&type=chunk) - Operating expenses increased significantly, with **Sales and Marketing up 21% to $173.9 million**, **Research and Development up 23% to $102.6 million**, and **General and Administrative up 3% to $78.9 million**[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - A **$75.0 million litigation settlement accrual** was recorded in fiscal 2023 for a federal securities class action, with **$6.6 million expected to be covered by insurance**[317](index=317&type=chunk)[538](index=538&type=chunk) Free Cash Flow (in thousands) | Metric | FY2023 | FY2022 | | :---------------------------------------- | :---------- | :---------- | | Net cash (used in) provided by operating activities | $(20,644) | $18,686 | | Less: Purchases of property and equipment, net of insurance recoveries | $(10,634) | $(8,432) | | Free cash flow | $(31,278) | $10,254 | - Net cash used in operating activities **increased by $39.3 million in fiscal 2023**, primarily due to **interest paid on convertible notes**, **workforce reduction charges**, acquisition-related expenses, and **lower billings**[330](index=330&type=chunk) - In March 2022, Zuora issued **$250.0 million in convertible senior unsecured notes** and warrants to Silver Lake, with an agreement to issue an **additional $150.0 million in September 2023**, to fund future growth[269](index=269&type=chunk)[324](index=324&type=chunk)[463](index=463&type=chunk) - The company **acquired Zephr**, a digital subscriber experience platform, in **September 2022 for $47.9 million**, including cash payments and contingent consideration[269](index=269&type=chunk)[332](index=332&type=chunk)[527](index=527&type=chunk)[528](index=528&type=chunk) [Overview](index=49&type=section&id=Overview) Provides an executive summary of the company's financial condition and results of operations [Key Operational and Financial Metrics](index=50&type=section&id=Key%20Operational%20and%20Financial%20Metrics) Highlights the essential performance indicators used to evaluate the business [Components of Our Results of Operations](index=51&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Explains the various revenue and expense categories contributing to financial results [Results of Operations](index=53&type=section&id=Results%20of%20Operations) Presents a detailed analysis of the company's financial performance [Non-GAAP Financial Measures](index=54&type=section&id=Non-GAAP%20Financial%20Measures) Discusses financial metrics not prepared in accordance with GAAP and their reconciliation [Comparison of the Fiscal Years Ended January 31, 2023 and 2022](index=59&type=section&id=Comparison%20of%20the%20Fiscal%20Years%20Ended%20January%2031%2C%202023%20and%202022) Compares financial performance between the specified fiscal years [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet short-term and long-term financial obligations [Critical Accounting Estimates](index=63&type=section&id=Critical%20Accounting%20Estimates) Identifies accounting estimates that require significant judgment and could impact financial results [Recent Accounting Pronouncements—Adopted in Fiscal 2023](index=64&type=section&id=Recent%20Accounting%20Pronouncements%E2%80%94Adopted%20in%20Fiscal%202023) Summarizes new accounting standards adopted during the fiscal year 2023 [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Zuora is exposed to market risks from foreign currency exchange rate fluctuations and interest rates. While a hypothetical 10% change in foreign currency rates or interest rates would not have a material impact on historical financial statements or operating results, the company monitors these risks. Currently, no derivative or hedging transactions are in place, but this approach may be reassessed as international operations grow - The company is exposed to market risks from fluctuations in **foreign currency exchange rates** (USD, EUR, GBP, JPY) and **interest rates**[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) - A hypothetical 10% change in foreign currency exchange rates or interest rates would **not have a material impact** on historical consolidated financial statements or operating results for fiscal years 2023 and 2022[348](index=348&type=chunk)[351](index=351&type=chunk) - Zuora **does not currently hedge** its exposure to foreign currency exchange risks but may do so in the future if international operations become more significant[107](index=107&type=chunk)[348](index=348&type=chunk) [Foreign Currency Exchange Risk](index=65&type=section&id=Foreign%20Currency%20Exchange%20Risk) Analyzes the company's exposure to fluctuations in foreign currency exchange rates [Interest Rate Risk](index=65&type=section&id=Interest%20Rate%20Risk) Examines the company's sensitivity to changes in interest rates [Item 8. Financial Statements and Supplementary Data](index=66&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Zuora's audited consolidated financial statements, including balance sheets, statements of comprehensive loss, stockholders' equity, and cash flows for the fiscal years ended January 31, 2023, 2022, and 2021. It also includes the Report of Independent Registered Public Accounting Firm and detailed notes on significant accounting policies, investments, fair value measurements, debt, commitments, income taxes, and recent acquisitions like Zephr - The **consolidated financial statements** include the balance sheets, statements of comprehensive loss, stockholders' equity, and cash flows for the fiscal years ended January 31, 2023, 2022, and 2021[354](index=354&type=chunk)[357](index=357&type=chunk) - KPMG LLP provided an **unqualified opinion** on the **consolidated financial statements** and the **effectiveness of internal control over financial reporting** as of January 31, 2023[357](index=357&type=chunk)[358](index=358&type=chunk) - A **critical audit matter** identified was the evaluation of **standalone-selling prices (SSPs)** for subscription and professional services, requiring **significant subjective auditor judgment**[366](index=366&type=chunk)[367](index=367&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | Jan 31, 2023 | Jan 31, 2022 | | :--------------------------- | :----------- | :----------- | | Total Assets | $668,598 | $441,252 | | Total Liabilities | $571,438 | $270,645 | | Total Stockholders' Equity | $97,160 | $170,607 | Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | FY2023 | FY2022 | FY2021 | | :--------------------------- | :----------- | :----------- | :----------- | | Total Revenue | $396,087 | $346,738 | $305,420 | | Gross Profit | $242,858 | $206,632 | $174,650 | | Loss from Operations | $(187,455) | $(96,176) | $(73,862) | | Net Loss | $(197,970) | $(99,425) | $(73,174) | | Net Loss per Share (Basic & Diluted) | $(1.51) | $(0.80) | $(0.62) | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | FY2023 | FY2022 | FY2021 | | :---------------------------------------- | :----------- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(20,644) | $18,686 | $11,286 | | Net cash used in investing activities | $(131,074) | $(20,099) | $12,872 | | Net cash provided by financing activities | $241,911 | $21,483 | $14,981 | | Net increase in cash and cash equivalents | $89,732 | $19,397 | $39,835 | - As of January 31, 2023, Zuora had U.S. federal and state **net operating loss carryforwards** of approximately **$523.5 million** and **$349.7 million**, respectively, subject to certain limitations[498](index=498&type=chunk) - **Unrecognized compensation costs** for unvested equity awards totaled **$191.1 million** as of January 31, 2023, with a weighted-average remaining recognition period of 1.2 to 2.2 years[520](index=520&type=chunk) [Report of Independent Registered Public Accounting Firm](index=67&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Presents the auditor's opinion on the consolidated financial statements and internal controls [Consolidated Balance Sheets](index=69&type=section&id=Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and equity at specific dates [Consolidated Statements of Comprehensive Loss](index=70&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Details the company's revenues, expenses, and net loss over a period [Consolidated Statements of Stockholders' Equity](index=71&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Shows changes in the equity section of the balance sheet over time [Consolidated Statements of Cash Flows](index=72&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Reports on the cash generated and used by operating, investing, and financing activities [Notes to Consolidated Financial Statements](index=73&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations and additional information supporting the financial statements [Note 1. Overview and Basis of Presentation](index=73&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) Provides an introduction to the financial statements and the basis of their preparation [Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=74&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) Details the key accounting principles and recent changes adopted by the company [Note 3. Investments](index=81&type=section&id=Note%203.%20Investments) Describes the company's investment portfolio and related accounting treatments [Note 4. Fair Value Measurements](index=82&type=section&id=Note%204.%20Fair%20Value%20Measurements) Explains the methodologies used for fair value measurements of financial instruments [Note 5. Prepaid Expenses and Other Current Assets](index=83&type=section&id=Note%205.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Details the components of prepaid expenses and other current assets [Note and Equipment, Net](index=84&type=section&id=Note%206.%20Property%20and%20Equipment%2C%20Net) Provides information on the company's property and equipment, net of depreciation [Note 7. Intangible Assets and Goodwill](index=85&type=section&id=Note%207.%20Intangible%20Assets%20and%20Goodwill) Details the company's intangible assets and goodwill, including impairment considerations [Note 8. Accrued Expenses and Other Current Liabilities](index=86&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Outlines the components of accrued expenses and other short-term liabilities [Note 9. Debt](index=86&type=section&id=Note%209.%20Debt) Describes the company's debt obligations and related terms [Note 10. Deferred Revenue and Performance Obligations](index=88&type=section&id=Note%2010.%20Deferred%20Revenue%20and%20Performance%20Obligations) Explains the accounting for deferred revenue and performance obligations [Note 11. Geographical Information](index=88&type=section&id=Note%2011.%20Geographical%20Information) Provides financial data segmented by geographical regions [Note 12. Leases](index=88&type=section&id=Note%2012.%20Leases) Details the company's lease arrangements and related accounting [Note 13. Commitments and Contingencies](index=90&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) Outlines the company's contractual commitments and potential contingent liabilities [Note 14. Income Taxes](index=93&type=section&id=Note%2014.%20Income%20Taxes) Explains the company's income tax provisions, deferred taxes, and tax loss carryforwards [Note 15. Stockholders' Equity](index=95&type=section&id=Note%2015.%20Stockholders%27%20Equity) Details the components of stockholders' equity, including common stock and accumulated deficit [Note 16. Employee Stock Plans](index=96&type=section&id=Note%2016.%20Employee%20Stock%20Plans) Describes the company's equity compensation plans for employees [Note 17. Warrants to Purchase Shares of Common Stock](index=99&type=section&id=Note%2017.%20Warrants%20to%20Purchase%20Shares%20of%20Common%20Stock) Provides information on outstanding warrants for common stock [Note 18. Net Loss Per Share](index=99&type=section&id=Note%2018.%20Net%20Loss%20Per%20Share) Explains the calculation of net loss per share, both basic and diluted [Note 19. Zephr Acquisition](index=100&type=section&id=Note%2019.%20Zephr%20Acquisition) Details the financial aspects and impact of the Zephr acquisition [Note 20. Subsequent Events](index=102&type=section&id=Note%2020.%20Subsequent%20Events) Reports significant events that occurred after the balance sheet date [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=103&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There are no changes in or disagreements with accountants on accounting and financial disclosure to report [Item 9A. Controls and Procedures](index=103&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that Zuora's disclosure controls and procedures were effective as of January 31, 2023, providing reasonable assurance for timely and accurate financial reporting. The internal control over financial reporting was also deemed effective, as attested by KPMG LLP. No material changes in internal control over financial reporting occurred during the last fiscal quarter - As of January 31, 2023, management concluded that **disclosure controls and procedures were effective** to provide **reasonable assurance for timely and accurate financial reporting**[543](index=543&type=chunk) - **Internal control over financial reporting was also deemed effective** as of January 31, 2023, with an audit opinion from KPMG LLP[544](index=544&type=chunk) - **No material changes in internal control over financial reporting occurred** during the three months ended January 31, 2023[545](index=545&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=103&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Assesses the effectiveness of controls ensuring timely and accurate financial disclosures [Management's Report on Internal Control Over Financial Reporting](index=103&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Presents management's assessment of the effectiveness of internal controls over financial reporting [Changes in Internal Control Over Financial Reporting](index=103&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports any material changes in the company's internal control over financial reporting [Inherent Limitations on Effectiveness of Controls](index=103&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Acknowledges the intrinsic limitations that may affect the effectiveness of internal controls [Item 9B. Other Information](index=103&type=section&id=Item%209B.%20Other%20Information) This item is not applicable and contains no other information [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=103&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable and contains no disclosure regarding foreign jurisdictions that prevent inspections PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=104&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement relating to the 2023 Annual Meeting of Stockholders[551](index=551&type=chunk) [Item 11. Executive Compensation](index=104&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement relating to the 2023 Annual Meeting of Stockholders[552](index=552&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=104&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement relating to the 2023 Annual Meeting of Stockholders[553](index=553&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=104&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement relating to the 2023 Annual Meeting of Stockholders[554](index=554&type=chunk) [Item 14. Principal Accounting Fees and Services](index=104&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement relating to the 2023 Annual Meeting of Stockholders[555](index=555&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=105&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of this Form 10-K. It includes the consolidated financial statements, a description of the registrant's securities, and various agreements such as the Indenture for convertible notes, form of warrant, and equity incentive plans. Certifications by the CEO and CFO are also included as exhibits - The **consolidated financial statements** are listed in the 'Index to Consolidated Financial Statements' under Part II, Item 8[558](index=558&type=chunk) - Exhibits include the **Restated Certificate of Incorporation**, **Amended and Restated Bylaws**, **Indenture for 3.95% / 5.50% Convertible Senior PIK Notes Due 2029**, **Form of Warrant**, and various **equity incentive plans**[559](index=559&type=chunk) - **Certifications of the Chief Executive Officer and Chief Financial Officer** pursuant to 18 U.S.C. Section 1350 are furnished as Exhibits 32.1 and 32.2[560](index=560&type=chunk)[562](index=562&type=chunk) [Item 16. Form 10-K Summary](index=107&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable and contains no summary ```

PART I. FINANCIAL INFORMATION [Financial Statements (unaudited)](index=6&type=section&id=Item%201%2E%20Financial%20Statements) Zuora's unaudited Q3 2022 financial statements, including balance sheets, income, and cash flows, detail the Zephr acquisition, debt, and workforce reduction [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$666.2 million** from **$441.3 million**, driven by cash and goodwill, while liabilities rose to **$482.3 million** due to new debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2022 | Jan 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $511,709 | $328,335 | | Goodwill | $52,618 | $17,632 | | **Total Assets** | **$666,193** | **$441,252** | | Total Current Liabilities | $228,398 | $219,297 | | Debt, net of current portion | $208,393 | $— | | **Total Liabilities** | **$482,289** | **$270,645** | | **Total Stockholders' Equity** | **$183,904** | **$170,607** | [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Total revenue grew to **$101.1 million** with 17% subscription growth, but net loss widened to **$37.0 million** due to higher operating expenses Financial Performance (Three Months Ended Oct 31, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Subscription Revenue | $86,567 | $73,775 | | Total Revenue | $101,072 | $89,230 | | Gross Profit | $60,792 | $53,535 | | Loss from Operations | $(33,921) | $(21,577) | | Net Loss | $(37,034) | $(22,889) | | Net Loss Per Share | $(0.28) | $(0.18) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was **$2.7 million**, investing used **$165.9 million** for Zephr, and financing provided **$239.0 million** from convertible notes Cash Flow Summary (Nine Months Ended Oct 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,679) | $8,320 | | Net cash used in investing activities | $(165,922) | $(1,843) | | Net cash provided by financing activities | $239,003 | $16,364 | | **Net increase in cash and cash equivalents** | **$68,754** | **$22,455** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the **$47.9 million** Zephr acquisition, **$250 million** convertible notes issuance, and an 11% workforce reduction plan - On September 2, 2022, Zuora acquired Zephr, a subscription experience platform, for purchase consideration of **$47.9 million**, including **$43.1 million** in cash and **$4.8 million** in contingent consideration. The acquisition resulted in **$35.0 million** of goodwill[102](index=102&type=chunk)[103](index=103&type=chunk)[106](index=106&type=chunk) - On March 24, 2022, the company issued **$250.0 million** in convertible senior notes to Silver Lake, with an additional **$150.0 million** to be issued within 18 months. The notes bear 3.95% cash interest or 5.50% paid-in-kind interest and mature in 2029[50](index=50&type=chunk) - On November 30, 2022, after the quarter ended, Zuora approved a workforce reduction plan impacting **11%** of its workforce to improve operational efficiencies. The company expects to recognize approximately **$9.5 million** in charges related to this plan[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 performance, including **17%** subscription revenue growth and **19%** ARR growth, Zephr acquisition, macroeconomic impacts, and liquidity [Key Operational and Financial Metrics](index=35&type=section&id=Key%20Operational%20and%20Financial%20Metrics) Key metrics show **770** customers with ACV over **$100k**, a **109%** dollar-based retention rate, and **$350.7 million** in ARR Key Metrics as of October 31, 2022 | Metric | Value | YoY Change | | :--- | :--- | :--- | | Customers with ACV ≥ $100k | 770 | +7% | | Dollar-Based Retention Rate | 109% | -1 ppt | | Annual Recurring Revenue (ARR) | $350.7M | +19% | [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Q3 2022 total revenue grew **13%** to **$101.1 million**, but operating loss widened to **$33.9 million** due to increased expenses Q3 2022 vs Q3 2021 Revenue (in thousands) | Revenue Type | Q3 2022 | Q3 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $86,567 | $73,775 | $12,792 | 17% | | Professional services | $14,505 | $15,455 | $(950) | (6)% | | **Total revenue** | **$101,072** | **$89,230** | **$11,842** | **13%** | - Operating expenses increased significantly in Q3 2022 compared to Q3 2021: - Research and development expense increased by **$6.7 million (31%)** - Sales and marketing expense increased by **$10.0 million (27%)** - General and administrative expense increased by **$3.0 million (18%)** These increases were primarily due to higher employee compensation, acquisition-related costs, and charges associated with the workforce reduction plan[180](index=180&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Zuora held **$400.6 million** in cash and investments, boosted by **$233.9 million** from convertible notes, ensuring sufficient liquidity for 12 months - The company's primary sources of liquidity are customer sales, proceeds from employee stock plans, and debt financing. A major financing event was the issuance of **$250.0 million** in convertible senior notes in March 2022[200](index=200&type=chunk)[201](index=201&type=chunk) Cash Flow Summary (Nine Months Ended Oct 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,679) | $8,320 | | Net cash used in investing activities | $(165,922) | $(1,843) | | Net cash provided by financing activities | $239,003 | $16,364 | [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include foreign currency fluctuations and interest rate changes, with no material impact from a hypothetical 10% rate shift - The company is exposed to foreign currency risk as sales contracts are denominated in USD, EUR, GBP, and JPY, and some operating expenses are in foreign currencies like GBP and CNY[217](index=217&type=chunk) - Interest rate risk pertains to the company's **$400.6 million** in cash and short-term investments. The 2029 Notes have a fixed interest rate and are not subject to this risk[218](index=218&type=chunk) [Controls and Procedures](index=55&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of October 31, 2022, with no material changes to internal financial reporting controls - Management concluded that as of October 31, 2022, the company's disclosure controls and procedures were effective[221](index=221&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the quarter[222](index=222&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=56&type=section&id=Item%201%2E%20Legal%20Proceedings) The company faces ongoing securities class action and derivative lawsuits alleging false statements, which it disputes without estimating potential loss - The company is defending against a putative securities class action lawsuit filed in June 2019, alleging violations of the Exchange Act between April 2018 and May 2019[68](index=68&type=chunk) - Multiple stockholder derivative lawsuits have been filed since September 2019 in various district courts, alleging claims similar to the securities class actions, including breach of fiduciary duty. These cases are either ongoing or currently stayed[71](index=71&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) [Risk Factors](index=56&type=section&id=Item%201A%2E%20Risk%20Factors) Significant risks include business and industry challenges, technology and data vulnerabilities, legal and regulatory matters, and stock ownership concerns [Risks Related to Our Business and Industry](index=58&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Business risks include attracting customers, macroeconomic uncertainty, workforce reduction, market shift to subscriptions, competition, and integrating acquisitions - The company's ability to attract new customers and expand sales is at risk due to macroeconomic factors, a recent workforce reduction, and business disruptions, which could slow revenue growth[233](index=233&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) - The company's debt obligations, particularly the **$400 million** in convertible notes issued or to be issued to Silver Lake, could adversely affect its financial condition by requiring substantial cash flow for debt service and restricting operational flexibility[248](index=248&type=chunk)[249](index=249&type=chunk) - The company's success depends on the continued shift to subscription business models; if this market develops slower than expected, growth may stall[240](index=240&type=chunk) [Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy](index=82&type=section&id=Risks%20Related%20to%20Information%20Technology%2C%20Intellectual%20Property%2C%20and%20Data%20Security%20and%20Privacy) Technology risks include security breaches, compliance with evolving privacy laws like GDPR/CCPA, reliance on third-party cloud providers, and IP infringement claims - Security breaches, unauthorized access to customer data, or perceptions of insecurity could lead to loss of customers, litigation, and significant liabilities[301](index=301&type=chunk) - The company must comply with complex and evolving privacy laws such as GDPR and CCPA, which could increase costs, reduce the effectiveness of its solution, and lead to penalties for non-compliance[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - The business depends on third-party cloud providers like AWS and Microsoft Azure; any service disruption could interrupt service delivery and harm financial results[323](index=323&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=94&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Class A stock risks include price volatility, potential dilution from new share issuance, and limited influence due to a dual-class voting structure - The market price of the Class A common stock has been and may continue to be volatile due to factors like financial results, market conditions, and analyst reports[354](index=354&type=chunk)[355](index=355&type=chunk) - The dual-class stock structure concentrates voting control with holders of Class B common stock, including directors and executive officers, limiting the ability of Class A stockholders to influence corporate matters[364](index=364&type=chunk) - A substantial number of shares could be issued upon conversion of outstanding convertible notes and exercise of warrants, potentially causing significant dilution and a decline in the stock price[356](index=356&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=104&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period covered by the report - The company reported that there were no unregistered sales of equity securities during the period covered by the report[393](index=393&type=chunk) [Exhibits](index=105&type=section&id=Item%206%2E%20Exhibits) This section lists Form 10-Q exhibits, including the Silicon Valley Bank loan amendment and CEO/CFO Sarbanes-Oxley certifications - A key exhibit filed is the Third Amendment to the Loan and Security Agreement with Silicon Valley Bank, dated October 11, 2022[394](index=394&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to the Exchange Act and Sarbanes-Oxley Act of 2002 are included as exhibits[394](index=394&type=chunk) Signatures - The Form 10-Q report was duly signed on behalf of Zuora, Inc. on December 8, 2022, by Todd McElhatton, the Chief Financial Officer[396](index=396&type=chunk)[398](index=398&type=chunk)