Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $101.1 million, representing a 17% increase in constant currency and a 13% increase as reported year-over-year, reaching the high end of guidance [31][33] - Subscription revenue was $86.6 million, growing 20% year-over-year in constant currency and 17% as reported, exceeding guidance [31][32] - Non-GAAP operating income was $0.6 million, compared to an operating loss of $1.2 million in the prior year, resulting in a non-GAAP operating margin of 0.6%, a 198 basis point improvement [36][48] - Free cash flow was negative $7.2 million for the quarter, with expectations for full-year free cash flow to be between negative $33.5 million and negative $36.5 million [42][49] Business Line Data and Key Metrics Changes - Professional Services revenue was $14.5 million, a decline of 6% year-over-year, representing 14% of total revenue [32] - Non-GAAP subscription gross margin was 79%, a decline of approximately 90 basis points year-over-year due to infrastructure investments [34] - Non-GAAP blended gross margin improved by 157 basis points year-over-year, ending the quarter at 67% [35] Market Data and Key Metrics Changes - The dollar-based retention rate (DBRR) was 109%, with a two-point reduction sequentially and a one-point reduction year-over-year [37] - The company processed $22 billion in billing transaction volume in Q3, representing 17% growth in constant currency and 15% growth as reported year-over-year [40] - At the end of Q3, ARR was $350.7 million, growing 19% as reported, with about one point of headwind due to FX [42] Company Strategy and Development Direction - The company is focusing on profitability, committing to a non-GAAP operating margin of at least 6% for fiscal year 2024 [8][25] - The acquisition of Zephr is expected to enhance subscriber engagement and optimize the subscriber experience [12][16] - The company is prioritizing digital customer experiences and subscription business models, which are seen as critical for future growth [11][12] Management's Comments on Operating Environment and Future Outlook - Management noted increased uncertainty in the macro environment, leading to extended sales cycles and cautious customer spending [13][46] - Despite the challenges, management remains confident in the long-term opportunity and the resilience of subscription businesses [25][53] - The company anticipates continued strong interest in its products, particularly in industries like media and manufacturing [12][17] Other Important Information - The company announced a workforce reduction of 11% to align its cost structure with expected near-term growth [8][30] - The acquisition of Zephr is expected to contribute positively to the company's growth strategy and customer engagement [16][25] Q&A Session Summary Question: Can you provide more details on the layoffs and the mix of quota-bearing headcount retained? - Management indicated that the majority of quota-carrying capacity was preserved, with only a few non-productive territories affected [56] Question: How do leads from alliance partners compare to direct qualified leads? - Leads from alliance partners have been better qualified, larger, and close quicker, prompting a shift in focus towards these sources [57][58] Question: What impact did customer cautiousness have on ARR and billings this quarter? - Management noted that while volumes were still growing, customers were hesitant to commit to increased volumes, impacting overall growth [64][65] Question: How did the performance of system integrators (SIs) compare to direct sales? - Both direct and channel sources performed well, but customers were taking longer to make decisions due to cautious spending [68][70] Question: Is there a bifurcation in customer spending towards subscription models? - Management observed a bifurcation, with some industries continuing to invest in subscriptions while others are more cautious [76][78] Question: What gives confidence in the 11% to 14% growth outlook for next year? - The outlook is based on current trends and a prudent approach, with expectations that conditions may worsen [92][94]

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 July 31, 2022 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 reached $83.8 million, growing 19% year-over-year in constant currency and 17% as reported, exceeding guidance [32] - Total revenue was $98.8 million, up 17% in constant currency and 14% as reported year-over-year, also above guidance [32] - Non-GAAP subscription gross margin improved to 80%, an increase of over 100 basis points year-over-year [33] - Non-GAAP operating loss was $0.2 million, compared to a loss of $3.9 million in the prior year, reflecting improved top line growth [34] - ARR was $337.6 million, growing 20% as reported, with about 1 percentage point headwind due to foreign exchange [39] Business Line Data and Key Metrics Changes - Professional services revenue was $15 million, flat year-over-year, with a target mix of 15% of total revenue achieved ahead of plan [32] - The number of customers with annual contract value (ACV) of $500,000 or more grew over 25% year-over-year, with 7 deals closed at this level, up from 2 a year ago [35] - The average contract term was the longest since the IPO, contributing to a total remaining performance obligation growth of $32 million from the prior quarter [37] Market Data and Key Metrics Changes - The company processed $21 billion in transaction volume, representing 18% growth in constant currency and 16% growth as reported year-over-year [38] - The dollar-based retention rate increased to 111%, up from 110% in Q1 and 108% from Q2 of last year [15][35] Company Strategy and Development Direction - The company is focusing on large enterprises in the subscription economy, targeting companies with over $1 billion in revenue and fast-growing companies [11] - An acquisition of Zephr was announced, expected to close in early September, aimed at enhancing the company's offerings in the media and digital publishing sectors [21][22] - The multiproduct land-and-expand strategy is emphasized, with a focus on delivering more value to existing customers [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current macroeconomic climate, citing the resilience of the subscription model [8][28] - The company is cautious about the second half of the year due to macroeconomic uncertainties and foreign exchange impacts [43][71] - Management noted that demand for their solutions remains strong, with a mixed picture regarding deal timelines [74] Other Important Information - The acquisition of Zephr is valued at $44 million in cash, with a potential earnout of $6 million based on ARR growth objectives [42] - Free cash flow was negative $7.6 million for the quarter, with expectations of fluctuations due to timing of cash collections [39][49] Q&A Session Summary Question: Clarification on FX impact on revenue guidance - Management indicated that the majority of the revenue guidance de-risking was due to foreign exchange impacts, with minimal business risk [60][72] Question: New logo deal count and SI influence - Management noted that while the focus has shifted to larger customers, the transition is natural, and the number of larger customers is increasing [61][63] Question: Insights on Zephr's business growth - Zephr has grown to approximately $5 million in ARR, with a healthy growth rate of over 60% annually [68] Question: Demand in Europe and pricing strategies - Management reported good demand in Europe, with a significant portion of contracts priced in local currencies to meet customer expectations [92][95] Question: Free cash flow and delayed payments - Management clarified that the delays in payments are not indicative of collectibility issues, but rather timing with some larger customers [97][99]

PART I. FINANCIAL INFORMATION This section presents Zuora's comprehensive financial data, including unaudited statements, management's analysis, market risk disclosures, and internal controls [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Zuora's unaudited condensed consolidated financial statements, including balance sheets, comprehensive loss, stockholders' equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of Zuora's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Balance Sheet Data | Metric | April 30, 2022 (in thousands) | January 31, 2022 (in thousands) | | :----- | :---------------------------- | :------------------------------ | | Cash and cash equivalents | $350,626 | $113,507 | | Total current assets | $558,373 | $328,335 | | Total assets | $669,319 | $441,252 | | Total current liabilities | $226,824 | $219,297 | | Debt, net of current portion | $204,500 | — | | Total liabilities | $480,463 | $270,645 | | Total stockholders' equity | $188,856 | $170,607 | [Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This statement outlines Zuora's financial performance over a period, showing total revenue, gross profit, operating loss, and net loss Comprehensive Loss Data | Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | YoY Change (in thousands) | YoY Growth | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Subscription Revenue | $78,500 | $65,142 | $13,358 | 20.5% | | Professional Services Revenue | $14,699 | $15,187 | $(488) | -3.2% | | Total Revenue | $93,199 | $80,329 | $12,870 | 16.0% | | Gross Profit | $56,964 | $47,608 | $9,356 | 19.6% | | Loss from Operations | $(23,655) | $(17,409) | $(6,246) | 35.9% | | Net Loss | $(23,168) | $(17,661) | $(5,507) | 31.2% | | Net Loss per Share (Basic & Diluted) | $(0.18) | $(0.15) | $(0.03) | 20.0% | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement details changes in Zuora's equity accounts, including additional paid-in capital and accumulated deficit, over a period Stockholders' Equity Data | Metric | January 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----- | :------------------------------ | :---------------------------- | | Total Stockholders' Equity | $170,607 | $188,856 | | Additional Paid-in Capital | $734,149 | $776,323 | | Accumulated Deficit | $(563,447) | $(586,615) | - Key drivers for the change in **stockholders' equity** include **$22.8 million** in **stock-based compensation** and **$18.4 million** from the issuance of warrants, partially offset by a **net loss** of **$23.2 million**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes Zuora's cash inflows and outflows from operating, investing, and financing activities over a period Cash Flow Data | Cash Flow Activity | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | YoY Change (in thousands) | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Net cash provided by operating activities | $6,983 | $10,251 | $(3,268) | | Net cash used in investing activities | $(3,887) | $(5,616) | $1,729 | | Net cash provided by financing activities | $234,382 | $2,456 | $231,926 | | Net increase in cash and cash equivalents | $237,119 | $7,006 | $230,113 | | Cash and cash equivalents, end of period | $350,626 | $101,116 | $249,510 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the unaudited condensed consolidated financial statements [Note 1. Overview and Basis of Presentation](index=7&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) This note describes Zuora's business, its cloud-based subscription management platform, and the significant accounting estimates and assumptions used in financial reporting - **Zuora** provides a cloud-based subscription management platform to help companies monetize new services and operate dynamic, recurring revenue business models, automating the entire quote-to-cash and **revenue recognition** process[24](index=24&type=chunk)[95](index=95&type=chunk) - **Significant estimates and assumptions** are related to **revenue recognition** (standalone selling prices), amortization period for **deferred commissions**, valuation of **stock-based awards and warrants**, allowance for **credit losses**, **goodwill and long-lived asset impairment**, and **deferred income tax assets**[30](index=30&type=chunk) [Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=8&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) This note outlines Zuora's key accounting policies and the impact of recently adopted accounting pronouncements, particularly regarding convertible instruments - **Significant accounting policies** remain consistent with the Annual Report, with updates for the issuance of **Initial Notes** and Warrants in March **2022**[31](index=31&type=chunk) - Adopted **ASU 2020-06** (simplifying convertible instrument accounting) effective February **1**, **2022**, with no impact on retained earnings or EPS for the adoption period[35](index=35&type=chunk) - Deferred debt issuance costs are amortized using the effective interest rate method over the expected term of the related debt agreement, with approximately **$0.8 million** recognized for the three months ended April **30**, **2022**[33](index=33&type=chunk) [Note 3. Investments](index=9&type=section&id=Note%203.%20Investments) This note details Zuora's short-term investments, including U.S. government securities, corporate bonds, and commercial paper, and their fair values Investment Portfolio | Investment Type | Amortized Cost (April 30, 2022, in thousands) | Fair Value (April 30, 2022, in thousands) | Gross Unrealized Losses (April 30, 2022, in thousands) | | :-------------- | :------------------------------------------ | :--------------------------------------- | :----------------------------------------------------- | | U.S. government securities | $24,091 | $23,708 | $(383) | | Corporate bonds | $28,232 | $28,050 | $(182) | | Commercial paper | $46,173 | $46,173 | — | | Foreign government securities | $4,054 | $3,995 | $(59) | | Total short-term investments | $102,550 | $101,926 | $(624) | - All **short-term investments** had stated effective maturities of less than two years as of April **30**, **2022**[36](index=36&type=chunk) [Note 4. Fair Value Measurements](index=9&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note provides a breakdown of Zuora's financial instruments measured at fair value, categorized by valuation input levels, including money market funds and warrant liabilities Fair Value Measurement Data | Financial Instrument | Level 1 (April 30, 2022, in thousands) | Level 2 (April 30, 2022, in thousands) | Level 3 (April 30, 2022, in thousands) | Total (April 30, 2022, in thousands) | | :----------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :----------------------------------- | | Money market funds | $332,916 | — | — | $332,916 | | Short-term investments | — | $101,926 | — | $101,926 | | Warrant liability | — | — | $7,670 | $7,670 | - The **warrant liability**, classified as Level **3**, was revalued to **$7.7 million** as of April **30**, **2022**, resulting in a **$4.4 million gain on the revaluation** included in interest and other income, net[38](index=38&type=chunk)[91](index=91&type=chunk) [Note 5. Prepaid Expenses and Other Current Assets](index=10&type=section&id=Note%205.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This note itemizes Zuora's prepaid expenses and other current assets, such as prepaid software subscriptions, insurance, and contract assets Prepaid Expenses and Other Current Assets Data | Category | April 30, 2022 (in thousands) | January 31, 2022 (in thousands) | | :------- | :---------------------------- | :------------------------------ | | Prepaid software subscriptions | $7,000 | $6,854 | | Prepaid insurance | $1,979 | $3,220 | | Taxes | $1,490 | $1,270 | | Contract assets | $1,170 | $1,289 | | Prepaid hosting costs | $1,016 | $767 | | Other | $3,605 | $2,203 | | Total | $16,260 | $15,603 | [Note 6. Property and Equipment, Net](index=10&type=section&id=Note%206.%20Property%20and%20Equipment,%20Net) This note details Zuora's property and equipment, net of accumulated depreciation, including software, leasehold improvements, and computer equipment Property and Equipment Data | Category | April 30, 2022 (in thousands) | January 31, 2022 (in thousands) | | :------- | :---------------------------- | :------------------------------ | | Software | $28,125 | $25,495 | | Leasehold improvements | $17,140 | $17,277 | | Computer equipment | $15,173 | $14,746 | | Furniture and fixtures | $4,369 | $4,424 | | Less accumulated depreciation and amortization | $(36,178) | $(34,266) | | Total | $28,629 | $27,676 | - Internal-use software costs capitalized during the three months ended April **30**, **2022**, were **$1.9 million**, an increase from **$0.9 million** in the prior year[40](index=40&type=chunk) - Total depreciation and amortization expense for **property and equipment** was **$2.2 million** for the three months ended April **30**, **2022**, down from **$2.8 million** in the prior year[40](index=40&type=chunk) [Note 7. Purchased Intangible Assets](index=11&type=section&id=Note%207.%20Purchased%20Intangible%20Assets) This note provides information on Zuora's purchased intangible assets, including their net carrying amount and amortization expense Purchased Intangible Assets Data | Metric | January 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :----- | :------------------------------ | :---------------------------- | | Net Carrying Amount | $3,452 | $2,898 | - Amortization expense for **purchased intangible assets** was **$0.6 million** for the three months ended April **30**, **2022**, compared to **$0.4 million** in the prior year[41](index=41&type=chunk) [Note 8. Accrued Expenses and Other Current Liabilities](index=11&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note lists Zuora's accrued expenses and other current liabilities, such as warrant liability, accrued outside services, and accrued taxes Accrued Expenses and Other Current Liabilities Data | Category | April 30, 2022 (in thousands) | January 31, 2022 (in thousands) | | :------- | :---------------------------- | :------------------------------ | | Warrant liability | $7,670 | — | | Accrued outside services and consulting | $5,081 | $3,712 | | Accrued hosting and third-party licenses | $3,848 | $3,865 | | Accrued taxes | $2,215 | $2,422 | | Accrued interest | $1,015 | — | | Other accrued expenses | $4,366 | $4,226 | | Total | $24,195 | $14,225 | [Note 9. Debt](index=11&type=section&id=Note%209.%20Debt) This note details Zuora's debt obligations, including the issuance of convertible senior notes and related interest expense and discounts - Issued **$250.0 million** in **convertible senior notes** (**Initial Notes**) to Silver Lake on March **24**, **2022**, with an agreement for an additional **$150.0 million** within **18 months**[43](index=43&type=chunk)[105](index=105&type=chunk) - The **2029 Notes** bear interest at **3.95%** (cash) or **5.50%** (PIK) and are convertible at **$20.00** per share (**50.0** shares per **$1,000** principal amount)[45](index=45&type=chunk) Debt Summary | Metric | April 30, 2022 (in thousands) | | :----- | :---------------------------- | | Initial Notes principal | $250,000 | | Unamortized discount | $(45,500) | | Carrying value | $204,500 | - Incurred approximately **$8.1 million** in debt issuance costs, with **$7.1 million** allocated as a discount on the **2029 Notes**[50](index=50&type=chunk) - Recognized **$1.8 million** in interest expense related to the **Initial Notes** for the three months ended April **30**, **2022**, including **$0.8 million** from debt discount amortization[51](index=51&type=chunk)[52](index=52&type=chunk) [Note 10. Deferred Revenue and Performance Obligations](index=12&type=section&id=Note%2010.%20Deferred%20Revenue%20and%20Performance%20Obligations) This note explains Zuora's deferred revenue and remaining performance obligations under subscription contracts, indicating future revenue recognition Deferred Revenue Data | Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Revenue recognized from deferred revenue | $73,567 | $62,919 | - **Total remaining non-cancellable performance obligations** under subscription contracts were approximately **$425.4 million** as of April **30**, **2022**, with **58%** expected to be recognized over the next **12 months**[55](index=55&type=chunk) [Note 11. Geographical Information](index=12&type=section&id=Note%2011.%20Geographical%20Information) This note provides a geographical breakdown of Zuora's revenue, highlighting the contribution from the United States and other regions Geographical Revenue Breakdown | Region | Three Months Ended April 30, 2022 (in thousands) | Percentage of Total Revenue (2022) | Three Months Ended April 30, 2021 (in thousands) | Percentage of Total Revenue (2021) | | :----- | :----------------------------------------------- | :--------------------------------- | :----------------------------------------------- | :--------------------------------- | | United States | $59,419 | 64% | $49,707 | 62% | | Others | $33,780 | 36% | $30,622 | 38% | | Total | $93,199 | 100% | $80,329 | 100% | - No individual country other than the **United States** exceeded **10%** of **total revenue** or total long-lived assets for the periods presented[56](index=56&type=chunk)[57](index=57&type=chunk) [Note 12. Leases](index=13&type=section&id=Note%2012.%20Leases) This note details Zuora's operating lease assets and liabilities, including cash paid for leases and weighted-average lease terms Lease Information | Metric | April 30, 2022 (in thousands) | January 31, 2022 (in thousands) | | :----- | :---------------------------- | :------------------------------ | | Operating lease right-of-use assets | $30,482 | $32,643 | | Total operating lease liabilities | $54,056 | $57,095 | - **Cash paid for operating leases** was **$3.4 million** for the three months ended April **30**, **2022**[61](index=61&type=chunk) - **Weighted-average remaining operating lease term** was **6.9 years** with a **weighted-average discount rate** of **4.6%** as of April **30**, **2022**[61](index=61&type=chunk) [Note 13. Commitments and Contingencies](index=14&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) This note outlines Zuora's commitments and potential liabilities, including letters of credit, ongoing lawsuits, and contractual obligations for cloud services - **Zuora** has **$4.5 million** in **bank-issued irrevocable letters of credit** as of April **30**, **2022**[62](index=62&type=chunk) - The company is currently involved in multiple **securities class action** and **stockholder derivative lawsuits**, with discovery ongoing, and is unable to estimate the reasonably possible loss or range of loss[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - **Contractual obligation** of **$52.1 million** for **cloud computing services** by September **30**, **2024**[72](index=72&type=chunk) [Note 14. Income Taxes](index=15&type=section&id=Note%2014.%20Income%20Taxes) This note presents Zuora's income tax provision and effective tax rate, explaining the impact of pretax losses and valuation allowances on deferred tax assets Income Tax Data | Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Loss before income taxes | $(22,860) | $(17,288) | | Income tax provision | $308 | $373 | | Effective tax rate | (1.3)% | (2.2)% | - The **effective tax rate** differs from the statutory rate primarily because no benefit is provided on pretax losses incurred in the **United States**, as a full valuation allowance is maintained on federal and state **deferred tax assets**[73](index=73&type=chunk)[151](index=151&type=chunk) [Note 15. Stockholders' Equity](index=15&type=section&id=Note%2015.%20Stockholders'%20Equity) This note provides details on Zuora's stockholders' equity, including outstanding common stock classes and components of accumulated other comprehensive loss Stockholders' Equity Details | Stock Class | Shares Outstanding (April 30, 2022, in millions) | | :---------- | :----------------------------------------------- | | Class A common stock | 121.1 | | Class B common stock | 8.0 | Stockholders' Equity Details | Component of OCI | January 31, 2022 (in thousands) | April 30, 2022 (in thousands) | | :--------------- | :------------------------------ | :---------------------------- | | Foreign currency translation adjustment | $118 | $(241) | | Unrealized loss on available-for-sale securities | $(226) | $(624) | | Total Accumulated Other Comprehensive Loss | $(108) | $(865) | [Note 16. Employee Stock Plans](index=16&type=section&id=Note%2016.%20Employee%20Stock%20Plans) This note details Zuora's employee stock plans, including outstanding stock options, RSUs, and PSUs, along with stock-based compensation expense Employee Equity Award Summary | Equity Award Type | Shares Outstanding (April 30, 2022, in thousands) | Weighted-Average Grant Date Fair Value (April 30, 2022) | | :---------------- | :------------------------------------------------ | :------------------------------------------------------ | | Stock Options | 8,361 | $9.22 (exercise price) | | RSUs | 12,180 | $15.49 | | PSUs | 2,905 | $15.21 | Employee Equity Award Summary | Stock-Based Compensation Expense | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | YoY Change (in thousands) | YoY Growth | | :------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | :--------- | | Total stock-based compensation expense | $22,825 | $13,797 | $9,028 | 65.4% | - **Unrecognized compensation costs** for unvested equity awards totaled **$192.9 million** as of April **30**, **2022**, with a weighted-average remaining recognition period of **0.7** to **2.5 years** across different award types[87](index=87&type=chunk) [Note 17. Warrants to Purchase Shares of Common Stock](index=16&type=section&id=Note%2017.%20Warrants%20to%20Purchase%20Shares%20of%20Common%20Stock) This note describes warrants issued to Silver Lake, their exercise prices, classification as liabilities, and the gain recognized on their revaluation - Issued **warrants to Silver Lake** to acquire up to **7.5 million Class A common shares**, exercisable at **$20.00**, **$22.00**, and **$24.00** per share over seven years[88](index=88&type=chunk) - Approximately **2.8 million warrants** were classified as a current liability due to certain settlement provisions, valued at **$7.7 million** as of April **30**, **2022**[89](index=89&type=chunk)[91](index=91&type=chunk) - A **$4.4 million gain on the revaluation** of **liability-classified warrants** was recognized for the three months ended April **30**, **2022**[91](index=91&type=chunk) [Note 18. Net Loss Per Share](index=16&type=section&id=Note%2018.%20Net%20Loss%20Per%20Share) This note presents Zuora's net loss per share, including the calculation of weighted-average common shares and the impact of anti-dilutive securities Net Loss Per Share Data | Metric | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss | $(23,168) | $(17,661) | | Weighted-average common shares outstanding, basic and diluted | 128,457 | 121,354 | | Net loss per share, basic and diluted | $(0.18) | $(0.15) | - **Potentially dilutive securities** totaling **43.8 million** (including **Initial Notes** conversion, unvested RSUs, stock options, and warrants) were excluded from diluted EPS calculations as their effect would have been anti-dilutive due to the **net loss** position[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Zuora's financial condition and operating results, covering business overview, performance, metrics, liquidity, and critical accounting policies [Overview](index=23&type=section&id=Overview) This section provides an overview of Zuora's core cloud-based subscription management platform and its vision for recurring revenue models - **Zuora's core business** is a cloud-based subscription management platform that automates the entire quote-to-cash and **revenue recognition** process for recurring revenue models[95](index=95&type=chunk) - The company's vision is "The World Subscribed," aiming to provide technology for customer-centric, recurring revenue businesses across industries like technology, manufacturing, media, and telecommunications[98](index=98&type=chunk)[100](index=100&type=chunk) - **Zuora's solution** includes **Zuora Central Platform**, **Zuora Billing**, **Zuora Revenue**, and **Zuora Collect**, which help businesses analyze data, optimize offerings, and implement changes[99](index=99&type=chunk) [COVID-19 Pandemic Impact](index=28&type=section&id=COVID-19%20Pandemic%20Impact) This section assesses the impact of the COVID-19 pandemic on Zuora's financial results, noting no material impact for the current fiscal quarter - **Financial results** for the fiscal quarter ended April **30**, **2022**, were not materially impacted by the **COVID-19 pandemic**[101](index=101&type=chunk) - The full impact of the pandemic on **subscription-based revenue** may not be reflected until future periods due to **revenue recognition** over time[101](index=101&type=chunk) [Fiscal First Quarter Business Highlights and Recent Developments](index=28&type=section&id=Fiscal%20First%20Quarter%20Business%20Highlights%20and%20Recent%20Developments) This section highlights key business achievements and recent developments for the fiscal first quarter, including customer growth, ARR, and financing activities - **Customers with Annual Contract Value (ACV) exceeding $100,000** increased by **10% year-over-year** to **746** as of April **30**, **2022**[103](index=103&type=chunk) - **Annual Recurring Revenue (ARR)** grew **20% year-over-year** to **$326.3 million** as of April **30**, **2022**[103](index=103&type=chunk) - **Transaction volume** through **Zuora's billing platform** increased **21% year-over-year** to **$20.6 billion** for the three months ended April **30**, **2022**[104](index=104&type=chunk) - **Dollar-based retention rate** improved to **110%** compared to **103%** as of April **30**, **2021**[108](index=108&type=chunk) - Issued **$250.0 million** of **convertible senior unsecured notes** to Silver Lake on March **24**, **2022**, with an additional **$150.0 million** to be issued within **18 months**[105](index=105&type=chunk) [Fiscal First Quarter Financial Performance Summary](index=28&type=section&id=Fiscal%20First%20Quarter%20Financial%20Performance%20Summary) This section summarizes Zuora's financial performance for the fiscal first quarter, detailing revenue, gross profit, and operating loss metrics Financial Performance Summary | Metric | Three Months Ended April 30, 2022 (in millions) | Three Months Ended April 30, 2021 (in millions) | YoY Growth | | :----- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Subscription Revenue | $78.5 | $65.1 | 21% | | Total Revenue | $93.2 | $80.3 | 16% | | Gross Profit | $57.0 | $47.6 | 19.7% | | Gross Profit Margin | 61% | 59% | +2 ppts | | Loss from Operations | $(23.7) | $(17.4) | 36.2% | | Operating Margin | (25)% | (22)% | -3 ppts | [Key Operational and Financial Metrics](index=28&type=section&id=Key%20Operational%20and%20Financial%20Metrics) This section presents key operational and financial metrics used to evaluate Zuora's business performance, including customer growth and retention rates [Customers with Annual Contract Value (ACV) Equal to or Greater than $100,000](index=28&type=section&id=Customers%20with%20Annual%20Contract%20Value%20(ACV)%20Equal%20to%20or%20Greater%20than%20%24100,000) This metric tracks the growth in Zuora's customer base with significant annual contract values, indicating market penetration and expansion - **Number of customers with ACV ≥ $100,000** increased to **746** as of April **30**, **2022**, from **677** as of April **30**, **2021**, indicating a **10.2% year-over-year increase**[103](index=103&type=chunk)[110](index=110&type=chunk) - This metric is expected to increase for the fiscal year, reflecting broader adoption and expansion within the customer base[110](index=110&type=chunk) [Dollar-Based Retention Rate](index=30&type=section&id=Dollar-Based%20Retention%20Rate) This metric measures Zuora's ability to retain and expand revenue from existing customers, reflecting customer satisfaction and product adoption - **Dollar-based retention rate** increased to **110%** as of April **30**, **2022**, compared to **103%** as of April **30**, **2021**[108](index=108&type=chunk)[111](index=111&type=chunk) - The company expects this rate to increase slightly over the remainder of the fiscal year[111](index=111&type=chunk) [Annual Recurring Revenue (ARR)](index=30&type=section&id=Annual%20Recurring%20Revenue%20(ARR)) This metric represents the annualized value of Zuora's recurring subscription contracts, indicating the predictable revenue stream from its customer base Annual Recurring Revenue Data | Metric | April 30, 2022 (in millions) | April 30, 2021 (in millions) | YoY Growth | | :----- | :--------------------------- | :--------------------------- | :--------- | | ARR | $326.3 | $271.8 | 20% | - **ARR growth rate** increased to **20% year-over-year** as of April **30**, **2022**, compared to **14%** for the comparable prior period[112](index=112&type=chunk) - The company expects its **ARR growth rate** to increase slightly over the remainder of the fiscal year[112](index=112&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section breaks down the various components contributing to Zuora's financial results, including revenue streams, cost structures, and operating expenses [Revenue](index=30&type=section&id=Revenue) This section describes Zuora's revenue sources, primarily subscription fees and professional services, and their recognition methods - **Subscription revenue** comes from fees for platform access and support, recognized ratably over non-cancelable terms (typically **1-3 years**)[114](index=114&type=chunk) - **Professional services revenue** is for deployment, configuration, and optimization, recognized as performed, and is expected to decrease as a percentage of **total revenue** due to transitioning work to **strategic partners**[115](index=115&type=chunk) [Deferred Revenue](index=30&type=section&id=Deferred%20Revenue) This section explains deferred revenue, representing customer billings received in advance of services rendered, and its recognition over time - **Deferred revenue** consists of customer billings in advance of **revenue recognition** for subscription and professional services[116](index=116&type=chunk) - Customers are primarily invoiced annually or quarterly in advance for subscription services[117](index=117&type=chunk) [Overhead Allocation and Employee Compensation Costs](index=31&type=section&id=Overhead%20Allocation%20and%20Employee%20Compensation%20Costs) This section details how Zuora allocates shared costs and accounts for employee compensation, including salaries, bonuses, and stock-based compensation - Shared costs (facilities, IT, administrative personnel) are allocated to all departments based on headcount and location[118](index=118&type=chunk) - Employee compensation costs include salaries, bonuses, commissions, benefits, and **stock-based compensation**[119](index=119&type=chunk) [Cost of Revenue, Gross Profit and Gross Margin](index=31&type=section&id=Cost%20of%20Revenue,%20Gross%20Profit%20and%20Gross%20Margin) This section outlines the costs associated with generating revenue, leading to the calculation of gross profit and gross margin, and factors influencing them - **Cost of subscription revenue** includes hosting, support, and amortization of capitalized internal-use software and purchased technology[120](index=120&type=chunk) - **Cost of professional services revenue** includes employee compensation and outside services, with a strategic shift to system integrator partners expected to improve total margin over time[121](index=121&type=chunk) - **Gross profit and gross margin** may fluctuate due to **revenue changes** and investments in hosting capacity, infrastructure, and support teams[122](index=122&type=chunk) [Operating Expenses](index=31&type=section&id=Operating%20Expenses) This section describes Zuora's operating expenses, including research and development, sales and marketing, and general and administrative costs [Research and development](index=31&type=section&id=Research%20and%20development) This expense category covers costs associated with developing new products and enhancing the platform, including employee compensation and capitalized software - **Research and development expense** primarily comprises employee compensation, allocated overhead, and travel costs[123](index=123&type=chunk) - Costs associated with internal-use software development are capitalized and amortized over three years into **cost of subscription revenue**[123](index=123&type=chunk) - Expects continued investment in the platform, leading to an increase in absolute R&D expense, though it may vary as a percentage of **total revenue**[123](index=123&type=chunk) [Sales and marketing](index=31&type=section&id=Sales%20and%20marketing) This expense category includes costs for customer acquisition and retention, such as employee compensation, deferred commissions, and promotional activities - **Sales and marketing expense** includes employee compensation, amortization of **deferred commissions** (over five years), allocated overhead, and promotional activities[124](index=124&type=chunk) - Expects significant investments in customer acquisition and retention, leading to an increase in absolute **sales and marketing expense**, which may vary as a percentage of **total revenue**[124](index=124&type=chunk) [General and administrative](index=31&type=section&id=General%20and%20administrative) This expense category covers corporate overhead costs for finance, legal, HR, and other administrative functions, including employee compensation and public company expenses - **General and administrative expense** includes employee compensation, allocated overhead, and non-personnel costs for finance, legal, HR, and other corporate functions[125](index=125&type=chunk) - Expects ongoing costs as a public company to increase in absolute dollars but decline as a percentage of **total revenue** long-term due to economies of scale[126](index=126&type=chunk) [Interest and Other Income, net](index=32&type=section&id=Interest%20and%20Other%20Income,%20net) This section details non-operating income and expenses, including interest from investments, debt-related costs, warrant revaluation gains, and foreign exchange impacts - Comprises interest income from investments, amortization of discount and debt issuance costs on **2029 Notes**, interest expense from **Debt Agreement**, gain/loss on **warrant liability** revaluation, and foreign exchange fluctuations[127](index=127&type=chunk) [Income Tax Provision](index=32&type=section&id=Income%20Tax%20Provision) This section explains Zuora's income tax provision, primarily from foreign and state jurisdictions, and the impact of valuation allowances on deferred tax assets - **Income tax provision** primarily relates to foreign and state jurisdictions[128](index=128&type=chunk) - A full valuation allowance is maintained on federal and state **deferred tax assets**, as the benefit of losses is not more likely than not to be realized[128](index=128&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of Zuora's financial performance for the three months ended April 30, 2022, versus the prior year [Comparison of the Three Months Ended April 30, 2022 and 2021](index=32&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20April%2030,%202022%20and%202021) This section offers a detailed comparative analysis of Zuora's revenue, costs, and operating expenses for the specified fiscal quarters Comparative Results of Operations | Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Subscription Revenue | $78,500 | $65,142 | $13,358 | 21% | | Professional Services Revenue | $14,699 | $15,187 | $(488) | (3)% | | Total Revenue | $93,199 | $80,329 | $12,870 | 16% | | Cost of Subscription Revenue | $18,725 | $15,643 | $3,082 | 20% | | Cost of Professional Services Revenue | $17,510 | $17,078 | $432 | 3% | | Total Cost of Revenue | $36,235 | $32,721 | $3,514 | 11% | | Gross Profit | $56,964 | $47,608 | $9,356 | 20% | | Research and Development | $22,872 | $18,967 | $3,905 | 21% | | Sales and Marketing | $40,457 | $31,865 | $8,592 | 27% | | General and Administrative | $17,290 | $14,185 | $3,105 | 22% | | Loss from Operations | $(23,655) | $(17,409) | $(6,246) | 36% | | Net Loss | $(23,168) | $(17,661) | $(5,507) | 31% | - **Subscription revenue growth** was driven by new customers (approx. **$5.9 million**) and increased transaction volume/additional product sales to existing customers[142](index=142&type=chunk) - **Professional services revenue decreased** due to a strategic shift towards system integration partners[143](index=143&type=chunk) - **Sales and marketing expense increased** to **43%** of **total revenue** (from **40%**) reflecting investment in go-to-market organization[148](index=148&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) This section presents Zuora's non-GAAP financial measures, providing alternative views of performance by excluding certain non-cash or non-recurring items - **Non-GAAP financial measures** are used to supplement **GAAP** results, providing consistency and comparability by excluding certain items[132](index=132&type=chunk)[133](index=133&type=chunk) - **Excluded items** include **stock-based compensation**, amortization of acquired intangible assets, charitable donations, certain litigation expenses, asset impairment, and changes in fair value of **warrant liabilities**[134](index=134&type=chunk)[136](index=136&type=chunk) Non-GAAP Reconciliation | Metric | GAAP (3 Months Ended April 30, 2022, in thousands) | Non-GAAP Adjustments (in thousands) | Non-GAAP (3 Months Ended April 30, 2022, in thousands) | | :----- | :----------------------------------------------- | :---------------------------------- | :----------------------------------------------------- | | Cost of subscription revenue | $18,725 | $(1,799) (SBC), $(554) (Amort.) | $16,372 | | Cost of professional services revenue | $17,510 | $(3,017) (SBC) | $14,493 | | Gross profit | $56,964 | $4,816 (SBC), $554 (Amort.) | $62,334 | | Research and development | $22,872 | $(5,966) (SBC) | $16,906 | | Sales and marketing | $40,457 | $(7,456) (SBC) | $33,001 | | General and administrative | $17,290 | $(4,587) (SBC), $(120) (Litigation) | $12,583 | | Loss from operations | $(23,655) | $22,825 (SBC), $554 (Amort.), $120 (Litigation) | $(156) | | Net loss | $(23,168) | $22,825 (SBC), $554 (Amort.), $120 (Litigation), $(4,373) (Warrant FV) | $(4,042) | | Gross margin | 61% | | 67% | | Operating margin | (25)% | | (0)% | [Free Cash Flow](index=35&type=section&id=Free%20Cash%20Flow) This section defines and presents Zuora's free cash flow, a non-GAAP measure indicating cash generated after accounting for capital expenditures - **Free cash flow** is defined as **net cash provided by operating activities**, less cash used for **purchases of property and equipment**, net of insurance recoveries[139](index=139&type=chunk) Free Cash Flow Calculation | Metric | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $6,983 | $10,251 | | Purchases of property and equipment, net of insurance recoveries | $(3,263) | $(1,621) | | Free cash flow | $3,720 | $8,630 | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes Zuora's ability to meet its short-term and long-term financial obligations, detailing cash, investments, and financing activities - As of April **30**, **2022**, **cash, cash equivalents, and short-term investments** totaled **$452.6 million**[153](index=153&type=chunk) - Primarily finances operations through customer sales (billed in advance) and proceeds from employee stock plans, debt agreements, and the recent issuance of **$250.0 million** in **Initial Notes**[154](index=154&type=chunk)[155](index=155&type=chunk) - Existing cash and investments are expected to be sufficient for at least the next **12 months**, but future growth may require additional equity or debt financing, which could result in **stockholder dilution**[156](index=156&type=chunk)[158](index=158&type=chunk) [Cash Flows](index=40&type=section&id=Cash%20Flows) This section provides a detailed breakdown of Zuora's cash flows from operating, investing, and financing activities, highlighting significant changes Cash Flow Activities | Cash Flow Activity | Three Months Ended April 30, 2022 (in thousands) | Three Months Ended April 30, 2021 (in thousands) | YoY Change (in thousands) | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------ | | Net cash provided by operating activities | $6,983 | $10,251 | $(3,268) | | Net cash used in investing activities | $(3,887) | $(5,616) | $1,729 | | Net cash provided by financing activities | $234,382 | $2,456 | $231,926 | - **Operating cash flow decreased** by **$3.3 million** due to timing of cash collections[161](index=161&type=chunk) - **Investing cash flow decreased** by **$1.7 million**, primarily due to lower net purchases of **short-term investments**, partially offset by higher **property and equipment** purchases[163](index=163&type=chunk) - **Financing cash flow increased significantly** by **$231.9 million**, primarily from **$234.6 million** in net proceeds from the **Initial Notes** issuance[164](index=164&type=chunk)[165](index=165&type=chunk) [Obligations and Other Commitments](index=41&type=section&id=Obligations%20and%20Other%20Commitments) This section outlines Zuora's contractual obligations and other commitments, including operating leases, debt, and cloud computing service agreements - **Total contractual commitments** as of April **30**, **2022**, were **$416.0 million**, with **$26.8 million** due within the next twelve months[166](index=166&type=chunk) - Key obligations include **operating leases**, the **2029 Notes**, the **Debt Agreement**, and a **$52.1 million commitment** for **cloud computing services**[166](index=166&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses Zuora's most significant accounting policies and estimates that require management judgment and could materially affect financial results - **Financial statements** are prepared using management's estimates and assumptions, which are continuously evaluated[168](index=168&type=chunk) - Most **significant estimates** relate to **revenue recognition**, **deferred commissions**, valuation of **stock-based awards and warrants**, **credit losses**, **goodwill and long-lived asset impairment**, and **deferred income tax assets**[30](index=30&type=chunk)[168](index=168&type=chunk) [Recent Accounting Pronouncements - Not Yet Adopted](index=41&type=section&id=Recent%20Accounting%20Pronouncements%20-%20Not%20Yet%20Adopted) This section addresses recent accounting pronouncements that Zuora has not yet adopted and their expected impact on future financial statements - **ASU 2021-08** (Business Combinations: Accounting for Contract Assets and Liabilities from Contracts with Customers), effective after December **15**, **2022**, is not expected to have a significant impact on consolidated **financial statements**[170](index=170&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section assesses Zuora's exposure to market risks, primarily from foreign currency exchange rates and interest rates, and their potential financial impact [Foreign Currency Exchange Risk](index=35&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section discusses Zuora's exposure to foreign currency fluctuations, particularly concerning sales contracts and operating expenses in various currencies - Sales contracts are predominantly in USD, EUR, GBP, and JPY; **operating expenses** are in foreign currencies, mainly CNY and GBP[172](index=172&type=chunk) - A hypothetical **10% change** in **foreign currency exchange rates** would not have a material impact on **financial statements** for the three months ended April **30**, **2022**[172](index=172&type=chunk) - The company does not currently hedge foreign exchange exposure but may do so as international operations grow[172](index=172&type=chunk)[197](index=197&type=chunk) [Interest Rate Risk](index=35&type=section&id=Interest%20Rate%20Risk) This section analyzes Zuora's exposure to interest rate fluctuations, affecting its cash, investments, and variable-rate debt obligations - Held **$452.6 million** in **cash, cash equivalents, and short-term investments** as of April **30**, **2022**[173](index=173&type=chunk) - **Debt Agreement** has variable interest rates, while **2029 Notes** have fixed interest rates[173](index=173&type=chunk) - A hypothetical **10% 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 three months ended April **30**, **2022**[175](index=175&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details Zuora's evaluation of disclosure controls and procedures, confirming their effectiveness and reporting on changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=36&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms management's conclusion on the effectiveness of Zuora's disclosure controls and procedures for timely and accurate financial reporting - Management, with CEO and CFO participation, concluded that **disclosure controls and procedures** were effective as of April **30**, **2022**[176](index=176&type=chunk) - Controls provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[176](index=176&type=chunk) [Changes in Internal Control Over Financial Reporting](index=36&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes in Zuora's internal control over financial reporting during the period - No material changes in **internal control over financial reporting** occurred during the period covered by this report[177](index=177&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=37&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) This section acknowledges the inherent limitations of control systems, providing reasonable rather than absolute assurance of effectiveness - Management acknowledges that control systems, no matter how well designed, can only provide reasonable, not absolute, assurance due to inherent limitations and resource constraints[178](index=178&type=chunk) PART II. OTHER INFORMATION This section provides additional information beyond financial statements, covering legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 for details on Zuora's legal proceedings, including ongoing securities class action and stockholder derivative lawsuits - Refers to Note **13** for details on legal proceedings, including ongoing **securities class actions** and **stockholder derivative lawsuits**[181](index=181&type=chunk) - The company is unable to estimate the reasonably possible loss or range of loss from these matters but intends to vigorously defend against them[66](index=66&type=chunk)[71](index=71&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section outlines risks of investing in Zuora's common stock, covering business, IT, legal, regulatory, and ownership challenges [Risks Related to Our Business and Industry](index=38&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) This section details risks inherent to Zuora's business and the broader industry, including revenue growth dependency, market competition, and debt obligations - **Revenue growth** is dependent on attracting new customers and retaining/expanding sales to existing ones; **macroeconomic factors** (recession, inflation) and **business disruptions** (**COVID-19**) could adversely affect these efforts[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - **Failure to manage growth effectively**, slower-than-expected shift to subscription business models, and **currency exchange rate fluctuations** could adversely affect **operating results**[184](index=184&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - Dependence on a **limited number of products**, challenges in **integrating acquisitions**, and **debt obligations** (**2029 Notes**) pose significant **financial risks**[184](index=184&type=chunk)[201](index=201&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Incurred **net losses since inception** and anticipates continued **losses** due to significant future expenditures for business development and expansion[212](index=212&type=chunk) - Ability to **achieve profitability** depends on expanding and increasing the productivity of its **direct sales force**, which faces intense competition for talent and long sales cycles[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) - Operates in a **highly competitive, rapidly evolving market** for quote-to-cash and **revenue recognition** solutions, facing competitors with greater resources and established relationships[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - **Quarterly operating results** are subject to numerous unpredictable factors, making future results difficult to predict and potentially leading to **stock price volatility**[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - Failure to develop and release **new products/enhancements**, or successfully implement a **multi-product strategy**, could adversely affect the business due to rapid technological change and evolving customer demands[223](index=223&type=chunk)[224](index=224&type=chunk) - **Customer dissatisfaction** and negative business impact can arise from failure to deploy solutions correctly or in a timely manner, especially with increasing focus on large enterprise customers[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk) - **International operations** expose the company to risks such as compliance with diverse laws, longer sales cycles, **currency fluctuations**, and political instability[229](index=229&type=chunk)[230](index=230&type=chunk) - Reliance on **strategic partners** (system integrators, consulting firms) for sales and implementations is increasing, but challenges in maintaining these relationships or partner underperformance could harm growth[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk) - Inability to offer **high-quality support and training** to customers and partners could damage business and reputation[235](index=235&type=chunk) - Future changes in market conditions or customer demand may necessitate changes to **pricing or pricing models**, potentially affecting **revenue** and **gross margin**[236](index=236&type=chunk)[238](index=238&type=chunk) - Failure to **integrate with various operating systems**, software applications, and hardware platforms developed by others could render the solution less marketable or obsolete[239](index=239&type=chunk)[240](index=240&type=chunk) - Inability to cost-effectively develop, maintain, and enhance its **brand and reputation** could adversely affect business and **financial condition**[241](index=241&type=chunk)[243](index=243&type=chunk) - Reliance on **third-party licensed software** means inability to maintain licenses or errors in the software could increase costs or reduce service levels[244](index=244&type=chunk) - **Seasonality in sales cycles**, particularly in the third month of each quarter and strongest in Q4, makes future **operating results** and **financial metrics** more difficult to forecast[245](index=245&type=chunk) - **Debt Agreement with Silicon Valley Bank** provides a first-priority lien against non-IP assets and contains **financial covenants and restrictions** that could limit operational flexibility[246](index=246&type=chunk)[247](index=247&type=chunk) [Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy](index=46&type=section&id=Risks%20Related%20to%20Information%20Technology,%20Intellectual%20Property,%20and%20Data%20Security%20and%20Privacy) This section addresses risks concerning Zuora's technology, intellectual property, and data handling, including security breaches and compliance with privacy laws - **Security breaches**, **unauthorized access to data**, or perceived insecurity of the solution could lead to customer reduction, litigation, and significant liabilities[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Compliance with evolving **global privacy and security laws** (e.g., **GDPR**, **CCPA**, **CPRA**) is critical; non-compliance could reduce demand, increase costs, and lead to penalties[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - Failure to protect **intellectual property** (patents, copyrights, trademarks, trade secrets) could adversely affect the business and competitive position, potentially requiring costly litigation[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - **Errors, defects, or disruptions** in the solution, or failures of **third-party software/infrastructure** (like AWS/Azure), could diminish demand, harm **financial results**, and subject the company to liability[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - Vulnerable to **intellectual property infringement claims** from others, which could result in monetary liability, business disruption, or costly litigation[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) - Use of **open source software components** carries risks, including potential license non-compliance that could restrict the ability to sell the solution or require source code disclosure[276](index=276&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk) [Risks Related to Legal, Regulatory, Accounting, and Tax Matters](index=75&type=section&id=Risks%20Related%20to%20Legal,%20Regulatory,%20Accounting,%20and%20Tax%20Matters) This section covers risks arising from legal, regulatory, accounting, and tax compliance, including litigation, tax liabilities, and changes in accounting principles - Failure to satisfy **data protection, security, privacy**, and industry-specific requirements could harm growth and lead to significant liability[280](index=280&type=chunk)[282](index=282&type=chunk) - Due to **subscription revenue recognition** over contract terms, a decline in new or renewed subscriptions may not be immediately reflected in **operating results**[283](index=283&type=chunk) - Failure to meet **service level commitments** could lead to credits, refunds, contract terminations, or legal claims, adversely affecting **operating results**[284](index=284&type=chunk)[285](index=285&type=chunk) - **Customer failure to pay** in accordance with agreements could result in uncollected amounts and enforcement costs[286](index=286&type=chunk)[287](index=287&type=chunk) - **Adverse litigation judgments or settlements** could expose the company to monetary damages or limit business operations[288](index=288&type=chunk) - Ability to use **net operating losses (NOLs)** to offset future taxable income may be limited by ownership change rules (Section **382/383**) and other legislative changes, potentially increasing tax liability[289](index=289&type=chunk) - Need to raise **additional capital** for growth, which may not be available on favorable terms and could **dilute existing stockholders**[290](index=290&type=chunk) - Failure to comply with **anti-corruption (FCPA, UK Bribery Act) and anti-money laundering laws** could lead to penalties, investigations, and reputational harm[291](index=291&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk) - Non-compliance with **governmental export control laws and regulations** could result in substantial penalties, loss of export privileges, and reputational harm[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Uncertainty regarding sales, use, and other **tax laws**, or adverse changes in **accounting principles (GAAP)**, could subject the company to additional tax liability or negatively affect reported **financial results**[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=81&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) This section outlines risks specific to owning Zuora's Class A common stock, such as market price volatility, potential dilution, and the dual-class voting structure - The **market price of Class A common stock** has been and may continue to be volatile due to various factors, including **financial performance**, market conditions, and analyst coverage[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) - **Substantial issuance or sale of Class A common stock** (e.g., from convertible notes, warrants, equity awards) could result in **significant dilution** and a decline in **market price**[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk) - The **dual-class common stock structure** concentrates **voting control** with Class B holders (directors, executive officers, affiliates), limiting other stockholders' ability to influence corporate matters[314](index=314&type=chunk) - The **dual-class structure** may adversely affect the **trading market for Class A common stock**, potentially leading to exclusion from certain stock indices and negative commentary from shareholder advisory firms[316](index=316&type=chunk) - The company does not intend to **pay dividends** for the foreseeable future, requiring investors to rely on stock price appreciation for gains[317](index=317&type=chunk) [General Risk Factors](index=87&type=section&id=General%20Risk%20Factors) This section covers broad risk factors that could impact Zuora, including economic uncertainty, public company compliance costs, and catastrophic events - **Political developments**, **economic uncertainty** (e.g., **COVID-19**, Ukraine conflict, inflation), and **cyclical downturns** could adversely affect demand for products and **financial results**[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk) - Being a public company strains resources, diverts management attention, and increases legal and financial compliance costs[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) - **Failure to maintain effective disclosure controls and internal control over financial reporting** could impair timely and accurate **financial statements**, leading to loss of investor confidence and potential regulatory action[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk) - **Natural disasters, pandemics, and other catastrophic events** could disrupt business operations, and existing business continuity plans may not adequately protect against serious disasters[339](index=339&type=chunk)[340](index=340&type=chunk) - Investor expectations regarding **environmental, social, and governance (ESG) factors** may expose the company to new risks and require additional costs, potentially impacting reputation and investment[341](index=341&type=chunk)[342](index=342&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that it is "Not Applicable," indicating no unregistered sales of equity securities or use of proceeds to report for the period - This section is "**Not Applicable**," indicating no unregistered sales of equity securities or use of proceeds for the period[343](index=343&type=chunk) [Item 6. Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Indenture for convertible notes, Form of Warrant, Investment Agreement, and certifications Exhibits List | Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Date | | :------------- | :------------------ | :--- | :------- | :------ | :--- | | 4.1 | Indenture (including form of 3.95% / 5.50% Convertible Senior PIK Notes Due 2029) | 8-K | 001-38451 | 10.2 | 3/25/2022 | | 4.3 | Form of Warrant | 8-K | 001-38451 | 10.3 | 3/25/2022 | | 10.1 | Investment Agreement with Silver Lake Alpine II, L.P. | 8-K | 001-38451 | 10.1 | 3/25/2022 | | 31.1 | Certification of Chief Executive Officer | | | | | | 31.2 | Certification of Chief Financial Officer | | | | | | 32.1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | | | | | | 32.2* | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | | | | | | 101.INS | Inline XBRL Instance Document | | | | | | 104 | Cover Page Interactive Data File | | | | | [Signatures](index=74&type=section&id=Signatures) This section confirms the due signing of the report on June 3, 2022, by Todd McElhatton, Chief Financial Officer of Zuora, Inc - The report was signed on June **3**, **2022**, by Todd McElhatton, Chief Financial Officer (Principal Accounting and Financial Officer) of **Zuora**, Inc[348](index=348&type=chunk)

Financial Data and Key Metrics Changes - In Q1, subscription revenue reached $78.5 million, growing 21% year-over-year, exceeding guidance [33] - Total revenue was $93.2 million, up 16% year-over-year, also above guidance [35] - Non-GAAP operating loss improved to $0.2 million from a loss of $2.4 million in the prior year, resulting in a non-GAAP operating margin of negative 0.2% [37] - Dollar-based retention rate was 110%, up from 103% year-over-year [10][38] - Annual Recurring Revenue (ARR) was $326.3 million, growing 20% year-over-year [42] Business Line Data and Key Metrics Changes - Professional services revenue declined 3% year-over-year to $14.7 million, aligning with the strategy to shift implementation work to system integrator partners [34] - Non-GAAP subscription gross margin improved to 79%, a 90 basis points increase year-over-year [35] - Non-GAAP blended gross margin increased by 330 basis points year-over-year to 67% [36] Market Data and Key Metrics Changes - The company processed $21 billion in billing transaction volume, representing 21% growth year-over-year [41] - The average selling price (ASP) for new logos more than doubled year-over-year, indicating strong demand in the enterprise segment [39] Company Strategy and Development Direction - The company continues to focus on the enterprise segment, which provides stability and opportunities for larger deals [14][22] - Zuora aims to maintain a dollar-based retention rate of 112% or better and ARR growth of 21% or better for the full year [51] - The company is committed to its ESG initiatives, having achieved carbon neutrality and promoting diversity within its workforce [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the subscription business model, even in potential downturns, citing past performance during economic uncertainty [55][56] - The company is monitoring macroeconomic factors, including the ongoing war in Europe, but has not seen a significant impact on demand [45][63] - The outlook for Q2 includes total revenue expectations of $96.5 million to $98.5 million and subscription revenue of $82 million to $83 million [48] Other Important Information - The company ended the quarter with $453 million in cash and cash equivalents, an increase driven by a recent investment from Silver Lake [44] - The company is actively pursuing M&A opportunities but remains cautious about valuations in the current market [80][81] Q&A Session Summary Question: Resilience of the business model in a potential downturn - Management highlighted the resilience of subscription models, noting that recurring revenue provides stability and customer loyalty [55][56] Question: Impact of international revenue and Ukraine situation - Management confirmed no revenue exposure in Russia or Ukraine and stated that demand signals remain strong [63] Question: Sales force productivity and partner contributions - Management reported strong growth in partner contributions, with over 450 certified consultants influencing a significant portion of bookings [67] Question: Pipeline and macro environment impact - Management indicated that they have not seen a decline in the pipeline and demand remains strong across various sectors [72] Question: Capital allocation priorities and M&A focus - Management confirmed an active M&A program but emphasized the importance of being strategic and cautious in the current environment [74][75] Question: Hiring challenges and implementation consultants - Management noted that while hiring challenges exist, they are focusing on leveraging partners for implementation work [85]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-K _____________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2022 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. (Exac ...

Zuora Inc. (NYSE:ZUO) Q4 2022 Earnings Conference Call March 2, 2022 5:00 PM ET Company Participants Tien Tzuo – Founder and Chief Executive Officer Robert Traube – President and Chief Revenue Officer Todd McElhatton – Chief Financial Officer Luana Wolk – Head of Investor Relations Conference Call Participants Joseph Vafi – Canaccord Genuity Luv Sodha – Jefferies Chad Bennett – Craig-Hallum Joshua Reily – Needham and Company Operator Good afternoon and welcome to Zuora's Fourth Quarter of Fiscal 2022 Earnin ...

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, 2021 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 ...

Zuora, Inc. (NYSE:ZUO) Q2 2022 Results Earnings Conference Call December 1, 2021 5:00 PM ET Company Participants Luana Wolk - Head, Investor Relations Tien Tzuo - Founder and Chief Executive Officer Todd McElhatton - Chief Finance Officer Robbie Traube - Chief Revenue Officer Conference Call Participants Chad Bennett - Craig-Hallum Joshua Reilly - Needham & Company Luv Sodha - Jefferies Andrew DeGasperi - Berenberg Joseph Vafi - Canaccord Stan Zlotsky - Morgan Stanley Operator Good afternoon. And welcome to ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) (Exact name of registrant as specified in its charter) _____________________________ (State or other jurisdiction of incorporation or organization) 101 Redwood Shores Parkway, Redwood City, California 94065 (Address of principal executive offices) (Zip Code) (888) 976-9056 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...