Zuora, Inc. (NYSE:ZUO) Q2 2022 Earnings Conference Call August 25, 2021 5:00 PM ET Company Participants Luana Wolk - Head, Investor Relations Tien Tzuo - Founder and CEO Todd McElhatton - Chief Finance Officer Robbie Traube - Chief Revenue Officer Conference Call Participants Luv Sodha - Jefferies Joseph Vafi - Canaccord Andrew DeGasperi - Berenberg Scott Berg - Needham Operator Good afternoon. And welcome to Zuora Second Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a ...

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, 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, Inc. ...

Zuora, Inc. (NYSE:ZUO) Q1 2022 Earnings Conference Call May 26, 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 Joe Vafi – Canaccord Andrew DeGasperi – Berenberg Chris Merwin – Goldman Sachs Stan Zlotsky – Morgan Stanley Luv Sodha – Jefferies Scott Berg – Needham Operator Good afternoon, and welcome to Zuora's First Quarter of Fi ...

Part I [Business Overview](index=5&type=section&id=Item%201.%20Business) The company provides a cloud-based subscription management platform to automate order-to-revenue processes for recurring business models [Overview](index=5&type=section&id=Overview) - Zuora provides a cloud-based subscription management platform to help companies manage and scale subscription businesses by automating the order-to-revenue process[24](index=24&type=chunk) - Traditional product-driven software systems are ill-suited for dynamic subscription services, leading to inefficiency and complex manual work[25](index=25&type=chunk) - Zuora's vision is the "Subscription Economy," focusing on developing software to empower customers to thrive in this economy[27](index=27&type=chunk) - The company's solutions include core products like Zuora Central Platform, Zuora Billing, Zuora Revenue, and Zuora Collect, serving various industries such as technology, manufacturing, media, and telecommunications[28](index=28&type=chunk)[29](index=29&type=chunk) [Business Benefits of Using Our Solution](index=5&type=section&id=Business%20Benefits%20of%20Using%20Our%20Solution) - Zuora's products enable companies to generate new recurring revenue, accelerate time-to-market, improve operational efficiency, and free up IT and engineering resources[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) - The solution establishes a single system of record, supports data-driven decision-making, and offers a growing ecosystem of order-to-revenue software partners[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - It supports rapid international expansion with over 35 pre-built payment gateways and more than 150 supported currencies, and automates revenue recognition to comply with accounting standards[39](index=39&type=chunk)[40](index=40&type=chunk) [Products](index=6&type=section&id=Products) - The Zuora Central Platform acts as an orchestration engine for subscription data and processes, providing an integrated data model, enterprise-grade security and compliance, developer tools, and analytics capabilities[42](index=42&type=chunk)[43](index=43&type=chunk) - Zuora Billing is designed for subscription billing, supporting various pricing and packaging models to invoice customers efficiently and accurately, and includes the Zuora CPQ module for configuration, pricing, and quoting[44](index=44&type=chunk) - Zuora Revenue is an automated revenue recognition solution that helps customers manage revenue and deferred revenue in compliance with accounting standards like ASC 606 and IFRS 15[45](index=45&type=chunk) - Zuora Collect focuses on collections for dynamic subscription businesses, improving electronic payment success rates and reducing involuntary churn through automated dunning workflows and machine learning capabilities[46](index=46&type=chunk) [Competitive Strengths](index=7&type=section&id=Competitive%20Strengths) - Zuora's competitive strengths include a comprehensive solution built for subscription business models, flexible technology, a mission-critical system that is difficult to replace, an accelerated pace of innovation, deep domain expertise, a strong track record with **676 customers having an ACV over $100,000**, a robust network of systems integrator partners, and a growing subscription economy ecosystem[50](index=50&type=chunk) [Growth Strategy](index=7&type=section&id=Growth%20Strategy) - Key elements of the company's growth strategy include acquiring new enterprise customers, expanding relationships with existing customers (increasing transaction volume, upselling, and cross-selling), entering new vertical markets, expanding its global presence, leveraging global systems integrators to accelerate growth, launching new products, and optimizing pricing and packaging strategies[49](index=49&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Our Customers](index=9&type=section&id=Our%20Customers) Number of Customers with ACV ≥ $100,000 | As of | Number of Customers | | :--- | :--- | | January 31, 2021 | 676 | | January 31, 2020 | 624 | | January 31, 2019 | 526 | - As of January 31, 2021, the company had **676 customers** with an Annual Contract Value (ACV) of $100,000 or more, accounting for over **90% of total ACV**[54](index=54&type=chunk) [Sales and Marketing](index=9&type=section&id=Sales%20and%20Marketing) - The company employs an enterprise sales model supported by a field sales team, focusing on organizations that are adopting, transforming, and scaling their subscription businesses[56](index=56&type=chunk)[57](index=57&type=chunk) - Marketing activities include virtual webinars, online events, co-marketing with systems integrators, publishing the Subscription Economy Index research, and providing educational content[58](index=58&type=chunk) - In fiscal 2021, the Subscribed Strategy Group (SSG) was established to work directly with customers, providing strategic guidance for subscription business success[59](index=59&type=chunk) [Competition](index=9&type=section&id=Competition) - The market for subscription management products and services is competitive, rapidly evolving, and fragmented, with key competitors including traditional ERP and CRM providers, niche billing systems, payment platforms, and in-house custom systems[62](index=62&type=chunk) - Key competitive factors include product functionality, support for subscription business models, ease of use, market vision, enterprise-grade performance, customer experience, integration capabilities, brand recognition, and total cost of solution[63](index=63&type=chunk) [Human Capital](index=10&type=section&id=Human%20Capital) - As of January 31, 2021, the company had **1,190 employees**, with 499 located outside the United States[65](index=65&type=chunk) - The company culture emphasizes "ZEOs" (employees as CEOs), encouraging freedom, responsibility, and accountability in a collaborative and inclusive environment[66](index=66&type=chunk) - The company actively participates in the Pledge 1% movement, supporting community volunteering and philanthropy through Z-Philanthropy chapters and an annual Global Day of Giving[67](index=67&type=chunk)[68](index=68&type=chunk) - A strong emphasis is placed on Diversity & Inclusion (D&I), with a dedicated D&I department and multiple Employee Resource Groups (ERGs)[69](index=69&type=chunk)[70](index=70&type=chunk) - The company invests in employee development through mentorship programs, leadership training, and a "Career Cash" program for external learning opportunities[72](index=72&type=chunk) - It offers market-competitive compensation and benefits, including equity incentives and comprehensive global benefits like **26 weeks of paid parental leave** in the U.S[73](index=73&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) - The company protects its intellectual property primarily through patents, copyrights, trademarks, trade secrets, and contractual commitments[75](index=75&type=chunk) - As of January 31, 2021, it held **13 issued U.S. patents** and had 18 pending U.S. patent applications, along with one issued patent in Australia and nine pending applications in other foreign jurisdictions[75](index=75&type=chunk) - The company owns **17 registered trademarks** in the U.S., including Zuora and Subscription Economy, and 17 registered trademarks in foreign jurisdictions[76](index=76&type=chunk) [Backlog](index=13&type=section&id=Backlog) - Backlog represents contracted amounts that have not yet been invoiced and are generally not recorded as revenue or deferred revenue[79](index=79&type=chunk) - The amount of backlog can fluctuate annually due to factors like early collections, timing of large customer agreements, billing cycles, and foreign exchange volatility[80](index=80&type=chunk) - The company does not consider backlog fluctuations to be a reliable indicator of future revenue and does not use it as a key internal management metric[80](index=80&type=chunk) [Corporate Information](index=13&type=section&id=Corporate%20Information) - Zuora, Inc. was incorporated in Delaware in September 2006 and is headquartered in Redwood City, California[82](index=82&type=chunk) - The company's website is www.zuora.com, and its investor relations website is https://investor.zuora.com[82](index=82&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) - Reports filed with the SEC under the Exchange Act are available free of charge on the company's investor relations website[85](index=85&type=chunk) - The SEC's website, http://www.sec.gov, also provides reports and information for the company and other filers[85](index=85&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks across its business operations, industry, technology, legal, and financial domains [Risk Factors Summary](index=14&type=section&id=Risk%20Factors%20Summary) - Investing in the company's common stock involves a high degree of risk, including impacts from the COVID-19 pandemic, challenges in customer acquisition and expansion, a history of net losses, competition, and risks related to IT, IP, data security, and stock ownership[90](index=90&type=chunk)[91](index=91&type=chunk) [Risks Related to Our Business and Industry](index=15&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) - The **COVID-19 pandemic** has led to longer sales cycles, delayed customer purchases or renewals, and requests for payment or pricing concessions, which could negatively impact business and operating results[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - The company has a **history of net losses** and expects to continue increasing operating expenses, and may not achieve or maintain profitability in the future[106](index=106&type=chunk)[107](index=107&type=chunk) - Revenue growth and profitability depend on the ability to expand the direct sales team and increase its productivity, but hiring and training qualified sales personnel is challenging[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - The market for subscription management products is **highly competitive**, and the company may not be able to compete effectively, which could harm its business and financial condition[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The company's success depends heavily on a **limited number of products**, and if these products fail to gain or lose market acceptance, the business will be adversely affected[116](index=116&type=chunk) [Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy](index=30&type=section&id=Risks%20Related%20to%20Information%20Technology%2C%20Intellectual%20Property%2C%20and%20Data%20Security%20and%20Privacy) - A breach of security measures could result in unauthorized access to customer or company data, leading to customer loss, litigation, regulatory investigations, and reputational damage[152](index=152&type=chunk)[155](index=155&type=chunk)[157](index=157&type=chunk) - Errors, defects, or service interruptions in the company's products could harm its brand and reputation, affect financial performance, and potentially lead to liability claims[159](index=159&type=chunk)[160](index=160&type=chunk) - Service interruptions at third-party data centers or Amazon Web Services could impair the company's ability to deliver services to customers, harming its business and financial performance[162](index=162&type=chunk)[163](index=163&type=chunk) - Failure to effectively protect intellectual property, including patents, copyrights, trademarks, and trade secrets, could harm the company's competitive position and operating results[165](index=165&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk) - The company's solutions contain open source software components, and failure to comply with relevant licensing terms could restrict product sales and lead to claims of copyright infringement or breach of contract[173](index=173&type=chunk)[174](index=174&type=chunk) [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) - Failure to meet data protection, security, privacy, and other government and industry-specific requirements could harm the company's growth and result in significant liability[178](index=178&type=chunk) - Because subscription revenue is recognized ratably over the contract term, a lack of subscription renewals or new agreements may not be immediately reflected in operating results[179](index=179&type=chunk) - Customer failure to pay according to agreement terms could adversely affect the company, including the inability to collect payments and the costs of enforcing contracts[182](index=182&type=chunk) - Changes in privacy and security laws and regulations (such as GDPR, CCPA, CPRA) could reduce the effectiveness of the company's solutions, increase compliance costs, and create potential liability[184](index=184&type=chunk)[185](index=185&type=chunk)[187](index=187&type=chunk) - The company's ability to use net operating losses to offset future taxable income may be limited, resulting in an increased tax burden[191](index=191&type=chunk)[193](index=193&type=chunk) - Failure to comply with anti-corruption and anti-money laundering laws (such as the FCPA and UK Bribery Act) could result in penalties and other adverse consequences[195](index=195&type=chunk)[196](index=196&type=chunk) - The company is subject to government export control laws and regulations, and non-compliance could adversely affect its business and operating results[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Uncertainty in the applicability of sales, use, and other tax laws could result in additional tax liabilities, increased service costs, and harm to the business[200](index=200&type=chunk)[201](index=201&type=chunk) - Reported financial results may be adversely affected by changes in U.S. Generally Accepted Accounting Principles (GAAP)[202](index=202&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=41&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) - The market price of the company's Class A common stock is **highly volatile**, and investors may lose some or all of their investment[204](index=204&type=chunk)[205](index=205&type=chunk) - The sale of a substantial number of shares of Class A common stock in the public market, particularly by directors, executive officers, and significant stockholders, could cause the market price to decline[207](index=207&type=chunk)[210](index=210&type=chunk) - If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about the company, the price and trading volume of its Class A common stock could decline[211](index=211&type=chunk) - The **dual-class structure** of the company's common stock concentrates voting control with holders of Class B common stock, limiting the ability of Class A stockholders to influence corporate matters[214](index=214&type=chunk) - Provisions in the company's charter documents and Delaware law could make an acquisition of the company more difficult and limit stockholders' ability to replace management or choose a favorable judicial forum[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) [General Risk Factors](index=45&type=section&id=General%20Risk%20Factors) - Political developments, economic uncertainty, or a recession could adversely affect the company's business and operating results, including impacts from government spending, international trade, the COVID-19 pandemic, and trade disputes[226](index=226&type=chunk)[227](index=227&type=chunk) - Significant future fluctuations in currency exchange rates could adversely affect operating results reported in U.S. dollars, particularly a strengthening U.S. dollar[230](index=230&type=chunk) - As a public company, compliance requirements may consume resources, divert management's attention, and affect the ability to attract and retain executives and qualified board members[231](index=231&type=chunk)[232](index=232&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) - Failure to maintain effective disclosure controls and internal control over financial reporting could impair the company's ability to produce timely and accurate financial statements[237](index=237&type=chunk)[239](index=239&type=chunk) - Natural disasters, pandemics, and other catastrophic events could disrupt business operations, and business continuity and disaster recovery plans may not provide adequate protection[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) [Unresolved Staff Comments](index=48&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments in this report - The company has no unresolved staff comments[243](index=243&type=chunk) [Properties](index=48&type=section&id=Item%202.%20Properties) The company's headquarters are located in leased office space in Redwood City, California - The company's headquarters are in Redwood City, California, under a lease for approximately **100,000 square feet** of office space expiring in July 2030, with an option to renew[244](index=244&type=chunk) - The company leases other facilities in the U.S. and internationally and plans to acquire additional space as needed for employee growth and geographic expansion[245](index=245&type=chunk) [Legal Proceedings](index=48&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference to the financial statements - Information on legal proceedings is incorporated by reference to Note 13, "Commitments and Contingencies," of the financial statements[246](index=246&type=chunk) [Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable - Mine safety disclosures are not applicable[247](index=247&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=49&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A common stock trades on the NYSE, and no cash dividends have been paid or are expected to be paid - The company's Class A common stock has been trading on the New York Stock Exchange since April 12, 2018; there is no public trading market for Class B common stock[250](index=250&type=chunk) - As of February 28, 2021, there were **107 registered holders** of Class A common stock and **74 registered holders** of Class B common stock[251](index=251&type=chunk) - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future, retaining all earnings for business development[252](index=252&type=chunk) Zuora vs. Index Cumulative Total Return (Base Period: April 12, 2018 = $100) | Company/Index | April 12, 2018 | January 31, 2019 | January 31, 2020 | January 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Zuora | $100 | $108.20 | $73.75 | $73.75 | | S&P 500 Index | $100 | $103.08 | $125.44 | $147.07 | | NASDAQ Composite | $100 | $102.83 | $130.63 | $188.22 | | S&P 500 Information Technology Index | $100 | $101.26 | $147.92 | $202.85 | - There were no sales of unregistered equity securities or issuer purchases of equity securities during the reporting period[257](index=257&type=chunk)[258](index=258&type=chunk) [Selected Consolidated Financial Data and Other Data](index=51&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data%20and%20Other%20Data) This section provides selected historical consolidated financial data for the past five fiscal years Selected Consolidated Statement of Operations Data (Fiscal years ended January 31, in thousands of U.S. dollars, except per share data) | Metric | FY 2021 | FY 2020 | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue:** | | | | | | | Subscription | $242,340 | $206,555 | $164,805 | $122,482 | $89,836 | | Professional services | $63,080 | $69,502 | $70,184 | $48,624 | $23,172 | | **Total revenue** | **$305,420** | **$276,057** | **$234,989** | **$171,106** | **$113,008** | | **Cost of revenue:** | | | | | | | Subscription | $58,808 | $53,036 | $42,993 | $31,077 | $22,840 | | Professional services | $71,962 | $81,145 | $73,597 | $48,829 | $25,322 | | **Total cost of revenue** | **$130,770** | **$134,181** | **$116,590** | **$79,906** | **$48,162** | | **Gross profit** | **$174,650** | **$141,876** | **$118,399** | **$91,200** | **$64,846** | | **Operating expenses:** | | | | | | | Research and development | $76,795 | $74,398 | $54,417 | $38,639 | $26,355 | | Sales and marketing | $116,914 | $108,264 | $95,169 | $68,067 | $62,384 | | General and administrative | $54,803 | $44,879 | $39,230 | $22,572 | $15,140 | | **Total operating expenses** | **$248,512** | **$227,541** | **$188,816** | **$129,278** | **$103,879** | | **Loss from operations** | **$(73,862)** | **$(85,665)** | **$(70,417)** | **$(38,078)** | **$(39,033)** | | Interest and other income (expense), net | $2,561 | $2,712 | $(417) | $252 | $219 | | Loss before provision for income taxes | $(71,301) | $(82,953) | $(70,834) | $(37,826) | $(38,814) | | Provision for income taxes | $1,873 | $441 | $1,907 | $1,551 | $284 | | **Net loss** | **$(73,174)** | **$(83,394)** | **$(72,741)** | **$(39,377)** | **$(39,098)** | | Comprehensive loss | $(72,566) | $(83,687) | $(72,731) | $(38,417) | $(39,568) | | Net loss per share, basic and diluted | $(0.62) | $(0.75) | $(0.80) | $(1.48) | $(1.64) | | Weighted-average shares used to compute net loss per share, basic and diluted | 117,598 | 111,122 | 91,267 | 26,563 | 23,891 | Selected Consolidated Balance Sheet Data (As of January 31, in thousands of U.S. dollars) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents, and short-term investments | $186,594 | $171,937 | $175,848 | $48,208 | $72,645 | | Working capital | $105,743 | $101,164 | $129,682 | $7,595 | $39,663 | | Total assets | $421,507 | $402,227 | $326,047 | $176,478 | $120,468 | | Deferred revenue, current portion | $127,701 | $111,411 | $86,784 | $61,966 | $42,554 | | Total debt | $6,063 | $10,526 | $13,457 | $14,969 | — | | Convertible preferred stock | — | — | — | $6 | $6 | | Total stockholders' equity | $171,913 | $164,659 | $181,814 | $50,638 | $54,980 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's subscription revenue grew 17% in fiscal 2021, with improved gross margin and positive operating cash flow [Overview](index=54&type=section&id=Overview) - Zuora provides a cloud-based subscription management platform designed for dynamic, recurring business models, automating the subscription order-to-revenue process[272](index=272&type=chunk) - The company's vision is the "Subscription Economy," focusing on developing software to empower customers to thrive in this economy[275](index=275&type=chunk) - Its solutions include core products like Zuora Central Platform, Zuora Billing, Zuora Revenue, and Zuora Collect, serving various industries[276](index=276&type=chunk)[277](index=277&type=chunk) [COVID-19 Pandemic Impact](index=55&type=section&id=COVID-19%20Pandemic%20Impact) - The COVID-19 pandemic caused business disruptions, including delayed sales cycles, customer churn, down-sells, and requests for payment term and contract restructuring, negatively impacting new business and increasing churn in fiscal 2021[278](index=278&type=chunk) - The company has implemented cost management initiatives, such as reducing travel and marketing expenses and slowing hiring, to address the pandemic's impact[280](index=280&type=chunk) - The pandemic has significantly limited the company's ability to forecast future operating results and may lead to changes in the competitive landscape[281](index=281&type=chunk) [Fiscal 2021 Business Highlights](index=55&type=section&id=Fiscal%202021%20Business%20Highlights) - In the fourth quarter of fiscal 2021, the company closed a **record eight deals with ACV over $500,000**[282](index=282&type=chunk) - Subscription revenue represented **82% of total revenue** in Q4, and subscription gross margin was **77%**, both the highest levels since going public[282](index=282&type=chunk) - The company achieved **positive operating cash flow and positive free cash flow** for the first time in the fourth quarter[282](index=282&type=chunk) - For fiscal 2021, subscription revenue was **$242.3 million**, an increase of **17% year-over-year**[282](index=282&type=chunk) - Total gross margin improved to **57%** from 51% in the prior year, driven by shifting more services work to systems integrator partners and optimizing the cost structure[282](index=282&type=chunk) - Customer transaction volume processed through the Zuora Billing platform reached **$56.7 billion**, a **29% increase** year-over-year[282](index=282&type=chunk) [Fiscal 2021 Financial Performance Summary](index=56&type=section&id=Fiscal%202021%20Financial%20Performance%20Summary) - As of January 31, 2021, the company had **676 customers with ACV over $100,000**, an 8% increase year-over-year[286](index=286&type=chunk) - Subscription revenue was **$242.3 million**, up 17% year-over-year; total revenue was **$305.4 million**, up 11% year-over-year[286](index=286&type=chunk) - Total cost of revenue decreased to **$130.8 million** (43% of total revenue) from $134.2 million (49% of total revenue) in the prior year[286](index=286&type=chunk) - Loss from operations improved to **$73.9 million** (24% of total revenue) from $85.7 million (31% of total revenue) in the prior year[286](index=286&type=chunk) [Key Operational and Financial Metrics](index=56&type=section&id=Key%20Operational%20and%20Financial%20Metrics) Key Operational and Financial Metrics (As of January 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Number of customers with ACV ≥ $100,000 | 676 | 624 | | Dollar-based retention rate | 100% | 104% | - The number of customers with an Annual Contract Value (ACV) of $100,000 or more increased to **676** as of January 31, 2021, from 624 as of January 31, 2020[285](index=285&type=chunk) - The dollar-based retention rate decreased to **100%** as of January 31, 2021, from 104% as of January 31, 2020, primarily due to the impact of the COVID-19 pandemic, including increased customer churn and reduced transaction volumes[287](index=287&type=chunk) [Components of Our Results of Operations](index=57&type=section&id=Components%20of%20Our%20Results%20of%20Operations) - Subscription revenue is primarily derived from fees for customer access to and use of the company's products, typically under non-cancelable subscription agreements with terms of one to three years, and is recognized ratably over the subscription term[289](index=289&type=chunk) - Professional services revenue includes fees for services that help customers deploy, configure, and optimize solutions, generally recognized on a time-and-materials basis or as services are performed[290](index=290&type=chunk) - Deferred revenue consists of customer billings in advance of revenue recognition for subscription and support services, as well as professional services[291](index=291&type=chunk) - Cost of revenue includes costs of subscription revenue (platform hosting, customer support, data center fees) and costs of professional services revenue (compensation for professional services team, travel expenses)[294](index=294&type=chunk)[295](index=295&type=chunk) - Operating expenses consist of research and development, sales and marketing, and general and administrative expenses[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk) - Interest and other income (expense), net primarily includes investment income, interest expense on debt, and foreign currency exchange impacts[300](index=300&type=chunk) - The provision for income taxes primarily consists of income taxes in foreign and state jurisdictions, with a full valuation allowance maintained on U.S. federal and state deferred tax assets[301](index=301&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) Consolidated Results of Operations Data (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Subscription revenue | $242,340 | $206,555 | | Professional services revenue | $63,080 | $69,502 | | **Total revenue** | **$305,420** | **$276,057** | | Subscription cost of revenue | $58,808 | $53,036 | | Professional services cost of revenue | $71,962 | $81,145 | | **Total cost of revenue** | **$130,770** | **$134,181** | | **Gross profit** | **$174,650** | **$141,876** | | Research and development | $76,795 | $74,398 | | Sales and marketing | $116,914 | $108,264 | | General and administrative | $54,803 | $44,879 | | **Total operating expenses** | **$248,512** | **$227,541** | | **Loss from operations** | **$(73,862)** | **$(85,665)** | | Interest and other income, net | $2,561 | $2,712 | | Loss before provision for income taxes | $(71,301) | $(82,953) | | Provision for income taxes | $1,873 | $441 | | **Net loss** | **$(73,174)** | **$(83,394)** | Consolidated Results of Operations Data as a Percentage of Total Revenue (Fiscal years ended January 31) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Subscription revenue | 79% | 75% | | Professional services revenue | 21% | 25% | | **Total revenue** | **100%** | **100%** | | Subscription cost of revenue | 19% | 19% | | Professional services cost of revenue | 24% | 29% | | **Total cost of revenue** | **43%** | **49%** | | **Gross profit** | **57%** | **51%** | | Research and development | 25% | 27% | | Sales and marketing | 38% | 39% | | General and administrative | 18% | 16% | | **Total operating expenses** | **81%** | **82%** | | **Loss from operations** | **(24)%** | **(31)%** | | Interest and other income, net | 1% | 1% | | Loss before provision for income taxes | (23)% | (30)% | | Provision for income taxes | 1% | — | | **Net loss** | **(24)%** | **(30)%** | [Non-GAAP Financial Measures](index=60&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses non-GAAP financial measures to supplement its GAAP financial statements for performance evaluation, budgeting, and strategic decision-making[306](index=306&type=chunk) - Non-GAAP measures exclude items such as stock-based compensation expense, amortization of acquired intangible assets, non-cash adjustments for internal-use software, charitable donations, certain litigation-related expenses, and new headquarters costs[308](index=308&type=chunk)[309](index=309&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Measures (FY 2021, in thousands of U.S. dollars) | Metric | GAAP | Stock-Based Compensation | Amortization of Intangibles | Internal-Use Software | Charitable Donation | Litigation Expense | Non-GAAP | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription cost of revenue | $58,808 | $(4,849) | $(1,692) | $(1,781) | — | — | $50,486 | | Professional services cost of revenue | $71,962 | $(9,952) | — | — | — | — | $62,010 | | Gross profit | $174,650 | $14,801 | $1,692 | $1,781 | — | — | $192,924 | | Research and development | $76,795 | $(19,562) | — | $4,051 | — | — | $61,284 | | Sales and marketing | $116,914 | $(15,839) | — | — | — | — | $101,075 | | General and administrative | $54,803 | $(9,081) | — | $158 | $(1,000) | $(3,252) | $41,628 | | Loss from operations | $(73,862) | $59,283 | $1,692 | $(2,428) | $1,000 | $3,252 | $(11,063) | | Net loss | $(73,174) | $59,283 | $1,692 | $(2,428) | $1,000 | $3,252 | $(10,375) | | Net loss per share (basic and diluted) | $(0.62) | | | | | | $(0.09) | | Gross margin | 57% | | | | | | 63% | | Subscription gross margin | 76% | | | | | | 79% | Reconciliation of GAAP to Non-GAAP Financial Measures (FY 2020, in thousands of U.S. dollars) | Metric | GAAP | Stock-Based Compensation | Amortization of Intangibles | Internal-Use Software | New Headquarters Costs | Non-GAAP | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription cost of revenue | $53,036 | $(2,772) | $(1,776) | $(2,560) | $(75) | $45,853 | | Professional services cost of revenue | $81,145 | $(7,265) | — | — | $(94) | $73,786 | | Gross profit | $141,876 | $10,037 | $1,776 | $2,560 | $169 | $156,418 | | Research and development | $74,398 | $(17,568) | — | $4,506 | $(150) | $61,186 | | Sales and marketing | $108,264 | $(11,129) | — | — | $(43) | $97,092 | | General and administrative | $44,879 | $(6,312) | — | — | $(120) | $38,447 | | Loss from operations | $(85,665) | $45,046 | $1,776 | $(1,946) | $482 | $(40,307) | | Net loss | $(83,394) | $45,046 | $1,776 | $(1,946) | $482 | $(38,036) | | Net loss per share (basic and diluted) | $(0.75) | | | | | $(0.34) | | Gross margin | 51% | | | | | 57% | | Subscription gross margin | 74% | | | | | 78% | [Free Cash Flow](index=63&type=section&id=Free%20Cash%20Flow) - Free cash flow is defined as net cash provided by (used in) operating activities less cash used for purchases of property and equipment, net of insurance proceeds[312](index=312&type=chunk) Free Cash Flow (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11,286 | $(3,590) | | Less: Purchases of property and equipment, net of insurance proceeds | $(12,156) | $(21,424) | | **Free cash flow** | **$(870)** | **$(25,014)** | [Fiscal Years Ended January 31, 2021 and 2020](index=63&type=section&id=Fiscal%20Years%20Ended%20January%2031%2C%202021%20and%202020) Revenue (Fiscal years ended January 31, in thousands of U.S. dollars) | Revenue Type | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Subscription | $242,340 | $206,555 | $35,785 | 17% | | Professional services | $63,080 | $69,502 | $(6,422) | (9)% | | **Total revenue** | **$305,420** | **$276,057** | **$29,363** | **11%** | | Subscription revenue as % of total | 79% | 75% | | | | Professional services revenue as % of total | 21% | 25% | | | - Subscription revenue **grew 17%** in fiscal 2021, driven by customer base growth (new customers contributed $19.5 million) and increased transaction volume and product sales from existing customers[315](index=315&type=chunk) - Professional services revenue **decreased 9%** in fiscal 2021 as the company shifted more services work to systems integrator partners to improve the sales mix towards recurring subscription revenue[316](index=316&type=chunk) Cost of Revenue and Gross Margin (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Subscription cost of revenue | $58,808 | $53,036 | $5,772 | 11% | | Professional services cost of revenue | $71,962 | $81,145 | $(9,183) | (11)% | | **Total cost of revenue** | **$130,770** | **$134,181** | **$(3,411)** | **(3)%** | | Subscription gross margin | 76% | 74% | | | | Professional services gross margin | (14)% | (17)% | | | | **Total gross margin** | **57%** | **51%** | | | - Subscription cost of revenue **grew 11%** in fiscal 2021, primarily driven by increased data center costs (third-party cloud hosting) and employee compensation costs[317](index=317&type=chunk) - Professional services cost of revenue **decreased 11%** in fiscal 2021, mainly due to reduced third-party consulting fees, travel expenses, and headcount, reflecting the strategy to shift services work to partners[318](index=318&type=chunk) - In fiscal 2021, subscription gross margin increased to **76%**, and professional services gross margin improved to **(14)%**[319](index=319&type=chunk) Research and Development Expenses (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Research and development | $76,795 | $74,398 | $2,397 | 3% | | As a % of total revenue | 25% | 27% | | | - R&D expenses **grew 3%** in fiscal 2021, driven by increased external professional services, stock-based compensation, and overhead, partially offset by lower employee compensation and travel expenses[320](index=320&type=chunk) Sales and Marketing Expenses (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $116,914 | $108,264 | $8,650 | 8% | | As a % of total revenue | 38% | 39% | | | - Sales and marketing expenses **grew 8%** in fiscal 2021, primarily due to increased employee compensation (stock-based compensation and commissions), overhead, and external professional services, partially offset by lower travel expenses[321](index=321&type=chunk) General and Administrative Expenses (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $54,803 | $44,879 | $9,924 | 22% | | As a % of total revenue | 18% | 16% | | | - General and administrative expenses **grew 22%** in fiscal 2021, mainly driven by increased employee compensation (stock-based compensation and bonuses), stockholder litigation expenses, charitable donations, and overhead[322](index=322&type=chunk) Interest and Other Income, Net (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Interest and other income, net | $2,561 | $2,712 | $(151) | (6)% | - Interest and other income, net **decreased by $0.2 million** in fiscal 2021, primarily due to lower income from short-term investments, partially offset by increased gains from foreign currency remeasurement[323](index=323&type=chunk) Provision for Income Taxes (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Provision for income taxes | $1,873 | $441 | $1,432 | 325% | - The provision for income taxes was **$1.9 million** in fiscal 2021, with an effective tax rate of 2.6%, primarily due to receiving no tax benefit for U.S. pre-tax losses[324](index=324&type=chunk)[325](index=325&type=chunk) [Quarterly Results of Operations](index=67&type=section&id=Quarterly%20Results%20of%20Operations) Unaudited Quarterly Consolidated Statement of Operations Data (in thousands of U.S. dollars) | Metric | Jan 31, 2021 | Oct 31, 2020 | Jul 31, 2020 | Apr 30, 2020 | Jan 31, 2020 | Oct 31, 2019 | Jul 31, 2019 | Apr 30, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $65,112 | $62,020 | $58,312 | $56,896 | $54,559 | $54,038 | $50,647 | $47,311 | | Professional services revenue | $14,175 | $15,226 | $16,677 | $16,798 | $17,002 | $15,834 | $17,784 | $19,086 | | **Total revenue** | **$79,287** | **$77,246** | **$74,989** | **$73,694** | **$71,561** | **$69,872** | **$68,431** | **$66,397** | | Subscription cost of revenue | $15,181 | $15,611 | $14,401 | $13,615 | $14,447 | $13,858 | $12,798 | $11,933 | | Professional services cost of revenue | $16,951 | $17,655 | $18,674 | $18,682 | $19,700 | $20,443 | $20,904 | $20,098 | | **Total cost of revenue** | **$32,132** | **$33,266** | **$33,075** | **$32,297** | **$34,147** | **$34,301** | **$33,702** | **$32,031** | | **Gross profit** | **$47,155** | **$43,980** | **$41,914** | **$41,397** | **$37,414** | **$35,571** | **$34,729** | **$34,366** | | Research and development | $20,918 | $18,907 | $19,427 | $17,543 | $20,736 | $17,903 | $18,744 | $17,015 | | Sales and marketing | $31,752 | $28,058 | $28,608 | $28,496 | $27,446 | $28,027 | $27,290 | $25,501 | | General and administrative | $13,131 | $13,024 | $15,383 | $13,265 | $12,513 | $10,597 | $11,324 | $10,445 | | **Total operating expenses** | **$65,801** | **$59,989** | **$63,418** | **$59,304** | **$60,695** | **$56,527** | **$57,358** | **$52,961** | | **Loss from operations** | **$(18,646)** | **$(16,009)** | **$(21,504)** | **$(17,907)** | **$(23,281)** | **$(20,956)** | **$(22,629)** | **$(18,595)** | | Interest and other income (expense), net | $599 | $(352) | $1,936 | $378 | $418 | $1,190 | $569 | $535 | | Loss before provision for income taxes | $(18,047) | $(16,361) | $(19,568) | $(17,529) | $(22,863) | $(19,766) | $(22,060) | $(18,060) | | Provision (benefit) for income taxes | $744 | $412 | $554 | $163 | $(279) | $421 | $55 | $244 | | **Net loss** | **$(18,791)** | **$(16,773)** | **$(20,122)** | **$(17,692)** | **$(22,584)** | **$(20,187)** | **$(22,115)** | **$(18,304)** | Unaudited Quarterly Consolidated Statement of Operations Data as a Percentage of Total Revenue | Metric | Jan 31, 2021 | Oct 31, 2020 | Jul 31, 2020 | Apr 30, 2020 | Jan 31, 2020 | Oct 31, 2019 | Jul 31, 2019 | Apr 30, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | 82% | 80% | 78% | 77% | 78% | 75% | 73% | 74% | | Professional services revenue | 18% | 20% | 22% | 23% | 22% | 25% | 27% | 26% | | **Total revenue** | **100%** | **100%** | **100%** | **100%** | **100%** | **100%** | **100%** | **100%** | | Subscription cost of revenue | 19% | 20% | 19% | 18% | 21% | 19% | 18% | 19% | | Professional services cost of revenue | 21% | 23% | 25% | 25% | 28% | 28% | 30% | 31% | | **Total cost of revenue** | **41%** | **43%** | **44%** | **44%** | **49%** | **48%** | **48%** | **50%** | | **Gross profit** | **59%** | **57%** | **56%** | **56%** | **51%** | **52%** | **52%** | **50%** | | Research and development | 26% | 24% | 26% | 24% | 29% | 25% | 27% | 27% | | Sales and marketing | 40% | 36% | 38% | 39% | 39% | 39% | 39% | 40% | | General and administrative | 17% | 17% | 21% | 18% | 18% | 15% | 16% | 16% | | **Total operating expenses** | **83%** | **78%** | **85%** | **80%** | **86%** | **79%** | **82%** | **83%** | | **Loss from operations** | **(24)%** | **(21)%** | **(29)%** | **(24)%** | **(35)%** | **(26)%** | **(31)%** | **(33)%** | | Interest and other income (expense), net | 1% | — | 3% | 1% | 1% | 2% | 1% | 1% | | Loss before provision for income taxes | (23)% | (21)% | (26)% | (23)% | (34)% | (25)% | (30)% | (32)% | | Provision (benefit) for income taxes | 1% | 1% | 1% | — | — | 1% | — | — | | **Net loss** | **(24)%** | **(22)%** | **(27)%** | **(24)%** | **(34)%** | **(25)%** | **(30)%** | **(32)%** | [Quarterly Revenue Trends](index=69&type=section&id=Quarterly%20Revenue%20Trends) - Quarterly subscription revenue has consistently grown sequentially during the periods presented, driven by an expanding customer base and increased transaction volume and product sales from existing customers[331](index=331&type=chunk) - Quarterly professional services revenue has decreased as the company shifts more services work to systems integrator partners, and this revenue stream is expected to continue declining as a percentage of total revenue[332](index=332&type=chunk) [Quarterly Cost of Revenue and Gross Margin Trends](index=70&type=section&id=Quarterly%20Cost%20of%20Revenue%20and%20Gross%20Margin%20Trends) - Quarterly subscription revenue gross margin has remained relatively consistent, reflecting infrastructure costs associated with customer growth and the migration of data centers to cloud service providers[333](index=333&type=chunk) - Quarterly professional services gross margin has generally increased sequentially as the company shifts more services work to systems integrator partners to optimize its revenue mix towards recurring subscription revenue[334](index=334&type=chunk) [Quarterly Operating Expenses Trends](index=70&type=section&id=Quarterly%20Operating%20Expenses%20Trends) - Total operating expenses have generally increased sequentially, driven by higher employee compensation costs from stock-based compensation, partially offset by lower travel expenses in fiscal 2021[335](index=335&type=chunk) - Stock-based compensation expense increased in the second, third, and fourth quarters of fiscal 2021 due to a one-time RSU grant for retaining non-executive employees, which fully vested in fiscal 2021 and contributed **$7.6 million** in expense[336](index=336&type=chunk) - Sales and marketing expenses increased due to continued investment in customer acquisition and retention efforts, as well as investments in customer success and alliance organizations[338](index=338&type=chunk) - Research and development expenses increased due to ongoing investments in technology, innovation, and new products[339](index=339&type=chunk) - General and administrative expenses increased in certain periods due to higher headcount to support growth and stockholder litigation expenses[340](index=340&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) - As of January 31, 2021, the company had **$186.6 million** in cash, cash equivalents, and short-term investments, primarily held in deposit accounts, money market funds, corporate bonds, commercial paper, and U.S. government securities[343](index=343&type=chunk) - The company primarily funds its operations through customer sales (typically billed annually or quarterly in advance), proceeds from the issuance of stock under employee equity plans, and borrowings under its debt agreement[344](index=344&type=chunk) - The company believes its existing cash, cash equivalents, short-term investments, cash from operating activities, and available funds under its debt agreement will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months[345](index=345&type=chunk) [Debt Agreement](index=71&type=section&id=Debt%20Agreement) - For detailed information on the debt agreement, refer to Note 9, "Debt," of the financial statements[347](index=347&type=chunk) [Cash Flows](index=71&type=section&id=Cash%20Flows) Summary of Cash Flows (Fiscal years ended January 31, in thousands of U.S. dollars) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11,286 | $(3,590) | | Net cash provided by (used in) investing activities | $12,872 | $(29,760) | | Net cash provided by financing activities | $14,981 | $17,980 | | Effect of exchange rate changes on cash and cash equivalents | $696 | $(379) | | Net increase (decrease) in cash and cash equivalents | $39,835 | $(15,749) | [Off-Balance Sheet Arrangements](index=72&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of January 31, 2021, the company had no off-balance sheet arrangements with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities[355](index=355&type=chunk) [Obligations and Other Commitments](index=72&type=section&id=Obligations%20and%20Other%20Commitments) Contractual Obligations (As of January 31, 2021, in thousands of U.S. dollars) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $80,733 | $14,129 | $24,080 | $12,627 | $29,897 | | Debt principal and interest | $6,245 | $4,532 | $1,713 | — | — | | Other contractual obligations | $13,327 | $13,327 | — | — | — | | **Total** | **$100,305** | **$31,988** | **$25,793** | **$12,627** | **$29,897** | - Major commitments include operating lease obligations for office space and obligations under the debt agreement[356](index=356&type=chunk) - As of January 31, 2021, the company had a **$13.3 million** contractual obligation to purchase cloud services from a vendor, to be fulfilled by September 30, 2021[358](index=358&type=chunk)[509](index=509&type=chunk) [Critical Accounting Policies and Estimates](index=73&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company's financial statements are prepared in accordance with U.S. GAAP, which requires management to make significant estimates and assumptions regarding revenue recognition, deferred commissions, fair value of common stock, allowance for credit losses, goodwill, and deferred income tax assets[363](index=363&type=chunk)[418](index=418&type=chunk) [Revenue Recognition Policy](index=73&type=section&id=Revenue%20Recognition%20Policy) - The company's revenue recognition policy follows Topic 606, Revenue from Contracts with Customers, with primary revenue sources from subscription services and professional services fees[365](index=365&type=chunk)[421](index=421&type=chunk) - Determining whether products and services are distinct performance obligations requires significant judgment; the company has identified its cloud-based software subscription and professional services as distinct performance obligations[365](index=365&type=chunk)[367](index=367&type=chunk)[427](index=427&type=chunk)[429](index=429&type=chunk) - The company allocates the transaction price to each performance obligation based on its relative standalone selling price (SSP), the determination of which requires judgment and is primarily based on actual sales prices[368](index=368&type=chunk)[430](index=430&type=chunk)[431](index=431&type=chunk) [Recent Accounting Pronouncements—Adopted in Fiscal 2021](index=73&type=section&id=Recent%20Accounting%20Pronouncements%E2%80%94Adopted%20in%20Fiscal%202021) - The company adopted ASU 2016-13 (Topic 326), Financial Instruments—Credit Losses, on February 1, 2020, which introduced a new impairment model based on expected credit losses but did not have a material impact on the consolidated financial statements[471](index=471&type=chunk) - Following the adoption of Topic 326, the allowance for expected credit losses on accounts receivable is measured on a collective (pool) basis and determined based on historical loss patterns and customer risk assessments[472](index=472&type=chunk) - The allowance for credit losses was **$4.5 million** as of January 31, 2021, compared to $2.9 million as of January 31, 2020[473](index=473&type=chunk) - Available-for-sale securities are reported at fair value, with unrealized gains and losses included in other comprehensive income; the company has not recorded an allowance for credit losses on these securities[474](index=474&type=chunk)[475](index=475&type=chunk) [Recent Accounting Pronouncements—Not Yet Adopted](index=74&type=section&id=Recent%20Accounting%20Pronouncements%E2%80%94Not%20Yet%20Adopted) - In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which will be effective February 1, 2021; the company is evaluating its impact and does not expect it to be material[370](index=370&type=chunk) [Recent SEC Rule Changes](index=74&type=section&id=Recent%20SEC%20Rule%20Changes) - In August 2020, the SEC issued final rules to modernize disclosure requirements for business description, legal proceedings, and risk factors, aiming to improve readability and reduce repetition[371](index=371&type=chunk) - In November 2020, the SEC issued final rules to simplify certain disclosure requirements in Regulation S-K, eliminating the need for selected financial data, selected quarterly financial data (with certain exceptions), and tables for off-balance sheet arrangements and contractual obligations[372](index=372&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from foreign currency exchange rates and interest rate fluctuations [Foreign Currency Exchange Risk](index=75&type=section&id=Foreign%20Currency%20Exchange%20Risk) - The company's sales contracts are primarily denominated in U.S. dollars, Euros, and British pounds, while some operating expenses are paid in non-U.S. currencies, exposing it to foreign currency exchange rate fluctuations[375](index=375&type=chunk) - A strengthening U.S. dollar could increase the real cost of the company's solutions for non-U.S. customers, adversely affecting business, operating results, financial condition, and cash flows[375](index=375&type=chunk) - A hypothetical 10% change in foreign currency exchange rates would not have a material impact on the company's historical consolidated financial statements; the company does not currently engage in foreign currency hedging[375](index=375&type=chunk) [Interest Rate Risk](index=75&type=section&id=Interest%20Rate%20Risk) - As of January 31, 2021, the company had **$186.6 million** in cash, cash equivalents, and short-term investments for working capital purposes and does not engage in trading or speculative investments[376](index=376&type=chunk) - Outstanding balances under the debt agreement bear interest at floating market rates, and a significant change in interest rates could adversely affect operating results[376](index=376&type=chunk) - As of January 31, 2021, 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 on interest expense for outstanding debt[378](index=378&type=chunk) [Financial Statements and Supplementary Data](index=76&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the consolidated financial statements of Zuora, Inc. and its subsidiaries, along with the independent auditor's report [Note 1. Overview and Basis of Presentation](index=86&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) - Zuora, Inc. was incorporated in Delaware in 2006, began operations in 2007, and is headquartered in Redwood City, California[412](index=412&type=chunk) - The company provides a cloud-based subscription management platform that automates the subscription order-to-revenue process[413](index=413&type=chunk) - In April 2018, the company completed its Initial Public Offering (IPO), issuing 12.7 million shares of Class A common stock for net proceeds of **$159.7 million**[415](index=415&type=chunk) - The consolidated financial statements are prepared in accordance with U.S. GAAP and involve significant estimates and assumptions[417](index=417&type=chunk)[418](index=418&type=chunk) - The functional currency of the company's foreign subsidiaries is the local currency, with foreign currency translation adjustments recorded in accumulated other comprehensive income[419](index=419&type=chunk) - The company operates as a single operating segment, with the Chief Executive Officer as the chief operating decision maker[420](index=420&type=chunk) [Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=88&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) - The company's revenue is primarily derived from subscription services and professional services and is recognized under Topic 606, Revenue from Contracts with Customers[421](index=421&type=chunk)[422](index=422&type=chunk) - Subscription services revenue is generally recognized ratably over the contract term, while professional services revenue is recognized as services are performed[423](index=423&type=chunk)[426](index=426&type=chunk) - The company capitalizes sales commission costs and amortizes them over the expected period of benefit (five years for new customers, twelve months for renewal customers)[432](index=432&type=chunk) - Total contract assets were **$1.4 million** and $2.8 million as of January 31, 2021, and 2020, respectively[433](index=433&type=chunk) - The company adopted Topic 326, Financial Instruments—Credit Losses, on February 1, 2020, which modified the measurement of credit losses for accounts receivable and available-for-sale securities[471](index=471&type=chunk) - The allowance for credit losses was **$4.5 million** as of January 31, 2021, compared to $2.9 million as of January 31, 2020[473](index=473&type=chunk) [Note 3. Investments](index=95&type=section&id=Note%203.%20Investments) - The company's short-term investments consist primarily of U.S. government securities, corporate bonds, and commercial paper, classified as available-for-sale and reported at fair value[476](index=476&type=chunk)[442](index=442&type=chunk) Fair Value of Short-Term Investments (As of January 31, 2021, in thousands of U.S. dollars) | Investment Type | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :--- | :--- | :--- | :--- | :--- | | U.S. government securities | $18,007 | $28 | — | $18,035 | | Corporate bonds | $25,888 | $8 | $(3) | $25,893 | | Commercial paper | $48,556 | — | — | $48,556 | | **Total short-term investments** | **$92,451** | **$36** | **$(3)** | **$92,484** | Fair Value of Short-Term Investments (As of January 31, 2020, in thousands of U.S. dollars) | Investment Type | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :--- | :--- | :--- | :--- | :--- | | U.S. government securities | $34,053 | $41 | — | $34,094 | | Corporate bonds | $45,601 | $81 | — | $45,682 | | Commercial paper | $37,886 | — | — | $37,886 | | **Total short-term investments** | **$117,540** | **$122** | **—** | **$117,662** | - Realized gains and losses from the sale of available-for-sale securities were not material to accumulated other comprehensive income in fiscal 2021 and 2020[477](index=477&type=chunk) [Note 4. Fair Value Measurements](index=95&type=section&id=Note%204.%20Fair%20Value%20Measurements) - Fair value measurements use a three-tier hierarchy, prioritizing quoted prices in active markets (Level 1), followed by observable inputs (Level 2), and finally unobservable inputs based on management's best estimates (Level 3)[478](index=478&type=chunk)[479](index=479&type=chunk) Fair Value Hierarchy for Financial Assets (As of January 31, 2021, in thousands of U.S. dollars) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents: Money market funds | $85,664 | — | — | $85,664 | | Short-term investments: U.S. government securities | — | $18,035 | — | $18,035 | | Short-term investments: Corporate bonds | — | $25,893 | — | $25,893 | | Short-term investments: Commercial paper | — | $48,556 | — | $48,556 | | **Total short-term investments** | **—** | **$92,484** | **—** | **$92,484** | Fair Value Hierarchy for Financial Assets (As of January 31, 2020, in thousands of U.S. dollars) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents: Money market funds | $37,906 | — | — | $37,906 | | Short-term investments: U.S. government securities | — | $34,094 | — | $34,094 | | Short-term investments: Corporate bonds | — | $45,682 | — | $45,682 | | Short-term investments: Commercial paper | — | $37,886 | — | $37,886 | | **Total short-term investments** | **—** | **$117,662** | **—** | **$117,662** | [Note 5. Prepaid Expenses and Other Current Assets](index=96&type=section&id=Note%205.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid Expenses and Other Current Assets (As of January 31, in thousands of U.S. dollars) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Prepaid software subscriptions | $5,087 | $4,036 | | Prepaid insurance | $2,317 | $1,630 | | Prepaid hosting | $1,847 | $1,611 | | Contract assets | $1,381 | $2,476 | | Taxes | $477 | $729 | | Insurance proceeds receivable | $344 | $1,442 | | Other | $4,121 | $4,463 | | **Total** | **$15,574** | **$16,387** | [Note 6. Property and Equipment, Net](index=97&type=section&id=Note%206.%20Property%20and%20Equipment%2C%20Net) Property and Equipment, Net (As of January 31, in thousands of U.S. dollars) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Software | $19,711 | $15,329 | | Leasehold improvements | $18,978 | $16,865 | | Servers | $14,179 | $14,596 | | Computer equipment | $12,824 | $11,249 | | Furniture and fixtures | $5,228 | $4,987 | | Vehicles | $105 | $108 | | **Total** | **$71,025** | **$63,134** | | Less: Accumulated depreciation and amortization | $(37,656) | $(29,645) | | **Total** | **$33,369** | **$33,489** | Capitalized Internal-Use Software Costs (in thousands of U.S. dollars) | Item | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Internal-use software costs capitalized during the period | $4,235 | $4,552 | $2,280 | | Total capitalized internal-use software, net of accumulated amortization, as of January 31 | $8,704 | $6,276 | | Total Depreciation and Amortization Expense (Fiscal years ended January 31, in thousands of U.S. dollars) | Item | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total depreciation and amortization expense | $9,528 | $10,571 | $6,542 | [Note 7. Intangible Assets and Goodwill](index=97&type=section&id=Note%207.%20Intangible%20Assets%20and%20Goodwill) Purchased Intangible Asset Balances (As of January 31, 2021, in thousands of U.S. dollars) | Item | Gross Carrying Amount | Accumulated Amortization | Net Book Value | | :--- | :--- | :--- | :--- | | Developed technology | $7,697 | $(6,243) | $1,454 | | Customer relationships | $4,287 | $(2,246) | $2,041 | | Trade names | $909 | $(476) | $433 | | **Total** | **$12,893** | **$(8,965)** | **$3,928** | Purchased Intangible Asset Balances (As of January 31, 2020, in thousands of U.S. dollars) | Item | Gross Carrying Amount | Accumulated Amortization | Net Book Value | | :--- | :--- | :--- | :--- | | Developed technology | $7,697 | $(5,152) | $2,545 | | Customer relationships | $4,287 | $(1,775) | $2,512 | | Trade names | $909 | $(346) | $563 | | **Total** | **$12,893** | **$(7,273)** | **$5,620** | - Amortization expense for purchased intangible assets was **$1.7 million**, $1.8 million, and $2.3 million for fiscal years 2021, 2020, and 2019, respectively[484](index=484&type=chunk) Estimated Future Amortization Expense for Intangible Assets (As of January 31, 2021, in thousands of U.S. dollars) | Fiscal Year | Amortization Expense | | :--- | :--- | | 2022 | $1,692 | | 2023 | $964 | | 2024 | $601 | | 2025 | $514 | | 2026 | $157 | | **Total** | **$3,928** | - There was no change in the carrying amount of goodwill as of January 31, 2021, and 2020, and no impairment was identified in the annual goodwill impairment test conducted on December 1, 2020[486](index=486&type=chunk) [Note 8. Accrued Expenses and Other Current Liabilities](index=98&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued Expenses and Other Current Liabilities (As of January 31, in thousands of U.S. dollars) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Accrued taxes | $4,377 | $4,803 | | Accrued hosting and third-party license fees | $3,073 | $1,846 | | Accrued outside services and consulting fees | $2,380 | $2,800 | | Accrued property and equipment | $21 | $3,442 | | Other accrued expenses | $4,699 | $4,840 | | **Total** | **$14,550** | **$17,731** | [Note 9. Debt](index=98&type=section&id=Note%209.%20Debt) - The company entered into a loan and security agreement with Silicon Valley Bank in June 2017, which includes a revolving line of credit and a term loan[488](index=488&type=chunk) - In January 2021, the agreement was amended to extend the revolving credit facility for 12 months to October 2022 and to release SVB's first priority security interest in the company's intellectual property[488](index=488&type=chunk) - The revolving line of credit allows the company to borrow up to **$30.0 million** until October 2022; no amounts were drawn as of January 31, 2021[490](inde

Zuora, Inc. (NYSE:ZUO) Q4 2021 Earnings Conference Call March 11, 2021 5:00 PM ET Company Participants Carolyn Bass – Investor Relations Tien Tzuo – Founder and Chief Executive Officer Todd McElhatton – Chief Financial Officer Conference Call Participants Joseph Vafi – Canaccord Scott Berg – Needham Luv Sodha – Jefferies Chris Merwin – Goldman Sachs Stan Zlotsky – Morgan Stanley Operator Good afternoon, and welcome to Zuora's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Joining us for today ...

PART I. FINANCIAL INFORMATION [Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents Zuora's unaudited condensed consolidated financial statements for the period ended October 31, 2020 It includes the balance sheets, statements of comprehensive loss, statements of stockholders' equity, and statements of cash flows Key highlights include an increase in cash and cash equivalents, revenue growth driven by subscriptions, and a shift to positive cash flow from operations compared to the prior year Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2020 | Jan 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $104,047 | $54,275 | | Total current assets | $266,486 | $266,784 | | Total assets | $395,334 | $402,227 | | **Liabilities & Equity** | | | | Total current liabilities | $161,973 | $165,620 | | Total liabilities | $227,043 | $237,568 | | Total stockholders' equity | $168,291 | $164,659 | Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands, except per share data) | Metric | Three Months Ended Oct 31, 2020 | Three Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Subscription Revenue | $62,020 | $54,038 | $177,228 | $151,996 | | Total Revenue | $77,246 | $71,822 | $226,133 | $205,664 | | Gross Profit | $43,980 | $37,521 | $127,495 | $105,630 | | Loss from Operations | $(16,009) | $(19,006) | $(55,216) | $(61,216) | | Net Loss | $(16,773) | $(18,237) | $(54,383) | $(59,642) | | Net Loss Per Share | $(0.14) | $(0.16) | $(0.47) | $(0.54) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8,151 | $(7,599) | | Net cash provided by (used in) investing activities | $31,947 | $(9,518) | | Net cash provided by financing activities | $9,745 | $12,130 | | Net increase (decrease) in cash and cash equivalents | $49,772 | $(5,403) | - As of October 31, 2020, the company had total remaining non-cancellable performance obligations of approximately **$275.5 million**, with an expected **66%** to be recognized as revenue over the next 12 months[51](index=51&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting the ongoing shift to the 'Subscription Economy' as a key driver The report notes that while the COVID-19 pandemic has caused some business disruption, its financial impact has not been material to date Key operational successes include an 11% YoY increase in customers with ACV over $100,000 and a stable 99% dollar-based retention rate Financial results show an 8% YoY revenue increase for the quarter, driven by a 15% rise in subscription revenue, while professional services revenue declined as part of a strategic shift to partners The company also reported improved gross margins and a narrower operating loss - The company is focused on the 'Subscription Economy,' providing a cloud-based platform for businesses to manage subscription-based models, automating the order-to-revenue process[85](index=85&type=chunk)[86](index=86&type=chunk) - The COVID-19 pandemic has caused some disruptions, such as longer sales cycles and customer requests for payment concessions However, the company believes these disruptions have not had a material impact on overall financial results for the quarter[92](index=92&type=chunk)[93](index=93&type=chunk) Key Operational Metrics as of October 31, 2020 | Metric | Value | YoY Change | | :--- | :--- | :--- | | Customers with ACV > $100,000 | 653 | +11% | | Dollar-Based Retention Rate | 99% | N/A (stable QoQ) | | Customer Transaction Volume | $14.6 billion | +31% | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) For the third quarter of fiscal 2021, total revenue increased 8% year-over-year to $77.2 million, driven by a 15% increase in subscription revenue to $62.0 million This was partially offset by a 14% decrease in professional services revenue, reflecting a strategic shift towards system integrator partners Gross margin improved to 57% from 52% in the prior year Operating expenses remained relatively flat as a percentage of revenue, leading to a reduced operating loss of $16.0 million compared to $19.0 million in the prior-year quarter Similar trends were observed for the nine-month period, with total revenue up 10% and operating loss narrowing Revenue Comparison - Q3 2020 vs Q3 2019 (in thousands) | Revenue Type | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $62,020 | $54,038 | $7,982 | 15% | | Professional services | $15,226 | $17,784 | $(2,558) | (14)% | | **Total revenue** | **$77,246** | **$71,822** | **$5,424** | **8%** | Gross Margin Comparison - Q3 2020 vs Q3 2019 | Margin Type | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Subscription Gross Margin | 75% | 74% | | Professional Services Gross Margin | (16)% | (15)% | | **Total Gross Margin** | **57%** | **52%** | - For the nine months ended October 31, 2020, subscription revenue grew **17%** to **$177.2 million**, while professional services revenue decreased **9%** to **$48.9 million**, resulting in a total revenue increase of **10%** to **$226.1 million**[130](index=130&type=chunk)[131](index=131&type=chunk) - General and administrative expenses increased by **23%** for the quarter and **29%** for the nine-month period, primarily due to increased employee compensation and shareholder litigation expenses[126](index=126&type=chunk)[138](index=138&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) As of October 31, 2020, Zuora held $178.8 million in cash, cash equivalents, and short-term investments The company generated $8.2 million in cash from operating activities for the first nine months of the fiscal year, a significant improvement from the $7.6 million used in the same period last year Management believes its current liquidity is sufficient to meet working capital and capital expenditure needs for at least the next 12 months The company's principal commitments total $109.2 million, primarily consisting of operating leases - The company had cash, cash equivalents, and short-term investments of **$178.8 million** as of October 31, 2020[142](index=142&type=chunk) - For the nine months ended October 31, 2020, net cash provided by operating activities was **$8.2 million**, a turnaround from the **$7.6 million** used in the prior-year period This was primarily due to a lower net loss and favorable changes in non-cash charges[145](index=145&type=chunk)[147](index=147&type=chunk) Contractual Obligations as of October 31, 2020 (in thousands) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $82,702 | $13,192 | $24,326 | $13,703 | $31,481 | | Debt principal and interest | $7,396 | $4,558 | $2,838 | $— | $— | | Other contractual obligations | $19,141 | $19,141 | $— | $— | $— | | **Total** | **$109,239** | **$36,891** | **$27,164** | **$13,703** | **$31,481** | [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies its primary market risks as foreign currency exchange risk and interest rate risk The majority of sales are denominated in U.S dollars, limiting foreign currency revenue risk, though operating expenses in foreign currencies create some exposure The company does not currently use hedging instruments Interest rate risk pertains to its investment portfolio and variable-rate debt Management states that a hypothetical 10% change in either foreign exchange or interest rates would not materially impact its financial statements - The company's primary market risks are from fluctuations in foreign currency exchange rates and interest rates[171](index=171&type=chunk) - Foreign currency risk is limited as the majority of sales are in U.S dollars, but operating expenses in Europe, China, India, Japan, and Australia create exposure The company does not currently hedge this risk[172](index=172&type=chunk) - Interest rate risk affects the value of cash equivalents and short-term investments (**$178.8 million**) and the cost of variable-rate debt A hypothetical **10%** change in rates is not expected to have a material impact[173](index=173&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) As of October 31, 2020, the company's management, including the CEO and CFO, evaluated its disclosure controls and procedures and concluded they were effective The report also states that there were no changes during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - The CEO and CFO concluded that as of October 31, 2020, the company's disclosure controls and procedures were effective[177](index=177&type=chunk) - There were no material changes in the company's internal control over financial reporting during the quarter[178](index=178&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 of the financial statements, which details ongoing legal matters The company is involved in putative securities class action lawsuits and related stockholder derivative actions Management states it is unable to estimate the reasonably possible loss or range of loss from these matters - The company is party to a putative securities class action lawsuit filed in June 2019 and two others filed in April and May 2020, alleging violations of the Securities Exchange Act and Securities Act, respectively[59](index=59&type=chunk)[60](index=60&type=chunk) - Several stockholder derivative lawsuits have also been filed, based on similar events as the class actions These actions are currently stayed pending discovery in the federal securities class action[62](index=62&type=chunk)[63](index=63&type=chunk) - For all ongoing litigation, the company is currently unable to estimate the reasonably possible loss or range of loss[61](index=61&type=chunk)[64](index=64&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) The company outlines significant risks to its business Key risks include the potential adverse impact of the COVID-19 pandemic on operations and customer spending, a history of net losses with no guarantee of future profitability, and intense competition in the subscription management market Other major risks involve cybersecurity threats, the ability to attract and retain customers, reliance on third-party data centers, international expansion challenges, and potential intellectual property infringement claims The dual-class stock structure, which concentrates voting power, is also highlighted as a risk - The ongoing COVID-19 pandemic could adversely affect business through delayed sales cycles, reduced customer spending, and other operational challenges[187](index=187&type=chunk) - The company has a history of net losses (accumulated deficit of **$445.2 million** as of Oct 31, 2020) and may not achieve or sustain profitability[193](index=193&type=chunk) - The market for subscription management is highly competitive, and the company faces threats from competitors with greater resources and from companies choosing to build in-house solutions[208](index=208&type=chunk)[211](index=211&type=chunk) - Security breaches or cyber-attacks could harm the company's reputation, disrupt service, and result in significant liability[214](index=214&type=chunk) - The dual-class common stock structure concentrates voting control with holders of Class B stock, limiting the ability of Class A stockholders to influence corporate matters[299](index=299&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no use of proceeds from such sales during the reporting period - There were no unregistered sales of equity securities in the period[341](index=341&type=chunk) [Exhibits](index=86&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q These include the certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and the Inline XBRL documents for financial reporting - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[344](index=344&type=chunk) - The filing also includes Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, and Presentation)[344](index=344&type=chunk) Signatures

Financial Data and Key Metrics Changes - The company exceeded expectations across key financial metrics, including total revenue, subscription revenue, gross margin, operating income, and free cash flow, achieving breakeven free cash flow one quarter ahead of plan [8][40]. - Subscription revenue grew 15% year-over-year to $62 million, with total revenue reaching $77.2 million for the quarter [46][48]. - Non-GAAP blended gross margins improved to 63%, a 500 basis point increase from the previous year, while non-GAAP subscription gross margins were 78% [49]. - Calculated subscription billings in Q3 were $70.8 million, reflecting a 14% year-over-year growth [51]. Business Line Data and Key Metrics Changes - The company added 25 new customers in Q3, including six deals with annual contract values over $500,000, marking the largest deal in the company's history [9][42]. - Professional services revenue decreased 14% year-over-year to $15.2 million, aligning with the strategy to shift services work to system integrator partners [47]. - The customer base with annual contract values at or over $100,000 grew to 653, representing over 90% of the business [41][21]. Market Data and Key Metrics Changes - The company is seeing increased demand from larger enterprises, with a growing enterprise pipeline and larger deal sizes [12][17]. - The systems processed over $14 billion in transaction volume during the quarter, representing a 31% year-over-year growth [45]. Company Strategy and Development Direction - The company is focusing on moving upmarket and partnering with global enterprise companies, emphasizing the importance of subscription models in various industries [11][17]. - Zuora's platform is positioned as a critical tool for larger companies to meet their subscription management needs, enhancing customer experiences through automation and agility [14][22]. - The company is refining its go-to-market strategy, shifting to a value selling methodology and a team selling model to better serve larger customers [35][39]. Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term opportunity for Zuora, despite near-term economic uncertainties [59]. - The company plans to continue investing in go-to-market initiatives and product innovation while adapting to changes in the macro environment [60]. Other Important Information - The company reported a decrease in churn by 55% from the previous quarter, returning to historical averages [43]. - The cash position at the end of the quarter was $178.8 million, maintaining a healthy cash position to manage the business [55]. Q&A Session Summary Question: Details on the largest deal signed in the quarter - The deal was with one of the top three electronic retailers, focusing on a broader subscription management system, including the billing product and platform [63][64]. Question: Insights on platform usage and analytics - Two-thirds of customers are using the platform, and over a quarter are using analytics, indicating strong adoption rates [65]. Question: Partner ecosystem developments - System integrators are building practices around digital transformation, with a significant number of go-lives involving SI partners [70]. Question: Sales productivity and churn expectations - Sales productivity is improving, and churn is expected to remain at historical levels [71]. Question: Future pipeline and demand trends - There is a growing demand for customer-centric subscription business models, accelerated by the COVID-19 pandemic [77]. Question: Competitors and market positioning - The company is replacing homegrown billing systems and Excel spreadsheets, focusing on integrating with existing enterprise application backbones as subscriptions become more mainstream [79]. Question: Metrics on platform adoption and upsells - The platform continues to evolve, with expectations for all customers to ultimately use it, enhancing upsell opportunities [82].

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, 2020 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 - Total revenue for Q2 2021 was $75 million, exceeding expectations, with subscription revenue at $58.3 million and professional services revenue at $16.7 million [42] - Non-GAAP operating loss improved to $1.6 million, reflecting an $8.5 million improvement year-over-year [52] - Non-GAAP gross margins increased by three points to 63%, with subscription gross margins at 79% [51] Business Line Data and Key Metrics Changes - Subscription revenue grew by 15% year-over-year to $58.3 million, while professional services revenue decreased by 13% [50] - The customer base with over $100,000 ACV grew by 14% year-over-year to 645 customers, representing 90% of total business [44] - Dollar-based retention decreased to 99% from 103% in Q1, attributed to higher churn rates due to bankruptcies and M&A [44][45] Market Data and Key Metrics Changes - Processed transaction volume reached $12.7 billion, representing a 26% year-over-year growth [49] - The company noted strong demand in high-tech, media, and manufacturing sectors, which are expected to grow faster than other verticals [39] Company Strategy and Development Direction - The company is focusing on three core verticals: high tech, media, and manufacturing, which are expected to drive growth [39] - There is an emphasis on product innovation and improving the operating model to create leverage and efficiency [40][41] - The company aims to leverage its data to provide actionable insights to customers, enhancing their subscription business models [16][69] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism that the worst of the COVID impact is behind, with a belief that the subscription business model is thriving [12][35] - The company expects better billings growth in the upcoming quarter, despite ongoing economic uncertainty [58] - Management highlighted the importance of agility, insights, and automation as competitive advantages in the subscription economy [34] Other Important Information - The company ended the quarter with $179 million in cash and cash equivalents, maintaining a healthy cash position [57] - Free cash flow for Q2 was negative $0.7 million, with expectations of approximately negative $5 million for Q3 [54][56] Q&A Session Summary Question: Insights on churn and its focus on affected verticals - Management acknowledged that the recent churn was primarily due to bankruptcies, M&A, and product fit issues, expecting churn to return to historical levels [62][66] Question: Customer sophistication in calculating subscription metrics - Management noted that while customers have access to data, the goal is to provide actionable insights to help them understand and utilize that data effectively [68] Question: Impact of sales focus on core verticals on TAM and growth - Management indicated that focusing on high-growth verticals will enhance efficiency in sales and marketing, leading to improved operating leverage [77][80] Question: Changes in pricing strategies - Management emphasized the importance of aligning pricing with the value customers experience, moving towards consumption-based business models [84] Question: Sales productivity and hiring plans - Management confirmed plans to hire additional sales personnel in the second half of the year to support growth objectives [93]

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, 2020 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. ...