Zuora, Inc. (NYSE:ZUO) Q1 2021 Earnings Conference Call June 3, 2020 5:00 PM ET Company Participants Joon Huh - VP, IR Tien Tzuo - Co-Founder, Chairman & CEO Conference Call Participants Scott Berg - Needham & Company Luv Sodha - Jefferies Joseph Vafi - Canaccord Genuity Christopher Merwin - Goldman Sachs Group Sarah Quander - Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to the Zuora First Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions]. I would ...

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, 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. (Exac ...

Zuora, Inc. (NYSE:ZUO) Q4 2020 Earnings Conference Call March 12, 2020 5:00 PM ET Company Participants Joon Huh - VP, IR Tien Tzuo - CEO Tyler Sloat - CFO Conference Call Participants Chris Merwin - Goldman Sachs Luv Sodha - Jefferies Terry Kiwala - First Analyst Stan Zlotsky - Morgan Stanley Operator Good afternoon. My name is Elian and I will be your conference operator today. At this time I would like to welcome everyone to the Zuora Fourth Quarter and Full Year Fiscal 2020 Earnings Conference Call. All ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the company's unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20October%2031%2C%202019%20and%20January%2031%2C%202019) | Metric | October 31, 2019 (in thousands) | January 31, 2019 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | | **Assets** | | | | Total current assets | $255,609 | $257,754 | | Total assets | $331,289 | $326,047 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $144,561 | $128,072 | | Total liabilities | $163,546 | $144,233 | | Total stockholders' equity | $167,743 | $181,814 | | Total liabilities and stockholders' equity | $331,289 | $326,047 | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20for%20the%20Three%20and%20Nine%20Months%20Ended%20October%2031%2C%202019%20and%202018) | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $71,822 | $61,356 | $205,664 | $171,651 | | Gross profit | $37,521 | $31,179 | $105,630 | $86,809 | | Loss from operations | $(19,006) | $(17,531) | $(61,216) | $(51,419) | | Net loss | $(18,237) | $(17,224) | $(59,642) | $(53,558) | | Net loss per share, basic and diluted | $(0.16) | $(0.16) | $(0.54) | $(0.62) | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Nine%20Months%20Ended%20October%2031%2C%202019%20and%202018) | Metric | Balance, January 31, 2019 (in thousands) | Balance, October 31, 2019 (in thousands) | | :--- | :--- | :--- | | Additional Paid-in Capital | $488,776 | $534,642 | | Accumulated Deficit | $(307,454) | $(367,096) | | Total Stockholders' Equity | $181,814 | $167,743 | - Net loss for the nine months ended October 31, 2019, was **$59,642 thousand**, contributing to an increased accumulated deficit[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20Months%20Ended%20October%2031%2C%202019%20and%202018) | Cash Flow Activity | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,599) | $(16,592) | | Net cash used in investing activities | $(9,518) | $(107,986) | | Net cash provided by financing activities | $12,130 | $155,873 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(5,403) | $30,954 | | Cash and cash equivalents and restricted cash, end of period | $64,621 | $84,317 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Overview and Basis of Presentation](index=13&type=section&id=Note%201.%20Overview%20and%20Basis%20of%20Presentation) This note details the company's business, basis of presentation, and the retrospective adoption of Topic 606 - Zuora, Inc was incorporated in Delaware in 2006 and provides cloud-based software for subscription business models, automating the order-to-revenue process[28](index=28&type=chunk)[29](index=29&type=chunk) - The company completed an Initial Public Offering (IPO) in April 2018, issuing **12.7 million shares** of Class A common stock and receiving **$159.7 million** in net proceeds[31](index=31&type=chunk) - Effective February 1, 2019, Zuora adopted Topic 606 (Revenue from Contracts with Customers) using the **full retrospective method**, adjusting all historical amounts and disclosures[33](index=33&type=chunk) [Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=14&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) This note details significant accounting policies, focusing on the impact of adopting Topic 606 on revenue and deferred commissions - Topic 606 adoption (effective Feb 1, 2019) modified revenue recognition by removing contingent revenue limitations, allocating discounts over the contract period, recognizing on-premise license revenue upon delivery, and changing allocation between subscription and professional services[39](index=39&type=chunk)[40](index=40&type=chunk) - Subscription services revenue is recognized ratably over the contract term, while professional services revenue is recognized as services are rendered or on a proportional performance basis[43](index=43&type=chunk)[46](index=46&type=chunk) - Sales commission expenses are capitalized and amortized over an estimated benefit period of **five years**, included in Sales and marketing expense[53](index=53&type=chunk) - The adoption of Topic 606 resulted in a cumulative effect adjustment to Accumulated Deficit and Total Stockholders' Equity of a **$24.0 million credit** as of January 31, 2018, primarily related to deferred commissions[21](index=21&type=chunk) Impact of Topic 606 on Balance Sheet (January 31, 2019, in thousands) | Line Item | As Reported Under ASC 605 | Topic 606 Adjustment | As Adjusted Under Topic 606 | | :--- | :--- | :--- | :--- | | Deferred commissions, current portion | $0 | $8,616 | $8,616 | | Prepaid expenses and other current assets | $10,414 | $4,218 | $14,632 | | Deferred commissions, net of current portion | $0 | $18,664 | $18,664 | | Purchased intangibles, net | $9,042 | $(1,646) | $7,396 | | Goodwill | $20,861 | $(3,229) | $17,632 | | Deferred revenue, current portion | $90,565 | $(3,781) | $86,784 | | Deferred revenue, net of current portion | $406 | $(294) | $112 | | Deferred tax liabilities | $0 | $1,877 | $1,877 | | Accumulated deficit | $(336,275) | $28,821 | $(307,454) | Impact of Topic 606 on Comprehensive Loss (Three Months Ended October 31, 2018, in thousands) | Line Item | As Reported Under ASC 605 | Topic 606 Adjustment | As Adjusted Under Topic 606 | | :--- | :--- | :--- | :--- | | Subscription Revenue | $44,485 | $(1,402) | $43,083 | | Professional Services Revenue | $17,152 | $1,121 | $18,273 | | Total Revenues | $61,637 | $(281) | $61,356 | | Net Loss | $(17,889) | $665 | $(17,224) | | Net Loss Per Share (basic and diluted) | $(0.17) | $0.01 | $(0.16) | Impact of Topic 606 on Comprehensive Loss (Nine Months Ended October 31, 2018, in thousands) | Line Item | As Reported Under ASC 605 | Topic 606 Adjustment | As Adjusted Under Topic 606 | | :--- | :--- | :--- | :--- | | Subscription Revenue | $122,069 | $(2,220) | $119,849 | | Professional Services Revenue | $49,066 | $2,736 | $51,802 | | Total Revenues | $171,135 | $516 | $171,651 | | Net Loss | $(56,923) | $3,365 | $(53,558) | | Net Loss Per Share (basic and diluted) | $(0.66) | $0.04 | $(0.62) | [Note 3. Investments](index=21&type=section&id=Note%203.%20Investments) This note summarizes the company's short-term investments, including their amortized cost, unrealized gains, and fair values | Investment Type | Amortized Cost (Oct 31, 2019, in thousands) | Fair Value (Oct 31, 2019, in thousands) | | :--- | :--- | :--- | | U.S. government securities | $27,930 | $28,002 | | Corporate bonds | $36,908 | $36,964 | | Commercial paper | $40,811 | $40,811 | | Total short-term investments | $105,649 | $105,777 | | Investment Type | Amortized Cost (Jan 31, 2019, in thousands) | Fair Value (Jan 31, 2019, in thousands) | | :--- | :--- | :--- | | U.S. government securities | $17,950 | $17,951 | | Corporate bonds | $34,296 | $34,302 | | Commercial paper | $55,655 | $55,655 | | Total short-term investments | $107,901 | $107,908 | - All securities had stated effective maturities of **two years or less** as of October 31, 2019[73](index=73&type=chunk) [Note 4. Fair Value Measurements](index=22&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note outlines the company's fair value hierarchy for financial assets and summarizes measurements for cash and investments | Asset Type | Level 1 (Oct 31, 2019, in thousands) | Level 2 (Oct 31, 2019, in thousands) | Level 3 (Oct 31, 2019, in thousands) | Total (Oct 31, 2019, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Money market funds | $53,274 | $0 | $0 | $53,274 | | U.S. government securities | $0 | $28,002 | $0 | $28,002 | | Corporate bonds | $0 | $36,964 | $0 | $36,964 | | Commercial paper | $0 | $40,811 | $0 | $40,811 | | Total short-term investments | $0 | $105,777 | $0 | $105,777 | | Asset Type | Level 1 (Jan 31, 2019, in thousands) | Level 2 (Jan 31, 2019, in thousands) | Level 3 (Jan 31, 2019, in thousands) | Total (Jan 31, 2019, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Money market funds | $61,201 | $0 | $0 | $61,201 | | U.S. government securities | $0 | $17,951 | $0 | $17,951 | | Corporate bonds | $0 | $34,302 | $0 | $34,302 | | Commercial paper | $0 | $55,655 | $0 | $55,655 | | Total short-term investments | $0 | $107,908 | $0 | $107,908 | | Restricted cash: Money market funds | $2,084 | $0 | $0 | $2,084 | [Note 5. Deferred Commissions](index=23&type=section&id=Note%205.%20Deferred%20Commissions) This note details the company's deferred commissions and their amortization expense for the reported periods | Metric | October 31, 2019 (in thousands) | January 31, 2019 (in thousands, As Adjusted) | | :--- | :--- | :--- | | Deferred commissions | $27,000 | $27,300 | | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands, As Adjusted) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Amortization expense | $2,400 | $2,000 | $7,000 | $5,800 | [Note 6. Prepaid Expenses and Other Current Assets](index=23&type=section&id=Note%206.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This note provides a breakdown of the company's prepaid expenses and other current assets as of the reporting dates | Category | October 31, 2019 (in thousands) | January 31, 2019 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | | Contract assets | $4,152 | $4,218 | | Prepaid software subscriptions | $4,037 | $4,797 | | Prepaid hosting costs | $1,556 | $1,251 | | Prepaid insurance | $1,342 | $790 | | Prepaid rent | $1,045 | $991 | | Taxes | $440 | $579 | | Other | $3,585 | $2,006 | | Total | $16,157 | $14,632 | [Note 7. Property and Equipment, Net](index=23&type=section&id=Note%207.%20Property%20and%20Equipment%2C%20Net) This note details the company's property and equipment, net of accumulated depreciation and amortization | Category | October 31, 2019 (in thousands) | January 31, 2019 (in thousands) | | :--- | :--- | :--- | | Servers | $16,873 | $14,972 | | Software | $13,967 | $10,770 | | Leasehold improvements | $12,785 | $5,010 | | Computer equipment | $11,123 | $10,109 | | Furniture and fixtures | $3,945 | $2,523 | | Vehicles | $109 | $109 | | Less accumulated depreciation and amortization | $(30,410) | $(23,868) | | Total | $28,392 | $19,625 | | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Depreciation and amortization expense | $2,800 | $1,800 | $7,000 | $4,900 | | Internal-use software amortization to cost of subscription revenue | $1,000 | $400 | $1,800 | $1,000 | [Note 8. Purchased Intangible Assets](index=25&type=section&id=Note%208.%20Purchased%20Intangible%20Assets) This note summarizes the company's purchased intangible assets, detailing their carrying amounts and amortization | Intangible Asset | Gross Carrying Amount (Oct 31, 2019, in thousands) | Accumulated Amortization (Oct 31, 2019, in thousands) | Net Carrying Amount (Oct 31, 2019, in thousands) | | :--- | :--- | :--- | :--- | | Developed technology | $7,697 | $(4,879) | $2,818 | | Customer relationships | $4,287 | $(1,657) | $2,630 | | Trade names | $909 | $(314) | $595 | | Total | $12,893 | $(6,850) | $6,043 | | Intangible Asset | Gross Carrying Amount (Jan 31, 2019, in thousands) | Accumulated Amortization (Jan 31, 2019, in thousands) | Net Carrying Amount (Jan 31, 2019, in thousands) | | :--- | :--- | :--- | :--- | | Developed technology | $7,697 | $(4,045) | $3,652 | | Customer relationships | $4,287 | $(1,236) | $3,051 | | Trade names | $909 | $(216) | $693 | | Total | $12,893 | $(5,497) | $7,396 | | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Amortization expense | $400 | $500 | $1,400 | $1,700 | [Note 9. Accrued Expenses and Other Current Liabilities](index=25&type=section&id=Note%209.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note provides a detailed breakdown of the company's accrued expenses and other current liabilities | Category | October 31, 2019 (in thousands) | January 31, 2019 (in thousands) | | :--- | :--- | :--- | | Accrued outside services and consulting | $3,443 | $2,089 | | Accrued goods and services taxes | $2,980 | $3,098 | | Accrued taxes | $1,941 | $1,651 | | Accrued hosting and third party license fees | $1,919 | $1,073 | | Employee early exercised stock options | $143 | $436 | | Other accrued expenses | $6,732 | $5,863 | | Total | $17,158 | $14,210 | [Note 10. Deferred Revenue and Performance Obligations](index=25&type=section&id=Note%2010.%20Deferred%20Revenue%20and%20Performance%20Obligations) This note details the company's deferred revenue and remaining non-cancellable performance obligations | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands, As Adjusted) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue recognized from deferred balances | $42,500 | $29,200 | $73,700 | $50,100 | - As of October 31, 2019, total remaining non-cancellable performance obligations under subscription contracts were approximately **$261.6 million**, with **61%** expected to be recognized over the next 12 months[85](index=85&type=chunk) [Note 11. Geographical Information](index=27&type=section&id=Note%2011.%20Geographical%20Information) This note disaggregates the company's revenue by geographical region based on the customer's address | Region | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | :--- | :--- | | United States | $49,437 | $43,630 | $142,039 | $123,267 | | Others | $22,385 | $17,726 | $63,625 | $48,384 | | Total | $71,822 | $61,356 | $205,664 | $171,651 | | Region | Three Months Ended Oct 31, 2019 (%) | Three Months Ended Oct 31, 2018 (%) | Nine Months Ended Oct 31, 2019 (%) | Nine Months Ended Oct 31, 2018 (%) | | :--- | :--- | :--- | :--- | :--- | | United States | 69 % | 71 % | 69 % | 72 % | | Other | 31 % | 29 % | 31 % | 28 % | [Note 12. Debt](index=27&type=section&id=Note%2012.%20Debt) This note describes the company's loan and security agreement, including loan facilities, interest rates, and financial covenants - In October 2018, the Debt Agreement was amended to increase revolving loan availability to **$30.0 million** and lower borrowing costs to **WSJ Prime Rate minus 1.00%**[88](index=88&type=chunk) - As of October 31, 2019, the Company had **$11.6 million outstanding** under the term loan, with an interest rate of **3.75%**[90](index=90&type=chunk) - The Company was in compliance with all financial covenants, including maintaining an adjusted quick ratio of no less than **1.10:1.00**, as of October 31, 2019[91](index=91&type=chunk) [Note 13. Income Taxes](index=28&type=section&id=Note%2013.%20Income%20Taxes) This note presents the company's income tax provision, pretax loss, and effective tax rate for the reported periods | Metric | Three Months Ended Oct 31, 2019 (in thousands) | Three Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands, As Adjusted¹) | | :--- | :--- | :--- | :--- | :--- | | Loss before income taxes | $17,816 | $16,898 | $58,922 | $52,637 | | Income tax provision | $421 | $326 | $720 | $921 | | Effective tax rate | (2.4)% | (1.9)% | (1.2)% | (1.7)% | - The effective tax rates differ from statutory rates primarily due to **no benefit on pretax losses** incurred in the United States, as the Company maintains a full valuation allowance against deferred tax assets[94](index=94&type=chunk) [Note 14. Stockholders' Equity](index=28&type=section&id=Note%2014.%20Stockholders'%20Equity) This note details the company's preferred stock, common stock classes, and accumulated other comprehensive income - As of October 31, 2019, the Company had **93.6 million shares of Class A** common stock and **19.5 million shares of Class B** common stock outstanding[97](index=97&type=chunk) - Class A common stock holders are entitled to **one vote per share**, while Class B common stock holders receive **ten votes per share**[98](index=98&type=chunk) | Component | Balance, January 31, 2019 (in thousands) | Balance, October 31, 2019 (in thousands) | | :--- | :--- | :--- | | Foreign currency translation adjustment | $474 | $58 | | Unrealized gain on available-for-sale securities | $7 | $128 | | Total Accumulated Other Comprehensive Income | $481 | $186 | [Note 15. Employee Stock Plans](index=29&type=section&id=Note%2015.%20Employee%20Stock%20Plans) This note provides information on the company's equity incentive plans, including activity and unrecognized compensation costs | Stock Option Metric | October 31, 2019 (in thousands, except per share data) | | :--- | :--- | | Balance as of January 31, 2019 (Shares) | 14,784 | | Granted (Shares) | 2,646 | | Exercised (Shares) | (2,217) | | Forfeited (Shares) | (1,115) | | Balance as of October 31, 2019 (Shares) | 14,098 | | Weighted-average exercise price (Oct 31, 2019) | $7.21 | | Aggregate intrinsic value (Oct 31, 2019) | $109,839 | | Unrecognized compensation cost (Oct 31, 2019) | $28,900 | | Weighted average recognition period | 2.6 years | | RSU/Restricted Stock Metric | October 31, 2019 (in thousands, except per share data) | | :--- | :--- | | Balance as of January 31, 2019 (Shares) | 3,063 | | Granted (Shares) | 3,117 | | Vested (Shares) | (1,450) | | Forfeited (Shares) | (524) | | Balance as of October 31, 2019 (Shares) | 4,206 | | Weighted-average grant date fair value (Oct 31, 2019) | $18.17 | | Unrecognized compensation cost (Oct 31, 2019) | $64,000 | | Weighted average recognition period | 2.8 years | | Stock-Based Compensation Expense (in thousands) | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 | Nine Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Cost of subscription revenue | $683 | $555 | $1,987 | $1,311 | | Cost of professional services revenue | $1,814 | $1,685 | $5,157 | $4,115 | | Research and development | $4,015 | $1,902 | $11,690 | $4,366 | | Sales and marketing | $3,728 | $2,205 | $8,071 | $5,317 | | General and administrative | $1,598 | $1,112 | $4,508 | $2,613 | | Total stock-based compensation expense | $11,838 | $7,459 | $31,413 | $17,722 | [Note 16. Commitments and Contingencies](index=31&type=section&id=Note%2016.%20Commitments%20and%20Contingencies) This note outlines the company's operating lease obligations, ongoing legal proceedings, and other contractual commitments - In March 2019, the Company entered into a new operating lease for approximately **100,000 square feet** of office space in Redwood Shores, California, with an initial term of **127 months**[110](index=110&type=chunk) | Fiscal Year | Operating Leases (in thousands) | | :--- | :--- | | Remainder of 2020 | $2,920 | | 2021 | $9,768 | | 2022 | $12,722 | | 2023 | $12,730 | | 2024 | $10,049 | | Thereafter | $42,525 | | Total future lease commitments | $90,714 | - The Company is a defendant in a **securities class action lawsuit** filed in June 2019 and two shareholder derivative lawsuits filed in September 2019, alleging false and misleading statements and breach of fiduciary duty[115](index=115&type=chunk)[116](index=116&type=chunk) - As of October 31, 2019, the Company had a contractual obligation of **$14.6 million** for cloud computing services to be purchased by September 30, 2020[117](index=117&type=chunk) [Note 17. Net Loss Per Share Attributable to Common Stockholders](index=34&type=section&id=Note%2017.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This note presents the calculation of net loss per share and lists potentially dilutive securities excluded from the calculation | Metric | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 (As Adjusted¹) | Nine Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2018 (As Adjusted¹) | | :--- | :--- | :--- | :--- | :--- | | Net loss (in thousands) | $(18,237) | $(17,224) | $(59,642) | $(53,558) | | Weighted-average common shares outstanding (in thousands) | 111,835 | 106,049 | 110,436 | 85,820 | | Net loss per share, basic and diluted | $(0.16) | $(0.16) | $(0.54) | $(0.62) | | Potentially Dilutive Securities (in thousands) | October 31, 2019 | October 31, 2018 | | :--- | :--- | :--- | | Issued and outstanding stock options | 14,098 | 15,645 | | Unvested restricted stock issued and outstanding | 551 | 1,495 | | Unvested RSUs issued and outstanding | 3,655 | 1,566 | | Shares committed under ESPP | 313 | 398 | | Total | 18,617 | 19,104 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial condition, operational results, key metrics, and non-GAAP measures [Overview](index=34&type=section&id=Overview) Zuora is a leading cloud-based subscription management platform enabling companies to manage subscription business models - Zuora provides cloud-based software that automates and orchestrates the entire subscription order-to-revenue process, including billing and revenue recognition[123](index=123&type=chunk)[124](index=124&type=chunk) - The company operates in the **'Subscription Economy,'** a multi-decade global shift from product-based to recurring subscription-based business models[125](index=125&type=chunk) [Fiscal Third Quarter Business Highlights](index=35&type=section&id=Fiscal%20Third%20Quarter%20Business%20Highlights) The company focused on addressing sales execution and product integration challenges while expanding its sales leadership team - Expanded sales leadership with Robert Traube as Chief Revenue Officer and James Huang as Senior Vice President of Global Alliances to scale the business and deepen partner relationships[129](index=129&type=chunk) - Resumed paused customer implementations for the integrated Zuora Billing and Zuora RevPro products, aiming to improve cross-sell activity[130](index=130&type=chunk) - Customers with Annual Contract Value (ACV) exceeding $100,000 **increased by 16% to 586**[132](index=132&type=chunk) - Dollar-based retention rate was **106%** as of October 31, 2019, a decline primarily due to lower cross-sell activity and some customers renewing with lower transaction volume[133](index=133&type=chunk) - Customer transaction volume through Zuora's billing platform **increased by 29% to $11.2 billion**[133](index=133&type=chunk) [Fiscal Third Quarter Financial Performance Summary](index=36&type=section&id=Fiscal%20Third%20Quarter%20Financial%20Performance%20Summary) Financial performance showed increased revenues and a slight improvement in gross profit margin while operating at a loss | Metric | Three Months Ended Oct 31, 2019 (in millions) | Three Months Ended Oct 31, 2018 (in millions) | | :--- | :--- | :--- | | Subscription revenues | $54.0 | $43.0 (25% increase) | | Total revenues | $71.8 | $61.3 (17% increase) | | Gross profit | $37.5 (52% of total revenue) | $31.2 (51% of total revenue) | | Loss from operations | $(19.0) (26% of total revenue) | $(17.5) (29% of total revenue) | [Key Operational and Financial Metrics](index=36&type=section&id=Key%20Operational%20and%20Financial%20Metrics) The number of large ACV customers increased, while the dollar-based retention rate saw a slight decline | Metric | October 31, 2019 | October 31, 2018 | | :--- | :--- | :--- | | Customers with ACV ≥ $100,000 | 586 | 504 | | Dollar-based retention rate | 106% | N/A (107% as of July 31, 2019) | - The dollar-based retention rate declined primarily due to **lower cross-sell activity** of Zuora RevPro into existing Zuora Billing customers and some customers renewing with lower transaction volume[133](index=133&type=chunk) [Components of Our Results of Operations](index=37&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section describes the components of revenue, cost of revenue, gross profit, and operating expenses - Subscription revenue is primarily from fees for access to cloud-based products and customer support, recognized ratably over the contract term (typically 1-3 years)[139](index=139&type=chunk) - Professional services revenue comes from consultation, configuration, data migration, and training, recognized as services are rendered or on a proportional performance basis[140](index=140&type=chunk) - Cost of subscription revenue includes hosting, data center, third-party cloud fees, and employee compensation for infrastructure and support[143](index=143&type=chunk) - Operating expenses include research and development (capitalized internal-use software, expensed other R&D), sales and marketing (commissions amortized over five years), and general and administrative (finance, legal, HR, corporate expenses)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of consolidated results for the three and nine months ended October 31, 2019 and 2018 | Metric (in thousands) | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 (As Adjusted²) | Nine Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2018 (As Adjusted²) | | :--- | :--- | :--- | :--- | :--- | | Subscription Revenue | $54,038 | $43,083 | $151,996 | $119,849 | | Professional Services Revenue | $17,784 | $18,273 | $53,668 | $51,802 | | Total Revenue | $71,822 | $61,356 | $205,664 | $171,651 | | Total Cost of Revenue | $34,301 | $30,177 | $100,034 | $84,842 | | Gross Profit | $37,521 | $31,179 | $105,630 | $86,809 | | Research and Development | $17,903 | $14,282 | $53,662 | $39,667 | | Sales and Marketing | $28,027 | $24,849 | $80,818 | $71,008 | | General and Administrative | $10,597 | $9,579 | $32,366 | $27,553 | | Loss from Operations | $(19,006) | $(17,531) | $(61,216) | $(51,419) | | Net Loss | $(18,237) | $(17,224) | $(59,642) | $(53,558) | [Comparison of the Three Months Ended October 31, 2019 and 2018](index=40&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20October%2031%2C%202019%20and%202018) Subscription revenue increased by 25%, while operating expenses rose due to increased headcount and investments [Revenue](index=40&type=section&id=Revenue) | Revenue Type | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $54,038 | $43,083 | $10,955 | 25 % | | Professional services | $17,784 | $18,273 | $(489) | (3)% | | Total revenue | $71,822 | $61,356 | $10,466 | 17 % | - Subscription revenue increase includes a **one-time recognition of $1.3 million** from a contract resolution[155](index=155&type=chunk) - New customers contributed approximately **$5.6 million** to the subscription revenue increase (excluding the one-time recognition)[155](index=155&type=chunk) - Professional services revenue decreased primarily due to previously disclosed **sales execution challenges**[157](index=157&type=chunk) [Cost of Revenue and Gross Margin](index=42&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margin) | Cost of Revenue Type | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $13,858 | $10,987 | $2,871 | 26 % | | Professional services | $20,443 | $19,190 | $1,253 | 7 % | | Total cost of revenue | $34,301 | $30,177 | $4,124 | 14 % | | Gross Margin | 3 Months Ended Oct 31, 2019 (%) | 3 Months Ended Oct 31, 2018 (%) | | :--- | :--- | :--- | | Subscription | 74 % | 74 % | | Professional services | (15)% | (5)% | | Total gross margin | 52 % | 51 % | - Increase in cost of subscription revenue driven by **$2.1 million in data center costs** (third-party cloud hosting) and **$0.7 million in internal-use software amortization**[158](index=158&type=chunk) - Professional services gross margin decreased to **(15)% from (5)%** due to sales execution and product integration challenges negatively impacting utilization[161](index=161&type=chunk) [Operating Expenses](index=42&type=section&id=Operating%20Expenses) [Research and Development](index=42&type=section&id=Research%20and%20Development) | Metric | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $17,903 | $14,282 | $3,621 | 25 % | | Percentage of total revenue | 25 % | 23 % | | | - Increase primarily due to **$3.7 million in employee compensation costs** (increased headcount) and $0.7 million in allocated overhead[162](index=162&type=chunk) [Sales and Marketing](index=43&type=section&id=Sales%20and%20Marketing) | Metric | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $28,027 | $24,849 | $3,178 | 13 % | | Percentage of total revenue | 39 % | 40 % | | | - Increase primarily due to **$4.3 million in employee compensation costs** (increased headcount and executive hires)[164](index=164&type=chunk) [General and Administrative](index=43&type=section&id=General%20and%20Administrative) | Metric | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $10,597 | $9,579 | $1,018 | 11 % | | Percentage of total revenue | 15 % | 16 % | | | - Increase primarily due to **$0.8 million in employee compensation costs** (increased headcount) and $0.5 million in allocated overhead[165](index=165&type=chunk) [Interest and Other Income (Expense), Net](index=43&type=section&id=Interest%20and%20Other%20Income%20(Expense)%2C%20Net) | Metric | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Interest and other income (expense), net | $1,190 | $633 | $557 | 88 % | - Increase primarily due to **$0.5 million in net gains** from foreign currency revaluation[166](index=166&type=chunk) [Income Tax Provision](index=44&type=section&id=Income%20Tax%20Provision) | Metric | 3 Months Ended Oct 31, 2019 (in thousands) | 3 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Income tax provision | $(421) | $(326) | $(95) | 29 % | | Effective tax rate | (2.4)% | (1.9)% | | | - Effective tax rate differs from statutory rate due to **no benefit on pretax losses** in the U.S., with a full valuation allowance on deferred tax assets[167](index=167&type=chunk) [Comparison of the Nine Months Ended October 31, 2019 and 2018](index=44&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20October%2031%2C%202019%20and%202018) Subscription revenue increased by 27%, while operating expenses grew across all categories, reflecting continued investment [Revenue](index=44&type=section&id=Revenue) | Revenue Type | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $151,996 | $119,849 | $32,147 | 27 % | | Professional services | $53,668 | $51,802 | $1,866 | 4 % | | Total revenue | $205,664 | $171,651 | $34,013 | 20 % | - Subscription revenue increase includes a **one-time recognition of $1.3 million** from a contract resolution[168](index=168&type=chunk) - New customers contributed approximately **$15.6 million** to the subscription revenue increase (excluding the one-time recognition)[168](index=168&type=chunk) - Professional services revenue growth was partially offset by previously disclosed **sales execution challenges**[169](index=169&type=chunk) [Cost of Revenue and Gross Margin](index=45&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margin) | Cost of Revenue Type | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $38,589 | $31,273 | $7,316 | 23 % | | Professional services | $61,445 | $53,569 | $7,876 | 15 % | | Total cost of revenue | $100,034 | $84,842 | $15,192 | 18 % | | Gross Margin | 9 Months Ended Oct 31, 2019 (%) | 9 Months Ended Oct 31, 2018 (%) | | :--- | :--- | :--- | | Subscription | 75 % | 74 % | | Professional services | (14)% | (3)% | | Total gross margin | 51 % | 51 % | - Increase in cost of subscription revenue driven by **$4.9 million in data center costs** (third-party cloud hosting) and **$1.6 million in employee compensation**[170](index=170&type=chunk) - Professional services gross margin decreased to **(14)% from (3)%** due to sales execution and product integration challenges negatively impacting utilization[173](index=173&type=chunk) [Operating Expenses](index=45&type=section&id=Operating%20Expenses) [Research and Development](index=45&type=section&id=Research%20and%20Development) | Metric | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $53,662 | $39,667 | $13,995 | 35 % | | Percentage of total revenue | 26 % | 23 % | | | - Increase primarily due to **$13.5 million in employee compensation costs** (increased headcount) and $1.2 million in allocated overhead[174](index=174&type=chunk) [Sales and Marketing](index=47&type=section&id=Sales%20and%20Marketing) | Metric | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $80,818 | $71,008 | $9,810 | 14 % | | Percentage of total revenue | 39 % | 41 % | | | - Increase primarily due to **$11.1 million in employee compensation costs** (increased headcount and executive hires)[176](index=176&type=chunk) [General and Administrative](index=47&type=section&id=General%20and%20Administrative) | Metric | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $32,366 | $27,553 | $4,813 | 17 % | | Percentage of total revenue | 16 % | 16 % | | | - Increase primarily due to **$4.9 million in employee compensation costs** (increased headcount) and $0.8 million in allocated overhead[177](index=177&type=chunk) [Interest and Other Income (Expense), Net](index=47&type=section&id=Interest%20and%20Other%20Income%20(Expense)%2C%20Net) | Metric | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Interest and other income (expense), net | $2,294 | $(1,218) | $3,512 | 288 % | - Increase primarily due to **$1.3 million in income from invested cash balances** and a **$1.7 million reduction in foreign currency revaluation losses**[178](index=178&type=chunk) [Income Tax Provision](index=48&type=section&id=Income%20Tax%20Provision) | Metric | 9 Months Ended Oct 31, 2019 (in thousands) | 9 Months Ended Oct 31, 2018 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Income tax provision | $(720) | $(921) | $201 | 22 % | | Effective tax rate | (1.2)% | (1.7)% | | | - Effective tax rate differs from statutory rate due to **no benefit on pretax losses** in the U.S., with a full valuation allowance on deferred tax assets[179](index=179&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses liquidity, capital resources, cash flows, contractual obligations, and critical accounting policies - As of October 31, 2019, Zuora had **$170.4 million** in cash and cash equivalents and short-term investments[180](index=180&type=chunk) - The company believes existing cash, investments, Debt Agreement funds, and cash from subscriptions will be sufficient for working capital and capital expenditure needs for at least the **next 12 months**[181](index=181&type=chunk) [Debt Agreement](index=48&type=section&id=Debt%20Agreement) - Refer to Note 12 for detailed information on the Debt Agreement[182](index=182&type=chunk) [Cash Flows](index=48&type=section&id=Cash%20Flows) | Cash Flow Activity | Nine Months Ended Oct 31, 2019 (in thousands) | Nine Months Ended Oct 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,599) | $(16,592) | | Net cash used in investing activities | $(9,518) | $(107,986) | | Net cash provided by financing activities | $12,130 | $155,873 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(5,403) | $30,954 | [Operating Activities](index=50&type=section&id=Operating%20Activities) - Net cash used in operating activities was **$7.6 million** for the nine months ended October 31, 2019, primarily due to a net loss of $59.6 million, partially offset by $48.8 million in non-cash charges[186](index=186&type=chunk) - Non-cash charges increased due to business growth, including stock-based compensation, depreciation, amortization of property/intangibles, and deferred commissions[186](index=186&type=chunk) [Investing Activities](index=50&type=section&id=Investing%20Activities) - Net cash used in investing activities was **$9.5 million** for the nine months ended October 31, 2019, mainly from **$12.9 million in purchases** of property and equipment and capitalized internal-use software[188](index=188&type=chunk) [Financing Activities](index=50&type=section&id=Financing%20Activities) - Cash provided by financing activities was **$12.1 million** for the nine months ended October 31, 2019, primarily from **$9.0 million in stock option exercise proceeds** and **$5.1 million from ESPP**, partially offset by $1.9 million in debt principal payments[190](index=190&type=chunk) [Off-Balance Sheet Arrangements](index=50&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of October 31, 2019, the Company did not have any relationships with unconsolidated organizations or financial partnerships for off-balance sheet arrangements[192](index=192&type=chunk) [Obligations and Other Commitments](index=51&type=section&id=Obligations%20and%20Other%20Commitments) | Obligation Type | Total (in thousands) | Less than 1 year (in thousands) | 1-3 years (in thousands) | 3-5 years (in thousands) | More than 5 years (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $90,714 | $9,866 | $25,914 | $17,257 | $37,677 | | Debt principal and interest | $12,244 | $4,785 | $7,459 | $0 | $0 | | Other contractual obligations | $14,588 | $14,588 | $0 | $0 | $0 | | Total | $117,546 | $29,239 | $33,373 | $17,257 | $37,677 | - Other contractual obligations primarily relate to **cloud computing services** from a vendor by September 30, 2020[195](index=195&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The Company's significant accounting policies are discussed in Note 2 of the Annual Report on Form 10-K, with no significant changes during the nine months ended October 31, 2019, except for those described in Note 2 of the condensed consolidated financial statements[200](index=200&type=chunk)[201](index=201&type=chunk) [Non-GAAP Financial Measures](index=52&type=section&id=Non-GAAP%20Financial%20Measures) Zuora uses non-GAAP measures to supplement GAAP statements and provide additional insights into operational performance - Non-GAAP measures are used for evaluating operating performance, budget preparation, and communication with the board of directors[202](index=202&type=chunk) [Non-GAAP Loss from Operations](index=52&type=section&id=Non-GAAP%20Loss%20from%20Operations) - Non-GAAP loss from operations excludes stock-based compensation expense, amortization of acquired intangibles, and capitalization and amortization of internal-use software[204](index=204&type=chunk) | Metric (in thousands) | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 | Nine Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | GAAP loss from operations | $(19,006) | $(17,531) | $(61,216) | $(51,419) | | Stock-based compensation expense | $11,838 | $7,459 | $31,413 | $17,722 | | Amortization of acquired intangibles | $423 | $503 | $1,353 | $1,747 | | Internal-use software | $(529) | $(273) | $(1,376) | $(969) | | Non-GAAP loss from operations | $(7,274) | $(9,842) | $(29,826) | $(32,919) | [Free Cash Flow](index=53&type=section&id=Free%20Cash%20Flow) - Free cash flow is defined as net cash used in operating activities less cash used for purchases of property and equipment[206](index=206&type=chunk) | Metric (in thousands) | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 | Nine Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,509 | $(6,370) | $(7,599) | $(16,592) | | Purchases of property and equipment | $(8,636) | $(3,931) | $(12,878) | $(10,621) | | Free cash flow | $(5,127) | $(10,301) | $(20,477) | $(27,213) | [Growth Efficiency Index](index=53&type=section&id=Growth%20Efficiency%20Index) - Growth Efficiency Index (GEI) is the trailing 12-months sales and marketing expense (excluding stock-based compensation) divided by the year-over-year increase in trailing 12-month subscription revenue[208](index=208&type=chunk) - **GEI was 2.2** as of October 31, 2019, indicating the sales and marketing expense incurred to acquire incremental revenue[208](index=208&type=chunk)[209](index=209&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks from fluctuations in foreign currency exchange rates and interest rates [Foreign Currency Exchange Risk](index=54&type=section&id=Foreign%20Currency%20Exchange%20Risk) - The majority of Zuora's sales are denominated in **U.S. dollars**, limiting significant foreign currency risk for revenue[211](index=211&type=chunk) - Operating expenses are incurred in local currencies across various countries, subjecting results to foreign currency fluctuations[211](index=211&type=chunk) - A hypothetical **10% change** in foreign currency exchange rates would **not have had a material impact** on financial statements for the nine months ended October 31, 2019[211](index=211&type=chunk) [Interest Rate Risk](index=54&type=section&id=Interest%20Rate%20Risk) - Zuora held **$170.4 million** in cash and cash equivalents and short-term investments as of October 31, 2019, primarily for working capital[212](index=212&type=chunk) - Fixed-rate securities are subject to market value changes from interest rate fluctuations, but unrealized gains/losses are recorded in other comprehensive income[213](index=213&type=chunk) - Debt Agreement interest payments are based on a **variable market rate**, exposing operating results to changes in interest rates[214](index=214&type=chunk) - A hypothetical **10% relative change** in interest rates would **not have had a material impact** on the value of cash equivalents and short-term investments or operating results for the nine months ended October 31, 2019[215](index=215&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of disclosure controls and internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=54&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were **effective** as of October 31, 2019[216](index=216&type=chunk) - Controls provide **reasonable assurance** that required information is recorded, processed, summarized, and reported timely[216](index=216&type=chunk) [Changes in Internal Control Over Financial Reporting](index=56&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - **No change** in internal control over financial reporting occurred during the period that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[217](index=217&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=56&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) - Management acknowledges that control systems provide only **reasonable, not absolute, assurance** and have inherent limitations[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=57&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently party to any material legal proceedings other than those disclosed in Note 16 - No material legal proceedings or claims are currently pending, other than those disclosed in Note 16[221](index=221&type=chunk) - Outcomes of legal proceedings are **unpredictable** and could materially affect operating results and cash flows[221](index=221&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks that could adversely affect the company's business, operating results, and growth prospects [History of Net Losses and Future Profitability](index=57&type=section&id=History%20of%20Net%20Losses%20and%20Future%20Profitability) - Zuora has incurred **net losses since inception**, including **$77.6 million in fiscal 2019**, and expects to continue incurring losses for the foreseeable future[223](index=223&type=chunk) - Future profitability depends on increasing revenue sufficiently to offset significant expenditures for business development and expansion[223](index=223&type=chunk) [Dependence on Subscription Business Model Adoption](index=57&type=section&id=Dependence%20on%20Subscription%20Business%20Model%20Adoption) - Zuora's success relies on companies shifting to subscription business models and consumer adoption of subscription-based products and services[224](index=224&type=chunk) - Market acceptance is affected by factors like security, reliability, deployment time, customer satisfaction, and competitive offerings[226](index=226&type=chunk) [Failure to Manage Growth Effectively](index=59&type=section&id=Failure%20to%20Manage%20Growth%20Effectively) - **Rapid growth** has strained management, operations, financial infrastructure, and corporate culture[227](index=227&type=chunk) - Failure to manage growth could lead to deployment delays, declines in quality, increased costs, and loss of customers[228](index=228&type=chunk) [Dependence on Sales Force Expansion and Productivity](index=59&type=section&id=Dependence%20on%20Sales%20Force%20Expansion%20and%20Productivity) - Revenue growth and profitability depend on expanding the direct sales force and increasing its productivity, both domestically and internationally[229](index=229&type=chunk) - New sales personnel require **significant training and time** to become fully productive, and attrition rates may increase[231](index=231&type=chunk) [Inability to Attract New Customers and Expand Sales to Existing Customers](index=61&type=section&id=Inability%20to%20Attract%20New%20Customers%20and%20Expand%20Sales%20to%20Existing%20Customers) - Future revenue growth depends on attracting new customers and expanding sales and renewals with existing customers[234](index=234&type=chunk)[235](index=235&type=chunk) - Delays in product integration (e.g., Zuora RevPro and Zuora Billing) have **temporarily slowed implementations** and impacted revenue projections[235](index=235&type=chunk) - Customer renewals may decline due to various factors, including satisfaction, pricing, or economic conditions, impacting future revenue[238](index=238&type=chunk) [Security Breaches and Perceived Insecurity](index=63&type=section&id=Security%20Breaches%20and%20Perceived%20Insecurity) - Security breaches or unauthorized access to data could lead to loss of information, service disruption, litigation, and reputational damage[239](index=239&type=chunk) - The company experienced an **increase in credit card authorization attempts** by third parties in late November 2019 and is implementing remediation measures[240](index=240&type=chunk) - Existing insurance coverage may **not be sufficient** to cover large claims related to security incidents[242](index=242&type=chunk) [Reliance on Limited Products](index=64&type=section&id=Reliance%20on%20Limited%20Products) - Zuora derives substantially all revenue from its **Zuora Central platform, Zuora Billing, and Zuora RevPro** products[244](index=244&type=chunk) - Continued market demand for these products is critical, and failure to meet customer demands or technological advances could adversely affect the business[244](index=244&type=chunk) [Fluctuating Quarterly Operating Results](index=64&type=section&id=Fluctuating%20Quarterly%20Operating%20Results) - Quarterly operating results have fluctuated and are **difficult to predict** due to numerous unpredictable factors[245](index=245&type=chunk) - Factors include customer base growth, new product introductions, sales force productivity, and economic conditions[246](index=246&type=chunk)[249](index=249&type=chunk) [Customer Deployment Failures or Improper Use](index=65&type=section&id=Customer%20Deployment%20Failures%20or%20Improper%20Use) - Failure to successfully deploy the solution, or improper use, could lead to customer dissatisfaction, reduced revenue, and reputational harm[251](index=251&type=chunk) - Customers may seek refunds or choose not to renew if deployment is unsuccessful or delayed[251](index=251&type=chunk) [Inability to Develop New Products/Enhancements](index=67&type=section&id=Inability%20to%20Develop%20New%20Products/Enhancements) - Failure to develop and release new products, enhancements, or modifications in a timely and cost-effective manner could adversely affect the business[252](index=252&type=chunk) - Changes in accounting standards or laws could impact product usefulness and necessitate costly modifications[252](index=252&type=chunk) [Dependence on Talented Employees and Senior Management](index=67&type=section&id=Dependence%20on%20Talented%20Employees%20and%20Senior%20Management) - Future success depends on attracting, training, and retaining highly skilled personnel, especially in competitive markets like the **San Francisco Bay Area**[255](index=255&type=chunk) - The company is highly dependent on its founder, Chairman, and CEO, **Tien Tzuo**, and other key personnel[256](index=256&type=chunk) [Competitive Market](index=68&type=section&id=Competitive%20Market) - The market for subscription management products is **highly competitive**, rapidly evolving, and fragmented[258](index=258&type=chunk) - Competitors include traditional ERP software providers (Oracle, SAP), order-to-cash solutions, telecommunications billing systems, and in-house custom systems[259](index=259&type=chunk) - Many competitors have **greater financial, technical, and marketing resources**, and established customer relationships[259](index=259&type=chunk) [Errors, Defects, or Disruptions in Solution](index=69&type=section&id=Errors%2C%20Defects%2C%20or%20Disruptions%20in%20Solution) - Errors, defects, or disruptions in Zuora's solution or third-party infrastructure could harm its brand, reputation, and financial results[263](index=263&type=chunk) - Failure to continuously modify and enhance products to interoperate with changing software technologies could reduce demand[264](index=264&type=chunk) [Delayed Impact of Subscription Changes on Operating Results](index=69&type=section&id=Delayed%20Impact%20of%20Subscription%20Changes%20on%20Operating%20Results) - Subscription revenue is recognized ratably over contract terms (1-3 years), meaning declines in new or renewed subscriptions have a **minor immediate impact but negatively affect future revenue**[265](index=265&type=chunk)[266](index=266&type=chunk) [Challenges with Large Enterprise Customers](index=70&type=section&id=Challenges%20with%20Large%20Enterprise%20Customers) - Targeting large enterprise customers leads to **longer, more expensive sales cycles**, greater pricing pressure, and complex deployment challenges[267](index=267&type=chunk) - Sales opportunities with large enterprises may require more resources, increasing costs and diverting sales personnel[267](index=267&type=chunk) [Inaccurate Growth Forecasts](index=70&type=section&id=Inaccurate%20Growth%20Forecasts) - Growth forecasts are subject to **significant uncertainty** and may not be accurate, and Zuora's business may not grow at similar rates to market forecasts[268](index=268&type=chunk) [Evolving Market for Zuora RevPro](index=70&type=section&id=Evolving%20Market%20for%20Zuora%20RevPro) - The market for Zuora RevPro is rapidly evolving due to Topic 606, making **adoption rates and demand difficult to forecast**[269](index=269&type=chunk) - Temporary slowdowns in Zuora RevPro and Zuora Billing integrations have impacted total revenues and financial projections[270](index=270&type=chunk) [International Expansion Risks](index=71&type=section&id=International%20Expansion%20Risks) - International expansion exposes Zuora to risks such as recruiting challenges, compliance with diverse laws, longer sales cycles, and currency exchange rate fluctuations[271](index=271&type=chunk)[272](index=272&type=chunk) - During the nine months ended October 31, 2019, approximately **31% of total revenue** came from outside the United States[271](index=271&type=chunk) [Failure to Offer High-Quality Customer Support](index=73&type=section&id=Failure%20to%20Offer%20High-Quality%20Customer%20Support) - Inadequate customer support could harm Zuora's reputation and ability to upsell additional products to existing customers[273](index=273&type=chunk) [Failure to Meet Service Level Commitments](index=73&type=section&id=Failure%20to%20Meet%20Service%20Level%20Commitments) - Failure to meet service level commitments could result in service credits, refunds, contract terminations, and legal claims[274](index=274&type=chunk) [Inability to Grow Sales Channels and Strategic Partners](index=74&type=section&id=Inability%20to%20Grow%20Sales%20Channels%20and%20Strategic%20Partners) - Future growth depends on identifying, establishing, and retaining successful strategic partner relationships (GSIs, consulting firms, resellers)[276](index=276&type=chunk) - Strategic partners may also market competing products, and their failure to prioritize Zuora's solution could adversely affect sales[277](index=277&type=chunk) [Disruption at Third-Party Data Centers or AWS](index=74&type=section&id=Disruption%20at%20Third-Party%20Data%20Centers%20or%20AWS) - Disruption of service at third-party data centers or **Amazon Web Services (AWS)** could interrupt or delay service delivery to customers[278](index=278&type=chunk) - Facilities are vulnerable to natural disasters, cyber-attacks, and other events, potentially leading to lengthy interruptions and reputational harm[278](index=278&type=chunk)[279](index=279&type=chunk) [Improper Deployment/Use or Inadequate Training](index=75&type=section&id=Improper%20Deployment/Use%20or%20Inadequate%20Training) - Incorrect or improper deployment/use of the solution, or inadequate customer training, could lead to customer dissatisfaction, reduced usage, negative publicity, or legal claims[281](index=281&type=chunk) [Changes to Prices or Pricing Model](index=75&type=section&id=Changes%20to%20Prices%20or%20Pricing%20Model) - Future changes in market conditions or customer demand may require adjustments to pricing or the pricing model, potentially impacting revenue and profitability[282](index=282&type=chunk) - Pressure to reduce prices or defer fees, especially from larger organizations, could adversely affect financial performance[282](index=282&type=chunk) [Failure to Integrate with Other Systems](index=75&type=section&id=Failure%20to%20Integrate%20with%20Other%20Systems) - Failure to integrate with various operating systems, software applications, and hardware platforms developed by others could make Zuora's solution less marketable or obsolete[283](index=283&type=chunk) - Reliance on third-party APIs (e.g., Salesforce) means any changes or limitations by platform providers could adversely impact business[283](index=283&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk) [Failure to Maintain Brand and Reputation](index=77&type=section&id=Failure%20to%20Maintain%20Brand%20and%20Reputation) - Failure to develop, maintain, and enhance brand and reputation cost-effectively could adversely affect business and financial condition[287](index=287&type=chunk) - Negative publicity or failure to maintain customer loyalty could reduce demand and market share[287](index=287&type=chunk) [Customer Payment Failures](index=77&type=section&id=Customer%20Payment%20Failures) - Customers' failure to pay in accordance with agreement terms could adversely affect operating results and cash flow, especially with longer contract terms[288](index=288&type=chunk)[289](index=289&type=chunk) [Adverse Litigation Judgments](index=78&type=section&id=Adverse%20Litigation%20Judgments) - Adverse litigation judgments or settlements could expose Zuora to monetary damages or limit its ability to operate[290](index=290&type=chunk) - Current **shareholder litigation** is inherently unpredictable and could be costly[290](index=290&type=chunk) [Failure to Protect Intellectual Property](index=78&type=section&id=Failure%20to%20Protect%20Intellectual%20Property) - Failure to protect and enforce intellectual property rights (patents, copyrights, trademarks, trade secrets) could harm Zuora's competitive position and operating results[291](index=291&type=chunk) - International expansion increases exposure to unauthorized copying and use of solutions[293](index=293&type=chunk) [Intellectual Property Infringement Claims Against Us](index=80&type=section&id=Intellectual%20Property%20Infringement%20Claims%20Against%20Us) - Zuora is vulnerable to intellectual property infringement claims, which could result in monetary liability, business disruption, or costly litigation[298](index=298&type=chunk) - Lack of a significant patent portfolio could hinder deterrence of patent infringement claims[298](index=298&type=chunk) [Reliance on Third-Party Licensed Software](index=80&type=section&id=Reliance%20on%20Third-Party%20Licensed%20Software) - Inability to maintain licenses for third-party software or errors in licensed software could increase costs or reduce service levels[300](index=300&type=chunk) [Open Source Software Compliance](index=82&type=section&id=Open%20Source%20Software%20Compliance) - Failure to comply with open source software license terms could restrict Zuora's ability to sell its solution or require making proprietary technology source code available[302](index=302&type=chunk) - Open source software may contain security vulnerabilities and lacks warranties, posing greater risks[304](index=304&type=chunk) [Inability to Integrate Acquired Businesses/Technologies](index=82&type=section&id=Inability%20to%20Integrate%20Acquired%20Businesses/Technologies) - Zuora may be unable to successfully integrate acquired businesses and technologies, such as **Leeyo**, or achieve expected benefits[305](index=305&type=chunk) - Acquisitions can disrupt business, divert resources, and lead to unforeseen operating difficulties and expenditures[306](index=306&type=chunk) [Data Protection, Security, Privacy, and Other Requirements](index=84&type=section&id=Data%20Protection%2C%20Security%2C%20Privacy%2C%20and%20Other%20Requirements) - Failure to satisfy data protection, security, privacy, and industry-specific requirements could harm growth and incur significant liability[309](index=309&type=chunk) [Privacy Concerns and Laws](index=84&type=section&id=Privacy%20Concerns%20and%20Laws) - Stricter privacy laws (e.g., **GDPR, CCPA**) could reduce the effectiveness of Zuora's solution and adversely affect its business[310](index=310&type=chunk)[312](index=312&type=chunk) - Compliance costs and penalties for non-compliance are significant and may limit data collection, use, and transfer[310](index=310&type=chunk)[312](index=312&type=chunk) [Failure to Comply with Anti-Corruption and Anti-Money Laundering Laws](index=86&type=section&id=Failure%20to%20Comply%20with%20Anti-Corruption%20and%20Anti-Money%20Laundering%20Laws) - Failure to comply with anti-corruption laws (**FCPA, UK Bribery Act**) and anti-money laundering laws could lead to penalties, investigations, and reputational harm[315](index=315&type=chunk)[318](index=318&type=chunk) - Zuora can be held liable for illegal activities of third-party intermediaries, employees, and agents[317](index=317&type=chunk) [Governmental Export Control Laws and Regulations](index=88&type=section&id=Governmental%20Export%20Control%20Laws%20and%20Regulations) - Failure to comply with export control laws (U.S., EU) and sanctions regulations could result in substantial civil and criminal penalties and reputational harm[319](index=319&type=chunk) - Regulations on encryption technology and import/export controls could limit product distribution and international sales[320](index=320&type=chunk) [Limitations on Net Operating Losses](index=88&type=section&id=Limitations%20on%20Net%20Operating%20Losses) - The Tax Cuts and Jobs Act limits the utilization of tax losses generated after December 31, 2017, to **80% of taxable income**, potentially increasing future federal income taxes[323](index=323&type=chunk) [Uncertainty of Sales, Use, and Other Tax Laws](index=90&type=section&id=Uncertainty%20of%20Sales%2C%20Use%2C%20and%20Other%20Tax%20Laws) - Evolving tax laws and varying interpretations of sales, use, and other taxes could subject Zuora to additional tax liability, interest, and penalties[324](index=324&type=chunk)[325](index=325&type=chunk) - A U.S. Supreme Court ruling in June 2018 could lead to more states requiring

Zuora, Inc. (NYSE:ZUO) Q3 2020 Earnings Conference Call December 5, 2019 5:00 PM ET Company Participants Joon Huh - VP, IR Tien Tzuo - CEO Tyler Sloat - CFO Conference Call Participants Richard Davis - Canaccord Luv Sodha - Jefferies Chris Merwin - Goldman Sachs Operator Ladies and gentlemen, thank you for standing by and welcome to the Zuora Third Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Joon Huh, Vice Presiden ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2019 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) Q2 2019 Results Earnings Conference Call August 28, 2019 5:00 PM ET Company Participants Joon Huh - Vice President, Investor Relations Tien Tzuo - Chief Executive Officer Tyler Sloat - Chief Financial Officer Conference Call Participants Luv Sodha - Jefferies Scott Berg - Needham Chris Merwin - Goldman Sachs Mark van der Zwan - Morgan Stanley Operator Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Z ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2019 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. ...

ZUOTO 1 ASC 606 TRANSITION MATERIALS MAY 30, 2019 Disclaimer This presentation contains non-GAAP financial measures. You can find the reconciliation of these measures to the most directly comparable GAAP financial measure in the Appendix at the end of this presentation. The non-GAAP financial measures disclosed by Zuora should not be considered a substitute for, or superior to, the financial measures prepared in accordance with GAAP. Please refer to "Explanation of Non-GAAP Financial Measures" in the Append ...

Zuora, Inc. (NYSE:ZUO) Q1 2020 Earnings Conference Call May 30, 2019 5:00 PM ET Corporate Participants Joon Huh - Vice President, Investor Relations Tien Tzuo - Chief Executive Officer Tyler Sloat - Chief Financial Officer Conference Call Participants Stan Zlotsky - Morgan Stanley John DiFucci - Jefferies Chris Merwin - Goldman Sachs Scott Berg - Needham Operator Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora First ...