Zuora(ZUO) - 2024 Q4 - Annual Results

Financial Performance Summary Fourth Quarter Fiscal 2024 Financial Results Zuora achieved strong top-line growth and significant profitability improvements in Q4 FY2024, with total revenue increasing 7% to $110.7 million, a substantial reduction in GAAP operating loss, and a shift to Non-GAAP net income of $16.7 million, alongside positive adjusted free cash flow of $14.6 million Q4 FY2024 Financial Highlights (vs. Q4 FY2023) | Financial Metric | Q4 FY2024 | Q4 FY2023 | Change | | :--- | :--- | :--- | :--- | | Subscription Revenue | $100.2M | $89.5M | +12% | | Total Revenue | $110.7M | $103.0M | +7% | | GAAP Loss from Operations | $(17.2)M | $(99.7)M | +82.7% | | Non-GAAP Income from Operations | $15.9M | $2.2M | +623% | | GAAP Net Loss | $(20.8)M | $(107.9)M | +80.7% | | Non-GAAP Net Income (Loss) | $16.7M | $(5.8)M | N/A (Turned to profit) | | Adjusted Free Cash Flow | $14.6M | $(16.9)M | N/A (Turned positive) | Full Year Fiscal 2024 Financial Results Zuora reported balanced growth and significant profitability for full fiscal year 2024, with subscription revenue growing 13% to $383.4 million and total revenue increasing 9% to $431.7 million, alongside a 10 percentage point improvement in non-GAAP operating margin and positive adjusted free cash flow of $44.3 million Full Year FY2024 Financial Highlights (vs. FY2023) | Financial Metric | FY2024 | FY2023 | Change | | :--- | :--- | :--- | :--- | | Subscription Revenue | $383.4M | $338.4M | +13% | | Total Revenue | $431.7M | $396.1M | +9% | | GAAP Loss from Operations | $(64.4)M | $(187.5)M | +65.7% | | Non-GAAP Income from Operations | $47.5M | $2.5M | +1793% | | GAAP Net Loss | $(68.2)M | $(198.0)M | +65.6% | | Non-GAAP Net Income (Loss) | $45.9M | $(17.2)M | N/A (Turned to profit) | | Adjusted Free Cash Flow | $44.3M | $(27.8)M | N/A (Turned positive) | - The CEO highlighted that fiscal 2024 was a year of balanced growth and profitability, with an acceleration in new customer acquisition through a focus on 'smaller, faster lands'[2] Fourth Quarter Key Metrics and Business Highlights Zuora's key operational metrics at the end of fiscal 2024 showed steady growth, with customers having an ACV of $250,000 or more increasing to 461 and Annual Recurring Revenue (ARR) growing 10% to $403.1 million, complemented by expanded partnerships and new customer acquisitions - Key operational metrics as of January 31, 2024: - Customers with ACV ≥ $250k: 461 (up from 431 YoY) - Dollar-based Retention Rate (DBRR): 106% (down from 108% YoY) - Annual Recurring Revenue (ARR): $403.1 million (up 10% YoY)[7] - Business highlights include an expanded partnership with Avalara to address complex e-invoicing mandates and new or expanded customer relationships with Toast, Infor, Sony Network Communications, TELUS Corporation, and The Associated Press[7] Financial Outlook First Quarter and Full Fiscal Year 2025 Guidance Zuora projects continued growth and enhanced profitability for fiscal year 2025, with full-year total revenue expected between $451.0 million and $459.0 million, Non-GAAP income from operations of $79.0 million to $81.0 million, and adjusted free cash flow of at least $80.0 million, alongside anticipated ARR growth of 8-10% and a Dollar-based Retention Rate between 104% and 106% Fiscal 2025 Guidance | Metric | Q1 FY2025 Guidance | Full Year FY2025 Guidance | | :--- | :--- | :--- | | Subscription Revenue | $98.0M - $99.0M | $410.0M - $414.0M | | Total Revenue | $107.8M - $109.8M | $451.0M - $459.0M | | Non-GAAP Income from Operations | $14.0M - $16.0M | $79.0M - $81.0M | | Non-GAAP Net Income per Share | $0.06 - $0.07 | $0.40 - $0.42 | | ARR Growth | - | 8% - 10% | | Dollar-based Retention Rate | - | 104% - 106% | | Adjusted Free Cash Flow | - | $80.0M+ | Explanation of Key Metrics and Measures Key Operational and Financial Metrics The report defines Zuora's key operational metrics, including Annual Contract Value (ACV) as expected subscription revenue, Dollar-based Retention Rate (DBRR) for existing customer revenue retention and growth, and Annual Recurring Revenue (ARR) as the annualized value of active subscription contracts - Annual Contract Value (ACV): The subscription revenue expected to be recognized from a customer over the next twelve months, assuming no changes to their subscriptions[11] - Dollar-based Retention Rate (DBRR): Calculated by dividing the current period's ACV from a cohort of customers by that same cohort's ACV from twelve months prior, including upsells, contractions, and attrition[12] - Annual Recurring Revenue (ARR): The annualized recurring value of all active subscription contracts at the end of a period, excluding professional services and contracts under one year[13][14] Explanation of Non-GAAP Financial Measures Zuora uses non-GAAP financial measures to enhance consistency and comparability of operational performance by excluding items like stock-based compensation, amortization of acquired intangibles, and litigation costs, while also reporting revenue on a constant currency basis to isolate foreign exchange impacts - Zuora uses non-GAAP measures to assess performance, prepare budgets, and evaluate business strategies, believing they offer better comparability with past performance and industry peers[17] - Key items excluded from non-GAAP calculations include: - Stock-based compensation expense - Amortization of acquired intangible assets - Charitable contributions - Non-recurring shareholder litigation costs - Asset impairment charges - Acquisition-related transaction costs - Workforce reduction charges[18][22] - Adjusted free cash flow is a non-GAAP measure calculated from GAAP operating cash flow, excluding acquisition-related costs and non-ordinary course litigation expenses, and including capital expenditures[19] Consolidated Financial Statements (GAAP) Condensed Consolidated Statements of Comprehensive Loss Zuora's consolidated statement of comprehensive loss for fiscal year 2024 shows total revenue of $431.7 million, a significant reduction in loss from operations to $64.4 million, and a narrowed net loss of $68.2 million compared to the prior year FY2024 vs. FY2023 Statement of Loss (in thousands) | Line Item | Fiscal Year 2024 | Fiscal Year 2023 | | :--- | :--- | :--- | | Total Revenue | $431,661 | $396,087 | | Gross Profit | $284,687 | $242,858 | | Loss from Operations | $(64,407) | $(187,455) | | Net Loss | $(68,193) | $(197,970) | | Net Loss Per Share | $(0.49) | $(1.51) | - Total stock-based compensation expense for fiscal year 2024 was $101.1 million, an increase from $96.4 million in fiscal year 2023[28] Condensed Consolidated Balance Sheets As of January 31, 2024, Zuora's balance sheet reflects a stronger financial position with total assets growing to $823.8 million, supported by increased cash and short-term investments, despite a rise in total liabilities primarily due to long-term debt Balance Sheet Highlights (in thousands) | Account | Jan 31, 2024 | Jan 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $256,065 | $203,239 | | Short-term investments | $258,120 | $183,006 | | Total Assets | $823,836 | $668,598 | | Total Liabilities | $690,149 | $571,438 | | Total Stockholders' Equity | $133,687 | $97,160 | Condensed Consolidated Statements of Cash Flows For fiscal year 2024, Zuora's cash flow statement shows $18.8 million used in operating activities, $84.3 million used in investing activities, and $156.5 million provided by financing activities, resulting in a net increase of $52.8 million in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Fiscal Year 2024 | Fiscal Year 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,767) | $(20,644) | | Net cash used in investing activities | $(84,277) | $(131,074) | | Net cash provided by financing activities | $156,542 | $241,911 | | Net increase in cash and cash equivalents | $52,826 | $89,732 | Reconciliation of GAAP to Non-GAAP Measures Subscription and Professional Services Gross Margin Reconciliation This section reconciles GAAP to Non-GAAP gross margins, showing that for fiscal year 2024, Non-GAAP subscription gross margin improved to 82% from 79%, and Non-GAAP professional services gross margin improved to (4)% from (3)% FY2024 Subscription Gross Margin Reconciliation | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | FY2024 Subscription Gross Margin | 78% | 82% | | FY2023 Subscription Gross Margin | 76% | 79% | FY2024 Professional Services Gross Margin Reconciliation | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | FY2024 Prof. Services Gross Margin | (29)% | (4)% | | FY2023 Prof. Services Gross Margin | (25)% | (3)% | Operating Income and Net Income Reconciliation Reconciliation tables highlight the significant difference between GAAP and Non-GAAP profitability for fiscal year 2024, with a GAAP operating loss of $64.4 million adjusted to a Non-GAAP operating income of $47.5 million, and a GAAP net loss of $68.2 million reconciled to a Non-GAAP net income of $45.9 million, primarily due to stock-based compensation and shareholder litigation adjustments FY2024 Operating (Loss) Income Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | GAAP loss from operations | $(64,407) | | Add: Stock-based compensation | $101,052 | | Add: Other adjustments | $(4,554) | | Non-GAAP income from operations | $47,494 | FY2024 Net (Loss) Income Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | GAAP net loss | $(68,193) | | Add: Stock-based compensation | $101,052 | | Add: Other adjustments | $13,083 | | Non-GAAP net income | $45,942 | Adjusted Free Cash Flow and Constant Currency Reconciliation Zuora's adjusted free cash flow for fiscal 2024 significantly improved to a positive $44.3 million from a negative $27.8 million in fiscal 2023, while constant currency revenue growth rates for subscription (15%) and total revenue (10%) were higher than GAAP, indicating adverse foreign currency impacts FY2024 Adjusted Free Cash Flow Reconciliation (in thousands) | Metric | FY2024 | FY2023 | | :--- | :--- | :--- | | Net cash used in operating activities (GAAP) | $(18,767) | $(20,644) | | Add: Shareholder litigation & Acq. costs | $73,048 | $3,437 | | Less: Purchases of property and equipment | $(9,987) | $(10,634) | | Adjusted free cash flow (non-GAAP) | $44,294 | $(27,841) | FY2024 Constant Currency Revenue Growth | Revenue Type | GAAP Growth | Constant Currency Growth | | :--- | :--- | :--- | | Subscription Revenue | 13% | 15% | | Total Revenue | 9% | 10% | Other Information Forward-Looking Statements This section serves as a safe harbor notice, cautioning that the report's financial outlook and future-oriented statements are subject to significant risks and uncertainties, including macroeconomic conditions, market acceptance, competition, and growth management, which could cause actual results to differ materially from projections - The report's forward-looking statements, including the financial outlook for fiscal 2025, are based on current management expectations and are subject to risks that could cause actual results to differ materially[23] - Key risk factors include ability to attract customers, macroeconomic conditions (inflation, interest rates), market acceptance of monetization platforms, competition, and ability to achieve profitability[23] About Zuora, Inc. Zuora is a leading monetization suite enabling businesses to manage customer-centric models by orchestrating the complete quote-to-cash and revenue recognition process, serving over 1,000 global companies including General Motors, Siemens, and Zoom, with headquarters in Silicon Valley and worldwide offices - Zuora provides a monetization suite that orchestrates the quote-to-cash and revenue recognition process for businesses with customer-centric models[24] - The company serves over 1,000 companies, with notable clients including BMC Software, Box, Caterpillar, General Motors, and Zoom[24]