Zuora(US:ZUO)2024-03-26 20:42Customer Base and Revenue - As of January 31, 2024, the company had 461 customers with ACV equal to or greater than $250,000, representing over 80% of total ACV, compared to 431 and 369 customers in 2023 and 2022, respectively[56] - No single customer accounted for more than 10% of Zuora's revenue or accounts receivable balance in any of the periods presented[427] - Subscription revenue recognized ratably over contract terms, typically between one and five years, making immediate impact of renewals or new agreements difficult to discern[192] - Service level commitments in customer contracts could lead to credits, refunds, or contract terminations if not met, potentially harming revenue and reputation[194] - Revenue from the United States for fiscal year 2024 was $275,711 thousand, representing 64% of total revenue, while revenue from other countries was $155,950 thousand, representing 36%[494] - Total remaining non-cancellable performance obligations under subscription contracts as of January 31, 2024, were approximately $593.9 million, with 54% expected to be recognized as revenue over the next 12 months[493] - Deferred revenue recognized during the fiscal year ended January 31, 2024, was $164,694 thousand, compared to $147,036 thousand in 2023 and $126,245 thousand in 2022[493] Employee and Management Composition - The company had 1,618 employees as of January 31, 2024, with 56% (910 employees) located outside the United States, primarily in Asia, Europe, and Australia[65] - The company's executive management team was comprised of 30% women and 40% self-identified as coming from certain other underrepresented groups as of January 31, 2024[70] - The company's Board of Directors was comprised of 33% women and 33% members of certain other underrepresented groups as of January 31, 2024[70] - The company's employee resource groups (ZRGs) had nine groups covering a wide variety of interests as of January 31, 2024[68] Financial Performance and Metrics - Net loss for the year ended January 31, 2024 was $68.2 million[396] - Total stockholders' equity as of January 31, 2024 was $133.7 million[396] - Stock-based compensation expense for the year ended January 31, 2024 was $101.1 million[396] - The company had cash and cash equivalents and short-term investments of $514.2 million as of January 31, 2024[369] - Contract assets totaled $1.4 million as of January 31, 2024, compared to $1.3 million as of January 31, 2023[421] - Advertising expense was not material for the periods presented[425] - The company has recorded a full valuation allowance against its deferred tax assets due to uncertainty of realization[443] - Net loss for fiscal year 2024 was $68.193 million, with a basic and diluted net loss per share of $0.49[538] - Sales and marketing expenses represented approximately 39% of total revenue for the fiscal year ended January 31, 2024[98] Intellectual Property and Patents - The company had 55 issued patents expiring between 2032 and 2041, and 32 patent applications pending in the U.S. and foreign jurisdictions as of January 31, 2024[77] Corporate Social Responsibility and Donations - The company's ZEOs volunteered over 3,500 hours in fiscal 2024 to mission-aligned nonprofits[74] - The company made a $0.5 million cash donation in fiscal 2024 to the Zuora Impact Fund[75] Sales and Marketing Strategy - The company's sales teams are organized by geographic territories, new and install base, and industry verticals, with plans to continue investing in the direct sales force[59] Investments and Financial Instruments - Short-term investments as of January 31, 2024, had a total fair value of $258.12 million, with U.S. government securities at $98.249 million, corporate bonds at $129.885 million, and commercial paper at $29.986 million[465] - The company's cash equivalents as of January 31, 2024, totaled $211.129 million, primarily consisting of money market funds at $207.632 million and corporate bonds at $3.497 million[468] - Warrant liability and debt conversion liability as of January 31, 2024, were $11.992 million and $6.848 million, respectively, classified as Level 3 liabilities[468] - The company's cash, cash equivalents, and short-term investments are primarily deposited with one financial institution, regularly exceeding federally insured limits[426] - The company issued $400.0 million in 2029 Notes to support growth and business challenges[197] - The net carrying amount of the 2029 Notes as of January 31, 2024, was $359.5 million, with an estimated fair value of $300.2 million, classified as a Level 3 measurement[471] - The company issued convertible senior notes (2029 Notes) with an aggregate principal amount of $400 million, bearing an interest rate of 3.95% per annum[482] - Total interest expense related to the 2029 Notes for fiscal year 2024 was $21,320 thousand, including $11,999 thousand in contractual interest expense and $9,321 thousand in amortization of deferred loan costs[489] - The company has a $30.0 million revolving credit facility with Silicon Valley Bank, maturing in October 2025, with no amounts drawn as of January 31, 2024[492] - The company issued 7.5 million warrants to Silver Lake, exercisable at $20.00, $22.00, and $24.00 per share, all of which were outstanding as of January 31, 2024[532] Accounting and Financial Reporting - Revenue recognition for subscription services occurs ratably over the contract term, with contract assets resulting when revenue recognition precedes billing[421] - The company's accounts receivable are reported at the principal amount outstanding, net of the allowance for credit losses, which is based on historical loss patterns and collection risk evaluation[432] - The company applies a two-step model under ASC 805 to assess acquisitions, determining whether a transaction represents an asset acquisition or a business combination[435] - Business combinations are accounted for using the acquisition method, with assets and liabilities recorded at fair value, and any excess consideration recorded as goodwill[436] - Internal-use software is amortized over an estimated useful life of generally three years[439] - Property and equipment are depreciated over estimated useful lives of generally three to five years[434] - The company recognized impairment charges totaling $3.8 million in fiscal 2024 related to excess office space, capitalized internal-use software, and purchased assets[440] - Impairment charges for fiscal years ended January 31, 2024, 2023, and 2022 were $2.2 million, $4.5 million, and $12.8 million respectively, related to ROU assets, leasehold improvements, and furniture and fixtures[472] - Prepaid expenses and other current assets totaled $23.261 million as of January 31, 2024, compared to $24.285 million in 2023[473] - Capitalized internal-use software costs for fiscal year ended January 31, 2024, were $7.620 million, with total capitalized internal-use software net of accumulated amortization at $15.483 million[475] - Goodwill balance increased from $53.991 million in 2023 to $56.657 million in 2024, with additions from acquisitions and foreign currency translation effects[479] - Accrued expenses and other current liabilities totaled $32.157 million as of January 31, 2024, down from $103.678 million in 2023, primarily due to a decrease in litigation settlement liabilities[481] - Total depreciation and amortization expense for fiscal year 2024 was $9,229 thousand, compared to $9,668 thousand in 2023 and $11,430 thousand in 2022[476] - Purchased intangible assets amortization expense for fiscal year 2024 was $2,690 thousand, compared to $2,251 thousand in 2023 and $2,050 thousand in 2022[477] - The company's lease contracts often include lease and non-lease components, with short-term leases (12 months or less) not recognizing ROU assets and lease liabilities[458] - Lease liabilities recognized at the present value of lease payments, with ROU assets adjusted for lease payments, incentives, and direct costs[456] - Amortization expense of deferred loan costs for 2029 Notes was $9.3 million in fiscal 2024 and $6.6 million in fiscal 2023[461] - Warrant liability balance increased from $2,829 thousand in January 2023 to $11,992 thousand in January 2024 due to reclassification and fair value changes[469] - Debt conversion liability balance increased from $0 in January 2023 to $6,848 thousand in January 2024 due to initial measurement and fair value changes[470] - Property and equipment, net decreased from $27,159 thousand in January 2023 to $25,961 thousand in January 2024, with impairments recorded on leasehold improvements and furniture[474] - The debt conversion liability's fair value was measured using a binomial lattice model, with key inputs including a fair value of common stock at $9.14 and an expected volatility of 47.5%[491] - The total lease payments for long-term operating lease liabilities amount to $50,990 thousand, with a present value of $43,860 thousand after deducting imputed interest of $7,130 thousand[498] - The weighted-average remaining operating lease term decreased from 6.7 years in 2023 to 5.9 years in 2024, with a weighted-average discount rate increasing from 4.8% to 5.1%[498] - Cash paid for operating leases in 2024 was $13,559 thousand, slightly higher than $12,802 thousand in 2023 and $13,701 thousand in 2022[498] - The company recognized impairment charges of $2,219 thousand in 2024, $4,537 thousand in 2023, and $12,783 thousand in 2022 for excess office spaces[499] - Total operating lease liabilities as of January 31, 2024, were $43,860 thousand, compared to $47,164 thousand in 2023[497] - Operating lease cost for fiscal year 2024 was $8,599 thousand, compared to $9,933 thousand in 2023 and $12,681 thousand in 2022[497] Legal and Compliance - Compliance with anti-corruption and anti-money laundering laws, including FCPA, is critical to avoid penalties and adverse consequences[201] - The company settled Federal and State Class Actions in 2023, paying an aggregate of $75.5 million, with $7.2 million funded by insurance proceeds[504] - The company settled derivative litigation in 2023, agreeing to pay $2.0 million for plaintiffs' attorney fees, which was covered by insurance carriers[506] Tax and Valuation Allowances - As of January 31, 2024, the company has U.S. federal and state net operating loss carryforwards of approximately $552.3 million and $376.4 million, respectively, available to offset future taxable income[510] - The total gross unrecognized tax benefits increased from $18.4 million in 2023 to $25.8 million in 2024, with $7.3 million potentially reducing the effective tax rate if recognized[514] - The valuation allowance for deferred tax assets increased by $10.2 million in 2024 and $58.4 million in 2023, reflecting the likelihood that these assets will not be utilized[509] - Federal and state R&D tax credits available to offset future taxes as of January 31, 2024 are $24.9 million and $22.8 million, respectively[511] Stock and Equity Compensation - The company's stock-based compensation awards are measured using the Black-Scholes option-pricing model, with fair value determined based on the company's common stock price[447] - Stock-based compensation expense for fiscal year 2024 was $101.052 million, with the largest allocation to Sales and Marketing at $32.116 million[531] - Unrecognized compensation costs related to unvested equity awards as of January 31, 2024, totaled $126.245 million, with RSUs accounting for $102.404 million[531] - As of January 31, 2024, the company had 137.8 million shares of Class A common stock and 8.2 million shares of Class B common stock issued and outstanding[519] - 25.0 million shares of Class A common stock are reserved and available for issuance under the 2018 Equity Incentive Plan as of January 31, 2024[522] - RSUs outstanding as of January 31, 2024 are 11,686 thousand with a weighted-average grant date fair value of $10.24[526] - The fair value of ESPP purchase rights for fiscal year 2024 ranges from $8.69 to $11.55 with expected volatility between 34.6% and 45.7%[530] - The liability-classified warrants' fair value as of January 31, 2024 is $9.14 with an expected volatility of 41.8% and a risk-free interest rate of 3.9%[534] - Stock options outstanding as of January 31, 2024 are 6,083 thousand with a weighted-average exercise price of $9.21 and an aggregate intrinsic value of $15.984 million[523] - PSUs outstanding as of January 31, 2024 are 2,310 thousand with a weighted-average grant date fair value of $14.31[528] - Potentially dilutive securities not included in diluted per share calculations totaled 47.889 million shares as of January 31, 2024, including 20.000 million shares from 2029 Notes conversion[539] Acquisitions and Contingent Considerations - The Zephr acquisition purchase consideration is $47.9 million, including $43.1 million in cash payments and $4.8 million in contingent consideration[541] - Transaction costs for the Zephr acquisition are $0.2 million and $3.2 million for fiscal years 2024 and 2023, respectively[548] - The company paid $4.5 million to settle contingent consideration in fiscal 2024, following a revaluation to $4.4 million in fiscal 2023[543] - The Zephr acquisition resulted in recorded goodwill due to expected synergies and value creation for shareholders, though the goodwill is not deductible for income tax purposes[544] Risks and Market Challenges - Future volatility in stock price may reduce access to equity capital, impacting ability to fund business growth and respond to challenges[200] - The company faces risks related to attracting new customers and retaining existing ones, particularly in markets with significant prior investments in custom-built solutions[98] - The company's growth depends on market adoption of monetization platform software and related solutions, which may develop slower than expected[105] Other Financial Obligations - The company has a contractual obligation to make $10.1 million in purchases of cloud computing services by September 2024[507] - Accumulated other comprehensive loss as of January 31, 2024 is $859 thousand, with a foreign currency translation adjustment of $672 thousand and an unrealized gain on available-for-sale securities of $732 thousand[521]