Zuora(US:ZUO)2023-05-25 03:14Financial Data and Key Metrics Changes - Subscription revenue for Q1 was $89.7 million, growing 18% year-over-year in constant currency and 14% as reported, exceeding guidance [28] - Total revenue was $103.1 million, up 14% in constant currency and 11% as reported year-over-year, slightly ahead of guidance [29] - Non-GAAP operating income was $6.1 million, compared to a loss of $0.2 million in the prior year, resulting in a non-GAAP operating margin of 5.9%, a 600-basis-point improvement [31] - Adjusted free cash flow for Q1 was $13 million, with a cash balance of $396.9 million at the end of the quarter [35][36] - The company raised its fiscal 2024 guidance for subscription revenue to $337 million to $384 million, representing a year-over-year growth of 12% at the midpoint [152] Business Line Data and Key Metrics Changes - Professional services revenue was $13.4 million, a decrease of 9% year-over-year, representing 13% of total revenue [58] - Non-GAAP subscription gross margin improved to 81%, a 140-basis-point increase year-over-year [59] - Non-GAAP blended gross margin improved by nearly 290 basis points year-over-year, ending the quarter at 70% [60] Market Data and Key Metrics Changes - The dollar-based retention rate (DBRR) was 108%, flat sequentially but down 2 points year-over-year [4] - The number of customers with an average contract value of $500,000 or more grew 26% year-over-year [15] - ARR at the end of Q1 was $373.9 million, growing 15% as reported [35] Company Strategy and Development Direction - The company is focused on balancing growth and profitability, emphasizing the importance of subscription business models [38][100] - Zuora continues to innovate and expand its product portfolio, with a commitment to ESG and renewable energy initiatives [27][56] - The company is adjusting its go-to-market strategy to focus on smaller, faster deals in response to the macroeconomic environment [13][51] Management's Comments on Operating Environment and Future Outlook - Management noted that buyer behavior remains cautious, consistent with previous quarters, but expressed confidence in achieving growth targets [12][49] - The company expects continued acceleration in ARR growth in the second half of the year, despite current macroeconomic challenges [86][130] - Management highlighted the importance of their technology in enabling customers to adapt to changing business models [21][100] Other Important Information - The company processed $87 billion in billing transaction volume, representing 16% growth year-over-year, and $190 billion in revenue volume, growing 20% year-over-year [64] - Zuora plans to provide new disclosures on transaction volumes annually, reflecting the depth and breadth of its solutions [64] Q&A Session Summary Question: Can you elaborate on the guidance and assumptions for operating margin performance? - Management indicated that the guidance reflects leverage in the business and disciplined spending [6] Question: Are you seeing any trends diverging between the U.S. and European markets? - Management acknowledged that the European IT market may recover before the U.S. due to earlier recession impacts [7] Question: How do you view the impact of smaller deals on long-term growth? - Management believes smaller deals can still lead to significant long-term customer value and expansion opportunities [72][80] Question: What are the expectations for net new ARR growth moving forward? - Management expects net new ARR to accelerate in the second half of the year, reflecting a strong pipeline and customer interactions [86][130] Question: Can you discuss the impact of AI on your products? - Management highlighted ongoing investments in AI to enhance customer experiences and operational efficiency [127]