Market Overview

Zuora Reports Record Second Quarter Fiscal 2019 Results

Share:

Raises FY19 Revenue Guidance by $7 million to $227 to $230 million

  • Subscription revenue grew 44% year-over-year; Total revenue grew
    47% year-over-year
  • Customers with annual contract value (ACV) equal to or greater than
    $100,000 increased to 474 customers, or 28% year-over-year
  • Dollar based retention rate remained at 112%

Zuora, Inc. (NYSE:ZUO), the leading cloud-based subscription management
platform provider, today announced financial results for its second
fiscal quarter ended July 31, 2018.

"With every day that passes, more and more companies are joining the
Subscription Economy," said Tien Tzuo, founder and CEO of Zuora. "As the
leader in this market, we produced strong second quarter results across
the board, executing our business model designed for long-term
sustainable growth."

Second Quarter Fiscal 2019 Financial Results:

  • Revenue: Total revenue was $57.8 million, an increase of 47%
    year-over-year. Subscription revenue was $41.5 million, an increase of
    44% year-over-year.
  • Loss from Operations: GAAP loss from operations was $18.2
    million, compared to a loss of $15.0 million in the second quarter of
    fiscal 2018.

    Non-GAAP loss from operations was $12.3
    million, compared to a non-GAAP loss from operations of $12.6 million
    in the second quarter of fiscal 2018.
  • Net Loss: GAAP net loss was $19.6 million, compared to a net
    loss of $14.8 million in the second quarter of fiscal 2018. GAAP net
    loss per share attributable to common stockholders was $0.19 based on
    105.1 million weighted average shares outstanding, compared to GAAP
    net loss per share attributable to common stockholders of $0.56 based
    on 26.4 million weighted average shares outstanding in the second
    quarter of fiscal 2018.

    Non-GAAP net loss was $13.7
    million, compared to a net loss of $12.4 million in the second quarter
    of fiscal 2018. Non-GAAP net loss per share attributable to common
    stockholders was $0.13 based on 105.1 million weighted average shares
    outstanding, compared to non-GAAP net loss per share attributable to
    common stockholders of $0.47 based on 26.4 million weighted average
    shares outstanding in the second quarter of fiscal 2018.
  • Cash Flow: Net cash used in operating activities was $2.4
    million, compared to $8.7 million in the second quarter of fiscal
    2018. Free cash flow was negative $7.3 million compared to negative
    $9.6 million in the second quarter of fiscal 2018.
  • Cash and Cash Equivalents and Restricted Cash: Cash and cash
    equivalents and restricted cash were $185.8 million as of July 31,
    2018.

The section titled "Non-GAAP Financial Measures" below contains a
description of the non-GAAP financial measures and a reconciliation of
GAAP and non-GAAP financial measures is contained in the tables below.

Key Metrics and Business Highlights:

  • Customers with ACV equal to or greater than $100,000 was 474,
    representing 28% year-over-year growth. This also represents 7%
    quarter-over-quarter growth in such customers, and a net add of 33 of
    such customers.
  • Dollar-based retention rate remained at 112% driven by strong upsell
    activity.
  • Customer usage of Zuora solutions grew, with $7.5 billion in
    transaction volume through Zuora's billing platform during the
    second quarter, an increase of 41% year-over-year.
  • Announced the Spring '18 collection of product updates, including the
    new subscription Order Management - a Zuora Central Platform upgrade -
    and the general availability of Zuora Collect.
  • Kicked off the Subscribed conference series in San Francisco in June,
    with events scheduled in the third quarter in Melbourne, Sydney,
    Paris, London and New York, bringing together hundreds of companies
    around the world seeking to thrive amidst what we see as the most
    disruptive business-model shift in a century.
  • New national best selling book "SUBSCRIBED: Why the Subscription Model
    Will Be Your Company's Future -- and What to Do About It," authored by
    Zuora cofounder and CEO Tien Tzuo, illustrates the momentum of the
    Subscription Economy and Tzuo as the foremost expert on the topic.

Financial Outlook:

For the third quarter of fiscal 2019, the Company currently expects:

  • Total revenue of $58.3 to $59.3 million
  • Subscription revenue of $42.0 to $42.5 million
  • Non-GAAP loss from operations of $13.5 to $12.5 million
  • Non-GAAP net loss per share attributable to common stockholders of
    $0.14 to $0.13, assuming weighted average shares outstanding of
    approximately 106.0 million

For the full fiscal 2019, the Company currently expects:

  • Total revenue of $227.0 to $230.0 million
  • Subscription revenue of $163.0 to $164.5 million
  • Non-GAAP loss from operations of $52.0 to $50.0 million
  • Non-GAAP net loss per share attributable to common stockholders of
    $0.61 to $0.59, assuming weighted average shares outstanding of
    approximately 91.2 million

With respect to Zuora's guidance as provided under "Financial Outlook"
above, Zuora has not reconciled its expectations for non-GAAP loss from
operations to GAAP loss from operations or non-GAAP net loss per share
attributable to common stockholders to GAAP net loss per share because
stock-based compensation expense cannot be reasonably calculated or
predicted at this time. Accordingly, a reconciliation is not available
without unreasonable effort.

Webcast and Conference Call Information:

Zuora will host a conference call for investors on August 30, 2018 at
5:00 p.m. Eastern Time to discuss the company's financial results and
business highlights. Investors are invited to listen to a live webcast
of the conference call by visiting https://investor.zuora.com.
A replay of the webcast will be available for one year. The call can
also be accessed live via phone by dialing (866) 393-4306 or, for
international callers, (734) 385-2616 with conference ID 3189418. An
audio replay will be available shortly after the call and can be
accessed by dialing (855) 859-2056 or, for international callers, (404)
537-3406. The passcode for the replay is 3189418. The replay will be
available through September 6, 2018.

About Zuora, Inc.

Zuora provides the leading cloud-based subscription management platform
that functions as a system of record for subscription businesses across
all industries. Powering the Subscription Economy®, the Zuora platform
was architected specifically for dynamic, recurring subscription
business models and acts as an intelligent subscription management hub
that automates and orchestrates the entire subscription order-to-cash
process, including billing and revenue recognition. Zuora serves more
than 900 companies around the world, including Box, Komatsu, Rogers,
Schneider Electric, Xplornet and Zendesk. Headquartered in Silicon
Valley, Zuora also operates offices in Atlanta, Boston, Denver, San
Francisco, London, Paris, Beijing, Sydney, Chennai and Tokyo. To learn
more about the Zuora platform, please visit www.zuora.com.

NON-GAAP FINANCIAL MEASURES

In addition to financial measures prepared in accordance with U.S.
generally accepted accounting principles (GAAP), this press release and
the accompanying tables contain non-GAAP financial measures, including
non-GAAP loss from operations, non-GAAP subscription gross margin,
non-GAAP total gross margin, non-GAAP sales and marketing expense,
non-GAAP research and development expense, non-GAAP general and
administrative expense, non-GAAP loss from operations, non-GAAP net
loss, non-GAAP net loss per share attributable to common stockholders,
and free cash flow. The presentation of these financial measures is not
intended to be considered in isolation or as a substitute for, or
superior to, financial information prepared and presented in accordance
with GAAP.

We use these non-GAAP measures in conjunction with GAAP measures as part
of our overall assessment of our performance, including the preparation
of our annual operating budget and quarterly forecasts, to evaluate the
effectiveness of our business strategies and to communicate with our
board of directors concerning our financial performance. We believe
these non-GAAP measures provide investors consistency and comparability
with our past financial performance and facilitate period-to-period
comparisons of our operating results. We believe these non-GAAP measures
are useful in evaluating our operating performance compared to that of
other companies in our industry, as they generally eliminate the effects
of certain items that may vary for different companies for reasons
unrelated to overall operating performance.

We exclude the following items from one or more of our non-GAAP
financial measures:

Stock-based compensation expense. We exclude stock-based
compensation expense, which is a non-cash expense, from certain of our
non-GAAP financial measures because we believe that excluding this item
provides meaningful supplemental information regarding operational
performance. In particular, companies calculate stock-based compensation
expense using a variety of valuation methodologies and subjective
assumptions.

Amortization of acquired intangible assets. We exclude
amortization of acquired intangible assets, which is a non-cash expense,
from certain of our non-GAAP financial measures. We exclude these
amortization expenses because we do not believe these expenses have a
direct correlation to the operation of our business.

Internal-use software. We exclude capitalization and the
subsequent amortization of internal-use software, which is a non-cash
expense, from certain of our non-GAAP financial measures. We capitalize
certain costs incurred for the development of computer software for
internal use and then amortize those costs over the estimated useful
life. Capitalization and amortization of software development costs can
vary significantly depending on the timing of products reaching
technological feasibility and being made generally available. Moreover,
because of the variety of approaches taken and the subjective
assumptions made by other companies in this area, we believe that
excluding the effects of capitalized software costs allows investors to
make more meaningful comparisons between our operating results and those
of other companies.

Additionally, Zuora's management believes that the free cash flow
non-GAAP measure is meaningful to investors because management reviews
cash flows generated from operations after taking into consideration
capital expenditures as these expenditures are considered to be a
necessary component of ongoing operations.

Investors are cautioned that there are material limitations associated
with the use of non-GAAP financial measures as an analytical tool. In
particular, we exclude stock-based compensation expense, amortization of
intangible assets, and capitalization and amortization of internal-use
software which are recurring and will be reflected in our financial
results for the foreseeable future. The non-GAAP measures we use may be
different from non-GAAP financial measures used by other companies,
limiting their usefulness for comparison purposes. We compensate for
these limitations by providing specific information regarding the GAAP
items excluded from these non-GAAP financial measures.

OPERATING METRICS

Annual Contract Value (ACV). We define ACV as the subscription
revenue we would contractually expect to recognize from a customer over
the next twelve months, assuming no increases or reductions in their
subscriptions.

Dollar-based Retention Rate. We calculate our dollar-based
retention rate as of a period end by starting with the sum of the ACV
from all customers as of twelve months prior to such period end, or
prior period ACV. We then calculate the sum of the ACV from these same
customers as of the current period end, or current period ACV. Current
period ACV includes any upsells and also reflects contraction or
attrition over the trailing twelve months but excludes revenue from new
customers added in the current period. We then divide the current period
ACV by the prior period ACV to arrive at our dollar-based retention rate.

FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements" that involve a
number of risks and uncertainties, including but not limited to,
statements regarding our GAAP and non-GAAP guidance for the second
fiscal quarter and full fiscal 2019 and financial outlook and market
positioning. Words such as "believes," "may," "will," "estimates,"
"potential," "continues," "anticipates," "intends," "expects," "could,"
"would," "projects," "plans," "targets," and variations of such words
and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are based on management's
expectations as of the date of this filing and are subject to a number
of risks, uncertainties and assumptions, many of which involve factors
or circumstances that are beyond our control. Our actual results could
differ materially from those stated or implied in forward-looking
statements due to a number of factors, including but not limited to,
risks detailed in our Form 10-Q filed with the Securities and Exchange
Commission on June 13, 2018 as well as other documents that may be filed
by us from time to time with the Securities and Exchange Commission. In
particular, the following factors, among others, could cause results to
differ materially from those expressed or implied by such
forward-looking statements: we have a history of net losses and may not
achieve or sustain profitability; the shift by companies to subscription
business models may develop slower than we expect; we may not be able to
sustain or manage any future growth effectively; our security measures
may be breached or our products may be perceived as not being secure;
our products may fail to gain, or lose, market acceptance; we may be
unable to attract new customers and expand sales to existing customers;
customers may fail to deploy our solution after entering into a
subscription agreement with us; customers may incorrectly or improperly
deploy or use of our solution; we may not be able to develop and release
new products and services; we may experience interruptions or
performance problems, including a service outage, associated with our
technology; we face intense competition in our markets and may not be
able to compete effectively; weakened global economic conditions may
adversely affect our industry; the risk of loss of key employees;
changes in foreign exchange rates; general political or destabilizing
events, including war, conflict or acts of terrorism; and other risks
and uncertainties. Past performance is not necessarily indicative of
future results. The forward-looking statements included in this press
release represent our views as of the date of this press release. We
anticipate that subsequent events and developments will cause our views
to change. We undertake no intention or obligation to update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise. These forward-looking statements should not
be relied upon as representing our views as of any date subsequent to
the date of this press release.

© 2018 Zuora, Inc. All Rights Reserved. Zuora, Subscribed,
Subscription Economy, Powering the Subscription Economy, and
Subscription Economy Index
are trademarks or registered trademarks
of Zuora, Inc. Other names and brands may be claimed as the property of
others.

SOURCE: Zuora Financial

 

ZUORA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS

(in thousands, except per share data)
(unaudited)

 
 

Three Months Ended
July 31,

 

Six Months Ended
July 31,

2018   2017 2018   2017
Revenue:
Subscription $ 41,470 $ 28,797 $ 77,584 $ 54,852
Professional services 16,284   10,615   31,914   16,899  
Total revenue 57,754   39,412   109,498   71,751  
Cost of revenue:
Subscription 10,421 8,071 20,286 14,106
Professional services 18,226   12,552   34,379   19,326  
Total cost of revenue 28,647   20,623   54,665   33,432  
Gross profit 29,107   18,789   54,833   38,319  
Operating expenses:
Research and development 13,323 9,768 25,385 17,645
Sales and marketing 25,429 18,479 48,266 33,431
General and administrative 8,563   5,551   17,974   10,230  
Total operating expenses 47,315   33,798   91,625   61,306  
Loss from operations (18,208 ) (15,009 ) (36,792 ) (22,987 )
Interest and other (expense) income, net (1,178 ) 407   (1,851 ) 391  
Loss before income taxes (19,386 ) (14,602 ) (38,643 ) (22,596 )
Income tax provision (201 ) (239 ) (391 ) (371 )
Net loss (19,587 ) (14,841 ) (39,034 ) (22,967 )
Comprehensive loss:
Foreign currency translation adjustment 418   154   340   320  
Comprehensive loss $ (19,169 ) $ (14,687 ) $ (38,694 ) $ (22,647 )
Net loss per share attributable to common stockholders, basic and
diluted
$ (0.19 ) $ (0.56 ) $ (0.52 ) $ (0.90 )
Weighted-average shares outstanding used in calculating net loss per
share attributable to common stockholders, basic and diluted
105,146   26,417   75,529   25,654  
 
 

ZUORA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in
thousands)
(unaudited)

 
  July 31,
2018
  January 31,
2018
Assets
Current assets:
Cash and cash equivalents $ 179,195 $ 48,208
Accounts receivable, net of allowance for doubtful accounts of
$3,018 and $3,292 as of July 31, 2018 and January 31, 2018,
respectively
42,054 49,764
Restricted cash, current portion 1,770
Prepaid expenses and other current assets 8,793   9,302  
Total current assets 231,812 107,274
Property and equipment, net 16,924 10,204
Restricted cash, net of current portion 4,884 5,155
Purchased intangibles, net 10,048 11,292
Goodwill 20,861 20,614
Other assets 2,708   827  
Total assets $ 287,237   $ 155,366  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,841 $ 2,572
Accrued expenses and other current liabilities 14,677 24,496
Accrued employee liabilities 20,976 17,701
Lease obligation, current portion 796 1,066
Debt, current portion 5,000 2,917
Deferred revenue, current portion 69,094   66,058  
Total current liabilities 113,384 114,810
Debt, net of current portion 9,616 12,052
Deferred revenue, net of current portion 741 346
Lease obligation, net of current portion 2,393 324
Other long-term liabilities 1,856   1,168  
Total liabilities 127,990   128,700  
Stockholders' equity:
Convertible preferred stock 6
Class A common stock 4
Class B common stock 6 3
Additional paid-in capital 461,804 286,152
Related party receivable (5,657 ) (1,281 )
Accumulated comprehensive loss 809 471
Accumulated deficit (297,719 ) (258,685 )
Total stockholders' equity 159,247   26,666  
Total liabilities and stockholders' equity $ 287,237   $ 155,366  
 
 

ZUORA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS

(in thousands)
(unaudited)

 
  Six Months Ended July 31,
2018   2017
Operating activities:
Net loss $ (39,034 ) $ (22,967 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 4,495 3,188
Equity-based compensation 10,263 2,954
Loss on disposal of assets 144
Provision for doubtful accounts 2,512 345
Changes in operating assets and liabilities:
Accounts receivable 5,198 1,421
Prepaid expenses and other current assets (1,905 ) (267 )
Other assets (1,881 ) (76 )
Accounts payable 159 (3,106 )
Accrued expenses and other current liabilities 2,626 1,873
Accrued employee liabilities 3,275 1,643
Deferred revenue 3,431 2,042
Other long-term liabilities 495   (68 )
Net cash used in operating activities (10,222 ) (13,018 )
Cash flows from investing activities:
Purchases of property and equipment (6,690 ) (1,658 )
Business combinations, net of cash acquired (247 ) (11,420 )
Net cash used in investing activities (6,937 ) (13,078 )
Cash flows from financing activities:
Payments under capital leases (464 ) (903 )
Proceeds from issuance of common stock upon exercise of stock options 6,665 2,184
Payments of offering costs (4,271 )
Proceeds from initial public offering, net of underwriters'
discounts and commissions
164,703
Payments under related party notes receivable (4,344 )
Repurchases of unvested common stock (6 )
Principal payments on long-term debt (417 )
Payments related to business combination (12,559 )
Proceeds from long-term debt, net of issuance costs   14,949  
Net cash provided by financing activities 149,307   16,230  
Effect of exchange rates on cash and cash equivalents and restricted
cash
338   321  
Net increase (decrease) in cash and cash equivalents and restricted
cash
132,486 (9,545 )
Cash and cash equivalents and restricted cash, beginning of period 53,363   77,882  
Cash and cash equivalents and restricted cash, end of period $ 185,849   $ 68,337  
Supplemental disclosure of non-cash investing and financing
activities:
Property and equipment acquired under capital leases $ 2,335   $ 488  
Lapse in restrictions on early exercised common stock options $ 739   $ 289  
Property and equipment purchases accrued or in accounts payable $ 1,069   $ 66  
Deferred offering costs payable or accrued but not paid $ 337   $  
Accrued acquisition-related payments $   $ 12,558  
Reconciliation of cash and cash equivalents and restricted cash
within the condensed consolidated balance sheets to the amounts
shown in the condensed consolidated statements of cash flows above:
Cash and cash equivalents $ 179,195 $ 63,176
Restricted cash, current 1,770 6
Restricted cash, net of current portion 4,884   5,155  
Total cash and cash equivalents and restricted cash $ 185,849   $ 68,337  
 
 

ZUORA, INC.

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(in thousands, except percentages and per share data)

(unaudited)

 
Three Months Ended July 31, 2018
GAAP  

Stock-based
Compensation

 

Amortization
of Acquired
Intangibles

 

Internal-use
Software

  Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 10,421 $ (433 ) $ (563 ) $ (330 ) $ 9,095
Cost of professional services revenue 18,226 (1,399 ) 16,827
Gross profit 29,107 1,832 563 330 31,832
Operating expenses:
Research and development 13,323 (1,416 ) 684 12,591
Sales and marketing 25,429 (1,522 ) 23,907
General and administrative 8,563 (890 ) 7,673
Operating loss (18,208 ) 5,660 563 (354 ) (12,339 )
Net loss $ (19,587 ) $ 5,660 $ 563 $ (354 ) $ (13,718 )
Net loss per share attributable to common stockholders, basic and
diluted(1)
$ (0.19 ) $ (0.13 )
Gross margin 50 % 55 %
Subscription gross margin 75 % 78 %
 
 
Three Months Ended July 31, 2017
GAAP  

Stock-based
Compensation

 

Amortization
of Acquired
Intangibles

 

Internal-use
Software

  Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 8,071 $ (163 ) $ (514 ) $ (325 ) $ 7,070
Cost of professional services revenue 12,552 (356 ) 12,196
Gross profit 18,789 519 514 325 20,147
Operating expenses:
Research and development 9,768 (479 ) 183 9,472
Sales and marketing 18,479 (557 ) 17,922
General and administrative 5,551 (244 ) 5,307
Operating loss (15,009 ) 1,799 514 141 (12,555 )
Net loss $ (14,841 ) $ 1,799 $ 514 $ 141 $ (12,387 )
Net loss per share attributable to common stockholders, basic and
diluted(1)
$ (0.56 ) $ (0.47 )
Gross margin 48 % 51 %
Subscription gross margin 72 % 75 %
 

(1) GAAP and Non-GAAP net loss per share attributable to common
stockholders are calculated based upon 105,146 and 26,417 basic and
diluted weighted-average shares of common stock for the three months
ended July 31, 2018 and 2017, respectively.

 

ZUORA, INC.

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(in thousands, except percentages and per share data)

(unaudited)

 
Six Months Ended July 31, 2018
GAAP  

Stock-based
Compensation

 

Amortization
of Acquired
Intangibles

 

Internal-use
Software

  Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 20,286 $ (756 ) $ (1,244 ) $ (581 ) $ 17,704
Cost of professional services revenue 34,379 (2,430 ) 31,949
Gross profit 54,833 3,186 1,244 581 59,845
Operating expenses:
Research and development 25,385 (2,464 ) 1,278 24,199
Sales and marketing 48,266 (3,111 ) 45,155
General and administrative 17,974 (1,501 ) 16,473
Operating loss (36,792 ) 10,263 1,244 (697 ) (25,982 )
Net loss $ (39,034 ) $ 10,263 $ 1,244 $ (697 ) $ (28,224 )
Net loss per share attributable to common stockholders, basic and
diluted(1)
$ (0.52 ) $ (0.37 )
Gross margin 50 % 55 %
Subscription gross margin 74 % 77 %
 
 
Six Months Ended July 31, 2017
GAAP  

Stock-based
Compensation

 

Amortization
of Acquired
Intangibles

 

Internal-use
Software

  Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 14,106 $ (250 ) $ (693 ) $ (637 ) $ 12,526
Cost of professional services revenue 19,326 (496 ) 18,830
Gross profit 38,319 746 693 637 40,395
Operating expenses:
Research and development 17,645 (808 ) 353 17,190
Sales and marketing 33,431 (963 ) 32,468
General and administrative 10,230 (435 ) (13 ) 9,782
Operating loss (22,987 ) 2,953 693 296 (19,045 )
Net loss $ (22,967 ) $ 2,953 $ 693 $ 296 $ (19,025 )
Net loss per share attributable to common stockholders, basic and
diluted(1)
$ (0.90 ) $ (0.74 )
Gross margin 53 % 56 %
Subscription gross margin 74 % 77 %
 

(1) GAAP and Non-GAAP net loss per share attributable to common
stockholders are calculated based upon 75,529 and 25,654 basic and
diluted weighted-average shares of common stock for the six months ended
July 31, 2018 and 2017, respectively.

 

Sales and Marketing Expense

 
  GAAP  

Stock-based
Compensation

  Non-GAAP
Twelve months ended July 31, 2018 87,922 (4,866 ) 83,056
Twelve months ended January 31, 2018 73,087 (2,717 ) 70,370
Twelve months ended July 31, 2017 64,191

(1,731

) 62,460
 
 

Free Cash Flow

 
 

Three Months Ended
July 31,

2018   2017
Net cash used in operating activities $ (2,396 ) $ (8,660 )
Less:
Purchases of property and equipment (4,926 ) (947 )
Free cash flow $ (7,322 ) $ (9,607 )
 

View Comments and Join the Discussion!