Zuora Delivers Strong First Quarter Fiscal 2019 Results

  • Subscription revenue grew 39% year-over-year; Total revenue grew
    60% year-over-year
  • Customers with annual contract value (ACV) equal to or greater than
    $100,000 increased to 441 customers, from 415 at the end of Q4 fiscal
    2018
  • Dollar based retention rate increased to 112%, up 2% from Q4 fiscal
    2018

SAN MATEO, Calif.–(BUSINESS WIRE)–Zuora, Inc. (NYSE: ZUO), the leading cloud-based subscription management
platform provider, today announced financial results for its first
fiscal quarter ended April 30, 2018.

“We are the only public company 100% focused on the expanding
Subscription Economy,” said Tien Tzuo, founder and CEO of Zuora. “Our
strong results in our first quarter as a public company reflect the
continuing adoption of the subscription business model by companies
across all industries, around the world.”

First Quarter Fiscal 2019 Financial Results:

  • Revenue: Total revenue was $51.7 million, an increase of 60%
    year-over-year. Subscription revenue was $36.1 million, an increase of
    39% year-over-year.
  • Loss from Operations: GAAP loss from operations was
    $18.6 million, compared to a loss of $8.0 million in the first quarter
    of fiscal 2018.

    Non-GAAP loss from operations was
    $13.6 million, compared to a non-GAAP loss from operations of
    $6.5 million in the first quarter of fiscal 2018.

  • Net Loss: GAAP net loss was $19.4 million, compared to a loss
    of $8.1 million in the first quarter of fiscal 2018. GAAP net loss per
    share was $0.43 based on 44.9 million weighted average shares
    outstanding, compared to GAAP net loss per share of $0.33 based on
    25.0 million weighted average shares outstanding in the first quarter
    of fiscal 2018.

    Non-GAAP net loss was $14.5 million,
    compared to a loss of $6.6 million in the first quarter of fiscal
    2018. Non-GAAP net loss per share was $0.32 based on 44.9 million
    weighted average shares outstanding, compared to non-GAAP net loss per
    share of $0.27 based on 25.0 million weighted average shares
    outstanding in the first quarter of fiscal 2018.

  • Cash Flow: Net cash used in operating activities was
    $7.8 million, compared to $4.4 million in the first quarter of fiscal
    2018. Free cash flow was negative $9.6 million compared to negative
    $5.1 million in the first quarter of fiscal 2018.
  • Cash and Cash Equivalents and Restricted Cash: Cash and cash
    equivalents and restricted cash were $207.7 million as of April 30,
    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:

  • Zuora ended the quarter with 441 customers with ACV equal to or
    greater than $100,000, representing 6% quarter-over-quarter growth in
    such customers, and a net add of 26 of such customers.
  • Dollar-based retention rate increased quarter-over-quarter to 112%,
    primarily driven by strong volume upsell activity.
  • Customer usage of Zuora solutions grew, with $7.2 billion in
    transaction volume through Zuora’s billing platform, an
    increase of 46% year-over-year.
  • Zuora completed its Initial Public Offering and began trading on the
    New York Stock Exchange on April 12, 2018, raising a total of
    $162.2 million in net proceeds.
  • On June 5-6th, Zuora will be hosting its Subscribed ‘18 user
    conference in San Francisco bringing together hundreds of companies
    seeking to thrive amidst what we see as the most disruptive
    business-model shift in a century. Also, on June 5th Portfolio
    Publishing will launch, “SUBSCRIBED: Why the Subscription Model
    Will Be Your Company’s Future — and What to Do About It
     ”,
    authored by Zuora founder and CEO Tien Tzuo.

Financial Outlook:

For the second quarter of fiscal 2019, Zuora currently expects:

  • Total revenue of $53.5 to $54.5 million
  • Subscription revenue of $38.0 to $38.5 million
  • Non-GAAP loss from operations of $16.0 to $15.0 million
  • Non-GAAP net loss per share of $0.16 to $0.15, assuming weighted
    average shares outstanding of approximately 105 million

For the full fiscal 2019, Zuora currently expects:

  • Total revenue of $220.0 to $223.0 million
  • Subscription revenue of $158.0 to $159.5 million
  • Non-GAAP loss from operations of $55.0 to $52.0 million
  • Non-GAAP net loss per share of $0.62 to $0.59, assuming weighted
    average shares outstanding of approximately 92 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
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 May 31, 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 6696498. 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 6696498. The replay will be
available through June 7, 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, 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 final prospectus related to our initial public
offering filed with the Securities and Exchange Commission on April 12,
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,
and Powering the Subscription
Economy
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 April 30,
2018     2017
Revenue:
Subscription $ 36,114 $ 26,055
Professional services   15,630     6,284  
 
Total revenue   51,744     32,339  
 
Cost of revenue:
Subscription 9,865 6,035
Professional services   16,153     6,774  
 
Total cost of revenue   26,018     12,809  
 
Gross profit   25,726     19,530  
 
Operating expenses:
Research and development 12,062 7,877
Sales and marketing 22,837 14,952
General and administrative   9,411     4,679  
 
Total operating expenses   44,310     27,508  
 
Loss from operations (18,584 ) (7,978 )
Interest and other (expense) income, net   (673 )   (16 )
 
Loss before income taxes (19,257 ) (7,994 )
Income tax provision   (190 )   (132 )
 
Net loss   (19,447 )   (8,126 )
 
Comprehensive loss:
Foreign currency translation adjustment   (78 )   166  
 
Comprehensive loss $ (19,525 ) $ (7,960 )
 
Net loss per share, basic and diluted $ (0.43 ) $ (0.33 )
 
Weighted-average shares outstanding used in calculating net loss per
share, basic and diluted
  44,886     24,986  
 
         
ZUORA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

April 30,
2018

January 31,
2018
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 202,514 $ 48,208
Accounts receivable, net of allowance for doubtful accounts of
$2,914 and $3,292 as of April 30, 2018 and January 31, 2018,
respectively
45,388 49,764
Restricted cash, current portion 220
Prepaid expenses and other current assets   8,780     9,302  
 
Total current assets 256,902 107,274
Property and equipment, net 10,923 10,204
Restricted cash, net of current portion 4,935 5,155
Purchased intangibles, net 10,610 11,292
Goodwill 20,614 20,614
Other assets   2,822     827  
 
Total assets $ 306,806   $ 155,366  
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 3,466 $ 2,572
Accrued expenses and other current liabilities 27,825 24,496
Accrued employee liabilities 17,383 17,701
Lease obligation, current portion 967 1,066
Debt, current portion 4,167 2,917
Deferred revenue, current portion   67,605     66,058  
 
Total current liabilities 121,413 114,810
Debt, net of current portion 10,803 12,052
Deferred revenue, net of current portion 424 346
Lease obligation, net of current portion 187 324
Other long-term liabilities   1,717     1,168  
 
Total liabilities   134,544     128,700  
 
Stockholders’ equity:
Convertible preferred stock 6
Class A common stock 1
Class B common stock 10 3
Additional paid-in capital 455,610 286,152
Related party receivable (5,619 ) (1,281 )
Accumulated comprehensive loss 392 471
Accumulated deficit   (278,132 )   (258,685 )
 
Total stockholders’ equity   172,262     26,666  
 
Total liabilities and stockholders’ equity $ 306,806   $ 155,366  
 
     
ZUORA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
Three Months Ended April 30,
2018     2017
Cash flows from operating activities:
Net loss $ (19,447 ) $ (8,126 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,953 1,427
Equity-based compensation 4,601 1,154
Provision for doubtful accounts 1,195 345
Changes in operating assets and liabilities:
Accounts receivable 3,181 (363 )
Prepaid expenses and other current assets (1,932 ) (242 )
Other assets (1,995 ) (25 )
Accounts payable 1,030 (1,105 )
Accrued expenses and other current liabilities 1,936 932
Accrued employee liabilities (318 ) 266
Deferred revenue 1,625 1,435
Other long-term liabilities   345     (56 )
 
Net cash used in operating activities  

(7,826

)

  (4,358 )
 
Cash flows from investing activities:
Purchases of property and equipment   (1,764 )   (711 )
 
Net cash used in investing activities   (1,764 )   (711 )
 
Cash flows from financing activities:
Payments under capital leases (236 ) (535 )
Proceeds from issuance of common stock upon exercise of stock options 5,749 1,305
Payments of offering costs (1,892 )
Proceeds from initial public offering costs, net of underwriters’
discounts and commissions
164,703
Increase in notes receivable—related parties (4,344 )
Repurchases of unvested common stock   (6 )    
 
Net cash provided by financing activities 163,974 770
Effect of exchange rates on cash and cash equivalents and restricted
cash
  (78 )   166  
 
Net increase (decrease) in cash and cash equivalents and restricted
cash
154,306 (4,133 )
Cash and cash equivalents and restricted cash, beginning of period   53,363     77,882  
 
Cash and cash equivalents and restricted cash, end of period $ 207,669   $ 73,749  
 
Supplemental disclosure of non-cash investing and financing
activities:
Property and equipment acquired under capital leases $   $ 488  
 
Lapse in restrictions on early exercised common stock options $ 833   $ 156  
 
Property and equipment purchases in accounts payable $ 35   $ 31  
 
Deferred offering costs accrued but not paid $ 2,181   $  
 
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 $ 202,514 $ 68,594
Restricted cash, current 220
Restricted cash, net of current portion   4,935     5,155  
 
Total cash and cash equivalents and restricted cash $ 207,669   $ 73,749  
 
     
ZUORA, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(in thousands, except percentages and per share data)

(unaudited)

 
Three Months Ended April 30, 2018
GAAP     Stock-based
Compensation
   

Amortization of
Acquired
Intangibles

    Internal-use
Software
    Non-GAAP
Cost of revenue:
Cost of subscription revenue

$

9,865

$ (323 ) $ (682 ) $ (251 ) $ 8,609
Cost of professional services revenue 16,153 (1,031 ) 15,122
Gross profit 25,726 1,354 682 251 28,013
Operating expenses:
Research and development 12,062 (1,048 ) 594 11,608
Sales and marketing 22,837 (1,590 ) 21,247
General and administrative 9,411 (609 ) 8,802
Operating loss (18,584 ) 4,601 682 (343 ) (13,644 )
Net loss $ (19,447 ) $ 4,601 $ 682 $ (343 ) $ (14,507 )
Net loss per share(1) $ (0.43 ) $ 0.10 $ 0.02 $ (0.01 ) $ (0.32 )
Gross margin 50 % 3 % 1 % 0 % 54 %
Subscription gross margin 73 % 1 % 2 % 1 % 76 %
 
Three Months Ended April 30, 2017
GAAP Stock-based
Compensation
Amortization of
Acquired
Intangibles
Internal-use
Software
Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 6,035 $ (88 ) $ (179 ) $ (312 ) $ 5,456
Cost of professional services revenue 6,774 (140 ) 6,634
Gross profit 19,530 228 179 312 20,249
Operating expenses:
Research and development 7,877 (329 ) 170 7,718
Sales and marketing 14,952 (406 ) 14,546
General and administrative 4,679 (191 ) (13 ) 4,475
Operating loss (7,978 ) 1,154 179 155 (6,490 )
Net loss $ (8,126 ) $ 1,154 $ 179 $ 155 $ (6,638 )
Net loss per share(1) $ (0.33 ) $ 0.05 $ 0.01 $ 0.01 $ (0.27 )
Gross margin 60 % 1 % 1 % 1 % 63 %
Subscription gross margin 77 % 0 % 1 % 1 % 79 %
 

(1)

   

GAAP and Non-GAAP net loss per share are calculated based upon
44,886 and 24,986 basic and diluted weighted-average shares of
common stock for the three months ended April 30, 2018 and 2017,
respectively.

 
             

Sales and Marketing Expense

 
GAAP Stock-based
Compensation
Non-GAAP
Twelve months ended April 30, 2018 80,972 (3,901 ) 77,071
Twelve months ended January 31, 2018 73,087 (2,717 ) 70,370
Twelve months ended April 30, 2017 59,910 (1,572 ) 58,338
 
     

Free Cash Flow

 
Three Months Ended
April 30, 2018     January 31, 2018     April 30, 2017
Net cash used in operating activities $ (7,826 ) $ (6,899 ) $ (4,358 )
Less:
Purchases of property and equipment   (1,764 )   (2,218 )   (711 )
 
Free cash flow $ (9,590 ) $ (9,117 ) $ (5,069 )

Contacts

Zuora, Inc.
Investor Relations:
Joon Huh,
650-419-1377
investorrelations@zuora.com
or
Media
Relations:

Jayne Scuncio, 408-348-1087
jscuncio@zuora.com