UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________________________ 

FORM 10-Q

_____________________________ 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-38451

_____________________________ 

Zuora, Inc.

(Exact name of registrant as specified in its charter)

_____________________________ 

 

Delaware	20-5530976
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

101 Redwood Shores Parkway, Redwood City, California	94065
(Address of principal executive offices)	(Zip Code)

(888) 976-9056

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

_____________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	ZUO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

As of April 30, 2024, the number of shares of the Registrant’s Class A common stock outstanding was 139.7 million and the number of shares of the Registrant’s Class B common stock outstanding was 8.4 million.

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of April 30, 2024 and January 31, 2024	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2024 and 2023	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2024 and 2023	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q (Form 10-Q) to “Zuora,” “Company,” “our,” “us,” and “we” refer to Zuora, Inc. and, where appropriate, its consolidated subsidiaries. Our fiscal year end is January 31. References to “fiscal” followed by the year refer to the fiscal year ended January 31 for the referenced year.

This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Form 10-Q, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” "determine," “estimates,” “potential,” "possible," “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” "may affect," "seek," "future," strategy," "likely," "should," and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:

•trends in revenue, cost of revenue, and gross margin;

•economic uncertainty and associated trends in macroeconomic conditions, as well as geopolitical conditions, including the effects of economic downturns, inflation, rising interest rates, bank failures, debt ceiling negotiations, potential government shutdowns, and conflicts;

•currency exchange rate fluctuations;

•trends and expectations in our operating and financial metrics, including customers with annual contract value (ACV) equal to or greater than $250,000, dollar-based retention rate, annual recurring revenue (ARR) and ARR growth, and growth of and within our customer base;

•future acquisitions, the anticipated benefits of such acquisitions and our ability to integrate the operations and technology of any acquired company;

•industry trends, projected growth, or trend analysis, including the shift to recurring revenue business models;

•our investments in our platform and the cost of third-party hosting fees;

•the expansion and functionality of our technology offering, including expected benefits of such products and technology, and our ability to further penetrate our customer base;

•trends in operating expenses, including research and development expense, sales and marketing expense, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;

•our liquidity being sufficient to meet our working capital and capital expenditure needs for at least the next 12 months;

•the impact of actions that we are taking to improve operational efficiencies and operating costs, including prior workforce reductions;

•disruptions to the U.S. and international banking systems;

•our ability to comply with all governmental laws, regulations and other legal obligations, including those related to evolving regulation of artificial intelligence and machine learning; and

•other statements regarding our future operations, financial condition, prospects and business strategies.

Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

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In light of these risks, uncertainties and assumptions, the future events and circumstances discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Form 10-Q or to conform statements to actual results or revised expectations, except as required by law.

2

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements

ZUORA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	April 30, 2024		January 31, 2024
Assets
Current assets:
Cash and cash equivalents	$	265,712	$	256,065
Short-term investments	281,442		258,120
Accounts receivable, net of allowance for credit losses of $2,173 and $2,142 as of April 30, 2024 and January 31, 2024, respectively	77,399		124,602
Deferred commissions, current portion	15,934		15,870
Prepaid expenses and other current assets	25,624		23,261
Total current assets	666,111		677,918
Property and equipment, net	26,218		25,961
Operating lease right-of-use assets	21,270		22,462
Purchased intangibles, net	9,474		10,082
Deferred commissions, net of current portion	25,952		27,250
Goodwill	56,147		56,657
Other assets	4,574		3,506
Total assets	$	809,746	$	823,836
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	153	$	3,161
Accrued expenses and other current liabilities	41,308		32,157
Accrued employee liabilities	28,465		37,722
Deferred revenue, current portion	184,278		199,615
Operating lease liabilities, current portion	5,929		6,760
Total current liabilities	260,133		279,415
Long-term debt	362,310		359,525
Deferred revenue, net of current portion	1,411		2,802
Operating lease liabilities, net of current portion	35,276		37,100
Deferred tax liabilities	3,726		3,725
Other long-term liabilities	7,592		7,582
Total liabilities	670,448		690,149
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock	14		14
Class B common stock	1		1
Additional paid-in capital	984,194		964,141
Accumulated other comprehensive loss	(1,593)		(859)
Accumulated deficit	(843,318)		(829,610)
Total stockholders’ equity	139,298		133,687
Total liabilities and stockholders’ equity	$	809,746	$	823,836

See notes to unaudited condensed consolidated financial statements.

3

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited) 

	Three Months Ended April 30,
	2024		2023
Revenue:
Subscription	$	98,959	$	89,711
Professional services	10,810		13,384
Total revenue	109,769		103,095
Cost of revenue:
Subscription	20,689		20,588
Professional services	14,372		16,758
Total cost of revenue	35,061		37,346
Gross profit	74,708		65,749
Operating expenses:
Research and development	23,566		25,668
Sales and marketing	35,845		41,444
General and administrative	19,269		18,816
Total operating expenses	78,680		85,928
Loss from operations	(3,972)		(20,179)
Change in fair value of debt conversion and warrant liabilities	(7,928)		30
Interest expense	(6,771)		(4,387)
Interest and other income (expense), net	5,315		5,710
Loss before income taxes	(13,356)		(18,826)
Income tax provision	352		469
Net loss	(13,708)		(19,295)
Comprehensive loss:
Foreign currency translation adjustment	(247)		(283)
Unrealized (loss) gain on available-for-sale securities	(487)		340
Comprehensive loss	$	(14,442)	$	(19,238)
Net loss per share, basic and diluted	$	(0.09)	$	(0.14)
Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	146,670		136,190

See notes to unaudited condensed consolidated financial statements.

4

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)

	Three Months Ended April 30, 2024
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balance, January 31, 2024	137,792	$	14	8,240	$	1	$	964,141	$	(859)	$	(829,610)	$	133,687
Conversion of Class B common stock to Class A common stock	393	—		(393)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	—	—		508	—		1,592		—		—		1,592
RSU releases	1,562	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		18,461		—		—		18,461
Other comprehensive loss	—	—		—	—		—		(734)		—		(734)
Net loss	—	—		—	—		—		—		(13,708)		(13,708)
Balance, April 30, 2024	139,747	$	14	8,355	$	1	$	984,194	$	(1,593)	$	(843,318)	$	139,298

	Three Months Ended April 30, 2023
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balance, January 31, 2023	127,384	$	13	8,121	$	1	$	859,482	$	(919)	$	(761,417)	$	97,160
Conversion of Class B common stock to Class A common stock	96	—		(96)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	—	—		96	—		537		—		—		537
RSU releases	1,643	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		25,224		—		—		25,224
Other comprehensive income	—	—		—	—		—		57		—		57
Net loss	—	—		—	—		—		—		(19,295)		(19,295)
Balance, April 30, 2023	129,123	$	13	8,121	$	1	$	885,243	$	(862)	$	(780,712)	$	103,683

See notes to unaudited condensed consolidated financial statements.

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ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended April 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(13,708)	$	(19,295)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion	4,235		4,290
Stock-based compensation	18,461		25,224
Provision for credit losses	501		1,117
Amortization of deferred commissions	4,554		4,970
Reduction in carrying amount of right-of-use assets	1,192		1,584
Change in fair value of debt conversion and warrant liabilities	7,928		(30)
Other	78		140
Changes in operating assets and liabilities:
Accounts receivable	46,702		7,531
Prepaid expenses and other assets	(2,745)		(112)
Deferred commissions	(3,375)		(3,607)
Accounts payable	(3,002)		4,703
Accrued expenses and other liabilities	1,234		(2,000)
Accrued employee liabilities	(9,257)		(3,823)
Deferred revenue	(16,728)		(2,527)
Operating lease liabilities	(3,200)		(3,572)
Net cash provided by operating activities	32,870		14,593
Cash flows from investing activities:
Purchases of property and equipment	(2,655)		(1,657)
Purchases of short-term investments	(90,399)		(61,745)
Maturities of short-term investments	68,486		88,228
Cash paid for acquisition	—		(4,524)
Net cash (used in) provided by investing activities	(24,568)		20,302
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options	1,592		537
Net cash provided by financing activities	1,592		537
Effect of exchange rates on cash and cash equivalents	(247)		(283)
Net increase in cash and cash equivalents	9,647		35,149
Cash and cash equivalents, beginning of period	256,065		203,239
Cash and cash equivalents, end of period	$	265,712	$	238,388
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchases accrued or in accounts payable	$	—	$	215

See notes to unaudited condensed consolidated financial statements.

6

ZUORA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Overview and Basis of Presentation

Description of Business

Zuora, Inc. was incorporated in the state of Delaware in 2006 and began operations in 2007. Zuora’s fiscal year ends on January 31. Zuora is headquartered in Redwood City, California.

Zuora provides a leading monetization suite for a modern business, built to help companies launch and scale new services and operate dynamic, customer-centric business models, including subscription and usage-based models. Our technology solutions enable companies across multiple industries and geographies to build, run, and grow a modern business, automating the quote-to-revenue process, including offers, billing, collections, and revenue recognition. With Zuora’s solutions, businesses can change and evolve how they go to market through a mix of monetization models, efficiently comply with revenue recognition standards, analyze customer data to optimize their offerings, and build recurring relationships with their customers.

On September 2, 2022, Zuora acquired Zephr, a leading subscription experience platform used by global digital publishing and media companies. Additional information regarding the Zephr acquisition is contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, filed with the Securities and Exchange Commission (SEC) on March 26, 2024 (Annual Report on Form 10-K).

References to “Zuora”, “us”, “our”, or “we” in these notes refer to Zuora, Inc. and its subsidiaries on a consolidated basis.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of Zuora and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) and applicable rules and regulations of the SEC regarding interim financial reporting. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated balance sheet as of January 31, 2024 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of comprehensive loss, statements of cash flows and statements of stockholders' equity for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2025 or any future period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Our most significant estimates and assumptions are related to revenue recognition with respect to the determination of the standalone selling prices for our services; the expected period of benefit over which deferred commissions are amortized; valuation of certain stock-based awards, our convertible senior notes and warrants and short-term investments; estimates of allowance for credit losses; estimates of the fair value of goodwill and long-lived assets when evaluating for impairments and for assets acquired from acquisitions; useful lives of intangibles

7

and other long-lived assets; and the valuation of deferred income tax assets and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ materially from these estimates under different assumptions or conditions.

Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Our significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in our Annual Report on Form 10-K. There have been no significant changes to these policies during the three months ended April 30, 2024.

Note 3. Investments

The amortized costs, unrealized gains and losses and estimated fair values of our short-term investments were as follows (in thousands):

	April 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	136,080	$	2	$	(191)	$	135,891
Corporate bonds	145,693		20		(162)		145,551
Total short-term investments	$	281,773	$	22	$	(353)	$	281,442

	January 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	98,206	$	50	$	(7)	$	98,249
Corporate bonds	129,767		121		(3)		129,885
Commercial paper	29,991		—		(5)		29,986
Total short-term investments	$	257,964	$	171	$	(15)	$	258,120

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive loss into investment income during the three months ended April 30, 2024 and 2023. We had no significant unrealized losses on our available-for-sale securities as of April 30, 2024 and January 31, 2024, and we do not expect material credit losses on our current investments in future periods. All securities had stated effective maturities of less than one year as of April 30, 2024.

Note 4. Fair Value Measurements

The accounting guidance for fair value measurements establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level input	Input definition
Level 1	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date
Level 3	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly.

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The following tables summarize our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis (in thousands):

	April 30, 2024
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	155,984	$	—	$	—	$	155,984
U.S. government securities	9,984		—		—		9,984
Total cash equivalents	$	165,968	$	—	$	—	$	165,968
Short-term investments:
U.S. government securities	$	—	$	135,891	$	—	$	135,891
Corporate bonds	—		145,551		—		145,551
Total short-term investments	$	—	$	281,442	$	—	$	281,442
Liabilities:
Warrant liability	$	—	$	—	$	19,100	$	19,100
Debt conversion liability	—		—		7,668		7,668
Total liabilities	$	—	$	—	$	26,768	$	26,768

	January 31, 2024
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	207,632	$	—	$	—	$	207,632
Corporate bonds	3,497		—		—		3,497
Total cash equivalents	$	211,129	$	—	$	—	$	211,129
Short-term investments:
U.S. government securities	$	—	$	98,249	$	—	$	98,249
Corporate bonds	—		129,885		—		129,885
Commercial paper	—		29,986		—		29,986
Total short-term investments	$	—	$	258,120	$	—	$	258,120
Liabilities:
Warrant liability	$	—	$	—	$	11,992	$	11,992
Debt conversion liability	—		—		6,848		6,848
Total liabilities	$	—	$	—	$	18,840	$	18,840

Changes in our Level 3 fair value measurements were as follows (in thousands):

	Warrant Liability
Balance, January 31, 2024	$	11,992
Change in fair value	7,108
Balance, April 30, 2024	$	19,100

Additional information about the Warrant liability, including the fair value inputs, is included in Note 10. Warrants to Purchase Shares of Common Stock.

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	Debt Conversion Liability
Balance, January 31, 2024	$	6,848
Change in fair value	820
Balance, April 30, 2024	$	7,668

Additional information about the debt conversion liability, including the fair value inputs, is included in Note 9. Debt.

As of April 30, 2024, the net carrying amount of the 2029 Notes, defined in Note 9. Debt, was $362.3 million and the estimated fair value was $398.5 million. The fair value of the 2029 Notes is classified as a Level 3 measurement.

The carrying amounts of certain financial instruments, including cash held in bank accounts, accounts receivable, accounts payable, and accrued expenses, approximate fair value due to their relatively short maturities.

Note 5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	April 30, 2024		January 31, 2024
Prepaid software subscriptions	$	8,364	$	6,582
Taxes	4,740		4,348
Contract assets	2,555		1,380
Prepaid insurance	2,314		2,305
Prepaid hosting costs	886		1,157
Deposits	570		699
Other	6,195		6,790
Total	$	25,624	$	23,261

Note 6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

	April 30, 2024		January 31, 2024
Software	$	39,748	$	37,216
Leasehold improvements	13,415		14,013
Computer equipment	11,169		11,125
Furniture and fixtures	3,935		4,276
	68,267		66,630
Less: accumulated depreciation and amortization	(42,049)		(40,669)
Total	$	26,218	$	25,961

The following table summarizes the capitalized internal-use software costs included within the Software line item in the table above (in thousands):

	Three Months Ended April 30,
	2024		2023
Internal-use software costs capitalized during the period	$	2,533	$	1,044
	April 30, 2024		January 31, 2024
Total capitalized internal-use software, net of accumulated amortization	$	16,586	$	15,483

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The following table summarizes total depreciation and amortization expense related to property and equipment, including amortization of internal-use software, included primarily in General and administrative and Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):

	Three Months Ended April 30,
	2024		2023
Total depreciation and amortization expense	$	2,369	$	2,538

Note 7. Purchased Intangible Assets and Goodwill

The following tables summarize the purchased intangible asset balances (in thousands):

	April 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	17,997	$	(10,149)	$	7,848
Customer relationships	5,187		(3,927)		1,260
Trade name	1,709		(1,343)		366
Total	$	24,893	$	(15,419)	$	9,474

	January 31, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	17,997	$	(9,782)	$	8,215
Customer relationships	5,187		(3,786)		1,401
Trade name	1,709		(1,243)		466
Total	$	24,893	$	(14,811)	$	10,082

Purchased intangible assets are being amortized to Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive loss on a straight-line basis over their estimated useful lives ranging from three to ten years. The following table summarizes amortization expense recognized on purchased intangible assets during the periods indicated (in thousands):

	Three Months Ended April 30,
	2024		2023
Purchased intangible assets amortization expense	$	608	$	738

Estimated future amortization expense for purchased intangible assets as of April 30, 2024 was as follows (in thousands):

Fiscal year ending:
2025 (remainder of the year)	$	1,736
2026	1,874
2027	1,561
2028	1,561
2029	1,561
Thereafter	1,181
Total estimated amortization expense	$	9,474

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The following table represents the changes to goodwill (in thousands):

	Goodwill
Balance, January 31, 2024	$	56,657
Effects of foreign currency translation	(510)
Balance, April 30, 2024	$	56,147

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	April 30, 2024		January 31, 2024
Warrant liability	$	19,100	$	11,992
Debt conversion liability	7,668		6,848
Accrued outside services and consulting	5,204		1,499
Accrued taxes	3,032		4,147
Accrued hosting and third-party licenses	1,703		2,707
Accrued interest	1,344		1,344
Other accrued expenses	3,257		3,620
Total	$	41,308	$	32,157

Note 9. Debt

2029 Notes

On March 24, 2022 (Initial Closing Date), we issued convertible senior notes (Initial Notes) in the aggregate principal amount of $250.0 million pursuant to an agreement with certain entities affiliated with Silver Lake Alpine II, L.P. (Silver Lake). On September 22, 2023 (Subsequent Closing Date), we issued additional convertible senior notes in the aggregate principal amount of $150.0 million (Additional Notes and together with the Initial Notes, the “2029 Notes”) under the agreement with Silver Lake. The 2029 Notes represent senior unsecured obligations of Zuora.

As a condition of the agreement with Silver Lake, we also issued warrants to Silver Lake to acquire up to 7.5 million shares of Class A common stock (Warrants). Refer to Note 10. Warrants to Purchase Shares of Common Stock for more information.

The purchase price of the 2029 Notes is 98% of the par value. The 2029 Notes bear interest at a rate of 3.95% per annum, payable quarterly in cash, provided that we have the option to pay interest in kind at 5.50% per annum. The 2029 Notes will mature on March 31, 2029, subject to earlier conversion or repurchase. The 2029 Notes are convertible at Silver Lake’s option into shares of our Class A common stock at an initial conversion rate of 50.0 shares per $1,000 principal amount ($20.00 per share, representing 20.0 million shares of Class A common stock), subject to customary anti-dilution adjustments. Any 2029 Notes that are converted in connection with a "make-whole fundamental change" are subject to an increase in the conversion rate under certain circumstances. The term "make-whole fundamental change" is defined in the indenture for the 2029 Notes, and generally refers to a "fundamental change" including a change in control of Zuora that meets certain specifications or the termination of trading of Zuora's stock on the New York Stock Exchange (or the NASDAQ Global Select Market or the NASDAQ Global Market, or any of their respective successors), in each case subject to certain exceptions and exclusions described in the indenture.

On the Initial Closing Date, we concluded that the conversion option contained in the 2029 Notes qualified for a scope exception from derivative accounting and therefore was not bifurcated and accounted for separately from the Initial Notes. On the Subsequent Closing Date, we reassessed the classification of the conversion option and concluded that a portion of the conversion option no longer qualified for equity classification under ASC 815-40 as a result of the issuance of the Additional Notes. Under certain make-whole fundamental change scenarios, we would be required to, at our option, either (i) seek and obtain stockholder approval prior to issuing 20% or more of our outstanding common stock or voting power or (ii) pay cash in lieu of delivering any shares at or above such 20%

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threshold. As a result of our sequencing policy described in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in our Annual Report on Form 10-K, we separated a portion of the conversion option representing approximately 1.4 million shares of Class A common stock issuable upon conversion of the 2029 Notes valued at $6.1 million as of the Subsequent Closing Date from the 2029 Notes and recorded a debt conversion liability at fair value on bifurcation, with an offset to the carrying amount of the 2029 Notes. For further information on our derivative financial instruments policy, refer to Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in our Annual Report on Form 10-K. We will reassess the classification of the debt conversion liability in future reporting periods to determine if any further change is required.

With certain exceptions, upon a "fundamental change" of Zuora, the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the 2029 Notes at a purchase price equal to the principal amount and accrued but unpaid interest outstanding, plus the total sum of all remaining scheduled interest payments through the remainder of the term of the 2029 Notes, at the 5.50% paid in kind interest rate. At any time on or after March 24, 2027, the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the Notes at a purchase price equal to the principal amount plus accrued interest through the date of repurchase. Upon certain events of default, the 2029 Notes may be declared due and payable (or will automatically become so under certain events of default), at a purchase price equal to the principal amount plus accrued interest through the date of repurchase. We have no right to redeem the 2029 Notes prior to maturity.

Deferred loan costs are being amortized to interest expense using the effective interest rate method over the five year expected life of the 2029 Notes (representing the period from the contract date to the earliest noncontingent put date of March 24, 2027), reflecting an effective interest rate of 7.6%.

The carrying value of the 2029 Notes was classified as long-term and consisted of the following (in thousands):

	April 30, 2024		January 31, 2024
2029 Notes principal	$	400,000	$	400,000
Unamortized deferred loan costs	(37,690)		(40,475)
Carrying value	$	362,310	$	359,525

Interest expense related to the 2029 Notes, included in Interest expense in the accompanying unaudited condensed consolidated statements of comprehensive loss, was as follows (in thousands):

	Three Months Ended April 30,
	2024		2023
Contractual interest expense	$	3,950	$	2,469
Amortization of deferred loan costs	2,785		1,904
Total interest expense	$	6,735	$	4,373

We used a binomial lattice model to value the bifurcated derivatives contained in the 2029 Notes. ASC 815 does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined together, and fair-valued as a single, compound embedded derivative. We selected a binomial lattice model to value the compound embedded derivative because we believe this technique is reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the 2029 Notes. Such assumptions include, among other inputs, stock price volatility, risk-free rates, credit risk assumptions, early redemption and conversion assumptions, and the potential for future adjustment of the conversion rate due to triggering events.

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The debt conversion liability's fair value was measured using a binomial lattice model using the following key inputs:

	April 30, 2024			January 31, 2024
Fair value of common stock	$	9.86		$	9.14
Conversion price	$	20.00		$	20.00
Expected volatility	50.0		%	47.5		%
Risk-free interest rate	5.0		%	3.8		%
Corporate bond yield	19.9		%	19.2		%
Coupon interest rate	3.95		%	3.95		%

We recognized a loss on the revaluation of the debt conversion liability of $0.8 million during the three months ended April 30, 2024, which is included in Change in fair value of debt conversion and warrant liabilities in the accompanying unaudited condensed consolidated statements of comprehensive loss. Refer to Note 4. Fair Value Measurements for the fair value of the debt conversion liability.

Debt Agreement

We have a $30.0 million revolving credit facility under an agreement with Silicon Valley Bank, a division of First-Citizens Bank & Trust. This credit facility matures in October 2025. The interest rate under the credit facility is equal to the prime rate published by the Wall Street Journal minus 1.0%. We had not drawn down any amounts under the facility as of April 30, 2024.

Note 10. Warrants to Purchase Shares of Common Stock

In connection with the issuance of the 2029 Notes (discussed Note 9. Debt), we issued to Silver Lake Warrants to acquire up to 7.5 million shares of Class A common stock, exercisable for a period of approximately seven years from the Initial Closing Date, which are comprised of (i) Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $20.00 per share, (ii) Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $22.00 per share, and (iii) Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $24.00 per share. In addition, Silver Lake can elect to exercise the Warrants on a net-exercise basis. In the event of a "make-whole fundamental change" (as defined in the Form of Warrant, which has a similar definition as in the indenture, described above in Note. 9 Debt), the number of shares issuable by Zuora upon exercise of the Warrants may be increased, and the exercise price for the Warrants adjusted. As of April 30, 2024, all 7.5 million Warrants were outstanding.

On the Initial Closing Date, we classified a portion of the Warrants as a current liability due to certain settlement provisions in the Warrants. Under certain make-whole fundamental change scenarios, we would be required to, at our option, either (i) obtain shareholder approval prior to issuing 20% or more of our outstanding common stock or (ii) pay cash in lieu of delivering any shares at or above such 20% threshold. As a result, we concluded that approximately 2.8 million Warrants valued at $12.0 million as of the Initial Closing Date did not qualify for equity classification under ASC 815-40, pursuant to our sequencing policy. As a result of the issuance of the Additional Notes, we reassessed the classification of the Warrants and concluded that no Warrants qualified for equity classification under ASC 815-40. Accordingly, we reclassified 4.7 million Warrants valued at $7.7 million from equity to liability as of the Subsequent Closing Date. We will reassess the classification of the Warrant liability in future reporting periods to determine if any change is required.

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The liability-classified warrants' fair value was measured using a combination of Black-Scholes option pricing and Monte Carlo Simulation models that take into consideration probability factors of the various outcomes related to the exercise terms of the warrants using the following inputs:

	April 30, 2024			January 31, 2024
Fair value of common stock	$	9.86		$	9.14
Exercise price	$20.00 - $24.00			$20.00 - $24.00
Expected volatility1	50.0		%	41.8		%
Expected term (in years)	4.4			5.2
Risk-free interest rate	4.6		%	3.9		%
Expected dividend yield	—			—

_____________________________

(1) During the quarter ended April 30, 2024, we changed our approach for estimating our stock price volatility to use only Zuora's historical stock price trading data. Zuora now has sufficient historical trading data to fair value its financial instruments and we believe it better reflects the expected future trading volatility of the company's outstanding common stock. In previous periods, we used an average volatility based on historical trading data of Zuora and a group of similar publicly traded companies.

We recognized losses and gains on the revaluation of the liability-classified Warrants, summarized in the table below (in thousands), which are included in Change in fair value of debt conversion and warrant liabilities in the accompanying unaudited condensed consolidated statements of comprehensive loss. Refer to Note 4. Fair Value Measurements for the fair value of the liability-classified Warrants.

	Three Months Ended April 30,
	2024		2023
(Loss) gain on change in fair value of warrant liability	$	(7,108)	$	30

Note 11. Deferred Revenue and Performance Obligations

The following table summarizes revenue recognized during the period that was included in the deferred revenue balance at the beginning of each respective period (in thousands):

	Three Months Ended April 30,
	2024		2023
Revenue recognized from deferred revenue	$	87,622	$	78,653

As of April 30, 2024, total remaining non-cancellable performance obligations under our subscription contracts with customers was approximately $580.7 million and we expect to recognize revenue on approximately 56% of these remaining performance obligations over the next 12 months. Remaining performance obligations under our professional services contracts as of April 30, 2024 were not material.

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Note 12. Geographical Information

Disaggregation of Revenue

Revenue by country, based on the customer’s address at the time of sale, was as follows (in thousands): 

	Three Months Ended April 30,
	2024			2023
United States	$	68,683		$	65,407
Others	41,086			37,688
Total	$	109,769		$	103,095
Percentage of revenue by geographic area:
United States	63		%	63		%
Other	37		%	37		%

Other than the United States, no individual country exceeded 10% of total revenue for the three months ended April 30, 2024 and 2023.

Long-lived assets

Long-lived assets, which consist of property and equipment, net, deferred commissions, purchased intangible assets, net and operating lease right-of-use assets by geographic location, are based on the location of the legal entity that owns the asset. As of April 30, 2024 and January 31, 2024, no individual country exceeded 10% of total long-lived assets other than the United States.

Note 13. Leases

We have non-cancelable operating leases for our offices located in the U.S. and abroad. As of April 30, 2024, these leases expire on various dates between 2026 and 2030. Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease up to seven years. We have the right to exercise or forego the lease renewal options. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of our long-term operating leases and related operating lease cost were as follows (in thousands):

	April 30, 2024		January 31, 2024
Operating lease right-of-use assets	$	21,270	$	22,462
Operating lease liabilities, current portion	$	5,929	$	6,760
Operating lease liabilities, net of current portion	35,276		37,100
Total operating lease liabilities	$	41,205	$	43,860

	Three Months Ended April 30,
	2024		2023
Operating lease cost1	$	2,009	$	2,224

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_____________________________

(1) Includes costs related to our short-term operating leases and is net of sublease income as follows (in thousands):    

	Three Months Ended April 30,
	2024		2023
Short-term operating lease costs	$	451	$	101
Sublease income	$	(98)	$	(98)

The future maturities of long-term operating lease liabilities for each fiscal year were as follows (in thousands):

	Maturities of Operating Lease Liabilities
2025 (remainder of the year)	$	5,678
2026	8,735
2027	7,979
2028	7,895
2029	6,879
Thereafter	10,608
Total lease payments	47,774
Less imputed interest	(6,569)
Present value of lease liabilities	$	41,205

Other supplemental information related to our long-term operating leases includes the following (dollars in thousands):

	April 30, 2024		January 31, 2024
Weighted-average remaining operating lease term	5.8 years		5.9 years
Weighted-average operating lease discount rate	4.9	%	5.1	%

	Three Months Ended April 30,
	2024		2023
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases	$	3,121	$	3,490
New right-of-use assets obtained in exchange for lease liabilities:
Operating leases obtained	$	—	$	6,973

As of April 30, 2024, we had $1.8 million of undiscounted future payments for an operating lease that has not yet commenced, which is excluded from the tables above and is not yet recognized in our consolidated balance sheets. This operating lease is expected to commence in the second quarter of the fiscal year beginning February 1, 2024 and has a lease term of three years.

Note 14. Commitments and Contingencies

Letters of Credit

In connection with the execution of certain facility leases, we had bank issued irrevocable letters of credit for $4.5 million as of April 30, 2024 and January 31, 2024. No draws have been made under such letters of credit.

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Legal Proceedings

From time to time, we may be subject to legal proceedings, as well as demands, claims and threatened litigation. The outcomes of legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. Regardless of the outcome, litigation can have an adverse impact on our business because of defense and settlement costs, diversion of management resources, and other factors. As of the date of this Quarterly Report on Form 10-Q, we are not currently party to any legal proceeding that we believe could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably.

Other Contractual Obligations

As of April 30, 2024, we have a contractual obligation to make $2.7 million in purchases of cloud computing services provided by one of our vendors by September 2024.

Note 15. Income Taxes

The following table reflects our income tax provision, pretax loss and effective tax rate for the periods presented (in thousands, except percentages):

	Three Months Ended April 30,
	2024			2023
Loss before income taxes	$	(13,356)		$	(18,826)
Income tax provision	352			469
Effective tax rate	(2.6)		%	(2.5)		%

The effective tax rates differ from the statutory rates primarily as a result of providing no benefit on pretax losses incurred in the United States, as we have determined that the benefit of the losses is not more likely than not to be realized.

Note 16. Stockholders’ Equity

Preferred Stock

As of April 30, 2024, Zuora had authorized 10 million shares of preferred stock, each with a par value of $0.0001 per share. As of April 30, 2024, no shares of preferred stock were issued and outstanding.

Common Stock

Prior to Zuora's IPO, which was effective in April 2018, all shares of common stock then outstanding were reclassified into Class B common stock. Shares offered and sold in the IPO consisted of newly authorized shares of Class A common stock. Holders of Class A and Class B common stock are entitled to one vote per share and ten votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting rights and the right to convert Class B common stock to Class A common stock.

As of April 30, 2024, Zuora had authorized 500 million shares of Class A common stock and 500 million shares of Class B common stock, each with a par value of $0.0001 per share. As of April 30, 2024, 139.7 million shares of Class A common stock and 8.4 million shares of Class B common stock were issued and outstanding.

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Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss were as follows (in thousands):

	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance, January 31, 2024	$	(1,015)	$	156	$	(859)
Foreign currency translation adjustment	(247)		—		(247)
Unrealized loss on available-for-sale securities	—		(487)		(487)
Balance, April 30, 2024	$	(1,262)	$	(331)	$	(1,593)

There were no material reclassifications out of accumulated other comprehensive loss during the three months ended April 30, 2024. Additionally, there was no material tax impact on the amounts presented.

Note 17. Employee Stock Plans

Equity Incentive Plans

Our 2018 Equity Incentive Plan (2018 Plan) authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units (RSUs), performance awards, and stock bonuses. As of April 30, 2024, approximately 31.7 million shares of Class A common stock were reserved and available for issuance under the 2018 Plan. In addition, as of April 30, 2024, 3.0 million stock options and RSUs exercisable or settleable for Class B common stock were outstanding in the aggregate under our 2006 Stock Plan (2006 Plan) and 2015 Equity Incentive Plan (2015 Plan), which plans were terminated in May 2015 and April 2018, respectively. The 2006 Plan and 2015 Plan continue to govern outstanding equity awards granted thereunder.

Stock Options

The following tables summarize stock option activity and related information (in thousands, except weighted-average exercise price, weighted-average grant date fair value and average remaining contractual term):

	Shares Subject To Outstanding Stock Options	Weighted-Average Exercise Price		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance, January 31, 2024	6,083	$	9.21	3.6	$	15,984
Exercised	(508)	3.29
Forfeited	(145)	10.36
Balance, April 30, 2024	5,430	9.73		3.6	15,127
Exercisable as of April 30, 2024	3,012	4.84		2.1	15,127
Vested and expected to vest as of April 30, 2024	5,422	$	9.73	3.6	$	15,127

	Three Months Ended April 30,
	20241		20231
Weighted-average grant date fair value per share of options granted during each respective period	$	—	$	—
Aggregate intrinsic value of options exercised during each respective period	$	3,062	$	379

_________________________________

(1) No stock options were granted during the three months ended April 30, 2024 or 2023.

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RSUs

The following table summarizes RSU activity and related information (in thousands, except weighted-average grant date fair value):

	Number of RSUs Outstanding	Weighted-Average Grant Date Fair Value
Balance, January 31, 2024	11,686	$	10.24
Granted	5,780	9.57
Vested	(1,562)	11.11
Forfeited	(800)	10.55
Balance, April 30, 2024	15,104	$	9.88

Performance Stock Units (PSUs)

We have granted PSUs to certain executives and other employees under our 2018 Plan as described below.

In March 2022 (which were subsequently amended in fiscal 2024), July 2023 and September 2023, we granted PSUs to certain executives. These PSUs are divided into two or three tranches, each tranche having pre-established performance targets that if met, as determined quarterly by our Compensation Committee, would result in the shares attributable to such tranche being earned, subject to a service-based vesting condition. The shares attributable to unearned tranches will expire on January 31, 2025 if the applicable performance criteria for such tranches are not met. As we previously disclosed in our Form 10-Q for the three months ended April 30, 2023 filed with the SEC on June 1, 2023, we modified the performance targets associated with these PSUs that were granted in March 2022. This resulted in $9.6 million of incremental compensation expense that was being recognized over the remaining vesting periods of the awards. During the three months ended April 30, 2024, we deemed these outstanding PSUs to be improbable of vesting and we recorded an adjustment to reverse all $3.4 million of previously recognized expense in the current quarter.

In April 2024, we granted 300,000 PSUs to our CEO. The PSUs are divided into two tranches, each tranche having a pre-established stock price target that if met, as determined by the Chair of our Compensation Committee, would result in the shares attributable to such tranche being earned and then subject to vesting on a graded basis over a period of four years from the grant date, subject to continued service. The shares attributable to unearned tranches will expire on April 28, 2028, if the applicable stock price targets for such tranches are not met. We used a Monte Carlo simulation to estimate the fair value of the award and the date when the stock price target date is expected to be met for each tranche of the award. We are recognizing the related stock-based compensation expense for each tranche using a graded attribution method over four years following the grant date.

In April 2024, we also granted 34,000 PSUs to certain non-executive employees. The fair value was equal to the closing price of our common stock on the date of grant. The PSUs are subject to pre-established performance targets that if met as of January 31, 2025 will be earned and subsequently vest on March 31, 2025, subject to continued service through such vesting date, or will otherwise expire unvested. We are recognizing the related stock-based compensation expense using the straight-line attribution method over the expected vesting period of the award.

The following table summarizes PSU activity and related information (in thousands, except weighted-average grant date fair value):

	Number of PSUs Outstanding	Weighted-Average Grant Date Fair Value
Balance, January 31, 2024	2,310	$	14.31
Granted	334	8.04
Forfeited	(120)	9.15
Balance, April 30, 2024	2,524	$	13.72

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2018 Employee Stock Purchase Plan

Our 2018 Employee Stock Purchase Plan (ESPP) is broadly available to our employees in the United States and certain other countries in which we operate. A total of 5.8 million shares of Class A common stock were reserved and available for issuance under the ESPP as of April 30, 2024. The ESPP provides for 24-month offering periods beginning June 15 and December 15 of each year, and each offering period contains four six-month purchase periods. On each purchase date, ESPP participants will purchase shares of our Class A common stock at a price per share equal to 85% of the lesser of (1) the fair market value of the Class A common stock on the offering date or (2) the fair market value of the Class A common stock on the purchase date.

Stock-Based Compensation Expense

Stock-based compensation expense was recorded in the following cost and expense categories in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):

	Three Months Ended April 30,
	2024		2023
Cost of subscription revenue	$	1,583	$	2,359
Cost of professional services revenue	2,038		3,021
Research and development	5,903		6,744
Sales and marketing	5,475		7,977
General and administrative	3,462		5,123
Total stock-based compensation expense	$	18,461	$	25,224

As of April 30, 2024, unrecognized compensation costs related to unvested equity awards and the weighted-average remaining period over which those costs are expected to be recognized were as follows (dollars in thousands):

	Stock Options		RSUs		PSUs		ESPP
Unrecognized compensation costs	$	1,008	$	124,874	$	24,841	$	2,759
Weighted-average remaining recognition period	0.9 years		2.0 years		0.9 years		0.6 years

Note 18. Net Loss Per Share

The following table presents the calculation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):

	Three Months Ended April 30,
	2024		2023
Numerator:
Net loss	$	(13,708)	$	(19,295)
Denominator:
Weighted-average common shares outstanding, basic and diluted	146,670		136,190
Net loss per share, basic and diluted	$	(0.09)	$	(0.14)

Since we were in a net loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share

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calculations because they would be anti-dilutive were as follows (in thousands):

	April 30,
	2024	2023
2029 Notes conversion	20,000	12,500
Unvested RSUs issued and outstanding	15,104	12,733
Warrants	7,500	7,500
Issued and outstanding stock options	5,430	6,820
Unvested PSUs issued and outstanding	2,524	2,555
Shares committed under ESPP	691	774
Total	51,249	42,882

Note 19. Subsequent Event

Togai Acquisition

On May 9, 2024, we acquired Togai Inc. (Togai), a privately held metering and rating solution company for a purchase price of $26.0 million, with $21.0 million in cash paid at closing. This acquisition enables us to bring new technologies to our customers focused on metering and rating their usage information. We are currently in the process of valuing the assets acquired and liabilities assumed pursuant to the transaction. The accounting for this transaction is incomplete as of the date of our filing.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-K). As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Form 10-Q and in our Annual Report on Form 10-K. Our fiscal year ends on January 31.

Overview

Zuora provides a leading monetization suite for modern business, built to help companies launch and scale new services and operate dynamic, customer-centric business models, including subscription and usage-based models. Our technology solutions enable companies across multiple industries and geographies to build, run, and grow a modern business, automating the quote-to-revenue process, including offers, billing, collections, and revenue recognition. With Zuora’s solutions, businesses can change and evolve how they go to market through a mix of monetization models, efficiently comply with revenue recognition standards, analyze customer data to optimize their offerings, and build recurring relationships with their customers.

Many of today’s enterprise software systems manage their quote-to-revenue process using software built for one-time transactions. These systems were not designed for the dynamic, ongoing nature of recurring revenue, usage-based, or hybrid pricing models, and can be extremely difficult to configure. In traditional product-based businesses, quote-to-revenue is a linear process – a customer orders a product, is billed for that product, payment is collected, and the revenue is recognized. These legacy product-based systems were not specifically designed to handle the complexities of managing ongoing customer relationships and recurring revenue models commonly found in subscription businesses, including billing proration, revenue recognition and reporting, and calculating the lifetime value of the customer. Using legacy or homegrown software to build a recurring revenue business often results in inefficient processes with prolonged and complex manual downstream work, hard-coded customizations, and a proliferation of stock-keeping units (SKUs).

However, enterprise business models are inherently dynamic, with multiple interactions, flexible pricing, global complexities, and continuously evolving relationships and events. The capabilities to launch, price, and bill for

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products, facilitate and record cash receipts, process and recognize revenue, and analyze data to drive key decisions are mission critical and particularly complex for companies that operate at a global scale. As a result, as companies launch, grow, and scale their businesses, they often conclude that legacy systems are inadequate. This is where Zuora comes in.

Our vision is “The World Subscribed” -- the idea that one day every company will be a part of the Subscription Economy. Our focus has been on providing the technology our customers need to thrive as customer-centric, recurring revenue businesses.

Our solutions include Zuora Billing, Zuora Revenue, Zuora Payments, Zephr, Zuora Platform, and other software that support and expand upon these core offerings. Our software helps companies analyze data – including information such as which customers are delivering the most recurring revenue, or which segments are showing the highest churn - enabling customers to make informed decisions about their monetization strategy and quickly implement changes such as launching new services, updating pricing (usage, time, or outcome based), delivering new offerings, or making other changes to their customers’ experience. We also have a large ecosystem of global partners that can assist our customers with additional monetization strategies and services throughout the subscription journey.

Companies in a variety of industries - technology, manufacturing, media and entertainment, telecommunications, and many others - are using our solutions to scale and adapt to a world that is increasingly choosing subscription-based offerings.

Fiscal First Quarter Financial Performance Summary and Business Highlights:

Our financial performance for the three months ended April 30, 2024 compared to the three months ended April 30, 2023 reflects the following:

•Subscription revenue was $99.0 million, an increase of $9.2 million, or 10%; and total revenue was $109.8 million, an increase of $6.7 million, or 6%.

•Gross profit was $74.7 million, or 68% of total of revenue, compared to $65.7 million, or 64% of total revenue.

•Loss from operations was $4.0 million, or 4% of total revenue, compared to a loss of $20.2 million, or 20% of total revenue, an improvement in operating margin of 16 percentage points year-over-year.

•We closed two deals in the quarter ended April 30, 2024 with ACV equal to or greater than $1.0 million.

•We announced the planned acquisition of Togai, a leading metering and rating solution, to enhance Zuora's usage-based offerings. The acquisition closed in early May.

Key Operational and Financial Metrics

We monitor the following key operational and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

	April 30,
	2024		2023
Customers with ACV equal to or greater than $250,000	451		436
Dollar-based retention rate	104	%	108	%
Annual recurring revenue growth	8	%	15	%

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Customers with Annual Contract Value Equal to or Greater than $250,000

We believe our ability to enter and expand contracts is indicative of broader adoption of our solutions by larger organizations. It also reflects our ability to expand our revenue footprint within our current customer base. We define ACV as the subscription revenue we would contractually expect to recognize from that customer over the next twelve months, assuming no increases or reductions in their subscriptions. We define the number of customers at the end of any particular period as the number of parties or organizations that have entered into a distinct subscription contract with us and for which the term has not ended. Each party with whom we have entered into a distinct subscription contract is considered a unique customer, and in some cases, there may be more than one customer within a single organization. The number of customers with ACV equal to or greater than $250,000 increased to 451 as of April 30, 2024, and includes the impact of some customers that downsized below the ACV threshold during the first quarter of fiscal 2025 as a result of the macroeconomic environment impact on their business, as compared to 436 as of April 30, 2023. We expect this metric to be relatively flat or decrease slightly in the near term.

Dollar-Based Retention Rate

We believe our dollar-based retention rate is a key measure of our ability to retain and expand revenue from our customer base over time. 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. The 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. Our dollar-based retention rate was 104% as of April 30, 2024, as compared to 108% as of April 30, 2023. The decrease was primarily driven by one large customer churn in the fourth quarter of fiscal 2024 and foreign exchange headwinds. While the dollar-based retention rate can fluctuate in any particular quarter, we expect it to remain relatively consistent in the near term.

Annual Recurring Revenue

ARR represents the annualized recurring value at the time of initial booking or contract modification for all active subscription contracts at the end of a reporting period. ARR excludes the value of non-recurring revenue such as professional services revenue as well as contracts with new customers with a term of less than one year. ARR should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Our ARR was $404.4 million as of April 30, 2024, compared to $373.9 million as of April 30, 2023, representing an increase of 8% year-over-year. While the ARR year-over-year growth rate can fluctuate in any particular period and may decline slightly over the next two quarters, we expect it to remain relatively consistent or slightly increase in the near term.

Components of Our Results of Operations

Revenue

Subscription revenue. Subscription revenue consists of fees for access to, and use of, our products, as well as customer support and recurring services. We generate subscription fees pursuant to non-cancelable subscription agreements with terms that typically range from one to five years. Subscription revenue is primarily based on fees to access our services platform over the subscription term. We typically invoice customers in advance in either annual or quarterly installments. Customers can also elect to purchase additional volume blocks or products during the term of the contract. We typically recognize subscription revenue ratably over the term of the subscription period, beginning on the date that access to our platform is provisioned, which is generally on or about the date the subscription agreement is signed. We expect our subscription revenue to increase over time as a percentage of total revenue as we continue to execute our strategy of executing lighter, faster deals, while maintaining our focus on large and rapid-growth enterprises.

Professional services revenue. Professional services revenue typically consists of fees for implementation services in connection with helping our customers deploy, configure, and optimize the use of our solutions. These services include systems integration, data migration, and process enhancement. Professional services projects generally take three to twelve months to complete. Once the contract is signed, we generally invoice for professional services on a time and materials basis, although we occasionally engage in fixed-price service

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engagements and invoice for those based upon agreed milestone payments. We recognize revenue as professional services are performed for time and materials engagements and on a proportional performance method when the professional services are performed under fixed fee engagements. While we will continue to utilize our own services team, we expect to continue to leverage our strategic partners for professional services implementations, and as a result we expect our professional services revenue to decrease over time as a percentage of total revenue.

Deferred Revenue

Deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and support services and professional services arrangements. We primarily invoice our customers for subscription services arrangements annually, semi-annually, or quarterly in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current portion, and the remaining portion is recorded as deferred revenue, net of current portion in our unaudited condensed consolidated balance sheets.

Overhead Allocation and Employee Compensation Costs

We allocate shared costs, such as facilities costs (including rent, utilities, and depreciation on capital expenditures related to facilities shared by multiple departments), information technology costs, and certain administrative personnel costs to all departments based on headcount and location. As such, allocated shared costs are reflected in each cost of revenue and operating expense category.

Employee compensation costs consist of salaries, bonuses, commissions, benefits, and stock-based compensation.

Cost of Revenue, Gross Profit and Gross Margin

Cost of subscription revenue. Cost of subscription revenue consists primarily of costs related to hosting our platform and providing customer support. These costs include third-party hosting fees, employee compensation costs associated with maintaining our cloud-based infrastructure, amortization expenses associated with capitalized internal-use software and purchased technology, allocated overhead, software and maintenance costs, and outside services associated with the delivery of our subscription services. We intend to continue to invest in our platform infrastructure, including third-party hosting capacity, and support organizations. However, the level and timing of such investment in these areas may fluctuate and affect our cost of subscription revenue in the future.

Cost of professional services revenue. Cost of professional services revenue consists primarily of costs related to the deployment of our solutions. These costs include employee compensation costs for our professional services team, allocated overhead, travel costs, and costs of outside services associated with supplementing our internal staff. We believe that investment in our systems integrator partner network will lead to total margin improvement in the near term.

Gross profit and gross margin. Our gross profit and gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of our investments to expand hosting capacity, including through third-party cloud providers, amortization expenses associated with our capitalized internal-use software and purchased technology, and our continued efforts to build our cloud infrastructure, support, and professional services teams. Over time, we expect our subscription gross margin to remain relatively consistent and professional services gross margin to increase slightly.

Operating Expenses

Research and development. Research and development expense consists primarily of employee compensation costs, allocated overhead, and travel costs. We capitalize research and development costs associated with the development of internal-use software and we generally amortize these costs over a period of three years, primarily into the cost of subscription revenue. All other research and development costs are expensed as incurred. We believe that continued investment in our platform is important for our growth, and we will continue to focus investments in key areas of our platform. While research and development expense can fluctuate in any particular quarter, we expect it to remain relatively consistent as a percentage of total revenue over time.

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Sales and marketing. Sales and marketing expense consists primarily of employee compensation costs, including the amortization of deferred commissions related to our sales personnel, allocated overhead, costs of general marketing and promotional activities, and travel costs. Commission costs that are incremental to obtaining a contract are amortized in sales and marketing expense over the period of benefit, which is expected to be five years. We expect to continue to make investments as we expand our customer acquisition and retention efforts. While sales and marketing expense can fluctuate in any particular quarter, we expect it to remain relatively consistent or decrease as a percentage of total revenue over time.

General and administrative. General and administrative expense consists primarily of employee compensation costs, allocated overhead, and travel costs for finance, accounting, legal, human resources, and recruiting personnel. In addition, general and administrative expense includes non-personnel costs, such as accounting fees, legal fees, charitable contributions, asset impairments, and all other supporting corporate expenses not allocated to other departments. We expect to incur ongoing costs as a result of operating as a public company, including costs related to compliance and reporting obligations of public companies, and continued investment to support our growing operations. While general and administrative expense can fluctuate in any particular quarter, we expect our general and administrative expense to decrease as a percentage of total revenue over time as we continue to be disciplined in our approach to controlling our costs.

Other income and expenses

Other income and expenses primarily consists of fair value adjustments related to the debt conversion and warrant liabilities; amortization of deferred loan costs and contractual interest on our convertible senior notes; interest income from our cash and cash equivalents and short-term investments; and foreign exchange fluctuations.

Income Tax Provision

Income tax provision consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized.

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Results of Operations

The following tables set forth our unaudited condensed consolidated results of operations for the periods presented in dollars and as a percentage of our total revenue (in thousands):

	Three Months Ended April 30,
	2024		2023
Revenue:
Subscription	$	98,959	$	89,711
Professional services	10,810		13,384
Total revenue	109,769		103,095
Cost of revenue:
Subscription	20,689		20,588
Professional services	14,372		16,758
Total cost of revenue	35,061		37,346
Gross profit	74,708		65,749
Operating expenses:
Research and development	23,566		25,668
Sales and marketing	35,845		41,444
General and administrative	19,269		18,816
Total operating expenses	78,680		85,928
Loss from operations	(3,972)		(20,179)
Change in fair value of debt conversion and warrant liabilities	(7,928)		30
Interest expense	(6,771)		(4,387)
Interest and other income (expense), net	5,315		5,710
Loss before income taxes	(13,356)		(18,826)
Income tax provision	352		469
Net loss	$	(13,708)	$	(19,295)

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	Three Months Ended April 30,
	2024		2023
Revenue:
Subscription	90	%	87	%
Professional services	10		13
Total revenue	100		100
Cost of revenue:
Subscription	19		20
Professional services	13		16
Total cost of revenue	32		36
Gross profit	68		64
Operating expenses:
Research and development	21		25
Sales and marketing	33		40
General and administrative	18		18
Total operating expenses	72		83
Loss from operations	(4)		(20)
Change in fair value of debt conversion and warrant liabilities	(7)		—
Interest expense	(6)		(4)
Interest and other income (expense), net	5		6
Loss before income taxes	(12)		(18)
Income tax provision	—		—
Net loss	(12)	%	(19)	%

Note: Percentages in the table above may not sum due to rounding.

Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP, we monitor and consider non-GAAP financial measures including: non-GAAP cost of subscription revenue, non-GAAP subscription gross margin, non-GAAP cost of professional services revenue, non-GAAP professional services gross margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, basic and diluted, and adjusted free cash flow. We use non-GAAP financial 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 also 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.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The non-GAAP financial 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 our non-GAAP financial measures. The presentation of these non-GAAP 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. Reconciliations of our non-GAAP financial measures to the nearest respective GAAP measures are provided below.

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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, because we believe that excluding this item provides meaningful supplemental information regarding operational performance. In particular, stock-based compensation expense is not comparable across companies given it is calculated 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, because we do not believe it has a direct correlation to the operation of our business.

•Charitable contributions. We exclude expenses associated with charitable donations of our common stock. We believe that excluding these non-cash expenses allows investors to make more meaningful comparisons between our operating results and those of other companies.

•Shareholder matters. We exclude non-recurring charges and benefits, net of insurance recoveries, including litigation expenses, settlements and other legal, consulting and advisory fees, related to shareholder matters that are outside of the ordinary course of our business, including expenses related to a cooperation agreement. We believe these charges and benefits do not have a direct correlation to the operations of our business and may vary in size depending on the timing, results and resolution of such litigation, settlements, agreements or other shareholder matters.

•Asset impairment. We exclude non-cash charges for impairment of assets, including impairments related to internal-use software, office leases, and acquired intangible assets. Impairment charges can vary significantly in terms of amount and timing and we do not consider these charges indicative of our current or past operating performance. Moreover, we believe that excluding the effects of these charges allows investors to make more meaningful comparisons between our operating results and those of other companies.

•Change in fair value of debt conversion and warrant liabilities. We exclude fair value adjustments related to the debt conversion and warrant liabilities, which are non-cash gains or losses, as they can fluctuate significantly with changes in Zuora's stock price and market volatility, and do not reflect the underlying cash flows or operational results of the business.

•Acquisition-related expenses. We exclude acquisition-related expenses (including integration-related charges) that are not related to our ongoing operations, including expenses we incurred and gains or losses recognized on contingent consideration, related to our acquisitions. We do not consider these transaction expenses as reflective of our core business or ongoing operating performance.

•Workforce reductions. We exclude charges related to workforce reduction plans, including severance, health care and related expenses. We believe these charges are not indicative of our continuing operations.

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The following tables provide a reconciliation of our GAAP to non-GAAP measures (in thousands, except percentages and per share data):

Subscription Gross Margin

	Three Months Ended April 30,
	2024			2023
Reconciliation of cost of subscription revenue:
GAAP cost of subscription revenue	$	20,689		$	20,588
Less:
Stock-based compensation	(1,583)			(2,359)
Amortization of acquired intangibles	(608)			(738)
Workforce reductions	(166)			(38)
Non-GAAP cost of subscription revenue	$	18,332		$	17,453
GAAP subscription gross margin	79		%	77		%
Non-GAAP subscription gross margin	81		%	81		%

Professional Services Gross Margin

	Three Months Ended April 30,
	2024			2023
Reconciliation of cost of professional services revenue:
GAAP cost of professional services revenue	$	14,372		$	16,758
(Less) Add:
Stock-based compensation	(2,038)			(3,021)
Workforce reductions	6			—
Non-GAAP cost of professional services revenue	$	12,340		$	13,737
GAAP professional services gross margin	(33)		%	(25)		%
Non-GAAP professional services gross margin	(14)		%	(3)		%

Total Gross Margin

	Three Months Ended April 30,
	2024		2023
Reconciliation of gross profit:
GAAP gross profit	$	74,708	$