Zuora Earnings 2020-10-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

zuo-20201031

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 October 31, 2020


☐			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 on 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 November 30, 2020, the number of shares of the Registrant's Class A common stock outstanding was 108.2 million and the number of shares of the Registrant's Class B common stock outstanding was 11.0 million.


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of October 31, 2020 and January 31, 2020	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2020 and 2019	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended October 31, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2020 and 2019	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 6.	Exhibits	72
Signatures		73

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.

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

•the duration and impact of the ongoing coronavirus (COVID-19) pandemic on our business and the economy;

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

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

•the expansion and functionality of our technology offering;

•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 existing cash and cash equivalents, investment balances, funds available under our loan and security agreement, and cash provided by subscriptions to our platform and related professional services being sufficient to meet our working capital and capital expenditure needs for at least the next 12 months; and

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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ZUORA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	October 31, 2020		January 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	104,047	$	54,275
Short-term investments	74,710		117,662
Accounts receivable, net	59,272		68,875
Deferred commissions, current portion	11,570		9,585
Prepaid expenses and other current assets	16,887		16,387
Total current assets	266,486		266,784
Property and equipment, net	35,066		33,489
Operating lease right-of-use assets	48,992		54,286
Purchased intangibles, net	4,351		5,620
Deferred commissions, net of current portion	19,219		19,591
Goodwill	17,632		17,632
Other assets	3,588		4,825
Total assets	$	395,334	$	402,227
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	231	$	2,098
Accrued expenses and other current liabilities	14,081		17,731
Accrued employee liabilities	26,740		24,193
Debt, current portion	4,432		4,432
Deferred revenue, current portion	107,308		111,411
Operating lease liabilities, current portion	9,181		5,755
Total current liabilities	161,973		165,620
Debt, net of current portion	2,790		6,094
Deferred revenue, net of current portion	702		1,007
Operating lease liabilities, net of current portion	55,843		62,307
Deferred tax liabilities	1,564		1,569
Other long-term liabilities	4,171		971
Total liabilities	227,043		237,568
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A common stock	11		10
Class B common stock	1		2
Additional paid-in capital	613,413		555,307
Accumulated other comprehensive income	97		188
Accumulated deficit	(445,231)		(390,848)
Total stockholders’ equity	168,291		164,659
Total liabilities and stockholders’ equity	$	395,334	$	402,227

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)


	Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Revenue:
Subscription	$	62,020	$	54,038	$	177,228	$	151,996
Professional services	15,226		17,784		48,905		53,668
Total revenue	77,246		71,822		226,133		205,664
Cost of revenue:
Subscription	15,611		13,858		43,627		38,589
Professional services	17,655		20,443		55,011		61,445
Total cost of revenue	33,266		34,301		98,638		100,034
Gross profit	43,980		37,521		127,495		105,630
Operating expenses:
Research and development	18,907		17,903		55,877		53,662
Sales and marketing	28,058		28,027		85,162		80,818
General and administrative	13,024		10,597		41,672		32,366
Total operating expenses	59,989		56,527		182,711		166,846
Loss from operations	(16,009)		(19,006)		(55,216)		(61,216)
Interest and other (expense) income, net	(352)		1,190		1,962		2,294
Loss before income taxes	(16,361)		(17,816)		(53,254)		(58,922)
Income tax provision	412		421		1,129		720
Net loss	(16,773)		(18,237)		(54,383)		(59,642)
Comprehensive loss:
Foreign currency translation adjustment	18		(141)		(71)		(416)
Unrealized (loss) gain on available-for-sale securities	(103)		75		(20)		121
Comprehensive loss	$	(16,858)	$	(18,303)	$	(54,474)	$	(59,937)
Net loss per share, basic and diluted	$	(0.14)	$	(0.16)	$	(0.47)	$	(0.54)
Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	118,460		111,835		116,824		110,436

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)


	Nine Months Ended October 31, 2020
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, January 31, 2020	97,134	$	10	17,348	$	2	$	555,307	$	188	$	(390,848)	$	164,659
Conversion of Class B common stock to Class A common stock	8,486	1		(8,486)	(1)		—		—		—		—
Issuance of common stock upon exercise of stock options, net of repurchases	(2)	—		2,077	—		8,863		—		—		8,863
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		96		—		—		96
RSU releases	1,959	—		95	—		—		—		—		—
Purchases of common stock under the ESPP	399	—		—	—		4,214		—		—		4,214
Charitable donation of stock	74	—		—	—		1,000		—		—		1,000
Stock-based compensation	—	—		—	—		43,933		—		—		43,933
Other comprehensive loss	—	—		—	—		—		(91)		—		(91)
Net loss	—	—		—	—		—		—		(54,383)		(54,383)
Balance, October 31, 2020	108,050	$	11	11,034	$	1	$	613,413	$	97	$	(445,231)	$	168,291

	Three Months Ended October 31, 2020
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, July 31, 2020	105,282	$	11	12,875	$	1	$	597,736	$	182	$	(428,458)	$	169,472
Conversion of Class B common stock to Class A common stock	2,066	—		(2,066)	—		—		—		—		—
Issuance of common stock upon exercise of stock options, net of repurchases	(1)	—		200	—		879		—		—		879
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		25		—		—		25
RSU releases	703	—		25	—		—		—		—		—
Stock-based compensation	—	—		—	—		14,773		—		—		14,773
Other comprehensive loss	—	—		—	—		—		(85)		—		(85)
Net loss	—	—		—	—		—		—		(16,773)		(16,773)
Balance, October 31, 2020	108,050	$	11	11,034	$	1	$	613,413	$	97	$	(445,231)	$	168,291

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

(in thousands)

(unaudited)


	Nine Months Ended October 31, 2019
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, January 31, 2019	77,119	$	8	32,575	$	3	$	488,776	$	481	$	(307,454)	$	181,814
Conversion of Class B common stock to Class A common stock	15,477	—		(15,477)	—		—		—		—		—
Issuance of common stock upon exercise of stock options, net of repurchases	(15)	—		2,217	—		8,981		—		—		8,981
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		365		—		—		365
Purchases of common stock under the ESPP	422	—		—	—		5,069		—		—		5,069
RSU releases	595	—		147	—		—		—		—		—
Stock-based compensation	—	—		—	—		31,413		—		—		31,413
Deferred offering costs	—	—		—	—		38		—		—		38
Other comprehensive loss	—	—		—	—		—		(295)		—		(295)
Net loss	—	—		—	—		—		—		(59,642)		(59,642)
Balance, October 31, 2019	93,598	$	8	19,462	$	3	$	534,642	$	186	$	(367,096)	$	167,743

	Three Months Ended October 31, 2019
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, July 31, 2019	87,875	$	8	24,422	$	3	$	520,812	$	252	$	(348,859)	$	172,216
Conversion of Class B common stock to Class A common stock	5,413	—		(5,413)	—		—		—		—		—
Issuance of common stock upon exercise of stock options, net of repurchases	(7)	—		406	—		1,933		—		—		1,933
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		59		—		—		59
RSU releases	317	—		47	—		—		—		—		—
Stock-based compensation	—	—		—	—		11,838		—		—		11,838
Other comprehensive loss	—	—		—	—		—		(66)		—		(66)
Net loss	—	—		—	—		—		—		(18,237)		(18,237)
Balance, October 31, 2019	93,598	$	8	19,462	$	3	$	534,642	$	186	$	(367,096)	$	167,743

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended October 31,
	2020		2019
			As Adjusted(1)
Cash flows from operating activities:
Net loss	$	(54,383)	$	(59,642)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	11,172		8,440
Stock-based compensation	43,933		31,413
Provision for credit losses	3,038		3,229
Donation of common stock to charitable foundation	1,000		—
Amortization of deferred commissions	8,558		7,049
Reduction in carrying amount of right-of-use assets	6,358		6,310
Other	182		121
Changes in operating assets and liabilities:
Accounts receivable	6,565		(5,044)
Prepaid expenses and other assets	(204)		(4,004)
Deferred commissions	(10,172)		(6,794)
Accounts payable	(1,869)		(228)
Accrued expenses and other liabilities	(801)		696
Accrued employee liabilities	5,697		4,624
Deferred revenue	(4,408)		7,323
Operating lease liabilities	(6,515)		(1,092)
Net cash provided by (used in) operating activities	8,151		(7,599)
Cash flows from investing activities:
Purchases of property and equipment	(12,074)		(12,878)
Insurance proceeds for damaged property and equipment	988		—
Purchases of short-term investments	(61,783)		(155,936)
Sales of short-term investments	2,511		3,496
Maturities of short-term investments	102,305		155,800
Net cash provided by (used in) investing activities	31,947		(9,518)
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options	8,876		8,981
Proceeds of issuance of common stock under employee stock purchase plan	4,214		5,069
Repurchases of unvested common stock	(15)		(70)
Principal payments on long-term debt	(3,330)		(1,850)
Net cash provided by financing activities	9,745		12,130
Effect of exchange rates on cash and cash equivalents	(71)		(416)
Net increase (decrease) in cash and cash equivalents	49,772		(5,403)
Cash and cash equivalents, beginning of period	54,275		70,024
Cash and cash equivalents, end of period	$	104,047	$	64,621
Supplemental disclosure of non-cash investing and financing activities:
Lapse in restrictions on early exercised common stock options	$	96	$	365
Property and equipment purchases accrued or in accounts payable	$	3	$	3,056

(1) Effective February 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. See Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements.

See notes to unaudited condensed consolidated financial statements.

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.

The Company provides software that enables companies across multiple industries and geographies to launch, manage or transform to a subscription business model. Architected specifically for dynamic, recurring subscription business models, Zuora's cloud-based software functions as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-revenue process, including billing and revenue recognition. Zuora's solution enables businesses to easily change pricing and packaging for products and services to grow and scale, to efficiently comply with revenue recognition standards, and to build meaningful relationships with their subscribers.

References to Zuora, “Company”, “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 the Company 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 Securities and Exchange Commission (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, 2020 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, 2021 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 the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the Securities and Exchange Commission (SEC) on March 31, 2020 (Annual Report).

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.

The Company’s most significant estimates and assumptions are related to revenue recognition with respect to the determination of the standalone selling prices for the Company’s services; estimates of the useful life of benefits of commissions; valuation inputs of stock-based awards; estimates of allowance for credit losses; estimates of the fair value of goodwill, intangible assets, investments, and other long-lived assets; and the valuation of deferred income tax assets and contingencies. The Company bases its 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

The Company’s significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 31, 2020. There have been no significant changes to these policies during the nine months ended October 31, 2020 except for updates resulting from the adoption of Topic 326, as discussed below.

Recent Accounting Pronouncements

The Company became a large accelerated filer on January 31, 2020 and lost the ability to delay adoption of new or revised accounting pronouncements. Effective February 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in ASC 840, Leases, and requires recognition of right-of-use (ROU) assets and lease liabilities on the Company's consolidated balance sheets. Amounts presented in the unaudited condensed consolidated financial statements for fiscal year 2020 have been adjusted to reflect the adoption of Topic 842.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, and subsequently issued amendments to the initial guidance including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, Topic 326). Together, this guidance introduced a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). The new model uses a forward-looking expected loss method rather than the incurred loss model for recognizing credit losses. Additionally, any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted Topic 326 beginning February 1, 2020 and the adoption of the standard did not have a material impact on its unaudited condensed consolidated financial statements. However, the adoption resulted in modifying the Company's policies for accounts receivable and available-for-sale securities as follows:

Accounts Receivable:

Trade accounts receivable are recorded at the invoiced amount. Prior to the Company’s adoption of Topic 326, the accounts receivable balance was reduced by an allowance for doubtful accounts that was determined based on the Company’s assessment of the collectability of customer accounts. Under Topic 326, the Company measures expected credit losses of accounts receivable on a collective (pool) basis, aggregating accounts receivable that have account balances above or below a certain threshold. For receivable balances below the threshold, the Company applies a credit-loss percentage that is based on its historical credit losses. For receivable balances above the threshold, the Company performs an analysis on the related customers and reserves the full receivable balance for any customer accounts where collectability may be at risk. The COVID-19 pandemic and recent economic downturn also prompted the Company to include additional reserves for customers in industries that could be more heavily impacted by these events. The Company will reassess the impact of these events and any other events that may arise in the future in developing its estimates for expected credit losses, and will make any necessary adjustments to the related reserve balance.

The allowance for credit losses balance was $4.1 million as of October 31, 2020, and the allowance for doubtful accounts balance was $2.9 million as of January 31, 2020.

Available-for-Sale Securities:

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive loss. Accrued interest of $0.2 million as of October 31, 2020 is excluded from both the fair value and the amortized cost of the Company’s available-for-sale securities and is recorded in prepaid expenses and other current assets in its condensed consolidated balance sheet. The Company elected not to record an allowance for credit losses for accrued interest on available-for-sale securities and will reverse the accrued interest against interest income in the period in which it is determined that the accrued interest is uncollectible.

Prior to fiscal 2021, the Company followed the guidance in ASC 320 Investments-Debt and Equity Securities in determining whether unrealized losses were other than temporary. Under Topic 326, the Company now considers whether unrealized losses have resulted from a credit loss or other factors. The Company had no significant

unrealized losses on its available-for-sale securities as of October 31, 2020 and as of January 31, 2020, and does not expect credit losses on its current investments in future periods. Therefore, the Company concluded that an allowance for credit losses was unnecessary as of the February 1, 2020 adoption date or as of October 31, 2020. The Company had no significant realized losses on available-for-sale securities during the three and nine months ended October 31, 2020. The Company uses the specific identification method to determine the cost basis of investments sold.

Note 3. Investments

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


	October 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	6,032	$	49	$	—	$	6,081
Corporate bonds	27,034		57		(4)		27,087
Commercial paper	41,542		—		—		41,542
Total short-term investments	$	74,608	$	106	$	(4)	$	74,710


	January 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	34,053	$	41	$	—	$	34,094
Corporate bonds	45,601		81		—		45,682
Commercial paper	37,886		—		—		37,886
Total short-term investments	$	117,540	$	122	$	—	$	117,662

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive income into investment income during the three and nine months ended October 31, 2020 and 2019. All securities had stated effective maturities of less than two years as of October 31, 2020.

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, the Company uses 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 the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly.

The following tables summarize the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis (in thousands):


	October 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	91,186	$	—	$	—	$	91,186
Short-term investments:
U.S. government securities	$	—	$	6,081	$	—	$	6,081
Corporate bonds	—		27,087		—		27,087
Commercial paper	—		41,542		—		41,542
Total short-term investments	$	—	$	74,710	$	—	$	74,710


	January 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	37,906	$	—	$	—	$	37,906
Short-term investments:
U.S. government securities	$	—	$	34,094	$	—	$	34,094
Corporate bonds	—		45,682		—		45,682
Commercial paper	—		37,886		—		37,886
Total short-term investments	$	—	$	117,662	$	—	$	117,662

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. The carrying amount of debt approximates fair value due to its floating interest rate.

Note 5. Prepaid Expenses and Other Current Assets

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


	October 31, 2020		January 31, 2020
Prepaid software subscriptions	$	5,503	$	4,036
Prepaid insurance	3,388		1,630
Prepaid hosting costs	1,769		1,611
Contract assets	1,484		2,476
Insurance recovery receivable	454		1,442
Taxes	437		729
Other	3,852		4,463
Total	$	16,887	$	16,387

Note 6. Property and Equipment, Net

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


	October 31, 2020		January 31, 2020
Software	$	18,965	$	15,329
Leasehold improvements	18,868		16,865
Servers	14,177		14,596
Computer equipment	12,758		11,249
Furniture and fixtures	5,169		4,987
Vehicles	104		108
	70,041		63,134
Less accumulated depreciation and amortization	(34,975)		(29,645)
Total	$	35,066	$	33,489

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 October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Internal-use software costs capitalized during the period	$	768	$	1,571	$	3,490	$	3,187

					October 31, 2020		January 31, 2020
Total capitalized internal-use software, net of accumulated amortization					$	8,722	$	6,275

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


	Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
Total depreciation and amortization expense	$	2,803	$	2,812	$	7,627	$	7,046

Note 7. Purchased Intangible Assets

The following table summarizes the purchased intangible asset balances (in thousands):


	October 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	7,697	$	(5,970)	$	1,727
Customer relationships	4,287		(2,128)		2,159
Trade names	909		(444)		465
Total	$	12,893	$

Price	15.10	EPS	-1
Shares	112	P/E	-28
MCap	1,689	P/FCF	-222
Net Debt	-53	EBIT	-59
TEV	1,636	TEV/EBIT	-28
TTM 2019-10-31, in MM, except price, ratios

10-Q	2020-10-31	Filed 2020-12-08
10-Q	2020-07-31	Filed 2020-09-04
10-Q	2020-04-30	Filed 2020-06-08
10-K	2020-01-31	Filed 2020-03-31
10-Q	2019-10-31	Filed 2019-12-16
10-Q	2019-07-31	Filed 2019-09-16
10-Q	2019-04-30	Filed 2019-06-11
10-K	2019-01-31	Filed 2019-04-18
10-Q	2018-10-31	Filed 2018-12-13
10-Q	2018-07-31	Filed 2018-09-12
10-Q	2018-04-30	Filed 2018-06-13
S-1	2018-03-16	Public Filing

8-K	2020-09-02
8-K	2020-07-21
8-K	2020-06-23
8-K	2020-06-03
8-K	2020-05-23
8-K	2020-04-30
8-K	2020-04-07
8-K	2020-03-12
8-K	2019-12-05
8-K	2019-09-26
8-K	2019-08-28
8-K	2019-06-18
8-K	2019-05-30
8-K	2019-05-29
8-K	2019-03-21
8-K	2019-03-21
8-K	2019-02-28
8-K	2018-11-29
8-K	2018-08-30
8-K	2018-08-15
8-K	2018-07-10
8-K	2018-05-31

EX-31.1	a20201031q3-ex311.htm
EX-31.2	a20201031q3-ex312.htm
EX-32.1	a20201031q3-ex321.htm
EX-32.2	a20201031q3-ex322.htm

ZUO 10Q Quarterly Report

Zuora Earnings 2020-10-31