ZUORA INC [ZUO] Filings

10-Q 1 zuo-20220430.htm 10-Q zuo-20220430

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, 2022


☐			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 May 31, 2022, the number of shares of the Registrant’s Class A common stock outstanding was 121.2 million and the number of shares of the Registrant’s Class B common stock outstanding was 8.0 million.


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of April 30, 202 2 and January 31, 2022	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 202 2 and 2021	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 30, 202 2 and 202 1	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2022 and 2021	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	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,” “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:

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

•economic uncertainty and associated trends in macroeconomic conditions, including recession and inflation;

•currency exchange rate fluctuations;

•industry trends, projected growth, or trend analysis;

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

•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;

•trends and expectations in our operating and financial metrics, including customers with Annual Contract Value (ACV) equal to or greater than $100,000, dollar-based retention rate and annual recurring revenue growth;

•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, 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)


	April 30, 2022		January 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	350,626	$	113,507
Short-term investments	101,926		101,882
Accounts receivable, net of allowance for credit losses of $3,421 and $3,188 as of April 30, 2022 and January 31, 2022, respectively	74,307		82,263
Deferred commissions, current portion	15,254		15,080
Prepaid expenses and other current assets	16,260		15,603
Total current assets	558,373		328,335
Property and equipment, net	28,629		27,676
Operating lease right-of-use assets	30,482		32,643
Purchased intangibles, net	2,898		3,452
Deferred commissions, net of current portion	26,856		26,727
Goodwill	17,632		17,632
Other assets	4,449		4,787
Total assets	$	669,319	$	441,252
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,155	$	6,785
Accrued expenses and other current liabilities	24,195		14,225
Accrued employee liabilities	26,861		32,425
Debt, current portion	571		1,660
Deferred revenue, current portion	157,135		152,740
Operating lease liabilities, current portion	10,907		11,462
Total current liabilities	226,824		219,297
Debt, net of current portion	204,500		—
Deferred revenue, net of current portion	1,098		771
Operating lease liabilities, net of current portion	43,149		45,633
Deferred tax liabilities	3,243		3,243
Other long-term liabilities	1,649		1,701
Total liabilities	480,463		270,645
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A common stock	12		12
Class B common stock	1		1
Additional paid-in capital	776,323		734,149
Accumulated other comprehensive loss	(865)		(108)
Accumulated deficit	(586,615)		(563,447)
Total stockholders’ equity	188,856		170,607
Total liabilities and stockholders’ equity	$	669,319	$	441,252

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 April 30,
	2022		2021
Revenue:
Subscription	$	78,500	$	65,142
Professional services	14,699		15,187
Total revenue	93,199		80,329
Cost of revenue:
Subscription	18,725		15,643
Professional services	17,510		17,078
Total cost of revenue	36,235		32,721
Gross profit	56,964		47,608
Operating expenses:
Research and development	22,872		18,967
Sales and marketing	40,457		31,865
General and administrative	17,290		14,185
Total operating expenses	80,619		65,017
Loss from operations	(23,655)		(17,409)
Interest and other income, net	795		121
Loss before income taxes	(22,860)		(17,288)
Income tax provision	308		373
Net loss	(23,168)		(17,661)
Comprehensive loss:
Foreign currency translation adjustment	(359)		(85)
Unrealized loss on available-for-sale securities	(398)		(34)
Comprehensive loss	$	(23,925)	$	(17,780)
Net loss per share, basic and diluted	$	(0.18)	$	(0.15)
Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	128,457		121,354

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)


	Three Months Ended April 30, 2022
									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, 2022	119,008	$	12	9,048	$	1	$	734,149	$	(108)	$	(563,447)	$	170,607
Conversion of Class B common stock to Class A common stock	1,120	—		(1,120)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	49	—		86	—		907		—		—		907
RSU releases	956	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		22,825		—		—		22,825
Issuance of warrants	—	—		—	—		18,442		—		—		18,442
Other comprehensive loss	—	—		—	—		—		(757)		—		(757)
Net loss	—	—		—	—		—		—		(23,168)		(23,168)
Balance, April 30, 2022	121,133	$	12	8,014	$	1	$	776,323	$	(865)	$	(586,615)	$	188,856


	Three Months Ended April 30, 2021
									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, 2021	109,900	$	11	11,004	$	1	$	635,127	$	796	$	(464,022)	$	171,913
Conversion of Class B common stock to Class A common stock	680	—		(680)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	39	—		611	—		3,567		—		—		3,567
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		10		—		—		10
RSU releases	630	—		20	—		—		—		—		—
Stock-based compensation	—	—		—	—		13,797		—		—		13,797
Other comprehensive loss	—	—		—	—		—		(119)		—		(119)
Net loss	—	—		—	—		—		—		(17,661)		(17,661)
Balance, April 30, 2021	111,249	$	11	10,955	$	1	$	652,501	$	677	$	(481,683)	$	171,507

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended April 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(23,168)	$	(17,661)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion	4,202		4,147
Stock-based compensation	22,825		13,797
Provision for credit losses	499		1,153

Amortization of deferred commissions	4,563		3,874
Reduction in carrying amount of right-of-use assets	2,161		2,342
Change in fair value of warrant liability	(4,373)		—
Other	216		156
Changes in operating assets and liabilities:
Accounts receivable	7,457		18,223
Prepaid expenses and other assets	(206)		(1,169)
Deferred commissions	(4,984)		(4,200)
Accounts payable	101		(1,342)
Accrued expenses and other liabilities	2,205		(1,522)
Accrued employee liabilities	(5,564)		(3,056)
Deferred revenue	4,722		(1,109)
Operating lease liabilities	(3,673)		(3,382)
Net cash provided by operating activities	6,983		10,251
Cash flows from investing activities:
Purchases of property and equipment	(3,263)		(1,965)
Insurance proceeds for damaged property and equipment	—		344
Purchases of short-term investments	(30,887)		(26,687)
Maturities of short-term investments	30,263		22,692
Net cash used in investing activities	(3,887)		(5,616)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs	234,586		—
Proceeds from issuance of common stock upon exercise of stock options	907		3,567

Principal payments on debt	(1,111)		(1,111)
Net cash provided by financing activities	234,382		2,456
Effect of exchange rates on cash and cash equivalents	(359)		(85)
Net increase in cash and cash equivalents	237,119		7,006
Cash and cash equivalents, beginning of period	113,507		94,110
Cash and cash equivalents, end of period	$	350,626	$	101,116
Supplemental disclosure of non-cash investing and financing activities:
Lapse in restrictions on early exercised common stock options	$	—	$	10
Property and equipment purchases accrued or in accounts payable	$	133	$	20
Issuance costs for convertible senior notes accrued or in accounts payable	$	685	$	—

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.

Zuora provides a cloud-based subscription management platform, built to help companies monetize new services and operate dynamic, recurring revenue business models. Our solution enables companies across multiple industries and geographies to launch, manage and scale a subscription business, automating the entire quote-to-cash and revenue recognition process, including quoting, billing, collections and revenue recognition. With Zuora’s solution, businesses can change pricing and packaging for products and services to grow and scale, efficiently comply with revenue recognition standards, analyze customer data to optimize their subscription offerings, and build meaningful relationships with their subscribers.

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 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, 2022 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, 2023 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, 2022, filed with the SEC on March 28, 2022 (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. 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 relative standalone selling prices for our services; the expected period of benefit over which deferred commissions are amortized; valuation of stock-based awards and warrants; estimates of allowance for credit losses; estimates of the fair value of goodwill and long-lived assets when evaluating for impairments; useful lives of intangibles 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 for the fiscal year ended January 31, 2022. There have been no significant changes to these policies during the three months ended April 30, 2022, except for updates resulting from our issuance to Silver Lake of the Initial Notes and Warrants (as defined in Note 9. Debt below) in March 2022, as discussed below. Additional information regarding our issuance of these convertible notes and warrants is included in Note 9. Debt and Note 17. Warrants to Purchase Shares of Common Stock respectively.

Derivative Financial Instruments

The accounting treatment of derivative financial instruments requires that we record certain embedded features and warrants as assets or liabilities at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date with any change in fair value recorded as income or expense. In connection with our issuance of of the Initial Notes to Silver Lake during the three months ended April 30, 2022, we adopted a sequencing policy in accordance with ASC 815-40 whereby financial instruments issued will be ordered by conversion or exercise price.

Deferred Debt Issuance Costs

Costs directly associated with obtaining debt financing are deferred and amortized using the effective interest rate method over the expected term of the related debt agreement. We determine the expected term of debt agreements by assessing the contractual term of the debt as well as any non-contingent put rights provided to the lenders. Unamortized amounts related to long-term debt are reflected on the unaudited condensed consolidated balance sheets as a direct deduction from the carrying amounts of the related long-term debt liability. Amortization expense of deferred loan costs was approximately $0.8 million for the three months ended April 30, 2022, and is included in Interest and other income, net on the accompanying unaudited condensed consolidated statements of comprehensive loss.

Earnings per Share

Basic earnings per share (EPS) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the if-converted (convertible debt instruments) or treasury-stock method (warrants and share-based payment arrangements). For purposes of this calculation, common stock issuable upon conversion of debt, options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain separation models previously required under U.S. GAAP, including the beneficial conversion feature and cash conversion models. This ASU also simplifies the diluted earnings per share calculation in certain areas. The standard was effective for us beginning February 1, 2022 and we utilized the modified retrospective transition method of adoption. The adoption of this standard had no impact on our retained earnings or other components of equity as of the February 1, 2022 adoption date and had no impact to our earnings per share during the period of adoption.

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, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	24,091	$	—	$	(383)	$	23,708
Corporate bonds	28,232		—		(182)		28,050
Commercial paper	46,173		—		—		46,173
Foreign government securities	4,054		—		(59)		3,995
Total short-term investments	$	102,550	$	—	$	(624)	$	101,926


	January 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	18,082	$	—	$	(155)	$	17,927
Corporate bonds	21,225		—		(49)		21,176
Commercial paper	55,234		—		—		55,234
Supranational bonds	3,503		—		—		3,503
Foreign government securities	4,064		—		(22)		4,042
Total short-term investments	$	102,108	$	—	$	(226)	$	101,882

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, 2022 and 2021. We had no significant unrealized losses on our available-for-sale securities as of April 30, 2022 and January 31, 2022, and we do not expect material credit losses on our current investments in future periods. All securities had stated effective maturities of less than two years as of April 30, 2022.

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.

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, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	332,916	$	—	$	—	$	332,916
Short-term investments:
U.S. government securities	$	—	$	23,708	$	—	$	23,708
Corporate bonds	—		28,050		—		28,050
Commercial paper	—		46,173		—		46,173
Foreign government securities	—		3,995		—		3,995
Total short-term investments	$	—	$	101,926	$	—	$	101,926
Liabilities:
Warrant liability	$	—	$	—	$	7,670	$	7,670


	January 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	92,668	$	—	$	—	$	92,668
Short-term investments:
U.S. government securities	$	—	$	17,927	$	—	$	17,927
Corporate bonds	—		21,176		—		21,176
Commercial paper	—		55,234		—		55,234
Supranational bonds	—		3,503		—		3,503
Foreign government securities	—		4,042		—		4,042
Total short-term investments	$	—	$	101,882	$	—	$	101,882

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


Balance, January 31, 2022	$	—
Issuances	12,043
Settlements	—
Gain on change in fair value	(4,373)
Balance, April 30, 2022	$	7,670

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 outstanding under the Debt Agreement approximates fair value as of April 30, 2022 due to its floating interest rate. The carrying amount of debt outstanding under the Initial Notes approximates fair value as of April 30, 2022. Additional information regarding the Initial Notes and Warrant liability is included in Note 9. Debt and Note 17. Warrants to Purchase Shares of Common Stock, respectively.

Note 5. Prepaid Expenses and Other Current Assets

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


	April 30, 2022		January 31, 2022
Prepaid software subscriptions	$	7,000	$	6,854
Prepaid insurance	1,979		3,220
Taxes	1,490		1,270
Contract assets	1,170		1,289
Prepaid hosting costs	1,016		767
Other	3,605		2,203
Total	$	16,260	$	15,603

Note 6. Property and Equipment, Net

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


	April 30, 2022		January 31, 2022
Software	28,125		25,495
Leasehold improvements	17,140		17,277
Computer equipment	15,173		14,746
Furniture and fixtures	4,369		4,424
	64,807		61,942
Less accumulated depreciation and amortization	(36,178)		(34,266)
Total	$	28,629	$	27,676

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,
		2022		2021
Internal-use software costs capitalized during the period		$	1,902	$	924

		April 30, 2022		January 31, 2022
Total capitalized internal-use software, net of accumulated amortization		$	12,541	$	11,534

The following table summarizes total depreciation and amortization expense related to property and equipment, including amortization of internal-use software, included 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,
	2022		2021
Total depreciation and amortization expense	$	2,181	$	2,844

Note 7. Purchased Intangible Assets

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


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Balance, January 31, 2022	$	14,467	$	(11,015)	$	3,452
Amortization expense	—		(554)		(554)
Balance, April 30, 2022	$	14,467	$	(11,569)	$	2,898

The following table summarizes amortization expense related to purchased intangible assets included in Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):


	Three Months Ended April 30,
	2022		2021
Purchased intangible assets amortization expense	$	554	$	423

Note 8. Accrued Expenses and Other Current Liabilities

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


	April 30, 2022		January 31, 2022
Warrant liability	$	7,670	$	—
Accrued outside services and consulting	5,081		3,712
Accrued hosting and third-party licenses	3,848		3,865
Accrued taxes	2,215		2,422
Accrued interest	1,015		—
Other accrued expenses	4,366		4,226
Total	$	24,195	$	14,225

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 investment agreement (Investment Agreement) and indenture agreement (Indenture) to certain entities affiliated with Silver Lake Alpine II, L.P. (Silver Lake). Pursuant to the Investment Agreement, additional convertible senior notes in the aggregate principal amount of $150.0 million (Additional Notes), (together with the Initial Notes, the “2029 Notes”) shall be issued to Silver Lake 18 months after the Initial Closing Date, with an earlier issuance upon our completion of a Material Acquisition that meets the conditions described in Section 2.02(a) of the Investment Agreement. In addition, in the event that a Change in Control (as defined in the Indenture) occurs prior to the Additional Notes being issued, the noteholder would have the right to receive, at the noteholder's election, the Additional Notes, a cash payment, or common stock, as described in Section 2.02(b) of the Investment Agreement. The Initial Notes and the Additional Notes, once issued, represent senior unsecured obligations of Zuora.

As a condition of the Investment Agreement, we also issued warrants to Silver Lake to acquire up to 7.5 million shares of Class A common stock (Warrants), of which (i) up to 2.5 million Warrants are exercisable at $20.00 per share, (ii) up to 2.5 million Warrants are exercisable at $22.00 per share and (iii) up to 2.5 million Warrants are exercisable at $24.00 per share. The Warrants are exercisable for a period of seven years from the Initial Closing Date,

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. If elected, any such paid in kind interest will be added to the principal balance at each quarterly interest payment date. The 2029 Notes will mature on March 31, 2029, subject to earlier conversion or redemption. The Initial 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 12.5 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 (as defined in the Indenture) are subject to an increase in the conversion price under certain circumstances.

With certain exceptions, upon a Fundamental Change, 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 the fifth anniversary of the Initial Closing Date, 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.

Pursuant to the Investment Agreement, without our prior written consent, Silver Lake is restricted from converting any 2029 Note, exercising any Warrant or transferring any 2029 Note or Warrant to parties other than affiliates or members of Silver Lake (with certain limited exceptions) for 18 months following the Initial Closing Date, or if sooner, upon the consummation of any Change in Control (as defined in the Investment Agreement) or entry into a definitive agreement for a transaction that, if consummated, would result in a Change in Control.

We determined that the Initial Notes arrangement consisted of three freestanding instruments: the Initial Notes, the Warrants and the loan commitment related to the Additional Notes. In addition, we evaluated the embedded features in the Initial Notes and identified certain embedded features which were not clearly and closely related to the Initial Notes and met the definition of a derivative, and therefore required bifurcation from the host contract. We determined that the fair value of these bifurcated derivatives was de minimis as of the Initial Closing Date and as of April 30, 2022.

As further discussed in Note 17. Warrants to Purchase Shares of Common Stock, a portion of the Warrants issued were determined to require liability classification with the remaining Warrants eligible to be classified in stockholders’ equity. As such, we allocated the proceeds obtained from the Initial Notes first to the liability-classified Warrants and then, on a relative fair value basis, between the equity-classified Warrants and the Initial Notes.

We incurred approximately $8.1 million of debt issuance costs associated with the 2029 Notes and Warrants. Of this amount, we allocated $7.1 million as a component of the discount on the 2029 Notes, $0.7 million against the proceeds allocated to the equity-classified Warrants and $0.3 million was allocated to the liability-classified Warrants and recorded to General and administrative expense in the accompanying unaudited condensed consolidated statements of comprehensive loss. The 2029 Notes debt discount is being amortized 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 May 24, 2027) and reflects an effective interest rate of 8.5% at issuance.

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


	April 30, 2022
Initial Notes principal	$	250,000
Unamortized discount	(45,500)
Carrying value	$	204,500

During the three months ended April 30, 2022, we recognized a total of $1.8 million of interest expense related to the Initial Notes in Interest and other income, net in the accompanying unaudited condensed consolidated

statements of comprehensive loss, of which $1.0 million represents cash interest payments accrued and $0.8 million represents amortization of the debt discount.

Debt Agreement

We have an agreement with Silicon Valley Bank that includes a revolving and term loan facility, which is secured by a lien on substantially all of our non-IP assets (Debt Agreement). Under the revolving loan facility, we may borrow up to $30.0 million until October 2022. As of April 30, 2022, we had not drawn down any amounts under this revolving loan. Under the term loan facility, we borrowed $15.0 million in June 2017 to partially finance the acquisition of Leeyo. Payments were interest only through June 2019, after which date payments of principal and interest are due in 36 equal monthly installments beginning in June 2019 until the maturity date in June 2022. A remaining balance of $0.4 million was outstanding as of April 30, 2022. The interest rate under both the revolving and term loan facility is equal to the prime rate published by the Wall Street Journal minus 1.00%.

Additionally, we will incur a fee of 1.5% of the original principal amount of the term loan facility, or $225,000, upon the earlier to occur of prepayment or the termination of the facility.

Note 10. 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,
	2022		2021
Revenue recognized from deferred revenue	$	73,567	$	62,919

As of April 30, 2022, total remaining non-cancellable performance obligations under our subscription contracts with customers was approximately $425.4 million and we expect to recognize revenue on approximately 58% of these remaining performance obligations over the next 12 months. Remaining performance obligations under our professional services contracts as of April 30, 2022 were not material.

Note 11. 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,
	2022			2021
United States	$	59,419		$	49,707
Others	33,780			30,622
Total	$	93,199		$	80,329
Percentage of revenue by geographic area:
United States	64		%	62		%
Other	36		%	38		%

Other than the United States, no individual country exceeded 10% of total revenue for the three months ended April 30, 2022 and 2021.

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, 2022 and 2021, no individual country exceeded 10% of total long-lived assets other than the United States.

Note 12. Leases

We have non-cancelable operating leases for our offices located in the U.S. and abroad. As of April 30, 2022, these leases expire on various dates between 2023 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, 2022		January 31, 2022
Operating lease right-of-use assets	$	30,482	$	32,643

Operating lease liabilities, current portion	$	10,907	$	11,462
Operating lease liabilities, net of current portion	43,149		45,633
Total operating lease liabilities	$	54,056	$	57,095


	Three Months Ended April 30,
	2022		2021
Operating lease cost1	$	2,634	$	3,216

(1) Includes costs related to our short-term operating leases as follows (in thousands):


	Three Months Ended April 30,
	2022		2021
Short-term operating lease costs	$	90	$	102

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


	Maturities of Operating Lease Liabilities
2023 (remainder of the year)	$	10,230
2024	11,025
2025	6,386
2026	6,242
2027	6,429
Thereafter	23,468
Total lease payments	63,780
Less imputed interest	(9,724)
Present value of lease liabilities	$	54,056

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


	April 30, 2022		January 31, 2022
Weighted-average remaining operating lease term	6.9 years		7.0 years
Weighted-average operating lease discount rate	4.6	%	4.6	%


	Three Months Ended April 30,
	2022		2021
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases	$	3,414	$	3,409


New right-of-use assets obtained in exchange for lease liabilities:
Operating leases obtained	$	—	$	3,923

Note 13. 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, 2022 and January 31, 2022. No draws have been made under such letters of credit.

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. Other than the matters described below, 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.

Securities Class Actions

In June 2019, a putative securities class action lawsuit was filed in the U.S. District Court for the Northern District of California naming Zuora and certain of its officers as defendants. The complaint purports to bring suit on behalf of stockholders who purchased or otherwise acquired Zuora's securities between April 12, 2018 and May 30, 2019. The complaint alleges that defendants made false and misleading statements about Zuora's business, operations and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), and seeks unspecified compensatory damages, fees and costs. In November 2019, the lead plaintiff filed a consolidated amended complaint asserting the same claims. In April 2020, the court denied defendants’ motion to dismiss. On March 15, 2021, the court granted plaintiff’s motion to certify a class consisting of persons and entities who purchased or acquired Zuora common stock between April 12, 2018 and May 30, 2019 and who were allegedly damaged thereby. Discovery in this case is ongoing.

In April and May 2020, two putative securities class action lawsuits were filed in the Superior Court of the State of California, County of San Mateo, naming as defendants Zuora and certain of its current and former officers, its directors and the underwriters of Zuora's initial public offering (IPO). The complaints purport to bring suit on behalf of stockholders who purchased or otherwise acquired Zuora's securities pursuant or traceable to the Registration Statement and Prospectus issued in connection with Zuora's IPO and allege claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The suits seek unspecified damages and other relief. In July 2020, the court entered an order consolidating the two lawsuits, and the lead plaintiffs filed a consolidated amended complaint asserting the same claims. In October 2020, the court denied defendants’ demurrer as to the Section 11 and Section 15 claims and granted the demurrer as to the Section 12(a)(2) claim with leave to file an amended complaint. In November 2020, the lead plaintiffs filed an amended consolidated complaint. Defendants' demurrer to the Section 12(a)(2) claim was sustained with leave to amend. On October 14, 2021, the court certified a class for the Section 11 and Section 15 claims, consisting of persons and entities who purchased or acquired Zuora common

stock pursuant or traceable to the Registration Statement and Prospectus issued in connection with Zuora’s IPO. The lead plaintiffs voluntarily dismissed the Section 12(a)(2) claim without prejudice. Discovery in this case is ongoing.

Given the procedural posture and the nature of such litigation matters, we are unable to estimate the reasonably possible loss or range of loss, if any, that may result from these matters. We dispute the claims described above and intend to vigorously defend against them.

Derivative Litigation

In September 2019, two stockholder derivative lawsuits were filed in the U.S. District Court for the Northern District of California against certain of Zuora’s directors and executive officers and naming Zuora as a nominal defendant. The derivative actions allege claims based on events similar to those in the securities class actions and assert causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and for making false and misleading statements about Zuora's business, operations, and prospects in violation of Section 14(a) of the Exchange Act. Plaintiffs seek corporate reforms, unspecified damages and restitution, and fees and costs. In November 2019, the stockholder derivative lawsuits, which are related to the federal securities class action, were assigned to the same judge who is overseeing the federal securities class action lawsuit. In February 2020, the court entered an order consolidating the two derivative lawsuits. In August 2020, the court entered an order staying the consolidated action until the completion of fact discovery in the federal securities class action. In March 2022, plaintiffs filed a consolidated shareholder derivative complaint. Pursuant to the August 2020 order, the case remains stayed.

In May and June 2020, two stockholder derivative lawsuits were filed in the U.S. District Court for the District of Delaware against certain of Zuora’s directors and current and former executive officers. The derivative actions allege claims based on events similar to those in the securities class actions and the derivative actions pending in the Northern District of California and assert causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, waste of corporate assets, contribution, and for making false and misleading statements about Zuora’s business, operations, and prospects in violation of Section 14(a) of the Exchange Act. Plaintiff seeks corporate reforms, unspecified damages and restitution, and fees and costs. In June 2020, the court entered an order consolidating the two District of Delaware derivative lawsuits. In August 2020, the court entered an order staying the consolidated action until the completion of fact discovery in the federal securities class action.

In February and March 2021, two additional stockholder derivative lawsuits were filed in Delaware Chancery Court alleging similar claims based on the same underlying events. The two Chancery Court cases have been consolidated, an amended consolidated complaint has been filed, and the cases have been stayed until the completion of fact discovery in the federal securities class action described above.

In May 2022, a stockholder derivative lawsuit was filed in the U.S. District Court for the Northern District of California against certain of Zuora’s directors and executive officers and naming Zuora as a nominal defendant. The derivative action alleges claims based on events similar to those in the securities class actions and asserts causes of action against the individual defendants for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and contribution. Plaintiff seeks corporate reforms, unspecified damages and restitution, and fees and costs.

Given the procedural posture and the nature of such litigation matters, we are unable to estimate the reasonably possible loss or range of loss, if any, that may result from these matters.

Other Contractual Obligations

As of April 30, 2022, we had a contractual obligation to make $52.1 million in purchases of cloud computing services provided by one of our vendors by September 30, 2024.

Note 14. 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,
	2022			2021
Loss before income taxes	$	(22,860)		$	(17,288)
Income tax provision	308			373
Effective tax rate	(1.3)		%	(2.2)		%

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 15. Stockholders’ Equity

Preferred Stock

As of April 30, 2022, Zuora had authorized 10 million shares of preferred stock, each with a par value of $0.0001 per share. As of April 30, 2022, 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, 2022, 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, 2022, 121.1 million shares of Class A common stock and 8.0 million shares of Class B common stock were issued and outstanding.

Accumulated Other Comprehensive Loss

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


	Foreign Currency Translation Adjustment		Unrealized Loss on Available-for-Sale Securities		Total
Balance, January 31, 2022	$	118	$	(226)	$	(108)
Foreign currency translation adjustment	(359)		—		(359)
Unrealized loss on available-for-sale securities	—		(398)		(398)
Balance, April 30, 2022	$	(241)	$	(624)	$	(865)

There were no material reclassifications out of accumulated other comprehensive loss during the three months ended April 30, 2022. Additionally, there was no material tax impact on the amounts presented.

Note 16. Employee Stock Plans

Equity Incentive Plans

In March 2018, our Board of Directors adopted and our stockholders approved the 2018 Equity Incentive Plan (2018 Plan). The 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, 2022, approximately 30.1 million shares of Class A common stock were reserved and available for issuance under the 2018 Plan. In addition, as of April 30, 2022, 4.6 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, 2022	8,560	$	9.22	5.9	67,259
Granted	—	—
Exercised	(135)	6.79
Forfeited	(64)	13.84
Balance, April 30, 2022	8,361	9.22		5.6	36,324
Exercisable as of April 30, 2022	5,108	5.20		4.3	35,576
Vested and expected to vest as of April 30, 2022	8,140	9.10		5.6	36,242


	Three Months Ended April 30,
	20221		2021

Weighted-average grant date fair value per share of options granted during each respective period	—		$	6.53
Aggregate intrinsic value of options exercised during each respective period	$	1,089	$	6,591

We used the Black-Scholes option-pricing model to estimate the fair value of our stock options granted during each respective period using the following assumptions:


	Three Months Ended April 30,
	20221	2021
Fair value of common stock	—	$	15.66
Expected volatility	—	42.3		%
Expected term (years)	—	6.1
Risk-free interest rate	—	1.0		%
Expected dividend yield	—	—

______________

(1) No stock options were granted during the period.

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, 2022

ZUORA INC [ZUO] Filings
10-Q	[2022-06-03]
10-K	[2022-03-28]
10-Q	[2021-12-08]
10-Q	[2021-09-03]
10-Q	[2021-06-04]
10-K	[2021-03-31]
10-Q	[2020-12-08]
10-Q	[2020-09-04]
10-Q	[2020-06-08]
10-K	[2020-03-31]
10-Q	[2019-12-16]
10-Q	[2019-09-16]
10-Q	[2019-06-11]
10-K	[2019-04-18]
10-Q	[2018-12-13]
10-Q	[2018-09-12]
10-Q	[2018-06-13]
S-1	[2018-03-16]