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Zuora's (ZUO) Loss Narrows in Q1, Revenues Increase Y/Y

Zacks Equity Research

Zuora ZUO reported first-quarter fiscal 2021 loss of 6 cents per share, narrower than the Zacks Consensus Estimate of a loss of 10 cents as well as the year-ago quarter’s loss of 11 cents.

Moreover, revenues of $73.9 million beat the consensus mark by 4.1% and also increased 15.3% year over year.

This solid outperformance was led by the robust adoption of Zuora’s platform. The company benefited from a resilient business model.

However, this Zacks Rank #2 (Buy) company withdrew its previously-issued financial guidance for fiscal 2021 due to the economic downturn and uncertainty stemming from the COVID-19 outbreak. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Zuora’s Zacks Internet Software industry peers, such as Anaplan PLAN, Nice NICE and Pinterest PINS also suspended their respective full-year projections due to the negative impact of COVID-19.

Although subscription billings increased 10% year over year to $53.7 million in the reported quarter, Zuora expects the metric to grow at a lower rate sequentially in the second quarter of fiscal 2021.
 

Zuora, Inc. Price, Consensus and EPS Surprise

Zuora, Inc. Price, Consensus and EPS Surprise

Zuora, Inc. price-consensus-eps-surprise-chart | Zuora, Inc. Quote

 

Top-Line Details   

Subscription Revenues (77% of total revenues) amounted to $56.9 million, up 20.3% year over year. Professional Services Revenues (23% of total revenues) climbed 1.2% year over year to $17 million.

In the fiscal first quarter, customers with annual contract value (ACV) — equal to or greater than $100K — was 643, up 18% year over year. The majority of growth was driven by new customers who make up 90% of Zuora’s annual recurring revenues.

Dollar-based retention rate declined to 103% due to lower volume upsell and cross-sell activity compared with the year-ago quarter.

Transaction volume through Zuora’s billing platform was $12.3 billion, up 27% year over year.

Notable go-lives during the quarter include Centrica, F5, Keysight, Procore, Seiko Epson and Yext.

Operating Details

Non-GAAP gross margin expanded 620 basis points (bps) year over year to 60.5%.

Non-GAAP subscription gross margin increased to 79%, driven by efficiencies in data center spend. Non-GAAP professional services gross margin reached a break-even.

Research & development (R&D) expenses as a percentage of revenues decreased 130 bps on a year-over-year basis to 20%. Moreover, sales & marketing (S&M) expenses declined 240 bps to 34.5%.

However, general & administrative (G&A) expenses as a percentage of revenues were 15.5%, up 80 bps year over year.

Total operating expenses as a percentage of revenues were 70.8%, down 290 bps from the year-ago quarter. Lower expenses resulted from limited travel and events as well as lower data center costs.

Non-GAAP operating loss in the quarter under review was $7.7 million compared with $12.5 million in the year-ago quarter.

Product Updates

During the quarter, Zuora launched Zuora Revenue, a new update on RevPro, which is fully integrated with the entire Zuora order-to-revenue (OTR) suite of applications. This new solution enables companies to achieve a faster quarter close, minimize compliance risk and more precisely, forecast the impact of business decisions on revenues.

The company also announced its next-generation Zuora Central Platform. Notably, for six months, customers can freely access Zuora Workflow software for five specific use cases to address the common challenges emanating from the coronavirus outbreak.

Balance Sheet & Cash Flow

As of Apr 30, 2020, the company had cash, cash equivalents and short-term investments of $172.6 million compared with $171.9 million as of Jan 31, 2020. 

Free cash outflow was $2.2 million compared with $3.8 million in the year-ago quarter.

Guidance

For the second quarter of fiscal 2021, Zuora expects subscription revenues in the range of $58-$59 million. Revenues are expected between $72.5 million and $75 million. The Zacks Consensus Estimate for the metric is currently pegged at $74 million, implying 6.1% growth from the figure reported in the year-ago quarter.

Non-GAAP loss is expected between 8 cents and 7 cents per share. The consensus mark for the same is pegged at 8 cents per share.

For the second quarter, Zuora expects free cash outflow to be approximately $10 million, which includes the quarter-over-quarter impact of $4.5 million from ESPP-related payments and a $3-million amount related to the timing of payments and seasonal effects.



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