Zuora (ZUO) Q3 Earnings Beat, Subscription Revenues Up Y/Y

·5-min read

Zuora ZUO reported third-quarter fiscal 2021 loss of a penny per share that beat the Zacks Consensus Estimate by 80%. The company had reported a loss of 6 cents in the year-ago quarter.

Moreover, revenues of $77.2 million beat the consensus mark by 5% and also increased 7.6% year over year.

This solid outperformance was led by the robust adoption of the Zuora Central platform. Transaction volumes through Zuora’s billing platform were $14.6 billion, up 31% year over year.

Moreover, this Zacks Rank #3 (Hold) company benefited from a resilient subscription-based business model similar to its Zacks Internet Software industry peers — Anaplan PLAN, Workday WDAY and Cloudera CLDR. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Anaplan, Workday and Cloudera’s subscription revenues accounted for 91.4%, 87.6% and 90.6% of their respective third-quarter fiscal 2021 revenues. While Anaplan’s subscription revenues jumped 31.4% year over year, Cloudera and Workday’s grew 18.2% and 21.3%, respectively.

Markedly, Zuora’s subscription revenues accounted for 80.3% of total revenues. The figure was $62 million, up 14.8% year over year.
 

Zuora, Inc. Price, Consensus and EPS Surprise

Zuora, Inc. Price, Consensus and EPS Surprise
Zuora, Inc. Price, Consensus and EPS Surprise

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

Moreover, subscription billings increased 14% year over year to $70.8 million in the reported quarter.

Top-Line Details   

Professional Services Revenues (19.7% of total revenues) declined 14.4% year over year to $15.2 million.

In the fiscal third quarter, the number of customers with annual contract value — equal to or greater than $100K — was 653, increasing 11% year over year and forming 90% of Zuora’s business. The company added 25 customers in the reported quarter. The expansion was aided by strong demand for the company’s land and expand go-to-market motion.

The dollar-based retention rate was unchanged sequentially at 99%, as the company witnessed a reduced churn rate.

Zuora helped 41 customers go live in the quarter. Notable go-lives included Bosch, Media24, Panasonic, Siemens Smart Infrastructure, Sonos and Thomson Reuters.

Additionally, significant contributions from its system integration partner base, which includes Accenture, Capgemini, Deloitte, EY and PwC, were a major positive. These companies have experienced solid consumer demand for subscription and revenue automation, which has in turn boosted the expansion of Zuora’s enterprise clientele.

Moreover, Zuora added new customers in its core markets of high tech, media and manufacturing. Also, the strong momentum of Zuora Analytics and rising customer acceptance of the company’s new capabilities were major growth drivers.

Operating Details

Non-GAAP gross margin expanded 530 basis points (bps) year over year to 63.1%, driven by a shift from services work to a higher-margin, subscription-based model.

Non-GAAP subscription gross margin was 78%. Non-GAAP professional services gross margin was 1%.

Research & development (R&D) expenses, as a percentage of revenues, decreased 240 bps on a year-over-year basis to 19.1%. Moreover, sales & marketing (S&M) expenses declined 250 bps to 31.3%.

However, general & administrative (G&A) expenses, as a percentage of revenues, were 12.7%, up 20 bps year over year.

Total operating expenses, as a percentage of revenues, were 63.1%, down 480 bps from the year-ago quarter.

Non-GAAP operating loss in the quarter under review was $0.02 million compared with $7.3 million in the year-ago quarter. The improvement was majorly aided by reduced travel, events and office spending.

Balance Sheet & Cash Flow

As of Oct 31, 2020, the company had cash, cash equivalents and short-term investments of $178.8 million compared with $179.2 million as of Jul 31, 2020.  

Free cash outflow was $0.03 million compared with $5.1 million in the year-ago quarter.

Guidance

For the fourth quarter of fiscal 2021, Zuora expects subscription revenues in the range of $62-$63 million. Revenues are expected between $75 million and $77 million. The Zacks Consensus Estimate for the metric is currently pegged at $73.5 million, implying 4.4% growth from the figure reported in the year-ago quarter.

Non-GAAP loss from operations is expected between $4.5 million and $5.5 million.

Non-GAAP loss is expected between 5 cents and 6 cents per share. The consensus mark for the same is pegged at 6 cents per share.

Additionally, the company expects subscription billings to grow between 8% and 10% year over year, aided by a widening enterprise customer base.

Further, management expects the top line to be benefited from elevated demand for its go-to-market tools. Moreover, strong momentum in system integration space led by the ongoing digital transformation is likely to serve as a key catalyst.

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