Name: ZUORA INC Q1 2025 Earnings Call
Start: 2024-05-22T21:01:00.000Z

Executive Summary

Q1 FY2025 delivered at the high end on revenue ($109.8M, +6% y/y) and a record non-GAAP operating margin of 17%, with non-GAAP EPS of $0.11 and record adjusted FCF of $31.4M; performance was driven by installed-base expansions and operating discipline .
Management raised FY25 non-GAAP operating income ($80–$82M from $79–$81M) and non-GAAP EPS ($0.41–$0.43 from $0.40–$0.42) while maintaining topline outlook, ARR growth (8–10%), DBRR (104–106%), and adjusted FCF ($80M+) .
Mixed demand: strong cross-sell/expansion within enterprise customers offset macro pressure on large new logos; DBRR dipped to 104% (FX pressure to ~105%) and customers ≥$250k ACV fell sequentially as some rightsized below the threshold .
Stock narrative catalysts: beat/at-high-end vs company guidance, raised FY25 profitability guidance despite absorbing Togai costs, and a broader “Total Monetization” strategy including metering/rating via the Togai acquisition .

What Went Well and What Went Wrong

What Went Well

Record profitability and cash: “we exceeded guidance for non-GAAP operating income at $18.6M … a 17% operating margin, which is a quarterly record,” with adjusted FCF at an all-time high of $31.4M .
Installed-base expansion and multi-product traction: Notable cross-sells included adding Zephr at The Economist; an auto OEM expanding to connected services; a CX/contact-center leader adding Billing with advanced consumption to monetize AI support .
Strategy and product scope expanded: Announced and closed the Togai acquisition to add metering/rating; management framed the broader “Total Monetization” stack (subscriptions, usage, one-time) and modular land-and-expand motions .

What Went Wrong

New logos pressured by macro: “companies… hesitate to pull the trigger on… 7‑digit deals,” weighing on large transformational new logos despite ongoing demand for subscription/usage models .
Retention metrics softened: DBRR fell to 104% (down 2 pts q/q; 4 pts y/y) due to churn previously discussed and FX; customers ≥$250k ACV were 451 (down 10 sequentially) as some downsized below the threshold .
Services margin remained negative: Non-GAAP professional services margin was -14% (expected), with full-year services margin guided to negative mid-single digits .

Financial Results

Metric	Q3 FY2024	Q4 FY2024	Q1 FY2025
Total Revenue ($M)	$109.8	$110.7	$109.8
Revenue YoY Growth (%)	9%	7%	6%
Subscription Revenue ($M)	$98.0	$100.2	$99.0
Subscription YoY Growth (%)	13%	12%	10%
Professional Services Revenue ($M)	$11.8	$10.5	$10.8
GAAP Gross Margin (%)	68%	67%	68%
Non-GAAP Gross Margin (%)	74%	74%	72%
GAAP Operating Margin (%)	-8%	-16%	-4%
Non-GAAP Operating Margin (%)	15%	14%	17%
GAAP EPS ($)	$(0.04)	$(0.14)	$(0.09)
Non-GAAP EPS ($)	$0.09	$0.12	$0.11
Operating Cash Flow ($M)	$(55.7)	$16.9	$32.9
Adjusted Free Cash Flow ($M)	$12.7	$14.6	$31.4

Segment revenue breakdown

Segment ($M)	Q3 FY2024	Q4 FY2024	Q1 FY2025
Subscription	$98.0	$100.2	$99.0
Professional Services	$11.8	$10.5	$10.8
Total	$109.8	$110.7	$109.8

KPIs

KPI	Q3 FY2024	Q4 FY2024	Q1 FY2025
DBRR (%)	108%	106%	104%
ARR ($M)	$396.0	$403.1	$404.4
Customers ≥$250k ACV	453	461	451

Notes:

Q1 subscription GM non-GAAP 81%; services GM non-GAAP -14%; blended non-GAAP GM 72% .
Company commentary: subscription GM improvement tied to hyperscaler efficiency; services margin negative due to customer investments .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Subscription Revenue	FY2025	$410M–$414M	$410M–$414M	Maintained
Professional Services Revenue	FY2025	$41M–$45M	$41M–$45M	Maintained
Total Revenue	FY2025	$451M–$459M	$451M–$459M	Maintained
Non-GAAP Operating Income	FY2025	$79M–$81M	$80M–$82M	Raised
Non-GAAP EPS	FY2025	$0.40–$0.42	$0.41–$0.43	Raised
ARR Growth	FY2025	8%–10%	8%–10%	Maintained
DBRR	FY2025	104%–106%	104%–106%	Maintained
Adjusted FCF	FY2025	$80M+	$80M+	Maintained
Subscription Revenue	Q2 FY2025	N/A	$101M–$102M	New
Professional Services Revenue	Q2 FY2025	N/A	$10.5M–$11.5M	New
Total Revenue	Q2 FY2025	N/A	$111.5M–$113.5M	New
Non-GAAP Op Inc	Q2 FY2025	N/A	$17.5M–$19.5M	New
Non-GAAP EPS	Q2 FY2025	N/A	$0.09–$0.10 (149.4M shares)	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY2024 and Q4 FY2024)	Current Period (Q1 FY2025)	Trend
AI/Usage monetization	Q3: Launched Mediation Engine for consumption; product updates to enable flexible usage models . Q4: Focus on smaller, faster lands; improved margins/FCF .	Acquired Togai for metering/rating; >50 customers on advanced consumption; AI driving usage in call centers; Total Monetization strategy emphasized .	Expanding capability set; stronger positioning for AI/usage models.
Macro/large deals	Q3: Execution ahead of guidance; macro risk acknowledged . Q4: Emphasis on balanced growth/profitability despite macro .	Large (7‑digit) new logo deals delayed; installed-base expansions drive growth .	Continued caution on big new logos; leaning into installed base.
Partners/SIs	Q3: Partnerships (e.g., Sovos) highlighted . Q4: Expanded Avalara partnership for e‑invoicing mandates .	More partner co-sell within installed base (e.g., Toast prior, additional co-sells in Q1) .	Increasing partner involvement inside existing accounts.
Services & integration	Q3/Q4: Services margins negative but improving on non-GAAP .	Services non-GAAP GM -14%; expected negative mid-single digits for FY .	Services profitability pressured short term; gradual improvement expected.
Regional/regulatory	Q4: E‑invoicing compliance expansion via Avalara .	No major regional updates; continued enterprise expansions (e.g., Luxottica geographies) .	Regulatory enablement remains a differentiator.
Demand generation	Q3/Q4: Focus on efficient growth.	Shift toward inbound/digital lead gen using AI; more pipeline with fewer people .	Efficiency and digital motion increasing.

Management Commentary

“We exceeded guidance for non-GAAP operating income … 17% operating margin, which is a quarterly record. Our adjusted free cash flow was at an all-time high of $31.4 million” — Tien Tzuo, CEO .
“Our installed base expansion … continue to anchor the durability of our business” — Tien Tzuo .
“Togai provides a leading metering and rating solution … This isn’t just about usage-based models… a concept that we call total monetization” — Tien Tzuo .
“We exceeded the range for our non-GAAP operating income and expanded our adjusted free cash flow … ARR growth and DBRR … impacted by customer churn … We expect our growth to accelerate in the second half” — Todd McElhatton, CFO .
“Non-GAAP professional services gross margin … negative 14% … expect [for] the full year … negative mid-single-digit range” — Todd McElhatton .

Q&A Highlights

Macro and visibility: Large 7‑digit new logo deals remain delayed; strong pipeline and partner co-sell motions within installed base; focus on expansions .
Cohort and retention: ≥$250k ACV cohort down sequentially due to rightsizing, but grows >10% y/y on ACV within the cohort; gross retention “very consistent” .
Consumption and Togai: Rapid shift to usage models (especially AI in call centers); Togai viewed as ready for prime time with weeks (not quarters) of integration work .
ARR path: H1 impacted by onetime churn and lighter new logos; expect exit FY at 8–10% ARR growth driven by installed base, pipeline, and Togai .
Efficiency and GTM: More inbound/digital (AI-enabled) lead gen; generating more pipeline with fewer people; go-to-market spend down ~10% in absolute dollars .
Cash/Capex: Q1 FCF seasonally stronger from Q4 billings; expect ~$3M/quarter CapEx; maintain FY adj FCF ≥$80M .

Estimates Context

S&P Global consensus estimates were unavailable via our system for ZUO this quarter; as a result, a direct Wall Street consensus vs. actual comparison could not be performed. We instead compare results to company guidance and prior periods (Values retrieved from S&P Global).*
Relative to company guidance issued on Feb 28 for Q1, ZUO delivered revenue at the top end ($109.8M vs $107.8–$109.8M) and non-GAAP EPS above the $0.06–$0.07 range (reported $0.11) .

Key Takeaways for Investors

Profitability inflection is durable: Record 17% non-GAAP operating margin and record $31.4M adjusted FCF in Q1; FY25 profitability guidance raised despite absorbing Togai costs .
Growth mix favors installed base: Enterprise expansions and cross-sells are the primary growth engine while macro delays large new logo deals; expect ARR growth to reaccelerate exiting FY .
Strategic moat widening: Togai metering/rating plus advanced consumption capabilities advance Zuora’s “Total Monetization” stack across subscriptions, usage, and one-time transactions .
KPIs moderated but stable: DBRR at 104% (FX-adjusted ~105%), ARR +8% y/y to $404.4M, and ≥$250k ACV customers at 451 reflect macro headwinds but resilient core .
Services margin headwind manageable: Expect negative mid-single-digit services margin for FY25 as investments continue; subscription GM benefits from cloud efficiency .
Near-term trading setup: Positive catalyst path from raised FY25 EPS/op income, strong cash generation, and AI/usage monetization narrative; risks include macro-driven new logo slippage and retention softness .
Medium-term thesis: Expanding platform scope (billing, revenue, payments, metering) and modular land-and-expand approach should support sustained margin expansion and cross-sell-driven growth through cycles .

Appendix: Prior Two Quarters (for Trend)

Q4 FY2024: Total revenue $110.7M (+7% y/y); non-GAAP op margin 14%; non-GAAP EPS $0.12; DBRR 106%; ARR $403.1M; ≥$250k ACV customers 461 .
Q3 FY2024: Total revenue $109.8M (+9% y/y); non-GAAP op margin 15%; non-GAAP EPS $0.09; DBRR 108%; ARR $396.0M; ≥$250k ACV customers 453 .

Additional Q1 FY2025 press-release highlights:

Announced acquisition of Togai (closed early May) to enhance usage-based offerings; customer highlights include Ubisoft, Mitsubishi Electric, and expansions at Luxottica .

Citations: Press Release and 8-K: Q1 FY2025 ; Q4 FY2024 ; Q3 FY2024 . Earnings Call Transcript: Q1 FY2025 .

*Values retrieved from S&P Global.

ZUORA INC (ZUO)·Q1 2025 Earnings Summary