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ZI

ZUORA INC (ZUO)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 revenue was $115.4M (+7% YoY) with subscription revenue $104.1M (+9% YoY). Non-GAAP operating income was $25.6M, a record 22% margin, and adjusted free cash flow was $12.2M .
  • Management achieved the Rule of 30 two quarters ahead of plan and raised FY2025 total revenue ($455.5M–$461.5M) and non-GAAP operating income ($90M–$93M) guidance; adjusted FCF target increased to $82M+ .
  • Guidance reset growth metrics: ARR growth to ~6% and DBRR to 103–104% for FY2025, reflecting elongated sales cycles and prudence on timing of large installed-base expansions .
  • Upside drivers included higher revenue share from payment processors (ongoing but not in ARR), multiproduct deal momentum (Billing + Revenue), and enterprise installed-base expansions; new logo wins included Canva .
  • Potential stock catalysts: raised FY top-line and profitability guidance versus lowered ARR/DBRR trajectory; accelerating monetization vectors (payments rev-share, AI/consumption pricing via Togai and Sub(x)) .

What Went Well and What Went Wrong

What Went Well

  • Record profitability: Non-GAAP operating income $25.6M (22% margin), exceeding guidance by $6.1M; blended non-GAAP gross margin 73% (+260 bps YoY) .
  • Strategic validation and wins: Gartner named Zuora a Leader in Recurring Billing; wins/expansions with Canva, Zillow, Oura; SI partner influence in >$500K ACV deals .
  • New monetization vectors: Payment processor revenue-share contributed Subscription revenue upside and is expected to recur (not included in ARR). “I would expect…this be a source of increased revenue for us” .

What Went Wrong

  • Growth metrics softened: ARR growth +7% to $412.3M; DBRR 104% (down 3 pts YoY), with churn and elongated cycles weighing on new logos and cross-sell .
  • Large deal scrutiny persisted: Fewer ≥$500K ACV deals (5 vs 7 YoY), timing uncertainty led to prudent ARR guide reset .
  • Professional services drag: Non-GAAP PS gross margin remained negative (−5%), expected to stay in the same range for the year .

Financial Results

Core P&L, EPS, Cash Flow

MetricQ2 FY2024 (oldest)Q1 FY2025Q2 FY2025 (newest)
Total Revenue ($USD Millions)$108.048 $109.769 $115.396
GAAP Loss from Operations ($USD Millions)$(18.239) $(3.972) $(9.689)
Non-GAAP Income from Operations ($USD Millions)$9.559 $18.562 $25.625
GAAP Net Loss ($USD Millions)$(22.562) $(13.708) $(7.221)
Non-GAAP Net Income ($USD Millions)$10.022 $16.754 $29.106
GAAP Gross Margin %65% 68% 68%
Non-GAAP Gross Margin %71% 72% 73%
Non-GAAP Operating Margin %9% 17% 22%
GAAP EPS ($)$(0.16) $(0.09) $(0.05)
Non-GAAP EPS ($)$0.07 $0.11 $0.19
Operating Cash Flow ($USD Millions)$5.388 $32.870 $11.432
Adjusted Free Cash Flow ($USD Millions)$4.024 $31.403 $12.245

Segment Revenue Breakdown

SegmentQ2 FY2024 (oldest)Q1 FY2025Q2 FY2025 (newest)
Subscription Revenue ($USD Millions)$95.473 $98.959 $104.051
Professional Services Revenue ($USD Millions)$12.575 $10.810 $11.345
Total Revenue ($USD Millions)$108.048 $109.769 $115.396

Margin Details (Non-GAAP)

MarginQ2 FY2024 (oldest)Q1 FY2025Q2 FY2025 (newest)
Subscription Gross Margin %81% 81% 82%
Professional Services Gross Margin %−5% −14% −5%
Blended Gross Margin %71% 72% 73%
Operating Margin %9% 17% 22%

KPIs

KPIQ2 FY2024 (oldest)Q1 FY2025Q2 FY2025 (newest)
Customers with ACV ≥ $250K (count)444 451 445
DBRR (%)107% 104% 104%
ARR ($USD Millions)$384.2 $404.4 $412.3
Total RPO ($USD Millions)N/A$581 $577

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subscription Revenue ($USD Millions)Q3 FY2025—$104.5–$105.5 New
Professional Services Revenue ($USD Millions)Q3 FY2025—$10.5–$11.5 New
Total Revenue ($USD Millions)Q3 FY2025—$115.0–$117.0 New
Non-GAAP Operating Income ($USD Millions)Q3 FY2025—$20.5–$21.5 New
Non-GAAP EPS ($)Q3 FY2025—$0.11–$0.12 (WAS ~152.5M shares) New
Subscription Revenue ($USD Millions)FY2025$410.0–$414.0 $414.5–$416.5 Raised
Professional Services Revenue ($USD Millions)FY2025$41.0–$45.0 $41.0–$45.0 Maintained
Total Revenue ($USD Millions)FY2025$451.0–$459.0 $455.5–$461.5 Raised
Non-GAAP Operating Income ($USD Millions)FY2025$80.0–$82.0 $90.0–$93.0 Raised
Non-GAAP EPS ($)FY2025$0.41–$0.43 $0.56–$0.58 (WAS ~150.9M shares) Raised
ARR Growth (%)FY20258%–10% ~6% Lowered
DBRR (%)FY2025104%–106% 103%–104% Lowered
Adjusted Free Cash Flow ($USD Millions)FY2025$80+ $82+ Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024, Q1 FY2025)Current Period (Q2 FY2025)Trend
AI/consumption pricingAnnounced Advanced Consumption; acquisition of Togai to add metering/rating; >50 customers selected advanced consumption Advanced Consumption one of fastest-growing; Togai closed; Sub(x) acquired to power AI paywalls (Zephr) Strengthening product stack; expanding AI monetization
Monetizing paymentsNot emphasized previouslyPayment processor rev-share audit/catch-up; expected ongoing high-margin revenue, not in ARR New recurring monetization lever
Macro and deal scrutinyFewer transformational deals; elongated cycles; prudent FY guide (ARR/DBRR) Continued scrutiny; large installed-base deals timing uncertain; ARR guide reset to ~6% Persistent headwind
Installed-base expansionMultiproduct cross-sell (Toast Billing from Revenue; TELUS fast go-live) 2 ACV >$1M deals from installed base; Canva win; Zillow adds Revenue/Payments Installed-base driving large deals
Partners (SIs)Pipeline source growth; co-sold large takeaways >1/3 booked ACV partner-influenced; >50% of ≥$500K ACV deals with SI partners Healthy partner motion
ESG/regulatoryCarbon-neutral; SBTi commitment; Avalara e-invoicing partnership Released Global Impact Report; net-zero commitment; continued carbon-neutral Sustained focus
PS margin/strategyPS margin negative (investing in customers); mix to decline with SI expansion Non-GAAP PS margin −5% and expected to remain; PS 10% of rev Controlled drag, declining mix

Management Commentary

  • “In Q2, subscription revenue was $104 million, up 9% year-over-year…non-GAAP operating income…22% operating margin, another quarterly record” – Tien Tzuo .
  • “We reached our goal to operate at a Rule of 30 two quarters earlier than planned…we brought up revenue…non-GAAP operating margin by $10.5M…and increased adjusted free cash flow to $82M+” – Todd McElhatton .
  • “Advanced Consumption Billing was one of our fastest-growing products…enhanced with Togai…we announced the acquisition of Sub(x)…an AI-powered paywall solution” – Tien Tzuo .
  • “We went back and did an audit with one particular [payment processor], and there was a catch-up…you’re going to see this be a source of increased revenue…not part of our ARR” – Todd McElhatton .

Q&A Highlights

  • ARR/DBRR guide reset: Management balanced prudence with elongated cycles; ARR reset to ~6% due to timing risk of large installed-base expansions and lingering headwinds; DBRR guided 103–104% .
  • Payments monetization: Revenue-share with processors audited and reset; expected ongoing contribution to Subscription revenue, high margin, excluded from ARR .
  • New logos vs cross-sell: Installed-base produced large ACV deals; half of new logos included both Billing and Revenue; multiproduct demand rising (e.g., Canva) .
  • Media vertical momentum: Sub(x) reinforcement-learning paywall augments Zephr; customers like The Economist, NYT, and a major streamer; total monetization includes pay-per-view .
  • Margin durability: Cost structure sustainable; additional leverage expected into next year; would not backtrack margins even if top line accelerates .

Estimates Context

  • S&P Global Wall Street consensus (EPS and revenue) for Q2 FY2025 was unavailable via our data connector at the time of analysis; therefore, we cannot provide an actual vs consensus comparison for this quarter. Values would be retrieved from S&P Global if available.
  • Given raised FY2025 revenue and profitability guidance but lowered ARR/DBRR, analysts may revisit growth vs margin assumptions; monitoring for consensus revisions is warranted post-guide update .

Key Takeaways for Investors

  • Balanced execution: Strong profitability and cash generation alongside modest top-line growth; record 22% non-GAAP operating margin and 73% non-GAAP gross margin support the margin-expansion narrative .
  • Guidance mix shift: Raised FY revenue and non-GAAP operating income and increased FCF target, while lowering ARR/DBRR—expect a market focus on durability of new monetization vectors vs ARR trajectory .
  • New monetization drivers: Payment processor revenue-share provides high-margin, recurring upside to Subscription revenue, separate from ARR—a near-term catalyst for revenue quality .
  • AI/consumption positioning: Togai and Sub(x) enhance Zuora’s stack for usage-based pricing and AI paywalls; customer demand for multiproduct land-and-expand strengthens competitive moat .
  • Installed base resilience: Large ACV expansions and partner-led deals indicate embedded growth optionality despite cautious macro; RPO +14% YoY underpins future revenue visibility .
  • Professional services managed drag: PS mix at ~10% of revenue and margins expected to remain in negative mid-single digits; expanding SI ecosystem helps preserve blended margin gains .
  • Near-term focus: Watch Q3 execution against raised guidance and the cadence of installed-base mega-deals; track payments monetization trajectory and AI product attach to sustain Rule of 30 exit rate .