Executive Summary

Q3 FY2025 delivered 6% YoY total revenue growth to $116.9M and non-GAAP net income of $24.8M ($0.16 per share), while GAAP net loss widened to $32.2M due to acquisition-related costs and a $20.2M debt redemption liability tied to the pending Silver Lake/GIC buyout .
Management withdrew all guidance and did not hold an earnings call given the proposed $1.7B acquisition; the October 17 8‑K reiterated $10.00/share cash consideration and an expected close in Q1 calendar 2025, making merger arbitrage the primary stock catalyst near-term .
Operational KPIs softened: DBRR fell to 103% (from 108% y/y) and ACV ≥$250K customers were 451 (down 2 y/y); ARR reached $419.9M (+6% y/y), consistent with tempered growth commentary from prior quarters .
Versus estimates: S&P Global consensus was unavailable via our tool; third-party data indicate EPS beat ($0.16 actual vs $0.11 estimate), continuing a string of EPS upside in FY25, though revenue comps vs consensus were not available from our sources .

What Went Well and What Went Wrong

What Went Well
- Non-GAAP profitability improved materially: non-GAAP income from operations of $25.1M (+$9.1M y/y) and non-GAAP gross margin 73% sustained, demonstrating operating leverage despite a tougher demand backdrop .
- Cash generation strengthened: operating cash flow of $22.4M vs prior-year outflow and adjusted FCF of $25.5M, supporting balance sheet resilience ahead of the transaction .
- Strategy validation continued earlier quarters’ themes: advanced consumption billing and AI-linked monetization (Togai, Sub(x)) were highlighted in Q1/Q2, with management citing growing multi-product lands and partner-influenced ACV in Q2 .
What Went Wrong
- GAAP net loss widened to $32.2M (28% of revenue) driven by acquisition-related expenses and the $20.2M debt derivative liability linked to the mandatory repurchase of 2029 Notes upon the proposed take-private .
- KPIs softened: DBRR declined to 103% (vs 108% y/y), and ACV ≥$250K customers slipped to 451 (vs 453 y/y), consistent with prior commentary about churn and deal scrutiny elongating cycles .
- Guidance visibility removed: the company withdrew all previously provided goals/outlook and did not host a call, leaving fewer near-term catalysts beyond merger progress .

Financial Results

Metric	Q1 2025	Q2 2025	Q3 2025
Total Revenue ($M)	$109.8	$115.4	$116.9
Subscription Revenue ($M)	$99.0	$104.1	$105.3
Professional Services Revenue ($M)	$10.8	$11.3	$11.7
GAAP Loss from Operations ($M)	$(4.0)	$(9.7)	$(11.7)
Non-GAAP Income from Operations ($M)	$18.6	$25.6	$25.1
GAAP Net Loss ($M)	$(13.7)	$(7.2)	$(32.2)
Non-GAAP Net Income ($M)	$16.8	$29.1	$24.8
GAAP EPS (Basic/Diluted)	$(0.09)	$(0.05)	$(0.21)
Non-GAAP EPS (Basic/Diluted)	$0.11	$0.19	$0.16
GAAP Gross Margin (%)	68%	68%	67%
Non-GAAP Gross Margin (%)	72%	73%	73%
Non-GAAP Operating Margin (%)	17%	22%	21%

Segment breakdown

Segment	Q1 2025	Q2 2025	Q3 2025
Subscription Revenue ($M)	$98.96	$104.05	$105.25
Subscription GAAP Gross Margin (%)	79%	78%	77%
Subscription Non-GAAP Gross Margin (%)	81%	82%	81%
Professional Services Revenue ($M)	$10.81	$11.35	$11.68
PS GAAP Gross Margin (%)	(33%)	(30%)	(23%)
PS Non-GAAP Gross Margin (%)	(14%)	(5%)	(1%)

KPIs

KPI	Q1 2025	Q2 2025	Q3 2025
ACV ≥$250K Customers (count)	451	445	451
Dollar-Based Retention Rate (DBRR)	104%	104%	103%
Annual Recurring Revenue (ARR, $M)	$404.4	$412.3	$419.9

Guidance Changes

Metric	Period	Previous Guidance (as of Q2 PR)	Current Guidance (Q3 PR)	Change
Subscription Revenue	Q3 FY2025	$104.5M–$105.5M	Withdrawn	Withdrawn
Professional Services Revenue	Q3 FY2025	$10.5M–$11.5M	Withdrawn	Withdrawn
Total Revenue	Q3 FY2025	$115.0M–$117.0M	Withdrawn	Withdrawn
Non-GAAP Op Income	Q3 FY2025	$20.5M–$21.5M	Withdrawn	Withdrawn
Non-GAAP EPS	Q3 FY2025	$0.11–$0.12	Withdrawn	Withdrawn
Weighted Avg Shares	Q3 FY2025	~152.5M	N/A (no guidance)	Withdrawn
ARR Growth	FY2025	~6%	Withdrawn	Withdrawn
DBRR	FY2025	103%–104%	Withdrawn	Withdrawn
Adjusted FCF	FY2025	≥$82M	Withdrawn	Withdrawn

Note: Q3 PR states expected transaction close in “first calendar quarter of 2024,” which appears inconsistent with the October 17 8‑K indicating Q1 calendar 2025; use the 8‑K for expected timing .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25)	Previous Mentions (Q2 FY25)	Current Period (Q3 FY25)	Trend
AI/technology initiatives	Announced Togai acquisition to deepen usage metering/rating; “total monetization” strategy expands beyond subscriptions .	Advanced Consumption Billing fastest-growing; Sub(x) adds AI paywall; Smart Retry recovered >$120M failed payments (+40% y/y) .	No call held; continued non-GAAP profitability; transaction overshadowed product narrative .	Consistent product momentum; external focus shifts to M&A close.
Payments monetization	N/A	Upside partly from revenue share with payment processors; auditing and resetting agreements to drive ongoing revenue (not in ARR) .	No commentary; underlying subscription revenue grew 7% y/y .	Structural lever; limited Q3 disclosure due to no call.
Macro/deal scrutiny	Longer cycles, fewer transformational deals; reliance on installed base expansion; DBRR impacted by churn/FX .	High deal scrutiny; installed base multi-year renewals; customers consolidating contracts; ARR growth moderated .	DBRR 103%, ACV ≥$250K at 451; guidance withdrawn amid pending acquisition .	Persistent caution; M&A removes forward guidance.
Vertical/product performance	Media: Zephr + Sub(x) AI paywall, B2C strategies; large automaker expansion; billing+revenue cross-sell .	Canva new logo; expansions at Zillow, Oura; enterprise usage-based billing in non-tech verticals .	No call; segment margins steady; PS margin improved y/y to (23%) GAAP .	Execution continues; limited qualitative detail in Q3.
Regulatory/legal	Shareholder matters (non-GAAP adjustments include these costs) .	Continued shareholder matters adjustments .	Silver Lake/GIC buyout terms; withdrew guidance; increased transaction-related costs .	M&A is dominant narrative.

Management Commentary

“We reached our goal to operate at a Rule of 30 two quarters ahead of plan… We remain committed to margin expansion and profitability as we navigate this challenging market.” — CFO (Q2) .
“Total monetization… companies will need to be able to monetize with any business model… our modular solutions, both organic innovation and strategic acquisitions give us what’s needed to capture this opportunity.” — CEO (Q2) .
Payments revenue share as an emerging lever: “We’ve not monetized it as effectively as we could… expect this to be an ongoing revenue… not part of our ARR.” — CFO (Q2) .

Note: Q3 FY25 had no conference call; management withdrew guidance due to the pending acquisition .

Q&A Highlights

Demand/macro visibility: elongated sales cycles and hesitancy on seven‑digit new vendor deals; focus on installed base expansion and multi-product lands .
ARR/DBRR drivers: churn and FX pressured DBRR; installed base cohort ≥$250K ACV still grew ACV >10% y/y despite count fluctuations .
Consumption billing and AI: Togai integration accelerates metering/rating; usage-based models rising beyond tech (e.g., logistics); Sub(x) enhances AI paywalls .
Payments monetization: audited agreements, catch-up and reset terms; incremental, high-margin revenue driver outside ARR .

Estimates Context

S&P Global consensus estimates were unavailable via our tool for ZUO this quarter.
Third-party reported EPS: Q3 FY25 estimate $0.11 vs actual non-GAAP EPS $0.16 (beat); prior quarters also saw beats: Q2 estimate $0.09 vs actual $0.19; Q1 estimate $0.07 vs actual $0.11 .
Revenue consensus was not available from our sources; compare actual totals in Financial Results table .

EPS vs. estimates

Period	Consensus EPS	Actual EPS	Surprise
Q1 2025	$0.07	$0.11	+$0.04
Q2 2025	$0.09	$0.19	+$0.10
Q3 2025	$0.11	$0.16	+$0.05

Implications: Continued EPS upside reflects sustained operating efficiency and margin expansion; GAAP results are temporarily distorted by transaction-related costs and debt derivative liability .

Key Takeaways for Investors

Near-term trading is anchored by merger arbitrage around the $10.00/share cash consideration; directional guidance is withdrawn pending transaction close, reducing standalone fundamental catalysts .
Non-GAAP profitability and cash generation remain strong, suggesting durable unit economics despite macro pressure; watch post-close investment priorities under new ownership .
KPIs indicate moderated expansion (DBRR 103%, ARR +6% y/y), consistent with elongated cycles and churn flagged earlier; installed-base multiproduct strategy continues to underpin bookings .
Payments monetization and consumption billing (Togai/Sub(x)) present medium-term revenue levers; revenue share from processors is incremental and high-margin but excluded from ARR .
Expect limited disclosure until close; note discrepancy in Q3 PR close timing vs Oct 17 8‑K (use Q1 2025 close expectation as authoritative) and monitor regulatory approvals/shareholder votes .
Post-close private ownership may accelerate product investment in AI/usage monetization; consider positioning for potential strategic shifts to pricing and partner ecosystems .
Risk: transaction-related costs and derivative/warrant mark-to-market can materially swing GAAP results; non-GAAP metrics better reflect underlying operations during the pendency of the deal .

ZUORA INC (ZUO)·Q3 2025 Earnings Summary