Zuora Inc

Thank you for standing by. My name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora FY25 Q1 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Luana Wolk, Head of Investor Relations. You may begin.

Good afternoon and welcome to Zora's first quarter fiscal 2025 earnings conference call. On the call, we have Tim Zwill, Zora's Founder and Chief Executive Officer, and Todd McElhatton, Zora's Chief Financial Officer. Robbie Traver, our President and Chief Revenue Officer, will be joining us for the Q&A session. During today's call, we'll make statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal securities law. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from expectations. So, for further discussion of the material risks and all the important factors that could affect our financial results, please refer to our filings with the SEC. And finally, unless otherwise noted, all numbers except revenue mentioned today are non-GAAP. You can find a reconciliation from GAAP to non-GAAP results for both the current and the prior year periods in today's press release. A press release and a replay of today's call can be found on Zora's investor relations website at investor.zora.com. Now, I'll turn the call over to you, Dean.

Thank you, Luana, and thank you, everyone, for joining Zora's first quarter fiscal 2025 earnings call. When I look back on the puts and takes this past quarter, I would say I feel good about the progress we continue to make against the macro environment facing the technology industry. We continue to deliver on our guidance. We continue to benefit from a solid enterprise customer base with strong expansion opportunities. And of course, we remain focused on our strategy to deliver profitable, durable growth. Let's start with the numbers. In Q1, subscription revenue was $99 million, up 10% year-over-year at the high end of our range. We exceeded guidance for non-GAAP operating income at $18.6 million, equating to a 17% operating margin, which is a quarterly record. Our adjusted free cash flow was at an all-time high of $31.4 million for this quarter, a significant increase from the $13 million we delivered in Q1 of last year. And finally, against the Rule of 40 framework, which combines growth and profitability, we are on track to exit this fiscal year at 30, up from the 26th level that we hit at the end of last year. One highlight of Q1, I would say, is our install base expansion. Our stable of large enterprise customers continues to anchor the durability of our business. Our customer satisfaction levels continue to rise as measured by Net Promoter Score. Customers continue to love our new innovations, and this is driving strong expansion opportunities. In fact, in Q1, we saw a year-over-year increase in cross-sells, with customers either adding another Azura product or adopting our technology in new business units. Some examples. Our customers are adopting additional products like Zephyr. The Economist, a leading news magazine with over a million subscribers, is a Zora billing customer that added Zephyr in Q1. Their digital subscriber base continues to grow, and they'll be using Zephyr to enhance their dynamic paywall experience. Our customers are adopting us in new business units. One of the world's largest automakers expanded with Zora to empower another business unit, this time for its software suite that manages connected services and telematics for commercial fleets. Our Zora revenue to Zora building cross-sells are working. Last quarter, we talked about Toast as a great example. Well, this quarter, we saw another Zora revenue customer, a global leader in customer experience and contact center solutions with over $1.2 billion in annual revenue. They added Zora billing with advanced consumption to help them analyze millions of customer usage data points and monetize their AI-powered support offerings. We are supporting our customers to expand into new countries or regions. In Q1, global manufacturing brand, Lexotica. They produce eyewear for brands like Oakley, Gucci, and Prada. And they expanded with us to support their eyewear subscription service in new countries. So our install base business was a highlight in Q1. In Q1, though, our new logo business continues to be affected by the macro headwinds, as we again saw companies delay large, multimillion-dollar projects at the end of the quarter. Now, as we mentioned on previous calls, we remain committed to our strategy of doing smaller, faster lands with great companies and brands. A good example in Q1 would be Mitsubishi Electric, one of the world's largest manufacturing companies with over $36 billion of revenue. As Mitsubishi Electric continues to expand beyond hardware and complementary digital services for offering like its air conditioning and factory automation systems, what they needed was a monetization suite that was built to support recurring revenue. Overall, however, the lack of large transformational deals, coupled with the seasonality of the software business, meant a lighter overall new logo quarter. That being said, we are getting more and more efficient in how we generate pipeline. We're switching to more digital and inbound techniques, and we're already seeing positive leading indicators that show improved response rates and lead generation efficiency. And so we believe that our opportunity remains strong as the year progresses. The most exciting news of the quarter, however, is our acquisition of Togai. And so I'd like to spend a few minutes talking through why this announcement is so important. Now, we've seen an increase in demand for usage-based pricing, especially in the SaaS market. Our advanced consumption solution is one of our fastest-growing products in terms of pipeline. As of Q1, we have over 50 customers that have selected our advanced consumption offering. And usage-based models continue to accelerate even further with the explosion that we're all seeing of Gen AI-based technologies. But in supporting our customers around consumption strategies, we've also uncovered a huge need that engineering organizations have around capturing and metering their usage information. And this is where Togai comes in. Togai provides a leading metering and rating solution and enables developers to directly convert raw data into usage metrics through a three-step no-code configuration builder with flexibility to monetize products in many, many different ways. This is really, really exciting. But the last thing I'll say about Togai is that this isn't just about usage-based models. There's a broader strategy going on, one that I will call total monetization. So what do I mean by that? Well, you probably know Zora as the company that predicted and led the shift to the subscription economy. And this shift has happened. Today, you and I, we're buying less and less stuff. And it sure seems like every week the CEO of another Fortune 500 company is declaring a target of shifting some meaningful percentage of their business to recurring revenue models. But now, at the subscription economy, this new world is a new normal. People are asking, what's next? Well, we believe what's next is a concept that we call total monetization. This is no longer just about standalone subscription businesses with monthly fees. It's also about one-time transactions like product sales or pay-per-view or professional services revenues or the usage and consumption model that Togai helps us power. Total monetization is about mixing multiple business models in a way that maximizes the value of your innovations in your target market. And so we see this with companies like the New York Times, which transformed and unbundled how it offers products like games or cooking or news or sports alongside its traditional offering. And they've been able to see their annual digital subscription revenues with this strategy go beyond a billion dollars a year. So if you look at the innovations and acquisitions that we have made over the last seven years, revenue recognition, payment orchestration, consolidated billing, Zephyr, consumption billing, and now usage metering and rating with the acquisition of Togai. We are no longer just a billing company. We are building what I'll call a total monetization software stack for powering any business model. And what's unique about this platform is that it's totally modularized. So you can start with billing or metering or revenue or payments. And so when you look at our customer base, you see us owning the entire billing layer in some companies. And for other companies, we're the entire payments layer or the entire revenue layer. Ultimately, our strategy is to be able to land with a new logo where our customer's pain point is greatest and then expand with them over time across the entire order to revenue process. In fact, this is our own total monetization strategy. And so in summary, we believe that our bigger opportunity is to power a company's total monetization strategy and not just simply be a billing provider. We believe the innovations and acquisitions that we've made over the last few years put us in the best position to deliver all the technologies needed to capture this emerging opportunity. And Togai is another key step in that journey, especially around the usage-based models that are exploding due to gen AI and IoT. We believe our modular approach is critical to enabling the broader land and expand strategy within our growing product portfolio that you've heard us talking about in recent quarters. And finally, we are committed to driving sustainable, profitable growth as we lead in this new era. Finally, we hope you'll join us at Subscribe Live on June 26th. in the Bay Area to learn more from our customers as we help them monetize every part of their business. With that, let me turn over the call to Todd to review our financials.