UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________________________

FORM 10-Q

_____________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April 30,~~July 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-38451

_____________________________

Zuora, Inc.

(Exact name of registrant as specified in its charter)

_____________________________


Delaware						20-5530976
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)


101 Redwood Shores Parkway, Redwood City, California						94065
(Address of principal executive offices)						(Zip Code)

(888) 976-9056

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name on each exchange on which registered
Class A common stock, par value $0.0001 per share	ZUO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May~~July 31, 2022, the number of shares of the Registrant’s Class A common stock outstanding was ~~121.2~~123.8 million and the number of shares of the Registrant’s Class B common stock outstanding was ~~8.0~~8.1 million.


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~April 30, 202~~2July 31 , 2022 and January 31, 2022	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended ~~April 30, 202~~2July 3 1 , 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended ~~April 30, 202~~2July ~~and 202~~3 1 , 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the ~~Three~~ Six Months Ended ~~April 30,~~July 31, 2022 and 2021	67
	Notes to Unaudited Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3542
Item 4.	Controls and Procedures	3643

PART II.	OTHER INFORMATION	3845
Item 1.	Legal Proceedings	3845
Item 1A.	Risk Factors	3845
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7278
Item 6.	Exhibits	7379
Signatures		7480

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q (Form 10-Q) to “Zuora,” “Company,” “our,” “us,” and “we” refer to Zuora, Inc. and, where appropriate, its consolidated subsidiaries. Our fiscal year end is January 31. References to “fiscal” followed by the year refer to the fiscal year ended January 31 for the referenced year.

This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Form 10-Q, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about our expectations regarding:

•trends in revenue, cost of revenue, and gross margin;

•economic uncertainty and associated trends in macroeconomic conditions, including recession and inflation;

•currency exchange rate fluctuations;

•trends and expectations in our operating and financial metrics, including customers with Annual Contract Value (ACV) equal to or greater than $100,000, dollar-based retention rate, annual recurring revenue, and growth of and within our customer base;

•future acquisitions, the anticipated benefits of such acquisitions and our ability to integrate the operations and technology of any acquired company, including our expected acquisition of Zephr Inc Limited (Zephr);

•industry trends, projected growth, or trend ~~analysis;~~analysis, including the shift to subscription business models;

•the duration and impact of the coronavirus (COVID-19) pandemic on our business and the economy;

•our investments in our platform and the cost of third-party hosting fees;

•the expansion and functionality of our technology offering, including expected benefits of such products and technology, and our ability to further penetrate our customer base;

•trends in operating expenses, including research and development expense, sales and marketing expense, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;

•our existing cash and cash equivalents, investment balances, funds available under our loan and security agreement, and cash provided by subscriptions to our platform and related professional services being sufficient to meet our working capital and capital expenditure needs for at least the next 12 months; and

•other statements regarding our future operations, financial condition, prospects and business ~~strategies.~~strategies, including our ability to sublease office space in the San Francisco Bay Area.

Such forward-looking statements are based on our expectations as of the date of this filing and are subject to a number of risks, uncertainties and assumptions, including but not limited to, risks detailed in the “Risk Factors” section of this Form 10-Q. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and circumstances discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that

the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. In addition, the forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any

reason after the date of this Form 10-Q or to conform statements to actual results or revised expectations, except as required by law.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ZUORA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


		April 30, 2022		January 31, 2022			July 31, 2022		January 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	350,626	$	113,507	Cash and cash equivalents	$	206,936	$	113,507
Short-term investments	Short-term investments	101,926		101,882		Short-term investments	241,707		101,882
Accounts receivable, net of allowance for credit losses of $3,421 and $3,188 as of April 30, 2022 and January 31, 2022, respectively		74,307		82,263
Accounts receivable, net of allowance for credit losses of $2,178 and $3,188 as of July 31, 2022 and January 31, 2022, respectively						Accounts receivable, net of allowance for credit losses of $2,178 and $3,188 as of July 31, 2022 and January 31, 2022, respectively	67,693		82,263
Deferred commissions, current portion	Deferred commissions, current portion	15,254		15,080		Deferred commissions, current portion	15,833		15,080
Prepaid expenses and other current assets	Prepaid expenses and other current assets	16,260		15,603		Prepaid expenses and other current assets	18,851		15,603
Total current assets	Total current assets	558,373		328,335		Total current assets	551,020		328,335
Property and equipment, net	Property and equipment, net	28,629		27,676		Property and equipment, net	29,495		27,676
Operating lease right-of-use assets	Operating lease right-of-use assets	30,482		32,643		Operating lease right-of-use assets	28,573		32,643
Purchased intangibles, net	Purchased intangibles, net	2,898		3,452		Purchased intangibles, net	2,526		3,452
Deferred commissions, net of current portion	Deferred commissions, net of current portion	26,856		26,727		Deferred commissions, net of current portion	27,046		26,727
Goodwill	Goodwill	17,632		17,632		Goodwill	17,632		17,632
Other assets	Other assets	4,449		4,787		Other assets	4,639		4,787
Total assets	Total assets	$	669,319	$	441,252	Total assets	$	660,931	$	441,252
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	7,155	$	6,785	Accounts payable	$	7,652	$	6,785
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	24,195		14,225		Accrued expenses and other current liabilities	19,171		14,225
Accrued employee liabilities	Accrued employee liabilities	26,861		32,425		Accrued employee liabilities	29,197		32,425
Debt, current portion	Debt, current portion	571		1,660		Debt, current portion	—		1,660
Deferred revenue, current portion	Deferred revenue, current portion	157,135		152,740		Deferred revenue, current portion	148,162		152,740
Operating lease liabilities, current portion	Operating lease liabilities, current portion	10,907		11,462		Operating lease liabilities, current portion	10,327		11,462
Total current liabilities	Total current liabilities	226,824		219,297		Total current liabilities	214,509		219,297
Debt, net of current portion	Debt, net of current portion	204,500		—		Debt, net of current portion	206,426		—
Deferred revenue, net of current portion	Deferred revenue, net of current portion	1,098		771		Deferred revenue, net of current portion	945		771
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	43,149		45,633		Operating lease liabilities, net of current portion	41,533		45,633
Deferred tax liabilities	Deferred tax liabilities	3,243		3,243		Deferred tax liabilities	3,244		3,243
Other long-term liabilities	Other long-term liabilities	1,649		1,701		Other long-term liabilities	1,609		1,701
Total liabilities	Total liabilities	480,463		270,645		Total liabilities	468,266		270,645
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)	0		0		Commitments and contingencies (Note 13)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Class A common stock	Class A common stock	12		12		Class A common stock	12		12
Class B common stock	Class B common stock	1		1		Class B common stock	1		1
Additional paid-in capital	Additional paid-in capital	776,323		734,149		Additional paid-in capital	810,636		734,149
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(865)		(108)		Accumulated other comprehensive loss	(1,459)		(108)
Accumulated deficit	Accumulated deficit	(586,615)		(563,447)		Accumulated deficit	(616,525)		(563,447)
Total stockholders’ equity	Total stockholders’ equity	188,856		170,607		Total stockholders’ equity	192,665		170,607
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	669,319	$	441,252	Total liabilities and stockholders’ equity	$	660,931	$	441,252

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Revenue:	Revenue:						Revenue:
Subscription	Subscription	$	78,500	$	65,142		Subscription	$	83,811	$	71,498	$	162,311	$	136,640
Professional services	Professional services	14,699		15,187			Professional services	14,964		14,989		29,663		30,176
Total revenue	Total revenue	93,199		80,329			Total revenue	98,775		86,487		191,974		166,816
Cost of revenue:	Cost of revenue:						Cost of revenue:
Subscription	Subscription	18,725		15,643			Subscription	19,572		17,268		38,297		32,911
Professional services	Professional services	17,510		17,078			Professional services	19,077		18,724		36,587		35,802
Total cost of revenue	Total cost of revenue	36,235		32,721			Total cost of revenue	38,649		35,992		74,884		68,713
Gross profit	Gross profit	56,964		47,608			Gross profit	60,126		50,495		117,090		98,103
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	22,872		18,967			Research and development	26,354		20,860		49,226		39,827
Sales and marketing	Sales and marketing	40,457		31,865			Sales and marketing	45,146		36,261		85,603		68,126
General and administrative	General and administrative	17,290		14,185			General and administrative	18,816		16,376		36,106		30,561
Total operating expenses	Total operating expenses	80,619		65,017			Total operating expenses	90,316		73,497		170,935		138,514
Loss from operations	Loss from operations	(23,655)		(17,409)			Loss from operations	(30,190)		(23,002)		(53,845)		(40,411)
Interest and other income, net		795		121
Change in fair value of warrant liability							Change in fair value of warrant liability	4,524		—		8,896		—
Interest expense							Interest expense	(4,419)		(62)		(6,203)		(72)
Interest and other income (expense), net							Interest and other income (expense), net	704		(391)		(1,089)		(260)
Loss before income taxes	Loss before income taxes	(22,860)		(17,288)			Loss before income taxes	(29,381)		(23,455)		(52,241)		(40,743)
Income tax provision	Income tax provision	308		373			Income tax provision	529		238		837		611
Net loss	Net loss	(23,168)		(17,661)			Net loss	(29,910)		(23,693)		(53,078)		(41,354)
Comprehensive loss:	Comprehensive loss:						Comprehensive loss:
Foreign currency translation adjustment	Foreign currency translation adjustment	(359)		(85)			Foreign currency translation adjustment	(316)		(174)		(675)		(259)
Unrealized loss on available-for-sale securities	Unrealized loss on available-for-sale securities	(398)		(34)			Unrealized loss on available-for-sale securities	(278)		—		(676)		(34)
Comprehensive loss	Comprehensive loss	$	(23,925)	$	(17,780)		Comprehensive loss	$	(30,504)	$	(23,867)	$	(54,429)	$	(41,647)
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.18)	$	(0.15)		Net loss per share, basic and diluted	$	(0.23)	$	(0.19)	$	(0.41)	$	(0.34)
Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	128,457		121,354			Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	130,280		123,134		129,384		122,259

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)


		Three Months Ended April 30, 2022																	Six Months Ended July 31, 2022
											Accumulated																Accumulated
		Class A				Class B			Additional		Other					Total			Class A			Class B			Additional		Other				Total
		Common Stock				Common Stock			Paid-in		Comprehensive			Accumulated		Stockholders’			Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
		Shares		Amount		Shares	Amount		Capital		Loss			Deficit		Equity			Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balance, January 31, 2022	Balance, January 31, 2022	119,008		$	12	9,048	$	1	$	734,149	$	(108)		$	(563,447)	$	170,607	Balance, January 31, 2022	119,008	$	12	9,048	$	1	$	734,149	$	(108)	$	(563,447)	$	170,607
Conversion of Class B common stock to Class A common stock	Conversion of Class B common stock to Class A common stock	1,120		—		(1,120)	—		—		—			—		—		Conversion of Class B common stock to Class A common stock	1,165	—		(1,165)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	Issuance of common stock upon exercise of stock options	49		—		86	—		907		—			—		907		Issuance of common stock upon exercise of stock options	49	—		239	—		1,522		—		—		1,522
RSU releases	RSU releases	956		—		—	—		—		—			—		—		RSU releases	2,895	—		—	—		—		—		—		—
Purchases of common stock under the ESPP																		Purchases of common stock under the ESPP	615	—		—	—		4,485		—		—		4,485
Charitable donation of stock																		Charitable donation of stock	101	—		—	—		1,000		—		—		1,000
Stock-based compensation	Stock-based compensation	—		—		—	—		22,825		—			—		22,825		Stock-based compensation	—	—		—	—		51,038		—		—		51,038
Issuance of warrants	Issuance of warrants	—		—		—	—		18,442		—			—		18,442		Issuance of warrants	—	—		—	—		18,442		—		—		18,442
Other comprehensive loss	Other comprehensive loss	—		—		—	—		—		(757)			—		(757)		Other comprehensive loss	—	—		—	—		—		(1,351)		—		(1,351)
Net loss	Net loss	—		—		—	—		—		—			(23,168)		(23,168)		Net loss	—	—		—	—		—		—		(53,078)		(53,078)
Balance, April 30, 2022		121,133		$	12	8,014	$	1	$	776,323	$	(865)		$	(586,615)	$	188,856
Balance, July 31, 2022																		Balance, July 31, 2022	123,833	$	12	8,122	$	1	$	810,636	$	(1,459)	$	(616,525)	$	192,665

			Three Months Ended July 31, 2022
																											Accumulated
													Class A						Class B			Additional	Other				Total
													Common Stock						Common Stock			Paid-in	Comprehensive		Accumulated		Stockholders'
																			Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity

Balance, April 30, 2022																		Balance, April 30, 2022	121,133	$	12	8,014	$	1	$	776,323	$	(865)	$	(586,615)	$	188,856
Conversion of Class B common stock to Class A common stock																		Conversion of Class B common stock to Class A common stock	45	—		(45)	—		—		—		—		—
Issuance of common stock upon exercise of stock options																		Issuance of common stock upon exercise of stock options	—	—		153	—		615		—		—		615
RSU releases																		RSU releases	1,939	—		—	—		—		—		—		—
Purchases of common stock under the ESPP																		Purchases of common stock under the ESPP	615	—		—	—		4,485		—		—		4,485
Charitable donation of stock																		Charitable donation of stock	101	—		—	—		1,000		—		—		1,000
Stock-based compensation																		Stock-based compensation	—	—		—	—		28,213		—		—		28,213
Other comprehensive loss																		Other comprehensive loss	—	—		—	—		—		(594)		—		(594)
Net loss																		Net loss	—	—		—	—		—		—		(29,910)		(29,910)
Balance, July 31, 2022																		Balance, July 31, 2022	123,833	$	12	8,122	$	1	$	810,636	$	(1,459)	$	(616,525)	$	192,665

Three Months Ended April 30, 2021
Accumulated
Class A Class B Additional Other Total
Common Stock Common Stock Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Capital Income Deficit Equity
Balance, January 31, 2021 109,900 $ 11 11,004 $ 1 $ 635,127 $ 796 $ (464,022) $ 171,913
Conversion of Class B common stock to Class A common stock 680 — (680) — — — — —
Issuance of common stock upon exercise of stock options 39 — 611 — 3,567 — — 3,567
Lapse of restrictions on common stock related to early exercise of stock options — — — — 10 — — 10
RSU releases 630 — 20 — — — — —
Stock-based compensation — — — — 13,797 — — 13,797
Other comprehensive loss — — — — — (119) — (119)
Net loss — — — — — — (17,661) (17,661)
Balance, April 30, 2021 111,249 $ 11 10,955 $ 1 $ 652,501 $ 677 $ (481,683) $ 171,507


	Six Months Ended July 31, 2021
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, January 31, 2021	109,900	$	11	11,004	$	1	$	635,127	$	796	$	(464,022)	$	171,913
Conversion of Class B common stock to Class A common stock	3,111	—		(3,111)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	313	1		1,204	—		10,186		—		—		10,187
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		18		—		—		18
RSU releases	1,539	—		26	—		—		—		—		—
Purchases of common stock under the ESPP	388	—		—	—		4,005		—		—		4,005
Charitable donation of stock	61	—		—	—		1,000		—		—		1,000
Stock-based compensation	—	—		—	—		31,866		—		—		31,866
Other comprehensive loss	—	—		—	—		—		(293)		—		(293)
Net loss	—	—		—	—		—		—		(41,354)		(41,354)
Balance, July 31, 2021	115,312	$	12	9,123	$	1	$	682,202	$	503	$	(505,376)	$	177,342

	Three Months Ended July 31, 2021
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, April 30, 2021	111,249	$	11	10,955	$	1	$	652,501	$	677	$	(481,683)	$	171,507
Conversion of Class B common stock to Class A common stock	2,431	—		(2,431)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	274	1		593	—		6,619		—		—		6,620
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		8		—		—		8
RSU releases	909	—		6	—		—		—		—		—
Purchases of common stock under the ESPP	388	—		—	—		4,005		—		—		4,005
Charitable donation of stock	61	—		—	—		1,000		—		—		1,000
Stock-based compensation	—	—		—	—		18,069		—		—		18,069
Other comprehensive loss	—	—		—	—		—		(174)		—		(174)
Net loss	—	—		—	—		—		—		(23,693)		(23,693)
Balance, July 31, 2021	115,312	$	12	9,123	$	1	$	682,202	$	503	$	(505,376)	$	177,342

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Three Months Ended April 30,					Six Months Ended July 31,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(23,168)	$	(17,661)	Net loss	$	(53,078)	$	(41,354)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion	Depreciation, amortization and accretion	4,202		4,147		Depreciation, amortization and accretion	8,882		8,496
Stock-based compensation	Stock-based compensation	22,825		13,797		Stock-based compensation	51,038		31,866
Provision for credit losses	Provision for credit losses	499		1,153		Provision for credit losses	1,134		1,368

Donation of common stock to charitable foundation						Donation of common stock to charitable foundation	1,000		1,000
Amortization of deferred commissions	Amortization of deferred commissions	4,563		3,874		Amortization of deferred commissions	9,346		7,859
Reduction in carrying amount of right-of-use assets	Reduction in carrying amount of right-of-use assets	2,161		2,342		Reduction in carrying amount of right-of-use assets	4,070		4,760
Change in fair value of warrant liability	Change in fair value of warrant liability	(4,373)		—		Change in fair value of warrant liability	(8,896)		—
Other	Other	216		156		Other	267		426
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	7,457		18,223		Accounts receivable	13,436		21,253
Prepaid expenses and other assets	Prepaid expenses and other assets	(206)		(1,169)		Prepaid expenses and other assets	(2,823)		(3,216)
Deferred commissions	Deferred commissions	(4,984)		(4,200)		Deferred commissions	(10,629)		(8,193)
Accounts payable	Accounts payable	101		(1,342)		Accounts payable	692		1,513
Accrued expenses and other liabilities	Accrued expenses and other liabilities	2,205		(1,522)		Accrued expenses and other liabilities	1,848		51
Accrued employee liabilities	Accrued employee liabilities	(5,564)		(3,056)		Accrued employee liabilities	(3,228)		(2,088)
Deferred revenue	Deferred revenue	4,722		(1,109)		Deferred revenue	(4,404)		(9,203)
Operating lease liabilities	Operating lease liabilities	(3,673)		(3,382)		Operating lease liabilities	(6,473)		(6,910)
Net cash provided by operating activities	Net cash provided by operating activities	6,983		10,251		Net cash provided by operating activities	2,182		7,628
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(3,263)		(1,965)		Purchases of property and equipment	(6,084)		(3,697)
Insurance proceeds for damaged property and equipment	Insurance proceeds for damaged property and equipment	—		344		Insurance proceeds for damaged property and equipment	—		344
Purchase of intangible assets						Purchase of intangible assets	—		(1,349)
Purchases of short-term investments	Purchases of short-term investments	(30,887)		(26,687)		Purchases of short-term investments	(195,685)		(53,650)
Maturities of short-term investments	Maturities of short-term investments	30,263		22,692		Maturities of short-term investments	55,263		49,492
Net cash used in investing activities	Net cash used in investing activities	(3,887)		(5,616)		Net cash used in investing activities	(146,506)		(8,860)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs	Proceeds from issuance of convertible senior notes, net of issuance costs	234,586		—		Proceeds from issuance of convertible senior notes, net of issuance costs	233,901		—
Proceeds from issuance of common stock upon exercise of stock options	Proceeds from issuance of common stock upon exercise of stock options	907		3,567		Proceeds from issuance of common stock upon exercise of stock options	1,522		10,187

Proceeds from issuance of common stock under employee stock purchase plan						Proceeds from issuance of common stock under employee stock purchase plan	4,485		4,005
Principal payments on debt	Principal payments on debt	(1,111)		(1,111)		Principal payments on debt	(1,480)		(2,222)
Net cash provided by financing activities	Net cash provided by financing activities	234,382		2,456		Net cash provided by financing activities	238,428		11,970
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(359)		(85)		Effect of exchange rates on cash and cash equivalents	(675)		(259)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	237,119		7,006		Net increase in cash and cash equivalents	93,429		10,479
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	113,507		94,110		Cash and cash equivalents, beginning of period	113,507		94,110
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	350,626	$	101,116	Cash and cash equivalents, end of period	$	206,936	$	104,589
Supplemental disclosure of non-cash investing and financing activities:	Supplemental disclosure of non-cash investing and financing activities:					Supplemental disclosure of non-cash investing and financing activities:
Lapse in restrictions on early exercised common stock options	Lapse in restrictions on early exercised common stock options	$	—	$	10	Lapse in restrictions on early exercised common stock options	$	—	$	18
Property and equipment purchases accrued or in accounts payable	Property and equipment purchases accrued or in accounts payable	$	133	$	20	Property and equipment purchases accrued or in accounts payable	$	322	$	44
Issuance costs for convertible senior notes accrued or in accounts payable		$	685	$	—
Purchase of intangible assets included in accrued expenses and other current liabilities						Purchase of intangible assets included in accrued expenses and other current liabilities	$	—	$	225

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Overview and Basis of Presentation

Description of Business

Zuora, Inc. was incorporated in the state of Delaware in 2006 and began operations in 2007. Zuora’s fiscal year ends on January 31. Zuora is headquartered in Redwood City, California.

Zuora provides a cloud-based subscription management platform, built to help companies monetize new services and operate dynamic, recurring revenue business models. Our solution enables companies across multiple industries and geographies to launch, manage and scale a subscription business, automating the entire quote-to-cash and revenue recognition process, including quoting, billing, collections and revenue recognition. With Zuora’s solution, businesses can change pricing and packaging for products and services to grow and scale, efficiently comply with revenue recognition standards, analyze customer data to optimize their subscription offerings, and build meaningful relationships with their subscribers.

References to “Zuora”, “us”, “our”, or “we” in these notes refer to Zuora, Inc. and its subsidiaries on a consolidated basis.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of Zuora and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated balance sheet as of January 31, 2022 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of comprehensive loss, statements of cash flows and statements of stockholders' equity for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2023 or any future period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 28, 2022 (Annual Report).

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Our most significant estimates and assumptions are related to revenue recognition with respect to the determination of the relative standalone selling prices for our services; the expected period of benefit over which deferred commissions are amortized; valuation of stock-based awards and warrants; estimates of allowance for credit losses; estimates of the fair value of goodwill and long-lived assets when evaluating for impairments; useful lives of intangibles and other long-lived assets; and the valuation of deferred income tax assets and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ materially from these estimates under different assumptions or conditions.

Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Our significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in our Annual Report for the fiscal year ended January 31, 2022. There have been no significant changes to these policies during the ~~three~~six months ended ~~April 30,~~July 31, 2022, except for updates resulting from our issuance to Silver Lake of the Initial Notes and Warrants (as defined in Note 9. Debt below) in March 2022, as discussed below. Additional information regarding our issuance of these convertible notes and warrants is included in Note 9. Debt and Note 17. Warrants to Purchase Shares of Common Stock, respectively.

Derivative Financial Instruments

The accounting treatment of derivative financial instruments requires that we record certain embedded features and warrants as assets or liabilities at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date with any change in fair value recorded as income or expense. In connection with our issuance of of the Initial Notes to Silver Lake ~~during the three months ended April 30,~~on March 24, 2022, we adopted a sequencing policy in accordance with ASC 815-40 whereby financial instruments issued will be ordered by conversion or exercise price.

Deferred Debt Issuance Costs

Costs directly associated with obtaining debt financing are deferred and amortized using the effective interest rate method over the expected term of the related debt agreement. We determine the expected term of debt agreements by assessing the contractual term of the debt as well as any non-contingent put rights provided to the lenders. Unamortized amounts related to long-term debt are reflected on the unaudited condensed consolidated balance sheets as a direct deduction from the carrying amounts of the related long-term debt liability. Amortization expense of deferred loan costs was approximately ~~$0.8~~$1.9 million and $2.7 million for the three and six months ended ~~April 30,~~July 31, 2022, respectively, and is included in Interest ~~and other income, net~~expense on the accompanying unaudited condensed consolidated statements of comprehensive loss.

Earnings per Share

Basic earnings per share (EPS) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income or loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the if-converted (convertible debt instruments) or treasury-stock method (warrants and share-based payment arrangements). For purposes of this calculation, common stock issuable upon conversion of debt, options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain separation models previously required under U.S. GAAP, including the beneficial conversion feature and cash conversion models. This ASU also simplifies the diluted earnings per share calculation in certain areas. The standard was effective for us beginning February 1, 2022 and we utilized the modified retrospective transition method of adoption. The adoption of this standard had no impact on our retained earnings or other components of equity as of the February 1, 2022 adoption date and had no impact to our earnings per share during the period of adoption.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. We retroactively adopted this standard as of February 1, 2022. The adoption of this standard had no impact on our unaudited condensed consolidated financial statements.

Note 3. Investments

The amortized costs, unrealized gains and losses and estimated fair values of our short-term investments were as follows (in thousands):


		April 30, 2022									July 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	U.S. government securities	$	24,091	$	—	$	(383)	$	23,708	U.S. government securities	$	64,533	$	9	$	(543)	$	63,999
Corporate bonds	Corporate bonds	28,232		—		(182)		28,050		Corporate bonds	51,889		—		(296)		51,593
Commercial paper	Commercial paper	46,173		—		—		46,173		Commercial paper	112,149		—		—		112,149
Supranational bonds										Supranational bonds	9,995		—		(12)		9,983
Foreign government securities	Foreign government securities	4,054		—		(59)		3,995		Foreign government securities	4,043		—		(60)		3,983
Total short-term investments	Total short-term investments	$	102,550	$	—	$	(624)	$	101,926	Total short-term investments	$	242,609	$	9	$	(911)	$	241,707


	January 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	18,082	$	—	$	(155)	$	17,927
Corporate bonds	21,225		—		(49)		21,176
Commercial paper	55,234		—		—		55,234
Supranational bonds	3,503		—		—		3,503
Foreign government securities	4,064		—		(22)		4,042
Total short-term investments	$	102,108	$	—	$	(226)	$	101,882

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive loss into investment income during the three and six months ended ~~April 30,~~July 31, 2022 and 2021. We had no significant unrealized losses on our available-for-sale securities as of ~~April 30,~~July 31, 2022 and January 31, 2022, and we do not expect material credit losses on our current investments in future periods. All securities had stated effective maturities of less than ~~two years~~one year as of ~~April 30,~~July 31, 2022.

Note 4. Fair Value Measurements

The accounting guidance for fair value measurements establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:


Level input						Input definition

Level 1						Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2						Inputs other than quoted prices included within Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date

Level 3						Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly.

The following tables summarize our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis (in thousands):


		April 30, 2022									July 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	332,916	$	—	$	—	$	332,916	Money market funds	$	180,072	$	—	$	—	$	180,072
Short-term investments:	Short-term investments:									Short-term investments:
U.S. government securities	U.S. government securities	$	—	$	23,708	$	—	$	23,708	U.S. government securities	$	—	$	63,999	$	—	$	63,999
Corporate bonds	Corporate bonds	—		28,050		—		28,050		Corporate bonds	—		51,593		—		51,593
Commercial paper	Commercial paper	—		46,173		—		46,173		Commercial paper	—		112,149		—		112,149
Supranational bonds										Supranational bonds	—		9,983		—		9,983
Foreign government securities	Foreign government securities	—		3,995		—		3,995		Foreign government securities	—		3,983		—		3,983
Total short-term investments	Total short-term investments	$	—	$	101,926	$	—	$	101,926	Total short-term investments	$	—	$	241,707	$	—	$	241,707
Liabilities:	Liabilities:									Liabilities:
Warrant liability	Warrant liability	$	—	$	—	$	7,670	$	7,670	Warrant liability	$	—	$	—	$	3,147	$	3,147


	January 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	92,668	$	—	$	—	$	92,668
Short-term investments:
U.S. government securities	$	—	$	17,927	$	—	$	17,927
Corporate bonds	—		21,176		—		21,176
Commercial paper	—		55,234		—		55,234
Supranational bonds	—		3,503		—		3,503
Foreign government securities	—		4,042		—		4,042
Total short-term investments	$	—	$	101,882	$	—	$	101,882

Changes in our Level 3 fair value measurements were as follows (in thousands):


	Level 3 Fair Value
Balance, January 31, 2022	$	—
Issuances	12,043
Settlements	—
Gain on change in fair value	~~(4,373)~~(8,896)
Balance, ~~April 30,~~July 31, 2022	$	~~7,670~~3,147

The carrying amounts of certain financial instruments, including cash held in bank accounts, accounts receivable, accounts payable, and accrued expenses, approximate fair value due to their relatively short maturities. The carrying amount of debt outstanding under the ~~Debt Agreement approximates fair value as of April 30, 2022 due to its floating interest rate. The carrying amount of debt outstanding under the~~ Initial Notes approximates fair value as of ~~April 30,~~July 31, 2022. Additional information regarding the Initial Notes and Warrant liability is included in Note 9. Debt and Note 17. Warrants to Purchase Shares of Common Stock, respectively.

Note 5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


		April 30, 2022		January 31, 2022			July 31, 2022		January 31, 2022
Prepaid software subscriptions	Prepaid software subscriptions	$	7,000	$	6,854	Prepaid software subscriptions	$	5,896	$	6,854
Prepaid insurance	Prepaid insurance	1,979		3,220		Prepaid insurance	4,756		3,220
Taxes	Taxes	1,490		1,270		Taxes	1,486		1,270
Contract assets	Contract assets	1,170		1,289		Contract assets	1,299		1,289
Prepaid hosting costs	Prepaid hosting costs	1,016		767		Prepaid hosting costs	1,245		767
Other	Other	3,605		2,203		Other	4,169		2,203
Total	Total	$	16,260	$	15,603	Total	$	18,851	$	15,603

Note 6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


		April 30, 2022		January 31, 2022			July 31, 2022		January 31, 2022
Software	Software	28,125		25,495		Software	$	30,383	$	25,495
Leasehold improvements	Leasehold improvements	17,140		17,277		Leasehold improvements	17,073		17,277
Computer equipment	Computer equipment	15,173		14,746		Computer equipment	15,771		14,746
Furniture and fixtures	Furniture and fixtures	4,369		4,424		Furniture and fixtures	4,335		4,424
		64,807		61,942			67,562		61,942
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(36,178)		(34,266)		Less accumulated depreciation and amortization	(38,067)		(34,266)
Total	Total	$	28,629	$	27,676	Total	$	29,495	$	27,676

The following table summarizes the capitalized internal-use software costs included within the Software line item in the table above (in thousands):


		Three Months Ended April 30,			Three Months Ended July 31,						Six Months Ended July 31,
			2022			2021			2022		2021		2022		2021
Internal-use software costs capitalized during the period	Internal-use software costs capitalized during the period		$	1,902		$	924	Internal-use software costs capitalized during the period	$	2,247	$	1,038	$	4,149	$	1,962

			April 30, 2022			January 31, 2022							July 31, 2022		January 31, 2022
Total capitalized internal-use software, net of accumulated amortization	Total capitalized internal-use software, net of accumulated amortization		$	12,541		$	11,534	Total capitalized internal-use software, net of accumulated amortization					$	13,890	$	11,534

The following table summarizes total depreciation and amortization expense related to property and equipment, including amortization of internal-use software, included in General and administrative and Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):
Three Months Ended April 30,
2022 2021
Total depreciation and amortization expense $ 2,181 $ 2,844


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Total depreciation and amortization expense	$	2,186	$	2,984	$	4,367	$	5,828

Note 7. Purchased Intangible Assets

The following table summarizes the purchased intangible asset balances and activity (in thousands):


		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Balance, January 31, 2022	Balance, January 31, 2022	$	14,467	$	(11,015)	$	3,452	Balance, January 31, 2022	$	14,467	$	(11,015)	$	3,452
Amortization expense	Amortization expense	—		(554)		(554)		Amortization expense	—		(926)		(926)
Balance, April 30, 2022		$	14,467	$	(11,569)	$	2,898
Balance, July 31, 2022								Balance, July 31, 2022	$	14,467	$	(11,941)	$	2,526

The following table summarizes amortization expense related to purchased intangible assets included in Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):

Three Months Ended April 30,
2022 2021
Purchased intangible assets amortization expense $ 554 $ 423


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Purchased intangible assets amortization expense	$	372	$	519	$	926	$	942

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


		April 30, 2022		January 31, 2022			July 31, 2022		January 31, 2022
Warrant liability		$	7,670	$	—
Accrued outside services and consulting	Accrued outside services and consulting	5,081		3,712		Accrued outside services and consulting	$	5,219	$	3,712
Accrued hosting and third-party licenses	Accrued hosting and third-party licenses	3,848		3,865		Accrued hosting and third-party licenses	4,095		3,865
Warrant liability						Warrant liability	3,147		—
Accrued taxes	Accrued taxes	2,215		2,422		Accrued taxes	2,064		2,422
Accrued interest	Accrued interest	1,015		—		Accrued interest	850		—
Other accrued expenses	Other accrued expenses	4,366		4,226		Other accrued expenses	3,796		4,226
Total	Total	$	24,195	$	14,225	Total	$	19,171	$	14,225

Note 9. Debt

2029 Notes

On March 24, 2022 (Initial Closing Date), we issued convertible senior notes (Initial Notes) in the aggregate principal amount of $250.0 million pursuant to an investment agreement (Investment Agreement) and indenture agreement (Indenture) to certain entities affiliated with Silver Lake Alpine II, L.P. (Silver Lake). Pursuant to the Investment Agreement, additional convertible senior notes in the aggregate principal amount of $150.0 million (Additional Notes), (together with the Initial Notes, the “2029 Notes”) shall be issued to Silver Lake 18 months after the Initial Closing Date, with an earlier issuance upon our completion of a Material Acquisition that meets the conditions described in Section 2.02(a) of the Investment Agreement. In addition, in the event that a Change in Control (as defined in the Indenture) occurs prior to the Additional Notes being issued, the noteholder would have

the right to receive, at the noteholder's election, the Additional Notes, a cash payment, or common stock, as described in Section 2.02(b) of the Investment Agreement. The Initial Notes and the Additional Notes, once issued, represent senior unsecured obligations of Zuora.

As a condition of the Investment Agreement, we also issued warrants to Silver Lake to acquire up to 7.5 million shares of Class A common stock (Warrants), of which (i) up to 2.5 million Warrants are exercisable at $20.00 per share, (ii) up to 2.5 million Warrants are exercisable at $22.00 per share and (iii) up to 2.5 million Warrants are exercisable at $24.00 per share. The Warrants are exercisable for a period of seven years from the Initial Closing ~~Date,~~

Date.

The purchase price of the 2029 Notes is 98% of the par value. The 2029 Notes bear interest at a rate of 3.95% per annum, payable quarterly in cash, provided that we have the option to pay interest in kind at 5.50% per annum. If elected, any such paid in kind interest will be added to the principal balance at each quarterly interest payment date. The 2029 Notes will mature on March 31, 2029, subject to earlier conversion or redemption. The Initial Notes are convertible at Silver Lake’s option into shares of our Class A common stock at an initial conversion rate of 50.0 shares per $1,000 principal amount ($20.00 per share, representing 12.5 million shares of Class A common stock), subject to customary anti-dilution adjustments. Any 2029 Notes that are converted in connection with a Make-Whole Fundamental Change (as defined in the Indenture) are subject to an increase in the conversion price under certain circumstances.

With certain exceptions, upon a Fundamental Change, the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the 2029 Notes at a purchase price equal to the principal amount and accrued but unpaid interest outstanding, plus the total sum of all remaining scheduled interest payments through the remainder of the term of the 2029 Notes, at the 5.50% paid in kind interest rate. At any time on or after the fifth anniversary of the Initial Closing Date, the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the Notes at a purchase price equal to the principal amount plus accrued interest through the date of repurchase. Upon certain events of default, the 2029 Notes may be declared due and payable (or will automatically become so under certain events of default), at a purchase price equal to the principal amount plus accrued interest through the date of repurchase. We have no right to redeem the 2029 Notes prior to maturity.

Pursuant to the Investment Agreement, without our prior written consent, Silver Lake is restricted from converting any 2029 Note, exercising any Warrant or transferring any 2029 Note or Warrant to parties other than affiliates or members of Silver Lake (with certain limited exceptions) for 18 months following the Initial Closing Date, or if sooner, upon the consummation of any Change in Control (as defined in the Investment Agreement) or entry into a definitive agreement for a transaction that, if consummated, would result in a Change in Control.

We determined that the Initial Notes arrangement consisted of 3three freestanding instruments: the Initial Notes, the Warrants and the loan commitment related to the Additional Notes. In addition, we evaluated the embedded features in the Initial Notes and identified certain embedded features which were not clearly and closely related to the Initial Notes and met the definition of a derivative, and therefore required bifurcation from the host contract. We determined that the fair value of these bifurcated derivatives was de minimis as of the Initial Closing Date and as of ~~April 30,~~July 31, 2022.

As further discussed in Note 17. Warrants to Purchase Shares of Common Stock, a portion of the Warrants issued were determined to require liability classification with the remaining Warrants eligible to be classified in stockholders’ equity. As such, we allocated the proceeds obtained from the Initial Notes first to the liability-classified Warrants and then, on a relative fair value basis, between the equity-classified Warrants and the Initial Notes.

We incurred approximately $8.1 million of debt issuance costs associated with the 2029 Notes and Warrants. Of this amount, we allocated $7.1 million as a component of the discount on the 2029 Notes, $0.7 million against the proceeds allocated to the equity-classified Warrants and $0.3 million was allocated to the liability-classified Warrants and recorded to General and administrative expense in the accompanying unaudited condensed consolidated statements of comprehensive loss. The 2029 Notes debt discount is being amortized using the effective interest rate method over the five year expected life of the 2029 Notes (representing the period from the contract date to the earliest noncontingent put date of May 24, 2027) and reflects an effective interest rate of 8.5% ~~at issuance.~~.

The carrying value of the Initial Notes was classified as long-term and consisted of the following (in thousands):


	~~April 30,~~July 31, 2022
Initial Notes principal	$	250,000
Unamortized discount	~~(45,500)~~(43,574)
Carrying value	$	~~204,500~~206,426

~~During the three months ended April 30, 2022, we recognized a total of $1.8 million of interest~~Interest expense related to the Initial Notes, included in Interest ~~and other income, net~~ expensein the accompanying unaudited condensed consolidated

statements of comprehensive loss, ~~of which $1.0 million represents cash interest payments accrued and $0.8 million represents amortization of the debt discount.~~was as follows (in thousands):


	Three Months Ended July 31, 2022		Six Months Ended July 31, 2022
Contractual interest expense	$	2,469	$	3,484
Amortization of deferred loan costs	1,926		2,667
Total interest expense	$	4,395	$	6,151

Debt Agreement

We have an agreement with Silicon Valley Bank that includes a ~~revolving~~term and ~~term~~revolving loan facility, which is secured by a lien on substantially all of our non-IP assets (Debt Agreement). The interest rate under both the term and revolving loan facility is equal to the prime rate published by the Wall Street Journal minus 1.00%.

The term loan facility, under which we borrowed $15.0 million in June 2017 to partially finance the acquisition of Leeyo Software, Inc., fully matured in June 2022. We made the final term loan principal and interest payment of $0.4 million during the three months ended July 31, 2022, and paid a fee of 1.5% of the original principal amount of the term loan facility, or $225,000, upon termination of the facility.

Under the revolving loan facility, we may borrow up to $30.0 million until October 2022. As of ~~April 30,~~July 31, 2022, we had not drawn down any amounts under this revolving loan. Under the term loan facility, we borrowed $15.0 million in June 2017 to partially finance the acquisition of Leeyo. Payments were interest only through June 2019, after which date payments of principal and interest are due in 36 equal monthly installments beginning in June 2019 until the maturity date in June 2022. A remaining balance of $0.4 million was outstanding as of April 30, 2022. The interest rate under both the revolving and term loan facility is equal to the prime rate published by the Wall Street Journal minus 1.00%.

~~Additionally, we will incur a fee of 1.5% of the original principal amount of the term loan facility, or $225,000, upon the earlier to occur of prepayment or the termination of the facility.~~

Note 10. Deferred Revenue and Performance Obligations

The following table summarizes revenue recognized during the period that was included in the deferred revenue balance at the beginning of each respective period (in thousands):
Three Months Ended April 30,
2022 2021
Revenue recognized from deferred revenue $ 73,567 $ 62,919


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Revenue recognized from deferred revenue	$	77,680	$	67,740	$	115,461	$	99,405

As of ~~April 30,~~July 31, 2022, total remaining non-cancellable performance obligations under our subscription contracts with customers was approximately ~~$425.4~~$457.4 million and we expect to recognize revenue on approximately ~~58%~~$258.0 million of these remaining performance obligations over the next 12 months. Remaining performance obligations under our professional services contracts as of ~~April 30,~~July 31, 2022 were not material.

Note 11. Geographical Information

Disaggregation of Revenue

Revenue by country, based on the customer’s address at the time of sale, was as follows (in thousands):


		Three Months Ended April 30,						Three Months Ended July 31,					Six Months Ended July 31,
		2022			2021					2022			2021			2022			2021
United States	United States	$	59,419		$	49,707			United States	$	64,808		$	55,967		$	124,227		$	105,674
Others	Others	33,780			30,622				Others	33,967			30,520			67,747			61,142
Total	Total	$	93,199		$	80,329			Total	$	98,775		$	86,487		$	191,974		$	166,816
Percentage of revenue by geographic area:	Percentage of revenue by geographic area:								Percentage of revenue by geographic area:
United States	United States	64		%	62		%		United States	66		%	65		%	65		%	63		%
Other	Other	36		%	38		%		Other	34		%	35		%	35		%	37		%

Other than the United States, no individual country exceeded 10% of total revenue for the three and six months ended ~~April 30,~~July 31, 2022 and 2021.

Long-lived assets

Long-lived assets, which consist of property and equipment, net, deferred commissions, purchased intangible assets, net and operating lease right-of-use assets by geographic location, are based on the location of the legal entity that owns the asset. As of ~~April 30,~~July 31, 2022 and 2021, no individual country exceeded 10% of total long-lived assets other than the United States.

Note 12. Leases

We have non-cancelable operating leases for our offices located in the U.S. and abroad. As of ~~April 30,~~July 31, 2022, these leases expire on various dates between 2023 and 2030. Certain lease agreements include 1one or more options to renew, with renewal terms that can extend the lease up to seven years. We have the right to exercise or forego the lease renewal options. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of our long-term operating leases and related operating lease cost were as follows (in thousands):


		April 30, 2022		January 31, 2022			July 31, 2022		January 31, 2022
Operating lease right-of-use assets	Operating lease right-of-use assets	$	30,482	$	32,643	Operating lease right-of-use assets	$	28,573	$	32,643

Operating lease liabilities, current portion	Operating lease liabilities, current portion	$	10,907	$	11,462	Operating lease liabilities, current portion	$	10,327	$	11,462
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	43,149		45,633		Operating lease liabilities, net of current portion	41,533		45,633
Total operating lease liabilities	Total operating lease liabilities	$	54,056	$	57,095	Total operating lease liabilities	$	51,860	$	57,095

Three Months Ended April 30,
2022 2021
Operating lease cost1
$ 2,634 $ 3,216


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Operating lease cost1	$	2,618	$	3,164	$	5,252	$	6,380

(1) Includes costs related to our short-term operating leases as follows (in thousands):
Three Months Ended April 30,
2022 2021
Short-term operating lease costs $ 90 $ 102


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Short-term operating lease costs	$	109	$	101	$	199	$	203

The future maturities of long-term operating lease liabilities for each fiscal year were as follows (in thousands):
Maturities of Operating Lease Liabilities
2023 (remainder of the year) $ 10,230
2024 11,025
2025 6,386
2026 6,242
2027 6,429
Thereafter 23,468
Total lease payments 63,780
Less imputed interest (9,724)
Present value of lease liabilities $ 54,056


	Maturities of Operating Lease Liabilities
2023 (remainder of the year)	$	7,467
2024	10,988
2025	6,386
2026	6,242
2027	6,429
Thereafter	23,468
Total lease payments	60,980
Less imputed interest	(9,120)
Present value of lease liabilities	$	51,860

Other supplemental information related to our long-term operating leases includes the following (dollars in thousands):

April 30, 2022

January 31, 2022

July 31, 2022

January 31, 2022

Weighted-average remaining operating lease term

6.9 years

7.0 years

Weighted-average remaining operating lease term

6.8 years

7.0 years

Weighted-average operating lease discount rate

4.6

Weighted-average operating lease discount rate

4.6


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Supplemental Cash Flow Information	Supplemental Cash Flow Information						Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases	Cash paid for operating leases	$	3,414	$	3,409		Cash paid for operating leases	$	3,408	$	3,454	$	6,822	$	6,863

New right-of-use assets obtained in exchange for lease liabilities:	New right-of-use assets obtained in exchange for lease liabilities:						New right-of-use assets obtained in exchange for lease liabilities:
Operating leases obtained	Operating leases obtained	$	—	$	3,923		Operating leases obtained	$	—	$	—	$	—	$	3,923

Note 13. Commitments and Contingencies

Letters of Credit

In connection with the execution of certain facility leases, we had bank issued irrevocable letters of credit for $4.5 million as of ~~April 30,~~July 31, 2022 and January 31, 2022. No draws have been made under such letters of credit.

Legal Proceedings

From time to time, we may be subject to legal proceedings, as well as demands, claims and threatened litigation. The outcomes of legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period. Regardless of the outcome, litigation can have an adverse impact on our business because of defense and settlement costs, diversion of management resources, and other factors. Other than the matters described below, we are not currently party to any legal proceeding that we believe could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably.

Securities Class Actions

In June 2019, a putative securities class action lawsuit was filed in the U.S. District Court for the Northern District of California naming Zuora and certain of its officers as defendants. The complaint purports to bring suit on behalf of stockholders who purchased or otherwise acquired Zuora's securities between April 12, 2018 and May 30, 2019. The complaint alleges that defendants made false and misleading statements about Zuora's business, operations and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as

amended (Exchange Act), and seeks unspecified compensatory damages, fees and costs. In November 2019, the lead plaintiff filed a consolidated amended complaint asserting the same claims. In April 2020, the court denied defendants’ motion to dismiss. On March 15, 2021, the court granted plaintiff’s motion to certify a class consisting of persons and entities who purchased or acquired Zuora common stock between April 12, 2018 and May 30, 2019 and who were allegedly damaged thereby. Discovery in this case is ongoing.

In April and May 2020, 2two putative securities class action lawsuits were filed in the Superior Court of the State of California, County of San Mateo, naming as defendants Zuora and certain of its current and former officers, its directors and the underwriters of Zuora's initial public offering (IPO). The complaints purport to bring suit on behalf of stockholders who purchased or otherwise acquired Zuora's securities pursuant or traceable to the Registration Statement and Prospectus issued in connection with Zuora's IPO and allege claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The suits seek unspecified damages and other relief. In July 2020, the court entered an order consolidating the 2two lawsuits, and the lead plaintiffs filed a consolidated amended complaint asserting the same claims. In October 2020, the court denied defendants’ demurrer as to the Section 11 and Section 15 claims and granted the demurrer as to the Section 12(a)(2) claim with leave to file an amended complaint. In November 2020, the lead plaintiffs filed an amended consolidated complaint. Defendants' demurrer to the Section 12(a)(2) claim was sustained with leave to amend. On October 14, 2021, the court certified a class for the Section 11 and Section 15 claims, consisting of persons and entities who purchased or acquired Zuora common

stock pursuant or traceable to the Registration Statement and Prospectus issued in connection with Zuora’s IPO. The lead plaintiffs voluntarily dismissed the Section 12(a)(2) claim without prejudice. Discovery in this case is ongoing.

Given the procedural posture and the nature of such litigation matters, we are unable to estimate the reasonably possible loss or range of loss, if any, that may result from these matters. We dispute the claims described above and intend to vigorously defend against them.

Derivative Litigation

In September 2019, 2two stockholder derivative lawsuits were filed in the U.S. District Court for the Northern District of California against certain of Zuora’s directors and executive officers and naming Zuora as a nominal defendant. The derivative actions allege claims based on events similar to those in the securities class actions and assert causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and for making false and misleading statements about Zuora's business, operations, and prospects in violation of Section 14(a) of the Exchange Act. Plaintiffs seek corporate reforms, unspecified damages and restitution, and fees and costs. In November 2019, the stockholder derivative lawsuits, which are related to the federal securities class action, were assigned to the same judge who is overseeing the federal securities class action lawsuit. In February 2020, the court entered an order consolidating the 2two derivative lawsuits. In August 2020, the court entered an order staying the consolidated action until the completion of fact discovery in the federal securities class action. In March 2022, plaintiffs filed a consolidated shareholder derivative complaint. Pursuant to the August 2020 order, the case remains stayed.

In May and June 2020, 2two stockholder derivative lawsuits were filed in the U.S. District Court for the District of Delaware against certain of Zuora’s directors and current and former executive officers. The derivative actions allege claims based on events similar to those in the securities class actions and the derivative actions pending in the Northern District of California and assert causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, waste of corporate assets, contribution, and for making false and misleading statements about Zuora’s business, operations, and prospects in violation of Section 14(a) of the Exchange Act. Plaintiff seeks corporate reforms, unspecified damages and restitution, and fees and costs. In June 2020, the court entered an order consolidating the 2two District of Delaware derivative lawsuits. ~~In August 2020, the court entered an order staying the consolidated action until the completion of fact discovery in the federal securities class action.~~

In February and March 2021, 2two additional stockholder derivative lawsuits were filed in Delaware Chancery Court alleging similar claims based on the same underlying events. The 2two Chancery Court cases have been consolidated and an amended consolidated complaint has been ~~filed, and the cases have been stayed until the completion of fact discovery in the federal securities class action described above.~~filed.

In May 2022, a stockholder derivative lawsuit was filed in the U.S. District Court for the Northern District of California against certain of Zuora’s directors and executive officers and naming Zuora as a nominal defendant. The derivative action alleges claims based on events similar to those in the securities class actions and asserts causes of action against the individual defendants for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and contribution. Plaintiff seeks corporate reforms, unspecified damages and restitution, and fees and costs.

The derivative lawsuits are currently stayed. Given the procedural posture and the nature of such litigation matters, we are unable to estimate the reasonably possible loss or range of loss, if any, that may result from these matters.

Other Contractual Obligations

As of ~~April 30,~~July 31, 2022, we had a contractual obligation to make ~~$52.1~~$45.9 million in purchases of cloud computing services provided by 1one of our vendors by September 30, 2024.

Note 14. Income Taxes

The following table reflects our income tax provision, pretax loss and effective tax rate for the periods presented (in thousands, except percentages):


		Three Months Ended April 30,						Three Months Ended July 31,					Six Months Ended July 31,
		2022			2021					2022			2021			2022			2021
Loss before income taxes	Loss before income taxes	$	(22,860)		$	(17,288)			Loss before income taxes	$	(29,381)		$	(23,455)		$	(52,241)		$	(40,743)
Income tax provision	Income tax provision	308			373				Income tax provision	529			238			837			611
Effective tax rate	Effective tax rate	(1.3)		%	(2.2)		%		Effective tax rate	(1.8)		%	(1.0)		%	(1.6)		%	(1.5)		%

The effective tax rates differ from the statutory rates primarily as a result of providing no benefit on pretax losses incurred in the United States, as we have determined that the benefit of the losses is not more likely than not to be realized.

Note 15. Stockholders’ Equity

Preferred Stock

As of ~~April 30,~~July 31, 2022, Zuora had authorized 10 million shares of preferred stock, each with a par value of $0.0001 per share. As of ~~April 30,~~July 31, 2022, no shares of preferred stock were issued and outstanding.

Common Stock

Prior to Zuora's IPO, which was effective in April 2018, all shares of common stock then outstanding were reclassified into Class B common stock. Shares offered and sold in the IPO consisted of newly authorized shares of Class A common stock. Holders of Class A and Class B common stock are entitled to 1one vote per share and 10ten votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting rights and the right to convert Class B common stock to Class A common stock.

As of ~~April 30,~~July 31, 2022, Zuora had authorized 500 million shares of Class A common stock and 500 million shares of Class B common stock, each with a par value of $0.0001 per share. As of ~~April 30,~~July 31, 2022, ~~121.1~~123.8 million shares of Class A common stock and ~~8.0~~8.1 million shares of Class B common stock were issued and outstanding.

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss were as follows (in thousands):


		Foreign Currency Translation Adjustment		Unrealized Loss on Available-for-Sale Securities		Total			Foreign Currency Translation Adjustment		Unrealized Loss on Available-for-Sale Securities		Total
Balance, January 31, 2022	Balance, January 31, 2022	$	118	$	(226)	$	(108)	Balance, January 31, 2022	$	118	$	(226)	$	(108)
Foreign currency translation adjustment	Foreign currency translation adjustment	(359)		—		(359)		Foreign currency translation adjustment	(675)		—		(675)
Unrealized loss on available-for-sale securities	Unrealized loss on available-for-sale securities	—		(398)		(398)		Unrealized loss on available-for-sale securities	—		(676)		(676)
Balance, April 30, 2022		$	(241)	$	(624)	$	(865)
Balance, July 31, 2022								Balance, July 31, 2022	$	(557)	$	(902)	$	(1,459)

There were no material reclassifications out of accumulated other comprehensive loss during the three and six months ended ~~April 30,~~July 31, 2022. Additionally, there was no material tax impact on the amounts presented.

1819

Note 16. Employee Stock Plans

Equity Incentive Plans

In March 2018, our Board of Directors adopted and our stockholders approved the 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units (RSUs), performance awards, and stock bonuses. As of ~~April 30,~~July 31, 2022, approximately ~~30.1~~28.2 million shares of Class A common stock were reserved and available for issuance under the 2018 Plan. In addition, as of ~~April 30,~~July 31, 2022, ~~4.6~~4.4 million stock options and RSUs exercisable or settleable for Class B common stock were outstanding in the aggregate under our 2006 Stock Plan (2006 Plan) and 2015 Equity Incentive Plan (2015 Plan), which plans were terminated in May 2015 and April 2018, respectively. The 2006 Plan and 2015 Plan continue to govern outstanding equity awards granted thereunder.

Stock Options

The following tables summarize stock option activity and related information (in thousands, except weighted-average exercise price, weighted-average grant date fair value and average remaining contractual term):


		Shares Subject To Outstanding Stock Options	Weighted-Average Exercise Price		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Shares Subject To Outstanding Stock Options	Weighted-Average Exercise Price		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Balance, January 31, 2022	Balance, January 31, 2022	8,560	$	9.22	5.9	67,259	Balance, January 31, 2022	8,560	$	9.22	5.9	$	67,259
Granted	Granted	—	—				Granted	20	12.52
Exercised	Exercised	(135)	6.79				Exercised	(288)	5.31
Forfeited	Forfeited	(64)	13.84				Forfeited	(194)	12.90
Balance, April 30, 2022		8,361	9.22		5.6	36,324
Exercisable as of April 30, 2022		5,108	5.20		4.3	35,576
Vested and expected to vest as of April 30, 2022		8,140	9.10		5.6	36,242
Balance, July 31, 2022							Balance, July 31, 2022	8,098	9.28		5.4	17,704
Exercisable as of July 31, 2022							Exercisable as of July 31, 2022	4,408	4.49		3.5	17,704
Vested and expected to vest as of July 31, 2022							Vested and expected to vest as of July 31, 2022	7,928	9.18		5.3	17,704


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		20221		2021				20221		2021		2022		2021

Weighted-average grant date fair value per share of options granted during each respective period	Weighted-average grant date fair value per share of options granted during each respective period	—		$	6.53		Weighted-average grant date fair value per share of options granted during each respective period	$	5.54	$	6.54	$	5.54	$	6.54
Aggregate intrinsic value of options exercised during each respective period	Aggregate intrinsic value of options exercised during each respective period	$	1,089	$	6,591		Aggregate intrinsic value of options exercised during each respective period	$	941	$	8,147	$	2,030	$	14,738

1920

We used the Black-Scholes option-pricing model to estimate the fair value of our stock options granted during each respective period using the following assumptions:

~~Three Months Ended April 30,~~

~~2022~~1

~~2021~~

~~Fair value of common stock~~

—

~~15.66~~

~~Expected volatility~~

—

~~42.3~~

~~Expected term (years)~~

—

~~6.1~~

~~Risk-free interest rate~~

—

~~1.0~~

~~Expected dividend yield~~

—

~~______________~~

~~(1) No stock options were granted during the period.~~


	Three Months Ended July 31,					Six Months Ended July 31,
	2022			2021		2022			2021
Fair value of common stock	$	12.52		$15.64 - $15.87		$	12.52		$15.64 - $15.87
Expected volatility	42.6		%	42.6% - 42.7%		42.6		%	42.3% - 42.7%
Expected term (years)	5.8			6.0		5.8			6.0 - 6.1
Risk-free interest rate	3.0		%	1.0% - 1.1%		3.0		%	1.0%- 1.1%
Expected dividend yield	—		%	—	%	—		%	—	%

RSUs

The following table summarizes RSU activity and related information (in thousands, except weighted-average grant date fair value):


		Number of RSUs Outstanding	Weighted-Average Grant Date Fair Value			Number of RSUs Outstanding	Weighted-Average Grant Date Fair Value
Balance, January 31, 2022	Balance, January 31, 2022	12,171	$	15.46	Balance, January 31, 2022	12,171	$	15.46
Granted	Granted	1,516	15.22		Granted	6,886	12.84
Vested	Vested	(956)	15.08		Vested	(2,895)	15.25
Forfeited	Forfeited	(551)	14.74		Forfeited	(1,571)	14.24
Balance, April 30, 2022		12,180	15.49
Balance, July 31, 2022					Balance, July 31, 2022	14,591	14.40

Performance Stock Units (PSUs)

In March 2022, we granted PSUs to certain executives under our 2018 Plan. Each grant is divided into three tranches, each tranche having pre-established performance targets that if met, as determined quarterly by our Compensation Committee, would result in the shares attributable to such tranche being earned, subject to a service-based vesting condition. The shares attributable to unearned tranches will be forfeited on January 31, 2025, if the applicable performance criteria for such tranches are not met. Stock-based compensation expense is recognized if it is probable the performance targets (for each respective tranche) will be met during the performance period.

The following table summarizes PSU activity and related information (in thousands, except weighted-average grant date fair value):


		Number of PSUs Outstanding	Weighted-Average Grant Date Fair Value			Number of PSUs Outstanding	Weighted-Average Grant Date Fair Value
Balance, January 31, 2022	Balance, January 31, 2022	—	$	—	Balance, January 31, 2022	—	$	—
Granted	Granted	2,905	15.21		Granted	2,905	15.21
Vested	Vested	—	—		Vested	—	—
Forfeited	Forfeited	—	—		Forfeited	—	—
Balance, April 30, 2022		2,905	15.21
Balance, July 31, 2022					Balance, July 31, 2022	2,905	15.21

2018 Employee Stock Purchase Plan

In March 2018, our Board of Directors adopted and our stockholders approved the 2018 Employee Stock Purchase Plan (ESPP). This plan is broadly available to our employees in the United States and certain other countries in which we operate. A total of ~~5.3~~4.6 million shares of Class A common stock were reserved and available for issuance under the ESPP as of ~~April 30,~~July 31, 2022. The ESPP provides for 24-month offering periods beginning June 15

and December 15 of each year, and each offering period contains 4four six-month purchase periods. On each purchase date, ESPP participants will purchase shares of our Class A common stock at a price per share equal to

85% of the lesser of (1) the fair market value of the Class A common stock on the offering date or (2) the fair market value of the Class A common stock on the purchase date.

We estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:


	Three and Six Months Ended July 31, 2022			Three and Six Months Ended July 31, 2021
Fair value of common stock	$	8.91		$	16.07
Expected volatility	44.4% - 52.3%			41.8% - 53.2%
Expected term (years)	0.5 - 2.0			0.5 - 2.0
Risk-free interest rate	2.3% - 3.2%			0.1% - 0.2%
Expected dividend yield	—		%	—		%

Stock-Based Compensation Expense

Stock-based compensation expense was recorded in the following cost and expense categories in the accompanying unaudited condensed consolidated statements of comprehensive loss (in thousands):


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Cost of subscription revenue	Cost of subscription revenue	$	1,799	$	1,043		Cost of subscription revenue	$	2,281	$	1,534	$	4,080	$	2,577
Cost of professional services revenue	Cost of professional services revenue	3,017		2,001			Cost of professional services revenue	3,690		2,664		6,707		4,665
Research and development	Research and development	5,966		4,529			Research and development	7,465		5,243		13,431		9,772
Sales and marketing	Sales and marketing	7,456		4,080			Sales and marketing	9,959		5,615		17,415		9,695
General and administrative	General and administrative	4,587		2,144			General and administrative	4,818		3,013		9,405		5,157
Total stock-based compensation expense	Total stock-based compensation expense	$	22,825	$	13,797		Total stock-based compensation expense	$	28,213	$	18,069	$	51,038	$	31,866

As of ~~April 30,~~July 31, 2022, unrecognized compensation costs related to unvested equity awards and the weighted-average remaining period over which those costs are expected to be recognized were as follows (dollars in thousands):


		Stock Options		RSUs		PSUs		ESPP			Stock Options		RSUs		PSUs		ESPP
Unrecognized compensation costs	Unrecognized compensation costs	$	9,512	$	147,493	$	32,920	$	2,994	Unrecognized compensation costs	$	7,963	$	172,767	$	12,341	$	9,120
Weighted-average remaining recognition period	Weighted-average remaining recognition period	2.2 years		2.5 years		2.4 years		0.7 years		Weighted-average remaining recognition period	2.1 years		2.4 years		2.1 years		1.3 years

Note 17. Warrants to Purchase Shares of Common Stock

In connection with the issuance of the 2029 Notes (discussed Note 9. Debt), we issued to Silver Lake the Warrants to acquire up to 7.5 million shares of Class A common stock, exercisable for a period of approximately seven years from the Initial Closing Date, and of which (i) ~~warrants~~Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $20.00 per share, (ii) ~~warrants~~Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $22.00 per share and (iii) ~~warrants~~Warrants to purchase up to 2.5 million shares of Class A common stock are exercisable at $24.00 per share. In addition, Silver Lake can elect to exercise the Warrants on a net-exercise basis. If a Make-Whole Fundamental Change (as defined in the Form of Warrant) occurs, then the number of shares issuable upon exercise of the Warrants may be increased, and the exercise price for the Warrants adjusted. Beginning on the Initial Closing Date and ending on the earlier of (i) the date that is 18 months following the Initial Closing Date and (ii) the consummation of any Change in Control, except for certain limited exceptions, the Warrants are only exercisable with our written approval. As of July 31, 2022, all 7.5 million Warrants were outstanding.

We have classified a portion of the Warrants as a current liability due to certain settlement provisions in the Warrants. Under certain Make-Whole Fundamental Change scenarios, we would be required to, at our option, either (i) obtain shareholder approval prior to issuing 20% or more of our outstanding common stock or (ii) pay cash in lieu of delivering any shares at or above such 20% threshold. As a result, we concluded that approximately 2.8 million Warrants valued at $12.0 million as of the Initial Closing Date do not qualify for equity classification under ASC

815-40, pursuant to our sequencing policy described in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements. We will reassess the classification of the Warrant liability in future reporting periods to determine if any change is required.

The ~~Warrant liability was~~Warrants were measured ~~under~~using the Black-Scholes option pricing model ~~using the following inputs as of April 30, 2022 and~~at the issuance date (Initial Closing Date): and the Warrant liability was remeasured using the same model as of July 31, 2022 using the following inputs:


		April 30, 2022			March 24, 2022				July 31, 2022			March 24, 2022
Fair value of common stock1	Fair value of common stock1	$	10.94		$	13.77		Fair value of common stock1	$	7.60		$	13.77
Exercise price²	Exercise price²	$22.00 - $24.00			$22.00 - $24.00			Exercise price²	$22.00 - $24.00			$22.00 - $24.00
Expected volatility	Expected volatility	41.9		%	41.9		%	Expected volatility	40.3		%	41.9		%
Expected term (in years)	Expected term (in years)	6.9			7.0			Expected term (in years)	6.7			7.0
Risk-free interest rate	Risk-free interest rate	2.4		%	2.4		%	Risk-free interest rate	2.7		%	2.4		%
Expected dividend yield	Expected dividend yield	—			—			Expected dividend yield	—			—

______________

(1) The fair value of common stock was adjusted to reflect certain restrictions on the Warrants for 18 months following the issuance date.

(2) The range of exercise prices reflects the Warrants that were liability-classified.

During the three and six months ended ~~April 30,~~July 31, 2022, the liability-classified Warrants were revalued, ~~to $7.7 million,~~ resulting in a realized gain of ~~$4.4~~$4.5 million and $8.9 million, respectively, which is included in ~~Interest and other income, net~~Change in fair value of warrant liability in the accompanying unaudited condensed consolidated statements of comprehensive loss. AsRefer to Note 4. Fair Value Measurementsfor the fair value of ~~April 30, 2022, 7.5 million Warrants were outstanding.~~the liability-classified Warrants.

Note 18. Net Loss Per Share

The following table presents the calculation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Numerator:	Numerator:						Numerator:
Net loss	Net loss	$	(23,168)	$	(17,661)		Net loss	$	(29,910)	$	(23,693)	$	(53,078)	$	(41,354)
Denominator:	Denominator:						Denominator:
Weighted-average common shares outstanding, basic and diluted	Weighted-average common shares outstanding, basic and diluted	128,457		121,354			Weighted-average common shares outstanding, basic and diluted	130,280		123,134		129,384		122,259
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.18)	$	(0.15)		Net loss per share, basic and diluted	$	(0.23)	$	(0.19)	$	(0.41)	$	(0.34)

Since we were in a net loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):


		April 30,			July 31,
		2022	2021		2022	2021
Initial Notes conversion	Initial Notes conversion	12,500	—	Initial Notes conversion	12,500	—
Unvested RSUs issued and outstanding	Unvested RSUs issued and outstanding	12,180	8,554	Unvested RSUs issued and outstanding	14,591	12,845
Issued and outstanding stock options	Issued and outstanding stock options	8,361	10,878	Issued and outstanding stock options	8,098	10,142
Warrants	Warrants	7,500	—	Warrants	7,500	—
Unvested PSUs issued and outstanding	Unvested PSUs issued and outstanding	2,905	—	Unvested PSUs issued and outstanding	2,905	—
Shares committed under ESPP	Shares committed under ESPP	370	333	Shares committed under ESPP	208	144
Total	Total	43,816	19,765	Total	45,802	23,131

2223

Note 19. Subsequent Events

On August 23, 2022, Zuora entered into an agreement to acquire Zephr Inc Limited (Zephr), a cloud-based subscription management platform provider. Under the agreement, the consideration will consist of approximately $44.0 million in cash paid at closing by Zuora (subject to customary adjustments for working capital, transaction expenses, cash and indebtedness). The foregoing excludes up to $6.0 million in an additional potential earnout payment tied to performance-based conditions if achieved by the Zephr business by January 31, 2023. We expect the acquisition to close in early September 2022, subject to customary closing conditions.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the Securities and Exchange Commission (SEC) on March 28, 2022 (Annual Report). As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Form 10-Q and in our Annual Report. Our fiscal year ends on January 31.

Overview

Many of today’s enterprise software systems manage their quote-to-cash and revenue recognition process using software built for one-time transactions. These systems were not designed for the dynamic, ongoing nature of subscription, usage, or consumption-based pricing models, and can be extremely difficult to configure. In traditional product-based businesses, quote-to-cash and revenue recognition was a linear process—a customer orders a product, is billed for that product, payment is collected, and the revenue is recognized. These legacy product-based systems were not specifically designed to handle the complexities of ongoing customer relationships and recurring revenue, commonly found in a subscription business, and their impact on areas such as billing proration, revenue recognition, reporting in real-time, and the lifetime value of the customer. Using legacy or homegrown software to build a subscription business often results in inefficient processes with prolonged and complex manual downstream work, hard-coded customizations, and a proliferation of stock-keeping units (SKUs).

However, enterprise business models are inherently dynamic, with multiple interactions, flexible pricing, global complexities, and continuously-evolving relationships and events. The capabilities to launch, price, and bill for products, facilitate and record cash receipts, process and recognize revenue, and analyze data to drive key decisions are mission critical and particularly complex for companies that operate at a global scale. As a result, as companies launch, grow, and scale their businesses, they often conclude that legacy systems are inadequate. That’s where Zuora comes in.

Our vision is “The World Subscribed” -- the idea that one day every company will be a part of the Subscription Economy. Our focus has been on providing the technology our customers need to thrive as a customer-centric, recurring revenue business.

Our solution includes Zuora Central Platform, Zuora Billing, Zuora Revenue, Zuora Collect, and other software that support and expand upon these core products. Our software helps companies analyze data - including information such as which customers are delivering the most recurring revenue, or which segments are showing the highest churn, enabling customers to make informed decisions for their subscription business and quickly

implement changes such as launching new services, updating pricing (usage, time, or outcome based), delivering new offerings, or making other changes to their customers’ subscription experience. We also have a large subscription ecosystem of global partners and the Subscribed Strategy Group, that can assist our customers with additional strategies and services throughout the subscription journey.

Companies in a variety of industries - technology, manufacturing, media and entertainment, telecommunications, and many others - are using our solution to scale and adapt to a world that is increasingly choosing subscription-based offerings.

COVID-19 Pandemic Impact

Our financial results for the first half of fiscal ~~quarter ended April 30, 2022~~2023 have not been materially impacted by the COVID-19 pandemic. The extent to which the COVID-19 pandemic impacts our business operations, financial performance and liquidity in future periods will depend on multiple uncertain factors, including the duration and severity of the COVID-19 pandemic, developments related to COVID-19 variants and vaccine efficacy, the pandemic’s overall negative impact on the global economy generally and on our customers, which operate in numerous industries, and continued responses by governments and businesses to COVID-19. Because our products are generally offered as subscription-based licenses and a portion of that revenue is recognized over time, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic on our business. See Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business and financial results.

Fiscal ~~First~~Second Quarter Business Highlights and Recent Developments:

•Customers with ACV exceeding $100,000 totaled 745 as of July 31, 2022, an increase of 7% compared to last year. We closed ~~six~~seven deals that exceeded $500,000 in ~~ACV, two of which exceeded $1.0 million.~~ACV.

•Our dollar-based retention rate improved to ~~110%~~111% compared to ~~103%~~108% as of ~~April 30,~~July 31, 2021.

•~~Customers with ACV exceeding $100,000 totaled 746 as of April 30, 2022, an increase of 10% compared to last year.~~

•Our ARR was ~~$326.3 million compared to $271.8~~$337.6 million as of ~~April 30,~~July 31, 2022 compared to $280.2 million as of July 31, 2021, representing ARR ~~Growth~~growth of 20% compared to ~~14%~~18% as of ~~April 30,~~July 31, 2021.

•Customer usage of Zuora solutions grew, with ~~$20.6~~$21.0 billion in transaction volume through Zuora's billing platform during the three months ended ~~April 30,~~July 31, 2022, an increase of ~~21% year-over-year.~~16% year-over-year and 18% on a constant currency basis.

•On ~~March 24,~~August 23, 2022, we ~~issued $250.0 million of convertible senior unsecured notes~~entered into an agreement to Silver Lake, one of the leading technology private equity investors. Under the terms of the agreement with Silver Lake, we will issue an additional $150.0 million of convertible senior unsecured notes to Silver Lake within 18 months of the initial issuance date. We have also issued warrants to Silver Lake in connection with the transaction.acquire Zephr, a cloud-based subscription management platform provider.

Fiscal ~~First~~Second Quarter Financial Performance Summary:

Our financial performance for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021 reflects the following:

•Subscription revenue was ~~$78.5~~$83.8 million, an increase of ~~$13.4~~$12.3 million, or ~~21%~~17%; and total revenue was ~~$93.2~~$98.8 million, an increase of ~~$12.9~~$12.3 million, or ~~16%~~14%.

•On a constant currency basis, subscription revenue was $85.2 million, an increase of $13.7 million, or 19%; and total revenue was $100.8 million, an increase of $14.3 million, or 17%.

•Gross profit was ~~$57.0~~$60.1 million, or 61% of total of revenue, compared to ~~$47.6~~$50.5 million, or ~~59%~~58% of total revenue.

•Loss from operations was ~~$23.7~~$30.2 million, or ~~25%~~31% of total revenue, compared to a loss of ~~$17.4~~$23.0 million, or ~~22%~~27% of total revenue.

Key Operational and Financial Metrics

We monitor the following key operational and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

Customers with Annual Contract Value (ACV) Equal to or Greater than $100,000

We believe our ability to enter into larger contracts is indicative of broader adoption of our solution by larger organizations. It also reflects our ability to expand our revenue footprint within our current customer base. We define ACV as the subscription revenue we would contractually expect to recognize from that customer over the next

twelve months, assuming no increases or reductions in their subscriptions. We define the number of customers at the end of any particular period as the number of parties or organizations that have entered into a distinct subscription contract with us for which the term has not ended. Each party with which we have entered into a distinct subscription contract is considered a unique customer, and in some cases, there may be more than one customer within a single organization. The number of customers with ACV equal to or greater than $100,000 increased to ~~746~~745 as of ~~April 30,~~July 31, 2022, as compared to ~~677~~694 customers as of ~~April 30,~~July 31, 2021. We expect this metric to increase for the fiscal year.

Dollar-Based Retention Rate

We believe our dollar-based retention rate is a key measure of our ability to retain and expand revenue from our customer base over time. We calculate our dollar-based retention rate as of a period end by starting with the sum of the ACV from all customers as of twelve months prior to such period end, or prior period ACV. We then calculate the sum of the ACV from these same customers as of the current period end, or current period ACV. Current period ACV includes any upsells and also reflects contraction or attrition over the trailing twelve months, but excludes revenue from new customers added in the current period. We then divide the current period ACV by the prior period ACV to arrive at our dollar-based retention rate. Our dollar-based retention rate increased to ~~110%~~111% as of ~~April 30,~~July 31, 2022, as compared to ~~103%~~108% as of ~~April 30,~~July 31, 2021. While the dollar-based retention rate can fluctuate in any particular quarter, we expect it to increase slightly over the remainder of this fiscal year.

Annual Recurring Revenue (ARR)

ARR represents the annualized recurring value at the time of initial booking or contract modification for all active subscription contracts at the end of a reporting period. ARR excludes the value of non-recurring revenue such as professional services revenue as well as contracts with new customers with a term of less than one year. ARR should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Our ARR was ~~$326.3~~$337.6 million as of ~~April 30,~~July 31, 2022, compared to ~~$271.8~~$280.2 million as of ~~April 30,~~July 31, 2021. Our ARR increased 20% year over year as of ~~April 30,~~July 31, 2022 compared to an increase of ~~14%~~18% for the comparable period of the prior year. We expect our ARR growth rate to increase slightly over the remainder of the fiscal year.

Components of Our Results of Operations

Revenue

Subscription revenue. Subscription revenue consists of fees for access to, and use of, our products, as well as customer support. We generate subscription fees pursuant to non-cancelable subscription agreements with terms that typically range from one to three years. Subscription revenue is primarily based on fees to access our services platform over the subscription term. We typically invoice customers in advance in either annual or quarterly installments. Customers can also elect to purchase additional volume blocks or products during the term of the contract. We typically recognize subscription revenue ratably over the term of the subscription period, beginning on the date that access to our platform is provided, which is generally on or about the date the subscription agreement is signed.

Professional services revenue. Professional services revenue consists of fees for services related to helping our customers deploy, configure, and optimize the use of our solutions. These services include system integration, data migration, process enhancement, and training. Professional services projects generally take three to twelve months to complete. Once the contract is signed, we generally invoice for professional services on a time and materials basis, although we occasionally engage in fixed-price service engagements and invoice for those based

upon agreed milestone payments. We recognize revenue as services are performed for time and materials engagements and on a proportional performance method as the services are performed for fixed fee engagements. We expect to continue to transition a portion of our professional services implementations to our strategic partners, including system integrators (SIs), and as a result we expect our professional services revenue to decrease over time as a percentage of total revenue.

Deferred Revenue

Deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and support services and professional services arrangements. We primarily invoice our customers for subscription

services arrangements annually or quarterly in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current portion, and the remaining portion is recorded as deferred revenue, net of current portion in our unaudited condensed consolidated balance sheets.

Overhead Allocation and Employee Compensation Costs

We allocate shared costs, such as facilities costs (including rent, utilities, and depreciation on capital expenditures related to facilities shared by multiple departments), information technology costs, and certain administrative personnel costs to all departments based on headcount and location. As such, allocated shared costs are reflected in each cost of revenue and operating expenses category.

Employee compensation costs consist of salaries, bonuses, commissions, benefits, and stock-based compensation.

Cost of Revenue, Gross Profit and Gross Margin

Cost of subscription revenue. Cost of subscription revenue consists primarily of costs related to hosting our platform and providing customer support. These costs include data center costs and third-party hosting fees, employee compensation costs associated with our cloud-based infrastructure and our customer support organizations, amortization expense associated with capitalized internal-use software and purchased technology, allocated overhead, software and maintenance costs, and outside services associated with the delivery of our subscription services. We intend to continue to invest in our platform infrastructure, including third-party hosting capacity, and support organizations. However, the level and timing of investment in these areas could fluctuate and affect our cost of subscription revenue in the future.

Cost of professional services revenue. Cost of professional services revenue consists primarily of costs related to the deployment of our platform. These costs include employee compensation costs for our professional services team, allocated overhead, travel costs, and costs of outside services associated with supplementing our internal staff. We believe that investment in our system integrator partner network will lead to total margin improvement, however costs may fluctuate in the near term as we shift deployments to our partner network.

Gross profit and gross margin. Our gross profit and gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand hosting capacity, including through third-party cloud providers, amortization expense associated with our capitalized internal-use software and purchased technology, and our continued efforts to build our cloud infrastructure, support, and professional services teams.

Operating Expenses

Research and development. Research and development expense consists primarily of employee compensation costs, allocated overhead, and travel costs. We capitalize research and development costs associated with the development of internal-use software and we generally amortize these costs over a period of three years into cost of subscription revenue. All other research and development costs are expensed as incurred. We believe that continued investment in our platform is important for our growth, and as such, expect our research and development expense to continue to increase in absolute dollars for the foreseeable future but may increase or decrease as a percentage of total revenue.

Sales and marketing. Sales and marketing expense consists primarily of employee compensation costs, including the amortization of deferred commissions related to our sales personnel, allocated overhead, costs of

general marketing and promotional activities, and travel costs. Commission costs that are incremental to obtaining a contract are amortized in sales and marketing expense over the period of benefit, which is expected to be five years. We expect to continue to make significant investments as we expand our customer acquisition and retention efforts. Therefore, we expect that sales and marketing expense will increase in absolute dollars but may vary as a percentage of total revenue for the foreseeable future.

General and administrative. General and administrative expense consists primarily of employee compensation costs, allocated overhead, and travel costs for finance, accounting, legal, human resources, and recruiting personnel. In addition, general and administrative expense includes non-personnel costs, such as accounting fees, legal fees, charitable contributions, asset impairments, and all other supporting corporate expenses not allocated to

other departments. We expect to incur ongoing costs as a result of operating as a public company, including costs related to compliance and reporting obligations of public companies, and continued investment to support our growing operations. As a result, we expect our general and administrative expense to continue to increase in absolute dollars for the foreseeable future but may vary as a percentage of total revenue in the near term. Over the long-term, we expect general and administrative expense to decline as a percentage of total revenue due to economies we will realize as we scale our business.

~~Interest~~Other income and expenses

Other ~~Income, net~~

~~Interest~~income and ~~other income, net~~expenses primarily consists of ~~interest income from our investment holdings,~~gain or loss on the revaluation of the warrant liability, amortization of discount and amortization of debt issuance costs on the 2029 Notes, contractual interest on the 2029 Notes, interest expense associated with our Debt Agreement, ~~gain or loss on the revaluation of the warrant liability,~~interest income from our cash and cash equivalents and short-term investments, and foreign exchange fluctuations.

Income Tax Provision

Income tax provision consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized.

Results of Operations

The following tables set forth our unaudited condensed consolidated results of operations for the periods presented in dollars and as a percentage of our total revenue (in thousands):


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Revenue:	Revenue:						Revenue:
Subscription	Subscription	$	78,500	$	65,142		Subscription	$	83,811	$	71,498	$	162,311	$	136,640
Professional services	Professional services	14,699		15,187			Professional services	14,964		14,989		29,663		30,176
Total revenue	Total revenue	93,199		80,329			Total revenue	98,775		86,487		191,974		166,816
Cost of revenue:	Cost of revenue:						Cost of revenue:
Subscription	Subscription	18,725		15,643			Subscription	19,572		17,268		38,297		32,911
Professional services	Professional services	17,510		17,078			Professional services	19,077		18,724		36,587		35,802
Total cost of revenue	Total cost of revenue	36,235		32,721			Total cost of revenue	38,649		35,992		74,884		68,713
Gross profit	Gross profit	56,964		47,608			Gross profit	60,126		50,495		117,090		98,103
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	22,872		18,967			Research and development	26,354		20,860		49,226		39,827
Sales and marketing	Sales and marketing	40,457		31,865			Sales and marketing	45,146		36,261		85,603		68,126
General and administrative	General and administrative	17,290		14,185			General and administrative	18,816		16,376		36,106		30,561
Total operating expenses	Total operating expenses	80,619		65,017			Total operating expenses	90,316		73,497		170,935		138,514
Loss from operations	Loss from operations	(23,655)		(17,409)			Loss from operations	(30,190)		(23,002)		(53,845)		(40,411)
Interest and other income, net		795		121
Change in fair value of warrant liability							Change in fair value of warrant liability	4,524		—		8,896		—
Interest expense							Interest expense	(4,419)		(62)		(6,203)		(72)
Interest and other income (expense), net							Interest and other income (expense), net	704		(391)		(1,089)		(260)
Loss before income taxes	Loss before income taxes	(22,860)		(17,288)			Loss before income taxes	(29,381)		(23,455)		(52,241)		(40,743)
Income tax provision	Income tax provision	308		373			Income tax provision	529		238		837		611
Net loss	Net loss	$	(23,168)	$	(17,661)		Net loss	$	(29,910)	$	(23,693)	$	(53,078)	$	(41,354)

2729


		Three Months Ended April 30,				Three Months Ended July 31,				Six Months Ended July 31,
		2022		2021				2022		2021		2022		2021
Revenue:	Revenue:						Revenue:
Subscription	Subscription	84	%	81	%		Subscription	85	%	83	%	85	%	82	%
Professional services	Professional services	16		19			Professional services	15		17		15		18
Total revenue	Total revenue	100		100			Total revenue	100		100		100		100
Cost of revenue:	Cost of revenue:						Cost of revenue:
Subscription	Subscription	20		19			Subscription	20		20		20		20
Professional services	Professional services	19		21			Professional services	19		22		19		21
Total cost of revenue	Total cost of revenue	39		41			Total cost of revenue	39		42		39		41
Gross profit	Gross profit	61		59			Gross profit	61		58		61		59
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	25		24			Research and development	27		24		26		24
Sales and marketing	Sales and marketing	43		40			Sales and marketing	46		42		45		41
General and administrative	General and administrative	19		18			General and administrative	19		19		19		18
Total operating expenses	Total operating expenses	87		81			Total operating expenses	91		85		89		83
Loss from operations	Loss from operations	(25)		(22)			Loss from operations	(31)		(27)		(28)		(24)
Interest and other income, net		1		—
Change in fair value of warrant liability							Change in fair value of warrant liability	5		—		5		—
Interest expense							Interest expense	(4)		—		(3)		—
Interest and other income (expense), net							Interest and other income (expense), net	1		—		(1)		—
Loss before income taxes	Loss before income taxes	(25)		(22)			Loss before income taxes	(30)		(27)		(27)		(24)
Income tax provision	Income tax provision	—		—			Income tax provision	1		—		—		—
Net loss	Net loss	(25)	%	(22)	%		Net loss	(30)	%	(27)	%	(28)	%	(25)	%

Note: Percentages in the table above may not sum due to rounding.

Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP, we monitor and consider non-GAAP financial measures including: subscription revenue and total revenue that exclude the impact of foreign currency exchange rate fluctuations (constant currency basis); non-GAAP cost of subscription ~~revenue,~~revenue; non-GAAP cost of professional services ~~revenue,~~revenue; non-GAAP gross ~~profit,~~profit; non-GAAP subscription gross ~~margin,~~margin; non-GAAP professional services gross ~~margin,~~margin; non-GAAP total gross ~~margin,~~margin; non-GAAP research and development ~~expense,~~expense; non-GAAP sales and marketing ~~expense,~~expense; non-GAAP general and administrative ~~expense,~~expense; non-GAAP loss from ~~operations,~~operations; non-GAAP operating ~~margin,~~margin; non-GAAP net ~~loss,~~loss; non-GAAP net loss per ~~share,~~share; and free cash flow. We use non-GAAP financial measures in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our Board of Directors concerning our financial performance. We believe these non-GAAP measures provide investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our operating results. We also believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as they generally eliminate the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The non-GAAP financial measures we use may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP items excluded from our non-GAAP financial measures. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Reconciliations of our non-GAAP financial measures to the nearest respective GAAP measures are provided below.

We exclude the following items from one or more of our non-GAAP financial measures:

•Stock-based compensation expense. We exclude stock-based compensation expense, which is a non-cash expense, because we believe that excluding this item provides meaningful supplemental information

regarding operational performance. In particular, stock-based compensation expense is not comparable across companies given it is calculated using a variety of valuation methodologies and subjective assumptions.

•Amortization of acquired intangible assets. We exclude amortization of acquired intangible assets, which is a non-cash expense, because we do not believe it has a direct correlation to the operation of our business.

•Charitable ~~donations~~contributions. We exclude expenses associated with charitable donations of our common ~~stock from certain of our non-GAAP financial measures.~~stock. We believe that excluding these non-cash expenses allows investors to make more meaningful comparisons between our operating results and those of other companies.

•Certain litigation. We exclude non-recurring charges and benefits, net of expected insurance recoveries, including litigation expenses and settlements, related to litigation matters that are outside of the ordinary course of our business. We believe these charges and benefits do not have a direct correlation to the operations of our business and may vary in size depending on the timing and results of such litigation and related settlements.

•Asset impairment. We exclude non-cash charges for impairment of assets, including impairments related to internal-use software and office ~~leases, from certain of our non-GAAP financial measures.~~leases. Impairment charges can vary significantly in terms of amount and timing and we do not consider these charges indicative of our current or past operating performance. Moreover, we believe that excluding the effects of these charges allows investors to make more meaningful comparisons between our operating results and those of other companies.

•Change in fair value of warrant liabilities. We exclude the change in fair value of warrant liabilities, which is a non-cash gain or loss, as it can fluctuate significantly with changes in Zuora's stock price and market volatility, and does not reflect the underlying cash flows or operational results of the business.

•Acquisition-related expenses. We exclude acquisition-related expenses (including integration-related expenses) such as legal, financial advisory, consulting, and escrow expenses that are not related to our ongoing operations, including expenses we incurred related to our expected acquisition of Zephr. We do not consider these charges reflective of our core business or ongoing operating performance.

The following tables provide a reconciliation of our GAAP to ~~Non-GAAP~~non-GAAP measures (in thousands, except percentages and per share data):

Three Months Ended April 30, 2022
GAAP Stock-based Compensation Amortization of Acquired Intangibles Certain Litigation Change in Fair Value of Warrant Liability Non-GAAP
Cost of revenue:
Cost of subscription revenue $ 18,725 $ (1,799) $ (554) $ — $ — $ 16,372
Cost of professional services revenue 17,510 (3,017) — — — 14,493
Gross profit 56,964 4,816 554 — — 62,334
Operating expenses:
Research and development 22,872 (5,966) — — — 16,906
Sales and marketing 40,457 (7,456) — — — 33,001
General and administrative 17,290 (4,587) — (120) — 12,583
Loss from operations (23,655) 22,825 554 120 — (156)
Net loss $ (23,168) $ 22,825 $ 554 $ 120 $ (4,373) $ (4,042)
Net loss per share, basic and diluted1
$ (0.18) $ (0.03)
Gross margin 61 % 67 %
Subscription gross margin 76 % 79 %
Professional services gross margin (19) % 1 %
Operating margin (25) % — %

2931


		Three Months Ended April 30, 20212													Three Months Ended July 31, 2022
		GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Certain Litigation		Non-GAAP				GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Charitable Contribution		Certain Litigation		Change in Fair Value of Warrant Liability		Acquisition-related Expenses		Non-GAAP
Cost of revenue:	Cost of revenue:													Cost of revenue:
Cost of subscription revenue	Cost of subscription revenue	$	15,643		$	(1,043)	$	(423)	—		$	14,177		Cost of subscription revenue	$	19,572		$	(2,281)	$	(372)	$	—	$	—	$	—	$	—	$	16,919
Cost of professional services revenue	Cost of professional services revenue	17,078			(2,001)		—		—		15,077			Cost of professional services revenue	19,077			(3,690)		—		—		—		—		—		15,387
Gross profit	Gross profit	47,608			3,044		423		—		51,075			Gross profit	60,126			5,971		372		—		—		—		—		66,469
Operating expenses:	Operating expenses:													Operating expenses:
Research and development	Research and development	18,967			(4,529)		—		—		14,438			Research and development	26,354			(7,465)		—		—		—		—		—		18,889
Sales and marketing	Sales and marketing	31,865			(4,080)		—		—		27,785			Sales and marketing	45,146			(9,959)		—		—		—		—		—		35,187
General and administrative	General and administrative	14,185			(2,144)		—		(809)		11,232			General and administrative	18,816			(4,818)		—		(1,000)		(110)		—		(344)		12,544
Loss from operations	Loss from operations	(17,409)			13,797		423		809		(2,380)			Loss from operations	(30,190)			28,213		372		1,000		110		—		344		(151)
Net loss	Net loss	$	(17,661)		$	13,797	$	423	$	809	$	(2,632)		Net loss	$	(29,910)		$	28,213	$	372	$	1,000	$	110	$	(4,523)	$	344	$	(4,394)
Net loss per share, basic and diluted1	Net loss per share, basic and diluted1	$	(0.15)								$	(0.02)		Net loss per share, basic and diluted1	$	(0.23)														$	(0.03)
Gross margin	Gross margin	59		%							64		%	Gross margin	61		%													67		%
Subscription gross margin	Subscription gross margin	76		%							78		%	Subscription gross margin	77		%													80		%
Professional services gross margin	Professional services gross margin	(12)		%							1		%	Professional services gross margin	(27)		%													(3)		%
Operating margin	Operating margin	(22)		%							(3)		%	Operating margin	(31)		%													—		%


	Three Months Ended July 31, 2021
	GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Charitable Contribution		Certain Litigation		Non-GAAP
Cost of revenue:
Cost of subscription revenue	$	17,268		$	(1,534)	$	(519)	$	—	$	—	$	15,215
Cost of professional services revenue	18,724			(2,664)		—		—		—		16,060
Gross profit	50,495			4,198		519		—		—		55,212
Operating expenses:
Research and development	20,860			(5,243)		—		—		—		15,617
Sales and marketing	36,261			(5,615)		—		—		—		30,646
General and administrative	16,376			(3,013)		—		(1,000)		526		12,889
Loss from operations	(23,002)			18,069		519		1,000		(526)		(3,940)
Net loss	$	(23,693)		$	18,069	$	519	$	1,000	$	(526)	$	(4,631)
Net loss per share, basic and diluted1	$	(0.19)										$	(0.04)
Gross margin	58		%									64		%
Subscription gross margin	76		%									79		%
Professional services gross margin	(25)		%									(7)		%
Operating margin	(27)		%									(5)		%

(1) GAAP and Non-GAAP net loss per share are calculated based upon ~~128.5~~130.3 million and ~~121.4~~123.1 million weighted-average shares of common stock outstanding for the three months ended ~~April 30,~~July 31, 2022 and 2021, respectively.


	Six Months Ended July 31, 2022
	GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Charitable Contribution		Certain Litigation		Change in Fair Value of Warrant Liability		Acquisition-related Expenses		Non-GAAP
Cost of revenue:
Cost of subscription revenue	$	38,297		$	(4,080)	$	(926)	$	—	$	—	$	—	$	—	$	33,291
Cost of professional services revenue	36,587			(6,707)		—		—		—		—		—		29,880
Gross profit	117,090			10,787		926		—		—		—		—		128,803
Operating expenses:
Research and development	49,226			(13,431)		—		—		—		—		—		35,795
Sales and marketing	85,603			(17,415)		—		—		—		—		—		68,188
General and administrative	36,106			(9,405)		—		(1,000)		(230)		—		(344)		25,127
Loss from operations	(53,845)			51,038		926		1,000		230		—		344		(307)
Net loss	$	(53,078)		$	51,038	$	926	$	1,000	$	230	$	(8,896)	$	344	$	(8,436)
Net loss per share, basic and diluted1	$	(0.41)														$	(0.07)
Gross margin	61		%													67		%
Subscription gross margin	76		%													79		%
Professional services gross margin	(23)		%													(1)		%
Operating margin	(28)		%													—		%


	Six Months Ended July 31, 20212
	GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Charitable Contribution		Certain Litigation		Non-GAAP
Cost of revenue:
Cost of subscription revenue	$	32,911		$	(2,577)	$	(942)	$	—	$	—	$	29,392
Cost of professional services revenue	35,802			(4,665)		—		—		—		31,137
Gross profit	98,103			7,242		942		—		—		106,287
Operating expenses:
Research and development	39,827			(9,772)		—		—		—		30,055
Sales and marketing	68,126			(9,695)		—		—		—		58,431
General and administrative	30,561			(5,157)		—		(1,000)		(283)		24,121
Loss from operations	(40,411)			31,866		942		1,000		283		(6,320)
Net loss	$	(41,354)		$	31,866	$	942	$	1,000	$	283	$	(7,263)
Net loss per share, basic and diluted1	$	(0.34)										$	(0.06)
Gross margin	59		%									64		%
Subscription gross margin	76		%									78		%
Professional services gross margin	(19)		%									(3)		%
Operating margin	(24)		%									(4)		%

(1) GAAP and Non-GAAP net loss per share are calculated based upon 129.4 million and 122.3 million weighted-average shares of common stock outstanding for the six months ended July 31, 2022 and 2021, respectively.

(2) Beginning with the second quarter ended July 31, 2021, we no longer exclude non-cash adjustments for capitalization and amortization of internal-use software from our non-GAAP financial measures. We believe that this change more closely aligns our reported financial measures with current industry practice. Our non-GAAP financial measures for the ~~three~~six months ended ~~April 30,~~July 31, 2021 were recast to conform to the updated methodology for comparison purposes.

Free Cash Flow

We define free cash flow as net cash provided by operating activities, less cash used for purchases of property and equipment, net of insurance recoveries. Insurance recoveries include amounts paid to us for property and equipment that were damaged in January 2020 at our corporate headquarters. We include the impact of net purchases of property and equipment in our free cash flow calculation because we consider these capital expenditures to be a necessary component of our ongoing operations. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening our balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures.
Three Months Ended
April 30,
2022 2021
(in thousands)
Net cash provided by operating activities $ 6,983 $ 10,251
Less:
Purchases of property and equipment, net of insurance recoveries (3,263) (1,621)
Free cash flow $ 3,720 $ 8,630


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
	(in thousands)
Net cash (used in) provided by operating activities	$	(4,801)	$	(2,623)	$	2,182	$	7,628
Less:
Purchases of property and equipment, net of insurance recoveries	(2,821)		(1,732)		(6,084)		(3,353)
Free cash flow	$	(7,622)	$	(4,355)	$	(3,902)	$	4,275
Net cash used in investing activities	$	(142,619)	$	(3,244)	$	(146,506)	$	(8,860)
Net cash provided by financing activities	$	4,046	$	9,514	$	238,428	$	11,970

Constant Currency

We provide subscription revenue and total revenue, including year-over-year growth rates, adjusted to remove the impact of foreign currency rate fluctuations, which we refer to as constant currency. We believe providing revenue on a constant currency basis helps our investors to better understand our underlying performance. We calculate constant currency in a given period by applying the average currency exchange rates in the comparable period of the prior year to the local currency revenue in the current period.


	Three Months Ended July 31,						Six Months Ended July 31,
	2022		2021		% Change		2022		2021		% Change
	(dollars in thousands)						(dollars in thousands)
Subscription revenue (GAAP)	$	83,811	$	71,498	17	%	$	162,311	$	136,640	19	%
Effects of foreign currency rate fluctuations	1,401						1,813
Subscription revenue on a constant currency basis (Non-GAAP)	$	85,212			19	%	$	164,124			20	%

Total revenue (GAAP)	$	98,775	$	86,487	14	%	$	191,974	$	166,816	15	%
Effects of foreign currency rate fluctuations	1,983						2,789
Total revenue on a constant currency basis (Non-GAAP)	$	100,758			17	%	$	194,763			17	%

3034

Comparison of the Three Months Ended ~~April 30,~~July 31, 2022 and 2021

Revenue


		Three Months Ended April 30,											Three Months Ended July 31,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Revenue:	Revenue:											Revenue:
Subscription	Subscription	$	78,500		$	65,142		$	13,358	21	%	Subscription	$	83,811		$	71,498		$	12,313	17	%
Professional services	Professional services	14,699			15,187			(488)		(3)	%	Professional services	14,964			14,989			(25)		—	%
Total revenue	Total revenue	$	93,199		$	80,329		$	12,870	16	%	Total revenue	$	98,775		$	86,487		$	12,288	14	%
Percentage of revenue:	Percentage of revenue:											Percentage of revenue:
Subscription	Subscription	84		%	81		%					Subscription	85		%	83		%
Professional services	Professional services	16			19							Professional services	15			17
Total revenue	Total revenue	100		%	100		%					Total revenue	100		%	100		%

Subscription revenue increased by ~~$13.4~~$12.3 million, or ~~21%~~17%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021. The increase was driven by growth in our customer base, with new customers contributing approximately $~~5.9~~5.5 million of the increase in subscription revenue, and increased transaction volume and sales of additional products to our existing customers contributing the remainder. We calculate subscription revenue from new customers during the quarter by adding the revenue recognized from new customers acquired in the 12 months prior to the reporting date.

Professional services revenue ~~decreased by $0.5~~remained constant at $15.0 million ~~or (3)%,~~ for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30, 2021 as~~July 31, 2021.

On a ~~result of transitioning services work~~constant currency basis, subscription revenue was $85.2 million and increased 19%, and total revenue was $100.8 million and increased 17%, for the three months ended July 31, 2022 compared to ~~our system integration partners as we shift our sales mix towards recurring subscription revenue.~~the three months ended July 31, 2021.

Cost of Revenue and Gross Margin


		Three Months Ended April 30,											Three Months Ended July 31,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Cost of revenue:	Cost of revenue:											Cost of revenue:
Subscription	Subscription	$	18,725		$	15,643		$	3,082	20	%	Subscription	$	19,572		$	17,268		$	2,304	13	%
Professional services	Professional services	17,510			17,078			432		3	%	Professional services	19,077			18,724			353		2	%
Total cost of revenue	Total cost of revenue	$	36,235		$	32,721		$	3,514	11	%	Total cost of revenue	$	38,649		$	35,992		$	2,657	7	%
Gross margin:	Gross margin:											Gross margin:
Subscription	Subscription	76		%	76		%					Subscription	77		%	76		%
Professional services	Professional services	(19)			(12)							Professional services	(27)			(25)
Total gross margin	Total gross margin	61		%	59		%					Total gross margin	61		%	58		%

Cost of subscription revenue increased by ~~$3.1~~$2.3 million, or ~~20%~~13%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021. The increase in cost of subscription revenue was primarily due to increases of ~~$2.2~~$2.3 million in employee compensation costs ~~$0.4~~and $0.9 million in outside professional services costs, ~~and $0.3~~partially offset by a decrease of $0.7 million in ~~allocated overhead costs.~~data center and third-party cloud hosting costs as we completed the migration from our third-party hosted data center to a cloud hosting provider at the end of fiscal 2022.

Cost of professional services revenue increased by $0.4 million, or 3%2%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021. The increase in cost of professional services revenue was

primarily due to an increase of ~~$1.5~~$1.4 million in employee compensation costs driven by stock-based compensation expense, partially offset by a decrease of $1.2 million in outside professional services costs.

Our gross margin for subscription services ~~was flat at~~increased to 77% for the three months ended July 31, 2022 compared to 76% for the three months ended ~~April 30, 2022 compared to the three months ended April 30,~~July 31, 2021. We expect our subscription gross margin to be relatively consistent for the remainder of the fiscal year.

Our gross margin for professional services decreased to ~~(19)~~(27)% for the three months ended ~~April 30,~~July 31, 2022 compared to ~~(12)~~(25)% for the three months ended ~~April 30,~~July 31, 2021, primarily due to increased compensation related expenses.

Operating Expenses

Research and Development


		Three Months Ended April 30,											Three Months Ended July 31,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Research and development	Research and development	$	22,872		$	18,967		$	3,905	21	%	Research and development	$	26,354		$	20,860		$	5,494	26	%
Percentage of total revenue	Percentage of total revenue	25		%	24		%					Percentage of total revenue	27		%	24		%

Research and development expense increased by ~~$3.9~~$5.5 million, or ~~21%~~26%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021, primarily due to increases of ~~$2.8~~$4.8 million in employee compensation costs and ~~$1.5~~$1.2 million in outside professional services costs, partially offset by a ~~$0.5~~$0.8 million increase in capitalization of internal-use software costs compared to prior year. Research and development expense ~~remained relatively consistent at 25%~~increased to 27% of total revenue for the three months ended ~~April 30,~~July 31, 2022 ~~and~~from 24% ~~for~~during the three months ended ~~April 30, 2021.~~July 31, 2021, primarily due to additional employee compensation expense.

Sales and Marketing


		Three Months Ended April 30,											Three Months Ended July 31,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
Sales and marketing	Sales and marketing	$	40,457		$	31,865		$	8,592	27	%	Sales and marketing	$	45,146		$	36,261		$	8,885	25	%
Percentage of total revenue	Percentage of total revenue	43		%	40		%					Percentage of total revenue	46		%	42		%

Sales and marketing expense increased by ~~$8.6~~$8.9 million, or ~~27%~~25%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021, primarily due to increases of ~~$6.2~~$7.2 million in ~~payroll related~~employee compensation costs driven by increased headcount and stock-based compensation expense, ~~$0.7~~$0.8 million in amortization of deferred commissions, ~~$0.7 million in allocated overhead costs,~~ and ~~$0.4~~$0.8 million in travel costs. Sales and marketing expense increased to ~~43%~~46% of total revenue during the three months ended ~~April 30,~~July 31, 2022 from ~~40%~~42% during the three months ended ~~April 30,~~July 31, 2021, reflecting our strategy to invest in our go-to-market organization to drive enterprise growth.

General and Administrative


		Three Months Ended April 30,											Three Months Ended July 31,
		2022			2021			$ Change		% Change			2022			2021			$ Change		% Change
		(dollars in thousands)											(dollars in thousands)
General and administrative	General and administrative	$	17,290		$	14,185		$	3,105	22	%	General and administrative	$	18,816		$	16,376		$	2,440	15	%
Percentage of total revenue	Percentage of total revenue	19		%	18		%					Percentage of total revenue	19		%	19		%

General and administrative expense increased by ~~$3.1~~$2.4 million, or ~~22%~~15%, for the three months ended ~~April 30,~~July 31, 2022 compared to the three months ended ~~April 30,~~July 31, 2021, primarily due to increases of ~~$3.4~~$2.6 million in employee compensation costs and ~~$0.5~~$1.0 million in ~~outside professional services costs,~~legal expenses, partially offset by a decrease of ~~$0.7~~$0.8 million in ~~legal expenses.~~outside professional services costs. General and administrative expense ~~was relatively~~remained consistent at 19% of total revenue during the three months ended ~~April 30,~~July 31, 2022 and ~~18% for~~2021.

Other income and expenses


	Three Months Ended July 31,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Change in fair value of warrant liability	$	4,524	$	—	$	4,524	N/A
Interest expense	$	(4,419)	$	(62)	$	(4,357)	7027	%
Interest and other income (expense), net	$	704	$	(391)	$	1,095	280	%

During the three months ended ~~April 30, 2021.~~

July 31, 2022 we recognized a $4.5 million gain on revaluation of the liability-classified Warrants issued in connection with the 2029 Notes. Interest expense increased $4.4 million due to the issuance of the the Initial Notes on March 24, 2022. Interest and other income ~~net~~
Three Months Ended
April 30,
2022 2021 $ Change % Change
(dollars in thousands)
Interest and other income, net $ 795 $ 121 $ 674 557 %

~~Interest and other income,~~(expense), net increased ~~by $0.7~~$1.1 million ~~for the three months ended April 30, 2022 compared to the three months ended April 30, 2021, primarily~~ due to ~~the $4.4 million gain recognized on revaluation of the warrant liability, partially offset by $1.8 million of~~ interest ~~expense associated with~~income and the ~~Initial Notes as well as~~ the revaluation of cash, accounts receivable, and accounts payable recorded in a foreign currency.

Income Tax Provision
Three Months Ended
April 30,
2022 2021 $ Change % Change
(dollars in thousands)
Income tax provision $ 308 $ 373 $ (65) (17) %


	Three Months Ended July 31,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Income tax provision	$	529	$	238	$	291	122	%

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended ~~April 30,~~July 31, 2022 and 2021, we recorded a tax provision of ~~$0.3~~$0.5 million and ~~$0.4~~$0.2 million, respectively, on a loss before income taxes of ~~$22.9~~$29.4 million and ~~$17.3~~$23.5 million, respectively. The effective tax rate for the three months ended ~~April 30,~~July 31, 2022 and 2021 was ~~(1.3)~~(1.8)% and ~~(2.2)~~(1.0)%, respectively. The change in the effective tax rate was due primarily to an ~~decrease~~increase in foreign tax ~~expense.~~expense as a result of higher foreign revenue. The effective tax rate differs from the statutory rate primarily as a result of providing no benefit on pretax losses incurred in the United States. For the three months ended ~~April 30,~~July 31, 2022 and 2021, we maintained a full valuation allowance on our U.S. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets will not be realized.

Comparison of the Six Months Ended July 31, 2022 and 2021

Revenue


	Six Months Ended July 31,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Revenue:
Subscription	$	162,311		$	136,640		$	25,671	19	%
Professional services	29,663			30,176			(513)		(2)	%
Total revenue	$	191,974		$	166,816		$	25,158	15	%
Percentage of revenue:
Subscription	85		%	82		%
Professional services	15			18
Total revenue	100		%	100		%

Subscription revenue increased by $25.7 million, or 19%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase was driven by growth in our customer base, with new customers contributing approximately $11.4 million of the increase in subscription revenue for the six months ended July 31, 2022 compared to the six months ended July 31, 2021, and increased transaction volume and sales of additional products to our existing customers contributing the remainder. We calculate subscription revenue from new customers on a year-to-date basis by adding the revenue recognized from new customers acquired in the 12 months prior to each discrete quarter within the year-to-date period.

Professional services revenue decreased by $0.5 million, or (2)%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021, partially driven by the shifting of services work to our system integration partners.

On a constant currency basis, subscription revenue was $164.1 million and increased 20%, and total revenue was $194.8 million and increased 17%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021.

Cost of Revenue and Gross Margin


	Six Months Ended July 31,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Cost of revenue:
Subscription	$	38,297		$	32,911		$	5,386	16	%
Professional services	36,587			35,802			785		2	%
Total cost of revenue	$	74,884		$	68,713		$	6,171	9	%
Gross margin:
Subscription	76		%	76		%
Professional services	(23)			(19)
Total gross margin	61		%	59		%

Cost of subscription revenue increased by $5.4 million, or 16%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase in cost of subscription revenue was primarily driven by increases of $4.4 million in employee compensation costs and $1.3 million in outside professional services costs, partially offset by a decrease of $0.8 million in data center and third-party cloud hosting costs as we completed the migration from our third-party hosted data center to a cloud hosting provider at the end of fiscal 2022.

Cost of professional services revenue increased by $0.8 million, or 2%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase in cost of professional services revenue was primarily driven by an increase of $2.8 million in employee compensation costs driven by stock-based compensation expense, partially offset by a decrease of $2.4 million in outside professional services costs.

Our gross margin for subscription services remained constant at 76% for the six months ended July 31, 2022 and 2021.

Our gross margin for professional services decreased to (23)% for the six months ended July 31, 2022 compared to (19)% for the six months ended July 31, 2021, primarily due to increased compensation related expenses.

Operating Expenses

Research and Development


	Six Months Ended July 31,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Research and development	$	49,226		$	39,827		$	9,399	24	%
Percentage of total revenue	26		%	24		%

Research and development expense increased by $9.4 million, or 24%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021. The increase in research and development expense was primarily driven by increases of $7.6 million in employee compensation costs and $2.7 million in outside professional services costs, partially offset by a $1.3 million increase in capitalization of internal-use software costs. Research and development expense increased to 26% from 24% of total revenue during the six months ended July 31, 2022 compared to six months ended July 31, 2021, primarily due to additional employee compensation expense.

Sales and Marketing


	Six Months Ended July 31,
	2022			2021			$ Change		% Change
	(dollars in thousands)
Sales and marketing	$	85,603		$	68,126		$	17,477	26	%
Percentage of total revenue	45		%	41		%

Sales and marketing expense increased by $17.5 million, or 26%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021, primarily due to increases of $13.4 million in employee compensation costs driven by increased headcount and stock-based compensation expense, $1.5 million in amortization of deferred commissions, $1.2 million in travel costs, and $1.1 million in allocated expenses. Sales and marketing expense increased to 45% of total revenue during the six months ended July 31, 2022 from 41% during the six months ended July 31, 2021, reflecting our strategy to invest in our go-to-market organization to drive enterprise growth.

General and Administrative


	Six Months Ended July 31,
	2022			2021			$ Change		% Change
	(dollars in thousands)
General and administrative	$	36,106		$	30,561		$	5,545	18	%
Percentage of total revenue	19		%	18		%

General and administrative expense increased by $5.5 million, or 18%, for the six months ended July 31, 2022 compared to the six months ended July 31, 2021, primarily due to a $5.9 million increase in employee

compensation costs. General and administrative expense increased slightly to 19% of total revenue during the six months ended July 31, 2022 compared to 18% during the six months ended July 31, 2021.

Other income and expenses


	Six Months Ended July 31,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Change in fair value of warrant liability	$	8,896	$	—	$	8,896	N/A
Interest expense	$	(6,203)	$	(72)	$	(6,131)	8515	%
Interest and other (expense) income, net	$	(1,089)	$	(260)	$	(829)	319	%

During the six months ended July 31, 2022 we recognized an $8.9 million gain on revaluation of the liability-classified Warrants issued in connection with the 2029 Notes. Interest expense increased $6.1 million due to the issuance of the the Initial Notes on March 24, 2022. Interest and other (expense) income, net increased $0.8 million due to higher expense resulting from the revaluation of cash, accounts receivable, and payables recorded in a foreign currency, partially offset by interest income.

Income Tax Provision


	Six Months Ended July 31,
	2022		2021		$ Change		% Change
	(dollars in thousands)
Income tax provision	$	837	$	611	$	226	37	%

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the six months ended July 31, 2022 and 2021, we recorded a tax provision of $0.8 million and $0.6 million, respectively, on losses before income taxes of $52.2 million and $40.7 million, respectively. The effective tax rates for the six months ended July 31, 2022 and 2021 were relatively consistent at (1.6)% and (1.5)%, respectively. The change was due primarily to an increase in foreign tax expenses as a result of higher foreign revenue. The effective tax rate differs from the statutory rate primarily as a result of no benefit on pretax losses incurred in the United States. For the six months ended July 31, 2022 and 2021, we maintained a full valuation allowance on our U.S. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets will not be realized.

Liquidity and Capital Resources

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

As of ~~April 30,~~July 31, 2022, we had cash and cash equivalents and short-term investments of ~~$452.6~~$448.6 million that was primarily invested in deposit accounts, money market funds, corporate debt securities, supranational securities, commercial paper, and U.S. and foreign government securities. We do not enter into investments for trading or speculative purposes.

We finance our operations primarily through sales to our customers, which are generally billed in advance on an annual or quarterly basis. Customers with annual or multi-year contracts are generally only billed one annual period in advance. We also finance our operations through proceeds from the issuance of stock under our employee stock plans, borrowings under our Debt Agreement, proceeds from our issuance of the Initial Notes and other financing arrangements.

On March 24, 2022, we issued $250.0 million aggregate principal amount of convertible senior unsecured notes to fund the future growth and expansion of our business. Under the 2029 Notes, we expect to issue an additional $150.0 million in convertible senior unsecured notes within 18 months of the Initial Closing Date. Under our Debt Agreement, we repaid ~~$1.1~~$1.5 million of principal on our term loan during the ~~three~~six months ended ~~April 30,~~July 31, 2022, and have the ability borrow up to an additional $30.0 million in revolving loans until October 2022. See Note 9. Debt

to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information about the 2029 Notes and our Debt ~~Agreement and the 2029 Notes.~~Agreement.

In the short term, we believe our existing cash and cash equivalents, marketable securities, and cash flow from operations (in periods in which we generate cash flow from operations) will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure ~~requirements.~~requirements, and servicing our debt. In the long term, our ability to support our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including

our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the cost to develop and support our offering, the introduction of new products and services, the continuing adoption of our products by customers, any acquisitions or investments that we make in complementary businesses, products, and technologies, and our ability to obtain equity or debt financing.

We continually evaluate our capital needs and may decide to raise additional capital to fund the growth of our business for general corporate purposes through public or private equity offerings or through additional debt financing. We also may in the future make investments in or acquire businesses or technologies that could require us to seek additional equity or debt financing. To facilitate acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all. Sales of additional equity could result in dilution to our stockholders. We expect proceeds from the exercise of stock options in future years to be impacted by the increased mix of restricted stock units versus stock options granted to employees and to vary based on our share price.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):


		Three Months Ended April 30,					Six Months Ended July 31,
		2022		2021			2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	6,983	$	10,251	Net cash provided by operating activities	$	2,182	$	7,628
Net cash used in investing activities	Net cash used in investing activities	(3,887)		(5,616)		Net cash used in investing activities	(146,506)		(8,860)
Net cash provided by financing activities	Net cash provided by financing activities	234,382		2,456		Net cash provided by financing activities	238,428		11,970
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(359)		(85)		Effect of exchange rates on cash and cash equivalents	(675)		(259)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	$	237,119	$	7,006	Net increase in cash and cash equivalents	$	93,429	$	10,479

Operating Activities

Net cash provided by operating activities of ~~$7.0~~$2.2 million for the ~~three~~six months ended ~~April 30,~~July 31, 2022 was comprised primarily of customer collections for our subscription and professional services, cash payments for our personnel, sales and marketing efforts and infrastructure related costs, ~~and~~ payments to vendors for products and services related to our ongoing business ~~operations.~~operations, interest income received on our short-term investments, and interest paid on the Initial Notes.

Net cash provided by operating activities for the ~~three~~six months ended ~~April 30,~~July 31, 2022 decreased ~~$3.3~~$5.4 million compared to the same period last year, ~~as a result~~primarily due to $2.6 million of interest paid on our our Initial Notes and the timing of cash collections from our customers.

Investing Activities

Net cash used in investing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2022 was ~~$3.9~~$146.5 million. We used ~~$3.3~~$6.1 million to purchase property and equipment and to develop internal-use software as we continue to invest in and grow our business, and had net purchases of ~~$0.6~~$140.4 million of short-term ~~investments.~~investments as we invested a portion of the proceeds from issuance of the Initial Notes.

Net cash used in investing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2022 ~~decreased $1.7~~increased $137.6 million compared to the ~~three~~six months ended ~~April 30,~~July 31, 2021, primarily due to ~~$0.6~~$140.4 million net purchases of short-term investments in the ~~three~~six months ended ~~April 30,~~July 31, 2022, compared to ~~$4.0~~$4.2 million last year. ~~This was partially offset by payments~~Payments for property and equipment, net

of insurance recoveries, ~~which~~ were ~~$1.6~~$2.7 million higher compared to the same period last year, primarily due to increased capitalization of internal-use software in the ~~three~~six months ended ~~April 30,~~July 31, 2022. The additional cash used in the six months ended July 31, 2022 was partially offset by no cash used for asset acquisitions in the six months ended July 31, 2022 compared to $1.3 million used to acquire certain intellectual property assets in the six months ended July 31, 2021.

Financing Activities

Net cash provided by financing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2022 of ~~$234.4~~$238.4 million was primarily due to ~~$234.6~~$233.9 million in net proceeds from issuance of the Initial Notes, $4.5 million of proceeds from issuance of common stock under the ESPP, and ~~$0.9~~$1.5 million in proceeds from stock option exercises, partially offset by ~~$1.1~~$1.5 million of debt principal payments related to our Debt Agreement.

Net cash provided by financing activities for the ~~three~~six months ended ~~April 30,~~July 31, 2022 increased ~~$231.9~~$226.5 million compared to the ~~three~~six months ended ~~April 30,~~July 31, 2021, primarily due to proceeds from issuance of the Initial Notes, ~~in the three months ended April 30, 2022,~~ partially offset by ~~$2.7~~$8.7 million less proceeds received from stock option exercises compared to the same period last year.

Obligations and Other Commitments

Our material cash requirements from known contractual and other obligations consist of obligations under our operating leases for office space, the 2029 Notes, ~~our Debt Agreement,~~ and a contractual commitment to one of our vendors for cloud computing services. For more information, please refer to Note 12. Leases , Note 9. Debt and Note 13. Commitments and Contingencies, respectively, of the Notes to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. As of ~~April 30,~~July 31, 2022, our contractual commitments totaled ~~$416.0~~$403.9 million, with ~~$26.8~~$22.5 million committed within the next twelve months.

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from data breaches or intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. As of ~~April 30,~~July 31, 2022, no demands had been made upon us to provide indemnification under such agreements and there were no claims that we are aware of that could have a material effect on our unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of comprehensive loss, or unaudited condensed consolidated statements of cash flows.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

Our significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 28, 2022. Any significant changes to these policies during the ~~three~~six months ended ~~April 30,~~July 31, 2022 are described in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements to our unaudited condensed consolidated financial statements provided herein.

~~Recent Accounting Pronouncements - Not Yet Adopted~~

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The standard requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates.

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Foreign Currency Exchange Risk

Our sales contracts are denominated predominantly in U.S. Dollars, Euros (EUR), British Pounds (GBP), and Japanese Yen (JPY). A portion of our operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the GBP and Chinese Yuan (CNY) ~~and GBP.~~. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our unaudited condensed consolidated statement of comprehensive loss. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our unaudited condensed consolidated financial statements for the ~~three~~six months ended ~~April 30,~~July 31, 2022. Given the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency should become more significant. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.

Interest Rate Risk

We had cash and cash equivalents and short-term investments of ~~$452.6~~$448.6 million as of ~~April 30,~~July 31, 2022. Our cash and cash equivalents and short-term investments are held for working capital purposes. We do not make investments for trading or speculative purposes. ~~Additionally, under our Debt Agreement, we pay interest on any outstanding balances based on a variable market rate.~~ A significant decrease in these market rates may adversely affect our expected operating results. The 2029 Notes have a fixed interest rate and therefore are not impacted by market rates.

Our cash equivalents and short-term investments are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our short-term investments as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or decreases in fair value are determined to be other-than-temporary.

As of ~~April 30,~~July 31, 2022, a hypothetical 10% relative change in interest rates would not have had a material impact on the value of our cash equivalents and short-term investments or interest owed on our outstanding debt. Fluctuations in the value of our cash equivalents and short-term investments caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities prior to maturity. In addition, a hypothetical 10% relative change in interest rates would not have had a material impact on our operating results for the ~~three~~six months ended ~~April 30,~~July 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~April 30,~~July 31, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of ~~April 30,~~July 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding its required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Accordingly, our disclosure controls and procedures provide reasonable assurance of achieving their objectives.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 13. Commitments and Contingencies of the notes to our unaudited condensed consolidated financial statements included in ~~“Item~~Item 1. Financial ~~Statements”~~Statements of this Form 10-Q, which is incorporated by reference into this ~~“Item~~Item 1. Legal ~~Proceedings.~~Proceedings.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk, and the following is a summary of key risk factors when considering an investment. You should read the summary risks together with the more detailed discussion of risks set forth following this summary, as well as elsewhere in this Quarterly Report on Form 10-Q. Additional risks, beyond those summarized below or discussed elsewhere in this Quarterly Report on Form 10-Q, may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate.

Risks Related to Our Business and Industry

•If we are unable to attract new customers and retain and expand sales to existing customers, including as a result of macroeconomic factors or business disruptions outside of our control, our revenue growth could be slower than we expect and our business would be adversely affected.

•If we are unable to manage our growth effectively, our revenue and profits could be adversely affected.

•If the shift to subscription business models, including the market for subscription management software, develops slower than we expect, our growth may slow or stall and our operating results could be adversely affected.

•If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

•If we are unable to recruit or retain senior management or other key personnel and maintain our corporate culture, our business, operating results, and financial condition could be adversely affected.

•Our debt obligations could adversely affect our financial condition.

•Our success depends in large part on a limited number of products, and if these offerings fail to gain market acceptance or our product development efforts are unsuccessful, our business, operating results, and financial condition could be adversely affected.

•We may be unable to integrate businesses we have or will acquire or to achieve expected benefits of such acquisitions.

•The COVID-19 pandemic, or other pandemics or natural disasters, or catastrophic events, could adversely impact our business, financial condition, operating results and cash flows.

•We have a history of net losses and anticipate continuing to incur losses for the near- and mid-term future and may not achieve or sustain profitability.

•Our ability to grow our revenues and achieve and sustain profitability will depend, in part, on our ability to expand our direct sales force and increase productivity of our sales force.

•If we are unable to effectively compete in the market for our solutions or such markets develop slower than we expect our business, operating results, and financial condition would be adversely affected.

•Our operating results, which are influenced by a variety of factors, have fluctuated in the past and may continue to fluctuate, making our future results difficult to predict accurately.

•If we are not able to successfully and timely develop, enhance and deploy our products and multi-product strategy, our business, operating results, financial condition and growth prospects could be adversely affected.

•If we are unable to successfully execute our strategic initiatives, such as increasing our sales to large enterprise customers and expanding and strengthening our sales channels and relationships with system integrators, our business, operating results and financial condition could be adversely affected.

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•Our international operations expose us to risks that could have a material adverse effect on our business, operating results, and financial condition.

•If we fail to integrate our solution with a variety of systems, applications and platforms that are developed by others, our solution may become less marketable, less competitive, or obsolete, and our operating results may be adversely affected.

Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy

•A cyber-attack, information security breach or denial of service event could delay or interrupt service to our customers, harm our reputation, or subject us to significant liability.

•Privacy and security concerns, laws, and regulations, may reduce the effectiveness of our solution and adversely affect our business.

•Failure to protect our intellectual property could adversely affect our business.

•Any disruptions of service from our public cloud providers could interrupt or delay our ability to deliver our services to our customers, which could harm our business and our financial results.

Risks Related to Legal, Regulatory, Accounting, and Tax Matters

•Current and future litigation, including our current shareholder litigation, could have a material adverse impact on our operating results and financial condition.

•We may require additional capital to fund our business and support our growth, and any inability to generate or obtain such capital may adversely affect our operating results and financial condition.

Risks Related to Ownership of Our Class A Common Stock

•The market price of our Class A common stock has been, and will likely continue to be, volatile, and you could lose all or part of the value of your investment.

•The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our directors and executive officers, and their affiliates, which limits or precludes your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.

Risks Related to Our Business and Industry

If we are unable to attract new customers and retain and expand sales to existing customers, including as a result of macroeconomic factors or business disruptions outside our control, our revenue growth could be slower than we expect, and our business may be adversely affected.

Our ability to achieve significant growth in revenue in the future will depend, in large part, upon our ability to attract new customers. This may be particularly challenging where an organization has already invested substantial personnel and financial resources to integrate billings and other business and financial management tools, including custom-built solutions, into its business, as such an organization may be reluctant or unwilling to invest in new products and services. As a result, selling our solution often requires sophisticated and costly sales efforts that are targeted at senior management. During the ~~three~~six months ended ~~April 30,~~July 31, 2022, sales and marketing expenses represented approximately ~~43%~~45% of our total revenue. If we fail to attract new customers and fail to maintain and expand new customer relationships, our revenue may grow more slowly than we expect and our business may be adversely affected.

Our future revenue growth also depends upon retaining and expanding sales and renewals of subscriptions to our solution with existing customers. If our existing customers do not expand their use of our solution over time or do not renew their subscriptions or if we receive requests from an increased number of customers for changes to payment or other terms as a result of the impact of the COVID-19 pandemic or economic conditions on their businesses, our revenue may grow more slowly than expected, may not grow at all, or may decline. Our success, in part, is dependent on our ability to cross-sell our products. If we experience issues with successfully implementing or cross-selling our products, revenue may grow more slowly or may not grow at all.

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Our sales efforts and revenue growth could also be negatively impacted by macroeconomic uncertainty and deteriorating economic conditions, including recession and increasing inflation, or other business disruptions. For example, we have experienced and, if economic conditions continue to decline, we may continue to experience longer sales cycles and collection periods. We currently expect to continue expanding our sales efforts, both domestically and internationally, but any continuing business disruptions may negatively impact these efforts and adversely impact our business. In addition, we may be unable to hire qualified sales personnel, may be unable to successfully train those sales personnel that we are able to hire, and sales personnel may not become fully productive on the timelines that we have projected or at all. In addition, mitigation and containment measures adopted by government authorities to contain the spread of COVID-19 in the United States and internationally, including travel restrictions and other requirements that limit in-person meetings, could limit our ability to establish and maintain relationships with new and existing customers. Further, although we dedicate significant resources to sales and marketing programs, these sales and marketing programs may not have the desired effect and may not expand sales. We cannot assure you that our efforts would result in increased sales to existing customers, and additional revenue. If our efforts to expand sales and renewals to existing customers are not successful, our business and operating results could be adversely affected.

Our customers generally enter into subscription agreements with ~~one-~~one to three-year subscription terms and have no obligation to renew their subscriptions after the expiration of their initial subscription period. Moreover, our customers that do renew their subscriptions may renew for lower subscription or usage amounts or for shorter subscription periods. In addition, in the first year of a subscription, customers often purchase an increased level of professional services (such as training and deployment services) than they do in renewal years. Costs associated with maintaining a professional services department are relatively fixed in the short-term, while professional services revenue is dependent on the amount of billable work actually performed for customers in a period, the combination of which may result in variability in, and have a negative impact on, our gross profit. Customer renewals may decline or fluctuate as a result of a number of factors, including the breadth of early deployment, reductions in our customers’ spending levels, higher volumes of usage purchased upfront relative to actual usage during the subscription term, changes in customers’ business models and use cases, our customers’ satisfaction or dissatisfaction with our solution, our pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, or the effects of economic conditions, including as a result of the COVID-19 pandemic. If our customers do not renew their agreements with us, or renew on terms less favorable to us, our revenue may decline.

If we fail to manage our growth and expansion plans effectively, our business, operating results, and financial condition could be adversely affected.

While we had experienced rapid growth in our operations and personnel prior to the COVID-19 pandemic, we reduced our overall rate of hiring in fiscal 2021 as a cost savings measure in light of the COVID-19 pandemic and uncertain economic conditions. During fiscal 2022, we accelerated our pace of hiring and investments in our operations including sales, marketing and product technology, and we currently intend to continue these investments provided business disruptions, such as those due to the COVID-19 pandemic or economic uncertainty, and increasing wage inflation do not continue for an extended period. If we are not able to continue to increase our headcount within a reasonable period of time, our ability to expand our operations and maintain or increase our sales may be negatively impacted.

To manage growth in our operations and personnel, we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures, as well as training and experience oversight. Failure to manage growth and expansion plans effectively could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new products and services or enhancing existing products and services, loss of customers, or other operational difficulties in executing sales strategies, any of which could adversely affect our business performance and operating results.

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If the shift by companies to subscription business models, including consumer adoption of products and services that are provided through such models, and, in particular, the market for subscription management software, develops slower than we expect, our growth may slow or stall, and our operating results could be adversely affected.

Our success depends on companies shifting to subscription business models and consumers choosing to consume products and services through such models. Many companies may be unwilling or unable to offer their solutions using a subscription business model, especially if they do not believe that the consumers of their products and services would be receptive to such offerings. Our success will also depend, to a large extent, on the willingness of large enterprises that have adopted subscription business models utilizing cloud-based products and services to manage billings and financial accounting relating to their subscriptions. Enterprises may choose not to shift to a subscription business model or, they may choose to shift more slowly than we expect. In addition, those enterprises that do shift to a subscription model may decide that they do not need a solution that offers the range of functionalities that we offer. Many companies have invested substantial effort and financial resources to develop custom-built applications or integrate traditional enterprise software into their businesses as they shift to subscription or subscription business models and may be reluctant or unwilling to switch to different applications. Factors that may affect market acceptance and sales of our products and services include:

•the number of companies shifting to subscription business models;

•the number of consumers and businesses adopting new, flexible ways to consume products and services;

•the security capabilities, reliability, and availability of cloud-based services;

•customer concerns with entrusting a third party to store and manage their data, especially transaction-critical, confidential, or sensitive data;

•our ability to minimize the time and resources required to deploy our solution;

•our ability to achieve and maintain high levels of customer satisfaction;

•our ability to deploy upgrades and other changes to our solution without disruption to our customers;

•the level of customization or configuration we offer;

•the overall level of corporate spending and spending on quote-to-cash and revenue recognition solutions by our customers and prospects, including the impact of spending due to the COVID-19 pandemic;

•general economic conditions, both in domestic and foreign markets, including the impacts associated with the COVID-19 pandemic, inflation, recession, and the ongoing conflict in Ukraine; and

•the price, performance, and availability of competing products and services.

The markets for subscription products and services and for subscription management software may not develop further or may develop slower than we expect. If companies do not shift to subscription business models and subscription management software does not achieve widespread adoption, or if there is a reduction in demand for subscription products and services or subscription management software caused by technological challenges, weakening economic conditions, security or privacy concerns, decreases in corporate spending, a lack of customer acceptance, or otherwise, our business could be materially and adversely affected. In addition, our subscription agreements with our customers generally provide for a minimum subscription platform fee and usage-based fees, which depend on the total dollar amount that is invoiced or managed on our solution. Because a portion of our revenue depends on the volume of transactions that our customers process through our solution, if our customers do not adopt our solution throughout their business, if their businesses decline or fail, or if they are unable to successfully shift to subscription business models, including if they fail to successfully deploy our solution, our revenue could decline and our operation results could be adversely impacted.

If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. Although we expect an increasing number of sales contracts to be denominated in currencies other than the U.S. dollar in the future, the majority of our sales contracts have historically been

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denominated in U.S. dollars, and therefore, most of our revenue has not been subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our solution to our customers outside of the United States, which could adversely affect our business, operating results, financial condition, and cash flows. In addition, we incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of such expenses being higher. Furthermore, volatile market conditions arising from impacts from the COVID-19 pandemic, the conflict in Ukraine and other macroeconomic conditions may result in significant fluctuations in exchange rates, and, in particular, a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue. This could have a negative impact on our operating results. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.

Our business depends largely on our ability to attract and retain talented employees, including senior management, and maintain our corporate culture. If we lose the services of Tien Tzuo, our founder, Chairman, and Chief Executive Officer, or other critical talent across our executive team and in other key roles, or fail to maintain our "ZEO" culture, we may not be able to execute on our business strategy.

Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel, including software engineers, sales personnel, and professional services personnel. We face intense competition for qualified individuals from numerous software and other technology companies. Like many companies, we experienced increased turnover during fiscal 2021 and fiscal 2022, and we may continue to experience heightened attrition, including those with significant institutional knowledge and expertise. We may not be able to retain our current key employees, or attract, train, assimilate, or retain other highly skilled personnel in the future, especially in light of the current tight labor market in the U.S. and other countries. For example, employees may seek new or different opportunities that offer greater compensation or benefits than we offer or are able to offer, making it difficult to retain them. In addition, we may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. As we move into new countries, we will need to attract and recruit skilled personnel in those areas. If we are unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business may be adversely affected. Further, as our organization grows and we are required to implement more complex organizational structures, we may find it increasingly difficult to maintain the beneficial aspects of our “ZEO” corporate culture, which is based on the idea that each employee is the CEO of their Zuora experience and career, and places a strong value on freedom, responsibility and accountability. Our ability to attract and retain talented employees could be negatively impacted if we are unable to maintain our corporate culture.

Our future success also depends in large part on the continued services of senior management and other key personnel. In particular, we are highly dependent on the services of Tien Tzuo, our founder, Chairman and Chief Executive Officer, who is critical to the development of our technology, platform, future vision, and strategic direction. We rely on our leadership team in the areas of operations, security, marketing, sales, support, and general and administrative functions, and on individual contributors on our research and development team. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time and for any reason, such as retirement or career change. We do not currently maintain key-person life insurance policies on any of our officers or employees. If we lose the services of senior management or other key personnel, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be adversely affected.

Volatility or lack of appreciation in our stock price may also affect our ability to attract and retain our key employees. Many of our senior personnel and other key employees have become, or will soon become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their vested options have significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise price of the options that they hold are significantly above the market price of our Class A common stock. If we are unable to retain our employees, or if we need to increase our compensation expenses, including equity compensation expenses, to retain our employees, our business, results of operations, financial condition, and cash flows could be adversely affected.

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Our debt obligations could adversely affect our financial condition.

On March 24, 2022 (Initial Closing Date) we issued $250.0 million aggregate principal amount of convertible senior unsecured notes due in 2029 to Silver Lake Alpine II, L.P. (Silver Lake) (2029 Notes). We also will issue to Silver Lake an additional $150.0 million in senior unsecured notes within 18 months of the Initial Closing Date. See Note 9. Debt to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information about the 2029 Notes.

Our debt obligations, in particular the 2029 Notes, could adversely impact us. For example, these obligations could:

•require us to use a substantial portion of our cash flow from operations to pay principal and interest on debt, or to repurchase our 2029 Notes when required upon the occurrence of certain events or otherwise pursuant to the terms thereof, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, and other business activities;

•require us to use cash and/or issue shares of our Class A common stock to settle any obligations;

•result in certain of our debt instruments being accelerated or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;

•adversely impact our credit rating, which could increase future borrowing costs;

•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, and other general corporate requirements;

•restrict our ability to create or incur liens and engage in other transactions and activity;

•increase our vulnerability to adverse economic and industry conditions;

•dilute our earnings per share as a result of the conversion provisions in the 2029 Notes; and

•place us at a competitive disadvantage compared to our less leveraged competitors.

Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. For example, we may utilize proceeds from the 2029 Notes for acquisitions or other investments that do not increase our enterprise value or we are otherwise unable to generate sufficient cash flows to repay our debt obligations. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize the revolving credit facility under our Debt Agreement described below in Note 9. Debt. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives on commercially reasonable terms or at all, we may be unable to meet our debt payment obligations, which would materially and adversely impact our business, financial condition and operating results.

Our success depends in large part on a limited number of products. If these products fail to gain or lose market acceptance, our business will suffer.

We derive substantially all of our revenue and cash flows from sales of subscriptions and associated deployment of our Zuora Central Platform, Zuora Billing, Zuora Revenue, and Zuora Collect products. As such, the continued growth in market demand for these products is critical to our success. Demand for our solution is affected by a number of factors, many of which are beyond our control, including macroeconomic factors, such as the impacts of the COVID-19 pandemic on our customers and prospects, the growth or contraction of the Subscription Economy, continued market acceptance of our solution by customers for existing and new use cases, the timing of development and release of new products and services, features, and functionality introduced by our competitors, changes in accounting standards, laws or regulations, policies, guidelines, interpretations, or principles that would impact the functionality and use of our solution, and technological change. We expect that an increasing transition to disaggregated solutions that focus on addressing specific customer use cases would continue to disrupt the enterprise software space, enabling new competitors to emerge. We cannot assure you that our solutions and future

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enhancements to our solution will be able to address future advances in technology or the requirements of enterprise customers. If we are unable to meet customer demands in creating a flexible solution designed to address all these needs or otherwise achieve more widespread market acceptance of our solution, our business, operating results, financial condition, and growth prospects would be adversely affected.

We may acquire or invest in additional companies, which may divert our management’s attention, result in additional dilution to our stockholders, and consume resources that are necessary to sustain our business. We may be unable to integrate acquired businesses and technologies successfully or to achieve the expected benefits of such acquisitions.

Our business strategy includes acquiring other complementary products, technologies, or businesses. For example, in August 2022, we entered into an agreement to acquire Zephr. An acquisition, investment, or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired companies choose not to work for us, if an acquired company’s software is not easily adapted to work with ours, or if we have difficulty retaining the customers of any acquired business due to changes in management or otherwise.

Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown liabilities. We may in the future acquire or invest in additional businesses, products, technologies, or other assets. We also may enter into relationships with other businesses to expand our products and services or our ability to provide our products and services in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating these transactions can be time consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. For one or more of those transactions, we may:

•issue additional equity securities that would dilute our stockholders;

•use cash that we may need in the future to operate our business;

•incur debt on terms unfavorable to us or that we are unable to repay;

•incur large charges or substantial liabilities;

•encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; and

•become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges.

Any of these risks could adversely impact our business and operating results.

The COVID-19 pandemic and its continuing impact on economic conditions could adversely affect our business, financial condition, results of operations, and cash flows.

The COVID-19 pandemic has impacted worldwide economic activity and financial markets. In light of the uncertain and evolving situation relating to the spread of the disease and efficacy of vaccines, we have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers and the communities in which we operate, which could negatively impact our business. ~~Currently, most of our offices are open at limited capacity based on local regulations, many~~Many of our employees ~~remain working from home, business travel is subject~~continue to ~~certain restrictions, and~~ ~~most of our customer events are held as virtual-only experiences. We~~work remotely, we have ~~also~~ reduced our office footprint ~~including by recently consolidating our~~in the San Francisco ~~office into our corporate headquarters in Redwood City,~~Bay Area, and ~~by further consolidating space at our headquarters,~~ have made available office space that we plan to sublease. Due to market conditions, we have experienced difficulties in subleasing such available office space and if we are unable to sublease the office space on acceptable terms in a reasonable timeframe, we would incur impairment charges in addition to those described in Note 12. Leases of the Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the SEC on March 28, 2022.

As pandemic conditions have improved and government regulations have generally eased in light of availability of vaccines and other health measures, business travel and in-person customer events have increased. In ~~addition,~~the future, we may deem it advisable ~~to continue~~ to alter, postpone or cancel customer, employee or industry events in the future. We may adjust our policies and business practices in light of the evolving COVID-19 pandemic and related government restrictions and public health guidance, and ~~further~~any such restrictive measures could negatively impact our business. As pandemic conditions improve and government regulations generally ease in light of availability of vaccines and other health measures, we expect more employees will be working in our offices, increased business travel, and increased in-person customer events.

The ongoing effects of the COVID-19 pandemic and the precautionary measures that we have adopted have resulted in, and could continue to result in, customers not purchasing or renewing our products or services, a significant delay or lengthening of our sales cycles, a negative impact to our customer success and sales and marketing efforts, difficulties or changes to our customer support, or potential operational or other challenges, any of which could harm our business and operating results. Because we sell our solutions primarily on a subscription basis, the effect of the pandemic may not be fully reflected in our operating results until future periods. As a result of the COVID-19 pandemic, we have experienced, and may continue to experience in the future, a reduced ability or willingness by companies in certain customer segments and industries to purchase our solutions, delayed purchasing decisions or project implementation timing of prospective customers, reduced value or duration of subscription contracts, or a negative impact to attrition rates. Such impacts have resulted, and may continue to result, in requests from customers for payment or pricing concessions, such as in the form of extended payment terms or restructuring of contracts, impacts to our quarterly billings, and in customers limiting their spending, which, in certain cases, have resulted in customers not purchasing or renewing our products or services. Historically, a significant portion of our field sales and professional services have been conducted in person. As a result of the COVID-19 pandemic, most of our sales and professional services activities for the past two years were being conducted remotely. As the COVID-19 restrictions have lessened, we have begun conducting some of these activities again in person, but are not at the frequency that we were before the pandemic. If the impact of the COVID-19 pandemic deepens or extends into other customer segments, these conditions could further adversely affect the rate of billings and subscription management solutions spending of our customers, our sales cycles could be further extended or delayed, our ability to close transactions with new and existing customers and partners may be negatively impacted, our ability to recognize revenue from software transactions we do close may be negatively impacted due to implementation delays or other factors, our demand generation activities, and the efficiency and effectiveness of those activities, may be negatively affected, and our ability to provide 24x7 worldwide support to our customers may be negatively affected, any of which may make it difficult for us to forecast our sales and operating results and to make decisions about future investments. These and other potential effects on our business due to the COVID-19 pandemic may be significant and could materially harm our business operating results and financial condition.

More generally, the COVID-19 pandemic has had, and could continue to have, an adverse effect on economies and financial markets globally, potentially leading to an economic downturn, which could decrease technology spending and adversely affect demand for our products and services. Although our financial results for the fiscal quarter ended ~~April 30,~~July 31, 2022 have not been materially impacted by the COVID-19 pandemic, any prolonged economic downturn or recession as a result of the COVID-19 pandemic could materially harm the business and operating results of our company and our customers, resulting in potential business closures and layoffs of employees, which effects may continue even after the COVID-19 pandemic is contained. The occurrence of any such events may lead to a reduction in the capital and operating budgets we or our customers have available, which could harm our business, financial condition and operating results. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening certain of the other risks described in this “Risk Factors” section. It is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

We have a history of net losses, anticipate increasing our operating expenses in the future, and may not achieve or sustain profitability.

We have incurred net losses in each fiscal year since inception, including net losses of $99.4 million, $73.2 million, and $83.4 million in fiscal 2022, 2021, and 2020, respectively. We expect to incur net losses for the foreseeable future. As of ~~April 30,~~July 31, 2022, we had an accumulated deficit of ~~$586.6~~$616.5 million. We expect to make significant future expenditures related to the development and expansion of our business, including increasing our overall customer base, expanding relationships with existing customers, entering new vertical markets, expanding our global footprint, expanding and leveraging our relationships with strategic partners including system integrators to accelerate our growth, optimizing pricing and packaging, and expanding our operations and infrastructure, both

domestically and internationally, and in connection with legal, accounting, and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these increased expenses. Some or all of the foregoing initiatives have been and may continue to be temporarily delayed or re-evaluated as part of our efforts to mitigate the ongoing effects of the COVID-19 pandemic on our business, which may negatively affect our ability to expand our operations and maintain or increase our sales. While our revenue has grown in recent years, if our revenue declines or fails to grow at a rate faster than these increases in our operating expenses, we will not be able to achieve and maintain profitability in future periods. As a result, we may continue to generate losses. We cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain profitability.

Our revenue growth and ability to achieve and sustain profitability will depend, in part, on being able to expand our direct sales force and increase the productivity of our sales force.

To date, most of our revenue has been attributable to the efforts of our direct sales force. In order to increase our revenue and achieve and sustain profitability, we must increase the size of our direct sales force, both in the United States and internationally, to generate additional revenue from new and existing customers. In connection with the COVID-19 pandemic, the market for employees has become more competitive in some locations. While we have been able to attract new qualified sales personnel to meet our needs, depending on how the employment market develops, it may become more difficult to do so in the future. There is also significant competition for sales personnel with the skills and technical knowledge that we require. Because our solution is often sold to large enterprises and involves long sales cycles and complex customer requirements, it is more difficult to find sales personnel with the specific skills and technical knowledge needed to sell our solution and, even if we are able to hire qualified personnel, doing so may be expensive. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of direct sales personnel to support our growth. Due to the complexities of our customer needs, new sales personnel require significant training and can take a number of months to achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect and if our new sales employees do not become fully productive on the timelines that we have projected or at all, our revenue will not increase at anticipated levels and our ability to achieve long-term projections may be negatively impacted.

We may also be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. Furthermore, hiring sales personnel in new countries requires additional set up and upfront costs that we may not recover if the sales personnel fail to achieve full productivity. In addition, as we continue to grow, a larger percentage of our sales force will be new to our company and our solution, which may adversely affect our sales if we cannot train our sales force quickly or effectively. Attrition rates may increase, and we may also face integration challenges as we continue to seek to expand our sales force. If we are unable to hire and train sufficient numbers of effective sales personnel, if attrition increases, or if the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be adversely affected.

We periodically change and make adjustments to our sales organization in response to market opportunities, competitive threats, management changes, product and service introductions or enhancements, acquisitions, sales performance, increases in sales headcount, cost levels, and other internal and external considerations, including potential changes and uncertainties associated with the COVID-19 pandemic. Any future changes in our sales organization may result in a temporary reduction of productivity, which could negatively affect our rate of growth. In addition, any significant change to the way we structure our compensation of our sales organization may be disruptive and may affect our revenue growth.

The market in which we participate is competitive, and our operating results could be harmed if we do not compete effectively.

The market for quote-to-cash and revenue recognition solutions, including our billing, collections and revenue recognition offerings, is highly competitive, rapidly evolving, and fragmented, and subject to changing technology, shifting customer needs, and frequent introductions of new products and services.

Many of our current and potential competitors have longer operating histories, access to alternative fundraising sources, significantly greater financial, technical, marketing, distribution or professional services experience, or other resources or greater name recognition than we do. In addition, many of our current and potential competitors

supply a wide variety of products to, and have strong and well-established relationships with, current and potential customers. As a result, our current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements or devote greater resources than we can to the development, promotion, and sale of their products and services. In addition, some current and potential competitors may offer products or services that address one or a limited number of functions at lower prices or with greater depth than our solution, or integrate or bundle such products and services with their other product offerings. Potential customers may prefer to purchase from their existing suppliers rather than from a new supplier. Our current and potential competitors may develop and market new technologies with comparable functionality to our solution. In addition, because our products and services are integral to our customers’ ability to accurately maintain books and records and prepare financial statements, our potential customers may prefer to purchase applications that are critical to their business from one of our larger, more established competitors, or leverage the software that they have already purchased from our competitors for their billing and accounting needs, or control such infrastructure internally. We may experience fewer customer orders, reduced gross margins, longer sales cycles, and loss of market share. This could lead us to decrease prices, implement alternative pricing structures, or introduce products and services available for free or a nominal price in order to remain competitive. We may not be able to compete successfully against current and future competitors, and our business, operating results, and financial condition will be adversely impacted if we fail to meet these competitive pressures.

Our ability to compete successfully in our market depends on a number of factors, both within and outside of our control. Some of these factors include: ease of use; subscription-based product features and functionality; ability to support the specific needs of companies with subscription business models; ability to integrate with other technology infrastructures and third-party applications; enterprise-grade performance and features such as system scalability, security, performance, and resiliency; vision for the market and product innovation; relationships with strategic partners, including system integrators, management consulting firms, and resellers; total cost of ownership; strength of sales and marketing efforts; brand awareness and reputation; and customer experience, including support and professional services. Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our solution, as well as adversely affect our business, operating results, and financial condition.

Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others, including our current or future technology partners. By doing so, these competitors may increase their ability to meet the needs of our customers or potential customers. These developments could limit our ability to obtain revenue from existing and new customers. If we are unable to compete successfully against current and future competitors, our business, operating results, and financial condition could be adversely impacted.

Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.

Our quarterly operating results have fluctuated in the past and may fluctuate in the future. As a result, you should not rely upon our past quarterly operating results as indicators of future performance. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly evolving markets, such as the risks and uncertainties described herein. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictable or are outside of our control, including:

•our ability to maintain and grow our customer base;

•our ability to retain and increase revenue from existing customers;

•our ability to introduce new products and services and enhance existing products and services;

•our ability to integrate or implement our existing products and services on a timely basis or at all;

•our ability to deploy our products successfully within our customers' information technology ecosystems;

•our ability to enter into larger contracts;

•increases or decreases in subscriptions to our platform;

•our ability to sell to large enterprise customers;

•the transaction volume that our customers processes through our system;

•our ability to respond to competitive developments, including competitors' pricing changes and their introduction of new products and services;

•the impact of inflation, including wage inflation;

•foreign exchange fluctuations;

•changes in the pricing of our products;

•the productivity of our sales force;

•our ability to grow our relationships with strategic partners such as system integrators and their effectiveness in increasing our sales and implementing our products;

•changes in the mix of products and services that our customers use;

•the length and complexity of our sales cycles;

•cost to develop and upgrade our solution to incorporate new technologies;

•seasonal purchasing patterns of our customers;

•the impact of outages of our solution and reputational harm;

•costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;

•failures or breaches of security or privacy, and the costs associated with responding to and addressing any such failures or breaches;

•changes to financial accounting standards and the interpretation of those standards that may affect the way we recognize and report our financial results, including changes in accounting rules governing recognition of revenue;

•the impact of changes to financial accounting standards;

•general economic and political conditions and government regulations in the countries where we currently operate or plan to expand;

•decisions by us to incur additional expenses, such as increases in sales and marketing or research and development;

•the timing of stock-based compensation expense;

•political unrest, changes and uncertainty associated with terrorism, hostilities, war, natural disasters or pandemics, including the COVID-19 pandemic and the ongoing conflict in Ukraine; and

•potential costs to attract, onboard, retain, and motivate qualified personnel.

The extent to which the global COVID-19 pandemic will continue to impact our business and financial results will depend on future developments, which are uncertain and cannot be fully predicted, including the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken by governments and private businesses to attempt to contain and treat the disease. Any prolonged shutdown of a significant portion of global economic activity or downturn in the global economy, along with any adverse effects on industries in which our customers operate, could materially and adversely impact our business, results of operations and financial condition.

The impact of one or more of the foregoing and other factors may cause our operating results to vary significantly. As such, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. If we fail to meet or exceed the expectations of investors or securities analysts, then the trading price of our Class A common stock could fall substantially, and we could face costly lawsuits, including shareholder litigation.

If we are not able to develop and release new products and services, or successful enhancements, new features, and modifications to our existing products and services, or otherwise successfully implement our multi-product strategy, our business could be adversely affected.

The market for our quote-to-cash and revenue recognition solutions, including our billing, collections and revenue recognition offerings, is characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands, and evolving industry standards. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. Additionally, because we provide billing and finance solutions to help our customers with compliance and financial reporting, changes in law, regulations, and accounting standards could impact the usefulness of our products and services and could necessitate changes or modifications to our products and services to accommodate such changes. Subscription management products and services, including our billing, collections and revenue recognition offerings, are inherently complex, and our ability to implement our multi-product strategy, including developing and releasing new products and services or enhancements, new features and modifications to our existing products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies and our solution, and overall market acceptance. We cannot be sure that we will succeed in developing, marketing, and delivering on a timely and cost-effective basis enhancements or improvements to our platform or any new products and services that respond to continued changes in subscription management practices or new customer requirements, nor can we be sure that any enhancements or improvements to our platform or any new products and services will achieve market acceptance. Since developing our solution is complex, the timetable for the release of new products and enhancements to existing products is difficult to predict, and we may not offer new products and updates as rapidly as our customers require or expect. Any new products or services that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, or may not achieve the broad market acceptance necessary to generate sufficient revenue. The introduction of new products and enhancements could also increase costs associated with customer support and customer success as demand for these services increase. This increase in cost could negatively impact profit margins, including our gross margin. Moreover, even if we introduce new products and services, we may experience a decline in revenue of our existing products and services that is not offset by revenue from the new products or services. For example, customers may delay making purchases of new products and services to permit them to make a more thorough evaluation of these products and services or until industry and marketplace reviews become widely available. Some customers may hesitate to migrate to a new product or service due to concerns regarding the complexity of migration or performance of the new product or service. In addition, we may lose existing customers who choose a competitor’s products and services or choose to utilize internally developed applications instead of our products and services. This could result in a temporary or permanent revenue shortfall and adversely affect our business.

In addition, because our products and services are designed to interoperate with a variety of other internal or third-party software products and business systems applications, we will need to continuously modify and enhance our products and services to keep pace with changes in application programming interfaces (APIs), and other software and database technologies. We may not be successful in either developing these new products and services, modifications, and enhancements or in bringing them to market in a timely fashion. There is no assurance that we will successfully resolve such issues in a timely and cost-effective manner. Furthermore, modifications to existing platforms or technologies, including any APIs with which we interoperate, will increase our research and development expenses. Any failure of our products and services to operate effectively with each other or with other platforms and technologies could reduce the demand for our products and services, result in customer dissatisfaction, and adversely affect our business.

A customer’s failure to deploy our solution after it enters into a subscription agreement with us, or the incorrect or improper deployment or use of our solution could result in customer dissatisfaction and negatively affect our business, operating results, financial condition, and growth prospects.

Our solution is deployed in a wide variety of technology environments and into a broad range of complex workflows. We believe our future success will depend in part on our ability to increase both the speed and success

of our deployments, by improving our deployment methodology, hiring and training qualified professionals, deepening relationships with deployment partners, and increasing our ability to integrate into large-scale, complex technology environments. We often assist our customers in deploying our solution, either directly or through our deployment partners. In other cases, customers rely on third-party partners to complete the deployment. In some cases, customers initially engage us to deploy our solution, but, for a variety of reasons, including strategic decisions not to utilize subscription business models, fail to ultimately deploy our solution. If we or our third-party

partners are unable to deploy our solution successfully, or unable to do so in a timely manner and, as a result, customers do not utilize our solution, we would not be able to generate future revenue from such customers based on transaction or revenue volume and the upsell of additional products and services, and our future operating results could be adversely impacted. In addition, customers may also seek refunds of their initial subscription fee. Moreover, customer perceptions of our solution may be impaired, our reputation and brand may suffer, and customers may choose not to renew or expand their use of our solution.

As a substantial portion of our sales efforts are increasingly targeted at large enterprise customers, our sales cycle may become longer and more expensive, we may encounter still greater pricing pressure and deployment and customization challenges, and we may have to delay revenue recognition for more complicated transactions, all of which could adversely impact our business and operating results.

As a substantial portion of our sales efforts are increasingly targeted at large enterprise customers, we may face greater costs, longer sales cycles, and less predictability in the completion of some of our sales. In this market segment, the customer’s decision to use our solution may be an enterprise-wide decision, in which case these types of sales frequently require approvals by multiple departments and executive-level personnel and require us to provide greater levels of customer education regarding the uses and benefits of our solution, as well as education regarding security, privacy, and scalability of our solution, especially for those large “business to consumer” customers or those with extensive international operations. These large enterprise transactions might also be part of a customer’s broader business model or business systems transformation project, which are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, security review, and other delays that could further lengthen the sales cycle. Larger enterprises typically have longer decision-making and deployment cycles, may have greater resources to develop and maintain customized tools and applications, demand more customization, require greater functionality and scalability, expect a broader range of services, demand that vendors take on a larger share of risks, demand increased levels of customer service and support, require acceptance provisions that can lead to a delay in revenue recognition, and expect greater payment flexibility from vendors. We are often required to spend time and resources to better familiarize potential customers with the value proposition of our solution. As a result of these factors, sales opportunities with large enterprises may require us to devote greater sales and administrative support and professional services resources to individual customers, which could increase our costs, lengthen our sales cycle, and divert our own sales and professional services resources to a smaller number of larger customers. We may spend substantial time, effort, and money in our sales, design and implementation efforts without being successful in producing any sales or deploying our products in such a way that is satisfactory to our customers. All these factors can add further risk to business conducted with these customers. In addition, if sales expected from a large customer for a particular quarter are not realized in that quarter or at all, our business, operating results, and financial condition could be materially and adversely affected.

Furthermore, our sales and implementation cycles could be interrupted or affected by other factors outside of our control. For example, as a result of the COVID-19 pandemic, many large enterprises have generally reduced or delayed technology or other discretionary spending, which may materially and negatively impact our operating results, financial condition and prospects. Like many other companies, including our customers and prospects, our employees are working from home and while we limited all non-essential business travel during the pandemic, we are now allowing business travel more freely in places where such travel is permitted under local regulations. Restrictions on travel and in-person meetings could affect services delivery, delay implementations, and interrupt sales activity and we cannot predict whether, for how long, or the extent to which the COVID-19 pandemic may adversely affect our business, results of operations, and financial condition.

Our long-term success depends, in part, on our ability to expand the sales of our solution to customers located outside of the United States. Our current international operations, and any further expansion of those operations, expose us to risks that could have a material adverse effect on our business, operating results, and financial condition.

We have been recognizing increased revenue from international sales, and we conduct our business activities in various foreign countries. We currently have operations in North America, Europe, Asia, and Australia. During the

~~three~~ six months ended ~~April 30,~~July 31, 2022, we derived approximately ~~36%~~35% of our total revenue from customers located outside the United States. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple cultures, customs, legal systems, regulatory systems, and commercial infrastructures. International expansion requires us to invest significant funds and other resources. Our operations in international markets may not develop at a rate that supports our level of investment. Expanding

internationally may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:

•recruiting and retaining talented and capable employees in foreign countries;

•providing our solution to customers from different cultures, which may require us to adapt to sales practices, modify our solution, and provide features necessary to effectively serve the local market;

•compliance with multiple, conflicting, ambiguous or evolving governmental laws and regulations and court decisions, including those relating to employment matters, e-invoicing, consumer protection, privacy, data protection, information security, data residency, and encryption;

•longer sales cycles in some countries;

•increased third-party costs relating to data centers outside of the United States;

•generally longer payment cycles and greater difficulty in collecting accounts receivable;

•credit risk and higher levels of payment fraud;

•weaker privacy and intellectual property protection in some countries, including China and India;

•compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (FCPA), and the UK Bribery Act 2010 (UK Bribery Act);

•currency exchange rate fluctuations;

•tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection measures;

•foreign exchange controls that might prevent us from repatriating cash earned outside the United States;

•economic instability and inflationary conditions;

•political instability and unrest, including the effects of Brexit, the COVID-19 pandemic, and the ongoing conflict in Ukraine, especially as it impacts countries in Europe;

•corporate espionage;

•compliance with the laws of numerous taxing jurisdictions, both foreign and domestic, in which we conduct business, potential double taxation of our international earnings, and potentially adverse tax consequences due to changes in applicable U.S. and foreign tax laws;

•continuing uncertainty regarding social, political, immigration, and tax and trade policies in the U.S. and abroad;

•increased costs to establish and maintain effective controls at foreign locations; and

•overall higher costs of doing business internationally.

If we are unable to grow our sales channels and our relationships with strategic partners, such as system integrators, management consulting firms, and resellers, sales of our products and services may suffer and our growth could be slower than we project.

In addition to our direct sales force, we use strategic partners, such as system integrators, management consulting firms, strategic technology partners and resellers, to market, sell, and implement our solution. Historically, we have used these strategic partners to a limited degree, but we are prioritizing efforts to make these partners an increasingly important aspect of our business particularly with regard to enterprise and international sales and larger implementations of our products where these partners may have more expertise and established business relationships than we do. We have been and expect to continue to transition a portion of our professional services implementations to these strategic partners, and as a result we expect our professional services revenue as an

overall percentage of Zuora's total revenue to continue to decline over time. Our relationships with these strategic partners are still at an early stage of development, and we cannot assure you that these partners will be successful in marketing, selling or implementing our solution. Identifying these partners, negotiating and supporting relationships with them, including training them in how to sell or deploy our solution, and maintaining these relationships requires significant commitment of time and resources that may not yield a significant return on our investment in these relationships. Our future growth in revenue and ability to achieve and sustain profitability

depends in part on our ability to identify, establish, and retain successful strategic partner relationships in the United States and internationally, which will take significant time and resources and involve significant risk. If we are unable to establish and maintain our relationships with these partners, or otherwise develop and expand our indirect distribution channel, our business, operating results, financial condition, or cash flows could be adversely affected.

We also cannot be certain that we will be able to maintain successful relationships with any strategic partners and, to the extent that our strategic partners are unsuccessful in marketing, selling, or implementing our solution, our business, operating results, and financial condition could be adversely affected. Our strategic partners may market to our customers the products and services of several different companies, including products and services that compete with our solution. Because our strategic partners do not have an exclusive relationship with us, we cannot be certain that they will prioritize or provide adequate resources to marketing our solution. Moreover, divergence in strategy by any of these partners may materially adversely affect our ability to develop, market, sell, or support our solution. We cannot assure you that our strategic partners will continue to cooperate with us. In addition, actions taken or omitted to be taken by such parties may adversely affect us. We are unable to control the quantity or quality of resources that our systems integrator partners commit to deploying our products and services, or the quality or timeliness of such deployment. If our partners do not commit sufficient or qualified resources to these activities, our customers will be less satisfied, be less supportive with references, or may require the investment of our resources at discounted rates. These, and other failures by our partners to successfully deploy our products and services, may have an adverse effect on our business and our operating results.

Our growth forecasts we have provided publicly may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure that our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts we have provided publicly relating to the expected growth of the markets in which we compete may prove to be inaccurate. Even if these markets experience the growth we forecast, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in executing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth we have provided publicly should not be taken as indicative of our future growth.

If we fail to offer high-quality support and training to our customers and third-party partners, our business and reputation will suffer.

Once our solution is deployed to our customers, our customers rely on support services from us and from our third-party partners to resolve any related issues. High-quality education, training and support for our customers and third-party partners is important for the successful marketing and sale of our products and for the renewal of existing customers. The importance of high-quality customer and third-party partner training and support will increase as we expand our business and pursue new enterprises. If we or our third-party partners do not help our customers quickly resolve post-deployment issues, including configuring and using features, and provide them with effective ongoing customer support, our ability to upsell additional products to existing customers could suffer and our reputation with existing or potential customers could be harmed.

Future changes in market conditions or customer demand could require changes to our prices or pricing model, which could adversely affect our business, operating results, and financial condition.

We generally charge our customers a flat fee for their use of our platform and a variable fee based on the amount of transaction volume they process through our system and the number of their subscribers. If our customers do not increase their transaction volume or the number of their subscribers, or an economic downturn reduces their transaction volume or the number of their subscribers, our revenue may be adversely impacted by customers reducing their contracted transaction volume. We have limited experience with respect to determining the optimal prices for our platform, and, as a result, we have in the past needed to and expect in the future to need to change our pricing model from time to time. As the market for our platform matures, or as new competitors introduce

new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. We may experience pressure to change our pricing model to defer fees until our customers have fully deployed our solution. Moreover, larger organizations, which comprise a large and growing component of our sales efforts, may demand substantial price concessions. As a result, in the future we may be required to reduce our prices or change our pricing model, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.

If we fail to integrate our solution with a variety of operating systems, software applications, and hardware platforms that are developed by others, our solution may become less marketable, less competitive, or obsolete, and our operating results may be adversely affected.

Our solution must integrate with a variety of network, hardware, and software platforms, and we need to continuously modify and enhance our solution to adapt to changes in cloud-enabled hardware, software, networking, browser, and database technologies. We have developed our solution to be able to integrate with third-party SaaS applications, including the applications of software providers that compete with us, through the use of APIs. For example, Zuora CPQ integrates with certain capabilities of Salesforce using publicly available APIs. In general, we rely on the fact that the providers of such software systems, including Salesforce, continue to allow us access to their APIs to enable these integrations, and the terms with such companies may be subject to change from time to time. We also integrate certain aspects of our solution with other platform providers. Any change or deterioration in our relationship with any platform provider may adversely impact our business and operating results.

Our business may be adversely impacted if any platform provider:

•discontinues or limits access to its APIs by us;

•makes changes to its platform;

•terminates or does not allow us to renew or replace our contractual relationship;

•modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or changes how customer information is accessed by us or our customers;

•establishes more favorable relationships with one or more of our competitors, or acquires one or more of our competitors or is acquired by a competitor and offers competing services to us; or

•otherwise develops its own competitive offerings.

In addition, we have benefited from these platform providers’ brand recognition, reputations, and customer bases. Any losses or shifts in the market position of these platform providers in general, in relation to one another or to new competitors or new technologies could lead to losses in our relationships or customers, or to our need to identify or transition to alternative channels for marketing our solutions. Such changes could consume substantial resources and may not be effective. If we are unable to respond to changes in a cost-effective manner, our solution may become less marketable, less competitive, or obsolete and our operating results may be negatively impacted.

If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.

We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance of our solution and are important elements in attracting new customers and maintaining existing customers. We believe that the importance of our brand and reputation will increase as competition in our market further intensifies. Successful promotion of our brand and the Subscription Economy concept will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful solution at competitive prices, the perceived value of our solution, and our ability to provide quality customer support. In addition, the promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our strategic partners. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. We also rely on our customer base and community of end-users in a variety of ways, including to give us feedback on our solution and to provide user-based support to our other customers. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we

may fail to attract new customers and partners or retain our existing customers and partners and our business and financial condition may be adversely affected. Any negative publicity relating to our customers, employees, partners, or others associated with these parties, may also tarnish our own reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our solution and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and may not be successful.

We employ third-party licensed software for use in or with our software, and the inability to maintain these licenses or errors in the software we license could result in increased costs or reduced service levels, which could adversely affect our business.

Our software incorporates certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the foreseeable future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, including open source software, this may not always be the case, or it may be difficult or costly to migrate to other third-party software. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In addition, integration of our software with new third-party software may require significant work and require substantial investment of our time and resources. Also, any undetected or uncorrected errors or defects in third-party software could prevent the deployment or impair the functionality of our software, present security risks, delay new updates or enhancements to our solution, result in a failure of our solution, and injure our reputation.

Certain of our operating results and financial metrics may be difficult to predict as a result of seasonality.

Although we have not historically experienced significant seasonality with respect to our subscription revenue throughout the year, we have seen seasonality in our sales cycle as a large percentage of our customers make their purchases in the third month of any given quarter. In addition, our fourth quarter has historically been our strongest quarter. We believe that this results in part from the procurement, budgeting, and deployment cycles of many of our customers. We generally expect a relative increase in sales in the second half of each year as budgets of our customers for annual capital purchases are being fully utilized. We may be affected by seasonal trends in the future, particularly as our business matures. Such seasonality may result from a number of factors, including a slowdown in our customers’ procurement process during certain times of the year, both domestically and internationally, and customers choosing to spend remaining budgets shortly before the end of their fiscal years. These effects may become more pronounced as we target larger organizations and their larger budgets for sales of our solution. Additionally, this seasonality may be reflected to a much lesser extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the term of the applicable subscription agreement. In addition, our ability to record professional services revenue can potentially vary based on the number of billable days in the given quarter, which is impacted by holidays and vacations. To the extent we experience this seasonality, it may cause fluctuations in our operating results and financial metrics and make forecasting our future operating results and financial metrics more difficult.

Our Debt Agreement provides our lender with a first-priority lien against substantially all of our non-intellectual property assets, and contains financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

Our Debt Agreement restricts our ability to, among other things:

•use our accounts receivable, inventory, trademarks, and most of our other assets as security in other borrowings or transactions;

•incur additional indebtedness;

•sell certain assets;

•declare dividends or make certain distributions; and

•undergo a merger or consolidation or other transactions.

Our Debt Agreement also prohibits us from exceeding certain adjusted quick ratios. Our ability to comply with these and other covenants is dependent upon a number of factors, some of which are beyond our control.

Our failure to comply with the covenants or payment requirements, or the occurrence of other events specified in our Debt Agreement could result in an event of default under the Debt Agreement which would give our lender the right to terminate their commitments to provide additional loans under the Debt Agreement and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lender first-priority liens against substantially all of our non-intellectual property assets as collateral, and have pledged not to encumber or otherwise grant any security interest in our intellectual property.

Failure to comply with the covenants or other restrictions in the Debt Agreement could result in a default. If the debt under our Debt Agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results.

Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy

If our security measures are breached, if unauthorized access to customer data, our data, or our solution is otherwise obtained, or if our solution is perceived as not being secure, customers may reduce the use of or stop using our solution, we may have difficulty attracting customers, and we may incur significant liabilities.

We have in the past experienced security incidents and breaches and may in the future experience additional security incidents or breaches. Security breaches and other security incidents could result in the loss of information, disruption of services, litigation, indemnity obligations, penalties, and other liability. If our security measures or those of our service providers are breached, or are perceived to have been breached, as a result of third-party action, including cyber-attacks or other intentional misconduct by computer hackers, employee error, malfeasance, or otherwise, and someone obtains unauthorized access to our data or other data we or our service providers maintain, including sensitive customer data, personal information, intellectual property, and other confidential business information, we could face loss of business, lawsuits or claims, regulatory investigations, or orders, and our reputation could be severely damaged. We, and our third-party partners, have security measures and disaster response plans in place to help protect our customers’ data, our own data and information, and our platform, networks, and other systems against unauthorized access or inadvertent exposure. However, we cannot assure that these security measures and disaster response plans will be effective against all security threats and natural disasters. System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems during the COVID-19 pandemic, could compromise our ability to perform our day-to-day operations in a timely manner, which could negatively impact our business or delay our financial reporting. Such failures could materially adversely affect our operating results and financial condition.

With more companies and individuals working remotely, the attack surface available for exploitation and the risk of cybersecurity incidents has increased. For example, since the beginning of the COVID-19 pandemic and, also more recently following the Russian invasion of Ukraine, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers.” Although the security incidents and breaches that we have experienced to date have not had a material effect on our business, there is no assurance that our security systems or processes will prevent or mitigate more serious break-ins, tampering, security incidents or breaches or other cyber-attacks that could occur in the future.

If we experience a security incident or breach, we could be required to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and incentives offered to affected parties, including customers, other business partners and employees, in an effort to maintain business relationships after a breach or other incident. Moreover, if our solution is perceived as not being secure, regardless of whether our security measures are actually breached, we could suffer harm to our reputation, and our operating results could be negatively impacted.

We cannot assure you that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matters. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient scope or amounts to cover one or more large claims related to a security incident or breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large

deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

Cyber-attacks and other malicious Internet-based activities continue to increase generally. Because the techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not identified until they are launched against a target, we and our service providers may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, third parties may attempt to fraudulently

induce employees, contractors, or users to disclose information to gain access to our data or our customers’ data. We could suffer significant damage to our brand and reputation if a cyber-attack or other security incident were to allow unauthorized access to or modification of our customers’ data, other external data, or our own data or our IT systems or if the services we provide to our customers were disrupted, or if our solution is perceived as having security vulnerabilities. Customers could lose confidence in the security and reliability of our solution and perceive them to be not secure. This could lead to fewer customers using our products and services and result in reduced revenue and earnings. The costs we would incur to address and respond to these security incidents, and to prevent them thereafter, would increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and claims, and increased legal liability, including in some cases costs related to notification of the incident and fraud monitoring.

In addition, while a majority of our employees are based in the United States, like many similarly situated technology companies, we have a sizable number of research and development and other personnel located outside the United States, including in China, which has exposed and could continue to expose us to governmental and regulatory, as well as market and media scrutiny, regarding the actual or perceived integrity of our platform or data security and privacy features. Any actual or perceived security compromise could reduce customer confidence in the effectiveness of our security measures, negatively affect our ability to attract new customers, and cause existing customers to reduce the use or stop using our solution, any of which could harm our business and reputation.

Privacy and security concerns, laws, and regulations, may reduce the effectiveness of our solution and adversely affect our business.

Our customers can use our solution to collect, use, and store personal information regarding their customers or other end users. Governments and agencies worldwide have adopted or may adopt laws and regulations regarding the collection, use, storage, data residency, security, disclosure, transfer across borders and other processing of information obtained from individuals within jurisdictions. These laws and regulations increase the costs and burdens of compliance, including the ability to transfer information from, or a requirement to store in, particular jurisdictions and could:

• impact our ability to offer our products and services in certain jurisdictions,

• decrease demand for or require us to modify or restrict our product or services, or

•impact our customers’ ability and willingness to use, adopt and deploy our solution globally.

Compliance or our inability to comply with such laws, regulations, and other obligations, could lead to reduced overall demand and impair our ability to maintain and grow our customer base and increase our revenue. We may be unable to make changes that we consider necessary or appropriate to address changes in laws, regulations, or other obligations in a commercially reasonable manner, in a timely fashion, or at all.

Additionally, laws and regulations relating to the processing of information can vary significantly based on the jurisdiction. Some regions and countries have or are enacting strict laws and regulations, including the European Union (EU), China (PIPL), Australia, and India, as well as states within the United States, such as California. The General Data Protection Regulation (GDPR) became effective in May 2018. The GDPR established new requirements for processing personal data and imposes penalties of up to the greater of €20 million or 4% of worldwide revenue. On June 4, 2021, the European Commission issued replacement standard contractual clauses (2021 SCCs) to govern the transfer of personal data to a country that has not been deemed adequate, such as the United States. The 2021 SCCs impose additional requirements and, potentially increased liability for data processors such as us. Since the 2021 SCCs replace the prior version, we will need to enter into 2021 SCCs with our customers and vendors before the December 27, 2022 deadline to meet GDPR requirements. The pending EU ePrivacy Regulation is expected to establish additional restrictions and penalties. In January 2020, the California Consumer Privacy Act (CCPA) which provides new data privacy rights for consumers, including a private right of

action for security breaches, new penalties for violations, and new operational requirements for companies, went into effect. The California Privacy Rights Act (CPRA) will replace the CCPA and becomes effective on January 2, 2023. The CCPA gives, and the CPRA will give, California residents expanded rights to access and require deletion of their personal data, opt out of certain personal data sharing, and receive detailed information about how their personal data is collected, used and shared. The CCPA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation. The CCPA and CPRA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material

adverse effect on our business, including how we use personal data, our financial condition, our operating results or prospects. The CCPA has also prompted a number of proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs and adversely affect our business. Changing definitions of personal data and information may also limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Also, some jurisdictions require that certain types of data be retained on servers within these jurisdictions. Our failure to comply with applicable laws and regulations may result in enforcement action or litigation against us, including fines, and damage to our reputation, any of which may have an adverse effect on our business and operating results.

We also are bound by standards, contracts and other obligations relating to processing personal information that are more stringent than applicable laws and regulations. The costs of compliance with, and other burdens imposed by, these laws, regulations, and other obligations are significant. In addition, some companies, particularly larger or global enterprises, often will not contract with vendors that do not meet these rigorous obligations and often seek contract terms to ensure we are financially liable for any breach of these obligations. Accordingly, our or as well as our vendors' failure, or perceived inability, to comply with these obligations may limit the demand, use and adoption of our solution, lead to regulatory investigations, breach of contract claims, litigation, damage our reputation and brand and lead to significant fines, penalties, or liabilities or slow the pace at which we close sales transactions, any of which could harm our business. Future laws, regulations, standards, and other obligations, actions by governments or other agencies, and changes in the interpretation or inconsistent interpretation of existing laws, regulations, standards, and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, costly changes to Zuora's products or their functionality, and limitations on processing personal information.

Privacy advocacy groups, the technology industry, and other industries have established or may establish various new, additional, or different self-regulatory standards that may place additional burdens on us. Our customers may require us or we may find it advisable to meet voluntary certifications or adhere to other standards established by them or third parties. Our customers may also expect us to take proactive stances or contractually require us to take certain actions should a request for personal information belonging to customers be received from a government or regulatory agency. If we are unable to maintain such certifications, comply with such standards, or meet such customer requests, it could reduce demand for our solution and adversely affect our business.

Failure to protect our intellectual property could adversely affect our business.

Our success depends in large part on our proprietary technology. We rely on various intellectual property (IP) rights, including patents, copyrights, trademarks, and trade secrets, as well as confidentiality provisions and contractual arrangements, to protect our proprietary rights. If we do not protect and enforce our intellectual property rights successfully, our competitive position may suffer, which could adversely impact our operating results.

Our pending patent or trademark applications may not be allowed, or competitors may challenge the validity, enforceability or scope of our patents, copyrights, trademarks or the trade secret status of our proprietary information. There can be no assurance that additional patents will be issued or that any patents that are issued will provide significant protection for our intellectual property. There is also no assurance that we will be able to register trademarks that are critical to our business. In addition, our patents, copyrights, trademarks, trade secrets, and other intellectual property rights may not provide us a significant competitive advantage. There is no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file patents and when to maintain trade secrets, will be adequate to protect our business.

Moreover U.S. patent law, developing jurisprudence regarding U.S. patent law, and possible future changes to U.S. or foreign patent laws and regulations may affect our ability to protect and enforce our intellectual property rights. In addition, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. As we expand our international activities, our exposure to unauthorized copying and use of our solution and proprietary information will likely increase. Despite our precautions, our intellectual

property is vulnerable to unauthorized access through employee error or actions, theft, and cybersecurity incidents, and other security breaches. It may be possible for third parties to infringe upon or misappropriate our intellectual property, to copy our solution, and to use information that we regard as proprietary to create products and services that compete with ours. Effective intellectual property protection may not be available to us in every country in which our solution is available. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents may

provide limited or no benefit. We may need to expend additional resources to defend our intellectual property rights domestically or internationally, which could impair our business or adversely affect our domestic or international expansion. Moreover, we may not pursue or file patent applications or apply for registration of copyrights or trademarks in the United States and foreign jurisdictions in which we operate with respect to our potentially patentable inventions, works of authorship, marks and logos for a variety of reasons, including the cost of procuring such rights and the uncertainty involved in obtaining adequate protection from such applications and registrations. If we cannot adequately protect and defend our intellectual property, we may not remain competitive, and our business, operating results, and financial condition may be adversely affected.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. We cannot assure you that these agreements will be effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing exclusive ownership of intellectual property developed by our current or former employees and consultants. Further, these agreements may not prevent other parties from independently developing technologies that are substantially equivalent or superior to our solution.

We may need to spend significant resources securing and monitoring our intellectual property rights, and we may or may not be able to detect infringement by third parties. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. In some circumstances, we may choose to not pursue enforcement because an infringer has a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims attacking the scope, validity, and enforceability of our intellectual property rights, or with counterclaims and countersuits asserting infringement by our products and services of third-party intellectual property rights. Our failure to secure, protect, and enforce our intellectual property rights could seriously adversely affect our brand and our business.

Additionally, the United States Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions in order to complete the patent or trademark application process and to maintain issued patents or trademarks. There are situations in which noncompliance or non-payment can result in abandonment or lapse of the patent or trademark or associated application, resulting in partial or complete loss of patent or trademark rights in the relevant jurisdiction. If this occurs, it could have a material adverse effect on our business operations and financial condition.

Errors, defects, or disruptions in our solution could diminish demand, harm our financial results, and subject us to liability.

Our customers use our products for important aspects of their businesses, and any errors, defects, or disruptions to our solution, or other performance problems with our solution could harm our brand and reputation and may damage our customers’ businesses. We are also reliant on third-party software and infrastructure, including the infrastructure of the Internet, to provide our products and services. Any failure of or disruption to this software and infrastructure could also make our solution unavailable to our customers. Our solution is constantly changing with new software releases, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance problems with our solution could result in negative publicity, loss of or delay in market acceptance of our products, loss of competitive position, delay of payment to us, lower renewal rates, or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. Accordingly, any errors, defects, or disruptions to our solution could adversely impact our brand and reputation, revenue, and operating results.

In addition, because our products and services are designed to interoperate with a variety of internal and third-party systems and infrastructures, we need to continuously modify and enhance our products and services to keep pace with changes in software technologies. We may not be successful in either developing these modifications and enhancements or resolving interoperability issues in a timely and cost-effective manner. Any failure of our products and services to continue to operate effectively with internal or third-party infrastructures and technologies could

reduce the demand for our products and services, resulting in dissatisfaction of our customers, and may materially and adversely affect our business.

Any disruption of service at our cloud providers, including Amazon Web Services and Microsoft's Azure cloud service, could interrupt or delay our ability to deliver our services to our customers, which could harm our business and our financial results.

We currently host our solution, serve our customers, and support our operations using Amazon Web Services (AWS), a provider of cloud infrastructure services, and have begun enabling new features and capabilities for our solution using Microsoft's Azure cloud service. We also leverage AWS in various geographic regions for our disaster recovery plans. We do not have control over the operations of the facilities of AWS or Azure. These facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions in our solution. In addition, the COVID-19 pandemic could potentially disrupt the supply chain of hardware needed to maintain these third-party systems or to run our business. The facilities also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct.

Our solution’s continuing and uninterrupted performance is critical to our success. Because our products and services are used by our customers for billing and financial accounting purposes, it is critical that our solution be accessible without interruption or degradation of performance, and we typically provide our customers with service level commitments with respect to service uptime. Customers may become dissatisfied by any system failure that interrupts our ability to provide our solution to them. Outages could lead to the triggering of our service level agreements and the issuance of credits to our customers, in which case, we may not be fully indemnified for such losses by AWS or Azure. We may not be able to easily switch our public cloud providers, including AWS and Azure, to another cloud provider if there are disruptions or interference with our use of either facility. Sustained or repeated system failures would reduce the attractiveness of our solution to customers and result in contract terminations, thereby reducing revenue. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our solution. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service.

While our agreement with AWS expires in September 2024, AWS and our other cloud providers do not have an obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements with these providers on commercially reasonable terms, if our agreements with our providers are prematurely terminated, or if in the future we add additional public cloud providers, we may experience additional costs or service downtime in connection with the transfer to, or the addition of, new public cloud providers. If these providers were to increase the cost of their services, we may have to increase the price of our solution, and our operating results may be adversely impacted.

We are vulnerable to intellectual property infringement claims brought against us by others.

There has been considerable activity in our industry to develop and enforce intellectual property rights. Successful intellectual property infringement claims against us or certain third parties, such as our customers, resellers, or strategic partners, could result in monetary liability or a material disruption in the conduct of our business. We cannot be certain that our products and services, content, and brand names do not or will not infringe valid patents, trademarks, copyrights, or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to cease selling or using solutions that incorporate the intellectual property that we allegedly infringe, make substantial payments for legal fees, settlement payments, or other costs or damages, obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology, or redesign the allegedly infringing solutions to avoid infringement, which could be costly, time-consuming, or impossible. Any claims or litigation, regardless of merit, could cause us to incur significant expenses

and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products and services, or require that we comply with other unfavorable terms. We do not have a significant patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. We may also be obligated to indemnify our customers or

strategic partners in connection with such infringement claims, or to obtain licenses from third parties or modify our solution, and each such obligation could further exhaust our resources. Some of our intellectual property infringement indemnification obligations are contractually capped at a very high amount or not capped at all.

Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the time and attention of our management and other employees, and adversely affect our business and operating results. We expect that the occurrence of infringement claims is likely to grow as the market for subscription management products and services grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.

Our solution contains open source software components, and failure to comply with the terms of the underlying licenses could restrict our ability to sell our solution.

Our solution incorporates certain open source software. An open source license typically permits the use, modification, and distribution of software in source code form subject to certain conditions. Some open source licenses contain conditions that any person who distributes or uses a modification or derivative work of software that was subject to an open source license make the modified version subject to the same open source license. Distributing or using software that is subject to this kind of open source license can lead to a requirement that certain aspects of our solution be distributed or made available in source code form. Although we do not believe that we have used open source software in a manner that might condition its use on our distribution of any portion of our solution in source code form, the interpretation of open source licenses is legally complex and, despite our efforts, it is possible that we may be liable for copyright infringement, breach of contract, or other claims if our use of open source software is adjudged to not comply with the applicable open source licenses.

Moreover, we cannot assure you that our processes for controlling our use of open source software in our solution will be effective. If we have not complied with the terms of an applicable open source software license, we may need to seek licenses from third parties to continue offering our solution on terms that are not economically feasible, to re-engineer our solution to remove or replace the open source software, to discontinue the sale of our solution if re-engineering could not be accomplished on a timely basis, to pay monetary damages, or to make available the source code for aspects of our proprietary technology, any of which could adversely affect our business, operating results, and financial condition.

In addition to risks related to license requirements, use of open source software can involve greater risks than those associated with use of third-party commercial software, as open source licensors generally do not provide warranties, assurances of title, performance, non-infringement, or controls on the origin of the software. There is typically no support available for open source software, and we cannot assure you that the authors of such open source software will not abandon further development and maintenance. Open source software may contain security vulnerabilities, and we may be subject to additional security risk by using open source software. Many of the risks associated with the use of open source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is identified or submitted for approval prior to use in our solution.

Risks Related to Legal, Regulatory, Accounting, and Tax Matters

If we are not able to satisfy data protection, security, privacy, and other government- and industry-specific requirements, our growth could be harmed.

We are subject to data protection, security, privacy, and other government- and industry-specific requirements, including those that require us to notify individuals of data security and privacy incidents involving certain types of personal data. Security and privacy compromises experienced by us or our service providers may lead to public disclosures, which could harm our reputation, erode customer confidence in the effectiveness of our security and

privacy measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions with us, or negatively impact our employee relationships or impair our ability to attract new employees. In addition, some of the industries we serve have industry-specific requirements relating to compliance with certain security, privacy and regulatory standards, such as those required by the Health Insurance Portability and Accountability Act. We also maintain compliance with the Payment Card Industry Data Security Standard, which

is critical to the financial services and insurance industries. As we expand and sell into new verticals and regions, we will likely need to comply with these and other requirements to compete effectively. If we cannot comply or if we incur a violation in one or more of these requirements, our growth could be adversely impacted, and we could incur significant liability.

Because we typically recognize subscription revenue over the term of the applicable agreement, a lack of subscription renewals or new subscription agreements may not be reflected immediately in our operating results and may be difficult to discern.

We generally recognize subscription revenue from customers ratably over the terms of their contracts, which typically vary between one and three years. As a result, most of the subscription revenue we report in each quarter is derived from the recognition of unearned revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any particular quarter would likely have a minor impact on our revenue results for that quarter, but could negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solution, and potential changes in our pricing policies or rate of renewals, may not be fully reflected in our operating results until future periods. Moreover, our subscription model makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our operating results.

Our customer contracts typically provide for service level commitments, which relate to service uptime, response times, and escalation procedures. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our solution, we may be contractually obligated to provide these customers with service credits, refunds for prepaid amounts related to unused subscription services, or other remedies, or we could face contract terminations. In addition, we could face legal claims for breach of contract, product liability, tort, or breach of warranty. Although we have contractual protections, such as warranty disclaimers and limitation of liability provisions, in our customer agreements, they may not fully or effectively protect us from claims by customers, commercial relationships, or other third parties. We may not be fully indemnified by our vendors for service interruptions beyond our control, and any insurance coverage we may have may not adequately cover all claims asserted against us, or cover only a portion of such claims. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources. Thus, our revenue could be harmed if we fail to meet our service level commitments under our agreements with our customers, including, but not limited to, maintenance response times and service outages. Typically, we have not been required to provide customers with service credits that have been material to our operating results, but we cannot assure you that we will not incur material costs associated with providing service credits to our customers in the future.

Additionally, any failure to meet our service level commitments could adversely impact our reputation, business, operating results, and financial condition.

Our customers may fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.

We typically enter into non-cancelable agreements with our customers with a term of one to three years. If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation. The risk of such negative effects increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position, and cash flow. Although we have processes in place that are designed to monitor and mitigate these risks, we cannot guarantee these

programs will be effective. If we are unable to adequately control these risks, our business, operating results and financial condition could be harmed.

Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved could expose us to monetary damages or limit our ability to operate our business.

We are currently involved in shareholder litigation and have in the past and may in the future become involved in other class actions, derivative actions, private actions, collective actions, investigations, and various other legal proceedings by stockholders, customers, employees, suppliers, competitors, government agencies, or others. The results of any such litigation, investigations, and other legal proceedings are inherently unpredictable and expensive. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, damage our reputation, require significant amounts of management time, and divert significant resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or limits on our ability to operate our business, which could have an adverse effect on our business, financial condition, and operating results.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to increased tax liability.

Our ability to use our net operating losses (NOLs) to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability. Utilization of the net operating loss may be subject to an annual limitation due to the "ownership change" limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and other similar state provisions. Additionally, NOLs arising in tax years beginning after December 31, 2017 are subject to a 20-year carryover limitation and may expire if unused within that period. There is also a risk that due to legislative changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. In addition, under the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act, the amount of NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. As such, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

We may need to raise additional capital required to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.

In order to support our growth and respond to business challenges, such as developing new features or enhancements to our solution to stay competitive, acquiring new technologies, and improving our infrastructure, we have made significant financial investments in our business, and we intend to continue to make such investments. As a result, to provide the funds required for these investments and other business endeavors, we may need to engage in equity or debt financings. For example, in March 2022, we ~~recently~~ issued to Silver Lake the Initial Notes and have agreed to issue to Silver Lake up to an additional $150.0 million in senior unsecured notes. See Note 9. Debt to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information about the 2029 Notes. If we raise additional funds through equity or convertible debt issuances, our existing stockholders may suffer significant dilution, and these securities could have rights, preferences, and privileges that are superior to that of holders of our common stock. If we obtain additional funds through debt financing, we may not be able to obtain such financing on terms favorable to us. Such terms may involve additional restrictive covenants making it difficult to engage in capital raising activities and pursue business opportunities, including potential acquisitions. Future volatility in the trading price of our common stock may reduce our ability to access capital on favorable terms or at all. In addition, a recession, depression or other sustained adverse market event resulting from the spread of COVID-19 could materially and adversely affect our business and the value of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired and our business may be adversely affected, requiring us to delay, reduce, or eliminate some or all of our operations.

Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.

We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the UK Bribery Act, and possibly other anti-bribery and anti-money laundering laws in

countries in which we conduct activities. We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from promising,

authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. In addition, we use various third parties to sell our solution and conduct our business abroad. We or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. We have implemented an anti-corruption compliance program but cannot assure you that all of our employees and agents, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Any violation of the FCPA, other applicable anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, or severe criminal or civil sanctions, which could have a materially adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources, significant defense costs, and other professional fees.

We are required to comply with governmental export control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our business and operating results.

Our solution is subject to governmental, including United States and European Union, export control laws and import regulations, and as a U.S. company we are covered by the U.S. sanctions regulations. U.S. export control and economic sanctions laws and regulations prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments, entities and persons, and complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. While we take precautions to prevent our solution from being exported in violation of these laws or engaging in any other activities that are subject to these regulations, if we were to fail to comply with U.S. export laws, U.S. Customs regulations and import regulations, U.S. economic sanctions, and other countries’ import and export laws, we could be subject to substantial civil and criminal penalties, including fines for our company, incarceration for responsible employees and managers; the possible loss of export or import privileges which could impact our ability to provide our solution to customers; and reputational harm.

We incorporate encryption technology into certain of our products and certain encryption products may be exported outside of the United States only by a license or a license exception. In addition, various countries regulate the import of certain encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to deploy our products in those countries. Although we take precautions to prevent our products from being provided in violation of such laws, we cannot assure you that inadvertent violations of such laws have not occurred or will not occur in connection with the distribution of our products despite the precautions we take. Governmental regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international sales and adversely affect our operating results.

Further, if our partners, including suppliers, fail to obtain required import, export, or re-export licenses or permits, we may also be harmed, become the subject of government investigations or penalties, and incur reputational harm. Changes in our solution or changes in export and import regulations may create delays in the introduction of our solution in international markets, prevent our customers with international operations from deploying our solution globally or, in some cases, prevent the export or import of our solution to certain countries, governments, or persons altogether. Any change in export or import laws or regulations, economic sanctions, or related legislation, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons, or technologies targeted by such laws and regulations, could result in decreased use of our solution by, or in our decreased ability to export or sell our solution to, existing or potential customers such as customers with international operations or customers who are added to the restricted entities list published by the U.S. Office of Foreign Assets Control (OFAC). Any decreased use of our solution or limitation on our ability to export or sell our solution would likely harm our business, financial condition, and operating results.

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The applicability of sales, use and other tax laws or regulations in the U.S. and internationally on our business is uncertain. Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could subject us to additional tax liability and related interest and penalties, increase the costs of our services and adversely impact our business.

The application of federal, state, local, and non-U.S. tax laws to services provided electronically is evolving. New income, sales, use, value-added, or other direct or indirect tax laws, statutes, rules, regulations, or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the Internet or could otherwise materially affect our financial position and results of operations. Many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, have proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax obligations. As we expand the scale of our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, results of operations, and financial condition.

In addition, state, local, and foreign tax jurisdictions have differing rules and regulations governing sales, use, value-added, and other taxes, and these rules and regulations can be complex and are subject to varying interpretations that may change over time. Existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts on prior sales and going forward, as well as require us or our customers to pay fines or penalties and interest for past amounts. Although our customer contracts typically provide that our customers must pay all applicable sales and similar taxes, our customers may be reluctant to pay back taxes and associated interest or penalties, or we may determine that it would not be commercially feasible to seek reimbursement. If we are required to collect and pay back taxes and associated interest and penalties, or we are unsuccessful in collecting such amounts from our customers, we could incur potentially substantial unplanned expenses, thereby adversely impacting our operating results and cash flows. Imposition of such taxes on our services going forward could also adversely affect our sales activity and have a negative impact on our operating results and cash flows.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally Accepted Accounting Principles (GAAP) is subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. Any difficulties in implementing these pronouncements, including those described in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements of our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors' confidence in us.

Risks Related to Ownership of Our Class A Common Stock

The stock price of our Class A common stock has been and may continue to be volatile, and you could lose all or part of your investment.

The market price of our Class A common stock since our initial public offering in 2018 has been and may continue to be volatile. In addition to factors discussed in this Form 10-Q, the market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•overall performance of the equity markets;

•actual or anticipated fluctuations in our revenue and other operating results;

•changes in the financial projections we may provide to the public or our failure to meet these projections;

•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

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•recruitment or departure of key personnel;

•the economy as a whole and market conditions in our industry;

•negative publicity related to the real or perceived quality of our solution, as well as the failure to timely launch new products and services that gain market acceptance;

•growth of the Subscription Economy;

•rumors and market speculation involving us or other companies in our industry;

•announcements by us or our competitors of new products, commercial relationships, or significant technical innovations;

•acquisitions, strategic partnerships, joint ventures, or capital commitments;

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•lawsuits threatened or filed against us, litigation involving our industry, or both;

•developments or disputes concerning our or other parties’ products, services, or intellectual property rights;

•the inclusion of our Class A common stock on stock market indexes, including the impact of rules adopted by certain index providers, such as S&P Dow Jones Indices and FTSE Russell, that limit or preclude inclusion of companies with multi-class capital structures;

•changes in accounting standards, policies, guidelines, interpretations, or principles;

•the impact of the COVID-19 pandemic, including on the global economy, our operating results and enterprise technology spending;

•other events or factors, including those resulting from pandemics, war, incidents of terrorism, or responses to these events, including the ongoing conflict in Ukraine;

•sales of shares of our Class A common stock by us or our stockholders;

•inflation; and

•fluctuations in interest rates.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, particularly during the current period of macroeconomic uncertainty, including rising inflation, increasing interest rates and fluctuations in international currency rates, as well as the impacts of the current conflict in Ukraine and the COVID-19 pandemic. Stock prices of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. These economic, political, regulatory and market conditions have and may continue to negatively impact the market price of our common stock. In the past, companies that have experienced volatility in the market price of their securities have been subject to shareholder litigation. We are currently subject to shareholder litigation, which is described in Note 13. Commitments and Contingencies in the notes to our unaudited condensed consolidated financial statements. This or any future shareholder litigation could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

The market price of our Class A common stock could decline as a result of a substantial number of shares of our Class A common stock being issued or sold, which may make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

As of ~~May~~July 31, 2022, a total of ~~121.2~~123.8 million shares of Class A common stock and ~~8.0~~8.1 million shares of Class B common stock were outstanding. Issuances of a substantial number of shares of our Class A common stock, including as a result of the exercise or conversion into Class A common stock of outstanding convertible notes, warrants, equity awards, shares of Class B common stock or other securities, could result in significant dilution to our existing stockholders and cause the market price of our Class A common stock to decline. From time to time, we may issue shares of common stock or securities convertible into shares of common stock in connection with a financing, an acquisition, investments, or otherwise. For example, as described in Note 9. Debt, on March 24, 2022 (Initial Closing Date), we issued to Silver Lake convertible notes in the aggregate principal amount of $250.0 million as well as warrants to purchase up to 7.5 million shares of Class A common stock, and we have agreed to issue

additional convertible notes in the aggregate principal amount of $150.0 million to Silver Lake 18 months after the Initial Closing Date (or sooner under certain conditions). In addition, under certain circumstances, the number of shares issuable upon conversion of the convertible notes or exercise of the ~~warrants~~Warrants may be subject to increase, as described in Note 9. Debt and Note 17. Warrants to Purchase Shares of Common Stock. The conversion of these convertible notes or exercise of these ~~warrants~~Warrants could result in a substantial number of shares of our Class A common stock being issued. Silver Lake is generally restricted from converting the convertible notes or exercising the ~~warrants,~~Warrants, or transferring them, during the 18 month period following the Initial Closing Date, except in certain circumstances.

In addition, we grant equity awards to employees, directors, and consultants under our 2018 Equity Incentive Plan on an ongoing basis and our employees have the right to purchase shares of our Class A common stock semi-annually under our 2018 Employee Stock Purchase Plan. As of ~~April 30,~~July 31, 2022, there were a total of ~~23.4~~25.6 million shares of Class A common stock subject to outstanding options and restricted stock units (RSUs), including performance stock units (PSUs). Subject to vesting and other applicable requirements, the shares issued upon the exercise of such options or settlement of such RSUs will be available for resale in the open market.

Moreover, the market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the market, particularly sales by our directors, executive officers and significant stockholders. The perception that these sales might occur may also cause the market price of our Class A common stock to decline.

We also have granted and may grant from time to time certain registration rights that, subject to certain conditions, require us to file registration statements for the public resale of certain securities or to include such securities in registration statements that we may file on behalf of our company or other stockholders.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.

The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock could be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our Class A common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.

Even if our stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. For example, in order to assess our business activity in a given period, analysts and investors may look at the combination of revenue and changes in deferred revenue in a given period (sometimes referred to as “billings”). Over-reliance on billings or similar measures may result in analyst or investor forecasts that differ significantly from our own for a variety of reasons, including:

•a relatively large number of transactions occur at the end of the quarter. Invoicing of those transactions may or may not occur before the end of the quarter based on a number of factors including receipt of information from the customer, volume of transactions, and holidays. A shift of a few days has little economic impact on our business, but will shift deferred revenue from one period into the next;

•a shift in billing frequency (i.e. from monthly to quarterly or from quarterly to annually), which may distort trends;

•subscriptions that have deferred start dates; and

•services that are invoiced upon delivery.

In addition, the revenue recognition disclosure obligations under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) are prepared on the basis of estimates that can change over time and on the basis of events over which we have no control. It is possible that analysts and investors may misinterpret our disclosure or that our methods for estimating this disclosure may differ significantly from others, which could lead to inaccurate or unfavorable forecasts by analysts and investors.

The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our directors, executive officers, and significant stockholders, which limits or precludes your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.

Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of ~~April 30,~~July 31, 2022, our directors and executive officers, and their affiliates, held substantially all of our Class B common stock and a substantial portion of the combined voting power of our common stock. As a result, we expect our directors and officers would control all matters submitted to our stockholders for approval until the earlier of (i) the date specified by a vote of the holders of 66 2/3% of the outstanding shares of Class B common stock, (ii) April 16, 2028, and (iii) the date the shares of Class B common stock cease to represent at least 5% of all outstanding shares of our common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain permitted transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.

The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.

Stock index providers, such as S&P Dow Jones and FTSE Russell, exclude or limit the eligibility of public companies with multiple classes of shares of common stock for certain indices, including the S&P 500. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of our Debt Agreement. We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our Class A common stock.

Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:

•provide that our Board of Directors will be classified into three classes of directors with staggered three-year terms;

•permit the Board of Directors to establish the number of directors and fill any vacancies and newly-created directorships;

•require supermajority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;

•authorize the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;

•provide that only the chairman of our Board of Directors, our chief executive officer, lead independent director, or a majority of our Board of Directors will be authorized to call a special meeting of stockholders;

•provide for a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;

•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•provide that the Board of Directors is expressly authorized to make, alter, or repeal our bylaws; and

•establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

In addition, our restated certificate of incorporation provides that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware is the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or DGCL, our restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. It would apply, however, to a suit that falls within one or more of the categories enumerated in the exclusive forum provision.

Section 22 of the Securities Act of 1933, as amended (Securities Act), creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. In April 2020, we amended and restated our bylaws to provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (Federal Forum Provision). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. In addition, neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability

created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.

Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholders’ ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.

Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change of control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.

General Risk Factors

Political developments, economic uncertainty or downturns could adversely affect our business and operating results.

Political developments impacting government spending and international trade, including future government shutdowns in the United States, health pandemics such as the COVID-19 pandemic, armed conflict such as the conflict in Ukraine, and trade disputes and tariffs, may negatively impact markets and cause weaker macroeconomic conditions. The continuing effect of any or all of these political uncertainties could adversely impact demand for our products, harm our operations and weaken our financial results.

In addition, in recent years, the United States and other significant markets have experienced cyclical downturns and worldwide economic conditions remain uncertain. Economic uncertainty and associated macroeconomic conditions, such as a recession or rising inflation rates or economic slowdown in the United States or internationally, including due to pandemics such as the COVID-19 pandemic or the ongoing conflict in Ukraine, make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and could cause our customers to slow spending on our solution, which could delay and lengthen sales cycles. Furthermore, during uncertain economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for credit losses and our results could be negatively impacted.

We have customers in a variety of different industries. A significant downturn in the economic activity attributable to any particular industry may cause organizations to react by reducing their capital and operating expenditures in general or by specifically reducing their spending on information technology. In addition, our customers may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. To the extent purchases of our solution are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software or modify their legacy business software as an alternative to using our solution. Moreover, competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers.

We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally, or any industry in particular. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and operating results could be materially adversely affected.

The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain additional executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, making some activities more difficult, time-consuming, or costly, and increasing demand on our systems and resources. Although we have already hired additional employees and outside consultants to comply with these requirements, we may need to add additional resources, which would increase our costs and expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as market practice develops or new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If our efforts to comply with new laws, regulations, and standards differ from

the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected.

The rules and regulations applicable to public companies make it more expensive for us to obtain and maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in our public company filings, our business and financial condition is more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

In addition, as a result of our disclosure obligations as a public company, we have reduced flexibility and are under pressure to focus on short-term results, which may adversely affect our ability to achieve long-term profitability.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Class A common stock. This management report will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting.

Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to annually attest to the effectiveness of our internal control over financial reporting, which has required, and will continue to require, increased costs, expenses, and management resources. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We are required to disclose changes made in our internal controls and

procedures on a quarterly basis. To comply with the requirements of being a public company, we have undertaken, and may need to further undertake in the future, various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, including as a result of any identified material weakness, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.

We may be adversely affected by natural disasters, pandemics, and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations. Our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Natural disasters, pandemics and epidemics, or other catastrophic events such as fire, power shortages, and other events beyond our control may cause damage or disruption to our operations, international commerce, and the global economy, and could have an adverse effect on our business, operating results, and financial condition. For example, the ongoing effects of the COVID-19 pandemic and the precautionary measures that we have adopted

have resulted in, and could continue to result in, customers not purchasing or renewing our products or services, a significant delay or lengthening of our sales cycles, and could negatively impact our customer success and sales and marketing efforts and could result in difficulties or changes to our customer support, or create operational or other challenges, any of which could harm our business and operating results.

In the event of a natural disaster, including a major earthquake, blizzard, wildfire, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our solution, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results. For example, our corporate headquarters is located in California, a state that frequently experiences earthquakes and wildfires. Additionally, all of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or the disaster recovery plans put in place by Zuora or our partners prove to be inadequate.

Investors’ expectations of our performance relating to environmental, social, and governance factors may expose us to new risks and require us to incur additional costs.

Corporate responsibility, including environmental, social and governance (ESG) factors, is increasingly becoming a focus from certain investors, employees, and other stakeholders. Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our corporate responsibility policies are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance. The criteria by which companies’ corporate responsibility practices are assessed may require significant expenditures. In May 2022, we announced our commitment to remain carbon neutral going forward, including by purchasing carbon offsets in future years, which may become increasingly more expensive. In addition, the corporate responsibility criteria could change, which could result in greater expectations of us and cause us to undertake more costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies.

Furthermore, if our competitors’ corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest with our competitors instead. In addition, in the event that we communicate certain initiatives and goals regarding ESG matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, employees, and other stakeholders, or, if our initiatives are not executed as planned, our reputation and business, operating results, and financial condition could be adversely impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

7278

Item 6. Exhibits.
Exhibit
Number
Incorporated By Reference Filed or
Furnished
Herewith
Exhibit Description Form File No. Exhibit Filing
Date
4.1
Indenture, by and between Zuora, Inc. and U.S. National Bank Association, as trustee (including the form of 3.95% / 5.50% Convertible Senior PIK Notes Due 2029 ).
8-K 001-38451 10.2 3/25/2022
4.2
Form of 3.95% / 5.50% Convertible Senior PIK Notes Due 2029 (included in Exhibit 4.1)
8-K 001-38451 10.2 3/25/2022
4.3
Form of Warrant
8-K 001-38451 10.3 3/25/2022
10.1
Investment Agreement by and between Zuora, Inc. and Silver Lake Alpine II, L.P., dated as of March 2, 2022.
8-K 001-38451 10.1 3/25/2022
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
X
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
X
32.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2*
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). X

Exhibit

Number

Incorporated By Reference

Filed or
Furnished
Herewith

Exhibit Description

Form

File No.

Exhibit

Filing
Date

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act

32.1*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

* The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

7379

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ZUORA, INC.

Date: ~~June 3,~~August 31, 2022

By:

/s/ Todd McElhatton

Todd McElhatton

Chief Financial Officer

(Principal Accounting and Financial Officer)


	Three Months Ended April 30, 2021
									Accumulated
	Class A			Class B			Additional		Other				Total
	Common Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance, January 31, 2021	109,900	$	11	11,004	$	1	$	635,127	$	796	$	(464,022)	$	171,913
Conversion of Class B common stock to Class A common stock	680	—		(680)	—		—		—		—		—
Issuance of common stock upon exercise of stock options	39	—		611	—		3,567		—		—		3,567
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		10		—		—		10
RSU releases	630	—		20	—		—		—		—		—
Stock-based compensation	—	—		—	—		13,797		—		—		13,797
Other comprehensive loss	—	—		—	—		—		(119)		—		(119)
Net loss	—	—		—	—		—		—		(17,661)		(17,661)
Balance, April 30, 2021	111,249	$	11	10,955	$	1	$	652,501	$	677	$	(481,683)	$	171,507


	Maturities of Operating Lease Liabilities
2023 (remainder of the year)	$	10,230
2024	11,025
2025	6,386
2026	6,242
2027	6,429
Thereafter	23,468
Total lease payments	63,780
Less imputed interest	(9,724)
Present value of lease liabilities	$	54,056