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, ~~2020~~2021


☐			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 31, ~~2020,~~2021, the number of shares of the Registrant's Class A common stock outstanding was ~~99.9~~111.4 million and the number of shares of the Registrant's Class B common stock outstanding was ~~16.0~~10.9 million.


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of April 30 ~~30, 2020~~ , 202 1 and January 31, 20202 201	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30 2, 202 ~~020~~1 and 20 ~~and 201~~209	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 3 ~~30,~~0 , 2021 and 2020 ~~and~~ ~~2019~~	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended A~~pril~~April 30, ~~2020~~2021 and ~~2019~~2020	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231
Item 4.	Controls and Procedures	3332

PART II.	OTHER INFORMATION	3433
Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	3433
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6566
Item 6.	Exhibits	6667
Signatures			6768

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.

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:

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

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

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

•the expansion and functionality of our technology offering;

•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, ~~and~~ prospects and business strategies.

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, 2020 January 31, 2020
Assets
Current assets:
Cash and cash equivalents $ 84,694 $ 54,275
Short-term investments 87,898 117,662
Accounts receivable, net 59,365 68,875
Deferred commissions, current portion 10,080 9,585
Prepaid expenses and other current assets 15,550 16,387
Total current assets 257,587 266,784
Property and equipment, net 36,074 33,489
Operating lease right-of-use assets 52,857 54,286
Purchased intangibles, net 5,197 5,620
Deferred commissions, net of current portion 18,748 19,591
Goodwill 17,632 17,632
Other assets 4,076 4,825
Total assets $ 392,171 $ 402,227
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 5,343 $ 2,098
Accrued expenses and other current liabilities 14,083 17,731
Accrued employee liabilities 23,807 24,193
Debt, current portion 4,432 4,432
Deferred revenue, current portion 107,728 111,411
Operating lease liabilities, current portion 6,268 5,755
Total current liabilities 161,661 165,620
Debt, net of current portion 4,991 6,094
Deferred revenue, net of current portion 782 1,007
Operating lease liabilities, net of current portion 60,359 62,307
Deferred tax liabilities 1,591 1,569
Other long-term liabilities 954 971
Total liabilities 230,338 237,568
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock 10 10
Class B common stock 2 2
Additional paid-in capital 570,239 555,307
Accumulated other comprehensive (loss) income (82) 188
Accumulated deficit (408,336) (390,848)
Total stockholders’ equity 161,833 164,659
Total liabilities and stockholders’ equity $ 392,171 $ 402,227


	April 30, 2021		January 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	101,116	$	94,110
Short-term investments	96,282		92,484
Accounts receivable, net of allowance for credit losses of $5,827 and $4,522 as of April 30, 2021 and January 31, 2021, respectively	59,484		78,860
Deferred commissions, current portion	13,160		12,712
Prepaid expenses and other current assets	16,590		15,574
Total current assets	286,632		293,740
Property and equipment, net	32,393		33,369
Operating lease right-of-use assets	48,666		47,085
Purchased intangibles, net	3,505		3,928
Deferred commissions, net of current portion	21,681		21,905
Goodwill	17,632		17,632
Other assets	3,618		3,848
Total assets	$	414,127	$	421,507
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	842	$	2,249
Accrued expenses and other current liabilities	12,961		14,550
Accrued employee liabilities	26,414		29,470
Debt, current portion	4,397		4,397
Deferred revenue, current portion	126,880		127,701
Operating lease liabilities, current portion	10,946		9,630
Total current liabilities	182,440		187,997
Debt, net of current portion	574		1,666
Deferred revenue, net of current portion	1,241		1,529
Operating lease liabilities, net of current portion	53,540		53,590
Deferred tax liabilities	1,920		1,929
Other long-term liabilities	2,905		2,883
Total liabilities	242,620		249,594
Commitments and contingencies (Note 13)	0		0
Stockholders’ equity:
Class A common stock	11		11
Class B common stock	1		1
Additional paid-in capital	652,501		635,127
Accumulated other comprehensive income	677		796
Accumulated deficit	(481,683)		(464,022)
Total stockholders’ equity	171,507		171,913
Total liabilities and stockholders’ equity	$	414,127	$	421,507

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 April 30,
		2020		2019			2021		2020
Revenue:	Revenue:					Revenue:
Subscription	Subscription	$	56,896	$	47,311	Subscription	$	65,142	$	56,896
Professional services	Professional services	17,002		16,798		Professional services	15,187		17,002
Total revenue	Total revenue	73,898		64,109		Total revenue	80,329		73,898
Cost of revenue:	Cost of revenue:					Cost of revenue:
Subscription	Subscription	13,615		11,933		Subscription	15,643		13,615
Professional services	Professional services	18,682		20,098		Professional services	17,078		18,682
Total cost of revenue	Total cost of revenue	32,297		32,031		Total cost of revenue	32,721		32,297
Gross profit	Gross profit	41,601		32,078		Gross profit	47,608		41,601
Operating expenses:	Operating expenses:					Operating expenses:
Research and development	Research and development	17,543		17,015		Research and development	18,967		17,543
Sales and marketing	Sales and marketing	28,496		25,501		Sales and marketing	31,865		28,496
General and administrative	General and administrative	13,265		10,445		General and administrative	14,185		13,265
Total operating expenses	Total operating expenses	59,304		52,961		Total operating expenses	65,017		59,304
Loss from operations	Loss from operations	(17,703)		(20,883)		Loss from operations	(17,409)		(17,703)
Interest and other income (expense), net		378		535
Interest and other income, net						Interest and other income, net	121		378
Loss before income taxes	Loss before income taxes	(17,325)		(20,348)		Loss before income taxes	(17,288)		(17,325)
Income tax provision	Income tax provision	163		244		Income tax provision	373		163
Net loss	Net loss	(17,488)		(20,592)		Net loss	(17,661)		(17,488)
Comprehensive loss:	Comprehensive loss:					Comprehensive loss:
Foreign currency translation adjustment	Foreign currency translation adjustment	(427)		(75)		Foreign currency translation adjustment	(85)		(427)
Unrealized gain on available-for-sale securities		157		24
Unrealized (loss) gain on available-for-sale securities						Unrealized (loss) gain on available-for-sale securities	(34)		157
Comprehensive loss	Comprehensive loss	$	(17,758)	$	(20,643)	Comprehensive loss	$	(17,780)	$	(17,758)
Net loss per share, basic and diluted	Net loss per share, basic and diluted	$	(0.15)	$	(0.19)	Net loss per share, basic and diluted	$	(0.15)	$	(0.15)
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	115,139		108,821		Weighted-average shares outstanding used in calculating net loss per share, basic and diluted	121,354		115,139

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)


	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, net of repurchases	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	—		—		—		—		0


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

Three Months Ended April 30, 2020
Accumulated
Class A Class B Additional Other Total
Common Stock Common Stock Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Capital (Loss) Income Deficit Equity
Balance, January 31, 2020 97,134 $ 10 17,348 $ 2 $ 555,307 $ 188 $ (390,848) $ 164,659
Conversion of Class B common stock to Class A common stock 2,186 — (2,186) — — — — —
Issuance of common stock upon exercise of stock options, net of repurchases (2) — 856 — 4,009 — — 4,009
Lapse of restrictions on common stock related to early exercise of stock options — — — — 39 — — 39
RSU releases 337 — 40 — — — — —
Stock-based compensation — — — — 10,884 — — 10,884
Other comprehensive loss — — — — — (270) — (270)
Net loss — — — — — — (17,488) (17,488)
Balance, April 30, 2020 99,655 $ 10 16,058 $ 2 $ 570,239 $ (82) $ (408,336) $ 161,833


																	Three Months Ended April 30, 2020
																										Accumulated
																	Class A				Class B			Additional		Other				Total
																	Common Stock				Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders'
																	Shares		Amount		Shares	Amount		Capital		(Loss) Income		Deficit		Equity
Balance, January 31, 2020																Balance, January 31, 2020	97,134		$	10	17,348	$	2	$	555,307	$	188	$	(390,848)	$	164,659
Conversion of Class B common stock to Class A common stock																Conversion of Class B common stock to Class A common stock	2,186		—		(2,186)	—		—		—		—		—
Issuance of common stock upon exercise of stock options, net of repurchases																Issuance of common stock upon exercise of stock options, net of repurchases	(2)		—		856	—		4,009		—		—		4,009
Lapse of restrictions on common stock related to early exercise of stock options																Lapse of restrictions on common stock related to early exercise of stock options	—		—		—	—		39		—		—		39

RSU releases																RSU releases	337		—		40	—		—		—		—		0
Stock-based compensation																Stock-based compensation	—		—		—	—		10,884		—		—		10,884
Other comprehensive loss																Other comprehensive loss	—		—		—	—		—		(270)		—		(270)
Net loss																Net loss	—		—		—	—		—		—		(17,488)		(17,488)
Balance, April 30, 2020																Balance, April 30, 2020	99,655		$	10	16,058	$	2	$	570,239	$	(82)	$	(408,336)	$	161,833

	Three Months Ended April 30, 2019
									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, 2019	77,119	$	8	32,575	$	3	$	488,776	$	481		$	(307,454)	$	181,814
Conversion of Class B common stock to Class A common stock	7,909	—		(7,909)	—		—		—			—		—
Issuance of common stock upon exercise of stock options, net of repurchases	(7)	—		1,247	—		4,846		—			—		4,846
RSU releases	76	—		51	—		—		—			—		—
Lapse of restrictions on common stock related to early exercise of stock options	—	—		—	—		205		—			—		205
Deferred offering costs	—	—		—	—		38		—			—		38
Stock-based compensation	—	—		—	—		7,959		—			—		7,959
Other comprehensive loss	—	—		—	—		—		(51)			—		(51)
Net loss	—	—		—	—		—		—			(20,592)		(20,592)
Balance, April 30, 2019	85,097	$	8	25,964	$	3	$	501,824	$	430		$	(328,046)	$	174,219

See notes to unaudited condensed consolidated financial statements.

ZUORA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended April 30,
2020 2019
As Adjusted⁽¹⁾
Cash flows from operating activities:
Net loss $ (17,488) $ (20,592)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and accretion 3,495 2,285
Stock-based compensation 10,884 7,959
Provision for doubtful accounts 992 1,344
Amortization of deferred commissions 2,623 2,306
Reduction in carrying amount of right-of-use assets 2,286 1,736
Other 167 11
Changes in operating assets and liabilities:
Accounts receivable 8,518 4,453
Prepaid expenses and other assets 1,591 (2,471)
Deferred commissions (2,275) (1,924)
Accounts payable 2,096 4
Accrued expenses and other liabilities (2,469) (202)
Accrued employee liabilities (386) 3,638
Deferred revenue (3,908) 1,477
Operating lease liabilities (3,175) (2,186)
Net cash provided by (used in) operating activities 2,951 (2,162)
Cash flows from investing activities:
Purchases of property and equipment (5,120) (1,676)
Purchases of short-term investments (10,901) (67,705)
Sales of short-term investments 2,511 3,496
Maturities of short-term investments 38,500 55,900
Net cash provided by (used in) investing activities 24,990 (9,985)
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options 4,022 4,846
Repurchases of unvested common stock (7) (40)
Principal payments on long-term debt (1,110) —
Net cash provided by financing activities 2,905 4,806
Effect of exchange rates on cash and cash equivalents (427) (75)
Net increase (decrease) in cash and cash equivalents 30,419 (7,416)
Cash and cash equivalents, beginning of period 54,275 70,024
Cash and cash equivalents, end of period $ 84,694 $ 62,608
Supplemental disclosure of non-cash investing and financing activities:
Lapse in restrictions on early exercised common stock options $ 39 $ 205
Property and equipment purchases accrued or in accounts payable $ 2,604 $ 288

~~(1) Effective February 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. See~~ ~~Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements.~~


	Three Months Ended April 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(17,661)	$	(17,488)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion	4,147		3,495
Stock-based compensation	13,797		10,884
Provision for credit losses	1,153		992

Amortization of deferred commissions	3,874		2,623
Reduction in carrying amount of right-of-use assets	2,342		2,286
Other	156		167
Changes in operating assets and liabilities:
Accounts receivable	18,223		8,518
Prepaid expenses and other assets	(1,169)		1,591
Deferred commissions	(4,200)		(2,275)
Accounts payable	(1,342)		2,096
Accrued expenses and other liabilities	(1,522)		(2,469)
Accrued employee liabilities	(3,056)		(386)
Deferred revenue	(1,109)		(3,908)
Operating lease liabilities	(3,382)		(3,175)
Net cash provided by operating activities	10,251		2,951
Cash flows from investing activities:
Purchases of property and equipment	(1,965)		(5,120)
Insurance proceeds for damaged property and equipment	344		0
Purchases of short-term investments	(26,687)		(10,901)
Sales of short-term investments	0		2,511
Maturities of short-term investments	22,692		38,500
Net cash (used in) provided by investing activities	(5,616)		24,990
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options, net of repurchases of unvested common stock	3,567		4,015

Principal payments on long-term debt	(1,111)		(1,110)
Net cash provided by financing activities	2,456		2,905
Effect of exchange rates on cash and cash equivalents	(85)		(427)
Net increase in cash and cash equivalents	7,006		30,419
Cash and cash equivalents, beginning of period	94,110		54,275
Cash and cash equivalents, end of period	$	101,116	$	84,694
Supplemental disclosure of non-cash investing and financing activities:
Lapse in restrictions on early exercised common stock options	$	10	$	39
Property and equipment purchases accrued or in accounts payable	$	20	$	2,604

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.

~~The Company~~Zuora provides ~~software that~~a cloud-based subscription management platform, architected specifically for dynamic, recurring business models. Our solution enables companies across multiple industries and geographies to launch, manage ~~or transform to~~and scale a subscription business, model. Architected specifically for dynamic, recurring subscription business models, Zuora's cloud-based software functions as an intelligent subscription management hub that automates and orchestratesautomating the entire subscription order-to-revenue process, including billing, collections and revenue recognition. ~~Zuora's~~With Zuora’s solution, ~~enables~~ businesses ~~to easily~~can change pricing and packaging for products and services to grow and scale, to efficiently comply with revenue recognition standards, analyze customer data to optimize their subscription offerings, and to build meaningful relationships with their subscribers.

References to ~~Zuora, “Company”~~"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 ~~the Company~~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, ~~2020~~2021 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, ~~2021~~2022 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 ~~the Company's~~our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020,~~2021, filed with the ~~Securities and Exchange Commission (SEC)~~SEC on March 31, ~~2020~~2021 (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.

~~The Company’s~~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 ~~Company’s services; estimates~~expected period of ~~the useful life of benefits of commissions;~~benefit over which deferred commissions are amortized; valuation of ~~the Company’s~~ stock-based awards; estimates of allowance for ~~doubtful accounts;~~credit losses; estimates of the fair value of ~~goodwill, intangible assets, investments,~~goodwill; useful lives of intangibles and other long-lived assets; and the valuation of deferred income tax assets and contingencies. ~~The Company bases its~~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

~~The Company’s~~Our significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements in ~~the Company's~~our Annual Report ~~on Form 10-K~~ for the fiscal year ended January 31, ~~2020, filed with the SEC on March 31, 2020.~~2021. There have been no significant changes to these policies during the three months ended April 30, ~~2020 except for updates resulting from the adoption of Topic 326, as discussed below.~~2021.

Recent Accounting ~~Pronouncements—Not Yet Adopted~~Pronouncements

In December 2019, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update (ASU) 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. ~~The amendments in the~~We adopted this ASU ~~are effective for the Company~~ on February 1, ~~2021. The Company does not plan to early adopt this ASU at this time~~2021, and the adoption ~~of this standard is not expected to have a material impact on the consolidated financial statements.~~

~~Recent Accounting Pronouncements—Adopted~~

The Company became a large accelerated filer on January 31, 2020 and lost the ability to delay adoption of new or revised accounting pronouncements. Effective February 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in ASC 840, Leases, and requires recognition of right-of-use (ROU) assets and lease liabilities on the Company's consolidated balance sheets. Amounts presented in the unaudited condensed consolidated financial statements for fiscal year 2020 have been adjusted to reflect the adoption of Topic 842.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~, and also issued subsequent amendments to the initial guidance including ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, Topic 326), which introduced a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). The new model uses a forward-looking expected loss method rather than the incurred loss model for recognizing credit losses. Additionally, any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted Topic 326 beginning February 1, 2020 and the adoption of the standard did not have a material impact on ~~the its unaudited condensed~~our consolidated financial statements. ~~However, the adoption resulted in modifying the Company's policies for accounts receivable and available-for-sale securities as follows:~~

~~Accounts Receivable:~~

Trade accounts receivable are recorded at the invoiced amount. Prior to the Company’s adoption of Topic 326, the accounts receivable balance was reduced by an allowance for doubtful accounts that was determined based on the Company’s assessment of the collectability of customer accounts. Under Topic 326, the Company measures expected credit losses of accounts receivable on a collective (pool) basis, aggregating accounts receivable that have accounts balances above or below a certain threshold. For the receivable balances below the threshold, the Company applies a credit-loss percentage that is based on its historical credit losses. For the receivable balances above the threshold, the Company performs an analysis on the related customers and reserves the full amount for any customer accounts where collectability may be at risk. The COVID-19 pandemic and recent economic downturn also prompted the Company to include additional reserves for customers in industries that could be more heavily impacted by these events. The Company will reassess the impact of these events and any other events that may arise in the future in developing its estimates for expected credit losses, and will make any necessary adjustments to the related reserve balance.

~~The Company recorded an allowance for credit losses of $4.1 million as of April 30, 2020, and the allowance for doubtful accounts balance was $2.9 million as of January 31, 2020.~~

~~Available-for-Sale Securities:~~

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive loss. Accrued interest of $0.4 million as of April 30, 2020 is excluded from both the fair value and the amortized cost of the Company’s

available-for-sale securities and is recorded in prepaid expenses and other current assets in its condensed consolidated balance sheet. The Company has elected to not record an allowance for credit losses for accrued interest on available-for-sale securities and will reverse the accrued interest against interest income in the period in which it is determined that the accrued interest is uncollectible.

~~Prior to fiscal 2021, the Company followed the guidance in ASC 320~~ ~~Investments-Debt and Equity Securities~~ in determining whether unrealized losses were other than temporary. Under Topic 326, the Company now considers whether unrealized losses have resulted from a credit loss or other factors. The Company had no unrealized losses on its available-for-sale securities as of April 30, 2020 and as of January 31, 2020, and does not expect credit losses on its current investments in future periods. Therefore, the Company has concluded that an allowance for credit losses was unnecessary as of the February 1, 2020 adoption date and as of April 30, 2020. The Company had no realized losses on available-for-sale securities during the periods presented. The Company uses the specific identification method to determine the cost basis of investments sold.

Note 3. Investments

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


	April 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities	$	17,997	$	7	$	0	$	18,004
Corporate bonds	29,214		0		(7)		29,207
Commercial paper	45,556		0		0		45,556
Supranational bonds	3,516		0		(1)		3,515
Total short-term investments	$	96,283	$	7	$	(8)	$	96,282

April 30, 2020
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
U.S. government securities $ 22,033 $ 144 $ — $ 22,177
Corporate bonds 41,503 188 — 41,691
Commercial paper 24,030 — — 24,030
Total short-term investments $ 87,566 $ 332 $ — $ 87,898


		January 31, 2020															January 31, 2021
		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	$	34,053	$	41	$	—	$	34,094	U.S. government securities	$	18,007	$	28	$	0	$	18,035
Corporate bonds	Corporate bonds	45,601		81		—		45,682		Corporate bonds	25,888		8		(3)		25,893
Commercial paper	Commercial paper	37,886		—		—		37,886		Commercial paper	48,556		0		0		48,556
Total short-term investments	Total short-term investments	$	117,540	$	122	$	—	$	117,662	Total short-term investments	$	92,451	$	36	$	(3)	$	92,484

There were 0no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive ~~(loss)~~ income into investment income during the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020. Zuora had no significant unrealized losses on our available-for-sale securities as of April 30, 2021 and as of January 31, 2021, 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, ~~2020.~~2021.

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, ~~the Company uses~~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 ~~the Company uses~~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 ~~the Company~~’sour fair value hierarchy for ~~its~~our financial assets measured at fair value on a recurring basis (in thousands):


	April 30, 2021
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	95,011	$	0	$	0	$	95,011
Short-term investments:
U.S. government securities	$	0	$	18,004	$	0	$	18,004
Corporate bonds	0		29,207		0		29,207
Commercial paper	0		45,556		0		45,556
Supranational bonds	0		3,515		0		3,515
Total short-term investments	$	0	$	96,282	$	0	$	96,282

April 30, 2020
Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 64,868 $ — $ — $ 64,868
Short-term investments:
U.S. government securities $ — $ 22,177 $ — $ 22,177
Corporate bonds — 41,691 — 41,691
Commercial paper — 24,030 — 24,030
Total short-term investments $ — $ 87,898 $ — $ 87,898


		January 31, 2020															January 31, 2021
		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	$	37,906	$	—	$	—	$	37,906	Money market funds	$	85,664	$	0	$	0	$	85,664
Short-term investments:	Short-term investments:									Short-term investments:
U.S. government securities	U.S. government securities	$	—	$	34,094	$	—	$	34,094	U.S. government securities	$	0	$	18,035	$	0	$	18,035
Corporate bonds	Corporate bonds	—		45,682		—		45,682		Corporate bonds	0		25,893		0		25,893
Commercial paper	Commercial paper	—		37,886		—		37,886		Commercial paper	0		48,556		0		48,556
Total short-term investments	Total short-term investments	$	—	$	117,662	$	—	$	117,662	Total short-term investments	$	0	$	92,484	$	0	$	92,484

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 approximates fair value due to its floating interest rate.

~~Note 5. Deferred Commissions~~

Deferred commissions related to incremental costs of obtaining customer contracts, and amortization expense for deferred commissions were as follows at the respective dates and for the periods presented below (in thousands):

April 30, 2020 January 31, 2020
Deferred commissions $ 28,828 $ 29,176
Three Months Ended April 30,
2020 2019
Amortization expense $ 2,623 $ 2,306

~~There was 0 impairment loss in relation to the costs capitalized for the periods presented.~~

Note 6.5. Prepaid Expenses and Other Current Assets

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

April 30, 2020 January 31, 2020
Prepaid software subscriptions $ 4,836 $ 4,036
Contract assets 2,119 2,476
Prepaid hosting costs 1,725 1,611
Insurance recovery receivable 1,442 1,442
Prepaid insurance 1,303 1,630
Taxes 613 729
Other 3,512 4,463
Total $ 15,550 $ 16,387


	April 30, 2021		January 31, 2021
Prepaid software subscriptions	$	6,553	$	5,087
Prepaid hosting costs	1,716		1,847
Prepaid insurance	1,395		2,317
Contract assets	1,270		1,381
Taxes	691		477
Insurance recovery receivable	558		344
Other	4,407		4,121
Total	$	16,590	$	15,574

Note 7.6. Property and Equipment, Net

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

April 30, 2020 January 31, 2020
Leasehold improvements $ 18,740 $ 16,865
Software 16,816 15,329
Servers 13,441 14,596
Computer equipment 11,940 11,249
Furniture and fixtures 5,060 4,987
Vehicles 104 108
66,101 63,134
Less accumulated depreciation and amortization (30,027) (29,645)
Total $ 36,074 $ 33,489


	April 30, 2021		January 31, 2021
Software	$	20,634	$	19,711
Leasehold improvements	19,476		18,978
Servers	14,131		14,179
Computer equipment	13,256		12,824
Furniture and fixtures	5,224		5,228
Vehicles	104		105
	72,825		71,025
Less accumulated depreciation and amortization	(40,432)		(37,656)
Total	$	32,393	$	33,369

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,
2020 2019
Internal-use software costs capitalized during the period $ 1,438 $ 430
April 30, 2020 January 31, 2020
Total capitalized internal-use software, net of accumulated amortization $ 7,554 $ 6,275


	Three Months Ended April 30,
		2021		2020
Internal-use software costs capitalized during the period		$	924	$	1,438

		April 30, 2021		January 31, 2021
Total capitalized internal-use software, net of accumulated amortization		$	8,871	$	8,704

~~Total~~The following table summarizes total depreciation and amortization expense related to property and equipment, including amortization of internal-use software, ~~was $2.3 million and $2.0 million for the three months ended April 30, 2020 and 2019, respectively, and is~~ included in Operating expenses and Cost of subscription revenue in the accompanying unaudited condensed consolidated statements of comprehensive ~~loss.~~loss (in thousands):


	Three Months Ended April 30,
	2021		2020
Total depreciation and amortization expense	$	2,844	$	2,322

Note 8.7. Purchased Intangible Assets

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

April 30, 2020
Gross
Carrying
Amount Accumulated
Amortization Net Carrying
Amount
Developed technology $ 7,697 $ (5,425) $ 2,272
Customer relationships 4,287 (1,892) 2,395
Trade names 909 (379) 530
Total $ 12,893 $ (7,696) $ 5,197


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Balance, January 31, 2021	$	12,893	$	(8,965)	$	3,928
Amortization expense	—		(423)		(423)
Balance, April 30, 2021	$	12,893	$	(9,388)	$	3,505

January 31, 2020
Gross
Carrying
Amount Accumulated
Amortization Net Carrying
Amount
Developed technology $ 7,697 $ (5,152) $ 2,545
Customer relationships 4,287 (1,775) 2,512
Trade names 909 (346) 563
Total $ 12,893 $ (7,273) $ 5,620

~~Amortization expense related to purchased intangible assets was approximately $0.4 million and $0.5 million for the three months ended April 30, 2020 and 2019, respectively.~~ Amortization expense related to purchased intangible assets is included in Cost of subscription revenue in the accompanying unaudited condensed consolidated ~~statements~~statement of comprehensive loss.

Note 9.8. Accrued Expenses and Other Current Liabilities

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


	April 30, 2021		January 31, 2021
Accrued taxes	$	3,962	$	4,377
Accrued hosting and third-party licenses	3,600		3,073
Accrued outside services and consulting	1,774		2,380

Other accrued expenses	3,625		4,720
Total	$	12,961	$	14,550

April 30, 2020 January 31, 2020
Accrued goods and services taxes $ 4,152 $ 4,371
Accrued outside services and consulting 2,614 2,800
Accrued hosting and third-party licenses 1,736 1,846
Accrued property and equipment 1,455 3,442
Accrued taxes 340 432
Other accrued expenses 3,786 4,840
Total $ 14,083 $ 17,731

Note ~~10.~~9. Debt

~~In June 2017, the Company entered into a loan and security~~We have an agreement with Silicon Valley Bank that includes ~~both~~ a revolving and term loan ~~facility. In October 2018, the agreement was amended~~facility, which is secured by a lien on substantially all of our non-IP assets (Debt Agreement) ~~to, among other things, increase the availability under~~. Under the revolving loan facility, we may borrow up to $30.0 million ~~(from $10.0 million), lower~~until October 2022. As of April 30, 2021, we had 0t drawn down any amounts under this revolving loan. Under the ~~borrowing costs~~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 $4.9 million was outstanding as of April 30, 2021. The interest rate under both the revolving and term ~~loans~~loan facility is equal to the prime rate published by the Wall Street Journal (WSJ Prime Rate) minus 1.00%, extend the interest-only repayment period under the term loan until June 2019, after which time principal and interest would become due in thirty-six (36) equal monthly installments, extend the revolving loan maturity date until October 2021, and extend the latest term loan maturity date until June 2022. The Company accounted for this amendment as a debt modification and is recognizing the unamortized fees related to the Debt Agreement over the duration of the term loan.

~~Revolving Loan.~~ The Debt Agreement allows the Company to borrow up to $30.0 million until October 2021 in revolving loans. Advances drawn down under the revolving loan incur interest at the WSJ Prime Rate minus 1.00% which is due monthly on any amounts drawn down, with the principal due at maturity. Any outstanding amounts must be fully repaid on or before October 2021. The Company is required to pay an annual fee of $20,000 on this revolving loan, regardless of any amounts drawn down. As of April 30, 2020, the Company had 0t drawn down any amounts under this revolving loan.

~~Term Loan.~~ The Debt Agreement allows the Company to borrow $15.0 million in term loans, which was drawn down in June 2017 to partially finance the acquisition of Leeyo. Any outstanding amounts under the term loan accrue interest at the WSJ Prime rate minus 1.00%. The interest rate was 2.25% as of April 30, 2020. Payments were interest only through June 2019 and subsequently the Company is required to make equal monthly payments of principal and interest over 36 months until the term loan is repaid. The Company may prepay all outstanding principal and accrued interest at any time without penalty. The Company

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. ~~As of April 30, 2020, the Company had $9.4 million outstanding under the term loan.~~

Both the revolving loan and the term loan are subject to a certain financial covenant to maintain an adjusted quick ratio of no less than 1.10:1.00. As of April 30, 2020, the Company was in compliance with this financial covenant. The Debt Agreement also imposes certain limitations with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens, and encumbrances.

The Company incurred transaction costs and fees payable to the lender related to the issuance of the term loan. The amount, net of amortization, is immaterial and is presented as a reduction to the carrying amount of the term loan and is presented under debt in the Company's unaudited condensed consolidated balance sheets.

~~The Company’s indebtedness under the Debt Agreement is secured by a lien on substantially all of its assets, including its intellectual property.~~

Note ~~11.~~10. Deferred Revenue and Performance Obligations

~~Revenue~~The following table summarizes revenue recognized during the ~~three months ended April 30, 2020~~period that was included in the deferred revenue ~~balances~~balance at the beginning of ~~the~~each respective period ~~was $57.0 million and was $37.6 million for the three months ended April 30, 2019.~~(in thousands):


	Three Months Ended April 30,
	2021		2020
Revenue recognized from deferred revenue	$	62,919	$	57,005

As of April 30, ~~2020,~~2021, total remaining non-cancellable performance obligations under ~~the Company's~~our subscription contracts with customers was approximately ~~$270.6~~$330.6 million and ~~the Company expects~~we expect to recognize revenue on approximately ~~64%~~63% of these remaining performance obligations over the next 12 months. ~~Revenue from the remaining~~Remaining performance obligations ~~for~~under our professional service ~~and other~~ contracts as of April 30, ~~2020 was~~2021 were not material.

1210

Note ~~12.~~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,
2020 2019
United States $ 49,902 $ 44,446
Others 23,996 19,663
Total $ 73,898 $ 64,109
Percentage of revenue by geographic area:
United States 68 % 69 %
Other 32 % 31 %


	Three Months Ended April 30,
	2021			2020
United States	$	49,707		$	49,902
Others	30,622			23,996
Total	$	80,329		$	73,898
Percentage of revenue by geographic area:
United States	62		%	68		%
Other	38		%	32		%

Other than the United States, no individual country exceeded 10% of total revenue for the three months ended April 30, ~~2020~~2021 and ~~2019.~~2020.

Long-lived assets

Long-lived assets, which consist of property and equipment, net, deferred commissions, purchased intangible assets, net and operating lease ~~ROU~~right-of-use assets by geographic location, isare based on the location of the legal entity that owns the asset. As of April 30, 2021 and 2020, no individual country exceeded 10% of total long-lived assets other than the United States.

Note ~~13.~~12. Leases

~~The Company has~~We have non-cancelable operating leases for ~~its~~our offices located in the U.S. and abroad. As of April 30, ~~2020,~~2021, these leases expire on various dates between ~~2020~~2021 and 2030. Certain lease agreements include 1 or more options to renew, with renewal terms that can extend the lease ~~from~~ ~~one~~up to seven years. ~~The Company has~~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 ~~costs~~cost were as follows (in thousands):


	April 30, 2021		January 31, 2021
Operating lease right-of-use assets	$	48,666	$	47,085

Operating lease liabilities, current portion	10,946		9,630
Operating lease liabilities, net of current portion	53,540		53,590
Total operating lease liabilities	$	64,486	$	63,220

April 30, 2020 January 31, 2020
Operating Leases
Operating lease right-of-use assets $ 52,857 $ 54,286
Operating lease liabilities, current portion 6,268 5,755
Operating lease liabilities, net of current portion 60,359 62,307
Total operating lease liabilities $ 66,627 $ 68,062


	Three Months Ended April 30,
	2021		2020
Operating lease cost1	$	3,216	$	2,963

Three Months Ended April 30,
2020 2019
Lease Cost
Operating lease cost¹
$ 2,963 $ 2,116

(1) Includes costs related to our short-term ~~lease costs of $0.1 million for the three months ended April 30, 2020 and 2019.~~

~~The future maturities of~~ operating ~~lease liabilities were~~leases as follows (in thousands):


	Three Months Ended April 30,
	2021		2020
Short-term operating lease costs	$	102	$	82

1311

Maturities of Operating Lease Liabilities
Years Ending January 31,
2021 (remainder of the year) $ 6,227
2022 12,016
2023 11,573
2024 9,562
2025 6,386
Thereafter 36,139
Total lease payments 81,903
Less imputed interest (15,276)
Present value of lease liabilities $ 66,627
The future maturities of long-term operating lease liabilities for each fiscal year were as follows (in thousands):


	Maturities of Operating Lease Liabilities
2022 (remainder of the year)	$	10,292
2023	13,248
2024	10,855
2025	6,386
2026	6,242
Thereafter	29,897
Total lease payments	76,920
Less imputed interest	(12,434)
Present value of lease liabilities	$	64,486

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


	April 30, 2021		January 31, 2021
Weighted-average remaining operating lease term	7.4 years		7.8 years
Weighted-average operating lease discount rate	4.5	%	4.7	%

April 30, 2020 January 31, 2020
Lease Term and Discount Rate
Weighted-average remaining operating lease term (years) 8.2 8.3
Weighted-average operating lease discount rate 4.7 % 4.7 %

Three Months Ended April 30,
2020 2019
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases $ 3,175 $ 2,186
Operating cash flows resulting from operating leases $ 3,175 $ 2,186
New right-of-use assets obtained in exchange for lease liabilities:
Operating leases obtained $ 857 $ 597

As of April 30, 2020, the Company had $3.3 million of undiscounted future payments for an operating lease that has not yet commenced, which is excluded from the tables above and is not yet recognized in the Company's consolidated balance sheets. This operating lease is expected to commence in in the current fiscal year and has a lease term of three years.


	Three Months Ended April 30,
	2021		2020
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases	$	3,409	$	3,175


New right-of-use assets obtained in exchange for lease liabilities:
Operating leases obtained	$	3,923	$	857

Note ~~14.~~13. Commitments and Contingencies

Letters of Credit

In connection with the execution of certain facility leases, ~~the Company~~we had bank issued irrevocable letters of credit for ~~$4.7~~$4.7 million as of April 30, ~~2020~~2021 and January 31, ~~2020.~~2021. No draws have been made under such letters of credit.

Legal Proceedings

From time to time, ~~the Company~~we may be subject to legal proceedings, as well as demands, claims and threatened litigation. Other than the matters described below, we are not currently party to any material legal proceedings or claims, nor are we aware of any pending or threatened litigation or claims that could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably. The outcomes of ~~our~~ 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 usour 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 ~~the Company~~Zuora and certain of its officers as defendants. The complaint purports to bring suit on behalf of stockholders who purchased or otherwise acquired ~~the Company’s~~Zuora's securities between April 12, 2018 and May 30, 2019. The complaint alleges that defendants made false and misleading statements about ~~the Company’s~~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, 2 putative securities class action lawsuits were filed in the Superior Court of the State of California, County of San Mateo, naming as defendants ~~the Company~~Zuora and certain of its current and former officers, its directors and the underwriters of ~~the Company’s IPO.~~Zuora's Initial Public Offering (IPO). The complaints purport to bring suit on behalf of stockholders who purchased or otherwise acquired ~~the Company’s~~Zuora's securities pursuant or traceable to the Registration Statement and Prospectus issued in connection with ~~the Company’s~~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 2 lawsuits, and the lead plaintiff 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 plaintiff filed an amended consolidated complaint. Defendants' demurrer to the Section 12(a)(2) claim was sustained with further leave to amend. Plaintiffs have until July 26, 2021 in which to file a further amended complaint.

Given the procedural posture and the nature of such litigation matters, ~~including that the proceedings~~we are ~~in the early stages, the Company is~~ 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, 2 stockholder derivative lawsuits were filed in the U.S. District Court for the Northern District of California against certain of ~~the Company’s~~Zuora’s directors and executive officers and naming ~~the Company~~Zuora as a nominal defendant. The derivative actions allege claims based on events similar to those in the securities class ~~action~~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 ~~the Company’s~~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 2 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 May and June 2020, ~~two~~2 stockholder derivative lawsuits were filed in the U.S. District Court for the District of Delaware against certain of ~~the Company’s~~Zuora’s directors and current and former executive officers. The derivative actions allege claims based on events similar to those in the securities class ~~action~~actions and the derivative ~~action~~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 ~~the Company’s~~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 2 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, 2 additional stockholder derivative lawsuits were filed in Delaware Chancery Court; those actions have now been consolidated and plaintiffs assert claims against, among others, certain current and former officers and directors for breach of fiduciary duty and unjust enrichment based on allegations similar to those in the actions described above.

Other Contractual Obligations

As of April 30, ~~2020, the Company~~2021, we had a contractual obligation to make ~~$4.3~~$7.8 million in purchases ~~primarily for~~of cloud computing services provided by 1 of ~~its~~our vendors by September 30, ~~2020.~~2021.

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Note ~~15.~~14. Income Taxes

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

Three Months Ended April 30,
2020 2019
Loss before income taxes $ (17,325) $ (20,348)
Income tax provision 163 244
Effective tax rate (0.9) % (1.2) %


	Three Months Ended April 30,
	2021			2020
Loss before income taxes	$	(17,288)		$	(17,325)
Income tax provision	373			163
Effective tax rate	(2.2)		%	(0.9)		%

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 ~~the Company has~~we have determined that the benefit of the losses is not more likely than not to be realized.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. Changes in tax laws or rates are accounted for in the period of enactment. The income tax provisions of the CARES Act did not have a significant impact on the Company's current taxes, deferred taxes, and uncertain tax positions.

Note ~~16.~~15. Stockholders' Equity

Preferred Stock

As of April 30, ~~2020, the Company~~2021, Zuora had authorized 10 million shares of preferred stock, each with a par value of $0.0001 per share. As of April 30, ~~2020,~~2021, 0 shares of preferred stock were issued and outstanding.

Common Stock

Prior to ~~the Company's~~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.

As of April 30, 2020, the Company 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, 2020, 99.7 million shares of Class A common stock and 16.1 million shares of Class B common stock were issued and outstanding.

Holders of Class A and Class B common stock are entitled to 1 vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights.

As of April 30, 2021, 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, 2021, 111.3 million shares of Class A common stock and 10.9 million shares of Class B common stock were issued and outstanding.

Accumulated Other Comprehensive ~~Loss~~Income

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

Foreign Currency Translation Adjustment Unrealized Gain on Available-for-Sale Securities Total
Balance, January 31, 2020 $ 95 $ 93 $ 188
Foreign currency translation adjustment (427) — (427)
Unrealized gain on available-for-sale securities — 157 157
Balance, April 30, 2020 $ (332) $ 250 $ (82)


	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Available-for-Sale Securities		Total
Balance, January 31, 2021	$	791	$	5	$	796
Foreign currency translation adjustment	(85)		—		(85)
Unrealized loss on available-for-sale securities	—		(34)		(34)
Balance, April 30, 2021	$	706	$	(29)	$	677

There were no material reclassifications out of accumulated other comprehensive ~~loss~~income during the three months ended April 30, ~~2020.~~2021. Additionally, there was no material tax impact on the amounts presented.

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Note ~~17.~~16. Employee Stock Plans

Equity Incentive Plans

In March 2018, ~~the Company’s~~our Board of Directors adopted and ~~its~~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, RSUs, performance awards, and stock bonuses. As of April 30, ~~2020,~~2021, approximately ~~22.5~~26.9 million shares of Class A common stock were reserved and available for issuance under the 2018 Plan. In addition, as of April 30, ~~2020, 9.5~~2021, 6.6 million stock options and RSUs exercisable or settleable for Class B common stock were outstanding in the aggregate under ~~the Company’s~~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 ~~table summarizes~~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
Balance, January 31, 2021	11,812	$	8.54	6.6	80,212
Granted	135	15.66
Exercised	(650)	5.48
Forfeited	(419)	13.04
Balance, April 30, 2021	10,878	8.64		6.4	87,151
Exercisable as of April 30, 2021	7,367	5.60		5.2	78,086
Vested and expected to vest as of April 30, 2021	10,496	8.47		6.3	85,876

Shares
Subject To
Outstanding
Stock Options Weighted-Average
Exercise
Price Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic
Value
Balance as of January 31, 2020 13,701 $ 7.64 6.9 $ 107,186
Granted 83 10.57
Exercised (856) 4.70
Forfeited (351) 9.29
Balance as of April 30, 2020 12,577 7.81 6.6 55,892
Exercisable as of April 30, 2020 9,373 5.94 5.9 55,664
Vested and expected to vest as of April 30, 2020 12,189 7.63 6.5 55,490


	Three Months Ended April 30,
	2021		2020

Weighted-average grant date fair value per share of options granted during each respective period	$	6.53	$	4.21
Aggregate intrinsic value of options exercised during each respective period	$	6,591	$	7,499

The weighted-average grant date fair value per share of options granted during the three months ended April 30, 2020 and 2019 was $4.21 and $9.87, respectively. The aggregate intrinsic value of options exercised during the three months ended April 30, 2020 and 2019 was$7.5 million and $20.7 million, respectively. As of April 30, 2020, there was $24.0 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average of 2.5 years.

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

Three Months Ended
April 30,
2020 2019
Expected volatility 41.4 % 39.0 %
Expected term (years) 6.1 6.1
Risk-free interest rate 0.5 % 2.5 %
Expected dividend yield — —

~~Options Subject to Early Exercise~~

At the discretion of the Company’s Board of Directors, certain options may be exercisable immediately at the date of grant but are subject to a repurchase right, under which the Company may buy back any unvested shares at the lower of their original exercise price or then current fair market value in the event of an employee’s termination prior to vesting. The consideration received for an exercise of an unvested option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The liabilities are reclassified into equity as the awards vest. As of April 30, 2020 and January 31, 2020, early exercised stock options did not have a material impact on our consolidated financial statements.


	Three Months Ended April 30,
	2021			2020
Fair value of common stock	$	15.66		$	10.57
Expected volatility	42.3		%	41.4		%
Expected term (years)	6.1			6.1
Risk-free interest rate	1.0		%	0.5		%
Expected dividend yield	0			0

RSU and Restricted Stock Award Activity

The following table summarizes RSU and restricted stock award activity and related information ~~for the three months ended April 30, 2020~~ (in thousands, except weighted-average grant date fair value):

Number of RSU and Restricted Shares Outstanding Weighted-Average Grant Date Fair Value
Balance as of January 31, 2020 5,029 $ 18.09
Granted 590 12.23
Vested (405) 17.72
Forfeited (220) 19.94
Balance as of April 30, 2020 4,994 17.35

As of April 30, 2020, there was $73.4 million of unrecognized compensation cost related to unvested RSUs and restricted stock awards, which is expected to be recognized over a weighted average of 3.1 years.


	Number of RSU and Restricted Shares Outstanding	Weighted-Average Grant Date Fair Value
Balance, January 31, 2021	8,278	$	13.54
Granted	1,644	15.66
Vested	(650)	14.04
Forfeited	(718)	13.96
Balance, April 30, 2021	8,554	13.87

2018 Employee Stock Purchase Plan

In March 2018, ~~the Company's~~our Board of Directors adopted and ~~its~~our stockholders approved the 2018 Employee Stock Purchase Plan (ESPP). A total of ~~3.8~~4.5 million shares of Class A common stock were reserved and available for issuance under the ESPP as of April 30, ~~2020.~~2021. The ESPP provides for 24-month offering periods beginning June 15 and December 15 of each year, and each offering period contains 4 ~~six-month~~six-month purchase periods. On each purchase date, ESPP participants will purchase shares of ~~the Company’s~~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.

~~As of April 30, 2020, there was approximately $2.7 million of unrecognized stock-based compensation expense related to the ESPP which is expected to be recognized over a weighted average of 0.9 years.~~

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,
	2021		2020
Cost of subscription revenue	$	1,043	$	852
Cost of professional services revenue	2,001		1,650
Research and development	4,529		3,542
Sales and marketing	4,080		3,005
General and administrative	2,144		1,835
Total stock-based compensation expense	$	13,797	$	10,884

Three Months Ended
April 30,
2020 2019
Cost of subscription revenue $ 852 $ 493
Cost of professional services revenue 1,650 1,359
Research and development 3,542 3,191
Sales and marketing 3,005 1,852
General and administrative 1,835 1,064
Total stock-based compensation expense $ 10,884 $ 7,959

As of April 30, 2021, unrecognized compensation costs related to unvested equity awards and the weighted-average remaining period over which those costs are expected to be realized were as follows (dollars in thousands):

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	Stock Options		RSUs		ESPP
Unrecognized compensation costs	$	16,955	$	97,475	$	6,619
Weighted-average remaining recognition period	2.6 years		3.1 years		1.0 years

Note ~~18.~~17. 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,
	2021		2020
Numerator:
Net loss	$	(17,661)	$	(17,488)
Denominator:
Weighted-average common shares outstanding, basic and diluted	121,354		115,139
Net loss per share, basic and diluted	$	(0.15)	$	(0.15)

Three Months Ended
April 30,
2020 2019
Numerator:
Net loss $ (17,488) $ (20,592)
Denominator:
Weighted-average common shares outstanding, basic and diluted 115,139 108,821
Net loss per share, basic and diluted $ (0.15) $ (0.19)

Since ~~the Company was~~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,
2020 2019
Issued and outstanding stock options 12,577 13,357
Unvested RSUs and restricted stock issued and outstanding 4,994 2,969
Shares committed under ESPP 300 347
Total 17,871 16,673


	April 30,
	2021	2020
Issued and outstanding stock options	10,878	12,577
Unvested RSUs and restricted stock issued and outstanding	8,554	4,994
Shares committed under ESPP	333	300
Total	19,765	17,871

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, ~~2020~~2021 filed with the Securities and Exchange Commission (SEC) on March 31, ~~2020~~2021 (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, including, but not limited to, risks and uncertainties related to the impact of the COVID-19 pandemic on our business,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

Zuora isprovides a ~~leading~~ cloud-based subscription management ~~platform. We provide software that~~platform, architected specifically for dynamic, recurring business models. Our solution enables companies across multiple industries and geographies to launch, manage ~~or transform to~~and scale a subscription business, ~~model. Architected specifically for dynamic, recurring subscription business models, our cloud-based software functions as an intelligent subscription management hub that automates and orchestrates~~automating the entire subscription order-to-revenue process, including billing, collections and revenue recognition. ~~Our~~With Zuora’s solution, ~~enables~~ businesses ~~to easily~~can change pricing and packaging for products and services to grow and scale, to efficiently comply with revenue recognition standards, analyze customer data to optimize their subscription offerings, and to build meaningful relationships with their subscribers.

We believe we are in the early stages of a multi-decade global shift away from product-based business models, characterized by transactional one-time sales, towards recurring subscription-based business models. This trend, which we refer to as the “Subscription Economy,” is visible everywhere you look. In media and entertainment, consumers are adopting video-on-demand services and digital music streaming services. Commuters are taking

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advantage of automobile subscription programs and subscription-based ride-sharing services. In the technology space, companies are opting for software-as-a-service (SaaS) applications over on-premise installations. In manufacturing, sensors and connectivity have allowed companies to bundle an array of digital services with their physical products. Digital subscriptions have had a positive effect on the newspaper and publishing industries, with readers increasingly subscribing to digital news and information sources. In addition, the retail space features a growing multitude of subscription services including clothing and accessories, cosmetics and personal care, meals and groceries, vitamins and prescriptions, pet care, and many more.

Many of today’s enterprise software systems ~~that businesses use to~~ manage their order-to-revenue processes ~~were~~using software built for a product driven ~~economy, and are extremely difficult to re-configure~~economy. These systems were not designed for the dynamic, ongoing nature of subscription ~~services.~~services and are extremely difficult to configure. In traditional ~~business models,~~product-based businesses, order-to-revenue 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 and ongoing customer events of recurring relationships, commonly found in a subscription business, and their impact on areas such as billing proration, revenue recognition, and reporting in real-time. ~~Trying to use this~~Using product-based software to build a subscription business ~~frequently~~often results in inefficient processes with prolonged and complex manual downstream work, hard-coded customizations, and a proliferation of stock-keeping units (SKUs)~~, and inefficiency.~~.

~~These~~However, new subscription business models are inherently dynamic, with multiple interactions and constantly-changing relationships and events. The capabilities to launch, price, and bill for products, facilitate and record cash receipts, process and recognize revenue, and ~~produce the~~analyze data ~~required~~ to ~~close their books and~~ drive key decisions are mission critical and particularly complex for companies with subscription business models. As a result, as companies launch or grow a subscription business, they often conclude that legacy systems are inadequate. That’s where Zuora comes in.

Our vision is ~~simple. We call it~~ “The World ~~Subscribed,” and it’s~~Subscribed” -- the idea that one day every company will be a part of the Subscription Economy. Our ~~mission~~focus has been on developing software that enables our customers to thrive as a subscription 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 to enable all companies in the Subscription Economy to become successful. Our customers include companies of all sizes, ranging from small businesses to some of the world’s largest enterprises. Customers pay for our platform under aincreasingly choosing subscription-based ~~model, and this model allows us to grow as the Subscription Economy grows.~~offerings.

COVID-19 Pandemic Impact

~~Although the~~The COVID-19 pandemic has caused certain disruptions to our business operations—such as delays and lengthening of our customary sales cycles and postponed implementations, certain customers not purchasing or renewing our products or services, requests for extended payment terms and contract restructurings by certain customers more severely impacted by the pandemic, challenges in sales and customer success efforts due to travel restrictions, and shifting certain customer events to virtual-only ~~experiences—these~~experiences. During the quarter ended April 30, 2021, we experienced fewer disruptions including customer loss, down-sells, customer requests for extended payment terms and other relief due to the COVID-19 pandemic as compared to the prior year. We believe that such COVID-related disruptions experienced to date have not had a material ~~adverse~~ impact on our overall financial ~~statements~~results for the ~~quarter ended April 30, 2020.~~quarter. However, because our financial results are driven by multiple factors, some of which are not quantifiable, it is not possible to determine the significance of the specific impact of the COVID-19 pandemic on our financial results in any given period.

Because our products are generally offered as subscription-based licenses and a portion of that revenue is recognized over time, the effect of the pandemic may not be fully reflected in our operating results until future periods. The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on multiple uncertain factors, including the duration and severity of the pandemic, its 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.

We are continuing to monitor the impact of the COVID-19 pandemic on our business operations and financial results. ~~As a prudent cost-saving measure and to preserve cash,~~Last year we ~~have~~ implemented plans to manage our costs in certain areas such as travel, events, and marketing and ~~have~~ reduced our pace of hiring while continuing to prioritize new headcount critical to operations, sales and customer support. To the extent the business disruption continues for an extended period, additional cost management actions may be considered. The uncertainty surrounding the COVID-19 pandemic and its impact on

the global economy could also lead to a more significant adverse impact on our business operations and financial performance in the future.

The COVID-19 pandemic and its impact on us and the economy may limit our ability to accurately forecast our future operating results, including our ability to predict revenue and expense levels, and plan for and model future operating results. Our competitors could experience similar or different impacts as a result of COVID-19, which could result in changes to our competitive landscape. While we have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, these efforts may not be effective and any protracted economic downturn could significantly affect our business and operating results. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic to 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 Quarter Business Highlights and Recent Developments:

•~~Launched~~ ~~Zuora Revenue, a new update to~~ ~~RevPro~~ ~~and fully integrated~~We closed 5 deals with ~~the entire Zuora order-to-revenue (OTR) suite~~ACV of ~~applications, with new features that enable companies to achieve a faster quarter close, minimize compliance risk, and more precisely forecast the revenue impact of business decisions.~~$500,000 or more.

•~~Announced the next generation~~Dollar-based net retention increased to 103% compared to 100% as of ~~its Zuora® Central Platform and for six months, customers will receive free access to Zuora Workflow software for five specific use cases to address common challenges in response to COVID-19.~~

•~~Launched the~~ ~~Subscribed Strategy Group, to provide customers with strategic guidance on the development and execution of business strategies to win in the Subscription Economy.~~January 31, 2021.

•Customers with ACV ~~exceeding~~equal to or greater than $100,000 totaled ~~643~~677 as of April 30, ~~2020,~~2021, an increase of ~~18%~~5% compared to last year. ~~We expect this metric to increase on a long-term basis, although we may experience fluctuations as we continue working to improve our overall sales motion.~~

•Customer transaction volume through Zuora's billing platform was ~~$12.3~~$17.0 billion as of April 30, ~~2020,~~2021, an increase of ~~27%~~38% compared to last year.

•~~Announced Todd McElhatton will be joining as Zuora's Chief Financial Officer effective June 22,~~Cash provided by operating activities increased to $10.3 million compared to $3.0 million, and free cash flow increased to $8.6 million compared to ($2.2) million, in the three months ended April 30, 2020.

Fiscal First Quarter Financial Performance Summary:

Our financial performance for the three months ended April 30, ~~2020~~2021 compared to the three months ended April 30, ~~2019~~2020 reflects the following:

•Subscription ~~revenues were $56.9~~revenue was $65.1 million, an increase of ~~$9.6~~$8.2 million, or ~~20%~~14%; and total ~~revenues were $73.9~~revenue was $80.3 million, an increase of ~~$9.8~~$6.4 million, or ~~15%~~9%.

•Gross profit was ~~$41.6~~$47.6 million, or ~~56%~~59% of total of revenue, compared to ~~$32.1~~$41.6 million, or ~~50%~~56% of total revenue.

•Loss from operations was ~~$17.7~~$17.4 million, or ~~24%~~22% of total revenue, compared to a loss of ~~$20.9~~$17.7 million, or ~~33%~~24% 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. We have increased the number of customers with ACV equal to or greater than $100,000 to ~~643~~677 as of April 30, ~~2020,~~2021, as compared to ~~546~~643 customers as of April 30, ~~2019.~~2020. We expect this

metric to increase on a long-term basis, although it may fluctuate as we continue working to improve our overall sales motion.

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 was 103% as of April 30, ~~2020, compared to 104%~~2021 and 100% as of January 31, ~~2020. We expect that the~~2021. The dollar-based retention rate ~~will experience slight downward pressure for~~can fluctuate in any particular quarter, however we expect the ~~remainder of~~rate to increase over 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 transition a portion of our professional services implementations to our strategic partners, including ~~GSIs,~~system integrators (SIs), and as a result we expect our professional services revenue to decrease over time ~~and may vary~~ as a percentage of total ~~revenue in the near term.~~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 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 ~~GSI~~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~~third-party cloud providers, amortization expense associated with our capitalized internal-use software and purchased technology, and our continued efforts to build platform support and professional services ~~teams, as well as the amortization expense associated with capitalized internal-use software and acquired technology.~~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 ~~approximately two to~~ 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 ~~for~~ 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. ~~While our sales and marketing expense as a percentage of total revenue has decreased slightly in recent periods, we~~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 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 as we realize efficiencies.

Interest and Other Income, ~~(Expense),~~ net

Interest and other income, ~~(expense),~~ net primarily consists of interest income from our investment holdings, interest expense associated with our Debt Agreement, 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,
2020 2019
Revenue:
Subscription $ 56,896 $ 47,311
Professional services 17,002 16,798
Total revenue 73,898 64,109
Cost of revenue:
Subscription¹
13,615 11,933
Professional services¹
18,682 20,098
Total cost of revenue 32,297 32,031
Gross profit 41,601 32,078
Operating expenses:
Research and development¹
17,543 17,015
Sales and marketing¹
28,496 25,501
General and administrative¹
13,265 10,445
Total operating expenses 59,304 52,961
Loss from operations (17,703) (20,883)
Interest and other income (expense), net 378 535
Loss before income taxes (17,325) (20,348)
Income tax provision 163 244
Net loss $ (17,488) $ (20,592)

~~(1) Includes stock-based compensation expense as follows (in thousands)~~:


		Three Months Ended April 30,							Three Months Ended April 30,
		2020		2019			2021		2020
Cost of subscription revenue		$	852	$	493
Cost of professional services revenue		1,650		1,359
Revenue:						Revenue:
Subscription						Subscription	$	65,142	$	56,896
Professional services						Professional services	15,187		17,002
Total revenue						Total revenue	80,329		73,898
Cost of revenue:						Cost of revenue:
Subscription						Subscription	15,643		13,615
Professional services						Professional services	17,078		18,682
Total cost of revenue						Total cost of revenue	32,721		32,297
Gross profit						Gross profit	47,608		41,601
Operating expenses:						Operating expenses:
Research and development	Research and development	3,542		3,191		Research and development	18,967		17,543
Sales and marketing	Sales and marketing	3,005		1,852		Sales and marketing	31,865		28,496
General and administrative	General and administrative	1,835		1,064		General and administrative	14,185		13,265
Total stock-based compensation expense		$	10,884	$	7,959
Total operating expenses						Total operating expenses	65,017		59,304
Loss from operations						Loss from operations	(17,409)		(17,703)
Interest and other income, net						Interest and other income, net	121		378
Loss before income taxes						Loss before income taxes	(17,288)		(17,325)
Income tax provision						Income tax provision	373		163
Net loss						Net loss	$	(17,661)	$	(17,488)

2422


		Three Months Ended April 30,							Three Months Ended April 30,
		2020		2019			2021		2020
Revenue:	Revenue:					Revenue:
Subscription	Subscription	77	%	74	%	Subscription	81	%	77	%
Professional services	Professional services	23		26		Professional services	19		23
Total revenue	Total revenue	100		100		Total revenue	100		100
Cost of revenue:	Cost of revenue:					Cost of revenue:
Subscription	Subscription	18		19		Subscription	19		18
Professional services	Professional services	25		31		Professional services	21		25
Total cost of revenue	Total cost of revenue	44		50		Total cost of revenue	41		44
Gross profit	Gross profit	56		50		Gross profit	59		56
Operating expenses:	Operating expenses:					Operating expenses:
Research and development	Research and development	24		27		Research and development	24		24
Sales and marketing	Sales and marketing	39		40		Sales and marketing	40		39
General and administrative	General and administrative	18		16		General and administrative	18		18
Total operating expenses	Total operating expenses	80		83		Total operating expenses	81		80
Loss from operations	Loss from operations	(24)		(33)		Loss from operations	(22)		(24)
Interest and other income (expense), net		1		1
Interest and other income, net						Interest and other income, net	—		1
Loss before income taxes	Loss before income taxes	(23)		(32)		Loss before income taxes	(22)		(23)
Income tax provision	Income tax provision	—		—		Income tax provision	—		—
Net loss	Net loss	(24)	%	(32)	%	Net loss	(22)	%	(24)	%

~~Comparison of the Three Months Ended April 30, 2020 and 2019~~

~~Revenue~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Revenue:
Subscription $ 56,896 $ 47,311 $ 9,585 20 %
Professional services 17,002 16,798 204 1 %
Total revenue $ 73,898 $ 64,109 $ 9,789 15 %
Percentage of revenue:
Subscription 77 % 74 %
Professional services 23 26
Total revenue 100 % 100 %

Subscription revenue increased by $9.6 million, or 20%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase was driven by growth in our customer base, including both new and existing customers. New customers contributed approximately $5.7 million of the increase in subscription revenue for the three months ended April 30, 2020 compared to the prior year period, while sales of additional products to our existing customers contributed 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 increased by $0.2 million, or 1%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019.~~

~~Cost of Revenue and Gross Margin~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Cost of revenue:
Subscription $ 13,615 $ 11,933 $ 1,682 14 %
Professional services 18,682 20,098 (1,416) (7) %
Total cost of revenue $ 32,297 $ 32,031 $ 266 1 %
Gross margin:
Subscription 76 % 75 %
Professional services (10) (20)
Total gross margin 56 % 50 %

Cost of subscription revenue increased by $1.7 million, or 14%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The increase in cost of subscription revenue was due to an increase of $1.2 million in data center costs primarily related to third-party cloud hosting as we grow and transition our data center model to the cloud, $0.6 million in compensation costs, and $0.4 million in allocated overhead including facilities expansions, partially offset by a decrease of $0.2 million in amortization of internal-use software as compared to prior year.

Cost of professional services revenue decreased by $1.4 million, or (7)%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019. The decrease in cost of professional services revenue was due to a decrease of $0.8 million in outside professional services, $0.7 million in travel costs, and $0.6 million in events, partially offset by an increase of $0.6 million in allocated overhead including facilities expansions.

Our gross margin for subscription services increased to 76% for the three months ended April 30, 2020 compared to 75% for the three months ended April 30, 2019, as we realized efficiencies in cloud hosting costs.

Our gross margin for professional services increased to (10)% for the three months ended April 30, 2020 compared to (20)% for the three months ended April 30, 2019, primarily due to increased utilization.

~~Operating Expenses~~

~~Research and Development~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Research and development $ 17,543 $ 17,015 $ 528 3 %
Percentage of total revenue 24 % 27 %

Research and development expense increased by $0.5 million, or 3%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019, primarily due to an increase of $0.9 million in allocated overhead including facilities expansions, $0.6 million in employee compensation costs, and $0.2 million in data center costs, partially offset by $1.0 million in higher capitalized software development costs and a decrease of $0.3 million in travel costs. Research and development expense decreased to 24% of total revenue during the three months ended April 30, 2020 from 27% during the three months ended April 30, 2019.

~~Sales and Marketing~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Sales and marketing $ 28,496 $ 25,501 $ 2,995 12 %
Percentage of total revenue 39 % 40 %

Sales and marketing expense increased by $3.0 million, or 12%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019, primarily due to an increase of $2.5 million in employee compensation costs, $0.8 million in allocated overhead including facilities expansions, $0.5 million in outside professional services, partially offset by a decrease $0.8 million in travel costs. Sales and marketing expense decreased to 39% of total revenue during the three months ended April 30, 2020 from 40% during the three months ended April 30, 2019.

~~General and Administrative~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
General and administrative $ 13,265 $ 10,445 $ 2,820 27 %
Percentage of total revenue 18 % 16 %

General and administrative expense increased by $2.8 million, or 27%, for the three months ended April 30, 2020 compared to the three months ended April 30, 2019, primarily due to an increase of $1.0 million in employee compensation costs from increased headcount, $1.0 million in outside professional services, and $0.6 million in allocated overhead including facilities expansions. General and administrative expense increased to 18% of total revenue during the three months ended April 30, 2020 from 16% during the three months ended April 30, 2019.

~~Interest and Other Income (Expense), Net~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Interest and other income (expense), net $ 378 $ 535 $ (157) (29) %

Interest and other income (expense), net decreased by $0.2 million for the three months ended April 30, 2020 compared to the three months ended April 30, 2019, primarily due to a decrease of $0.4 million related to short-term investments, partially offset by $0.2 million in net gains related to the revaluation of cash, accounts receivable and payables recorded in a foreign currency.

~~Income Tax Provision~~

Three Months Ended
April 30,
2020 2019 $ Change % Change
(dollars in thousands)
Income tax provision $ 163 $ 244 $ (81) (33) %

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, 2020 and 2019, we recorded a tax provision of $0.2 million on losses before income taxes of $17.3 million and $20.3 million, respectively. The effective tax rates for the three months ended April 30, 2020 and 2019 were (0.9)% and (1.2)%, respectively. 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, 2020 and 2019, 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~~

As of April 30, 2020, we had cash and cash equivalents and short-term investments of $172.6 million. Since inception, we have financed our operations primarily through the net proceeds we received through public and private sales of our equity securities, payments received from customers for subscription and professional services, and borrowings from our Debt Agreement.

We believe our existing cash and cash equivalents and short-term investment balances, funds available under our Debt Agreement, and cash provided by subscriptions to our platform and related professional services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We have taken into account the current COVID-19 pandemic effects, including customer requests for extended payment terms and contract restructuring, in our assessment of the sufficiency of our liquidity and capital resources. We will continue to monitor our financial position as any pandemic-related challenges develop over time. Our future capital requirements will depend on many factors, including the rate of our revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may elect to or may be required to seek additional equity or debt financing. Sales of additional equity could result in dilution to our stockholders. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, it could reduce our ability to compete successfully and harm our results of operations.

~~Debt Agreement~~

~~See Note 10. Debt~~ ~~to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information about our Debt Agreement.~~

~~Cash Flows~~

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

Three Months Ended
April 30,
2020 2019
Net cash provided by (used in) operating activities $ 2,951 $ (2,162)
Net cash provided by (used in) investing activities 24,990 (9,985)
Net cash provided by financing activities 2,905 4,806
Effect of exchange rates on cash and cash equivalents (427) (75)
Net increase (decrease) in cash and cash equivalents $ 30,419 $ (7,416)

~~Operating Activities~~

Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses, third-party consulting expenses, facilities costs, and third-party hosting costs.

For the three months ended April 30, 2020, net cash provided by operating activities was $3.0 million, which consisted of a net loss of $17.5 million adjusted for non-cash charges and net cash inflows from changes in our operating assets and liabilities of $20.4 million. Non-cash charges, which primarily consisted of stock-based compensation; depreciation, amortization and accretion of property and equipment, purchased intangible assets and lease liabilities; amortization of deferred commissions; and reduction in carrying amount of ROU assets, increased compared to the same period last year primarily as a result of growth in our business operations. Net cash inflows from changes in operating assets and liabilities decreased $2.8 million compared to last year primarily

due to timing of cash receipts, accruals and payments, including higher lease payments related to our new company headquarters, as well as a reduction in our deferred revenue balance compared to an increase last year.

For the three months ended April 30, 2019, net cash used in operating activities was $2.2 million, which consisted of a net loss of $20.6 million adjusted for non-cash charges of $15.6 million and net cash inflows of $2.8 million provided by changes in our operating assets and liabilities. Non-cash charges, which primarily consisted of stock-based compensation; depreciation, amortization and accretion of property and equipment, purchased intangible assets and lease liabilities; amortization of deferred commissions; and reduction in carrying amount of ROU assets, increased compared to the same period in fiscal 2019 primarily as a result of growth in our business operations. Net cash inflows from changes in operating assets and liabilities increased $2.4 million compared to the same period in fiscal 2019 primarily due to timing of cash receipts, accruals and payments, including growth in employee contributions to our 2018 ESPP plan.

~~Investing Activities~~

Net cash provided by investing activities for the three months ended April 30, 2020 of $25.0 million was primarily due to $41.0 million in sales and maturities of short-term investments, partially offset by $5.1 million in purchases of property and equipment, including capitalized internal-use software, and $10.9 million in purchases of short-term investments.

Net cash used in investing activities for the three months ended April 30, 2019 of $10.0 million was primarily due to $8.3 million used by us to purchase additional short-term investments, and $1.7 million in purchases of property and equipment and capitalized internal-use software.

~~Financing Activities~~

Cash provided by financing activities for the three months ended April 30, 2020 of $2.9 million was primarily due to $4.0 million of stock option exercise proceeds, partially offset by $1.1 million of debt principal payments.

~~Cash provided by financing activities for the three months ended April 30, 2019 of $4.8 million was primarily due to stock option exercise proceeds.~~

~~Off-Balance Sheet Arrangements~~

As of April 30, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

~~Obligations and Other Commitments~~

Our principal commitments consist of obligations under our operating leases for office space, our Debt Agreement and obligation to purchase cloud hosting services. The following table summarizes our contractual obligations as of April 30, 2020 (in thousands):

Total Less than 1 year 1-3 years 3-5 years More than 5 years
Operating lease obligations¹ $ 85,237 $ 10,096 $ 25,236 $ 15,319 $ 34,586
Debt principal and interest² 9,767 4,663 5,104 — —
Other contractual obligations³ 4,319 4,319 — — —
$ 99,323 $ 19,078 $ 30,340 $ 15,319 $ 34,586

(1) We lease our facilities under long-term operating leases which expire on varying dates through June 2030. The lease agreements often contain provisions which require us to pay taxes, insurance, and maintenance costs.

(2) Debt principal and interest includes amounts owed under our Debt Agreement with Silicon Valley Bank including principal, interest and a $0.2 million facility fee on the term loan. Interest payments were calculated using the applicable rate as of April 30, 2020. See ~~Note 10. Debt~~ ~~of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information.~~

~~(3) Represents contractual obligations to make purchases, primarily related to cloud computing services from one of our vendors by September 30, 2020.~~

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, 2020, 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 consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

As of April 30, 2020, we had accrued liabilities related to uncertain tax positions, which are reflected in our unaudited condensed consolidated balance sheets. These accrued liabilities are not reflectedNote: Percentages in the table above ~~since it is unclear when these liabilities will be repaid.~~

~~Critical Accounting Policies and Estimates~~

We prepare our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP). In the preparation of these unaudited condensed consolidated financial statements, we are requiredmay not sum due to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and 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, 2019, filed with the SEC on March 31, 2020. Any significant changes to these policies during the three months ended April 30, 2020 are described in ~~Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements~~ ~~to our condensed consolidated financial statements provided herein.~~rounding.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements presented in accordance with U.S. GAAP, we monitor and consider non-GAAP cost of subscription revenue, non-GAAP cost of professional services revenue, non-GAAP gross profit, non-GAAP research and development expense, non-GAAP sales and marketing expense, non-GAAP general and administrative expense, non-GAAP loss from operations, non-GAAP net loss, non-GAAP net loss per share, and free cash ~~flow and Growth Efficiency Index (GEI). We believe our non-GAAP measures are useful in evaluating our operating performance.~~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 our non-GAAP financial measures provide investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our operating results. We also believe our non-GAAP financial 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.

~~Non-GAAP Loss from Operations~~

We define non-GAAP loss from operations as GAAP operating loss adjusted to exclude stock-based compensation expense, amortization of acquired intangibles, and capitalization and amortization of internal-use software. We exclude the following items from one or more of our non-GAAP ~~loss from operations:~~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. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business.

•Internal-use software. We exclude non-cash adjustments for capitalization and the subsequent amortization of internal-use software, including any impairment charges, from certain of our non-GAAP measures. We capitalize certain costs incurred for the development of computer software for internal use and then amortize those costs over the estimated useful life. Capitalization and amortization of software development costs can vary significantly depending on the timing of products reaching technological feasibility and being made generally available. Moreover, because of the variety of approaches taken and the subjective assumptions made by other companies in this area, we believe that excluding the effects of capitalized software costs allows investors to make more meaningful comparisons between our operating results and those of other companies.

Three Months Ended
April 30,
2020 2019
GAAP loss from operations $ (17,703) $ (20,883)
Add / (Subtract):
Stock-based compensation expense 10,884 7,959
Amortization of acquired intangibles 423 503
Internal-use software (1,279) (71)
Non-GAAP loss from operations $ (7,675) $ (12,492)
•Charitable donations. We exclude expenses associated with charitable donations of our common stock from certain of our non-GAAP financial measures. 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 currently 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. We began excluding litigation that is outside of the ordinary course of our business from our non-GAAP financial measures in the second quarter of fiscal 2021 as these expenses significantly increased, specifically expenses relating to our ongoing securities class actions and derivative litigation.

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


	Three Months Ended April 30, 2021
	GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Internal-use Software		Certain Litigation		Non-GAAP
Cost of revenue:
Cost of subscription revenue	$	15,643		$	(1,043)	$	(423)	$	(752)	$	—	$	13,425
Cost of professional services revenue	17,078			(2,001)		—		—		—		15,077
Gross profit	47,608			3,044		423		752		—		51,827
Operating expenses:
Research and development	18,967			(4,529)		—		802		—		15,240
Sales and marketing	31,865			(4,080)		—		—		—		27,785
General and administrative	14,185			(2,144)		—		117		(809)		11,349
Loss from operations	(17,409)			13,797		423		(167)		809		(2,547)
Net loss	$	(17,661)		$	13,797	$	423	$	(167)	$	809	$	(2,799)
Net loss per share, basic and diluted(1)	$	(0.15)										$	(0.02)
Gross margin	59		%									65		%
Subscription gross margin	76		%									79		%


	Three Months Ended April 30, 2020
	GAAP			Stock-based Compensation		Amortization of Acquired Intangibles		Internal-use Software		Non-GAAP
Cost of revenue:
Cost of subscription revenue	$	13,615		$	(852)	$	(423)	$	(149)	$	12,191
Cost of professional services revenue	18,682			(1,650)		—		—		17,032
Gross profit	41,601			2,502		423		149		44,675
Operating expenses:
Research and development	17,543			(3,542)		—		1,428		15,429
Sales and marketing	28,496			(3,005)		—		—		25,491
General and administrative	13,265			(1,835)		—		—		11,430
Loss from operations	(17,703)			10,884		423		(1,279)		(7,675)
Net loss	$	(17,488)		$	10,884	$	423	$	(1,279)	$	(7,460)
Net loss per share, basic and diluted(1)	$	(0.15)								$	(0.06)
Gross margin	56		%							60		%
Subscription gross margin	76		%							79		%

(1) Calculated based upon 121,354 and 115,139 weighted-average shares of common stock outstanding for the three months ended April 30, 2021 and 2020, respectively.

Free Cash Flow

We define free cash flow as net cash provided by ~~(used in)~~ operating activities, less cash used for purchases of property and ~~equipment.~~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 ~~exclude~~include the impact of net purchases of property and equipment ~~from~~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~~our balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures.

Three Months Ended
April 30,
2020 2019
Net cash provided by (used in) operating activities $ 2,951 $ (2,162)
Less:
Purchases of property and equipment (5,120) (1,676)
Free cash flow $ (2,169) $ (3,838)


	Three Months Ended April 30,
	2021		2020
	(in thousands)
Net cash provided by operating activities	$	10,251	$	2,951
Less:
Purchases of property and equipment, net of insurance recoveries	(1,621)		(5,120)
Free cash flow	$	8,630	$	(2,169)

3125

Comparison of the Three Months Ended April 30, 2021 and 2020

Revenue


	Three Months Ended April 30,
	2021			2020			$ Change		% Change
	(dollars in thousands)
Revenue:
Subscription	$	65,142		$	56,896		$	8,246	14	%
Professional services	15,187			17,002			(1,815)		(11)	%
Total revenue	$	80,329		$	73,898		$	6,431	9	%
Percentage of revenue:
Subscription	81		%	77		%
Professional services	19			23
Total revenue	100		%	100		%

Subscription revenue increased by $8.2 million, or 14%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The increase was driven by growth in our customer base, including both new and existing customers. New customers contributed approximately $5.2 million of the increase in subscription revenue for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, while increased transaction volume and sales of additional products to our existing customers contributed 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 $1.8 million, or (11)%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, partially driven by the shifting of services work to our system integration partners.

Cost of Revenue and Gross Margin


	Three Months Ended April 30,
	2021			2020			$ Change		% Change
	(dollars in thousands)
Cost of revenue:
Subscription	$	15,643		$	13,615		$	2,028	15	%
Professional services	17,078			18,682			(1,604)		(9)	%
Total cost of revenue	$	32,721		$	32,297		$	424	1	%
Gross margin:
Subscription	76		%	76		%
Professional services	(12)			(10)
Total gross margin	59		%	56		%

Cost of subscription revenue increased by $2.0 million, or 15%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The increase in cost of subscription revenue was due to increases of $1.1 million in third-party hosting costs as we grow and transition our data center model to the cloud, $0.6 million in amortization of internal-use software costs and $0.3 million in employee compensation costs.

Cost of professional services revenue decreased by $1.6 million, or (9)%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020. The decrease in cost of professional services revenue was primarily due to decreases of $0.7 million in employee compensation costs, $0.4 million in travel costs, and $0.4 million in allocated overhead costs.

~~Growth Efficiency Index~~Our gross margin for subscription services remained consistent at 76% for the three months ended April 30, 2021 and three months ended April 30, 2020.

Our gross margin for professional services decreased to (12)% for the three months ended April 30, 2021 compared to (10)% for the three months ended April 30, 2020, primarily due to an increase of $0.4 million in stock-based compensation expense and a $0.3 million investment in training our partners.

Operating Expenses

Research and Development


	Three Months Ended April 30,
	2021			2020			$ Change		% Change
	(dollars in thousands)
Research and development	$	18,967		$	17,543		$	1,424	8	%
Percentage of total revenue	24		%	24		%

Research and development expense increased by $1.4 million, or 8%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020 primarily due to an increase of $0.9 million in employee compensation costs and $0.6 million reduced capitalization of internal-use software costs compared to prior year. Research and development expense remained consistent at 24% of total revenue for the three months ended April 30, 2021 and 2020, respectively.

Sales and Marketing


	Three Months Ended April 30,
	2021			2020			$ Change		% Change
	(dollars in thousands)
Sales and marketing	$	31,865		$	28,496		$	3,369	12	%
Percentage of total revenue	40		%	39		%

Sales and marketing expense increased by $3.4 million, or 12%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to $1.2 million in payroll related costs from increased headcount, $1.3 million increased amortization of deferred commissions and $0.6 million in allocated overhead costs, partially offset by a decrease of $0.8 million in travel costs. Sales and marketing expense increased to 40% of total revenue during the three months ended April 30, 2021 from 39% during the three months ended April 30, 2020.

General and Administrative


	Three Months Ended April 30,
	2021			2020			$ Change		% Change
	(dollars in thousands)
General and administrative	$	14,185		$	13,265		$	920	7	%
Percentage of total revenue	18		%	18		%

General and administrative expense increased by $0.9 million, or 7%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to increases of $0.8 million in shareholder litigation expenses and $0.6 million in employee compensation costs, partially offset by a $0.4 million decrease in outside professional services. General and administrative expense remained consistent at 18% of total revenue during the three months ended April 30, 2021 and 2020.

Interest and other income, net


	Three Months Ended April 30,
	2021		2020		$ Change		% Change
	(dollars in thousands)
Interest and other income, net	$	121	$	378	$	(257)	(68)	%

Interest and other income, net decreased by $0.3 million for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to a decrease in interest income from short-term investments.

Income Tax Provision


	Three Months Ended April 30,
	2021		2020		$ Change		% Change
	(dollars in thousands)
Income tax provision	$	373	$	163	$	210	129	%

We ~~define GEI~~are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended April 30, 2021 and 2020, we recorded a tax provision of $0.4 million and $0.2 million, respectively, on a loss before income taxes of $17.3 million in each period. The effective tax rates for the three months ended April 30, 2021 and 2020 were (2.2)% and (0.9)%, respectively. The effective tax rate differs from the statutory rate primarily as a result of providing no benefit on pretax losses incurred in the ~~trailing 12-months~~United States. For the three months ended April 30, 2021 and 2020, 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, 2021, we had cash and cash equivalents and short-term investments of $197.4 million that was primarily invested in deposit accounts, money market funds, corporate debt securities, supranational securities, commercial paper, and U.S. government securities. We don't 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 issuances of stock under our employee stock plans and borrowings under our Debt Agreement. In the three months ended April 30, 2021, we repaid $1.1 million of principal on our term loans and have the ability borrow up to an additional $30.0 million in revolving loans under our Debt Agreement until October 2022.

We believe our existing cash and cash equivalents, short-term investments, cash provided by operating activities, and funds available under our Debt Agreement will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing ~~expense, excluding trailing 12-months stock-based compensation expense, divided~~activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our products.

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 ~~year-over-year increase~~increased mix of restricted stock units versus stock options granted to employees and to vary

based on our share price. The uncertainty created by the changing markets and economic conditions related to the COVID-19 pandemic may impact our customers' ability to pay us on a timely basis, which could negatively impact our cash flows.

Debt Agreement

See Note 9. Debt to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information about our Debt Agreement.

Cash Flows

The following table summarizes our cash flows for the ~~trailing 12-month~~periods indicated (in thousands):


	Three Months Ended April 30,
	2021		2020
Net cash provided by operating activities	$	10,251	$	2,951
Net cash (used in) provided by investing activities	(5,616)		24,990
Net cash provided by financing activities	2,456		2,905
Effect of exchange rates on cash and cash equivalents	(85)		(427)
Net increase in cash and cash equivalents	$	7,006	$	30,419

Operating Activities

Net cash provided by operating activities of $10.3 million for the three months ended April 30, 2021 was comprised primarily of customer collections for our subscription ~~revenue. We consider GEI as a metric of~~and professional services, cash payments for our ~~operational efficiencies and believe GEI provides useful information to management and investors about how much~~personnel, sales and marketing ~~expense~~efforts and infrastructure related costs, and payments to vendors for products and services related to our ongoing business operations.

Net cash provided by operations for the three months ended April 30, 2021 increased $7.3 million compared to the same period last year as a result of increased cash collections from our customers.

Investing Activities

Net cash used in investing activities for the three months ended April 30, 2021 was $5.6 million. We purchased $4.0 million in short-term investments and used $1.6 million, net of insurance recoveries, to purchase property and equipment and to develop internal-use software as we ~~incur~~continue to ~~attain~~invest in and grow our business.

Net cash used in investing activities for the three months ended April 30, 2021 decreased $30.6 million compared to the three months ended April 30, 2020 primarily due to $4.0 million net purchases of short-term investments, compared to $30.1 million net proceeds from short-term investments last year. Payments for property and equipment, net of insurance recoveries, were $3.5 million lower compared to the same period last year primarily due to cash used for leasehold improvements on our new ~~revenue. A lower GEI indicates lower sales~~corporate headquarters during the three months ended April 30, 2021.

Financing Activities

Cash provided by financing activities for the three months ended April 30, 2021 of $2.5 million was primarily due to $3.6 million in proceeds from stock option exercises, net of repurchases, partially offset by $1.1 million of debt principal payments.

Net cash provided by financing activities for the three months ended April 30, 2021 decreased $0.4 million compared to the three months ended April 30, 2020 primarily due to less proceeds from stock option exercises in the current quarter.

Off-Balance Sheet Arrangements

As of April 30, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Obligations and ~~marketing spending to acquire incremental revenue~~Other Commitments

Our principal commitments consist of obligations under our operating leases for office space, our Debt Agreement, and ~~reflects increased operational efficiencies. Our GEI was 2.5 and 2.1~~a contractual obligation for cloud computing services. The following table summarizes our significant contractual obligations as of April 30, ~~2020~~2021 (in thousands):


	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations¹	$	77,166	$	13,898	$	22,576	$	12,394	$	28,298
Debt principal and interest²	5,103		4,507		596		—		—
Other contractual obligations³	7,782		7,782		—		—		—
	$	90,051	$	26,187	$	23,172	$	12,394	$	28,298

(1) Consists of future non-cancelable minimum rental payments under operating leases for our offices, which expire on varying dates through June 2030.

(2) Debt principal and ~~2019, respectively.~~ interest includes amounts owed under our Debt Agreement, including principal, interest and a $0.2 million facility fee on the term loan. Interest payments were calculated using the applicable rate as of April 30, 2021. See Note 9. Debt of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information.

(3) Represents a contractual obligation to make purchases primarily related to cloud computing services from one of our vendors by September 30, 2021.

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, 2021, 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 consolidated balance sheets, consolidated statements of comprehensive loss, or consolidated statements of cash flows.

As of April 30, 2021, we had accrued liabilities related to uncertain tax positions, which are reflected in our unaudited condensed consolidated balance sheets. These accrued liabilities are not reflected in the table above since it is unclear when they will be repaid.

Critical Accounting Policies and Estimates

We ~~expect~~prepare our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP). In the preparation of these unaudited condensed consolidated financial statements, we are required 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. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience ~~fluctuations~~and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates.

Our significant accounting policies are discussed in ~~GEI as we grow~~Note 2. Summary of Significant Accounting Policies and ~~scale~~Recent Accounting Pronouncements in our ~~business.~~Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on March 31, 2021. Any significant changes to these policies during the three months ended April

~~The following table includes the information needed to reconcile GEI:~~

April 30, 2020 April 30, 2019
GAAP sales and marketing expense $ 111,259 $ 98,890
Less:
Stock-based compensation expense (12,282) (7,646)
Non-GAAP sales and marketing expense $ 98,977 $ 91,244
Change in GAAP subscription revenue $ 39,913 $ 43,980
GEI 2.5 2.1

30, 2021 are described in Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements to our condensed consolidated financial statements provided herein.

Recent Accounting Pronouncements - Not Yet Adopted

As of April 30, 2021, there are no recently issued accounting pronouncements not yet adopted that are expected to have a material 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.

Foreign Currency Exchange Risk

~~The functional currencies~~Our sales contracts are denominated predominantly in U.S. Dollars, Euros (EUR), and British Pounds (GBP). A portion of our ~~foreign subsidiaries~~operating expenses are ~~the respective local currencies. Our sales are typically denominated in the local currency of the country in which the customer resides. The majority of our sales are made in~~incurred outside the United States and ~~those sales are~~ denominated in ~~U.S. dollars. Therefore, the portion of our revenue that is subject to significant~~ foreign ~~currency risk is limited. Our operating expenses~~currencies and are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, China, India, Japan, and Australia. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates, ~~and may be adversely affected~~particularly changes in the ~~future due to changes~~EUR, Chinese Yuan (CNY), and GBP. Additionally, fluctuations in foreign ~~exchange rates. Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in~~currency exchange rates may cause us to recognize transaction gains and losses in ~~particular, a weakening~~our consolidated statement of foreign currencies relative to the U.S. dollar may negatively affect our revenue and net income (loss) as expressed in U.S. dollars. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments. For the three months ended April 30, 2020,comprehensive loss. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have ~~had~~ a material impact on our ~~accompanying unaudited condensed~~historical consolidated financial ~~statements.~~statements for the three months ended April 30, 2021. 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 ~~$172.6~~$197.4 million as of April 30, ~~2020.~~2021. 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 change in these market rates may adversely affect our operating results.

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 ~~realized~~ 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.

~~Under our Debt Agreement, we pay interest on any outstanding balances based on a variable market rate. A significant change in these market rates may adversely affect our operating results.~~

As of April 30, ~~2020,~~2021, 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.~~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 ~~accumulated~~ other comprehensive ~~loss,~~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 months ended April 30, ~~2020.~~2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and ~~Interim~~ 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, ~~2020.~~2021. Based on such evaluation, our Chief Executive Officer and ~~Interim~~ Chief Financial Officer have concluded that as of April 30, ~~2020,~~2021, 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 ~~Interim~~ Chief Financial Officer, to allow timely decisions regarding its required disclosure.

Changes in Internal Control Over Financial Reporting

We continue to monitor the design and operating effectiveness of our internal controls for any effect resulting from the COVID-19 pandemic in order to minimize any potential impacts. 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.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and ~~Interim~~ 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.

3332

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

~~From time to time, we may be subject to~~For information regarding legal proceedings, ~~as well as demands, claims and threatened litigation. Other than the matters described in~~see Note ~~14.~~13. Commitments and Contingencies inof the notes to our unaudited condensed consolidated financial statements ~~we are not currently party to any material legal proceedings or claims, nor are we aware~~included in “Item 1. Financial Statements” of any pending or threatened litigation or claims that could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably. The outcomes of our 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 us because of defense and settlement costs, diversion of management resources, and other factors.this Form 10-Q, which is incorporated by reference into this “Item 1. Legal Proceedings.

Item 1A. Risk Factors

~~A description~~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 ~~and uncertainties associated~~together with ~~our business is~~the more detailed discussion of risks set forth ~~below. You should carefully consider the risks and uncertainties described below,~~following this summary, as well as ~~the other information~~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, ~~including~~may apply to our ~~accompanying unaudited condensed consolidated financial statements~~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 ~~the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”~~ Industry

•The ~~occurrence of any of the~~ongoing COVID-19 pandemic, or other pandemics or natural disasters, or catastrophic events, ~~or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial,~~ could ~~materially and~~ adversely ~~affect~~impact our business, financial condition, operating results and cash flows.

•If we are unable to attract new customers and expand sales to existing customers on a cost-effective basis, our revenue growth could be slower than we expect and our business would be adversely affected.

•We have a history of ~~operations,~~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 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.

•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, our business, operating results, financial condition and growth ~~prospects. In~~prospects could be adversely affected.

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

•If we are unable to successfully execute our strategic initiatives, such anas 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. If we are unable to manage our growth effectively, our revenue and profits could be adversely affected.

•Our current international operations, and any further expansion of such 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.

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

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

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

•Any disruptions of service from our third-party data centers could interrupt or delay our ability to deliver our services to our customers, which could harm our business and our financial results.

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

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 ~~could decline~~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

The ongoing COVID-19 pandemic could adversely affect our business, financial condition, results of operations, and cash flows.

The ongoing COVID-19 pandemic has resulted in widespread disruptions across the United States and the world and is impacting worldwide economic activity and financial markets. In light of the uncertain and ~~rapidly~~ evolving situation relating to the spread of the disease, 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. Like many companies, including our customers and prospects, most of our employees are working from home, we have limited all non-essential business travel, have shifted certain of our customer events ~~such as Subscribed 2020 in the San Francisco Bay Area,~~ to virtual-only experiences and we may deem it advisable to ~~similarly~~continue to alter, postpone or cancel ~~additional~~ customer, employee or industry events in the future. We have modified certain other business practices to conform to government restrictions and best practices encouraged by government and regulatory authorities and such measures could negatively impact our business.

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 ~~could create~~potential operational or other challenges, any of which could harm our business and operating results. We continue to monitor the situation and may adjust our current policies as more information and public health guidance become available. In certain customer segments that have been more severely impacted by the COVID-19 pandemic such as small- and medium-sized businesses and certain industries like hospitality and travel, we have experienced, and ~~expect to~~may continue to experience, a reduced ability or willingness 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 disruptions 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. Currently, as a result of the work and travel restrictions related to the COVID-19 pandemic, substantially all of our sales and professional services activities are being conducted remotely. ~~As of the date of this Quarterly Report on Form 10-Q, we do not yet know the extent of the negative impact on our ability to attract new customers or retain and expand existing customers.~~ 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. In addition, our management team has and continues to commit significant time, attention and resources to monitor and mitigate the effects of the COVID-19 pandemic on our business and workforce, which has diverted, and could continue to result in diversions of, management’s attention from other business concerns. 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. 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. 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.

~~The~~In early fiscal 2021, the trading prices for our common stock and that of other publicly traded technology companies ~~have been highly volatile~~experienced high volatility as a result of the COVID-19 ~~pandemic, which may reduce our ability to access capital on favorable terms or at all. In addition, a~~pandemic. A future 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.

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. While we ~~are developing and implementing~~have implemented risk mitigation plans and are actively managing recurring expenses, including ~~reducing our pace of hiring and prioritizing headcount critical to operations and~~ ~~customer-related matters,~~ decreasing costs associated with travel and marketing, ~~and~~ delaying certain other non-essential expenditures, and have previously reduced our pace of hiring and prioritized headcount critical to operations and customer-related matters, these measures may not be sufficient to prevent adverse impacts on our business and financial condition from COVID-19. ~~The~~While we believe the initial impacts of the COVID-19 pandemic are behind us, the degree to which the COVID-19 pandemic may impact our ~~results of operations~~business and financial ~~condition is unknown at this time and~~results in the future will depend on ~~future~~further developments, including the ~~geographic spread of COVID-19, the~~ severity and the continued duration of the pandemic, and further actions that may be taken by governmental authorities or ~~businesses.To~~businesses. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section.

~~We have a history of net losses, anticipate increasing~~If we are unable to attract new customers and expand sales to existing customers our ~~operating expenses~~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 ~~not achieve~~be reluctant or ~~sustain profitability.~~

~~We have incurred net losses~~unwilling to invest in ~~each fiscal year since inception, including net losses of $83.4 million, $72.7 million,~~new products and ~~$39.4 million in fiscal 2020, fiscal 2019,~~services. As a result, selling our solution often requires sophisticated and ~~fiscal 2018, respectively. We expect to incur net losses for~~costly sales efforts that are targeted at senior management. During the ~~foreseeable future. As of~~three months ended April 30, ~~2020, we had an accumulated deficit of $408.3 million. We expect to make significant future expenditures related to the development~~2021, sales and ~~expansion~~marketing expenses represented approximately 40% 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 ~~including increasing~~may be adversely affected.

Our future revenue growth also depends upon expanding sales and renewals of subscriptions to our ~~overall customer base, expanding relationships~~solution with existing customers. If our existing customers ~~entering new vertical markets, expanding~~do not expand their use of our ~~global footprint, expanding and leveraging our relationships with strategic partners including GSIs~~solution over time or do not renew their subscriptions or if we receive requests from an increased number of customers for changes 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~~payment or other ~~administrative expenses related to operating~~terms 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 allresult of the ~~foregoing initiatives may be temporarily delayed or re-evaluated as part of our efforts to mitigate the effects~~impact of the COVID-19 pandemic 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.

As the COVID-19 pandemic and economic conditions improve, we expect to continue expanding our sales efforts, both domestically and internationally. However, 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- 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 ~~negatively affect~~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.

While our hiring slowed due to the impact on the economy of the COVID-19 pandemic, we continue to invest in our growth and expect to increase our rate of such investment as the economy begins to recover. 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, our global hiring slowed in fiscal 2021 in light of the ongoing COVID-19 pandemic. We have increased our rate of hiring and expect to continue to increase our headcount and invest in our expansion as the pandemic and economic conditions improve. If the pandemic conditions worsen or we are not otherwise able to resume our rate of global hiring to pre-pandemic levels within a reasonable period of time, our ability to expand our operations and maintain or increase our ~~sales. While~~sales may be negatively impacted.

To manage growth in our ~~revenue has grown~~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 ~~recent years, if our revenue~~difficulty or delays in deploying customers, declines in quality or ~~fails to grow at a rate faster than these~~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 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.

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 medium and large businesses that have adopted subscription business models utilizing cloud-based products and services to manage billings and financial accounting relating to their subscriptions. ~~The adoption of these models is still relatively new, and enterprises~~Enterprises may choose not to shift to a subscription business model or, they may choose to shift ~~their business~~more slowly than we expect. In addition, those enterprises that do shift to a subscription model ~~or, if they do, they~~ 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. Accordingly, it is difficult to predict customer adoption rates and demand for our solution, the future growth rate and size of the market for subscription management software, or the entry of competitive solutions. 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 billing and subscription management solutions by our customers and prospects, including the impact of spending due to the ongoing COVID-19 pandemic;

•general economic conditions, both in domestic and foreign markets, including the continued effects on economic conditions related to the ongoing COVID-19 pandemic; 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.

We have ~~experienced rapid growth~~a history of net losses, anticipate increasing our operating expenses in the future, and while our hiring and expansion plans have slowed due to the impact on the economy of the COVID-19 pandemic, we continue to invest in our growth and expect to increase our rate of such investment as the economy begins to recover. If we fail to manage our growth effectively, our business, operating results, and financial condition could be adversely affected.may not achieve or sustain profitability.

We have ~~experienced rapid growth~~incurred net losses in ~~our operations~~each fiscal year since inception, including net losses of $73.2 million, $83.4 million and ~~personnel~~$72.7 million in ~~recent years, which has placed a significant strain on our management, operations, financial infrastructure,~~fiscal 2021, 2020 and ~~corporate culture. While our global hiring and expansion plans have slowed in light of the ongoing COVID-19 pandemic, we~~2019, respectively. We expect to ~~continue with such plans and increase our headcount once~~incur net losses for the ~~pandemic and economic conditions improve. If~~foreseeable future. As of April 30, 2021, we ~~are not able~~had an accumulated deficit of $481.7 million. We expect to make

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~~resume our rate of global hiring~~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 ~~within a reasonable period~~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 ~~time,~~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 may be negatively impacted.~~

~~To manage growth~~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 ~~operations and personnel,~~operating expenses, 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 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.

~~If we are unable to attract new customers and expand sales to existing customers our revenue growth could~~not be ~~slower than we expect, and our business may be adversely affected.~~

~~Our ability~~able to achieve ~~significant growth~~and maintain profitability 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.periods. As a result, selling our solution often requires sophisticated and costly sales efforts that are targeted at senior management. During the three months ended April 30, 2020, sales and marketing expenses represented approximately 39% 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 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 COVID-19 on their businesses, our revenue may grow more slowly than expected, may not grow at all, or may decline. We expect that the dollar-based retention rate will experience slight downward pressure for the remainder of the fiscal year. Our success, in part, is dependent on our ability to cross-sell ~~Zuora Revenue~~ ~~products into our existing~~ ~~Zuora Billing~~ customers. If we experience delays in integration or implementation of these products, revenue from cross-selling may grow more slowly or may not grow at all. In the three months ended April 30, 2019, we temporarily slowed down implementations between our ~~Zuora Revenue~~ ~~and~~ ~~Zuora Billing~~ customers due to product integration challenges. This temporary slowdown resulted in lower than expected total revenues for such quarter and resulted in us lowering our financial projections. We resumed the paused customer implementations in late fiscal 2020. Some of our customers are now operationally live on our integrated product, and we continue to ~~work with the remaining customers on their implementation of the integrated product.~~

While we have slowed the rate of our hiring as a result of the impacts of the COVID-19 pandemic, as the economy begins to recover from such impacts, we plan to begin increasing the pace of the continuing expansion of our sales efforts, both domestically and internationally. However, 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, including our ~~Subscribed~~ ~~events, these sales and marketing programs may not have the desired effect and may not expand sales.~~generate losses. 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.

~~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~~become profitable, we will be able 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.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. As a result of the COVID-19 pandemic, we may not be able to hire as quickly as planned and it may be more challenging to entice qualified personnel to leave their current positions to join us.

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 ~~cycle~~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 ongoing COVID-19 pandemic. ~~For example, in late October 2019, Robert Traube joined Zuora as our Chief Revenue Officer leading the sales organization. This and~~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 subscription management products and services, including our billing 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, 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 ~~GSIs,~~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.

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, and we may incur significant liabilities.

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.

We have in the past experienced security incidents and breaches and may in the future experience additional security incidents or breaches. The COVID-19 pandemic is generally increasing the attack surface available for exploitation, as more companies and individuals work online and work remotely, and as such, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers” hoping to use the recent COVID-19 pandemic to their advantage. 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.

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 ~~platform and our~~, Zuora Billing, Zuora Revenue, and ~~and~~ Zuora ~~Revenue~~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 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.

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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. Additionally, we have a limited operating history with the current scale of our business, which makes it difficult to forecast our future results and subjects us to a number of uncertainties, including our ability to plan for and anticipate future growth. 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 ~~the~~their introduction of new products and ~~services by~~services;

•changes in the pricing of our ~~competitors;~~products;

•the productivity of our sales force;

•our ability to grow our relationships with strategic partners such as ~~GSIs~~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;

•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;

•foreign exchange fluctuations;

•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 ongoing COVID-19 pandemic; and

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

The extent to which the global COVID-19 pandemic ~~continues~~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.

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.~~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.

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, our business could be adversely affected.

The market for our solution, including our billing 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 and revenue recognition offerings, are inherently complex, and our ability to develop and release 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.

Our business depends largely on our ability to attract and retain talented employees, including senior management. 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, 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. In addition, competition for qualified personnel, particularly software engineers, is particularly intense in the San Francisco Bay Area, where our headquarters is located. We may not be able to retain our current key employees or attract, train, assimilate, or retain other highly skilled personnel in the future. WeFor example, as economic conditions related to the COVID-19 pandemic improve, 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 geographies, 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.

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 have recently hired a new Chief Financial Officer, Todd McElhatton, who is expected to commence his employment on June 22, 2020.~~ 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, for any reason, and without notice. 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 to retain our employees, our business, results of operations, financial condition, and cash flows could be adversely affected.

Our corporate “ZEO” culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, and teamwork fostered by our culture, and our business may be harmed.

We believe that our entrepreneurial corporate culture has been a key contributor to our success. We have worked to develop what we call our “ZEO” culture, which is based on the idea that each employee is the CEO of their job and career, and we strive to empower every employee to make and own their decisions and contributions to our company. As a result of the COVID-19 pandemic, nearly all of our employees have been working remotely, which can create additional obligations and difficulties for certain employees and could negatively impact our corporate culture. If we do not continue to develop our corporate culture as we grow and evolve, including maintaining a culture that encourages individual entrepreneurship by our employees, it could harm our ability to foster the innovation, creativity, and teamwork we believe that we need to support our growth. 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 corporate culture, which could negatively impact our future success.

As a substantial portion of our sales efforts are increasingly targeted at large enterprise customers, our sales cycle may become ~~increasingly lengthy~~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 ~~in addition to resulting in longer sales cycles,~~ 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 we have limited all non-essential business travel. 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.

If we are unable to grow our sales channels and our relationships with strategic partners, such as ~~GSIs,~~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 ~~GSIs,~~system integrators, management consulting firms, 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 ~~revenues~~revenue as an overall percentage of Zuora's total revenue to ~~decrease~~continue to decline over time. Our relationships with these strategic partners are still at an early stage of development. We have generated limited revenue through these relationships to date, 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.

~~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.

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.

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 in the subscription billing and revenue recognition industry and ERP software market may prove to be inaccurate. Even if these markets experience the forecasted growth, 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.

As a result of the ~~date of this Quarterly Report, the~~continuing impact and duration of the ~~outbreak of~~ COVID-19 ~~continues to unfold. As a result,~~pandemic, many of our estimates and assumptions ~~required~~require increased judgment and carry a higher degree of variability and

volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods and actual results could differ materially from those estimates.

The market for our revenue recognition automation software product, Zuora Revenue, is evolving as a result of the effectiveness of Topic 606, which makes it difficult to forecast adoption rates and demand for this product, and could have a material adverse effect on our business and operating results.

~~We have less experience marketing, determining pricing for, and selling~~
~~Zuora Revenue~~, and we are still determining how to best market, price, and support adoption of this offering. We have directed, and intend to continue to direct, a significant portion of our financial and operating resources to develop and grow ~~Zuora Revenue. The market for~~ ~~Zuora Revenue~~ is evolving as a result of the effectiveness of Topic 606, the revenue recognition accounting standard that took effect for most public companies in January 2018. While we have seen a significant number of ~~Zuora Revenue~~ ~~deployments associated with the effectiveness of Topic 606, it is uncertain whether~~ ~~Zuora Revenue~~ ~~will achieve and sustain high levels of demand and market acceptance. Our future success depends in part upon growth in this market and the ability of our~~ ~~Zuora Revenue~~ product to meet the demand for revenue recognition automation solutions. We have limited experience with respect to determining the optimal prices for this solution. Companies may choose to purchase our ~~Zuora Revenue~~ ~~product to comply with Topic 606 in the short-term but may develop proprietary solutions in-house or migrate toward other solutions developed by our competitors in the future. Customers may purchase~~ ~~Zuora Revenue~~ as a standalone product and not purchase other core Zuora products. The rapidly evolving nature of this market, as well as other factors that are beyond our control, reduces our ability to accurately evaluate our long-term outlook and forecast annual performance. A reduction or slowdown in demand for revenue recognition automation software, caused by shifts in the marketplace, regulatory requirements, accounting standards, lack of acceptance, technological challenges, and competing solutions, could have a material adverse effect on our business, future growth, operating results, and financial condition. Moreover, in the three months ended April 30, 2019, we temporarily slowed down implementations between our ~~Zuora Revenue~~ ~~and~~ ~~Zuora Billing~~ customers due to product integration challenges. This temporary slowdown resulted in lower than expected total revenues for such quarter and resulted in us lowering our financial projections. We resumed the paused customer implementations in late fiscal 2020. Some of our customers are now operationally live on our integrated product, and we continue to work with the remaining customers on their implementation of the integrated product.

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 months ended April 30, ~~2020,~~2021, we derived approximately ~~32%~~38% 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 will require 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, 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 or political instability in countries where we may operate, including the potential effects of Brexit and the ongoing COVID-19 pandemic;

•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.

~~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, continued uncertainty surrounding the final terms of Brexit, political uncertainty in Hong Kong, health pandemics such as the COVID-19 pandemic, and trade disputes and tariffs, may negatively impact markets and cause weaker macroeconomic conditions. For example, depending on the final terms of Brexit and formal agreements and arrangements between the European Union and the United Kingdom, we could face new regulatory costs and burdens, including imposition of customs duties, or tariffs, on the sale of our solution to customers in the European Union. We are unable to predict how and to what extent Brexit will impact our future results of operations and cash flows. Brexit could also lead to disruptions to our business in the United Kingdom and Europe, including our relationships with our existing and prospective customers, partners, and employees, and adversely affect expansion of our international operations. 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, including due to pandemics such as the ongoing COVID-19 pandemic, 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 doubtful accounts 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.

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If we fail to offer high-quality customer support, our business and reputation will suffer.

Once our solution is deployed to our customers, our customers rely on our support services to resolve any related issues. High-quality customer education and customer support is important for the successful marketing and sale of our products and for the renewal of existing customers. The importance of high-quality customer support will increase as we expand our business and pursue new enterprises. If we 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.

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.~~

~~Any disruption of service at our third-party data centers or Amazon Web Services could interrupt or delay our ability to deliver our services to our customers.~~

We currently host our solution, serve our customers, and support our operations in the United States primarily from a third-party Las Vegas-based data center and using Amazon Web Services (AWS), a provider of cloud infrastructure services. As part of our current disaster recovery arrangements, our customer data in the Las Vegas-based data center production environment is replicated to an AWS data center outside of the U.S. West Coast. Additionally, in Europe, we host our solution using AWS. We are also in the process of transitioning the hosting of a portion of our U.S. solution infrastructure to AWS, which may be more expensive than our current data center providers. Despite precautions, we may also experience planned and unplanned costs, interruptions, delays, and outages in service or other performance problems in connection with such transition. We also do not have control over the operations of the facilities of our data center providers or AWS. 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 ongoing 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.

losses pursuant to our agreement with AWS. We may not be able to easily switch our AWS operations to another cloud provider if there are disruptions or interference with our use of AWS. 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.

Neither our third-party data center providers nor AWS 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 data center providers, we may experience additional costs or service downtime in connection with the transfer to, or the addition of, new data center 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.

Our customers and third-party partners often need training in the proper use of our solution to maximize its potential. If our solution is not deployed or used correctly or as intended, inadequate performance may result.

Because our customers rely on our solution to manage a wide range of subscription management operations, the incorrect or improper deployment or use of our solution, our failure to train customers on how to efficiently and effectively use our solution, or our failure to provide adequate support to our customers, may result in customers not renewing their subscriptions, customers reducing their use of our solution, negative publicity, or legal claims against us. Also, as we continue to expand our customer base, any failure by us to properly provide these services will likely result in lost opportunities for additional subscriptions to our solution.

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. If our customers do not increase their transaction volume, or an economic downturn reduces their transaction volume, 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. To date, we have not relied on a long-term written contract to govern our integration relationship~~integrations, and the terms with ~~Salesforce. Instead, we are~~such companies may be subject to ~~the standard terms and conditions for application developers of Salesforce, which govern the distribution, operation, and fees of applications on the Salesforce platform, and which are subject to~~ change ~~by Salesforce~~ 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.

~~Our customers may fail to pay us~~We employ third-party licensed software for use in ~~accordance with the terms of their agreements, necessitating action by us to compel payment.~~

~~We typically enter into non-cancelable agreements~~or 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~~software, and the inability to ~~collect amounts due and~~maintain these licenses or errors in 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 protectionsoftware we license could result in increased costs or ~~other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of~~reduced service levels, which could adversely affect our ~~operating results, financial position,~~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 ~~cash flow.~~development tools from third parties in the future. Although we ~~have processes~~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 ~~place~~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.

We may be unable to integrate acquired businesses and technologies successfully or to achieve the expected benefits of such acquisitions. 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 ~~designed~~necessary to ~~monitor~~sustain our business.

Our business strategy may, from time to time, include acquiring other complementary products, technologies, or businesses. An acquisition, investment, or business relationship may result in unforeseen operating difficulties and ~~mitigate~~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 seek to 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 ~~risks,~~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 ~~cannot guarantee these programs will be effective. If~~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 ~~adequately control~~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.

Certain of our operating results and financial ~~condition could~~metrics may be ~~harmed. Furthermore,~~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 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 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

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, ~~some existing customers have negotiated and others may attempt~~could compromise our ability to ~~renegotiate contracts and obtain concessions, including, among other things, longer payment terms~~perform our day-to-day operations in a timely manner, which could negatively impact our business or ~~modified subscription dates, or may fail to make payments on their existing contracts, which may~~delay our financial reporting. Such failures could materially ~~and negatively impact~~adversely affect our operating results and financial condition.

The COVID-19 pandemic is generally increasing the attack surface available for exploitation, as more companies and individuals work online and work remotely, and as such, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers” hoping to use the recent COVID-19 pandemic to their advantage. 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.

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.

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

~~Adverse litigation judgments~~problem. Accordingly, any errors, defects, or ~~settlements~~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 ~~from legal proceedings~~ in ~~which we~~dissatisfaction of our customers, and may ~~be involved~~materially and adversely affect our business.

Any disruption of service at our third-party data center or Amazon Web Services could ~~expose us to monetary damages~~interrupt or ~~limit~~delay our ability to ~~operate~~deliver our ~~business.~~services to our customers, which could harm our business and our financial results.

We ~~are~~ currently ~~involved in stockholder litigation~~host our solution, serve our customers, and ~~have~~support our operations in the ~~past~~United States primarily from a third-party Las Vegas-based data center and using Amazon Web Services (AWS), a provider of cloud infrastructure services. As part of our current disaster recovery arrangements, our customer data in the Las Vegas-based data center production environment is replicated to an AWS data center outside of the U.S. West Coast. Additionally, in Europe, we host our solution using AWS. We are also in the process of transitioning the hosting of a portion of our U.S. solution infrastructure to AWS, which may be more expensive than our current data center provider. Despite precautions, we may also experience planned and unplanned costs, interruptions, delays, and outages in service or other performance problems in connection with such transitions. We also do not have control over the operations of the facilities of our data center provider or AWS. 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 ongoing 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 our third party data center provider or AWS. We may not be able to easily switch our current data center provider or AWS operations 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.

Neither our third-party data center provider nor AWS has 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 ~~become involved~~we add additional data center providers, we may experience additional costs or service downtime in other class actions, derivative actions, private actions, collective actions, investigations, and various other legal proceedings by stockholders, customers, employees, suppliers, competitors, government agencies,connection with the transfer to, or ~~others. The results~~the addition 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.new data center providers. If ~~any of~~ these ~~legal proceedings~~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 ~~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.impacted.

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 ~~recent amendments to~~ 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.

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 IPintellectual 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.

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.

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.

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.

~~We may be unable~~Risks Related to ~~integrate acquired businesses~~Legal, Regulatory, Accounting, and technologies successfully or to achieve the expected benefits of such acquisitions. 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.

Our business strategy may, from time to time, include acquiring other complementary products, technologies, or businesses. For example, in May 2017, we acquired Leeyo. 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. For example, during the three months ended April 30, 2019, we experienced product integration challenges and consequently temporarily slowed down our implementations in that period between our ~~Zuora Billing~~ ~~and~~ ~~ZuoraRevenue~~ ~~customers~~. We resumed the paused customer implementations in late fiscal 2020. Some of our customers are now operationally live on our integrated product, and we continue to work with the remaining customers on their implementation of the integrated product.

We may in the future seek to 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.~~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.

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. Furthermore, as a result of the COVID-19 pandemic, some existing customers have negotiated and others may attempt to renegotiate contracts and obtain concessions, including, among other things, longer payment terms or modified subscription dates, or may fail to make payments on their existing contracts, which may materially and negatively impact our operating results and financial condition.

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 stockholder 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.

Privacy and security concerns, ~~and~~ laws, ~~or other domestic or foreign~~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 ~~or identifying~~ information regarding their customers or other end users. National and local governments and agencies ~~in the countries in which we operate and in which our customers operate~~ have adopted ~~are considering adopting,~~ or may adopt laws and regulations regarding the collection, use, storage, data residency, ~~processing,~~security, disclosure, transfer across borders and ~~disclosure~~other processing of information obtained from customers, consumers and other ~~individuals, which could~~individuals. These laws and regulations and the associated costs of compliance, and other burdens, including the inability to transfer information between jurisdictions or the obligation to store information in a jurisdiction, 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, including to process certain types of personal information, adopt and deploy our solution globally. ~~Laws~~

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. Any changes we consider necessary or appropriate to make to our business to comply with laws, regulations, or other obligations, we may be unable to make in a commercially reasonable manner, in a timely fashion, or at all.

Additionally, laws and regulations relating to the ~~collection, use, disclosure, security, and other~~ processing of ~~individuals’~~ information can vary significantly ~~from jurisdiction to~~based on the jurisdiction. ~~The~~Some regions and countries have or are enacting strict laws and regulations, including the European Union ~~and many countries, including~~(EU), China 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. 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 ~~in place~~a material adverse effect on our business, including how we use personal data, our financial condition, our operating results or ~~are enacting stricter~~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 ~~relating~~may result in enforcement action or litigation against us, including fines, and damage to ~~privacy~~our reputation, any of which may have an adverse effect on our business and ~~data collection.~~ operating results.

We also ~~may be~~are bound by ~~contractual obligations~~standards, contracts and other obligations relating to ~~privacy, data protection, and~~processing personal information ~~security~~ that are more stringent than applicable laws and regulations. The costs of compliance with, and other burdens imposed by, these laws, regulations, ~~standards,~~ and other obligations ~~relating to privacy, data protection, and information security~~ are significant. In addition, some companies, particularly larger or global enterprises, often will not contract with vendors that do not meet these rigorous ~~standards~~obligations and often seek contract terms to ensure we are financially liable for any breach of ~~laws~~these obligations. Accordingly, our or ~~regulations. Accordingly,~~as well as our vendors' failure, or perceived inability, to comply with these ~~laws, regulations, standards, and other~~ obligations may limit the demand, use and adoption of ~~our solution, reduce overall demand for~~ our solution, lead to regulatory investigations, breach of contract claims, litigation, damage our reputation and brand and lead to significant fines, penalties, or liabilities ~~for actual or alleged noncompliance,~~ or slow the pace at which we close sales transactions, any of which could harm our business. ~~Moreover, if we or any of our~~

~~employees or contractors fail or are believed to fail to adhere to appropriate practices regarding our customers’ data, it may damage our reputation and brand.~~

~~Additionally, we expect that existing laws, regulations, standards, and other obligations may be interpreted in new and differing manners in the future, and may be inconsistent among jurisdictions.~~ 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 ~~data collection, use, disclosure, and transfer for us and our customers. The European Union~~processing personal information. For example, the EU and United States agreed in 2016 to a framework for data transferred from the ~~European Union~~EU to the United States, called the Privacy Shield, but this framework has been challenged by private parties and may face additional challenges by national regulators or additional private parties. Additionally, the General Data Protection Regulation (GDPR) became effective in May 2018. The GDPR establishes, and the pending European Union ePrivacy Regulation is expected to establish, new requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to the greater of €20 million or 4% of worldwide revenue. Additionally, in January 2020, the California Consumer Privacy Act (CCPA) which ~~provides new data privacy rights for consumers and contains new operational requirements for companies, went into effect. The costs of compliance with, and other burdens imposed~~was invalidated by the ~~GDPR, CCPA and other U.S.,~~ European ~~Union, China (including~~Court in July 2020. Based on the ~~Cybersecurity Law of China) and foreign laws currently in existence or~~European Court’s July 2020 decision that companies may ~~be passed in the future, may limit the use and adoption of our products and services and could have an adverse impact~~continue to rely on ~~our business.~~

The costs of compliance with, and other burdens imposed by, laws and regulations relating to privacy, data protection, and information security that are applicable to the businesses of our customers may adversely affect our customers’ ability and willingness to process, handle, store, use, and transmit certain types of information, such as demographic and other personal information, of their customers using our solution, which could limit the use, effectiveness, and adoption of our solution and reduce overall demand. In addition, the other bases on which we and our customers rely for the transfer of personal data across national borders, such as the Standard Contractual Clauses, ~~promulgated by the EU Commission Decision 2010/87/EU,~~ commonly referred to as the Model Clauses, if certain requirements are met, we continue to rely upon such clauses for transfers of personal data across national borders. In the future, the Model Clauses may be ~~subjected~~modified or invalidated, which could affect our or our customers’ ability to ~~regulatory~~transfer personal data and ~~judicial scrutiny. We have taken steps in~~customers’ ability to use our ~~privacy compliance efforts to address~~products and services.

Additionally, the United Kingdom's departure in January 2020 from the ~~European Union~~EU (commonly referred to as "Brexit")~~. The United Kingdom implemented the Data Protection Act, effective in May 2018 and statutorily amended in 2019, that substantially implements the GDPR. Brexit~~, has created uncertainty with regard to the requirements for data transfers between the United Kingdom, the ~~European Union~~EU and other jurisdictions, and the ability to conduct business ~~and transfer personal data between the United Kingdom, the European Union and other countries~~ may be negatively impacted due to circumstances beyond our control, including ongoing uncertainty regarding the ~~final terms of Brexit and~~ formal agreements or arrangements between the ~~European Union~~EU and the United Kingdom, changes in laws and enforcement, or the time and costs to put in place new ~~bases on which we and our customers can rely~~mechanisms for the transfer of personal data. If we or our customers are unable to transfer data between and among countries and regions in which we operate, it could decrease demand for our solution, require us to modify or restrict our solution, products, services, or operations, and impair our ability to maintain and grow our customer base and increase our revenue. With respect to any changes we consider necessary or appropriate to make to our solution, products, services, or practices in an effort to comply, or allow our customers to comply, with laws, regulations, or other obligations relating to privacy, data protection, or information security, we may be unable to make those changes in a commercially reasonable manner, in a timely fashion, or at all. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness, or use of our solution.

~~In addition to government activity, privacy~~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 ~~expect~~require us or we may find it advisable to meet voluntary certifications or adhere to other standards established by them or third ~~parties, and we~~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 ~~required~~received from a government or ~~otherwise find it advisable to obtain these certifications or adhere to these standards.~~regulatory agency. If we are unable to maintain ~~these~~such certifications, comply with such standards, or meet ~~these standards,~~such customer requests, it could reduce demand for our solution and adversely affect our business.

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, or NOLs, to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability. We may be limited in the portion of NOL carryforwards that we can use in the future to offset taxable income for U.S. federal and state income tax purposes, and federal tax credits to offset federal tax liabilities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which modified certain provisions of the Tax Cuts and Jobs Act (Tax Reform Act), was enacted. Under the CARES Act, NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. Under the Tax Reform Act, as modified by the CARES Act, NOLs from tax years that began after December 31, 2017 may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. Accordingly, if we generate NOLs for tax years beginning after December 31, 2017, we might have to pay more federal income taxes in a subsequent year as a result of the 80% taxable income limitation than we would have had to pay under the law in effect before the Tax Reform Act as modified by the CARES Act. Also, as a result of any additional modifications to current and future similar laws, we may be required to pay more federal and state income taxes in future years than we would have had to pay under pre-existing law.

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, in addition to any indebtedness we may have under our then current debt arrangements. 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. In early fiscal 2021, the trading prices for our common stock and other technology companies were highly volatile as a result of the COVID-19 pandemic. 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 ~~the~~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.

~~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.~~

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which modified certain provisions of the Tax Cuts and Jobs Act (Tax Reform Act), was enacted. Under the CARES Act, NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. Under the Tax Reform Act, as modified by the CARES Act, NOLs from tax years that began after December 31, 2017 may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. Accordingly, if we generate NOLs after the tax year ended December 31, 2017, we might have to pay more federal income taxes in a subsequent year as a result of the 80% taxable income limitation than we would have had to pay under the law in effect before the Tax Reform Act as modified by the CARES Act. Also, as a result of any additional modifications to the Tax Reform Act and future similar laws, we may be required to pay more federal and state income taxes in future years than we would have had to pay under pre-existing law.

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 ~~recently~~ 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. ~~For example, a U.S. Supreme Court ruling in June 2018 could result in more states requiring us to collect sales or use tax on sales we make to their residents.~~ 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.

~~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.~~

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 the COVID-19 pandemic 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 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, ~~could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors' confidence in us.~~

~~Any difficulties in implementing new accounting pronouncements, such as~~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’~~investors' confidence in us.

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

~~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.~~

COVID-19 pandemic, which 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.

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. We expect compliance with these rules and regulations will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. 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 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. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased costs and a diversion of management’s time and attention from revenue-generating activities to compliance activities. 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 filings required of a public company, our business and financial condition has become more visible, which we believe 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.

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 commencing with our Form 10-K for the year ended January 31, 2020, 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 believe that our entrepreneurial corporate culture has been a key contributor to our success. We have worked to develop what we call our “ZEO” culture, which is based on the idea that each employee is the CEO of their job and career, and we strive to empower every employee to make and own their decisions and contributions to the company. If we do not continue to develop our corporate culture as we grow and evolve, including maintaining a culture that encourages individual entrepreneurship by our employees, it could harm our ability to foster the innovation, creativity, and teamwork we believe that we need to support our growth. We expect to continue to hire as we expand. 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 corporate culture, which could negatively impact our future success.

Our Debt Agreement provides our lender with a first-priority lien against substantially all of our assets, including our intellectual property, 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 an adjusted quick ratio. Our ability to comply with this and other covenants is dependent upon a number of factors, some of which are beyond our control.

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 assets, including our intellectual property, as collateral. 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.

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, 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. 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.

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 has been and may continue to be volatile. Since shares of our Class A were sold in our Initial Public Offering (IPO) in April 2018 at a price of $14.00 per share, the reported low and high sales prices of our common stock ~~has~~has ranged from $6.21 to $37.78 through June ~~5, 2020. We experienced a significant decline in our stock price following our announcement of earnings for the quarter ended April 30, 2019.~~3, 2021. The market price of our Class A common stock and the market price of the common stock of many other companies ~~have fallen~~fell significantly ~~since~~in the ~~outbreak~~early stage of the COVID-19 pandemic. The extent to which, and for how long, the COVID-19 pandemic may continue to impact the market price of our Class A common stock is ~~unclear, and the market price of our Class A common stock may fluctuate significantly as a result of the COVID-19 pandemic and any associated economic downturn.~~unclear. In addition to factors discussed in this Form ~~10-Q,~~10-K, 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;

•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; and

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

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. 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. In the past, stockholders have instituted shareholder litigation following periods of market volatility. We are currently subject to stockholder litigation, which is described inNote ~~14.~~13. Commitments and Contingencies in the notes to our 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.

Sales of a substantial number of shares of our Class A common stock in the public market, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline and may make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

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. The perception that these sales might occur may also cause the market price of our Class A common stock to decline. As of May 31, ~~2020,~~2021, we had outstanding a total of ~~99.9~~111.4 million shares of Class A common stock and ~~16.0~~10.9 million shares of Class B common stock.

In addition, as of April 30, ~~2020,~~2021, we had outstanding stock options and restricted stock units (RSUs) that could result in the issuance of ~~17.6~~19.4 million shares of Class A common stock. Subject to the satisfaction of applicable vesting requirements, the shares issued upon exercise of outstanding stock options or settlement of outstanding RSUs will be available for immediate resale in the open market.

Moreover, certain holders of our common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.

We may also issue our shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investments, or otherwise. We also expect to grant equity awards to employees, directors, and consultants under our 2018 Equity Incentive Plan (2018 Plan) and rights to purchase our Class A common stock under our ESPP. Any such issuances could result in substantial dilution to our existing stockholders and cause the market price of our Class A common stock to decline.

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, 2020, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a majority of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore are able to 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

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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.

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 ~~new~~ revenue recognition ~~standard, Topic 606, has introduced new and significant disclosure requirements. These~~ 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.

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, 2021, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a majority of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock (including outstanding vested options, if exercised) collectively would control a majority of the combined voting power of our common stock and therefore are able to 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.

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The dual class structure of our common stock may adversely affect the trading market for 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, political uncertainty in Hong Kong, health pandemics such as the COVID-19 pandemic, 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, including due to pandemics such as the ongoing COVID-19 pandemic, 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.

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 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 the COVID-19 pandemic 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.

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.

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.

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, 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.

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds

None.

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Item 6. Exhibits.

Exhibit
Number
Incorporated By Reference Filed or
Furnished
Herewith
Exhibit Description Form File No. Exhibit Filing
Date
3.1 Amended and Restated Bylaws 8-K 001-38451 3.1 5/5/2020
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.

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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 ~~8, 2020~~4, 2021

By:

/s/ ~~Paolo Battaglini~~Todd McElhatton

~~Paolo Battaglini~~Todd McElhatton

~~Interim~~ Chief Financial Officer

(Principal Accounting and Financial Officer)


	April 30, 2020		January 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	84,694	$	54,275
Short-term investments	87,898		117,662
Accounts receivable, net	59,365		68,875
Deferred commissions, current portion	10,080		9,585
Prepaid expenses and other current assets	15,550		16,387
Total current assets	257,587		266,784
Property and equipment, net	36,074		33,489
Operating lease right-of-use assets	52,857		54,286
Purchased intangibles, net	5,197		5,620
Deferred commissions, net of current portion	18,748		19,591
Goodwill	17,632		17,632
Other assets	4,076		4,825
Total assets	$	392,171	$	402,227
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,343	$	2,098
Accrued expenses and other current liabilities	14,083		17,731
Accrued employee liabilities	23,807		24,193
Debt, current portion	4,432		4,432
Deferred revenue, current portion	107,728		111,411
Operating lease liabilities, current portion	6,268		5,755
Total current liabilities	161,661		165,620
Debt, net of current portion	4,991		6,094
Deferred revenue, net of current portion	782		1,007
Operating lease liabilities, net of current portion	60,359		62,307
Deferred tax liabilities	1,591		1,569
Other long-term liabilities	954		971
Total liabilities	230,338		237,568
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock	10		10
Class B common stock	2		2
Additional paid-in capital	570,239		555,307
Accumulated other comprehensive (loss) income	(82)		188
Accumulated deficit	(408,336)		(390,848)
Total stockholders’ equity	161,833		164,659
Total liabilities and stockholders’ equity	$	392,171	$	402,227


	April 30, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	7,697	$	(5,425)	$	2,272
Customer relationships	4,287		(1,892)		2,395
Trade names	909		(379)		530
Total	$	12,893	$	(7,696)	$	5,197


	April 30, 2020		January 31, 2020
Accrued goods and services taxes	$	4,152	$	4,371
Accrued outside services and consulting	2,614		2,800
Accrued hosting and third-party licenses	1,736		1,846

Accrued property and equipment	1,455		3,442
Accrued taxes	340		432
Other accrued expenses	3,786		4,840
Total	$	14,083	$	17,731


	April 30, 2020		January 31, 2020
Operating Leases
Operating lease right-of-use assets	$	52,857	$	54,286

Operating lease liabilities, current portion	6,268		5,755
Operating lease liabilities, net of current portion	60,359		62,307
Total operating lease liabilities	$	66,627	$	68,062


	Maturities of Operating Lease Liabilities
Years Ending January 31,
2021 (remainder of the year)	$	6,227
2022	12,016
2023	11,573
2024	9,562
2025	6,386
Thereafter	36,139
Total lease payments	81,903
Less imputed interest	(15,276)
Present value of lease liabilities	$	66,627


	April 30, 2020		January 31, 2020
Lease Term and Discount Rate
Weighted-average remaining operating lease term (years)	8.2		8.3
Weighted-average operating lease discount rate	4.7	%	4.7	%


	Number of RSU and Restricted Shares Outstanding	Weighted-Average Grant Date Fair Value
Balance as of January 31, 2020	5,029	$	18.09
Granted	590	12.23
Vested	(405)	17.72
Forfeited	(220)	19.94
Balance as of April 30, 2020	4,994	17.35


	April 30, 2020		April 30, 2019
GAAP sales and marketing expense	$	111,259	$	98,890
Less:
Stock-based compensation expense	(12,282)		(7,646)
Non-GAAP sales and marketing expense	$	98,977	$	91,244
Change in GAAP subscription revenue	$	39,913	$	43,980
GEI	2.5		2.1