Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our Class A common stock, you should read this summary together with the more detailed information, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Special Note Regarding Forward-Looking Statements,” and our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. Unless the context indicates otherwise, the terms “Zuora,” “the Company,” “we,” “us,” and “our” refer to Zuora, Inc., together with its consolidated subsidiaries, unless otherwise noted. See the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2016, 2017, and 2018 are referred to herein as fiscal 2016, fiscal 2017, and fiscal 2018, respectively.ZUORA, INC.
Zuora’s Vision and Mission
We provide cloud-based software on a subscription basis that enables any company in any industry to successfully launch, manage, and transform into a subscription business.
Our vision is simple. We call it “The World Subscribed,” and it’s the idea that one day every company will be a part of the Subscription Economy.
Our mission is to enable all companies to be successful in the Subscription Economy.
Overview
For at least the last hundred years, companies have operated primarily under a product-centric business model, where the goal was to make, ship, and sell more units—more cars, more clothes, more computers.
Today, consumers and businesses are realizing that they no longer have to always buy products. Why buy a DVD, CD, movie, or song when you can subscribe to streaming video and music services? Why buy software or hardware when you can subscribe to software-as-a-service or cloud computing services? Why buy a car when you can subscribe to ride-sharing services?
Ten years ago, we coined the term “Subscription Economy” to describe this new world. We foresaw a new business landscape in which traditional product or service companies shift toward subscription business models. Our vision redefines subscriptions in a broader context than a simple monthly fee. Our vision reflects the wide range of business models in the Subscription Economy, where products and services can be priced based on usage, consumption, and outcomes, and the value of a company’s relationships with its customers is critical. Forrester Research has defined this as “The Age of the Customer,” a 20-year business cycle in which the most successful enterprises will reinvent themselves to systematically understand and serve increasingly powerful customers. This shift started with software, but it is spreading to many other industries that affect our lives, including media and entertainment, transportation, publishing, industrial goods, and retail.
This shift in business models is creating a unique opportunity to disrupt the current enterprise software landscape. Traditional enterprise resource planning, or ERP, systems were built in the 1970s for product-based businesses, and these product-centric architectures do not adequately support the new requirements that companies face in the Subscription Economy. This new Subscription Economy requires different systems for managing the dynamic nature of ongoing relationships with subscribers.
We believe we are well-positioned to capitalize on this shift in business models and have spent the last ten years building and selling a leading and differentiated solution, and enhancing our proprietary deployment methodology and business model.
Architected specifically for dynamic, recurring subscription business models, our solution functions as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-cash process, including billing and revenue recognition. Our cloud-based software solution is the new system of record for subscription businesses.
We currently serve more than 950 customers in over 30 different countries across most industries, including 15 of the Fortune 100 as of January 31, 2018. Unsurprisingly, customers pay for our platform under a subscription-based model, and this model allows us to grow as the Subscription Economy grows. For fiscal 2016, fiscal 2017, and fiscal 2018, our total revenue was $92.2 million, $113.0 million, and $167.9 million, respectively. We have made significant investments to grow our business, including in sales and marketing, infrastructure, operations, and headcount. As a result, we incurred net losses for fiscal 2016, fiscal 2017, and fiscal 2018 of $48.2 million, $39.1 million, and $47.2 million, respectively.
Industry Background
Digital Technologies Have Changed the Consumption Preferences of Both Consumers and Businesses
Today, consumers and businesses function in a digital world, a world of cloud and mobile technologies, internet-enabled commerce, big data, and connected devices comprising the “Internet of Things,” or IoT. This new world has irreversibly changed consumer expectations. They want freedom: freedom to access products and services on their own terms—where, when, and how they want. They increasingly value access over ownership and care more about outcomes and experiences as opposed to simply product specifications or features.
Businesses are Realizing the Benefits of Subscription Business Models
These expectations and the proliferation of new digital services and markets are leading to increased demand in “as-a-service,” or subscription, business models. Businesses can benefit from the many strategic advantages in adopting subscription business models, including:
This New Subscription Economy is Transforming Major Industries
In industry after industry, new disruptors are using subscription business models to upend traditional industry dynamics. Established businesses are realizing they need to innovate or risk being disrupted. As incumbents discover new ways of generating revenue from their existing assets and customers, it is becoming increasingly clear that much of their future growth can come from subscriptions.
The Subscription Economy Index, or SEI, our study of long-term Zuora customers, indicates that total amounts invoiced for subscription-based products and services by customers that were invoicing through our platform for at least ten quarters grew at an average annual rate of 17.6% for the period from January 1, 2012 to September 30, 2017. The SEI includes customers that have been invoicing through our Zuora Central Platform for at least ten quarters, except customers that are in the process of importing data from another billing system or migrating off of our platform. As of October 1, 2017, 304 customers had been invoicing through our Zuora Central Platform for at least ten quarters and were not in the process of importing data from another billing system or migrating off of our platform, and 300 of those customers were included in the November 2017 SEI. We excluded four customers that were otherwise eligible for inclusion in the SEI for various reasons including non-standard implementations or due to unusual billing or usage patterns. The SEI does not include Zuora RevPro customers. For a discussion of the methodology used in preparing the SEI, see the section titled “Industry and Market Data.”
The Subscription Economy Represents a Once-in-a-Century Shift in How Businesses Operate
We believe we are still in the early stages of the Subscription Economy, with an inevitable multi-industry and multi-decade global shift toward subscription business models.
To be successful in the Subscription Economy, businesses need to change their mindsets from one-time product sales to earning and maintaining long-term customer relationships. To deliver on the promise of the Subscription Economy, businesses need freedom from old technologies and business models of the product-centric era.
New Requirements and the Limitations of Traditional Approaches
Requirements for Success in the Subscription Economy
Orienting businesses around the subscriber and maintaining an ongoing relationship with subscribers are prerequisites for success with subscription business models. To succeed in this new environment, businesses must:
Limitations of Traditional ERP Systems and In-House Custom Built Systems
Traditional ERP systems were not specifically designed to meet the needs of successful subscription business models in the digital era. They were built for the product era and designed to support linear, order-based, sequential, and one-time transactions that focus on selling and shipping products to customers and accounting for those transactions.
To meet the needs of the Subscription Economy, ERP systems would need to be completely re-architected. Simply adding customizations to ERP systems does not adequately solve for the growing complexities of the Subscription Economy.
Similarly, in-house custom built systems usually require a significant amount of engineering and IT resources to build and maintain and frequently prove to be inadequate as companies seek to expand their offerings and operations.
Market Opportunity
We believe the global, multi-decade shift across industries toward the Subscription Economy is creating a significant opportunity for subscription management systems.
The market size for our current core cloud-based billing and revenue recognition products was nearly $2.0 billion in 2017 and is expected to be $9.1 billion by 2022, growing at a 35% CAGR, according to MGI Research. Additionally, Gartner estimates that spending on ERP software is expected to reach $40.6 billion by 2021. As ERP systems cannot fully address the needs of companies in the Subscription Economy, we believe we are well-positioned to take a share of this spend as the Subscription Economy continues to grow.
Solution
Our solution functions as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-cash process. Our cloud-based software solution is the new system of record for subscription businesses. Zuora offers businesses the ability to meet the constantly-evolving needs of their subscribers, capitalize on new revenue opportunities, and accelerate business growth.
We have developed a deployment methodology designed to ensure that our customers can successfully acquire and nurture their subscribers by offering a flexible pricing model and automated billing, streamlined collection, and efficient accounting features.
Benefits
Competitive Strengths
We believe the following competitive advantages enable us to maintain and extend our leadership as the system of record for companies in the Subscription Economy:
Growth Strategies
Key elements of our growth strategies include:
Selected Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties, including those highlighted in “Risk Factors” immediately following this prospectus summary. Some of these risks include:
Corporate Information
We were incorporated in the State of Delaware in September 2006. Our principal executive offices are located at 3050 South Delaware Street, Suite 301, San Mateo, California 94403 and our telephone number is (800) 425-1281. Our website address is www.zuora.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this prospectus. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
Zuora, the Zuora logo, Subscription Economy, The World Subscribed, Zuora Central Platform, Zuora Billing, Zuora RevPro, Zuora CPQ, Zuora Insights, Zuora Collect, Zuora Connect Marketplace, and other registered or common law trade names, trademarks, or service marks of Zuora appearing in this prospectus are the property of Zuora. This prospectus contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our Class A common stock less attractive as a result, which may result in a less active trading market for our common stock and higher volatility in our stock price.
The Offering
The number of shares of our Class A and Class B common stock to be outstanding after this offering is based upon no shares of our Class A common stock outstanding and 185,016,846 shares of our Class B common stock outstanding, in each case, as of January 31, 2018, and does not include:
On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2015 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2018 Plan, and we will cease granting awards under the 2015 Plan. Our 2018 Plan and 2018 ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit Plans” for additional information.
Except as otherwise indicated, all information in this prospectus assumes:
Summary Consolidated Financial Data
The following tables summarize our consolidated financial data. We derived our summary consolidated statements of comprehensive loss for fiscal 2016, fiscal 2017, and fiscal 2018 and our summary consolidated balance sheet data as of January 31, 2018 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future. You should read the following summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2016, 2017, and 2018 are referred to herein as fiscal 2016, fiscal 2017, and fiscal 2018, respectively.