Zuora, Inc. (NYSE:ZUO) Q1 2020 Earnings Conference Call May 30, 2019 5:00 PM ET
Joon Huh - Vice President, Investor Relations
Tien Tzuo - Chief Executive Officer
Tyler Sloat - Chief Financial Officer
Joon Huh - 投资者关系副总裁
Tien Tzuo - 首席执行官
Tyler Sloat - 首席财务官
Stan Zlotsky - Morgan Stanley
John DiFucci - Jefferies
Chris Merwin - Goldman Sachs
Scott Berg - Needham
Stan Zlotsky - 摩根士丹利
John DiFucci - Jefferies
克里斯梅尔文 - 高盛
斯科特伯格 - 李约瑟
Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zuora First Quarter and Fiscal 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] Thank you.
I will now turn your call over to Joon Huh, VP of Investor Relations. You may begin your conference.
下午好。 我叫克里斯，今天我将成为你的会议运营商。 在这个时候，我想欢迎大家参加Zuora第一季度和2020财年收益电话会议。 所有线路都已静音以防止任何背景噪音。 发言者发言后，将会有一个问答环节。 [操作说明]谢谢。
我现在将您的电话转交给投资者关系副总裁Joon Huh。 你可以开始你的会议。
Thanks, Chris. Good afternoon and welcome to Zuora's first quarter fiscal 2020 earnings conference call. Joining me today are Tien Tzuo, Zuora's Chief Executive Officer; and Tyler Sloat, Zuora's Chief Financial Officer. The purpose of today's call is for us to provide some color on our first quarter results, as well as provide our financial outlook for the upcoming quarter and fiscal year 2020. Some of our discussion and responses today will include forward-looking statements. So as a reminder, our actual results could differ materially as a result of a variety of factors. You can find information regarding those factors in the earnings release we issued today, and the most recent 10-K filed with the SEC.
As we noted on our last earnings call, we adopted the new revenue recognition standard, ASC 606, as of February 1, 2019 on the full retrospective method. This means all of our net results from this quarter and going forward will be into the new accounting standard. I should also note that we provided supplemental ASC 606 slides on our Investor Relations Web site that contains updated historical financial information under ASC 606.
Finally, we'll be referring to several non-GAAP financial measures today, and reconciliations to the related GAAP measures are included in our earnings release. For a copy of our earnings release, links to our SEC filings, a replay of today's call, or to learn more about Zuora, please visit our Investor Relations Web site at investor.zuora.com.
And with that, let me turn it over to Tien.
Thanks, Joon. And welcome to our first quarter earnings call for fiscal 2020.
Our first quarter results were largely in line with our expectations, subscription revenues grew 32% and professional services increased 1% resulting in total revenue of $64.1 million for the quarter. Now as you all know, we're playing in a large secular shift towards a subscription economy, a shift that's still in the early innings and a shift that underpins our ability to achieve long-term sustainable growth. And so, we're incredibly bullish about the future. However, while we had solid Q1 financial results, we did have some challenges which are impacting our Q2 and our full year outlook. So, let me address this upfront.
I will structure my comments today with the following. I'll start by talking through the two execution headwinds that we saw in the quarter. I'll cover the specific actions we are taking. Later I'll share some of the signs we're seeing that continue to support the thesis of the long-term growth of the subscription economy. And I'll close with my thoughts on our products and where we are headed.
First, based on what I saw in Q1, we need to improve our sales execution. As you know from our recent calls, Global 2000 companies have been an important source of our recent growth. Companies like Caterpillar, Ford and Schneider Electric. And so, we've been expanding our strategic sales teams and have hired a number of talented sales people over the past year. Or seen in Q1 is that the newer reps were less than half as productive than our more experienced reps. We're finding that we need to improve the support of our new reps with training and experienced oversight to help them ramp and close new businesses.
Second, part of our ability to grow within our installed base has been predicated on our ability to cross-sell our two flagship products, Billing and RevPro. However, the product integration for these two products is taking longer than expected. What we're seeing strong demand from our billing customers to implement RevPro, the technical work to complete the integration is taking time as these are complex mission critical systems. And so, for our existing billing customers, we've recently purchased RevPro. We've slowed down the RevPro implementations this past quarter given the product integration delay.
We're continuing to acquire and deploy new customers for each product on a standalone basis, but naturally this delay has slowed down our cross-sell motion. This resulted in lower professional services and subscription revenue in the quarter as well as tempered expectations going forward. So, what are we doing to address this?
On the sales execution side, we are making three key changes that helped create the right infrastructure, process, an organization to position us for the next stage of growth. First, we've realigned our strategic accounts organization and placed many of the newer reps under our more experienced managers, so they can get mentoring and provide oversight to more effectively close business. And second, we're revamping our pipeline process. We're shifting from an evangelical sales motion that worked in our earlier years to a more focused approach over a more developed market.
We've also added folks in sales operations, field enablement and demand generation have already seen the next level of skill. Lastly, we announced a change in our sales leadership. Over the last few years, Mark Diouane has done an incredible job growing our business worldwide.
Let me shift to a more analytical go-to-market approach. Mark and I both agree that it's a good time to find a new leader who can scale the business to next level and capture the market growth, we continue to see. Mark will stay on for the near term as an advisor as we search for a replacement.
Like many enterprise software companies focused on the upper end of the market. We've been able to make our bookings numbers with an all hands-on deck approach towards the end of our quarters. This did not happen in Q1 and we recognized that this is not the way to build a sustainable growing enterprise software company. We're committed to building a go-to-market process that is more predictable and able to deliver that consistent performance that we expect.
Now these changes in the sales organization are meaningful. So, we'll take time to become effective, but the right changes for the business and we believe this will get us back onto our expected long-term growth trajectory. Second, on a product integration side, we need a course correction in our approach and I'm confident that we're on the right track. The integration of our two flagship products is critically important to us and our customer success. So, I'm personally spending a lot of my time here to drive this to completion. We expect this to be a short-term delay and to have this resolved by the end of Q3. At the same time, we're continuing to innovate on our products and I will talk more about that later.
Now despite this, we did see a lot of positive momentum in these last three months especially in the industries outside of technology. For example, in the automobile industry, we recently signed one of the largest auto distributors in Chile. We recently signed a second of the big four GSIs making them both a customer and a partner. We signed one of the world's largest producers of wind and solar energy and now count more than 10 utility companies around the world. We signed the largest financial publisher in Belgium as media continues to be a big growth driver for us globally.
When you look at these trends, it's hard for me not to be as optimistic as ever about our future. As I said many times before, we're in the early stages of the shift to subscription so we consider ourselves to be a portfolio play for the entire subscription economy. And like a lot of other transformational shifts we've seen before, for mainframes to client servers as an example or on premise to the cloud, this is a shift that will ripple through every industry.
Sooner or later, we believe that every company will have to contend with a shift to subscriptions. Why? Because this is a shift that's very much driven by consumers. In a recent survey conducted by the Harris Poll, they found the consumers around the world prefer access to services over owning products. Consumers have more subscriptions today than ever and think they'll add even more in the future. The survey shows that over 70% of adults across 12 countries have subscription services and 74% can see subscribing to even more in the future. And so, industry after industry what we are starting to see is a pattern where unit sales are declining. The consumption is bulk. Strong sales are declining, but hours listened to music is up. Game sales are down but hours played is up and even cars, even autos. Car sales are down worldwide including in China but miles driven continues to go up. This is what we see as ownership is on his way out and more and more companies are looking for ways to tie their businesses to this growth in subscriptions. So we believe the market opportunity remains strong with broad based demand. Companies are looking to establish direct relationships with their customers and then turn them into subscribers. And this is why the market continues to come to us for a new set of tools built around enabling these services versus selling products.
And quite frankly, we are just getting started because what we do today is billings, collections revenue recognitions. We're often compared to an ERP system but to better understand where we are going, let's look at how a telecom company works. Now a telco company doesn't make you buy switches or towers or satellites that wouldn't make any sense. Instead they use these physical assets and transform them into offering a service that anyone can tap into. They give you access to their infrastructure and then you use that to make calls or access data and you're charged according to how much you've used.
Now telcos have a system for handling all this. They call it a BSS/OSS system. The BSS part handles all the service monetization activities like billing and revenue recognition. And the OSS part, you know, all the service orchestrations in the background. Now these guys have spent 50, 60, 70 years hard coding this platform. The problem is it only works for them. So, what about everybody else? What about these car companies? What about retailers? What about manufacturers? They all want to turn into services companies they don't have the right platforms in place. ERP is about tracking assets. The subscription economy is about turning assets into services. So, this is the direction we're headed with our products. We're building a horizontal SaaS platform that can first adapt to any monetization model. Second also orchestrate any subscription service for any company in any industry around the world. And we'll be talking more about this at our subscribers’ conference or annual user conference next week. I hope to see you there.
So, to sum up, we are building products and addressing growing market demand for an end-to-end subscription management solution. We're playing in a big transformational shift that's moving in our direction. We're working on resolving the execution challenges we faced in Q1 and we feel really good about our future.
With that, let me turn it over to Tyler.
现在电信公司有一个处理这一切的系统。他们称之为BSS / OSS系统。 BSS部分处理所有服务货币化活动，如计费和收入确认。您知道，OSS部分是后台的所有服务编排。现在这些家伙花了50,60,70年的时间对这个平台进行硬编码。问题是它只适用于他们。那么，其他人呢？这些汽车公司怎么样？零售商怎么样？制造商怎么样？他们都希望变成他们没有合适平台的服务公司。 ERP就是跟踪资产。订阅经济是将资产转化为服务。因此，这是我们的产品方向。我们正在构建一个可以首先适应任何货币化模型的横向SaaS平台。其次，还为世界各地的任何行业的任何公司编排任何订阅服务。我们将在下周的订阅者会议或年度用户大会上详细讨论这个问题。我希望能在那里看到你。
Let me start today by reviewing our key operating metrics before moving to our financial results. I will then close with our outlook for the second quarter and the remainder of the year.
Starting with our key operating metrics. We ended the quarter with 546 customers over 100k thousand pay-TV representing 24% growth versus the prior year. We saw solid growth in this number, but the field execution hurdles that Tien mentioned earlier clearly impacted our rate in signing up new customers. This group of customers continues to represent the vast majority of our business, represent over 85% of our ARR.
Another key metric dollar based retention ended at 110% which is at the midpoint of our long-term range that we talk about. While this is a healthy level for us dollar-based retention was impacted by the property integration delay that slowed down across our motion in the quarter. Given some of the seasonality in this metric that we've talked about previously, we can expect to see quarterly movements throughout the year.
Turning to transaction volume, this continues to be the biggest driver of our upsell motion with our customers. We processed over 9.7 billion in transaction volume through our Billing platform in Q1 resulting in 34% year-over-year growth. Now, keep in mind this metric can fluctuate throughout the year as customers may have seasonality in their business or new customers may move over meaningful volume in a given quarter. As you know this represents the aggregate usage of our Billing system and this is how we grow alongside our customers.
Now, we've heard a number of questions about how transaction volume growth translates to our revenue growth. So, let me walk you through that.
Our customers buy annual blocks of transaction volume based on their expected $1 billion volume over the next twelve months. We recognize those volume block purchases a subscription revenue ratably over the 12-month period following the purchase. But the actual transaction volume flowing through our system may lag or may not be evenly distributed over the 12-month period. So, while the transaction volume, quarterly revenue may be consistent for specific customer, the reported transaction volume for that customer can be uneven each quarter. As such it's also helpful to look at this metric on a trailing 12-month basis which results in 42% growth.
I'll talk about how all of these operating metrics translate to our financial results. As a reminder, we adopted a new revenue standard ASC 606 as of February 1. So, all of our financial numbers are under the new standard including prior year numbers for comparative purposes and forward-looking guidance. From a high-level perspective, there was minimal impact to total revenue with a small negative impact of subscription revenue offset mostly by higher services revenue in the prior year numbers as a result of adopting ASC 606.
There was an improvement in operating loss resulting from lower sales commission expenses and there is no difference in our cash or cash flow between the two accounting standards. As Joon mentioned at the beginning of the call, additional details related to the financial impact of ASC 606 can be found in the supplemental presentation on our IR Web site.
我将讨论所有这些运营指标如何转化为我们的财务业绩。提醒一下，截至2月1日，我们采用了新的收入标准ASC 606。因此，我们所有的财务数据均采用新标准，包括用于比较目的的前一年数字和前瞻性指导。从高层面来看，对总收入的影响微乎其微，订阅收入的小负面影响主要是由于采用ASC 606而导致上一年度服务收入增加所抵消。
We saw a healthy subscription revenue growth of 32% to 47.3 million in the quarter. Professional services grew 1%, as this was impacted by the new business and product integration challenges mentioned early in the call. Additionally, we add $1.4 million of professional services in Q1 over last year related to customers upgrading from ASC 605 to ASC 606, compared to only 300,000 in Q1 of this year. This further impacted the year-over-year professional services growth rate. All this led to total revenue $64.1 million in Q1 in line with the midpoint of our guidance.
Turning to margins, we continue to have steady performance in our non-GAAP subscription gross margin of 78%. Non-GAAP professional services gross margin was lower in the quarter due to lower services revenue, seasonality in the business and fewer revenue days in Q1 compared to other quarters. As we've said previously, our target models to run the services organization on a roughly non-GAAP breakeven basis. We expect to see improvement in these margins over the course of the year and reach quarterly breakeven over the next few quarters.
In Q1, our non-GAAP operating margin was negative 19% coming in slightly ahead of our expectations. This performance was partly driven by timing of expenses, spending was delayed into future quarters this year. As many of you know, we measure ourselves efficiency with our GEI or Growth Efficiency Index. It is calculated by dividing our trailing 12 months non-GAAP sales and marketing expense of 91.2 million by the year-over-year increase in trailing 12 months subscription revenue of 44 million, the lower the number the better. This means we're spending less to acquire each incremental dollar of subscription revenue.
I should also point out that this number skews higher under ASC 606 as both subscription revenue and sales and marketing costs through sales commissions amortization are impacted by the new reporting standard. With that in mind, our GEI for Q1 was 2.1, similar to our Q4 efficiency level. We've made improvements to our GEI over the years and our goal is to maintain or improve the GEI while supporting our long-term growth. But this metric may seem near term fluctuations going forward given the changes to our go-to-market approach and the seasonality of our business.
Now moving to Billings growth. We generally focus on the Billings growth over a longer period of time because there's a better reflection of the overall business. Quarterly billings can fluctuate and we saw some of this in Q1.
Calculated total billings was 65.6 million and calculated subscription billings was 48.8 million for the quarter. We mentioned on the last call that we expect subscription billings growth to approach 30% in Q1, but in fact calculate subscription billings growth came in higher 32% despite our challenges in the quarter. This is primarily driven by higher early renewal activity. We saw this in Q3 of last year which resulted in lower billings in Q4. Similarly, we expect that the early renewal activity in Q1 will reduce billings growth in Q2. And we expect that subscription billings growth rate to be lower than the subscription revenue growth rate.
本季度我们的订阅收入增长了32％，达到4730万。专业服务增长1％，因为这受到电话会议早期提到的新业务和产品集成挑战的影响。此外，与去年从ASC 605升级到ASC 606的客户相比，我们在第一季度增加了140万美元的专业服务，而今年第一季度只有300,000。这进一步影响了同比专业服务的增长率。所有这一切导致第一季度总收入达到6410万美元，与我们的指导中点一致。
We also saw higher annual mix in billing terms along with ASC 606 adjustments that contributed to a higher quarterly balanced growth rate.
Going forward, we expect to see continued quarterly fluctuations in billings growth. For the full year fiscal ’20, we expect to track similarly to our subscription revenue growth for the year. Over time, we expect 12-month trailing subscription billings to grow similarly with our long-term revenue growth rates.
Turning to cash flow, Q1 free cash flow was negative 3.8 million as we benefited from strong collection activity and some spending delays into future quarters. As a reminder, we signed a new lease agreement to move our headquarters this year and most of those costs are still to come in the second half of the year. As a result, we expect free cash flow for the year to be approximately negative $40 million in fiscal ’20, a $2 million improvement from our prior estimate.
We ended the quarter with 179 million in cash and cash equivalents remain fully funded against our current operating plan. One other IM to note for your models, our fully diluted share count as of April 30 was 125 million using the treasury stock method.
Before moving to our guidance numbers a few quick comments. First, as we talked about earlier in the call, our Q1 results were largely in line with guidance. However, our self-execution and product integration hurdles in the quarter our impacting our outlook going forward. Part of the impact is less predictable. So, we're providing a wider range for the rest of the year.
We expect it to take a few quarters to realize the benefits of the changes to our sales organization and processes, while the product efforts should be completed by the end of Q3. We're confident these are the right changes to help our company scale and get us back on track by the end of the year.
And lastly, we're optimistic about the sustained long-term growth opportunity of the subscription economy. We believe we're the best positioned company to capture that growth over time.
Now, let me close out with our guidance numbers as a reminder that these numbers are under ASC 606. For Q2, we are currently expecting total revenue of $66 million to $68 million. Subscription revenue $48.5 million to $50 million; non-GAAP operating loss of $15.5 million to $14 million; and non-GAAP net loss per share of $0.15 to $0.13 assuming weighted shares outstanding of approximately 109.9 million.
For the full year fiscal ’20, we are currently expecting total revenue of 268 million to 278 million; subscription revenue of 200 million to 206 million, which represents a 3% decrease at the midpoint from our prior estimates. Non-GAAP operating loss of forty $9 million to 45 million; and non-GAAP net loss per share of $0.44 to $0.40 assuming weighted shares outstanding approximately 110.5.
With that, we're happy to take your questions. Operator?
[Operator Instructions] Your first question comes from Stan Zlotsky with Morgan Stanley. Your line is open.
[操作员说明]您的第一个问题来自Stan Zlotsky与摩根士丹利。 你的线是开放的。
All right. Thank you so much for taking my question. So, maybe just digging into the sales changes that you guys are making now. Is it something specific that happened in Q1 that that made you kind of sit up and realize, “Hey, you know, we need to make changes now,” or is this something that's been brewing and you decide to, if you find okay. And you let's rip off the band, let's make these changes now before things potentially getting worse?
行。 非常感谢你提出我的问题。 所以，也许只是挖掘你们现在正在制造的销售变化。 这是第一季发生的事情，让你有点坐起来意识到，“嘿，你知道，我们现在需要做出改变，”或者这是正在酝酿的事情，你决定，如果你觉得好的话。 你让我们扯掉乐队，让我们在事情变得更糟之前做出这些改变？
Yes. If I were to simplify down, right, we're an enterprise software company. Our deal sizes, we sell to the upper end of the market. And I would say there is a certain amount of thinking that we could power our way through our quarters through sheer brute force. And so, I think Stan, what we just saw is, is that eventually catches up to you. And for us we have a incredible opportunity here with a subscription economy to build a billion dollar or a multi-billion dollar company and you don't just do that through brute force. And so, we've got to move towards a more predictable sales model and we have started hiring a lot of folks that have seen the next level of scale. We talked about the new folks that we've hired into the operations team, the enablement team, the management team. But what we saw in Q1 was a strong desire in me and the executive team here to accelerate that change.
是。 如果我要简化，那么，我们是一家企业软件公司。 我们的交易规模，我们卖给市场的高端。 而且我会说有一定的想法，我们可以通过纯粹的蛮力在我们的宿舍中提供动力。 所以，我认为斯坦，我们刚刚看到的是，最终会赶上你。 对我们来说，我们有一个令人难以置信的机会，订阅经济体可以建立一个十亿美元或一个数十亿美元的公司，而你不仅仅是通过蛮力来做到这一点。 因此，我们必须转向更可预测的销售模式，我们已经开始招聘许多已经达到下一级规模的人。 我们谈到了我们聘请的新员工，运营团队，支持团队和管理团队。 但是我们在第一季度所看到的是我和这里的执行团队强烈希望加速这一变化。
Got it. That makes sense. And I think that the one metric that really stands out to a lot, people is really the transaction volume, right? The 34% growth that you saw in the quarter and 42% in the trailing 12-month basis. Is that what investors as you're going through a transition, this is what investors should really kind of hang their head on, it's like, “Hey, this is the opportunity, right.” This is the big, the growth in the underlying subscriptions that's continuing to increase and thereby, this is the opportunity that these guys are executing to.
得到它了。 那讲得通。 而且我认为真正突出的一个指标，人们真的是交易量，对吧？ 您在本季度看到的增长率为34％，在过去12个月的基础上为42％。 这就是投资者在经历转型期间的情况，这就是投资者真正想要的问题，就像“嘿，这是机会，对吧。”这是大的，底层的增长 订阅继续增加，从而，这是这些人正在执行的机会。
Yes. I'll take that. This is Tyler. That's absolutely right. We talk about that number and that's why we spend a little bit time on the call to actually explain how that correlates to revenue. But the reason we picked that as a key metric coming in is that, it's indicative that as companies continue to use our system, as that number keeps going, we're going to be able to grow with them. But we also -- we have incredibly sticky solution and we are a mission-critical system of record for them. And so, we watch that carefully for each customer and we do view that as a very positive thing.
是。 我会接受的。 这是泰勒。 那是绝对正确的。 我们谈论这个数字，这就是为什么我们花一点时间来实际解释这与收入的关系。 但我们选择将其作为一个关键指标的原因在于，它表明随着公司继续使用我们的系统，随着这个数字不断发展，我们将能够与他们一起成长。 但我们也 - 我们拥有令人难以置信的粘性解决方案，而且我们是一个关键任务系统。 因此，我们仔细观察每个客户，我们认为这是一个非常积极的事情。
Got it. Okay. Thank you so much.
得到它了。 好的。 非常感谢。
Your next question is from John DiFucci with Jefferies. Your line is open.
你的下一个问题来自John DiFucci和Jefferies。 你的线是开放的。
Thank you. I have a question for Tien and one for Tyler. So, Tien, I sort of get the integration of Billings and RevPro and how that could sort of slow some things down. But, I know I'm going to eat this question tomorrow. I mean you bought Leeyo two years ago. So, like how could it not be integrated? How could that be slowing things down right now?
And then, kind of related to that, like you're talking about cross-sell, what about the other products? Like what about CPQ and Connect and Analytics? Are you seeing any traction there or is that something else that also needs to be integrated better?
谢谢。 我对Tien有一个问题，对Tyler有一个问题。 所以，田恩，我有点得到比林斯和RevPro的整合，以及如何减缓一些事情。 但是，我知道我明天会吃这个问题。 我的意思是你两年前买了Leeyo。 那么，怎么可能没有整合？ 那怎么可能减慢现在的速度呢？
然后，有点与此相关，就像你在谈论交叉销售，其他产品呢？ 就像CPQ和Connect and Analytics一样？ 您是否看到任何牵引力或是否需要更好地整合其他东西？
No, no. I'll give you some color there. We did acquire Leeyo a little less than two years ago, but I guess where you all coming on two years. The first year was really focused on ASC 606 and there was such a tight deadline to get the core set up, dozens close to 100 customers live on ASC 606. And so, John, that took us all the way through -- when these adoption standards were right, so I'll call it Q1, Q2 of last year. So honestly, we didn't really have time and the resources to focus on the integration between the two, until after the 606 waive was complete. So, we didn't really start heavy work on the integration until early last summer, late spring, early last summer.
And long story short, we went down one direction that proved to be a dead end a false direction. We course corrected. And now I'm absolutely confident in the path that we have right now. So, look these are complex products. Everybody else has an orders based system, right, SAP, NetSuite, Oracle, we have a subscription-based system, which is a little different. And so, there were just a little bit of work that had to be done, a little bit of learning that had to be done due to integration rights. All our internal metrics of tracking these projects are really, really good. Once this is done, no one else has done what we've done and we do believe that the cross-sell machine will kick in at that point.
不，不。我会给你一些颜色。我们确实在不到两年前收购了Leeyo，但我猜你们两年都会来。第一年真的专注于ASC 606，并且有一个如此紧迫的最后期限来建立核心，在ASC 606上有数十个接近100个客户。所以，约翰，这让我们一路走来 - 当这些采用时标准是正确的，所以我称之为去年的Q1，Q2。老实说，我们没有时间和资源专注于两者之间的整合，直到606放弃完成之后。所以，直到去年夏天，即春末，去年夏天早些时候，我们才真正开始积极整合。
Okay. And the other products too, are they -- are you seeing any -- yes?
好的。 还有其他产品，他们 - 你看到了吗 - 是吗？
The inner products are home-grown products. There's no integration issues there, right? They were not acquired in.
内部产品是自产产品。 那里没有集成问题，对吗？ 他们没有被收购。
And they feel good.
Okay. And Tyler, you mentioned that, that you saw benefits up to billings this quarter due to early renewals that came in at 32% versus the guidance of 30% or what you thought would be 30%. You acknowledged some issues with the quarter. What was that, can you tell us what the benefit was, was it 2% or was it 4%, or if you'd give us a little bit of information around that, so we can sort of gauge what could happen next quarter?
好的。 泰勒，你提到过，你看到本季度因为早期续约产生的收益高达32％而不是30％的指导或你认为的30％。 您承认本季度存在一些问题。 那是什么，你能告诉我们什么是好处，是2％还是4％，或者如果你给我们提供一些信息，那么我们可以判断下一季度会发生什么？
Yes. So, I'll first describe again -- hey, John, thanks for that question. First, I'll describe what the early renewals are, right where that these -- our companies were doing upsells, right? And they have an annual term that would naturally fall into a future period and when they do the upsell, they choose to reset their annual periods.
So, pulls in a billing from a future term into the current term. We saw this in Q3, it happens every single quarter, but some quarters the skew is higher than others. It's a positive thing to some extent because I mean, the customers need to buy more volume traditionally, but again we give them a choice of whether they want to reset their terminals. So, it's not really predictable. So, when we break down, how it skews for the core GEI percentages, we have the percentage, but the early renewals are the biggest factor.
We also have been pretty good about continually to shift to more of an annual billings mix. So that was kind of the second biggest factor. Then the ASC 606 actually impacted self with the year-over-year compares that change your calculated billings kind of calculation a little bit. And then, this was offset by lower bookings, which we talked about, which was the challenges in the quarter itself. What we said is that, we actually expect the billings growth to be a little bit less than subscription revenue growth for Q2 and I think we guided to the subscription revenue growth.
是。所以，我首先要再次描述 - 嘿，John，谢谢你提出这个问题。首先，我将描述早期更新的内容，正是这些 - 我们的公司正在进行加售，对吗？他们的年度期限自然会落入未来期间，当他们进行追加销售时，他们会选择重置年度期限。
Okay. But it sounds like it was more than just that 30%, the difference between 30% and 32%. I mean it's safe to assume that I think?
好的。 但听起来它不仅仅是30％，而是30％和32％之间的差异。 我的意思是我认为这是安全的吗？
Yes. That's important. Yes.
是。 这很重要。 是。
Okay, great. Okay, thanks a lot guys.
Your next question is from Chris Merwin with Goldman Sachs. Your line is open.
您的下一个问题来自Chris Merwin和Goldman Sachs。 你的线是开放的。
Okay. Thanks very much for taking my questions. Yes, I just wanted to touch on the cross-sell notion a bit more. Obviously, heard what you said about the implementations of RevPro taking a bit longer than you anticipated. But, maybe can you talk a bit more about the demand you're seeing for that products. More generally, I know that most companies at this point reporting under 606 and so are you still seeing the same type of interest from potential customers? And I just had a quick follow-up. Thanks.
好的。 非常感谢您提出我的问题。 是的，我只想更多地谈谈交叉销售概念。 显然，听说你对RevPro的实现所说的比你预期的要长一些。 但是，也许您可以更多地谈谈您对该产品的需求。 更一般地说，我知道大多数公司目前在606以下报告，您是否仍然看到潜在客户的相同类型的兴趣？ 我刚刚进行了快速跟进。 谢谢。
We remain incredibly bullish about the RevPro product. I think we've said this on previous calls, Chris that the standards really changed the rules certainly, but two things. One is the macro level trend that's pushing the shift, its dynamic business models right. Business models are not as simple as selling a product and collecting revenue on shipment or payment, there are these time based, customer-centric, usage-based models that are simply getting more and more complex. And as a result, revenue recognition is being done more and more manually outside of the ERP system. And so, a lot of companies, when we do our surveys, we'll say we got through 606, but we're doing all through manual processes, Excel spreadsheets. That creates compliance risk, that creates a longer time to close, lack of visibility in the metrics.
And so, we feel really, really good about the demand. And so, the good news in all this is, there is demand for the product. And I certainly wish that we had not chased on a wrong direction with the product and to course correct, but I feel really good about what we're doing right now, and I feel really good about when it's done. This is going to be a really, really unique piece of technology in the marketplace.
Okay, great. And then just as it relates to the long-term guidance, I think you reiterated the 25% to 30% revenue and billings guidance over the long-term, I think obviously this year a little bit below that, which implies an acceleration for the following year. So just when we think about the main drivers of that, like maybe can you talk a bit about what those would be and then also when you think again about the subscription economy at a high level, is it something that is so predictable in that 25% to 30% range with whole industries shifting over and is that something that can be lumpy, or do you sort of see that as a very steady growth type transition? Thanks.
好，太棒了。 然后，正如它与长期指导相关，我认为你重申长期的25％至30％的收入和账单指导，我认为今年显然略低于这一点，这意味着加速 下一年。 所以，当我们考虑其中的主要驱动因素时，也许您可以稍微谈谈那些会是什么，然后当您再次考虑高级订阅经济时，它是否可以预测 整个行业转移的范围从％到30％，这是一个可能是块状的东西，还是你认为这是一个非常稳定的增长型转型？ 谢谢。
Yes. So, we acknowledge the issues that we saw in Q1, but the big picture for us and the reason hopefully you hear, no change in our confidence in the long-term outlook is, is the macro level thesis remains intact, if anything is just getting better and better, right? And all we see is greater adoption of services.
And so, the example we gave or the reason we're working with seven of the top 10 car companies are now the largest auto distributor and Chile is a recognition -- if my revenues are tied to car sales, my revenues will go down. But if my revenues are tied to miles driven, my revenues will go up. And this is not a situation it's isolated to that industry.
And so, when I look at our pipeline, when I look at our addressable market, when I look at how differentiated our product is, when I look at the trends that are happening in terms of consumer preferences and where companies are choosing to innovate and execute on their digital transformation strategies, I feel really good. I feel really good about our long-term growth thesis. And so, I think the lumpiness is going to be more attributed to our own execution, but when you look at this is a broad-based shift that's happening across multiple industries across the world, it does continue to make us bullish about our prospects and our position going forward.
因此，我们提供的示例或我们与前十大汽车公司中的七家合作的原因现在是最大的汽车经销商，而智利则是一种认可 - 如果我的收入与汽车销售挂钩，我的收入就会下降。但如果我的收入与里程相关，我的收入就会增加。这不是一个与该行业隔离的情况。
Okay. Thanks very much.
Your next question is from Scott Berg with Needham. Your line is open.
你的下一个问题来自Scott Berg和Needham。 你的线是开放的。
Hi, everyone. Thanks for taking my questions. I guess I got a couple here. First of all, team, can you speak to -- when was the decision made to change the strategy on the sales side? Was it something then post quarter, during quarter, just trying to get an understanding of what the timing look like?
嗨，大家好。 谢谢你回答我的问题。 我想我在这里有一对。 首先，团队，您能否发言 - 何时决定改变销售方面的战略？ 那是季度之后，季度期间的事情，只是试图了解时间的样子？
It was post quarter.
Got you. And then, what's the profile of the new sales leader you're hoping to bring in, my assumption is someone externally versus an internal promotion or is that assumption incorrect?
So, two things; the thing that's been great for us is, is we have a very strong leadership team underneath, Mark, that is in place today, but I feel confident that can carry the organization forward during this interim time. For the replacement, we are going outside for our search.
Got it. Helpful. And then, last question from me, Tyler, you essentially maintained your EPS guidance for the year and cash flows are going to be about $2 million better than your prior guidance. Outside of the services reduction, which is, we'll call it breakeven, which obviously has no impact to either of those metrics really, if that's accurate. What is the extra cost savings come into play relative to the lower subscription revenue guidance?
得到它了。很有帮助。 然后，最后一个问题，Tyler，你基本上维持了今年的EPS指导，现金流将比你之前的指导好大约200万美元。 在服务减少之外，我们称之为盈亏平衡，如果这是准确的话，这显然对这些指标没有任何影响。 相对于较低的订阅收入指导，额外的成本节省是多少？
Yes. We did lose a little bit of money in services where we do wanted to breakeven, and so, we're going to get it back there as we said in our call, but I think that brings the challenge for the year, but we actually did a really good job of cost management in general, Scott. I think we run a business model that tries to put us behind everything, so that when we are projecting out the stuff we haven't spent yet, if we think that the topline is going to be little bit different then we can adjust for that. And so that's what we're looking at right now for the year.
So effectively, we've guided to some lower revenue, but the operating margins are going to stay the same or the operating loss is going to stay the same. And from a cash flow perspective, we're going to do a bit better than what we initially said. We still have the HQ spend that we're making as not as much on the OpEx side because it will be capitalized, but from a cash perspective that again that's driving why we have such a burn that we have this year as opposed to be even lower than that.
Great. Very helpful. Thanks for taking my questions.
非常好。 很有帮助。 谢谢你回答我的问题。
And this concludes the Q&A portion of the call. I'll now turn things back over to the presenters for any closing remarks.
Great. Thank you so much for joining us today and we look forward to seeing you next week at Subscribed. Thank you.
非常好。 非常感谢你今天加入我们，我们期待着在下周见到你。 谢谢。
This concludes today's conference call. You may now disconnect.
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