Zuora shares drop on weak outlook and staff layoffs

Zuora shares drop on weak outlook and staff layoffs

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Shares of cloud subscription services company Zuora Inc. dropped in late trading following a weaker-than-expected outlook in its latest earnings report and an announcement that it would lay off 11% of its staff due to macroeconomic conditions.

For the quarter that ended Oct. 31., Zuora reported a non-generally accepted accounting principles net loss of $2.9 million or two cents per share, compared to a net loss of $2.5 million or two cents per share in the same quarter of last year. Revenue came in at $101.1 million, up 13% year-over-year.  Analysts had expected earnings per share loss of six cents on revenue of $100.22 million.

Subscription revenue increased 17% year-over-year to $86.6 million. Net cash flow in the quarter was $3.9 million, free cash flow negative $7.2 million and cash, cash equivalents and short-term investments sat at $400.6 million. Annual recurring revenue was $350.7 million, up from $295 million, representing a growth of 19%. Customer usage of Zuora solutions grew 15% to $21.5 billion.

Highlights in the quarter included the completion of the acquisition of Zephr Inc., a subscription paywall software startup Zuora announced it has entered an agreement to acquire for $44 million in August. Zephr’s platform offers an intuitive interface and plug-and-play integrations to develop powerful subscription relationships and deliver personalized experiences for every customer.

New customer logos and go-lives in the quarter included The Michelin Group, Enercare Inc., Canon Inc. and Suzuki Motor Corporation.

The decision to lay off 11% of employees was described by Zuora as a way to “improve operational efficiencies and operating costs and better align our workforce with current business needs, priorities and near-term growth expectations, in light of current macroeconomic uncertainties.” The layoffs are expected to cost $9.5 million, with $3.7 million of the expenses recognized in the third quarter and the remainder to be recognized in the company’s fiscal fourth quarter.

” The macroeconomic dynamic has led us to make the difficult decision to reduce our workforce by 11% to align our expenses to our near-term growth profile and improve profitability in the near-term,” Todd McElhatton, chief financial officer of Zuora, said in a statement.

For its outlook, Zuora expects a non-GAAP loss per share of between six cents and seven cents on revenue of $99.5 million to $101.5 million. Analysts had expected an EPS loss of four cents and revenue of $103.12 million.

For its full fill year 2023, the company expects an EPS loss of 15 cents to 16 cents on revenue of $336.5 million to $337.5 million. Analysts had expected an EPS loss of 16 cents and revenue of  $394.77 million.

While Zuora’s top line for the quarter was solid beats, it was the miss on revenue and earnings, along with the layoffs, that investors paid attention to. Zuora shares were down 6.24% after the bell.

Image: Zuora

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