Zuora (ZUO) Q2 2025 earnings summary

Executive summary

• Subscription revenue grew 9% year-over-year to $104.1 million, with total revenue up 7% to $115.4 million for Q2, and ARR reaching $412.3 million, up 7% year-over-year.

• Non-GAAP net income rose to $29.1 million, non-GAAP operating income reached $25.6 million (22.2% margin), and adjusted free cash flow was $12.2 million, all showing significant year-over-year improvement.

• Net loss narrowed to $7.2 million from $22.6 million year-over-year, and GAAP loss from operations improved to $9.7 million.

• Rule of 40 reached 31 and Rule of 30 achieved two quarters ahead of plan, highlighting margin expansion and profitability.

• Completed Togai acquisition in May 2024 and Sub(x) acquisition in August 2024, enhancing product capabilities in metering, rating, and AI-powered paywall solutions.

Financial highlights

• Subscription revenue: $104.1 million (+9%); professional services revenue: $11.3 million (-10%); total revenue: $115.4 million (+7%).

• Non-GAAP subscription gross margin: 82%; total non-GAAP gross margin: 73%; GAAP gross margin: 68%.

• Non-GAAP operating income: $25.6 million (22.2% margin), exceeding guidance by $6.1 million.

• Adjusted free cash flow: $12.2 million, up from $4 million last year.

• Cash and investments totaled $543.5 million as of July 31, 2024.

Outlook and guidance

• Fiscal 2025 guidance raised: total revenue $455.5–$461.5 million; subscription revenue $414.5–$416.5 million; non-GAAP operating income $90–$93 million; adjusted free cash flow $82 million or greater.

• Q3 2025 guidance: subscription revenue $104.5–$105.5 million; total revenue $115–$117 million; non-GAAP operating income $20.5–$21.5 million.

• ARR growth expected at ~6% for FY25; dollar-based retention rate projected at 103–104%.

• Professional services revenue expected to decrease as partners take on more implementations.

• Company believes existing liquidity is sufficient for at least the next 12 months.