B U T R E V E N U E R E C O G N I T I O N I S H A R D A N D C O N S TA N T LY C H A N G I N G
1990’s 2000’s Today
T H E P R E S E N T S TAT E Most Subscrip6on Economy companies are required to follow ASU 2009-‐13 (EITF 08-‐01)
These rules require, where possible, for the Company to separate the elements of the arrangement and account for each according to their rela,ve fair values. Companies were required to adopt ASU2009-‐13 commencing January 1, 2011.
T H E P R E S E N T S TAT E Fair values can be determined by the following criteria: § Vendor Specific Objec6ve Evidence (VSOE); § Third Party Evidence (TPE); or § Es6mated Selling Price (ESP).
The difference between this and SOP 97-‐2 is that there is no residual method accoun6ng, all elements must be fair valued.
T H E P R E S E N T S TAT E Subscrip6on Economy companies arrangements can contain a mul6tude of elements:
S E PA R AT I N G T H E E L E M E N T S
Since the adop6on of ASU2009-‐13, subscrip6on companies have been split on separa6ng implementa6on or other professional services elements from the subscrip6on element:
Separa,ng Professional Services from the Subscrip,on
Not Separa,ng Professional Services from the Subscrip,on
W O R K D AY ’ S C H A N G I N G A P P R O A C H
As of January 31, 2012, we did not have standalone value for the professional services related to the deployment of our financial management applica6on. This was due to the fact that we had historically performed the majority of these services to support our customers’ deployments of this applica6on. In the year ended January 31, 2013, we determined that we had established standalone value for the deployment services related to our financial management applica,on. This was primarily due to the growing number of partners that were trained and cer6fied to perform these deployment services, the successful comple6on of a significant deployment engagement by a firm in our professional services ecosystem and the sale of several financial management cloud applica6on subscrip6on arrangements to customers without our deployment services.
T H E S U B S C R I P T I O N E C O N O M Y R E V E N U E C H A L L E N G E
Tradi6onal one-‐6me charge economy
What is different with the Subscrip6on Economy?
Subscrip6on
Revenue event
Revenue event
Revenue event
Invoice Payment
Revenue Recogni6on
Upsell
Provisioning
Quote Order Fulfillment/Shipping Invoice Payment/
Collec6on Accoun6ng
Quote Order Invoice Payment
Invoice/Credit
Payment/Credit Order
Order Downsell
IBM Defends Cloud-‐Compu,ng Accoun,ng Amid SEC Probe Source: Bloomberg – July 31, 2013 “This is a murky area where the rules aren’t really established,” Cusumano said. “Companies treat cloud-‐compu6ng revenue in different ways.” About half of publicly traded soaware companies since 1990 have had to restate revenue...
G E T T I N G I T W R O N G C A N B E D E T R I M E N TA L
… B U T T H E B E N E F I T S C A N B E H I G H LY R E WA R D I N G
Revenue Net Income/(Loss)
Market Cap Revenue Mul,ple
$150B $6B $50B 0.33
$3B ($270M) $30B 10.00
$37B $11B $150B 4.00
$4B $600M $26B 6.50
Z U O R A’ S A P P R O A C H Fair values and 6ming of associated revenue recogni6on:
Element Method of
establishing fair value Revenue recogni,on ,ming Subscrip6on (Edi6ons fees) ESP Ratable over subscrip6on term Professional services TPE or ESP As professional services are
provided Training ESP As services are provided (usually
within 30 days of invoicing) Usage-‐based fees VSOE At the end of the associated service
period Reimbursable expenses ESP As invoiced
S O W H AT M E T R I C S A R E I M P O R TA N T ?
Revenue&rollforward
Prior%quarter%revenue 100%%%%%%%%%%%%%%%%%%%%New%business%bookings 20%%%%%%%%%%%%%%%%%%%%%%Growth%from%prior%bookings 30%%%%%%%%%%%%%%%%%%%%%%Upsell 20%%%%%%%%%%%%%%%%%%%%%%Downsell/Churn (30)%%%%%%%%%%%%%%%%%%%%Current&quarter&revenue 140&&&&&&&&&&&&&&&&&&&&
!"!!!!
!20!!
!40!!
!60!!
!80!!
!100!!
!120!!
!140!!
!160!!
!180!!
Prior!quarter!revenue!
New!business!bookings!
Growth!from!prior!bookings!
Upsell! Downsell/Churn!
Current!quarter!revenue!
S O W H AT M E T R I C S A R E I M P O R TA N T ?
Bookings 5,000++++++Billings 15,000++++Collections 14,500++++Accounts+Receivable 6,000++++++Revenue 9,000++++++Deferred+Revenue 18,000++++Backlog 25,000++++
!Subscription!Waterfall!
S O W H AT M E T R I C S A R E I M P O R TA N T ?
ARRn – Churn + ACV = ARRn+1
You start the period @ some recurring revenue run rate
You then end up at a new ARR level as
you kick off the next period
The Top Line
COGS, G&A, R&D, Renewals, Growth, PS The BoZom Line
You spend some % of that ARR to service the base
(COGS, G&A) and to reinvest in R&D
You invest to grow that ARR by acquiring new
ACV (including both new customers and upsells)
Hopefully you do a good job, and minimize the amount of that ARR
that goes away
S O W H AT M E T R I C S A R E I M P O R TA N T ?
ACV
______
Growth Spend (Sales & Marke6ng)
Churn
______
ARRn
COGS, G&A & R&D
______
ARRn
Growth Efficiency Index
Renewal Rate Non-‐Growth Spend
1 -‐
Revenue Manager since May 2013 Clowning around with his kids, trying to not burn dinner, or improving his (very slow) 10K running 6me
P R O P O S E D S T R U C T U R E
Ques,on Antonia Jordan Describe your Company’s offering and your role at the Company Yes Yes
What are the best prac6ces in revenue management in the context of subscrip6on based business?
Yes
You recently went through your first audit. Describe the main challenges you faced preparing for that.
Yes
Do you consider metrics other than revenue to run your business? (ARR, TCV, Recurring profit margin?) How do you present the various metrics to your Board?
Yes
What did you use before Zuora for your subscrip6on management? What was the 6pping point, and how did you know when a change was impera6ve?
Yes
How oaen do you change the pricing and packaging for your solu6on, or bring new products to the market? How do you address the revenue ramifica6ons for these changes?
Yes Yes
What has changed moving from legacy to SaaS/subscrip6on plaoorm? Yes
How have your opera6ons changed from pre to post IPO? Yes
What were the key factors in looking for a cloud based recurring billing management solu6on like Zuora?
Yes Yes