Q3 2022 Zoom Video Communications Inc Earnings Call

November 22, 2021

In Q3 total revenue grew 35% year over year to $1.05 billion exceeding the high end of our guidance of $1.02 billion. The growth was primarily driven by strength in our direct and channel businesses, which grew at twice the rate of our online business. As well as improved churn in both online and direct segments.

The growth was primarily driven by strength in our direct and channel businesses, which grew at twice the rate of our online business.

As well as improved churn in both online and direct segments.

From a product perspective, we saw strong demand for zoom video webinars [inaudible]. Zoom phone had year over year revenue growth in the triple digits and reached 30 customers with over 10,000 [inaudible].

Phone.

Phone had year over year revenue growth in the triple digits and reached 30 customers with over 10000 PUC.

The year over year growth in revenue for the quarter was driven by a healthy mix between new and existing customers with existing customers accounting for 26% of the incremental revenue up from 19% a year ago. Let's take a look at the key customer metrics for the quarter. We saw a 94% year over year growth in the upmarket as we ended the quarter with 2,507 customers generating more than $100,000 in trailing 12 months revenue.

Let's take a look at the key customer metrics for the quarter.

We saw a 94% year over year growth in the upmarket as we ended the quarter with 2507 customers generating more than $100000 in trailing 12 months revenue.

These customers represented 22% of revenue up from 18% in Q3 of last year. We exited the quarter with approximately 512,100 customers with more than 10 employees up 18% year over year.

We exited the quarter with approximately 512100 customers with more than 10 employees up 18% year over year.

In Q3 customers with more than 10 employees represented 66% of revenue up from 64% last quarter and 62% in Q3 of last year. These trends suggest that our customers with more than 10 employees are expanding their use of our platform, adding more products [inaudible] aligned with our go-to-market strategy.

These trends suggest that our customers with more than 10 employees are expanding their use of our platform, adding more products and be aligned with our go to market strategy.

Our net dollar expansion rate for customers with more than 10 employees exceeded 130% for the 14th consecutive quarter as existing customers increase their spend with Zoom and we saw strong upsells of Zoom phone and Zoom rooms.

For Q4, we expect this metric to be modestly below the 130% mark as the denominator of this trailing 12-month metric reflects the significant growth in our customer base. Both domestic and international markets had strong growth during the quarter. Our Americas revenue grew 30% year over year. Our combined APAC and EMEA revenue grew 47% year over year to be approximately 33% of revenue up from 31% a year ago. On a quarter over quarter basis, Asia Pacific had another strong quarter, driven by growth in Australia, and Japan and bolstered by the investments we have made in our international team.

Okay.

Yeah.

Both domestic and international markets had strong growth during the quarter.

Our Americas revenue grew 30% year over year.

Our combined APAC and EMEA revenue grew 47% year over year to be approximately 33% of revenue up from 31% a year ago.

On a quarter over quarter basis basis Asia Pacific had another strong quarter, driven by growth in Australia, and Japan and bolstered by the investments we have made in our international team.

However, as we discussed in Q2, we saw headwinds through our online business in EMEA, mainly related to summer seasonality. Now turning to profitability, which was strong for both GAAP and non-GAAP perspective. I will focus on our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, charitable donation of common stock, acquisition-related expenses, net litigation settlement, net gains on strategic investments and undistributed earnings attributable to participating securities. Non-GAAP gross margin in Q3 was 76% an improvement from 68.2% in Q3 of last year and stable with Q2 of this year.

Now turning to profitability, which was strong for both GAAP and non-GAAP perspective.

I will focus on our non-GAAP results, which exclude.

Stock based compensation expense and associated payroll taxes.

Charitable donation of common stock.

Acquisition related expenses net litigation settlement net gains on strategic investments and undistributed earnings attributable to participating securities.

Non-GAAP gross margin in Q3 was 76% an improvement from 68, 2% in Q3 of last year and stable with Q2 of this year.

We remain committed to our multi-year strategy of building out our data centers to support further improvements in gross margin. Research and development expense grew by 169% year over year to approximately $68 million. On a sequential basis, we added over $13 million in R&D expense, primarily due to expansion within our engineering and product teams globally. As a percentage of total revenue R&D expense doubled year over year to six 4% demonstrating our commitment to innovation and product development.

Okay.

Research and development expense grew by 169% year over year to approximately $68 million.

On a sequential basis, we added over $13 million in R&D expense, primarily due to expansion within our engineering and product teams globally.

As a percentage of total revenue R&D expense doubled year over year to six 4% demonstrating our commitment to innovation and product development.

Sales and marketing expense grew by 68% year over year to $237 million or approximately 22.6% of total revenue, primarily driven by increased marketing programs and sales headcount to drive future growth. We remain committed to investing in global sales capacity and marketing across our core and new products. G&A expense grew by 12% to $2 million or approximately 7.8% of total revenue. This was lower than Q3 of last year as we expanded our G&A functions prudently to meet our new scale.

We remain committed to investing in global sales capacity and marketing across our core and new products.

G&A expense grew by 12% to a $2 million or approximately seven 8% of total revenue.

This was lower than Q3 of last year as we expanded our G&A functions prudently to meet our new scale.

The revenue upside in the quarter carried through to the bottom line with a non-GAAP operating income of $411 million exceeding the high end of our guidance of $345 million. This translates to a 39.1 non-GAAP operating margin for Q3, compared with 37.4% a year ago, and 41.6% last quarter. Non-GAAP diluted earnings per share in Q3 was $1.11 on approximately 306 million non-GAAP weighted average shares outstanding. This result is 3 cents above the high end of our guidance and 12 cents above Q3 of last year. This result includes a $70 million provision from income taxes. A significant increase from last year, mainly due to fully utilizing our NOLs as well as a decrease in our stock-based compensation for tax purposes.

This translates to a 39.1 non-GAAP operating margin for Q3, compared with 37, 4% a year ago, and 41, 6% last quarter.

Non-GAAP diluted earnings per share in Q3 was $1 11 on approximately 306 million non-GAAP weighted average shares outstanding.

This result is <unk> <unk> above the high end of our guidance and 12% above Q3 of last year.

This result includes a $70 million provision from income taxes.

A significant increase from last year, mainly due to fully utilizing our nols as well as a decrease in our stock based compensation for tax purposes.

Turning to the balance sheet. Deferred revenue at the end of the period was $1.2 billion up 39% year over year from $855 million and slightly up quarter over quarter. Looking at Q4, we expect the year over year growth rate and deferred revenue to be in the mid 20. This is driven by the cyclical decline in the average remaining term of our annual customer contracts, which are front half weighted.

Revenue at the end of the period was $1 2 billion up 39% year over year from $855 million and slightly up quarter over quarter.

Looking at Q4, we expect the year over year growth rate and deferred revenue to be in the mid 20.

This is driven by the cyclical decline in the average remaining term of our annual customer contracts, which are front half weighted.

Looking at both our billed and unbilled contracts, our RPO totaled approximately $2.5 billion, up 51% year over year from $1.6 billion. We expect to recognize approximately 67% of the total RPO as revenue over the next 12 months as compared to 72% in Q3 of last year, reflecting a shift back towards longer-term plans. We ended the quarter with approximately $5.4 billion in cash, cash equivalents and marketable securities excluding restricted cash. We had operating cash flow in the quarter of $395 million as compared to $411 million in Q3 of last year. Free cash flow was $375 million as compared to $388 million in Q3 of last year.

51% year over year from $1 6 billion.

We expect to recognize approximately 67% of the total ARPA as revenue over the next 12 months as compared to 72% in Q3 of last year, reflecting a shift back towards longer term plans.

We ended the quarter with approximately $5 $4 billion in cash cash equivalents and marketable securities excluding restricted cash.

We had operating cash flow in the quarter of $395 million as compared to $411 million in Q3 of last year.

Free cash flow was $375 million as compared to $388 million in Q3 of last year.

It is important to note that as we progressed beyond the initial phases of the pandemic growth and continue to invest to support our new scale, our working capital is normalized. In Q4, we expect to incur a one-time $85 million cash outflow related to a legal settlement, which we disclosed and booked as a GAAP expense in Q1.

In Q4, we expect to incur a onetime $85 million cash outflow related to a legal settlement, which we disclose and booked as a GAAP expense in Q1.

As a reminder, due to the seasonality every newell being front end loaded and tapering through the year, our collections will follow the same trends. We also expect further CAPEX investments and building out our data centers to support future gross margin expansion.

We also expect further capex investments and building out our data centers to support future gross margin expansion.

Now turning to guidance. We are pleased to raise our outlook for FY '22. This outlook is based on our current assessment of the business environment. Specifically, it assumes that our direct and channel business will continue to grow while our online business will be a headwind in the coming quarters are smaller customers and consumers adapt to the evolving environment. For the fourth quarter of FY '22, we expect revenue to be in the range of 1.051 to 1.053 billion.

We are pleased to raise our outlook for FY 'twenty two.

This outlook is based on our current assessment of the business environment.

Specifically it assumes that our direct and channel business will continue to grow while our online business will be a headwind in the coming quarters are smaller customers and consumers adapt to the evolving environment.

For the fourth quarter of FY 'twenty, two we expect revenue to be in the range of 1.051 to 1.053 billion.

We expect non-GAAP operating income to be in the range of $361 million to $363 million. Our outlook for non-GAAP earnings per share is $1.6 $1.7 based on approximately 307 million shares outstanding and a tax rate of approximately 10%. Due to our multi-year history of profitability, we have fully utilized our NOLs. We expect our tax rate to approximate the US blended tax rate in FY '23.

Our outlook for non-GAAP earnings per share is $1 <unk> to $1 seven based on approximately 307 million shares outstanding and a tax rate of approximately 10%.

Due to our multiyear history of profitability, we have fully utilize our Nols.

We expect our tax rate to approximate the U S blended tax rate in FY 'twenty three.

For the full year of FY '22, we expect revenue to be in the range of $4.079 billion to $4.081 billion, which would represent approximately 54% year over year growth, up from our previous guidance of 51% issued in August. We expect non-GAAP operating income to be in the range of approximately $1.598 to $1.6 billion, which would represent approximately 63% year over year growth.

We expect non-GAAP operating income to be in the range of approximately 1598 to $1 6 billion, which would represent approximately 63% year over year growth.

Our outlook for the non-GAAP earnings per share is $4.84 to $4.85 based on approximately 306 million shares outstanding. As always, Zoom is grateful to be a driving force, enabling the connection and collaboration worldwide with our high quality frictionless and secure communications platform. Thank you to the entire Zoom team, our customers, our community and our investors. Matt, please queue up our first question.

As always zoom is grateful to be a driving force, enabling the connection and collaboration worldwide with our high quality frictionless and secure communications platform.

Thank you to the entire Zoom team, our customers, our community and our investors. Matt, please queue up our first question.

Matt Please queue up our first question.

Our first question is from Sterling Auty with JPMorgan.

Yeah. Thanks. Hi, guys. Eric, you mentioned kind of evolving into a communications company and I'm wondering as you think about the over 400 million business phone users that are on legacy technology, how do you anticipate capitalizing on that opportunity? Meaning do you expect a big portion of those will end up coming on to either a video platform like Zoom, Zoom phone or will they start to just rely on their cellphones to make communication pulse.

Eric you mentioned kind of evolving into a communications company and I'm wondering as you think about the over 400 million business phone users that are on legacy technology I don't know.

capitalizing on that opportunity? Meaning do you expect a big portion of those will end up coming on to either a video platform like Zoom, Zoom phone or will they start to just rely on their cellphones to make communication pulse.

Yes, that's a good question. As you see in Q3 and good at cost similar about carrier and they expanded it to the broadest Zoom phone. 100, and the south. Tens of thousands of deployments right. So you look at it. The phone industry right I mean the clouds, basically PBX industry. I think it is doing very well to replace legacy on Prem systems also you got all those. Listing club is the phone providers most of them the relevant technologist stack many years ago, However, windows, especially for large enterprise customers will be migrated from on Prem to cloth due to an automotive brought a novel solution to go to video and voice boost for upcoming Bushed into one service, in particular to all those customers will only deploy Zoom video platform, essentially packaging to me Zoom club. It's a PBX system already there were children into enable and configure that. Otherwise, you have to establish solutions. That's why we have a high carbon is that every time and logging about customers they look at all of those cloud.

So you're right in Q3 and.

Good at cost similar about carrier and as they expanded it to the broadest zoom phone.

100, and the south.

Tens of thousands of deployments right. So you look at it.

The phone industry right I mean the.

Lobster basically PBX industry.

It is doing very well to replace legacy on Prem systems also you got all those.

Listing club is the phone providers most of them the relevant technologist back many years ago, However, windows, especially for large enterprise customers will be migrated from on Prem to cloth due to an automotive brought a novel solution to go to video and voice boost for upcoming Bushed into one service in <unk>.

To go to all those customers will only deploy zoom video platform, you're essentially packaging to me Zoom club. It's a PBX system already there were children into enable and configure that otherwise you have to establish solutions. That's why we have a high carbon is that every time and logging about customers. They look at all of those cloud.

It's the home solutions Zoom always the best choice, that's why I think in all of those. The huge growth opportunity there for all four hour. You bought a communication platform video and voice together. Capture the wave of this cloud migration from on premise. <unk>.

The huge growth opportunity there for all four hour.

You bought a communication platform video and voice together.

Capture the wave of this cloud migration from on premise.

<unk>.

Got it. Thank you. Thank you. Question is from Parker Lane with Stifel.

Question is from Parker Lane with Stifel.

Yeah. Hi, Thanks for taking my question. I was hoping you could dive into the video engagement put out a little bit. The initial reception that customers have had the best solution and who do you ultimately envisioned the target customer will be here? Is it going to be more lightweight, small business medium-sized business they're looking for a contact center offering or do you envision taking it upstream over time?

Light weight.

Small business medium sized business, they're looking for a contact center offering or do you envision taking it upstream overtime.

So this is a good question. So we were very excited at Zoom call VR to a non off our Zoom video engagement center. Because we know the reason why we've decided to invest resources all of that is based on our customer feedback. In terms of our growth trajectory. I would assume it's very similar to what we did before for our zoom phone why in beauty <unk> solutions will I would assume platform. You can start upon the existing customers SMG customers soon after warranty costs. We wrote it off of a lot of enterprise customers. That's all contact center vision, right. Essentially, I think this is a market that's contact center market is growing very well. However, a lot of enterprise customers guests walk. They still deployed on-premise solutions for the next several years I feel the opportunity is huge for us.

We've decided to invest resources all of that is based on our customer feedback in terms of our growth trajectory.

I would assume it's very similar to what we did before or zoom phone why in beauty <unk> solutions will I would assume platform.

Sarcoma existing customers SMG customers soon after warranty costs.

We wrote it off of a lot of enterprise customers. That's all contact center vision right essentially I think.

this is a market that's contact center market is growing very well. However, a lot of enterprise customers guests walk. They still deployed on-premise solutions for the next several years I feel the opportunity is huge for us.

Especially customers [inaudible] as a natural extension for our unified communication platform to have more scalable secure and the same platform solution, which is our solution to the contact center space.

And the same platform solution, which is all you know that.

Our solution to the contact center space.

Got it thanks, Eric. By the way that we do have quite a few customers in the pipeline. The next question is from [inaudible] with Guggenheim.

By the way that we do have a quite a few.

Customers in the pipeline.

Next question is from task for Chelsea with Guggenheim.

Hey, guys can you hear me? Yes. A question for Kelly. Kelly, can you give us some more color on your mix across different products, we've had strong growth in Zoom phone, Zoom rooms for the last couple of quarters. Is the combination of phone plus rooms, now more than 10% of the food the listen to some of the overall business?

A question for Kelly Kelly can you give us some more color on your mix across different products, we've had strong growth in zoom phone.

Zoom rooms for the last couple of quarters is the combination of phone plus rooms, now more than 10% of the food the listen to some of the overall business.

Sorry, it's a combination of phone? [inaudible] business is that less than 10 or is it cross the 10% threshold? Well, none of our product segments on their own is greater than 10% because it's likely that we would break that out if it were. If you add a few of them together, yes. There are a few of them. If you put them together, they would exceed greater than 10%, but on an individual basis not any of them as greater than 10% at this point.

Oh, the knockdown on meeting gives us is that as that's the lesson 10 or is it cross the 10 10, 10% threshold.

Well, none of our product segments on their own is greater than 10% because it's likely that we would break that out if it were if you add a few of them together, yes. There are a few of them. If you put them together, they would exceed greater than 10%, but on an individual basis not any of them as greater than 10% at this point.

Thanks. Yep. Next question is from Meta Marshall with Morgan Stanley.

Yep.

Next question is from meta Marshall with Morgan Stanley.

Great. Thanks. I wanted to ask just about the traction of customer ads you know we've seen the customer ads slow down a little bit and just wondering how you think about kind of sales and marketing resources directing them more towards upsells, which is clearly showing a lot of traction versus kind of new customer acquisition that does. How do you think about that and the budgeting in practice and how we should think about that going forward?

I wanted to ask just about the traction of customer as you know we've seen the customer adds slow down a little bit and just wondering how you think about kind of sales and marketing resources directing them more towards Upsells, which is clearly showing a lot of traction versus kind of new customer acquisition that does.

How you think about that and the budgeting in practice and how we should think about that going forward.

Yeah. So it's exactly the strategy that we've been planning for and thinking about, Met. When you think about Zoom phone for example, and Zoom rooms, the strategy to sell into the existing installed base, which by definition just means these customers are going to grow larger and larger and contribute more over time. In the, depending on which segment of our business, the upmarket business than majors and enterprise is right. They work on a named account basis. So they get to retain those accounts, which is great because they build these long term multi-year relationships with them, they understand their needs and they continue to grow those accounts as they continue to see what they need. And then in the lower like the math market, we do have bolt-on expansion as well as acquisition teams has worked really well because that allows them to focus on growing uncertainties to grow but other teams to be really out there hunting engineering add to our new logos. And then from a marketing perspective, we've grown so much in brand awareness and now we're really focusing on ensuring that everybody knows about the meeting now also knows about Zoom phone and Zoom rooms, and the other solutions that we could bring to bear for them.

In the in the depending on which segment of our business the upmarket business than majors and enterprise is right. They work on a named account basis. So they get to retain those accounts, which is great because they build these long term multi year relationships with them they understand their needs and they continue to grow those accounts as they continue to see what they need and then in the lower like the math.

Off market, we do have bolt on expansion as well as acquisition teams has worked really well because that allows them to focus on growing uncertainties to grow but other teams to be really out there hunting engineering add to our new logos and then from a marketing perspective, we've grown so much in brand awareness and now we're really.

focusing on ensuring that everybody knows about the meeting now also knows about Zoom phone and Zoom rooms, and the other solutions that we could bring to bear for them.

Great. Thanks. Next question from Alex Zukin with Wolfe Research.

Okay.

Next question from Alex Zukin with Wolfe Research.

Hey, guys. Thanks for taking my question so one question, but it's multipart Kelly at FERC. For you the question first of all. After the summer. What, how should we think about the visibility in the model, particularly around churn with the sub 11 cohort? And then if we look at the guidance that you gave implicitly for billings, it looks like it's about a 6% year over year growth. If I look at the guidance for revenue, it looks like 19% growth maybe there is some upside to that, maybe it's over 20, it's your toughest comp. But as investors start to look at next year. The street has you at 17%. So your implicit billings guide suggests the potential for single-digit growth. Is next quarter the trough that we start to build off of? I think that's a question of what I'm getting at least from a lot of investors. So in terms of let's talk about the churn versus the visibility.

One question, but it's multipart Kelly at FERC.

For you the question first of all.

After the summer.

What how should we think about the visibility in the model, particularly around churn with the sub 11 cohort and then if we look at the guidance that you gave implicitly for billings it looks like it's about a 6% year over year growth. If I look at the guidance for revenue it looks like 19% growth maybe.

There is some upside to that maybe it's over 20, it's your toughest comp, but as investors start to look at next year. The Street has you at 17%. So your implicit billings guide suggests the potential for single digit growth is next quarter. The trough that we start to build off of I think that's a question of what I'm getting at least from a lot of investors.

So in terms of let's talk about.

The churn versus the visibility and.

As we talked about on the Q2 call. You know these historical trends that we've seen in our business have changed pretty dramatically. But what we saw as we came through the second half of Q3 was that some of the churn that we were experiencing earlier in the quarter was really summer seasonality. And as we saw people move back toward the vacation kind of in the back half of September that we saw that strength and that usage returning. So these are all learning we will use now to apply to our bottling for FY '23 as well as the fact that you remember we looked at we showed you some of those detailed aging of the 10 years of the cohorts at analyst day. And as those continue to aid, that adds a lot of stability in that underlying business and by next year over 50% of them are gonna have moved beyond sort of that 15-month mark. Which is where that churn really really stabilized. So that's really good news in terms of the volatility is going to continue to decrease over time.

You know that this historical trends that we've seen in our business have changed pretty dramatically.

But what we saw as we came through the second half of Q3 was that some of the churn that we were experiencing earlier in the quarter was really summer seasonality and as we saw people move back toward the patients kind of in the back half of September that we saw that strength and that usage. Returning so these are all learning.

We will use now to apply to our bottling for FY 'twenty three as well as the fact that you remember we looked at we showed you some of those detailed aging of the 10 years of the cohorts at analyst day, and as those continue to aid that adds a lot of stability in that underlying business and.

By next year over 50% of them are gonna have moved beyond sort of that 15 month, Mark which is where that churn really really stabilized. So that's really good news in terms of the volatility is going to continue to decrease over time.

In terms of FY '23, I know that's the big question on everybody's mind, but you're going to hold any comments in terms of FY '23 guidance until Q4 at which point, of course, we'll be prepared to give Q1 and FY '23 guidance.

And you know and full FY 'twenty three guidance.

Oh, sorry, Matt Stotler with William Blair. I was on mute.

With an axe.

Oh, sorry, Matt Stotler with William Blair I was on mute.

Hi, Matt. Good to see you. Thank you for taking the question. Maybe just one on the free user base. I know that you guys have always carried a supporter number for users in an open that up during the pandemic. You've talked previously about thinking through monetizing this base of users. Anything you can share in terms of I guess on one hand, and an update on the size of that base, that central opportunity and then updates on how you're thinking about the ability to monetize over time.

Good to see you. Thank you for taking the question maybe just one on the the free user base I know that you guys have always carried a supporter number for users in an open that up during the pandemic you've talked previously about thinking through monetizing this base of users or anything you can share in terms of I guess on one hand, and an update on the size of that.

that central opportunity and then updates on how you're thinking about the ability to monetize over time.

Eric, do you want to talk about monetization of [inaudible]? Sure. So Matt, first of all, when we started a riot in our free user base is always like a marketing platform by promoting our brand and gave us a net of work you know effectiveness of our service platform. So that's the hallway introduced a free service premium and 40 minutes limitation.

Sure. So Matt first of all when we started a riot in our free user base is always like a marketing platform by promoting our brand and gave US a net of work you know effectiveness of our service platform. So that's the hallway introduced a free service a female and 40 minutes limitation.

I think for now given the brand recognition and again what had happened in the last year, I think we got to take a step back. And look at our free user on that business right. And essentially to all aware hand with a lack of doubled on our enterprise market of costs out of business is going extremely well. On the other hand, we got to be very tricky to look at how we leverage our huge free user installer base right and all of the work right. We started it I know the advertisement program well for you there is from international market and a dollar loading now we're going to look at that and opinions as well because not only do we have folks on the kind of conversion rate of iPhone free to paid and that's more of a traditional mode right. We're going to be creating the huge opportunity right and to think about how to monetize that free user base differently. I think that our team put a lot of effort on that and that's something we are very excited.

Be very tricky to look at how we leverage our huge.

For you the installer base right and all of the work right. We started it I know the advertisement.

Program well for you there is from international market and a dollar loading now we're going to look at that and opinions as well because not only do we have folks on the kind of conversion rate of iPhone free to paid and that's more of a traditional mode right, we're going to be creating the huge opportunity right and to think about how to monetize that AR.

For you the base differently I think that that saw I know the I think our team for a lot of effort on that and that's something we are very excited.

Thank you. Next question is from [inaudible] with Mizuho.

Yeah.

Next question is from C T panic rohit with Mizuho.

Hey. Thanks for taking my question. I just wanted to ask you about your investment on go to market side. So as you are coming off of two strong renewal quarters, what are the areas you are investing right now? Normalizing, both or is it certain regions or certain verticals. So could you give some kind of color on that. We certainly are continuing to invest in the sales organization, especially outside of the US. There you've seen strong growth in international and we really had the opportunity to continue to leverage the brand awareness has grown significantly not only in the US. But also globally and so that's a huge opportunity for us as well as ensuring that we have the right sales team to support Zoom events, Zoom phone and soon our video engagement center as well. So those are all the areas and that's what we're thinking about especially for FY '23.

What are the areas you are investing right now and.

Normalizing, both or is it certain regions or certain verticals. So could you give some kind of color on that yeah. We certainly are continuing to invest in the sales organization, especially outside of the U S. There you've seen strong.

Growth in international and we really had the opportunity to continue to.

Leverage the brand awareness has grown significantly not only in the U S. But also globally and so that's a huge opportunity for us as well as <unk>.

Ensuring that we have the right sales team to support these events zoom phone and soon our video engagement center as well. So those are all the areas and that's what we're thinking about especially for FY 'twenty three.

Thank you. Thank you Sydney. Up next we have Ryan MacWilliams with Barclays.

Thank you Sydney.

Up next we have Ryan macwilliams with Barclays.

Hey, good to see you guys again. Just on your existing customer growth, anything to call out there maybe until the fourth quarter and I would imagine meetings still makes up the bulk of your growth with existing customers, but anything to call out maybe in the changing mix between meetings versus phone in rooms with these existing customers? Thanks.

Kelly just on.

Your existing customer growth and anything to call out there maybe until the fourth quarter and I would imagine meetings still makes up the bulk of your growth with existing customers, but anything to call out maybe in the changing mix between meetings versus phone in rooms with these existing customers.

Yeah, I mean Zoom phone continues to be a really strong growth driver in general, especially as organizations are thinking about what's going to be their future of work strategy and enabling their employees to work from anywhere over time. And then Zoom rooms of course is also really. Morton consideration now as companies are thinking about welcoming their employees back in the office. The conference room strategy has become even more important than it was pre-pandemic.

Morton consideration now as companies are thinking about welcoming their employees back in the office. The conference room strategy has become even more important than it was pre pandemic as he can.

It's unlikely we're all going to be sitting around conference rooms together in the future. And so having any sort of a hybrid approach means that you need to make sure that it's inclusive and the best way to do that is through our Zoom rooms technology things like Smart Gallery, which are really some of the opportunities that we're helping our customers solve today. Yes, so it's just a cricket as add on to water cut decided what you look at it a hybrid of work the conference room is extremely important.

Yeah opportunities that we're helping our customers solve today.

Yes, so it's just a cricket as add on to water cut decided what you look at it a hybrid of work the coffee rum is extremely important.

It's why we look at Zoom rooms. It's uniquely positioned, it is much better than any other solutions there to support a hybrid world not almost not automation assuming events also kind of support you know the new hybrid events. Services as well right. That's why you know huge opportunity for us to support a hybrid work [inaudible].

Services as well right. That's why you know huge opportunity for us to support a hybrid work a paradigm shift.

Okay. Thanks Ryan. Next question is from Tyler Radke with Citi.

Thanks Ryan.

Next question is from Tyler Radke with Citi.

Hey. Hey, everyone. Thanks for taking my question. Kelly, I wanted to ask you about just some of your comments on the turn rates. I guess first did they perform in line with your expectations this quarter?

Hey, everyone. Thanks for taking my question.

I wanted to ask you about just some of your comments on on the turn rates I guess first did they perform in line with your expectations this quarter.

Just kind of given the moving pieces with summer seasonality. And then as you think about Q4 would you expect churn rates to get better because of less kind of summer seasonality in Europe? And then I just wanted to clarify when you talk about the online business being a headwind, does that mean that you expect the online revenue to decline year over year or does it just mean it's going to grow slower than the rest of the business?

And then I just wanted to clarify when you talk about the online business being a headwind does that mean that you expect the online.

Revenue to decline year over year or does it just mean, it's going to grow slower than the rest of the business.

So in terms of how the online churn performed in Q3, it performed better than our expectations coming in at the beginning of the quarter. And we were happy to see that it was more seasonality aligned rather than true potential departures as people were making other choices are going to ask it to meet in person so the seasonality nature of that. With good news to see and that rebounding in the middle of the in kind of the mills in the back half of September.

True.

Potential departures as.

As people were making other choices are going to ask it to meeting in person so the seasonality nature of that.

With good news to see and that rebounding in the middle of the in kind of the mills in the back half of September.

And then we expect Q4 to be relatively consistent with Q3 in terms of churn. However, we do see some impact from the holidays towards the end of December. And you know those holidays vary by global location, but we do see kind of slow down based on that.

And you know those holidays vary by the global by global location, but we do see kind of slow down based on that.

<unk>.

In terms of what we expect from online going forwards, we do expect online revenue to grow more slowly than the direct and channel businesses as we look to the future which is what we saw in Q3. For example, is one but we will give more specifics around that when we give guidance on the Q4 call.

More specifics around that when we give guidance on the Q4 call.

Thank you. Next question is from James Fish with Piper Sandler.

Okay.

Next question is from James Fish with Piper Sandler.

Hey, guys. Nice quarter, just wanted to go back to I wanted to go back to Matt's question on advertising. First, how would this actually work can you give more color there would it be kind of a banner within the application pre or post video and be more display-based advertising or performance-based? And then also just wondering to understand how much of this is really a good try prevent some of your more commercial and enterprise customers from lowering their number of meetings seats to free seats, rather than just trying to monetize more of that online consumer equity base. Thanks. This too just so you know for now we. Just a book song with the pure the free meetings right, meaning that many of the frame meeting host but we will have a meeting all the free participant. Let's say if he and I joined the meeting because we already paid. The enterprise customer all payers, if you will notice.

Some of your more commercial and enterprise customers from lowering their number of meetings seats to free seats, rather than just trying to monetize more of that online consumer equity base. Thanks.

This too just so you know for now we.

Just a book song with the pure the free meetings right, meaning that many of the frame meeting host by we will have a meeting all the free participant let's see if he and I joined the meeting because we already paid.

The enterprise customer all payers, if you will notice.

Sure, they're typically asked right. It is more like a post meeting can be page right, because we do have in some plants, but I want to start a step by step gradually right now for now so that is what are you asking the push there can be a page from international market acuity for the frame you know meetings. And they try to do learn from experience and again you know we got to be creative, but there's so many areas, where we can be creative. Because you've got a daily meeting participants into myself a number of our for you. This was pretty healthy even for those are let's say you. This right you know maybe if they do not pay for our service anymore. They still use our service right. That's why you know the minions zoom a stool offers as good a while it was obviously we got to think about how to monetize differently. Again, this is something new for us. And we would like to explore more in the next few quarters.

Post the meeting can be page right, because we do have a you know.

In some plants, but I want to start a step by step a graduate right now for now so that is what are you asking the push there can be a page from international market acuity for the frame you know meetings and they try to do learn from experience and again you know we got to the Caribbean, but there's so many areas, where we can be a tricky right because.

You've got a daily meeting participants into myself a number of our for you. This was pretty healthy even for those are let's say you. This right you know maybe if they do not pay for our service anymore. They still use our service right. That's why you know the minions zoom a stool offers as good a while it was obviously we got to think about how to monetize differently again. This is something new for us.

And we would like to explore more in the next few quarters.

Thanks, Eric. The next question is from Rishi [inaudible] with RBC. Eric and Kelly, good to see both. Thanks for taking my question. I just wanted to ask about Zoom chat, I was really excited to see that lawsuit at zootopia two months ago are really kind of selling this vision of becoming the broader enterprise communication platform. I actually noticed that zoom chat is live with so many people can deploy I know what's in that. Can you give us any sense of color in terms of customers actually using it today, what that sort of usage within your existing customer base looks like? And what you're doing to actually drive usage all the Zoom chat among your customers to just make the whole platform more valuable for them. Thanks.

Next question is from Rishi <unk> with RBC.

Eric and Kelly good to see both thanks for taking my question just wanted to ask about zoom chat I was really excited to see that lawsuit at zootopia. Two months ago are really kind of selling this vision of becoming the broader enterprise communication platform I actually noticed that zoom chat is live with so many people can deploy I know what's in that.

Can you give us any sense of color in terms of customers actually using it today, what that sort of usage within your existing customer base looks like? And what you're doing to actually drive usage all the Zoom chat among your customers to just make the whole platform more valuable for them. Thanks.

Yeah, [inaudible] question, first of all, I can tell you Zoom as a company. We have we're using [inaudible] a long time and there's so many employees we do enjoy that and overall. This is a part of our overall UC platform reason, because some customers, I think we did not do a good job to measure that and to promote that because some customers even do not know that before. But if you look at our [inaudible] uses sorry, [inaudible] not only for SMB individual users, but also an enterprise customer if he brought both video and phone and also Zoom chat is one platform right. And it is also functionality, scalability, I think we will have high confidence. On my hand, and we do collaborate well with other chatter solutions and are integral to we're well. On the other hand, for some customers. They really want to deploy the solution for one vendor for video voice and chat. We do have this flexibility. I think also our team they are innovating as well right. They are adding more and more [new workqueue] functionalities as we announced at zoom, albeit again. This is something important for our overall UC platform and we are going to invest more.

We have we're using a <unk> set up a long time and there's so many employees, we do enjoy that and overall. This is a part of our overall UC platform reason, because some customer I think we did not do a good job.

Two missions added a promoter that because customer some customers even do not know that if I had before but however, you look kind of avocado uses sorry, with Leonardo poverty that a number of years, it's pretty healthy not only for SMB individual users, but also an enterprise customer if he brought both video and phone and also zoom chat is one platform right and into muscle.

Now that they've got a bit of a day I think we will have a high confidence on my hand, and we do collaborate well with other <unk> solutions and are integral to we're well on the on the Hana for some customers. They really want to deploy the solution for one vendor for video voice and chat. We do have this flexibility right I think also our team. Innovating as well right. More and more the word cool functionalities as we announced at zoom, albeit again. This is something important for our overall UC platform and welcoming you Mr. Moore.

Innovating as well right.

More and more the word cool functionalities as we announced at zoom, albeit again. This is something important for our overall UC platform and welcoming you Mr. Moore.

Alright wonderful. Thank you. Thank you. Our next question is from Karl Keirstead with UBS. Okay, Great maybe Kelly. Metrics like deferred revenues in RPO or certainly not the most important to watch with zoom, but they can be and then it could have changes in the business. So it's still important to keep an eye on them. And you made some color about DR and RPO next quarter that I'd love if you could elaborate I think on DR you mentioned that it'll grow mid-20s due to a cyclical decline in average remaining term of annual contracts.

Our next question is from Karl Keirstead with UBS.

Okay, Great maybe Kelly.

Metrics like deferred revenues in our P O or certainly not the most important to watch with zoom, but they can be and then it could have changes in the business. So it's still important to keep an eye on them and you you made some color about D. R and R. P. O next quarter that I'd Love. If you could elaborate I think on an on Dr. You mentioned that. It'll grow mid Twenty's due to a cyclical decline in average remaining term of annual contracts.

It'll grow mid Twenty's due to a cyclical decline in average remaining term of annual contracts.

Not sure I totally understand what that means so I'd love to ask for a clarification. And then likely on as well on RPO, you mentioned that we would see a shift back to long term plans I'm wondering if you could elaborate on that as well. Thanks so much.

Yes, so for deferred revenue, there are two things to remember, which is the seasonality trend of our renewals is that Q1 is the largest quarter for renewals and Q4 is the lowest. So in terms of new deferred coming onto the books, Q4 is the lowest quarter because of that. As well as the fact that Q1 is the largest quarter when deferred gets out of the balance sheet, but if they are annual contracts by the time you get to Q4 most of that has already been amortized and recognized there's only 25% of it in theory about left when you come into the quarter.

In terms of new deferred coming onto the books Q4 is the lowest quarter because of that.

As well as the fact that Q1 is the largest quarter when deferred gets out of the balance sheet, but if they are annual contracts by the time you get to Q4 most of that has already been amortized and recognized there's only 25% of it in theory about left when you come into the quarter.

So the combination of the fact that anything added in Q1 is almost fully amortizing will get refilled and renewed back in Q1, and the fact that Q4 is the lowest renewal quarter. Those two things are what's driving this trend of renewals I'm, sorry of deferred which I know is probably counterintuitive to any other company that you see because of the seasonality that we have with you.

Remember at Analyst Day, we showed you in actual chart that showed how our renewals lay out through the year and that's what that illustrates and green.

Newell like deferred it's kind of it's going to look the same collection is going to look the same because they're all big.

Being built off of that trend.

That makes sense.

So the fact that Dr growth would slow to mid Twenty's is due to what.

Due to the fact that Q4 is our lowest renewal period as well as all of those annual renewals that came on in Q1, which is the biggest quarter are now almost fully amortized and recognized okay. That's helpful. Thank you on VR and AR.

On the RP O Kelly and then this has a strong impact on billings and an RP O as well because the.

The same thing like the adding to it the buildings and the collections are happening earlier in the quarter and the remaining term is being amortized throughout the year. So there is that just the sort of the amount of contract left during Q4.

Okay, I think I got it thanks, Okay. Your presentation I presume very welcome.

The next question is from shed lease say roughing with SPN Securities. Yes. Thank you very much. So what is your latest thinking about possibly reviving the five nine deal puts us with a higher price and what's your current thinking you build a build versus buy decision in the contact center market. The survey that's a great question and unfortunately at all when he is not in the call.

The survey that's a great question and unfortunately at all when he is not in the call.

It's probably both others is better for Harsco answerable question, but anyway, when we look at everything from a customer perspective I. Even this deal did not go through however.

And we still have many mutual customers and we have a greater integration with biomass and also I think you know from a lot of perspective are you saw you know African CMS before right.

Most of the deal I would say nobody knows that and let's see and we do not know, but also but other as I mentioned earlier right and have a full staff to support a union potok indication import into Cosmos deployed zoom video already now new media on our processes deploy zoom phone. He also asked what are our strategy of BARDA, our condo vendor.

Our solution and this reason why we're doubling down on what we do engage them to Thunder, which is our answer to our contact center solution anyway, I think Oh. This is a where we are now but I'm, so sorry really harder to know.

How do you know that you know.

Reengage or do the deal with farmland because the two public company right and again and for now we are doubling down on our video engagement Center and also look at the gallery as all other contact center solution providers lack of them not being able to offer a better integration seamless experience to our mutual customers.

Thanks.

In Q.

Next question is from Matt Van Vliet with BTG.

Yeah. Thanks for taking my question.

I guess just pertaining to the channel, especially with with zoom phone or your seamless traction in terms of potential new customers coming in.

Zoom phone is sort of the entre into our customer or even as a part of initial deal, especially if the sort of mid market enterprise level.

Yes.

Okay.

Yeah.

Okay.

So yes, we've absolutely seen that channel would be a really important part and a really important growth driver for zoom phone, especially this is why I'm focusing on the channel both in the U S and growing out internationally is really an important aspect of our growth strategy for the long term here as well and then we do.

You have the ability and we have seen customers that want to start to sell and to start with zoom phone first and that has been a great opportunity.

The small percentage of our customers that are starting that way, but it's a great opportunity for them. If that's what they're interested in to get them in and get them used to zoom and then expand over time in terms of understanding the full platform offering that we have.

Thank you.

Next question is from Matthew nickname with Deutsche Bank.

Hey, Thanks for taking the question I want to go back to the question before that was not necessarily related to five nine but having moved past that acquisition, maybe Eric how are you thinking about inorganic opportunities on either the ucas or the fee catchment to really consolidate the market and expand your platform Inorganically. Relative to some of your organic investments the company has talked about. Again. Now steel grid or a partner rather than as a team is greatest you'll have a grilling and their friends right. So we're still working together right. So talking to the mutual customer that's for sure but regarding our gross straight. Strategy, you know for consolidated <unk> cost in the CCAR first of all I think you know working whereabout on a new cost into the C cost. The reason why about not the video engagement center.

Relative to some of your organic investments the company has talked about.

Again.

Now steel grid or a partner rather than as a team is greatest you'll have a grilling and their friends right. So we're still working together right. So talking to the mutual customer that's for sure but regarding our gross straight.

Strategy, you know for consolidated <unk> cost in the CCAR first of all I think you know working whereabout on a new cost into the C cost.

The reason why about not the video engagement center.

Because of that right because for some customers. They wanted to consolidate everything together and we do have the offering also huddle et cetera out of growth. In addition to allocating our own resources to grow that business organically for sure right. If there is any good let's say you know the technology. The platform for next generation you know of.

It is very accretive features well, we're open minded and Kelly has has a pig.

And our budget to support that airport again, you know if you know of any other cool.

Pecking order to companies that are kind of how boss for the beef up our investment on that front, while we're open minded.

Great. Thank you. Thank you.

Next question is from will power with Baird.

Great. Good afternoon, So Eric you referenced a number of new customer wins, you really called out carrier I guess in particular as you suggested there was an extensive process really just love to better understand the importance of.

They don't want a bundled video and zoom phone for carrier and what in your estimation really kind of set you apart from the other vendors you know they weren't they were considering us.

Good question. So first of all I'd like to take a step back to share with you. How we grew our <unk> platform is not like some other cloud vendors probably be targeted those traditional on Prem solutions.

Our zoom phone growth and our comps from not only for on Prem.

The growth, but also for other existing no club as Stephane solutions to the problem also sneaker boss right.

Have both seen all of those customers coming from both sides.

Side of that a whole lot of a lot of enterprise customers in particular for all existing and soon video customers when they look at the phone.

This very large enterprise customers with very complex environment, probably to have multiple on premise solutions. They are going to be very careful and we want to partner with a company with a vision with the reliability security plus they also wanted to make sure our video and voice Lewisville can be booked an hour they test all of our service.

The realized based on the criteria zoom is ammonia solution that truly satisfy their needs.

However, the path isn't great alarm because again enterprise full deployment is a very complex and the inmates with all of our existing customers, we want to be very careful but after it goes through the you know or have a few process zooming to best position, but I think we see that very often over the past several quarters I think a lot of bill you know probably.

The patent for the future.

Gross as well because we have a high covenants as large enterprise customers no matter how complex their existing on Prem phone systems now as long as as it goes through the process <unk> editor our solutions I think we have a high confidence they are going to go with the octopus.

Okay. Thank you. Thank you.

Next question is from Patrick Walgreens with JMP.

Oh, great. Thank you.

Eric what would you say.

What is your primary source of competitive differentiation as a video conferencing solution a while ago.

And what would you say it is today is a communications platform.

So personally that's as good a question either comps really carving seeing itself I wouldn't say so.

It's a very easy, but however, it was reed R. Because it just works right you know and that's the reason why our customer lack of platform you know even if some of the competitors try to added features guest swap.

And you got to make it work anytime any of your why slight and I'll take this in all of the earning call. For example, how many of our competitors, we dare to host earning call on this class.

We're free right. The reason why we have confidence not only zoom, but also some of our costs in the back of my Greater friend, John You know Pedro alluded. We also hosted.

To close on zoom platform, because a very reliable grid of video audio quality a lot of other work.

Features like early next year, we're going to announce our Matamoros functionality and Patrick you can show up at your baseball, Alberta, right. If you want to but I think on the way I had I think as you saw reliability. It works anywhere anytime and a plus you know always be the first window to come up with an ambitious that the reason why were winning on that space.

I think in the future I would've seen more and more innovations and process support about the amount of a platform. The way you see platform also will keep half of leapfrogged our competitors again.

It's not like you have a 50 or 100% Youll see you can develop a assumptions similar ethanol a lag with that union.

<unk> investment to be on par with our platform.

It just works because that is just the works is it supposed to work.

First of all it's pretty hard.

Yeah.

Next question.

<unk> is from Steve Enders with Keybanc.

Okay, great. Thanks for thanks for taking the question here I just wanted to check back on on the carrier deal and how that came together it sounded like on the on the southern portion it.

Got a large portion of a fee base, there, but I guess what would it take for the phone to be deployed wall-to-wall within within that customer and I guess, what are kind of the learnings of that as you apply that to a to other customers that are considering zoom phone.

I think first of all you know for the very large enterprise customers in particular for those.

Customers will deploy the multiple very complex on Prem solutions, the steel cycle horse race, along by you know there's not a lot of on Prem to cloud right is multiple solutions not automation they need to support a global participant Mike.

However, I think on Zuma solution is much better positioned I think are normally pick up.

Our labor longer time competitors zoom meeting platform deployment, I think but just any initial book saw our product innovation and adopting the I'll walk through our go to market and you know and exactly modem all very complex in the past people like a carrier out there are going to migrate to zoom platform again I think.

It takes some time interestingly enough you know some of our customers even do not know zoom zoom open platform right and however offer debate.

The test of our platform Zuma studies are indeed, a much better than any other cloud based solutions.

We have very very high confidence.

It's not a hangover after all of those those are changed domiciled, where a complex and global footprint.

Uh huh.

It does demonstrated our zoom capability.

Great great. Thanks, Thanks for taking the question here. Thank you Steve.

Next question is from <unk> Kidron with Oppenheimer.

At times.

So.

Yeah, Hey, guys. Good to see you I guess I was hoping to focus on the global 2000, and clearly that was a big part of your focus going forward and.

That's where a lot of the sales resources have been invested in over the past year.

Maybe you could give us an update on how penetrated are you at this point with the global 2000 and has the competition changed within that category and the reason I'm asking that Cisco clearly has made a lot of progress in the past year with Webex and they've got to be even more aggressive in protecting that tariff and clearly that is may.

Therefore over there how do you feel about the competitive less because they are win rates would've changed and.

What can say about progress to date with the global two thousands.

Maybe Kelly.

Yeah, you too.

But again, yeah, you'll address a global 2000.

So in terms of the progress that we're making we continue to make progress there I didn't talk about earlier.

Devoting resources to international expansion and focus on this is still an opportunity we're at still slightly under 20% of the global Teekay that are spending more than $100000 a year with us, which just means that there's a huge opportunity ahead for us.

So it has enormous saw competitive land escape. It just purely look at it the videoconferencing service I think zoom.

Cocoa platform.

And I think I read it in Odyssey any other windows, even if all the platform mission you know IPO that before I had when I was thinking you know if there's any comparator even close to what we can offer into most of you know that.

Unified communication as a powerful notable nipple boom of thoughtful we immediately videoconferencing, but <unk> see costs. I think you know are we I think for now we will have a huge opportunity. If you look at our phone groups right.

Yesterday, especially for enterprise customers. They are now, arguing with deploy you know there's multiple solutions for multiple windows, So we're likely to windows.

Therefore in the Paas customers as sort of standards. The zone is we're well positioned and a competitor any other.

Competitors, we do not see anything changed because again, it's not like you know you can't call valve features here and is there and you know on the line.

In technology.

I didn't hear the many years effort I am totally different architecture of reliability security and also all those innovations. That's the reason why I think zoom much better positioned I really don't see any other competitors might and know that you know and that's coming.

Coming.

In this space over the past two years.

Alright, thanks, guys. Thank you.

Next question is from Brian <unk> with Needham.

Thanks, one for Eric if I could with regards to the Ericsson.

Ericsson acquisition of vantage today to bring AC honest through the <unk> network do you see this is disruptive to see Paas industry had assumed think about evolution of video with your eyes was a programmable quite useful.

Yeah I saw the news last night, and I must do with digesting that and use first of all I wouldn't say congratulations flagged one and as a team and you know.

The harder work is wherever it all kind of Arab isn't as great. A company I think it's probably this was greater acquisition.

And again, we're still digesting this news, but from our perspective and I think a we know our vision is very very clear rightfully focused on enterprise for UC stack, we do voice CCAR events zoom rooms to a fully supported hybrid work right and Arab cities in Australia Company and probably this will help is obsolete.

If I have the permission for five D and also and have them for their cloud for completion as well and yeah, that's probably pretty much you know what I I think about this deal.

Thank you.

<unk>.

Next question is from Chaim Siegel with Elazar advisors.

And you're on mute.

So we're there again sorry about that.

Great.

I wanted to just talk to you about you started talking about sequential growth a couple of quarters ago and.

You talked about it last quarter and just how you're thinking about that because this quarter was a little bit slower, but I don't know how much seasonality plays into it and you know.

I know you said, you're not talking about next year, but you know since we boost.

<unk> Crazy comparisons I just wanted to know how to think about sequential growth what's driving it.

Yeah. So.

I will reiterate what we said earlier in the prepared remarks is that we continue to see strong growth in the direct and the channel business and that grew at twice the rate of the online business is what we saw in Q3 and that the the online business.

We expect to be a headwind as you know we're still having these online customers, which are the most volatile many of them are still on monthly contracts and as they are adjusting to the environment and you know it.

Figuring out how the how the future of work is going to be for them individually.

We expect that to be the challenging headwind none in Q4, you'll see a little bit of holiday seasonality, we talked about too.

Okay.

Thank you yeah.

Next question is from Michael <unk> with Wells Fargo.

Hey, there. Thanks for squeezing me in nice to see everyone I'd like to pass the background known.

Northern Tonight, but they're nice.

Yeah, clearly coming off of an extended period of impressive growth I wanted to just ask around the what's next and how you balance staying efficient we're staying aggressive youre still spending around six 5% on R&D five 5 billion in cash on the balance sheet. So what that profile, how do you balance staying on offense given all the market opportunities you have in front of you.

And does the mindset shift at all as some of the growth rates moderate.

Yeah, I mean, I can tell you that in terms of.

Investing in areas like R&D and products, specifically, we are still not even spending at the level, we would like to be our target for that is approximately 10%. So they still have a ways to go they've come a long way in terms of hiring and investing there, but we still have more opportunity to continue to expand both the prada.

And the engineering team and then sales as well sales and marketing, we still see opportunity to continue to add sales capacity on a global basis. The areas that were very very thoughtful about adding additional investments they didn't want them to do that in a very efficient way of course is cogs.

He worked very closely with Tommy and his team to make sure that we're adding capacity and want to make sure that we have the right capacity for our customers, but doing it as efficiently as possible and then of course G&A, we want to do everything we can within our G&A functions to support our internal external customers, but to do that also as efficiently as we can but that's how it kind of.

How we think about investing opportunities for growth still in R&D and sales, but trying to drive efficiency through Cogs and <unk>.

Helpful. Thank you.

Yeah.

Our last question today is from Matthew Harrigan with benchmark.

Thank you.

Most elucidated the watches can use use or have won work. The answer for question for you I know you're pretty constructive on E. R and D are in the longer term, we will recognize the only rate limiting steps for consumer adoption before talking about the <unk> all the buzz and it really fuels from hypercube well no.

Concept, even what it is can you add any.

Thoughts on that and what's the potential opportunity for zumiez over three to five year period, where it.

Matt That's a good question first of all you know we like a meta was of course, our team already working on that for a while but the reason why you know our vision is to deliver a better video conferencing experience even in the face to face in person meeting right and all.

We are a part of that you know our team already at work on that right now how to get it there probably taken many years effort for now this is where the costs are required to start and a lack of digital avatar right.

You know a damage damage that demonstrated that functionality at Ism Tapia early next year, we are going to have something like that I think the most established navigated. There again you know we have already started and people right, but we don't we are not going to offer all hardware platforms. We are going to partner with other hardware vendors, you know like a Facebook and Microsoft and others and we offer.

The software layer of costs that are gossiping and whereabouts. While visits you know future without a you know a are all we are all matter worse, maybe the future matter worse, you know mad at you and I kind of shook hands remotely by serious when I talk about three years ago, and we are the adequate resources before that's why well we're very excited to finally have the water.

Sure Matt It was but I guess, what we already have started working on that for one reason why it's where well that's why we're excited about two macro questions like where we are going to invest and we are already invited to that and welcome to top it all of that because again, it fits well to our Companys vision and no matter, where we played a bigger off our future innovation.

Thank you.

Okay.

Eric that was our last question so back to you.

Oh. Thank you are really pushed of all time and either lives their life with this opportunity to thank all zoom employees all of our customers partners and investors wish you all have a wonderful holiday if they didn't see the.

Happy Thanksgiving. Thank you all for your time.

So critical thank you hi, everybody. Thank you thanks, everybody.

Thank you.

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