Q2 2024 Zoom Video Communications Inc Earnings Call
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Americas General store for truth Ing zooms work vivo platform to connect employees added additional heartbeat of the company.
Dollar general below are work vehicles employee engagement platform for is roughly 190000 employees to enhance the employee experience and individual group and at the district levels drive employee dialogue and reinforce a strong culture.
Again, we are very excited where calm and expand with USPS Brookdale Perdue farms, Vermont dollar general and all of our customers worldwide.
And with that I'll.
Possible war for Kevin Thank you.
Thank you, Eric and Hello, everyone.
We are pleased that we beat our top line and profitability guidance in Q2 here.
Here are a few milestones.
First operating cash flow grew 31% year over year to $336 million.
Second zoom phone reached roughly a half of $1 billion in annualized run rate revenue.
And finally, we are excited that Jim contact center has surpassed 500 customers and only six quarters.
In Q2 total revenue grew 4% year over year to one $139 billion.
Which includes $10 million of pressure from foreign exchange.
This result was approximately $24 million above the high end of our guidance.
Our enterprise business grew 10% year over year and represented 58% of total revenue up from 54% a year ago.
We continue to see improvement in online average monthly churn, which decreased to three 2% from three 6% in Q2 FY2023.
The number of enterprise customers grew 7% year over year to approximately 218100.
Our trailing 12 month net dollar expansion rate for enterprise customers came in Q2 at 109%.
We saw 18% year over year growth in the upmarket as we ended the quarter with 3672 customers contributing more than $100000 in trailing 12 months revenue.
These customers represent 29% of revenue up from 26% in Q2 of FY2023 and includes so many amazing names that Eric highlighted earlier.
Our Americas revenue grew 6% year over year, while EMEA and APAC declined by 1% and 3% respectively.
Absent currency impacts both EMEA and APAC would have been approximately flat year over year.
On a quarter over quarter basis, all regions grew 3%.
Moving to our non-GAAP results, which exclude stock based compensation expense and associated payroll taxes.
Acquisition related expenses net gains or losses on strategic investments restructuring expenses and all associated tax effects.
non-GAAP gross margin in Q2 with 83% an improvement from 78, 9% in Q2 of last year.
We are pleased with the strength of our gross margins as we continue to optimize usage across the public cloud and our co located data centers for both existing and emerging technologies.
For the full year, we expect non-GAAP gross margin to be approximately 79, 7% I didn't make additional investments in new AI technologies.
Research and development expense grew by 6% year over year to approximately $104 million.
As a percentage of total revenue R&D expense increased to nine 1% from eight 9% in Q2 of last year, reflecting our business investments and expanding our product portfolio, including some contact center AI and more.
Looking ahead investing in innovation will remain a top priority presume.
Sales and marketing expense decreased by 3% year over year to $276 million.
This represented approximately 24, 2% of total revenue down from 26% in Q2 of last year.
As a reminder, <unk> will be held in Q3 of this year and will drive incremental marketing investment in the quarter.
G&A expense declined by 19% to $73 million or approximately six 4% of total revenue down from eight 2% in Q2 of last year as we continue to achieve greater efficiencies and experienced onetime savings in the quarter.
non-GAAP operating income grew by 17% to $462 million exceeding the high end of our guidance of $410 million.
This translates to a 45% non-GAAP operating margin a meaningful improvement from 35, 8% in Q2 of last year.
Our effective tax rate in Q2 was 18, 5%.
For the remainder of the year, our tax rate is expected to approximate the blended U S federal state rate.
non-GAAP diluted earnings per share in Q2 with $1.34 on approximately $306 million non-GAAP diluted weighted average shares outstanding.
This result was 28 above the high end of our guidance and 29 cents higher than Q2 of last year.
Turning to the balance sheet.
Deferred revenue at the end of the period was $137 billion down approximately 2% from Q2 of last year.
This was in line with the high end of the expectations that we shared last quarter.
For Q3, we expect deferred revenue to be down 4% to 5% year over year, partially driven by shorter billing frequencies on enterprise deal arising from the high interest rate environment.
Looking at both our billed and Unbilled contracts, our RPI increased 9% year over year to approximately $3 $5 billion.
We expect to recognize approximately 59% of the total <unk> as revenue over the next 12 months as compared to 61% in Q2 of FY 'twenty, three indicating lengthening contract durations on a year over year basis.
As a reminder, our renewal seasonality peaks in Q1 and declined throughout the rest of the year.
Operating cash flow in the quarter grew 31% year over year to $336 million.
Free cash flow grew 26% year over year to $289 million.
Both results include the approximately $60 million cash payment related to the legal settlement that we discussed last quarter.
Our operating cash flow and free cash flow margins were 29, 5% and 25, 4% respectively.
We ended the quarter with approximately $6 billion in cash cash equivalents and marketable securities excluding restricted cash.
Given the strength and profitability and collections, we are increasing our cash flow outlook for FY 'twenty four.
We now expect free cash flow to be in the range of one two to $1 billion to $3 billion.
Turning to guidance.
For Q3, we expect revenue to be in the range of 1115 to $1, one 2 billion.
Which at the midpoint would represent approximately 1% year over year growth or 2% in constant currency.
We expect non-GAAP operating income to be in the range of $400 to $405 million.
Our outlook for non-GAAP earnings per share is $1 seven to $1 nine based on approximately 309 million shares outstanding.
We are also pleased to raise our topline and property our profitability outlook for the full year of FY 'twenty four.
We now expect revenue to be in the range of $4 485 to $4 $495 billion.
At the midpoint. This represents approximately 2% year over year growth four 3% in constant currency, which we expect to be neutral in the back half of the year.
Our increased total revenue guidance reflects a consistent view on enterprise with tempered expectations for online for the remainder of the year.
We expect our non-GAAP operating income to be in the range of $1 685 to $1 $695 billion, representing an operating margin of approximately 38%.
Our outlook for non-GAAP earnings per share for FY 'twenty four is $4 63 to $4 67 based on approximately 308 million shares outstanding.
Thank you to the entire <unk> team, our customers our community and our investors for your trust and support.
Before opening up for Q&A, we are excited about our Premier user conference doomed hope, yes, it will be in person in San Jose as well as on zoom event.
We look forward to sharing more about our expanding platform, new innovation and customer testimonial. Please.
Please join us at <unk> on October three and four.
David Please queue up our first question.
Thank you Kelly.
He mentioned, we will now move into the Q&A session. When I call. Your name. Please turn on your video and on mute as a reminder, in an effort to hear from everyone. Please limit yourself to one question or.
Our first question will come from Mark Murphy with J P. Morgan.
Well, thank you so much and congrats.
Congrats on solid execution in the quarter I'm curious if you can comment on the zoom schedule or product it looks like a very attractive add on option.
And a clear efficiency gain I I understand that that's going to be free for some period of time and then it looks like $6 per month for for certain users.
I understand it's going to be included in some of the other bundles.
But can you just comment on how that's going to work or maybe Eric you can you can touch on the efficiency gains from that product.
Kelly any type of a framework for the revenue potential out of that particular product.
Yes, so I can talk on product authority accounted for your food tell me on the revenue potential of market. You also write off I guess, probably you already tried it out is indeed, a very attractive you know the reason why if you look at the whole customers are.
Including Zumiez, while always scheduled a meeting let's see Mark I wanted to schedule a meeting with <unk> next week.
It's so complicated right onion, a retarded a mutual my year Army re think how about on planning their schedule a sweetheart, meaning across the company's scheduling is so complicated by auto have customers and simplify that experience. That's why I decided to introduce zoom is scheduled right and also there are some others.
Startup and solutions order there are customer deal with <unk> and 11th Zoom platform because they are a user meeting and phone human Chad and one more player because he can schedule a meeting with the.
Somewhere from outside organization really lack of that experience. That's why we decided to build that and we ought to have a free trial and also customer award how to pay to customers already and also be part of a zoom wise well down the road and actually it's been very well and really simplify the way for you to schedule meetings with any of our <unk>.
Organization, we're pretty excited about that opportunity.
Yeah, I think in terms of its overall contribution mark it's at a very attractive price point and will grow over time, certainly, but also we think that what it does is make the product continue to be where you live and it makes especially our larger enterprise customers that much more retentive as it continues to.
To spread the platform and how you spend your day.
Thank you so much.
Thank you Marc hopefully you tried that thank you.
[laughter].
Okay. Our next question comes from meta Marshall with Morgan Stanley .
Yeah.
Neither we can't hear you.
Cause I'm on mute.
So one of the questions that I had was just what you're seeing in terms of the environment. You know I know that your upside kind of came from the enterprise just wanted to get a sense of how the environment changed during the quarter. If there were any changes during the quarter and just whether kind of that upside came as a result of.
Better upsells or just more.
Deals kind of getting close them and sort of order. Thanks, yeah. Thank you Peter So I would say in terms of Q2 versus Q1, the environment has been pretty consistent.
We continue to see momentum in Q1 in home phone.
There are still I would say lengthening sales cycles out there and customers really making sure that they take advantage of doing their full due diligence, but we're really excited about the vision that we can paint for them not only around obviously the existing platform, but what's also coming from an AI perspective, and I think our customers.
We are finding that very attractive as you heard from the customers that Eric talked about seeing a lot of momentum of customers that were originally meeting customers really moving either into using one or adding on zoom phone and considering contact center as well.
Great. Thanks.
We'll go next David Who's next.
Apologies. Our next question comes from Kash Rangan from Goldman Sachs. Thank.
That cash.
Okay.
Alright got it.
It looks like the enterprise business has seen stability with respect to attrition.
I'm curious to get your thoughts on the online business with that.
It's still a substantial portion of the revenue and anything that you have identified.
That could help stabilize the attrition levels and also just while we're at it what is the pricing power of zoom like can you talk about.
Customers part about inflation and doing shorter term contracts that I guess on the flip side means that you could raise prices sub wondering how much leverage we have with that thank you so much.
Yeah. So in terms of the online segment, we were really pleased with the continued improvement that we're seeing in the recruiting race or the churn rates. They are really at historic lows and so that's really great to see and Wendy and her team continue to innovate we just saw a little a little more volatility.
And that's what we indicated in sort of tempered expectations for the rest of the year, but really pleased with the ongoing progress that we're seeing in that segment of the business and then in terms of the pricing power I mean, Eric feel free to chime in but certainly we continue to have a discussion with our customers when it comes up for re.
<unk> is looking for opportunities to potentially expand their usage of.
The portfolio moving them from zoom meetings, and one is a very common upsell mechanism or I should say movement that we're seeing with our customers today and considering is there an opportunity potentially given the grid the value that they are seeing in our platform potentially for a price increase at renewal as well.
Thank you yeah, just too quickly in terms of pricing power in most of our businesses Miscue view employee experience as the number N port right. That's why are these really wanted to.
Kind of give the customer the best of breed of service like Zoom platform, otherwise you know Rob would it be do not collaborators from experience and winning from a conquest ethanol Rockies right and most of the customer will be talking with the really appreciated our value and ease of use and quality of zoom service.
Thanks, so much thank you kessel.
Our next question comes from Michael Funk with Bank of America.
Yeah, Hi, Thank you for taking me.
A question today.
So yes.
Congratulations on new logo additions.
Good good momentum there and the phone adds as well just wondering Kelly I mean, what has to happen with somebody other metrics did decelerate during the quarter and D are majority of sequentially.
Online churned off sequentially.
Enterprise customer additions also slowed.
Sequentially.
So thinking about the acceleration in our revenue growth, we've been expecting or hoping for.
Which of those metrics is going to churn first and how much visibility do you have into that term.
Yes, So couple of things, let me just comment on a couple of the metrics that you called out specifically first of all for the online churn metric as a reminder, we expect Q2 and Q4 to be seasonally higher than Q1 and Q3. So while it was up over Q1, it was down over Q4 and that because of summer and <unk>.
Winter holiday, so I think that $3. Two number is is a really great number and we are going to continue on linear team are continuing to focus on opportunities to improve that.
In terms at the enterprise, we're really focusing on some of the approaches we talked about earlier certainly zoom phone is one of the key drivers in terms of expanding our customers' usage of the platform that doesn't necessarily result in new customers, but you could see that in the enterprise customer metric as that starts to expand.
And also the success of zoom, one is going to drive that expansion to more customers in the $100000. So I think those are the metrics that you should watch as great indicators as our enterprise team continues to sell through with bond sales and one sells in contact center and then of course as AI becomes more front and center, you'll get to see.
Be that as well.
Okay sort of quickly then so the endear are for enterprise that should improve as we exit the year or is that expectation. So 109 should improve off of that number. If you remember it's a trailing 12 months number it may come down a little bit more yes, but then start to inflect and potentially at the back half of the year, but it <unk>.
Might be into early of FY 'twenty five okay. Thank you Kelly Thank you Eric.
Thank you.
Our next question comes from James Fish from Piper Sandler.
Thanks for the questions.
Kelly for you or Eric.
Are you seeing optimizations on your seats, showing a slowdown or a similar pace.
So what you've seen more recently is there any way to talk about but linearity in general and Eric we kept the investment behind AI.
And it seems like it's causing gross margins to drop a couple of points and guide sequentially.
I guess, what can you say that gives confidence that this isn't just further price degradation or just a higher level of conservatism on the other side of the coin.
And you wanted to address the first one.
So in terms of the optimization of seats. What we've seen is I think we talked about the sales motion before that our reps have the opportunity to really get in there and talk to our customers and they've done a great job about logo retention and even if they are.
Customers, because they've had a dislocation in their employee base, taking that opportunity then to replace that revenue with an upsell of another product licensing found in showing them. How overall, we can drive such a great ROI for them and save them and our sales team has been incredibly successful at that and so that's what we're seeing even though there is still a little bit of 50.
I would say of seats in there we're seeing lots of momentum on those upsells at that renewal period.
And I just wanted to highlight we only in terms of gross margin. We had 83 this quarter and we only guided to $79 seven so it is not even 100 basis points of degradation. So at fair enough.
Eric can talk about the reasons why that is and what we're investing in.
Gross margin is very very strong again, you know in terms of in packages of short term nor long term. The reason why we're at a comfortable <unk> is becoming more and more important many of our customer told US you rely on zoom iPhone you know like all the features today you know what I can meet you in summary, you know someone can.
Take a meeting notes manually right powerful library or improve their productivity and efficiency for sure.
Needed to invest more in the good news we are invested in it.
Two to three years ago, right and Thats why some of the features are already ready for a hard though for the double down on that investment right. You know we hired a doctor.
And also your message on auto for you know the Gpus as well our team and we are how we will have a higher confidence and Azusa ear features that will have a cost marbach right and also our strategy is very different vintage right. You know first of all I have a February .
Federer AI approach and also the way we look at those features although have a customer improved productivity. That's a very important and of course, the cosmo rely cause NOLA somewhat you know all of them right.
Gave you a so called it a free service and as Antonio AI features a crazy price that's not in our case, we really terrible kaufman of value and also add more and more innovations at the same time, you know the way for us to look at innovations not only for incremental innovation in two months or whatever and AI.
But also how to liberty or due to some brand new services to innovate to deliver even more value than customer expected last where we can.
Monetize collaborate AI technology, that's why we keep it you must be more again. The go is about some rather new AI services like a zoom vacuum for suits, just what a lot of other services, we're going to build it on the road so stay tuned and a father zootopia.
Thanks, Eric Thanks, Kelly Thank you.
Our next question comes from Matthew Van Vliet T I G.
Yeah good.
Good afternoon. Thanks for taking my question I wanted to dig in a little bit more on the trends youre seeing in the contact center can you help us with.
No.
What situations Youre seeing.
Mhm.
And the most success in.
Are these mostly can have some meetings and phone.
Then sort of within that.
You see more sort of internal help desk card situations or are you seeing kind of higher volume customer facing deployments as well.
Yeah, Matt.
Good question, you know first of all I can tell you.
Zoom for example, we already.
And deployed at Carnegie Center resiliency since a year ago, right and our supporting a very heavy up on our own deployment works extremely well right because of all those the inhibition and in accretion speaking among customers for.
For sure. If we are at a loss of innovations every quarter barring a brenner recommendation right assuming it will take some time, that's why quite often.
The existing customer they without going to deploy zoom contact center integration very well with the zoom phone and also the funding of new use cases like internal habit desk <unk> desk as you side at the same time. We also have some contact center customers, who do not have as many of them who you do not have a zoom meeting and it would be like a contact center I think it gave them a our the speed of innovation.
I think we have a higher covenants not own SMB, but also mortimore vino minutes, arguing about customer when realized the value of zoom and his room Carnegie Center, I think something similar to what we have data for zoom phone as well right. When we started when the S&P and customer existing customer, whereas in realized Wow, there's huge value and why not acquire our test it out.
Zinc contact center as well right. So that's the path for our to further grow our contact center business.
Great. Thank you. Thank you.
Our next question comes from Ryan Koontz with Needham.
Alright. Thanks for the question I wanted to ask about the healthy growth, we're seeing here in the $100000.
<unk> is that primarily displacement of legacy vendors that we're still seeing or are these other kind of competitive wins Greenfield type wins and you know can you share anything about kind of the effective playbook that you set up market there to expand these sort of big logo ones. Thanks.
I think some of that Ryan points to the ongoing success, we're seeing with June one customers really like the ability to buy the bundle, which needs all of their needs and it's a great opportunity to see the value, especially you previously existing meetings customers seeing that opportunity we do continue to see.
Greenfield, especially you know Erik just highlighted contact center, sometimes is a way that theyre coming in the door now which is amazing and then also we still have a lot of customers that means customers are upgrading to phone as well. So it's a combination of both new customers that come in at that level as well as customers that grow up to that level.
Overtime.
Got it any general changes in the pricing environment of market.
No, especially from Q1 to Q2, there weren't really significant changes as I mentioned, there are still lots of scrutiny around deal, but no other real changes in the environment got.
Got it thank you.
Brian .
Our next question comes from CD Panic, Rocky with Mizuho.
Alright, Thanks for taking my question My question on seat contact Center again.
That's a huge opportunity considering like 80% legacy still yet to move to cloud and you're starting from a clean slate in August .
Building yourself in house so Eric.
Eric how are you how are you trying to differentiate among other cloud vendors right now on the contact center space and clearly so do you think about this contact center next leg of growth.
Adoption should be like for what we have seen the last few years.
Yes. So speaking all for differentiation you know first of all we have bureau, the condos that are sourced from a grown up as a percent of the new modern architecture and also video as part of that is ball <unk> AI components.
What are your messaging here.
And also at the same time, a seamless integration with other product gets vaults. That's why we have a high confidence right and anoro like some other vendors in order there for a long time, Mike and the architect or minority modern and the performance and quality on US was a source of force right. However, how to make sure every enterprise customer.
During their RV process right and we do look at zoom when they look at zoom will have a higher Congress. We can compete and also you know we've just that you know Ireland.
<unk> had a lot of innovations around it and work it doesn't matter a minute platform its vaults and essentially zoomed in Congress and have become a full contact.
Contact Center suite.
Non adjusted when partner Resolute target SMB and enterprise and also with our thinking we are innovating very fast to compete against any other cloud based or on premise and contact center vendors.
And is that going to be a similar platform kind of adoption.
Yeah, Sorry go ahead, yes, only six quarters all today. So it's it's very relative right to the existing <unk> base is small it's growing very quickly, though so it won't be visible to you probably for at least another four to four to five to six quarters, probably but we're really pleased with the growth.
And then as Eric mentioned, when you start considering workforce management of course zoom virtual agent quality managed which is coming it starts to be a platform unto itself that could really be a significant growth driver over time.
The purpose senior zootopia.
Thank you.
Our next question comes from Rishi Galeria with RBC.
Oh wonderful Eric Kelly. Thanks, So much for taking my question two quick ones first look I appreciate a lot of the investments you're making around generative AI and I know, it's early but I wanted to think about how do you. How do you think longer term about your strategy around monetizing generative AI isn't around specific modules and discretionary.
Charging predominates in about gate, keeping them behind higher tiers, and using that to drive upgrades and maybe alongside that.
You're starting to see better adoption I think of your noncore products, including zoom phone had half a billion in IRR, Eric you called out some great customer wins on zoom chat. How do you think about using generative AI is kind of a connective tissue to drive more usage of noncore products and maybe even if the entire say one pricing and packaging. Thank you yeah just one.
Four questions. So you kept the zoom platform. So not only do we have mentioned swine saw some you know people are still started with just the meeting covenant episode, that's another piece of food piled up on comfort right for those customers deployed a rocketship Machado USPS depresses. The <unk> had a lot of accommodate deployed to the phone and a wire.
<unk>, you know with whom our contact centers vaults scheduler learned also does whom cliffs as we build a more and more services right and essentially when we doubled our platform how do look at everything from cost perspective, and more bladder, let's take the zuma, one zumba condensate or I really like zoom out a paid or deploy in high power.
So a lot of features you know take a basically a general.
<unk> features you know what I can beat in summary, and at 11 O E. R to provided an acumen shack and Midland foray and let's say you are related to the meeting how to again a quick route on the summary about what at what had been discussed over the past five minutes.
Although the Jan Peeters to mix the entire platform not only sticky, but also more body right. So quite often you know some cautions yeah, you can charge and in some other competitors do that which we are taking a different approach. We think if you add more value to customers and as they are doing more were likely to move onto <unk>.
Entire platform right, the anatomy, which cannot monetize the hardest thing about AI computer news services right.
For example, my bedroom to 1990, 599, and six in an hour sort of boil.
<unk> you know that feeling of the you know the the stores when they embrace internet.
You do not want them and increase the price right you buy online why increase biased. However, you can never even added the beauty youth services right a new innovations that's about we're taking a different approach nor as some other competitors that gave us a free service where it is.
Oh, My God, the charter accretive price I do not think that's a fair to customers right. Now we are taking a different approach and more value to leverage N E. R 12 existing customers folks on the feature improvements per average tenure at the same time, given our speed of innovation all the leverage Yang.
What are some brand new AI services to monetize that's our goal that's our direction our stores, so that our differentiated pricing strategy as well.
Hopefully you know my my answer is clear otherwise, let's talk more at zoom popular.
Yeah very helpful. I'm looking forward to it. Thank you appreciate it thank you.
Our next question comes from Alex Zukin with Wolfe Research.
Hey, guys. Thanks for taking the question I guess, so when I sit back and look at the quarter this quarter looks a little bit different than last quarter. You grew sequentially. Your revenue base on enterprise and online for the first time together in some time, where both of those things happen you're enterprise billings actually grew as.
Well and so I look at the guidance and it looks like we're taking a step back and I appreciate the conservatism and the macroeconomic environment I. Appreciate the fact, you've got changes are still working through in the go to market, but help us understand if we look at the trends as they are.
Has churn stabilized to a point, where we can expect for instance on the online business that this is a new floor, we can count on because if I look at the exit rate for enterprise revenue I don't think it's at the rate that you know.
Any of US sitting here would would be jumping up and down about you mentioned <unk> on the enterprise side, starting to I think you said inflect, but maybe go back up.
In the first half of next year, what's the right way to interpret the enterprise growth exiting this year and into next year and then I've got a quick follow up.
Yeah. So in terms of online I would say that we.
We are very pleased with the performance that we're seeing in the churn rate itself and I do think we're stabilizing around a new level of it is back to historic levels and I think that's a reasonable assumption to make going forwards and then in terms of enterprise and we're obviously not in a place that we're.
To comment on FY 'twenty five yet so we're not going to do that on this call but.
Enterprise Yeah, when you look at it from that for me.
I would say the same when you look at it as terms of the growth rate that you're expecting you can even back in here right at what it is and we are as you say still considering no improvement from the macro at this point and as you said continuing to have the salesforce settle in.
Two our new structure, we're thrilled to have Graham leading the organization. We have assembled the transitions took a little bit longer in EMEA and APAC than the rest of the world as you've heard us talk about but you know as we're coming into Q3. The pipeline is strong it's stronger than it was as we were coming into Q2.
So.
I think those are the factors you can take into consideration as youre looking for the growth rate for the rest of the year.
Okay, and then maybe Eric for you obviously, the evolution of zoom from a point solution to a platform is nice to watch you you've talked about zoom one.
You've now given us that $500 million annualized number for <unk>, what's the penetration today presume one within the enterprise space and what's the penetration for the phone.
Alex in the enterprise space, and where does it go from here in your mind like what does success look like three.
Yes, I think a zoom a phone penetration is doing relatively well, but assume why I think.
<unk> has a huge opportunity right zoom was not only for zoom meeting that I also have a team of Chad if a customer wanted to deploy our free grid acumen shadow solution on a whiteboard and a lot of other services. So I think a huge opportunity, especially for media and a modest size of customers and we need to kind of shut in Nevada.
Ernie Bullock features all those kind of are seen as part of our some wildlife celebrity all those.
The cool features right.
To penetrate the more you know about us and once the market a shirt and resuming to sell between rhetoric about BARDA huge opportunity ahead of us for zoom web penetration and I wouldn't say, we trust is starting to show.
I gave one example, I'll take a USPS for example, when the realized Wow you have a grid team tried a solution is also part of zoom, one and also as a free that's amazing operative personnel why why not to deploy zoom right. So many more customers when they realize the full potential of our zumba platform I think that that's the wireless right.
We need to focus on so.
Perfect. Thank you guys. Thank you Alex.
Our next question comes from Peter we'd with Bernstein.
Thank you.
And maybe just kind of falls off a little bit of what Alex was just getting it out but first off I want to say, it's really exciting to see the progress on zoom phone and contact center, it's been amazing to watch that all the checks I do with folks are very positive on things that are going there.
I think Kelly you you've commented a few minutes ago, and we're willing to undertake with Alex here.
<unk> may come down a bit before it starts reiterating maybe by the end of this fiscal year, maybe the beginning of next year, we start to see some line of sight to some benefit there.
I'd really love to kind of dig into like what will drive that improvement and kind of what I split the customer base you do a really nice job of reporting bolt on greater than 100, K in Westwood 100, K like some quick math suggests where it's been really painful recently is on the greater than 100 key customers and I tried to figure out like on that Reacceleration is it about kind of <unk>.
Reigniting those greater than 100, K is the opportunity with the less than 100, K like growing them up because they are less mature and like really what is it that you are going to be delivering with these customers to reignite that between those those customer basis.
So what I commented on is that we have seen some dislocation in our customers' own employee base and that our sales reps do a great job when theyre talking to those customers about helping them potentially rightsize, if they have downsized in their employee base, but upselling and retaining that <unk>.
Revenue in other parts of our platform so that as if there's still pressure in the macroeconomic environment youre going to see that a little bit right. So maintaining logo with me even maintaining the same amount of revenue, but would've been an upsell if not for a down sell due to steep so part of it is just an.
Ongoing potential change in the macro which we have not factored into the guidance that we gave and then the continued acceleration of all these new products that we keep talking about phone is obviously doing really well and as well hit its stride, but remember that's taken three years to four years to accomplish is tho contact.
Center that we expect to follow the same is just it just need a little more time and then you heard about all the additions into the contact center platform itself with DDA with Workhorse management employee management, that's coming all of those will continue contribute to growth over time, and then Eric sort of hinted thinking about the way that AI over.
<unk> is going to help with both retention as well as potential opportunity to grow revenue. So it's just some of these things just have to grow a little bit our age a little bit in mature into the stages are contributing in a way that you can see them.
And how high do you anticipate being able to get once all of that stuff works out I mean, obviously, you've seen some of those headwinds you kind of know how much you grew a darn liked what I lost this and it would have been so much better, but if youre looking for like what should we aspire to be getting into or back to.
How soon do you think we can get there.
Peter will talk about that more when we're ready to give FY 'twenty five guidance, but not not today.
Yes, I kind of a little bit of Mazda Peter So the question you often reverse similar to what are the article our borders one actually today is a problem is zoom is the is a strong brand on meeting site right. Many of our customers. Unfortunately, the human did not realize we have a lot of other services north omission Zuma platform right.
That's a number in Canada about how.
Oh to make sure all those even if this can even for existing customers. We are also seeing orders just in the meeting that's another case, where we.
<unk> you know I'm sure a good historic mix of most of our customers or poverty. They realized a zoom not only just the meetings had a full platform I think the impress important may not happen until then.
Thank you. Thank you.
Our next question comes from past Kujawa <unk> with Wedbush.
Hey, guys. Thanks for taking my question two questions for simply Kelly I know you had a price increase of the online business in Q1 and that was being phased out a thing in different view of the different task has that been rolled out across the globe and if you can comment on any tailwind.
You saw from that price increase in the Q2 online business.
Yeah. So it has been very effective in general in terms of maintaining strong retention rates and moving customers from monthly to annual as they continue to see value. When we rolled out this price increase and given that it's been in effect for the full time now we're going to I'm going to break out, but it break it out separately.
Currently, but it certainly is overall, having a great impact and including in the momentum for our online and it is I believe it's live in every market at this point.
Got it and then one follow up on contact center and its just pretty early you just saw.
And I'll just add.
First of all your customers, but any comments on <unk>.
Price points are seeing an attach rate of seats. So let's say customer has 100 seats on a zoom meeting when customers buy a contact center what does what it's kind of a doctor that youre seeing these early early customers.
Yeah.
It is very different right in terms of it's not it's not anywhere near like phone typically is near one to one and sometimes even more one to one.
Tax rates contact center is very different and it depends on the use case, we're seeing of the customers. If it's an internal help desk or assets like <unk>.
One of our largest deal to date with the BPL Blair. It is their business right. So drive contact center. So I don't think Theres necessarily a standard ratio that you can look at because it varies so much based on use cases, and then in terms of pricing as a reminder, our list price for contact center.
<unk> is highly disrupted it's $70 per seats and given you are comparing that.
Given comparing it to the other competitors in the market, it's a really I think.
<unk> brings a lot of value to our customers. So while enterprise customers and large customers are going to get discounts, we certainly been able to manage to maintain price point, given how disruptive and competitive it is compared to others in the market.
Thank you just one more clarification Kelly you mentioned that we won't have visibility into contact center revenues for another four to six quarters. Its still very early but are you implying that it'll be close to 10% of revenues in four to six quarters.
No no no no I don't mean to imply that at all I just mean that.
<unk>.
See that laughing.
Is that over time are you starting to see zoom phone and we talked about like more milestone metrics and how that's contributing that's what I was saying.
I mean.
That would be the.
The best growth rate if that were to occur.
Thank you guys. Thanks, a lot. Thank you.
Our next question comes from Matt Stotler with William Blair.
Yeah, Hi, there. Thanks for taking the question, maybe just a follow up on zoom phone if I look at the disclosure. This quarter, you know 500 million IRR in last quarter component you 10% of revenue the.
Implication would be something in the ballpark of let's say, 10%, maybe a little more sequentially, but in terms of growth for a presumed bone IRR.
Just dig into R. R.
Double click on I guess, what's driving that growth rate is that indicative of the success. We're seeing with some one is that evidence of go to market maturity. There is at some large customers like the P. P. O. You just mentioned kind of wrap it up anything you'd like to call out there.
Yeah, I mean actually Matt it's all of the above is what I would say.
As we've taken is we are talking to our customers about renewals, taking the opportunity to talk to them about the value of zoom, one or talking about just helping them I think every CFO and CIO across the world today is trying to think about how do they.
Drive more efficiencies in our organization and zoom phone is a great way to do that when you look at it compared to the ROI, especially of having an on Prem solution and then also with contact Center contact Center is a driving force zoom phone is a very natural adjacency to it. So I think it's a combination of all of that.
And it's just going to continue to create more and more synergies as zoom contact center, especially continues to mature.
Yes, just quickly.
When we talk with our customers really like you know we have a both deeply probe zoom meeting that is meaningfully together macondo centered in Europe unit in particular for those customers.
They don't want to deploy upon your solutions, Mike if you'd just to have a phone business is free har too.
To build a sustainable business.
Phone and have meetings set up very similar to the integration of <unk>, you'll have a phone call remotely can jump onto video meeting right. So that's.
That kind of a similar experience and really has helped us further extended our food groups. If you just offer a partner solution is really not a suitable noticed sustainable and download more and more customers and with the lack of the move on platforms like zoom.
Got it thank you.
<unk>.
Our next question comes from Sterling Auty with Moffett Nathanson.
Thanks, Sterling, Hey, guys, Alright, Kelly for the online outlook how much of this is that because it seems like the online guidance a little bit worse than what we had before how much of this is macro how much of this is execution and Eric one for you when we think about AI and all the <unk>.
<unk> that youre driving how much of that AI innovation is just going to be driving and differentiating the core zoomed products versus bringing a premier monetization kind of pricing model.
Or specific AI skus.
Eric you anchor.
Sure Yeah. So first of all in terms of on a study you know I know you have approval hopefully it's going to have a per account and for sure. We can contributor to on a gross so speaking about AI I think we are taking a different approach as I said earlier from architecture.
Our perspective is different rather into AI in terms of mine monetization right.
We look at how to leverage <unk> to improve our KOL experience and it did have a more widely maybe this servicing most sticky puzzle appreciate assume all risk and offer more and more features values at the same time, we do not pan out or charter them increases price increases or price a lot better at all right.
That's why we Bureau trust you know Newmont Goldcorp zoom platform at the same time <unk> does bring a huge opportunity.
In terms of monetization into must offer the new service.
As I said earlier auto language AI computer some why didn't use service you cannot count on low hanging fruit you already before this service I've a jihad feature now Union pay a crazy price I do not think that's a sustainable a customer do not lucky.
That's why our approach hardwood averaged a mixture of existing cause I'm happy and a leverage yet the bureau, new services in ambition innovation and innovation that's our approach.
Thank you, Eric and Sterling in terms of online I would say.
We're pleased with the execution and where do you see that is the ongoing stabilization in the churn rates that I think has been really really well done and stabilized over the last four quarters now and I think that's really great indication of the ongoing improvements in the platform the bi flow b.
Movement of customers from monthly to annual.
We do see some ongoing headwinds in the overall macro which is driving more for the top of the funnel and that's where Wendy and her team continue to focus on <unk>.
The pricing packages, new payment currency things that can they can focus on to expand at the top of the funnel. So that over time and then eventually starting to add new products as well that can be sold online. That's what will eventually drive. This ideally we want it to not only be stable, but to be a growth driver as well.
Makes sense. Thank you. Thank you. Thank you.
Okay. We have time for one more question and that last question goes to William power with Bard.
Okay, great. Thanks for sneaking me in maybe one more question on contact center, great to see the traction there I wonder if perhaps area. If you can update us on where you are with respect to go to market I know there have been a big focus you know how much more room and opportunity is there on that front and then I guess the second part of that is.
It feels like there's a big opportunity with respect to AIA contact center of being a new entrant. How do you think about the opportunity for whether it's virtual agent or other capabilities to help you be even more disruptive in that market.
Yeah. Good question. So yes speaking of our go to market I think you know on part of product may have a higher higher confidence and repetitive inhibition speed, Nevada. So many features and a waterfall as a matter of opinion of out of other features that we introduced every quarter, but in terms of go to market I think not unlike what we did it before for meetings right.
And the large molecule driven primarily driven by our drug at Venice horizontal it's different for sure when you dumped entrepreneur on the indirect channel.
And Bruce although the center part of in our partners and our Master agent and as soon as the Voss and is a union of imagine them on that front and.
Essentially this is one of the things you know why not I guess.
Quickly, obviously, the etc revenue, but you're going to have a greater content on a product is not as you will see the progress on cocoa market. Upon I think that we will see the grid resort.
And in terms of I know like other windows right. They are have a contact center solution for long time, when you look at AI kind of architecture and auto flexible right how to add AI to that although the existing leer, maybe at a corner center of the contact center, we already realized the importance of a yacht right. That's why you know we have a very.
Flexible architecture, not only do we build it organically.
But also you know were quite of Solvay and also whats your agent as soon as the boss.
Gross and also the acquisition Sydney have hustled off in terms of product innovation and AI is going to put a bigger for the contact center, we have a higher confidence we can do very well on that front.
Thank you.
Thank you.
Okay. This concludes our Q&A I would now like to pass things back to Eric for closing comments.
Oh. Thank you all for Das followed Q2, earning call really appreciate of our greatest part and a very very beautiful and thank you.
Yeah.
Hi, everybody.
We thank you all for your participation and we look forward to seeing you again. This concludes today's conference enjoy the rest of your day. Thank.
Thank you.
They are recording has stopped.