Q4 2023 Zoom Video Communications Inc Earnings Call

Okay, Hello, everyone and welcome to <unk> Q4, FY 'twenty four earnings Webinar as a reminder, today's webinar is being recorded and now I would like to hand things over to Tom Mccallum head of Investor Relations.

Operator: Okay. Hello, everyone, and welcome to Zoom's Q4 FY24 earnings webinar. As a reminder, today's webinar is being recorded. And now, I would like to hand things over to Tom McCallum, Head of Investor Relations. Thank you, David.

Tom Mccallum: Thank you David Hello, everyone and welcome to <unk> earnings video Webinar for the fourth quarter and full fiscal year 2024, I'm joined today by <unk>, founder and CEO, Eric Yuan and <unk> CFO Kelly Steckelberg.

Tom Mccallum: Hello, everyone, and welcome to Zoom's Earnings Video Webinar for the fourth quarter and full fiscal year 2024. I'm joined today by Zoom founder and CEO, Eric Iwan, and Zoom's CFO, Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.us. Also, on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results.

Tom Mccallum: Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors Dot Dot U S. Also on this page you'll be able to find a copy of today's prepared remarks, and a slide deck with financial highlights that along with our earnings release include a reconciliation of GAAP to non-GAAP financial results.

Tom Mccallum: During this call we will make forward looking statements, including statements regarding our financial outlook for the first quarter and full year 2025.

Tom Mccallum: During this call, we will make four forward-looking statements, including statements regarding our financial outlook for the first quarter and full year 2025, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, opportunities, go-to-market initiatives, growth strategy, and business aspirations, and product initiatives and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially.

Tom Mccallum: Our expectations regarding financial and business trends.

Tom Mccallum: Impacts from the macro economic environment, our market position opportunities go to go to market initiatives growth as strategy and business aspirations and product initiatives and the expected benefit of such initiatives.

Tom Mccallum: These statements are only predictions that are based on what we believe today and actual results may differ materially. These forward looking statements are subject to the risks and other factors that could affect our financial performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.

Tom Mccallum: These forward-looking statements are subject to risks and other factors that could affect our financial performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make in today's webinar. And with that, let me just turn the discussion over to Eric. Hey, thank you, Tom. Thank you, everyone, for joining us today.

Tom Mccallum: Zoom assumes no obligation to update any forward looking statement, we may make on today's webinar and with that let me just turn the discussion over to Eric.

Eric Yuan: Hey, Thank you Tom Thank you.

Eric Yuan: For joining us today.

Eric: In FY24, we made a tremendous amount of progress towards our mission of one platform, delivering limitless human connection. As generative AI began to take the world by storm. We listen carefully to customers in order to deliver AI that can best serve their needs, with innovation that is responsible, empowering, and beautiful from the ground up in a way that commits and unifies our entire Zoom AI company. Our generative AI assistant empowers customers and employees with enhanced productivity, team effectiveness, and Skills. Since its launch only five months ago, they have expanded their AI company to six Zoom products. All included, at no additional cost, to license the user.

Eric Yuan: In FY 'twenty fall amid a tremendous amount of progress towards our mission of blend platform delivering limitless human connection.

Eric Yuan: As generative AI began to take the world by storm.

Eric Yuan: Releasing a carefully to customers in order to deliver AI that can better serve their needs.

Eric Yuan: Is the innovation that is responsible empowering and beautiful and we're going to up weight that permits and unifies our entire platform.

Eric Yuan: Zoom AI, combining our generative AI assistant empowers customers and employees with enhanced productivity team effectiveness and his skills.

Eric Yuan: It's the last one five months ago expanded AI companion to zoom products.

Eric Yuan: All included.

Eric Yuan: At no additional cost to licensed users.

Eric Yuan: But all well far from Dol, our future roadmap to AI is a 100% of guided by driving customer body.

Eric: But far from done, our future roadmap to AI is 100% guided by driving customer value. We are hard at work, developing new AI capabilities to help customers achieve their unique business objectives. And we will have more to share in a month at Enterprise Connect. We hope to see you all there.

Eric Yuan: We are hard at work developed.

Eric Yuan: <unk>, new AI capabilities to help our customers achieve their unique business objective is and we will have more to share moms and enterprise connect with.

Eric Yuan: We hope to see you all there.

Eric Yuan: Our expanding Carnegie Center suite is a unified AI of course, the solution that offers tremendous value to companies of all sizes.

Eric: Our expanding Connecticut Center Suite is a unified AI-first solution that offers tremendous value to companies of all sizes seeking to strengthen customer relationships and deliver better outcomes. The base product includes AI compiling, and our newly launched tiered pricing allows customers to add specialized CS capabilities, such as AI expert assist. Workforce Management, Quality Management, Virtual Agents, and Omni-Channel Support. Hosted by its expanding features, our Connecticut Center suite is beginning to win in head-to-head competition with a legacy in combat. Beyond that, it is competing on its own merits with customers completely new to Zoom. Broadening the Funnel to the Zoom Platform As Zoom becomes a full workflow solution, we are seeing customers migrate from other chat products onto Zoom team chat.

Eric Yuan: Seeking to strengthen customer relationships and deliver a better audit costs.

Eric Yuan: The best product in Kudos, AI compiler and our newly launched tiered pricing allows customers to add specialized capabilities such as AI expert assist workforce management quality management, which were aged and omnichannel support.

Eric Yuan: Posted by expanding features our Carnegie Center suite is beginning to win head to head competition as the legacy incumbents.

And that it is competing on its own merits with customers completed a new to zoom.

Eric Yuan: Broadening the funnel to the zoom platform.

Eric Yuan: As zoom be comps are full workplace solution, we are seeing customers migrate from other chatter product entre zoomed team Chad <unk>.

Eric Yuan: Excited.

Eric: Over the past year, Zoom team trial usage has increased by 130% across our paid accounts, and our migration tool designed to simplify the transition has seen a 4x increase in downloads in the last six months. Customers across industries are moving to Zoom team chat, including a global flight leader who has migrated over 1,200 users. A major law firm who has migrated 1,500, and also a financial payments leader who has moved over 2,000.

Eric Yuan: Over the past year zoom team and try to use it has increased 130% across our paid accounts.

Eric Yuan: Our migration tool designed to simplify the tradition.

Eric Yuan: Sin, a full X increase in Donaldson in the last six months.

Eric Yuan: Customers across industries, a millions of them wound with zoom and teams at including a global supply chain leader, who has migrated over 1200 users.

Eric Yuan: Lawful who had to migrate to 1500 users and note that all financial payments leader, who has the board or Tucson and the users.

Eric: Customers appreciated the improved user experiences and enhanced collaboration to involve Zoom team chat, product, as well as the cost efficiencies realized by consolidating their communications and collaboration solutions onto Zoom. Last April, we acquired Workvivo, and its integration into the Zoom interface has strengthened its market position. In Q4, we upvoted a Fortune 10 company and a longstanding Zoom customer on WorkWeb, making it Workavego's biggest customer to date. And on the flip side, we also saw a global tech company that started as a work with a customer adopt the broader Zoom platform. As you can see, adding new products, both organically and inorganically, creates a virtuous cycle, allowing us to sell more products to a larger base. We were very pleased to see Workvivo recognized as a leader by Magical Quadrant in its first report on Intranet Packaged Solutions.

Eric Yuan: Customers are preceded that improved user experiences and enhanced collaboration Zimbabwe zoom team of China.

Eric Yuan: Product as well as the cost efficiencies realized by consolidating their communications and collaboration solutions on Brazil.

Eric Yuan: Last April we acquired work of Evo and <unk> integration into the zoom interface has strengthened its market position.

Eric Yuan: In Q4, we opposite a fortune 10 company.

Eric Yuan: And the long standing zoom customer all book label.

Eric Yuan: Making eight it woke up weibo's biggest customer predict.

Eric Yuan: And on the flip side. We also saw a global pack was started as a worthy of a customer doubled at the broader zoom platform.

Eric Yuan: As you can see adding new products, both organically and Inorganically Chris.

Eric Yuan: Cycle, allowing us to sell more products into our large base.

Eric Yuan: We will very pleased to see look of vivo recognized as a leader biomedical quoted is a foster reported.

Eric Yuan: Our intranet a package of solutions.

Eric: Similarly, Zoom Revenue Accelerator was recognized as a strong performer in its first year of being covered, an amazing testament to its value as a powerful AI-enabled tool drawing value to sales teams. FY24 was a difficult year from a macro perspective, and we faced those challenges head on.

Eric Yuan: Similarly zoom around yoga salary that was recognized as a strong performer in the first of the week is a first year of a big commerce.

Eric Yuan: Amazing Testament to its value as a powerful AI enabled it to dry and body facilities.

Eric Yuan: Second of all with a difficult year from a macro perspective, and we faced those talented hi Dara.

Eric Yuan: We are becoming more disciplined and focused while continuing to part high growth opportunities.

Eric: We became more disciplined and focused while continuing to prioritize those opportunities. As a result, we are in a much better position. Now we work for one year.

As a result, we have.

Eric Yuan: A much better position, let me work by a year ago.

Eric: Our platform moat is deeper. Our contact center offering is more robust, and our go-to-market teams are primed with defined goals and sharpened expertise to drive growth and empower our customers. Now let's talk about some of our amazing customers. First, I'm so excited to work with Broadcom, a global infrastructure technology leader in the Zoom family, recognizing the simplicity and ease of use of our expanding platform. They opted for the ZoomOne Enterprise Bundle to modernize the way they communicate and collaborate. Let me also thank the audio, a leading global.

Eric Yuan: Our platform moat is deeper.

Eric Yuan: Our contact center offering is robust.

Eric Yuan: And our go to market teams.

Eric Yuan: Primed with defining our goals and as sharp on the software and expertise to drive growth and empower our customers.

Eric Yuan: Now, let's talk about some of our amazing Kosmos first.

Eric Yuan: So he decided workup broadcom.

Eric Yuan: Global infrastructure technology that either to the zoom a family.

Eric Yuan: Recognizing the simplicity and ease of use of our expanding platform.

The alternative for the Zumba enterprise bundle to modernize the way they communicate and collaborate.

Speaker Change: Let me also.

Speaker Change: The audio.

Speaker Change: A leading global.

Eric: Marriage Company for Dublin-Down, Mizzou, seeing strong value from their existing meetings, phone, and rooms deployment. In Q4, they expanded to Zoom Contact Center and Zoom Virtual Agency. Let me also thank Community Financial Credit Union, a full service financial cooperative, for investing in our broader Zoom One platform. They have a tool to modernize member engagement with the Zoom Economic Center, and community financial for the Zoom because of our one platform, video first approach to solving all their communication needs. Zoom's integrations with key banking solutions through our APIs and partnerships were a call to their decision-making process. Finally, let me thank Kivera.

Speaker Change: There is a company.

Speaker Change: Doubling down on zoom.

Speaker Change: Seeing strong value from their existing meetings phone and rooms deployment in Q4.

Spanish to zoom Matonga center and assume what Youre agent.

Speaker Change: Okay.

Speaker Change: Also fact community financial credit Union or <unk>.

Speaker Change: Full service financial cooperative.

Speaker Change: Investing in our broadest zoom platform.

Speaker Change: We have chosen to modernize.

Speaker Change: Member engagement with the Zoom mechanic Center <unk>.

Speaker Change: Community financial for the zoom because of our web platform radial force approach to solving all of their communication needs.

Eric: The World FX Payments Leader. Zoom was the foundation of their Zoom engagement, and from there, they adopted the wider Zoom One platform in less than two years. Seeing the benefits of the tight integration of our products and the pain points of AI companies, they recently began to deeply leverage the Zoom team chat in order to streamline pre-, during-, and post-meeting communication all within the Zoom platform. Everything we do here is rooted in our culture of delivering happiness.

Speaker Change: Zoom integrations with key banking solutions.

Speaker Change: Our Apis and partnerships, where coal with their decision making process.

Speaker Change: Finally, let it means that <unk>.

Speaker Change: The worst FX payments leader.

Speaker Change: Zoom phone was the foundation of their zoom engagement.

Speaker Change: And from there the adopted that wider zoom on plasma.

Eric: This is why our employees, this is why the customer employees, this is why employees in modern IT departments are our biggest champions. And, of course, happy employees are the most productive, so choosing Zoom becomes a win for everyone. The bad news is that the best is yet to come.

Speaker Change: Two years.

Speaker Change: Seeing the benefits of the tight integration of our products and the pain by combining the recently.

Speaker Change: Again to deeply deeply laboratory zoom team attack.

Speaker Change: Order to streamline the pre during and post the meeting communication all within the zoom platform.

Kelly S. Steckelberg: And with that, I'll pass it over to Kelly. Thank you. Thank you, Eric. And hello, everyone.

Speaker Change: Everything we do here is rooted in our culture offer delivering happiness.

Kelly S. Steckelberg: Let me start with a few of the financial highlights for FY24. We were pleased with our strong finish to the year, with enterprise revenue growing 9% and free cash flow up 24%. We also achieved a non-gap operating margin of 39.2%, up 326 basis points from 35.9% in FY23.

Speaker Change: This is why our employees. This is why the customer employees.

Speaker Change: This is why employees, even more than it departments our biggest champions.

Speaker Change: And are of course high pay employees are the most productive.

Speaker Change: So to the zoo becomes a win for everyone.

Speaker Change: We are laser focused on our mission and could not be more optimistic about our future.

Speaker Change: The best is.

Kelly S. Steckelberg: In Q4, we saw traction in our emerging products, including a nearly 3x increase in Zoom contact center licenses, as we not only added a significant number of new customers but also expanded average deal size. Zoom phone customers with 10,000 or more seats grew 27% year over year to 95, and Zoom AI Companion has grown tremendously in just five months, with over 510,000 accounts enabled and 7.2 million meeting summaries created as of the close of FY24. We are excited about the strong growth across these new products and the benefits they bring for our community. Now, let's dive into the financial results. In Q4, total revenue came in at $1.146 billion, up 3% year over year.

Speaker Change: Is yet to come.

Speaker Change: And with that I'll pass it over to Kelly. Thank you.

Kelly S. Steckelberg: Thank you, Eric and Hello, everyone.

Kelly S. Steckelberg: Let me start with a few of the financial highlights for FY 'twenty four we.

Kelly S. Steckelberg: We were pleased with our strong finish to the year with enterprise revenue growing 9% and free cash flow up 24%.

Kelly S. Steckelberg: We also achieved a non-GAAP operating margin of 39, 2% up 326 basis points from 35, 9% in FY2023.

Kelly S. Steckelberg: In Q4, we saw traction in our emerging products, including a nearly three <unk> increase in the contact center licenses as we not only added a significant number of new customers, but also expanded average deal size.

Kelly S. Steckelberg: This result was approximately $16 million above the high end of our guidance. Our enterprise revenue grew 5% year over year and represented 58% of total revenue, up from 57% a year ago. We continue to see improvement in online average monthly churn, which decreased to 3% from 3.4% in Q4 of FY23. This is consistent with the previous quarter and the lowest turn we have ever reported. The number of enterprise customers grew 3% year over year to approximately 22 million.

Kelly S. Steckelberg: The inbound customers with 10000 or more seats grew 27% year over year to <unk> 95.

Kelly S. Steckelberg: And zoom AI companion has grown tremendously in just five months with over 510000 accounts enabled and $7 2 million meeting summaries created as of the close of FY 'twenty four.

Kelly S. Steckelberg: We are excited about the strong growth across these new products and the benefits they drive for our customers.

Speaker Change: Now, let's dive into the financial results.

Speaker Change: In Q4 total revenue came in at 114 6 billion up 3% year over year.

Speaker Change: This result was approximately $16 million above the high end of our guidance.

Kelly S. Steckelberg: Our trailing 12-month net dollar expansion rate for enterprise customers in Q4 came in at 101%. We saw 10% year over year growth in the up market, as we ended the quarter with 3,810 customers contributing more than $100,000 in trailing 12 months revenue. These customers represented 30% of revenue, up from 28% in Q4 of FY22. Our America's revenue grew 4% year over year, while EMEA was flat, and APAC declined by 3%. The international performance was partially due to the FX headwinds in APAC, as well as the impact from our sales reorganization in early FY24 that took longer to complete internationally than domestically. 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, Income Tax Benefits from Discrete Activities, and All Associated Taxes

Speaker Change: Our enterprise revenue grew 5% year over year and represented 58% of total revenue up from 57% a year ago.

Speaker Change: We continue to see improvement in online average monthly churn, which decreased to 3% from three 4% in Q4 of FY2023.

This is consistent with the previous quarter and the lowest churn we have ever reported.

Speaker Change: The number of enterprise customers grew 3% year over year to approximately 220400.

Speaker Change: Our trailing 12 months net dollar expansion rate for enterprise customers in Q4 came in at 101%.

Speaker Change: We saw 10% year over year growth in the upmarket as we ended the quarter with 3810 customers contributing more than $100000 in trailing 12 months revenue.

Speaker Change: These customers represented 30% of revenue up from 28% in Q4 of FY2023.

Kelly S. Steckelberg: Non-GAAP growth margin in Q4 was 79.2%, which was slightly lower than 79.8% in Q4 of last year, mainly due to our investment in AI Companions. In FY25, we expect our gross margin to be approximately 79%, reflecting focused investments in our AIB. Over the course of FY25, we expect to directionally improve growth margin towards our long-term target of 80% as we continue to optimize our data center strategy and grow some of our higher ASP products like Zoom content. Non-GAAP income from operations grew by 10% year-over-year to $444 million, exceeding the high end of our guidance of $414 million. This translates to a 38.7% non-GAAP operating margin for Q4, an improvement from 36.2% in Q4 of last year. Non-GAAP diluted net income per share in Q4 was $1.42 on approximately 313 million non-GAAP diluted weighted average shares outstanding.

Speaker Change: Our Americas revenue grew 4% year over year, while EMEA was flat in APAC declined by 3%.

Speaker Change: The international performance was partially due to the FX headwinds in APAC as well as the impact from our sales reorganization in early FY 'twenty four that took longer to complete internationally than domestically.

Speaker Change: Moving to our non-GAAP results, which exclude stock based compensation expense and associated payroll taxes.

Speaker Change: Acquisition related expenses.

Speaker Change: Net gains or losses on strategic investments.

Speaker Change: Income tax benefits from discrete activities and all associated tax effects.

Speaker Change: non-GAAP gross margin in Q4 was 79, 2%, which was slightly lower than 79, 8% in Q4 of last year, mainly due to our investment in AI companion.

Speaker Change: In FY 'twenty five we expect our gross margin to be approximately 79%, reflecting focused investments in our AI features.

Speaker Change: Over the course of FY 'twenty five we expect to Directionally improve gross margin towards our long term target of 80% as we continue to optimize our data center strategy and growth of our higher ASP products like <unk> contact center.

Kelly S. Steckelberg: This result was $0.27 above the high end of our guidance and $0.20 higher than Q4 of last year. Turning to the balance sheet, deferred revenue at the end of the period was $1.27 billion, down approximately 3% from Q4 of last year.

Speaker Change: non-GAAP income from operations grew by 10% year over year to $444 million exceeding the high end of our guidance of $414 million.

Kelly S. Steckelberg: This was roughly three percentage points better than the high end of the range we provided last quarter. For Q1, we expect deferred revenue to be down 4-5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 4% year over year to approximately $3.57 billion. We expect to recognize approximately 58% of the total RPO as revenue over the next 12 months, as compared to 56% in Q4 of last year. Operating cash flow in the quarter grew 66% year-over-year to $351 million.

Speaker Change: This translates to a 38, 7% non-GAAP operating margin for Q4, an improvement from 36, 2% in Q4 of last year.

Speaker Change: non-GAAP diluted net income per share in Q4 with $1 42 on approximately $313 million non-GAAP diluted weighted average shares outstanding.

Speaker Change: This result was 27 above the high end of our guidance and 20 cents higher than Q4 of last year.

Speaker Change: Turning to the balance sheet.

Speaker Change: Deferred revenue at the end of the period with $1 $2 7 billion down approximately 3% from Q4 of last year.

Kelly S. Steckelberg: Free Cash Flow grew 81% year over year to $333 million. The sharp increase in our cash flow metrics was due to stronger collections, targeted expense management, and higher interest income. Our operating cash flow and free cash flow margins expanded to 30.6% and 29%, respectively. We ended the quarter with approximately $7 billion in cash, cash equivalents, and marketable securities, excluding restricted. Turning to guidance. As we consider our view for Q1 and FY25, we have not assumed any changes in the macroeconomic outlook.

This was roughly three percentage points better than the high end of the range, we provided last quarter.

Speaker Change: For Q1, we expect deferred revenue to be down 4% to 5% year over year.

Speaker Change: Looking at both our billed and Unbilled contracts, our RPI increased 4% year over year to approximately $3 $5 7 billion.

Speaker Change: We expect to recognize approximately 58% of the total <unk> as revenue over the next 12 months as compared to 56% in Q4 of last year.

Kelly S. Steckelberg: For Q1, we expect revenue to be approximately $1.125 billion. This incorporates two fewer days in Q1 and would represent approximately 1.8% year-over-year growth. We expect non-GAAP operating income to be in the range of $410 to $415 million.

Speaker Change: Operating cash flow in the quarter grew 66% year over year to $351 million.

Speaker Change: Free cash flow cash flow grew 81% year over year to $333 million.

Speaker Change: The sharp increase in our cash flow metrics was due to stronger collections targeted expense management and higher interest income.

Speaker Change: Our operating cash flow and free cash flow margins expanded to 36 and 29% respectively.

Kelly S. Steckelberg: Our outlook for non-GAAP earnings per share is $1.18 to $1.20 based on approximately 316 million shares outstanding. For the full year of FY25, we expect revenue to be approximately $4.6 billion, which represents approximately 1.6% year-over-year growth. We expect Q2 to be the low point from a year-over-year growth perspective and to accelerate from there. We expect our non-GAAP operating income to be in the range of $1.72 to $1.73 billion, representing an operating margin of approximately 37.5%. Our outlook for non-GAAP earnings per share for FY25 is $4.85 to $4.88, based on approximately 321 million shares out. For FY25, we expect free cash flow to be in the range of $1.44 to $1.48 billion.

Speaker Change: We ended the quarter with approximately $7 billion in cash cash equivalents and marketable securities excluding restricted cash.

Speaker Change: Turning to guidance.

Speaker Change: As we consider our view for Q1 and FY 'twenty five we have not assumed any changes in the macroeconomic outlook.

Speaker Change: For Q1, we expect revenue to be approximately 112 5 billion.

Speaker Change: This incorporates two fewer days in Q1 and would represent approximately one 8% year over year growth.

We expect non-GAAP operating income to be in the range of $410 million to $415 million.

Speaker Change: Our outlook for non-GAAP earnings per share is $1 18 to $1 20.

Based on approximately 316 million shares outstanding.

Speaker Change: For the full year of FY 'twenty five we expect revenue to be approximately $4 6 billion.

Speaker Change: Which represents approximately one 6% year over year growth.

Speaker Change: We expect Q2 to be the low point from a year over year growth perspective and to accelerate from there.

Kelly S. Steckelberg: We believe that our strong cash flow generation and financial discipline coupled with responsible capital allocation is a powerful combination. As indicated in our earnings press release today, our board has authorized a $1.5 billion share repurchase program that we will start executing this quarter. This not only underscores the confidence our board and management team have in the future of Zoom but also allows us to leverage our strong profitability, cash flow, and balance sheet to drive shareholder returns, while also allowing us the flexibility to consider M&A options to accelerate growth and deliver for our customers. As a note, the share count and EPS metrics in our guide do not account for the impact of the shareholder repurchase.

Speaker Change: We expect our non-GAAP operating income to be in the range of $1 $72 billion to $173 billion.

Representing an operating margin of approximately 37, 5%.

Speaker Change: Our outlook for non-GAAP earnings per share for FY 'twenty five is $4 85 to $4 88 based on approximately 321 million shares outstanding.

Speaker Change: For FY 'twenty five we expect free cash flow to be in the range of $144 billion to $148 billion.

Speaker Change: We believe that our strong cash flow generation and financial discipline, coupled with responsible capital allocation is a powerful combination combination.

Kelly S. Steckelberg: To echo what Eric said, we are optimistic about where we are now and where we are going. Our competitive position, innovation engine, and customer base set us up for success in FY25 and beyond. Thank you to the entire Zoom team, our customers, our community, and our investors for your trust and support. Before closing, I would like to thank just one more person for their support over the years. Our head of IR, Tom McCallum, has decided to retire this summer after a season and a half 25 year IR career.

Speaker Change: As indicated in our earnings press release today, our board has authorized a $1 $5 billion share repurchase program that we will start executing this quarter.

Speaker Change: This not only underscores the confidence our board and management team have in the future as zoom, but also allows us to leverage our strong profitability cash flow and balance sheet to drive shareholder returns.

Speaker Change: While also allowing us the flexibility to consider M&A options to accelerate growth and deliver for our customers.

Speaker Change: As a note the share count and EPS metrics in our guide do not account for the impacts from the shareholder repurchase program.

Kelly S. Steckelberg: Tom, it's been an honor and a pleasure to work with you. You have contributed tremendously to Zoom's success since even before the IPO and will be dearly missed. Thank you so much for all you have done and congratulations. I am pleased to announce that Charles Evaslage, who has worked with Tom and me for several years now, will assume the role. With Charles at the helm, we are confident that the investment community will continue to receive a high level of service from our IR. Please hold your goodbyes for Tom for now as he will be with us until midyear to ensure a smooth transition. With that, David, please queue up the first. Thank you, Kelly. As Kelly mentioned, we will now move into the Q&A session. When I call your name, please turn on your video and unmute.

Speaker Change: To Echo what Eric said, we're optimistic about where we are now and where we are going.

Speaker Change: Our competitive position innovation engine and customer base set us up for success in FY 'twenty five and beyond.

Speaker Change: Thank you to the entire <unk> team, our customers our community and our investors for your trust and support.

Speaker Change: Before closing I would like to think just one more person for their support over the years.

Speaker Change: Our head of IR, Tom Mccallum has decided to retire this summer after I see the 25 year IR career.

Speaker Change: Tom It's been an honor and a pleasure to work with you you have contributed tremendously to zoom success since even before the IPO and will be dearly missed. Thank you. So much for all you have done and congratulations.

Operator: As a reminder, in an effort to hear from everyone, please limit yourself to one question. And our first question comes from William Power with Bayard. Okay, great. Thanks. I guess I will tell you to hold this for Tom.

Speaker Change: I am pleased to announce that Charles <unk>, who has worked with Tom and me for several years now will assume the role.

With trials at the helm, we are confident that the investment community will continue to receive a high level of service from our IR team.

William Verity Power: But Tom, I wanted to just say thanks for all the help over the years. Kelly, maybe to kick it off with you, as we look at guidance, maybe just talk about what's providing confidence in the year-over-year growth to trough in Q2, if I heard you right. And how do we think about the key drivers then to perhaps accelerate year-over-year growth in the back half of the year and perhaps into fiscal 26? And how do we think about, you know, that trajectory over the ensuing 18 months, maybe as we get past that?

Speaker Change: Please hold your goodbyes for Tom for now as he will be with us until mid year to ensure a smooth transition.

Speaker Change: With that David please queue up the first question.

David: Thank you Kelly as Kelly 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 and our first question comes from William Power with Baird.

William Verity Power: Okay, great. Thanks.

William Verity Power: Yes, I will tell you said the holders for Jamba, Tom I wanted to just say thanks, Sean help over the years.

Kelly S. Steckelberg: Yeah. So when you think about, you know, coming down in Q2, but then accelerating in the back half, this is the culmination of what we've been talking about for a while, which is the growth being driven by Zoom phone, by Zoom contact center, which we've seen continue to mature. And the effect that AI and adoption of TeamChat are having on the overall retention metrics of a company. So all of those factors give us that confidence that we're going to see it come down in Q2, but then start to re-accelerate after that. And then it's very early to comment on FY26, but that would be an indicator.

William Verity Power: Kelly maybe.

William Verity Power: Just to kick it off with you as we look at guidance, maybe just talk about whats providing confidence that the year over year growth should trough in Q2, if I heard you right now how do we think about the key drivers then should perhaps accelerate year over year growth in the back half of the year and perhaps into fiscal 'twenty six and how do we think about.

William Verity Power: <unk>.

William Verity Power: Jeffery over the ensuing 18 months, maybe as you get past that.

Jeffery: Yeah. So when you think about cut.

Jeffery: Coming down in Q2, but then accelerate in the back half. This is the culmination of what we've been talking about for a while which is the growth being driven by phone by the contact center, which we've seen continue to mature by.

Kelly S. Steckelberg: That exit rate for FY25 would be an indicator for FY26. Okay, thank you. Thank you. Our next question comes from Meta Marshall with Morgan Stans.

Jeffery: The effect that AI and adoption of gene chat are having on the overall retention metrics of the company. So all of those factors is what gives us that confidence that we're going to see it come down in Q2, but then start to reaccelerate after that and then.

Meta A. Marshall: Great, thanks. Just wanted to ask, maybe just in terms of, on the deferred revenue, you know, in the past quarter, you mentioned that deferred revenue would kind of be down, or we saw it come down. And just wondering, last quarter, you talked about the terms that you were seeing of people extending their deals a little bit. Do they see any trends that you're seeing just in terms of renewals, and what you're kind of seeing in terms of renewals, either in terms of, you know, products that they're adding, but just also maybe term compression, they might be seeing? So we've continued to see strength, and renewals are huge. Thanks to our renewal team, who actually did an amazing job of exceeding their target, which was great to see. And what we have seen is the continued trend of our customers wanting shorter payment terms. They're hanging onto their cash.

Jeffery: It's very early to comment on FY, 'twenty, six but that would be an indicator that exit rate for FY 'twenty would be an indicator for FY 'twenty six.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you. Our next question comes from meta Marshall with Morgan Stanley.

Speaker Change: Thanks.

Meta A. Marshall: Just wanted to ask maybe just in terms of.

Meta A. Marshall: Yeah.

Meta A. Marshall: On the deferred revenue.

Meta A. Marshall: In the past quarter, you mentioned that deferred revenue would kind of be down quarter or we saw it come down and just wondering last quarter. You had talked about the terms that you were seeing people extending their deals come in a little bit just any trends that you're seeing just in terms of renewals.

Meta A. Marshall: And what you're kind of seen in terms of renewals either in terms of products that theyre, adding but does also maybe term compression they might be saying.

Kelly S. Steckelberg: Remember, we talked about this in Q3, that that's really what contributes to the decrease in deferred revenue, and then the other thing is the timing of renewals. We are seeing customers not necessarily wait until their renewal period to start these discussions. For example, I reviewed a proposal today for a customer that's not going to renew for six months.

Meta A. Marshall: So we've continued to see strength in renewables are huge thanks to our renewal team in Q4 actually did an amazing job of exceeding their target, which was great to see.

Meta A. Marshall: And what we have seen is the continued trend.

Kelly S. Steckelberg: So customers are really thinking ahead about their contracts and being very thoughtful about this, and what that does, it creates some variability in both the RPO and the deferred because it's very sensitive to the timing of these. Great, thank you. Thank you. Our next question comes from Ethan Bruck from Wolf Research. Hey guys, congrats on those results.

Meta A. Marshall: Our customers wanting shorter payment terms they are hanging on to their cash remember we talked about this in Q3 that that's really what contributes to the.

Meta A. Marshall: The decrease in deferred and then the other thing is the timing of renewals, we are seeing customers not necessarily wait to their renewal period to start these discussions.

Unnamed Speaker: And I'm asking a question on behalf of Alex here. So I guess my question would just be a little bit back on the guidance for fiscal 25. Just if you can give some puts and takes, I know you said you're not factoring macro improvement, but how should we think about both the enterprise and online piece? I know you guys are rolling out some pricing increases, so maybe how to factor that going into the numbers for next year. And just also, you know, the NRR piece, maybe roughly when you're expecting that to go through, any color on that would be great.

Meta A. Marshall: For example, I renewed I reviewed our proposal today for a customer that's not going to renew for six months. So customers are really thinking ahead about their contracts and being very thoughtful about this and what that does it creates some variability in both the <unk> and the deferred because it's very sensitive to the timing of these things.

Speaker Change: Great. Thank you.

Meta A. Marshall: Thank you. Our next question comes from Ethan Brook from Wolfe Research.

Ethan Brook: Hey, guys. Congrats on nice results and I'm asking question on behalf of Alex here sure.

Ethan Brook: So I guess my question would just be a little bit back on the guidance for fiscal 'twenty. Five just if you can give some puts and takes I know you said you are not factoring macro improvement, but how should we think about both the enterprise and online piece I know you guys are rolling out some pricing increases so maybe how to factor that going into numbers for next year and just also.

Kelly S. Steckelberg: Yeah. So in terms of the enterprise or the direct sales organization, we kind of touched on this in the prepared remarks, but they're off to a fast start this year. We're really excited about that. If you remember last year, we had not only an overall reduction in the company but a sales reorganization, which took a lot of time for the organization to recover from, frankly. And so seeing them well positioned to start off this year strong is really exciting to see.

<unk>, maybe roughly what you're expecting that to trough just any color on that would be great. Yes.

Ethan Brook: Yes.

Ethan Brook: In terms of the enterprise as a direct sales organization kind of touched on this in the prepared remarks, but.

They they are off to a fast start this year, we're really excited about that if you remember last year, we had not only the overall reduction in the company, but the sales reorganization, which took a lot of time for the organization to recover from frankly, and so seeing them well positioned to start off this year strong.

Unnamed Speaker: And that's certainly going to contribute to the overall growth that we're expecting to see, especially in the back half of the year. And then from an online perspective, you know, really pleased, for example, with the Q3 churn metric. I think considering that we typically see seasonally higher churn in Q2 and Q4, that the churn rate holding from Q3 to Q4 at that lowest rate of 3.0 is really indicative of all the improvements that the team has made to the platform, and the ongoing initiatives they put in place. And so all of those considerations give us confidence around FY25. I got it.

Ethan Brook: It is really exciting to see and that's certainly going to contribute to the overall growth that we're expecting to see especially in the back half of the year and then from an online perspective really pleased for example, with the Q3 churn metric I think considering that we typically see seasonally higher churn in Q2 and Q.

Ethan Brook: For that churn rate holding from Q3 to Q4 at that lowest rate of 3.0 is really indicative of all the improvements that team has made to the platform the ongoing initiatives they've put in place and so all of those considerations are is what gives us confidence around the FY 'twenty guide.

Eric: That makes sense. A quick follow up. It's just around some of the AI, like you're successfully embedding it across the platform. I'm just curious, as we think about kind of the monetization angles over the next few years. I mean, if you were to stack rank where you think a combination of moving users to higher SKUs, matching price to value, which you guys are obviously already doing, or getting folks to adopt, you know, more products from the upsell side into contact center, for example, here's how you guys are thinking about that right now. In short, I can take it.

Speaker Change: Got it that makes sense and just a quick follow up is just around some of the AI like you're successfully embedding it across the platform I'm just curious as we think about kind of the monetization angles over the next few years I mean, if you were to stack rank, where you think the combination of moving users the higher skus matching price value, which you guys are obviously already doing or getting folks to adopt.

Speaker Change: More products on the upsell side into contact Center. For example, just curious how you guys are thinking about that right now.

Eric: And we are monetizing AI on many fronts. You look at our Zoom AI company. So, first of all, for our existing customers, because they all like the value we created to generate a meeting summary, meeting query, and so on and so forth. Because of that, we really do not cost customers anything.

Speaker Change: I can take it so and we are monetizing on many fronts you look at it.

Speaker Change: Zuma AG compiled by <unk>. So first of all for existing customers because of lack of a valet recruiting device to generative meeting summary meeting quarterly on so on and so forth because because of that we do really to enhance the customer you're also trying to redo the cost. That's why we did not charter customers for those features however, a lot of areas.

Eric: We're also trying to reduce the cost. That's why we do not charge customers for those features. However, there are a lot of areas we can monetize. Take our AI company, for example. Enterprise customers, how to leverage their enterprise customer data, and also build a tailored Zoom AI company for those customers.

Speaker Change: We commoditize you know what I'll take.

Speaker Change: I'll warn you, though AIG companion for example, enterprise customers also leveraging the enterprise customer through ordinary there soon source data and also the builder to no Taylor.

Zoom air component for those customers sort of like a compromised zooming out.

Eric: Sort of like a customized Zoom AI company. We can monetize it and also look at all the services.

Speaker Change: And we can monetize and also look at all those services, maybe I'll just add.

Eric: Maybe I just take a contact center, for example. We are offering a Zoom virtual agent. That's the one we've monetized. And recently, we announced three tiers of a Zoom contact center product. The last one is per agent, per month. We charge $149. The reason why is that there are a few features. One of the features is Zoom Expert Assist.

Speaker Change: Take a contact center for example, we are offering a zoom, what's your agent and know that allow me to modernize and recently we announced.

Speaker Change: Three tiers.

Speaker Change: Zuma Carnegie center product by either last night.

Speaker Change: <unk> per agent and <unk>, which had a 100 Fortinet noted the reason why.

Speaker Change: A few features along with the picture is zoom expert, but all of those features are empowered by AI features not on merchant not as I mentioned, we are also going to build a new services and are driven by zooming out comping as well I think this year, we are going to doubling down on zoom iron ore company customization and also.

Eric: All those features are empowered by AI features. Not to mention, we are also going to build new services that are driven by Zoom AI company as well. I think this year, we are going to double down on Zoom AI company customization and also focus on monetization. That's all. Thank you guys and congrats on the results. Appreciate it. Say hello to Alex.

Speaker Change: Focus on monetization that's our effort.

Speaker Change: Got it thank you guys and congrats on the results.

Speaker Change: The heart of Alex.

Speaker Change: Our next question comes from Tyler Radke with Citi.

Eric: Our next question comes from Tyler Radke with Citi. Thank you for taking the question and apologies for the quality; I'm in transit at the moment.

Tyler Radke: Thank you for taking the question.

Tyler Radke: I apologize for the quality in transit at the moment.

Tyler Radke: I wanted to ask you about the recently announced buyback. A billion and a half is impressive, seven percent of your shares outstanding, but I guess what, how did you kind of come up with that number, and does that signal anything about the size of the potential M&A that you're hoping to do? Anything that you could just share in terms of why now and the decision process would be helpful. Thank you. Yeah, so we've talked about this many times in the past. Every quarter, we have this discussion about capital allocation with our board, and, of course, with Eric, and with $7 billion sitting on our balance sheet today and the strength of our cash flow outlook for FY25, we feel confident that having an authorization in place does not preclude us from doing M&A transactions that we might see as exciting in the future.

Tyler Radke: Wanted to ask you about the recently announced buyback 1 billion and a half.

Tyler Radke: As impressive 7% of your shares outstanding.

Tyler Radke: I guess, what how did you kind of come up with that number and does that.

Tyler Radke: Signal anything about the size of potential M&A.

Tyler Radke: Youre, hoping to do anything.

Tyler Radke: Anything that you can just share in terms of why now.

Tyler Radke: And the decision process would be helpful. Thank you.

Speaker Change: Yes, so we've talked about this many times in the past every quarter. We have this discussion about capital allocation with our board with Eric and with $7 billion sitting on our balance sheet today and the strength of our cash flow outlook for FY 'twenty five we feel confident.

Speaker Change: That.

Tyler Radke: And we continue to look for any opportunities that make sense to bring another organization to the Zoom portfolio. And we were targeting an amount that would, you know, approximately offset potentially most of the dilution for FY25. And that's how we were thinking about it. Of course, you just did that quick calculation of math, but there's always variability in the execution of these programs.

Speaker Change: Having an authorization in place does not preclude us it still provides us plenty of flexibility to do M&A transactions that we might see as exciting in the future and we continue to look for any opportunities that make sense to bring another organization to the zoom portfolio.

Speaker Change: And we were targeting an amount that would approximately offset potentially most of the dilution for FY 'twenty five and that's how we were thinking about it of course, you just did that quick calculation of math, but there's always variability in the execution of these programs and we will be looking the way.

Kelly S. Steckelberg: And we will be looking, the way that we execute it is we set an approximate amount we want to acquire every single quarter. So we'll be evaluating this as we move through the year. Okay, our next question comes from Tom Blakey from Key Bay. Thanks, everyone.

Tom Mccallum: Good to see you, Eric and Kelly, and congratulations on the, I'll say, early retirement, Tom. The, you know, just a point of clarification first, Kelly. I think Meta was asking about 2Q in the guide, and you mentioned something about being down. Were you implying, just a point of clarification, that fiscal 2Q would be down quarter-on-quarter from fiscal 1Q? We're saying that the year-over-year growth rate in Q2 will decline as compared to the year-over-year growth rate in Q1. Yes, it will be positive. It won't be, you know, it's not going to go negative based on our current outlook, but it will be lower than the year-over-year growth rate in Q1. Sorry, sorry for the hand-holding there. No, no, it's okay.

Speaker Change: We executed as we sell.

Speaker Change: Set and an approximate amount we want to acquire every single quarter. So we will be evaluating this as we move through the year this year.

Speaker Change: Okay. Our next question comes from Tom Blakey from Keybanc.

Tom Mccallum: Thanks, everyone good to see American Kelly.

And congratulations on the early.

Tom Mccallum: Tom.

Tom Mccallum: The just.

Tom Mccallum: Part of clarification first Kelly on I think Peter was asking about <unk>.

Tom Mccallum: <unk> and the guide and then you mentioned something about being done will you.

Tom Mccallum: Flying just point of application that fiscal <unk> would be down quarter on quarter from fiscal <unk>.

Speaker Change: We're saying that the year over year growth rates in Q2 will decline as compared to the year over year growth rate in Q1, yes. It will be positive it wont be its not going to go negative.

Speaker Change: Based on our current outlook, but it will be lower than the year over year growth rate in Q I'm, sorry, sorry for the handholding, there and Joe Okay. My key question would be on the <unk>. It sounds like you're off to a great start there.

Eric: My key question would be on the CCAS. Sounds like you're off to a great start. You know, there's a lot of demand out there, hearing from your peers. I'd love to just, you know, give you the opportunity to talk about pricing, uptake of some of the, you know, the virtual agent, agent assist, you know, functionality, and maybe any type of, you know, what you baked into Fiscal 25 in terms of visibility here as you've come out very strong here in the fourth quarter. Thank you. Eric, do you want to talk about the contact center in general for a minute first? Sure, absolutely.

Speaker Change: A lot of demand out there and hearing from your peers I'd love to just give you the opportunity to talk about pricing uptake of some of the virtual agent agent assist.

Speaker Change: Functionality and maybe any type of thought.

What what you baked into fiscal 'twenty five in terms of visibility here as you've come out very strong here in the fourth quarter and the fiscal 'twenty five. Thank you Eric do you want to talk about contact center in general for a minute first sure absolutely.

Eric: I think, Tom, you may not know, actually, recently I got a new job here at Zoom. I'm becoming the contact center general manager for the product management team engineers in a go-to-market team. So you're smartly in the all-route reporting directly. That means we have a huge opportunity ahead of us. Why do I want to wear another hat of a GM or contact center? Seriously, but anyway, based on customer feedback, which is very, very positive, they are doing extremely well every quarter. In Q4, the number is amazing.

Speaker Change: Thank you.

Eric Yuan: You May now know actually recently I agree.

Speaker Change: I've got a new job here.

Eric Yuan: I've become of the contact center, our general manager or a product management team engineers.

Eric Yuan: Go to market team see us marketing of the Orient reporting directly that is huge opportunity ahead of us while I wonder if we're not ahead of by GMO contact center seriously, but anyway, so based on customer feedback wherever posture.

Eric Yuan: We're doing extremely well every quarter in Q4 numbers are amazing and applaud. The reason why we have a covenant introduced <unk> three tiers of pricing because a lot of our costs won't ask right.

Eric: And plus, the reason why we have confidence introduced like a three-tier pricing is because a lot of customers probably needed a very basic kind of solution. You know the $69 per agent, very competitive, all the cool features. Or if they want some social channels, maybe Autobahn or dialer, they can pay another $30 more per agent. And for a huge enterprise customer, one with 1,000 agents, we give them that Zoom expert assist. And also workforce management, quality management, all the features. You can see Zoom has become a full suite of the Conduct Center. We can't compete head to head with any legacy incumbents. I'll give you one example.

Eric Yuan: They probably needed the basic economy solutions, the <unk> six to $9 <unk> per agent buyer comparative all features all of it. They wanted somebody you know social channel maybe Autobahn Dieter.

Rather $30 more per visit and.

Eric Yuan: And about customer won't bias styled and agents and we gave them zoom expert to assist and also waterfall as a matter of minutes reminding all of the features you can see zoom has become a full suite.

Eric Yuan: Of contact center offering.

Eric Yuan: We can compete head to head and the legacy incumbents I'll give one example, zoom we internally we deployed all of what's your vision guess what every months.

Eric: Zoom, we internally deployed, you know, our virtual agent. Guess what? Every month, we received 400,000 Agent Hours, and more than 90% of inbound inquiries can be done by our virtual agent driven by AI technology. We are very excited about everything we are doing, and the feedback is very positive. You know, again, we are doubling down, tripling down on our content and all things because that's a modern solution, AI-empowered, video-first, and we built a full suite. That's why we are so excited. I think, based on your enthusiasm, Eric, I'm going to raise your quota. I reach the quota to assist him every day, so that's no difference.

Received a full hardware a solvent isn't ours.

Eric Yuan: And more than 90% of it.

Eric Yuan: Inbound inquiries can.

Eric Yuan: Can be done by all of which is driven by the AI technology very excited about everything we're doing.

Eric Yuan: And the feedback is very positive again, doubling down shutting down all of our content content and offering because that's a modern solution AI empowered video for US and also with beautiful suite. That's why we're so excited.

Speaker Change: I think based on your enthusiasm, Eric I'm going to raise your quota.

Eric Yuan: Yeah, I recently quota to assist them every day, so that's no different so.

Kelly S. Steckelberg: And Kelly, what kind of, you know, where, what kind of outlook are you baking in terms of the strength there and the visibility commentary about fiscal 25? And then is that, um, this is just enterprise right now, right? This is no self-service online here, right? Correct. Not yet.

Speaker Change: And Kelly.

Speaker Change: What kind of outlook or are you baking in in terms of the strength, there and the visibility commentary about fiscal 'twenty five and that is that.

Speaker Change: This is just enterprise right now right. This is our self service online here right.

Kelly S. Steckelberg: Correct, yes.

Kelly S. Steckelberg: Yet, but just.

Tom Mccallum: But you know, now it's just Yeah, you're right on. See, thank you for helping us to monetize Connors Center in another way. Yeah, so Tom, we looked at the trends that we've been seeing in the number of customers, the growth rate, the size of the deals, which have been expanding over the last double quarters, and just, and of course, sales capacity and took all of that in consideration, including the new pricing tiers. That's how we built our outlook for FY20. Thank you. Okay, thank you. Our next question comes from James Fish with Piper Sandler.

Speaker Change: Yes, Youre right answer thank you for help us to monetize content and other results.

Speaker Change: Yeah. So so Tom we looked at the trends that we've been seeing that the number of customers the growth rate the size of the deals which have been expanding over the last several quarters and Jess and of course sales capacity and taking all of that in consideration, including the new pricing tiers that is how we built our outlook for FY <unk>.

Speaker Change: Five.

Speaker Change: Thank you.

Tom: Okay. Thank you.

Tom: Our next question comes from James Fish with Piper Sandler.

James Fish: Hey, guys. Thanks. Thanks for the question here, Tom Congrats on your announcement and Eric Good luck with your increased quota from Kelly now.

James Fish: Hey, guys, thanks for the question here. Tom, congrats on the announcement. And Eric, good luck with the increased quota from Kelly now.

Kelly S. Steckelberg: Kelly, just going back to a couple of questions ago on how to think about the quantitative approach here on past or future price increases on the guide for this year. And for Eric, what's causing customers to move over to the Zoom chat function and away from your main competitor like Teams? Just further consolidation on the one platform, or is AI companion playing a larger role here, especially as you guys are deciding to invest in it, as opposed to $30, $35 a month? Thanks, guys. Kelly, do you want to take the first one?

James Fish: Kelly just going back to <unk>.

James Fish: Couple of questions ago on how to think about the quantum two <unk>.

James Fish: Approach here on past or future price increases on the guide for this year and for Eric what's causing customers to move over to the zoom chat function and off your main competitor like teams just further consolidation on the one platform or is it AI companion, playing a larger role here, especially as you guys are concluding it is upon.

Speaker Change: 230, <unk> thanks, guys.

Speaker Change: Kelly you want to take the first one no you go ahead.

Eric: No, you go ahead. You go ahead first. Sure. Sure. So Jim.

Speaker Change: You go Headfirst first off so just.

Eric: One thing I think we did not do well, as I mentioned even before, is we did not do well on the marketing front. A lot of customers and users do not know that Zoom has a great persistent team chat functionality with no additional cost, and it works extremely well. All the key features of any other competitor's product they have also have that as well. Very well integrated with Zoom, as a product. And plus, as you said, you're so right on. Customers see they're using the chatter solution. They want to use the AI. Like I said, I will send you a message. I want to leverage AI and send a long message. However, if you use other solutions, sometimes other solutions themselves, even without AI, are not free.

Speaker Change: One thing I think we did not do well as I mentioned before is we do know.

Speaker Change: In our Dubai, our marketing front a lot of customers users, we do not lose zoom has a greater precision and the team has hired a functionality at no additional cost and it works extremely well.

Speaker Change: All of the key features any other competitive product. We have also half of that as well very well integrated with zoom and <unk>.

Speaker Change: And a plus Edu side, you also write off customers. They say they are using their <unk> solution. They want to use the AI, let's say I send you a jumpstart sending a message I want to leverage AI center La message. However.

Speaker Change: Ever.

Speaker Change: If you use our solutions, sometimes other solutions itself, even with all the AI is an older fleet.

Eric: And in our case, not only our core functionality but also AI companion building, also at no additional cost. I can use it for any users, customers. You already have a meeting like this, with Zoom team chat already built in, right? All the key core features, you can use the Zoom AI companion. You know, to let the AI write a chat message and so on and so forth. It works so well at no additional cost.

And in our case not only our core functionality, but also AI companion beauty also at no additional cost I can use it for any users customers you already have a meeting like this zoom or teams. Our it teams had already beauty, but you. All of you will call features if unused using zoom a compound of combining an auto lender.

Speaker Change: Right.

China message and as soon as it was it worked so well at no additional cost the total cost of ownership of a zoom acumen sharp is march better than any other <unk> solutions.

Eric: The total cost of ownership of Zoom team chat is much better than any other team chat solution. And also, we built a native client, not like some other compilers. The web is kind of sometimes like I'm using a Mac in performance, so on and so forth, which is really not good for the client experience.

Speaker Change: Also we built in lithium client not unlike some other competitors the web it's kind of sometimes like I'm using Mac and performance as long as it was really not good in Colombia, because risk less reason why more and more customers. This covenant zoomed Puma charter capabilities Wow, why not move to zoom platform, we give them the acumen setup.

Eric: That's the reason why more and more customers discover the Zoom team chat capabilities. Wow. Why not move to the Zoom platform?

Eric: They give you the team chat functionality at no additional cost. That's the reason why we have confidence. I hope more and more customers are going to move to Zoom team chat. We have also built very similar migration tools as well. So, have a customer migrate to Zoom. And thank you, Eric.

Speaker Change: Scientists at no additional cost right that is the reason why we have confidence I hope more and more customers are going to move to assume team. Chad. We've also built a very seamless migration tools as well to have a customer migrating some of the future.

Yeah.

Speaker Change: Okay.

Speaker Change: Thank you Eric in terms of the price increases James So certainly the online price increases that we talked about last call and that were implemented in Q4 are in all of our forward looking guidance and then.

James Fish: In terms of the price increases, James, certainly the online price increases that we talked about last call and that were implemented in Q4 are in all of our forward-looking guidance. And then, you know, the renewals team, as they're talking to our customers about renewals, where there are opportunities for price increases, we've seen those trends over the last few quarters of doing that. And that would also show up in the pipeline that the team has out there. So in, in that context, it's also been, By the way, James and all, all the allies that are here, you know, if you're logging in with a Zoom client, you know, you know, my email address, we can create a Zoom team chat group, and let's get a first-hand experience, you know, how powerful it So it's very easy.

James Fish: The renewals team as they are talking to a customer about renewals, where there are opportunities for price increases we've seen those trends over the last few quarters, you've been doing that and that would also show up in the pipeline that the team has out there. So in that context. It's also been considered.

Speaker Change: Okay. Thanks.

Speaker Change: Yes by the way, Jim and all the all the islands of the year.

Speaker Change: Logging via the zoom client.

Speaker Change: My address we concluded zooming Chemostatted group and let's get a firsthand experience and know how powerful it is so it's very easy.

Eric: You can have one-on-one access to Eric James. Yeah. Sounds good, Eric. Don't worry; I won't annoy you too much.

Speaker Change: One access to Eric James.

Speaker Change: It requires around good Eric don't worry I wanted to know if youre much awesome. Thank you James.

Matthew David VanVliet: Awesome. Thank you, James. Thank you. Our next question comes from Matthew VanVliet with BTIG. Hey, good afternoon.

Speaker Change: Thank you. Our next question comes from Matthew Vanvliet with BT IAG.

Matthew David VanVliet: Hey, good afternoon, Thanks for taking my question.

Eric: Thanks for taking the question. I guess one more on the Contact Center. I'm curious in terms of how the mix is, is maybe different with channel involvement and partners being involved in those deals over the last couple months, as you've really invested in the channel program. And then, secondarily, what is the mix of, I guess, the Contact Center sales into existing customers, especially existing Zoom phone customers? Is that any different than the early days of Zoom phone in terms of mixing? Thanks. Yeah, so Kelly, feel free to chime in. I think, you know, for the call meeting product, by and large, it's directly driven, and the Zoom phone is, you know, mixed, right? Direct, and it was channel driven.

Matthew David VanVliet: I guess, one more on the contact center.

Matthew David VanVliet: In terms of how the mix is maybe different with channel involvement and partners being involved in those deals.

Matthew David VanVliet: Over the last couple of months as you can.

Matthew David VanVliet: We will invest in the channel program.

Matthew David VanVliet: And then secondarily what is the mix of.

Matthew David VanVliet: I guess, the contact center sales into existing customers, especially existing zoom phone customers is that any different than the early days of zoom phone in terms of mix.

Speaker Change: Yes so.

Speaker Change: Kelly feel free to chime in I think.

Speaker Change: For the call medium products by and the largest broker driven and assume a phone is mixed right direct and channel driven if you look at it our contracts on our product portfolio have ism connect on a specialist here, but I think primarily driven by a lot of the variable established.

Eric: You look at the contact center product; for sure, we have a Zoom contact center specialist here. But I think it's primarily driven by a lot of, you know, and very well established, you know, third-party, you know, agents, right? And those are channel partners because they already have a great relationship. We haven't invested in that area.

Speaker Change: The third party.

Speaker Change: Our agents and our larger channel partners called the art have greater initiative, we have to invest into that area. So that's the reason why a lot of deals with our board twice by those.

Eric: So, you know, and that's the reason why a lot of deals abroad, you know, by those, you know, the channel partners, some of them even never use them, they are not Zoom meeting customers, but they've become the first Zoom contact center. So that's kind of a channel and also a Zoom Contact Center specialist. Also, at the same time, because Zoom Phone and Zoom Contact Center integrate very well. And also, we are training all those Zoom Phone specialists also to become a Zoom Contact Center specialist, so we further have our internal capacity as well. And I think that overall, and you look at the revenue trajectory, and Kelly, correct me if I'm wrong, is very similar to our Zoom Phone growth. And hopefully, after I become GM, maybe we can beat that as well.

Speaker Change: The channel partner somehow some of them, even never use them and they are not assumed meeting customers, but also they have become the first zoom cognizant of costumes, so thats kind of a.

Speaker Change: Channel and also the zoom Carnegie Center specialists also at the same time, because zoom phone and Zumpano Center integrated very well and also we are training all those as normal food specialties also has it become zoom cognizant of specialties, a further half hour.

Speaker Change: Internal.

Speaker Change: Capacity is small I think that the overall and you look at the revenue trajectory and carrier correct me if I'm wrong is very similar to our Zumba fund growth.

Speaker Change: And hopefully after I've becomes yeah, maybe what kind of beta that as well so anyway. So that's where we're not so yeah.

Eric: And anyway, so that's where we are now. Yeah, the only thing that I would add to that is, you know, we're very excited. We hired Chris Morrissey in November.

Speaker Change: The only thing that I would add to that is we're very excited we hired Chris Morrissey in November he is.

Kelly S. Steckelberg: He is, you know, a veteran in this space. So I'm really excited to have his talents here at Zoom. And then one other thing to note, which has been interesting about contact centers, we actually have seen customers, new customers, coming for Zoom Contact Center. So it's also an opportunity to start to bring the platform to new prospects and customers as they are really excited about, you know, this really modern technology that we have. Yeah, by the way, Chris reports to me directly. It came from NICE, so NICE Inc. All right, great, thanks. Thank you. Our next question comes from Siti Panigrahi with Mizzou.

Speaker Change: Veteran in this space. So really excited to have his talents here at zoom and then one other thing to note, which has been interesting about contact centers, we actually have seen customers new customers coming towards him contact center. So it's also an opportunity to start to bring expose the platform to new.

Speaker Change: <unk> customers as they are really excited about this really modern technology that we haven't in contact center.

Speaker Change: Yeah by the increased reports from me directly it came from a nice so nicely in context.

Speaker Change: Alright, great. Thanks.

Speaker Change: Thank you.

Speaker Change: Our next question comes from CPE Panic, Rocky with Mizuho.

Speaker Change: Okay.

Kasthuri Gopalan Rangan: Thank you for taking the time. So, I want to ask the other growth driver, you have a phone on the phone side, so help us understand, like, what's your penetration right now within the installed base on the phone side? And any update in terms of, you know, whether the number of states or revenue you have by the end of this fiscal year? Thank you. Yeah, so we are really excited about the ongoing strength and growth of Zoom Phone. In terms of the opportunity ahead, even internally, the penetration rate for DL Attach is still under, I think, 20%.

Speaker Change: Thank you Mike.

Speaker Change: Okay.

So I wanted to ask the other growth driver you have fallen.

Speaker Change: On the phone side, so help us understand like what's your penetration right now within the install base on the phone side and any update in terms of whether Theres. A number of states are revenue you have by end of this fiscal year.

Speaker Change: Yeah. So we are really excited about the ongoing strength and growth and zoom phone.

Speaker Change: <unk>.

Speaker Change: Terms of the opportunity ahead, even internally the penetration rate for deal attach is.

Speaker Change: <unk> under I think 20% so that just highlights theres lots of greenfield even within our existing.

Kelly S. Steckelberg: So that just highlights there's lots of green field opportunities, even within our existing Zoom customer base. And the metric that we gave this quarter was that customers with greater than 10,000 seats increased 11% year over year or 27%, sorry, 11% quarter over quarter, 27% year over year to 90%. So we're seeing lots of strength in that high end of the customer base, which we're really excited about. And we didn't give a seat count metric this quarter.

Speaker Change: Zoom customer base and the metric that we gave this quarter was that customers with greater than 10000 seats increased 11% year over year.

Speaker Change: Or 27%, sorry, 11 like quarter over quarter, 27% year over year to 95, so seeing lots of strength in that high end of the customer base, which we're really excited about and we didn't give a seat count metric this quarter, its probably something that we'll do in the next quarter or two.

Kelly S. Steckelberg: It's probably something that we'll do in the next quarter. Great, thank you. Yeah. Okay, thank you. Our next question comes from Arjun Bahatia with William Blair.

Speaker Change: Great. Thank you.

Speaker Change: Okay. Thank you. Our next question comes from Arjun Bhatia with William Blair.

Arjun Bahatia: Perfect. Thank you. Maybe I'll go back to the contact center piece and try to loop in the AI expert assistant side.

Speaker Change: Eric.

Arjun Bhatia: Thank you.

Arjun Bhatia: Going back to the contact center piece and trying to loop and AI expert assist side when you're what are you seeing customers come in are they adopting the premium tiers off the bat and do you have a sense of.

Eric: When you're seeing customers come in, are they adopting the premium tiers off the bat? And do you have a sense of whether, you know, the usage of expert assist is increasing as a result, or is this something that we should think of as a future upsell driver as customers kind of land maybe at the low end and then expand over time? Yeah, that's a great question.

Arjun Bhatia: Whether the usage of expert assistance is picking up as a result.

Arjun Bhatia: Or is this something that we should think of as a as a future upsell driver.

Arjun Bhatia: As customers kind of land and maybe at the low end and then expand over time, yes. That's a great question reason why we introduced the motor tiers from a contact center because it is really look at it from a cost perspective is customers have a totally different that the mass or requirements and sometimes.

Eric: The reason why we introduced the multi-tier Zoom Economic Center is because we really look at it from a customer perspective. Each customer has totally different demands or requirements. And sometimes, you know, they do not care about, you know, and the social media channel, right?

Arjun Bhatia: Do not care about.

Arjun Bhatia: And Super Media channel right.

Eric: And so they need a whole, you know, functionality, right? Just a few hundred assist, and then migrate from other cloud-based content center solutions, really do not need to work on management or quality management, right? That's the reason why, you know, we have three tiers now, right?

Arjun Bhatia: <unk> functionality right. It's just a few hundred assays and the micra from all other cloud based upon our centers, which is really the 90 to workforce management or quantity Madden.

Arjun Bhatia: That's the reason why we have a straight here is not right and quite often.

Eric: You know, quite often for, you know, the SMB customer, I think, you know, Zoom content center essentials is good enough, right? And we talk with, you know, the customers, you know, with more than 1,000 agents, you know, for sure, they would like to have those AI experts assist and work for management or quality management, so on and so forth, right? That's the reason why, you know, because of customer demand, we have multiple tiers, you know, and our content center specialists and those kinds of partners work together, right? Based on customer demand, we offer different tiers.

Arjun Bhatia: The SMB customer.

Arjun Bhatia: Singer.

Arjun Bhatia: Zumpano Zehnder essentials is good enough right and with always in all our customers with more than 1000 of our agents for shortly with a lag of how those AI expert to assist in our workforce management audit of modern responsive what's right. That's the reason why because in our customer demand, we have multiple tiers and our Congress understood the specialties.

Partners Channel partners working together based on customer demand, we will offer different tiers, we might introduce more in the future. We do not know, but again, we look at everything from cost perspective. That's reason why based on the dose multiple packages you can see that with the amount of coming from.

Eric: We might introduce more in the future; we do not know, but again, we look at everything from a customer perspective. That's the reason why, based on those multi-tier packages, you can see that the demand is coming from, you know, and every segment, SMB customers, a lot of enterprise customers, and it's very healthy. And just to add to what Eric said, the packages are off to a really great start. We've had approximately 3,700 licenses sold in those upper tiers, and the ASP for those is double what our existing ASP was before we introduced those additional tiers. So it really shows you how this is going to not only, you know, address a broader market but also accelerate our revenue. Yeah, it used to be a little bit over 50.

Arjun Bhatia: And every segment SMB customers lot of enterprise customers and it's very healthy so.

Speaker Change: And just to further what Eric said the packages are off to a really great start we've had approximately 3700 licenses sold in the upper tiers and the ASP for those is double what our existing ASP was before we introduce those additional tiers. So it really shows you. How this is going to not only.

Speaker Change: Address a broader market, but also accelerate our revenue growth here.

Speaker Change: Yes.

Speaker Change: A little bit over 50, Nowadays where Henry this is again a great result.

Kelly S. Steckelberg: Now it is 100. This is a great result. Great to hear. Awesome. Thank you. Okay, our next question comes from Tez Kujagdi with Wedbush. Hi, how are you?

Speaker Change: Great to hear awesome. Thank you. Thank you.

Speaker Change: Okay. Next question comes from Taz <unk> with Wedbush.

Tez Kujagdi: Thanks for taking my question. I have a question on the guide for next year. Kelly, what do you think about the breakdown between enterprise growth and online for next year? Should we see online start going year over year in 2025?

Taz: Hey, guys Hi, how are you. Thanks for taking my question I have a question on the guide for next year, how do we think about the breakdown between enterprise growth in online for next year should we see online start growing year over year and 25.

Kelly S. Steckelberg: Yeah, we aren't going to give specific guidance for the segments, but we are really focused on continuing to have stabilization in the online segment, which you saw happen again this quarter. Actually, both quarters, both segments were slightly up in Q4, which was great to see, and really focusing on the initiatives to drive basically stabilization is how I would think about it for FY20. Got it. Thanks. And then there was one follow up for Eric.

Yeah, we.

Taz: Aren't going to give specific guidance for the segments, but we are really focused on continuing to have stabilization in the online segment. What you saw happen again this quarter as it actually both quarter. Both segments were slightly up in Q4, which was great to see and.

Taz: Really focusing on the initiatives to.

Taz: Drive basically stabilization is how I would think about hyper FY 'twenty five in the online segment.

Speaker Change: Got it thanks, and then one follow up for Eric Eric You mentioned, increasing deal sizes for contact center can you compare.

Eric: Eric, you mentioned increasing deal sizes for contact center. Can you compare when a customer buys a Zoom phone and buys a Zoom contact center? Are the deal sizes a lot different? Similar, because the ASP is a lot higher for the contact center, but I'm guessing the seat count is lower. How do the seat, and the deal values compare between phone and contact centers? I think that's a great question. I think, for sure, I do not think I can compare that with the Zoom phone.

Speaker Change: Customer bias zoom phone and by Zoom contact center at the Bill passes.

Eric: All of our different similar because I asked me is a lot higher for contact center, but I'm guessing the seat count is lower.

Eric: The deal values.

Eric: And phone and contact center.

Eric: I think that's great question I think for sure I do not think and compare that with the zoom phone.

Eric: At Zoom Content Center, I think when we started, we normally had a lot of accounts, but every deal size is rather smaller. Now we see that every size of deal is bigger and greater and greater. This is much better than before. And from that perspective, it's very different compared to the Zoom phone. That's the reason why you look at our Zoom and the three packages, and the earlier package is 100, I think, is 49 per user per month, per agent per month. It's much bigger than the Zoom phone.

Eric: As I'm cornered center as and when we started normally we have a lot of our costs, but our average deal size I'd rather have a smaller now receive the average size of a deal is a bigger.

Eric: Greater and greater right. This is much better than before and from that perspective, it's very different than competitors.

Eric: Alright, Thats. The reason why you would go to our.

Eric: Zoom.

The three.

Eric: III package right and Elliot a package is 100, I think 14 iron ore.

Eric: <unk> per user.

Eric: Per month per agent per month.

Eric: And our biggest zumba.

Eric: Zoom phone right. That's the reason why I think in terms of the pricing is very different we see that more and more medium and audience of customers adopting some contact center you can see the evidence of deal size is much bigger and we don't know if it was a number of <unk> number of customers both Oklahoma five of customers, that's a very healthy.

Eric: That's the reason why I think in terms of pricing, this is very different. We see that more and more media, a lot of our customers adopt the Zoom Content Center. You will see that every deal size is much bigger. And we do not focus on the number of seats, the number of customers, but we focus on the size of customers. That's very healthy.

Speaker Change: Thank you thank.

Kelly S. Steckelberg: Thank you. Okay, our next question comes from Matthew Bullock with Bank of America. Hi Eric and Kelly, thanks for the question. I'll be asking one on behalf of Mike Funk today regarding Zoom's progress and roadmap for contact center product development.

Speaker Change: Thank you.

Speaker Change: Okay. Our next question comes from Matthew <unk> with Bank of America.

Matthew David VanVliet: Hi, Eric and Kelly Thanks for the question.

Matthew David VanVliet: I'll be asking them on behalf of Mike funk today regarding <unk> progress and roadmap for our contact center product development.

Matthew Bullock: Can you provide an update on the company's near-term priorities in terms of functionality improvement? And then, in the longer term, where is the company's focus to better position the offering for larger-scale enterprise deployments? Thanks. Yeah, this is great. So, first of all, I want to tell you from an architecture perspective, we are already ready for a very, very big line of customers in terms of the number of concrete agents. And we did a test. It works very well.

Matthew David VanVliet:

Matthew David VanVliet: Can you provide an update on the company's near term priorities in terms of functionality improvement and then in the longer term, whereas the company's focus to better position the offering for larger scale enterprise deployments.

Matthew David VanVliet: Yeah. This is Greg So first of all I wanted to tell you from architecture perspective, we are radio already for bigger very very big idea and where customers into most of the number of congregate agents and we did a test it works very well for now we're just focused on the Fisher said again, we already have a lot of features most of our customers we can deploy.

Eric: For now, we just want to focus on the feature set. Again, we already have a lot of features. Most of the customers can deploy Zoom Contact Center without any problem. Either migrate from legacy contact center solution providers or migrate from other cloud solution providers.

Matthew David VanVliet: Carnegie Center and without any problem either microphone legacy contact center solution providers micro to form with the other cloud solution brought us in terms of new feature.

Eric: In terms of new features, I think in the next few quarters, one big feature is PCI compliance. We need to support that. And also, how to support channel partners.

Matthew David VanVliet: And next few quarters, you know like a one big picture is <unk> comprise right, we need to support that right and also helped us about our channel partners.

Eric: And also, all those features may not be the core features, but PCI compliance and also the support of channel partners. All those features are enterprise-related, and we're also working on that. And also, some workforce management, further enhance that. And also, add a lot of AI features as well.

Matthew David VanVliet: And also all those features inorganic call features but also like PCI compliant compliance and also the support or the channel partners I all of those features.

Matthew David VanVliet: <unk> related so and then we're also working on that and also some lack of workforce management and SKU management further enhance that and also add a lot of AI features.

Eric: I think, as you can see, the core feature set is already there. We just need to add a few here and there. And I think we are almost 100% ready. Even for the social media channel, which we already support and the other, like, and the social media channel how to support more, you know, the channels like WhatsApp, right? How to add a WhatsApp bot there.

Matthew David VanVliet: As you can see it in the call feature set or is there we just need to add a few here and is there anything out well.

Matthew David VanVliet: Almost a 100% already.

Matthew David VanVliet: You haven't followed soon for me to China, we already bought.

Matthew David VanVliet: And the other <unk>.

Matthew David VanVliet: And the social media channel hottest water anymore.

Matthew David VanVliet: Channels like Whatsapp.

Matthew David VanVliet: Auto at a whatsapp there is it just the summer corner Fisher here and is there in the next few quarters.

Eric: It's just some, you know, corner features here and there, you know, in the next few quarters. And yeah, this team is working very hard on it. Super helpful, thank you.

Matthew David VanVliet: And yes, that's team are working very hard on that.

Speaker Change: Super helpful. Thank you Christine and thank you.

Kelly S. Steckelberg: Appreciate it. Okay, our next question comes from Mark Murphy with J.P. Morgan. Mark, are you there?

Speaker Change: Okay. Our next question comes from Mark Murphy with J P. Morgan.

Mark Murphy: Mark are you there.

Mark Murphy: Okay. We will move ahead alright. Our next question can you just came off mute there you go.

Mark Murphy: Okay, we'll move ahead to our next question. Hi Mark, sorry about that.

Mark Murphy: Hi, Mark sorry about that.

Unnamed Speaker: This is already from Mark Murphy. Thanks for taking the question and congrats on all the milestones. You mentioned your prepared remarks about how AI Companion is integrated into your contact center suite of solutions. You know, in our discussions with industry contacts, those sort of applications for GenAI have been, you know, pretty scaled, pretty strong, and a lot of customer interest. Are you guys seeing a similar pattern with customers?

Mark Murphy: This is already on for Mark Murphy, Thanks for taking the question and congrats on all the milestones you mentioned in your prepared remarks about how AI companions integrate into your contact center suite of solutions.

And our discussions with industry contacts on those sort of applications, Virginia have been.

Speaker Change: Pretty scaled pretty strong in a lot of customer interest are you guys seeing a similar pattern with customers is that an area, where you're seeing kind of an outsized interest of utilization of the AI tool.

Eric: Is that an area where you're seeing kind of an outsized interest or utilization of the AI tool? Thanks. Yes, I think it's very similar.

Speaker Change: Yes, I think it's very similar I mean, if you look at our new medium product cost and discover the.

Eric: You look at a Zoom meeting product, right, and constantly discover the, you know, Zoom, you know, AI company, you know, to help you with a meeting summary. And, you know, after they discover that feature, and they would like to adopt that, right? Kind of the exact same thing. And then like, you know, virtual agent, Zoom expert assist, right, leverage those AI features, you know, managers can understand what's going on, you know, in real time, and also, and agents can leverage AI to get real-time knowledge base and any update about this customers. All of the AI features can, you know, dramatically improve agent efficiency, right? That's the reason why, you know, it's kind of when we don't take a much longer time for those agents to realize the value of the AI features because, you know, it's kind of very easy to use.

Speaker Change: Zuma are combining to have Europe meeting a summary, and.

Speaker Change: After they discover that Fisher antibody with a laggard adopters that cognizant <unk> zinc and in light of what your agent as an expert to assist in 11 of those features and a managed account is now what's going on in real time and also.

Speaker Change: And agents by kind of the AI to get a real time knowledge base and any operated by these customers all of the features.

Dramatically improve agent efficiency right. That's the reason why it's kind of we will not take a much longer time for those agent realizes the value of the AI features because you know this is kind of a very easy to use and I think in terms of adoption rate I feel like a contact center AI adoption, even probably faster than the other.

Eric: And I think that in terms of adoption rate, I feel like a contact center, AI, you know, adopted rate, even probably, you know, faster than the other, you know, the core features, call services. Thank you very much. Thank you. Okay, our next question comes from Matthew Harrigan with Ventra. Oh, I'm sorry, I actually didn't didn't have my hand up.

Speaker Change: The call features so.

Speaker Change: Core services.

Speaker Change: Okay. Thank you very much.

Speaker Change: Thank you.

Speaker Change: Okay. Our next question comes from Matthew Harrigan with benchmark.

Matthew Harrigan: Oh, I'm, sorry, I actually wasn't it didn't have my hand up but since you asked do you have any thoughts on the relative <unk>.

Matthew Harrigan: But since you asked, do you have any thoughts on the relative macro strength you're seeing in different markets, you know, Pacific Rim, Japan, obviously, Buffett was just extolling the virtues of Japan as an investment area right now, Europe, US, etc. Thank you. Yeah, we, we agree.

Matthew Harrigan: <unk> strength youre seeing in different markets Pacific Rim, Japan.

Matthew Harrigan: Japan, obviously buffett was just extolling the virtues of Japan's investment.

Matthew Harrigan: Area right now Europe.

Matthew Harrigan: You ask et cetera. Thank you.

Yeah, we we agree we see Japan is certainly a very important market for us and it is a core focus for FY 'twenty five is reinvesting and reinvigorating our go to market teams in both EMEA and APAC we have.

Kelly S. Steckelberg: We see Japan as certainly a very important market for us, and it is a core focus for FY25 to reinvest in and reinvigorate our go-to-market teams in both EMEA and APAC. We have new leadership in some of those markets and are really excited again about the quick start, the teams being in the market, and we're ready to go and look forward to great things from them this year. Right, I'm very fast. I'll hit that mute button since I wasn't even expecting to be called on.

Matthew Harrigan: New leadership in some of those markets and are really excited again about the quick start the team being in market and and we're ready to go and look forward to great things from them this year.

Speaker Change: Great I'm very far solve that mute button since I wasn't expecting to be called on.

Matthew Harrigan: So I should get brownie points for that. Thank you. Good job. Good to see you, Matthew.

Speaker Change: So you have brownie points for that thank you good job good to see you, Matt and thank you all right.

Operator: Thank you. Thank you. Our next question comes from Peter Weed with, Thank you very much.

Speaker Change: Okay.

Thank You: Thank you. Our next question comes from Peter we'd with Bernstein.

Peter: Thank you very much.

Peter: But I really appreciate all the detail on it obviously.

Peter Weed: I really appreciate all the detail, and it's obviously pretty exciting news to see all the expansion opportunities going on with the enterprise customers along with kind of maybe a four coming in with the online customer group. I guess two follow-ups I've got with the enterprise customers. I don't think you commented on how churn is evolving with those customers. And obviously, with continued tailing and NRR, I'm trying to unpack what portion of that's coming from churn versus what portion of that's coming from the kind of continued refresh cycle you have with like long-tenure customers that are still coming down on seats. And then the second part is, kind of, you look through the NRR, and you're talking about some acceleration going on later this year.

Peter: The exciting news to see I'll be expansion opportunities going on with the enterprise customers along with.

Peter: Kind of maybe a four coming in with the online customer groups I guess two follow ups it got around.

Peter: The enterprise customers.

Peter: I don't think you commented on how churn is evolving.

Peter: With those customers and obviously with continued tailing, an editor or I'm trying to unpack what portion of that's coming from churn versus what portion of that is coming from the kind of continued refresh cycle you have with like long tenured customers that are still coming down on seats.

Peter: And then the second part is kind of you look through on that at RR and Youre talking about some acceleration going on later this year and I think thats.

Kelly S. Steckelberg: And I think that's starting to mix in customers that no longer are those long tenured that have seats coming down, and it's really being replaced by those that the expansion is really functionality is coming in. If you look at those customers that are, kind of, past their seat readjustment, how expansive are those customers that we can maybe look forward to in a year or so being a greater portion of the mix? Yeah, So it's a really good point, Peter.

Peter: Starting to mix in customers that no longer are those all in 10 years that has seats coming down and it's really being replaced by.

Peter: Does that the expansion is is really funky.

Peter: Functionality is coming in if you look at those customers that are kind of past their seat.

Peter: Readjustment.

Peter: How expansive are those customers that we can maybe look forward to a year or so being a greater portion of the mix yeah.

Speaker Change: It's a really good point here. So we've talked about this a few times, but in FY 'twenty four we no. We saw that the majority of our customers had a renewal event. So they had the opportunity to work with us as they needed to potentially write sites there.

Kelly S. Steckelberg: We've talked about this a few times, but in FY24, we saw that the majority of our customers had a renewal event, so they had the opportunity to work with us as they needed to potentially right-size their seat count. Again, our renewals team has done an amazing job of taking the opportunity to talk to them about the opportunity to upgrade to Zoom One or potentially add Zoom Phone or additional products, so maintaining that spend.

Speaker Change: Seat count.

Speaker Change: Again, our renewals team has done an amazing job of taking the opportunity to talk to them about the opportunity to upgrade to one to potentially add in zoom phone or additional products. So maintaining that spend so we've seen some shifting around in terms of the overall portfolio, but really focused on maintaining that.

Kelly S. Steckelberg: So we've seen some shifting around in terms of the overall portfolio, but really focused on maintaining that spend. And what that does is it really situates us very well as those customers start to grow again, because the customers are now sitting in different SKUs that potentially are more retentive and also at a higher price point, honestly, that they can grow into as they start adding seats again. We do see that there's going to be a much lower percentage of our customers that are up for renewal this year that didn't have a renewal event last year. So we've seen, again, the majority of our customers, if they had something to work through in terms of right sizing, we've seen the majority of them have the opportunity to do that in FY24. So we expect that to have a much lower impact in FY28. And on the churn side of it, how much of the roll-off in NRR is because churn has gone up, or is it continuing to be what it has always been on the enterprise side, pretty, pretty stable? It's been pretty stable so far.

Speaker Change: Spend and what that does is it really situate us very well as those customers start to grow again that the customers are now sitting in different skus that potentially are more retentive.

Speaker Change: And also at a higher price point honestly that they can grow into as they start adding seats again, we do see there's going to be a much lower percentage of our customers that are up for renewal. This year that didn't have a renewal of that last year. So we've seen again the majority of our customers that they had something to work through in terms.

Speaker Change: Of right sizing, we've seen the majority of them have the opportunity to do that in FY 'twenty. Four so we expect that to have a much lower impact in FY 'twenty five.

Speaker Change: And the churn side of it how much of the roll off in <unk>, because churn has gone up or is it continuing to be what it has always been on the enterprise side pretty pretty stable.

Speaker Change: It's been pretty stable we did we've.

Kelly S. Steckelberg: We did, you know, we've talked about this, the customers that were right sizing. We, you know, given the reductions that we saw across our customer base and you saw generally in organizations last year, there was some impact from that. But the churn rates themselves have been pretty stable. And you remember that our net RR number is a trailing 12 month metric. So you're likely gonna see a little more decline in that metric before it starts to reaccelerate again, along with our revenue that we're expecting to see in the back half of this year. Thank you, I appreciate it. www.circlelineartschool.com. Okay, thank you.

Speaker Change: Talked about this the customers that were right sizing. We you saw given the reduction that we saw across our customer base and you saw generally in organizations last year. There was some impact for that but the churn rate themselves have been pretty stable and you remember that our net IRR number is a trailing 12 month metric.

Speaker Change: So youre likely going to see a little more decline in that metric before it starts to Reaccelerate again, along with our revenue that we're expecting to see at the back half of this year.

Speaker Change: Thank you I appreciate it.

Speaker Change: Okay. Thank you. Our next question comes from Shelby <unk> with SPN Securities. Yes. Thank you very much so adjusted for the two fewer days in Q1, you're guiding for three 6% to 4% growth in Q1 and for the year Youre guiding for about one five.

Operator: Our next question comes from Shelby Sairafi with FBN Securities. Yes, thank you very much. So adjusted for the two fewer days in Q1, you're guiding for 3.6% to 4% growth in Q1. And for the year, you're guiding for about one and a half percent growth. I know you bought them in Q2, but it seems like with a reasonable projection, you're still going to be like 2% growth, roughly half the 4% growth in Q1 in the back half of the year. Yeah, you're going to have these new products ramping up, the phone, the contact center, AI, etc. I'm trying to understand why you don't expect and adjusted revenue growth acceleration in the back half instead of the implied deceleration.

Shelby: In Brooklyn, I know your bottom in Q2, but it seems like with a reasonable projection, there's still going to be like 2% growth roughly half the 4% growth in Q1 in the back half of the year.

Speaker Change: Yes, youre going to have these new product ramping the phone the contact center AI et cetera.

Speaker Change: I'm trying to understand why you don't expect.

Speaker Change: And adjusted revenue growth acceleration in the back half instead of the implied deceleration I get in my model.

Shelby Sairafi: Again, my. You know, we are guiding to 1.8% in Q1, so that's, that's the outlook that we are giving. If you're backing into something different, but the guidance that we're giving is a reminder of 1.8% and then 1.6% for the full year, with the decline that we are expecting from a year-over-year growth perspective in Q2. Let me be clear, but Q1 has a 1.8% hit from the two fewer days, so adjusted for that, it is 3.6% growth in Q1.

Speaker Change: Yeah, we.

Speaker Change: Do we are guiding to one 8% in Q1, so that that's the outlook that that we are getting.

Speaker Change: If you're if you're backing into something different but then the guidance that we're giving as a reminder is one 8% and then one six for the full year with the decline that we're expecting from a year over year growth perspective in Q2, let me be clear that Q1 has a one 8% hit from the.

Speaker Change: Two fewer days so adjusted for that is three 6% growth in Q1.

Kelly S. Steckelberg: Right, so Apple to Apple 3.6 goes down to something like one or two in the back half of the year, and you have new products ramping up in the back half of the year. I'm trying to understand that. So, you know, as I mentioned in the prepared remarks, we are not assuming any improvement in the overall macroeconomic outlook or any changes significantly in terms of our international contribution.

Speaker Change: So apples to apples three six goes down something like one or two in the back half of the year and you have new products ramping in the back half of the year.

Speaker Change: Yes, Matt.

Matt: So as I mentioned in the prepared remarks, we are not assuming any improvement in the overall macro economic outlook and or changes significantly in terms of our international contribution. So all of that combined we are taking what we believe to be an appropriately prudent outlook for.

Kelly S. Steckelberg: So all of that combined, we're taking what we believe to be an appropriately prudent outlook for the, Okay, thanks. Okay, our next question comes from Katherine Trebnick with Roseblatt Security. Hi, thanks for taking my question. Much appreciated. So back to the contact center to beat a dead horse. Um, it seems like there's this a lot of the, information I gathered was there's a big push for light contact centers and it seems that Zoom fits that quite well with your pricing model and when I say light I mean those are non-agents versus agents so do you have like a split for the quarter that you are willing to share that would be agent versus non-agent I'm just trying to get a good handle on that growth outside the traditional agents for license because there seems to be a good opportunity there, I think direction-wise, you're so right.

Matt: The year okay. Thanks.

Matt: Okay. Our next question comes from Katherine <unk> with Rosenblatt Securities.

Katherine: Hi, Thanks for taking my question much appreciated.

Katherine: Back to the contact center to be the dead horse on it.

Katherine: Seems like there's a lot of the.

Katherine: No information I gathered was there's a big push for light contact centers and it seems that soon fits quite well with your pricing model and when I say right. I mean, those are non agents versus the agent. So do you have like a split for the quarter that you were willing to share that would be agent versus non agent.

Katherine: I'm just trying to get a good handle on that growth outside the traditional agents for license because there seems to be a good opportunity there.

Katherine: I think a direction wise you are so right and on a very hand for the real human aging of this union continent, modern contact center solution, while working hard on that replace legacy vendors solutions on the cloud business solutions on the other hand, and it has as you know more tomorrow that demand I think on our customers' needs, we're not going to deploy.

Kelly S. Steckelberg: And on the one hand, for the real human agent, they still need a modern content-centered solution to replace legacy vendor solutions or other cloud business solutions. On the other hand, and there is more and more demand, I think our customers do not need to deploy any human agent anymore, right? They can have a virtual agent.

Katherine: And a human agent anymore, right kind of level of what you AJ I think of any reason why also sale zoom what you're at in it as well I think it maybe in the next few quarters and maybe are ready to disclose that for now agnostic and we're ready to disclose without a number outcome, but we focus on both side and either you do not have more is it you kind of have the AI. This is good or you can buy more.

Eric: I think that's the reason I also said a Zoom virtual agent as well. I think maybe in the next few quarters, and maybe we're ready to disclose that. For now, I do not think we're ready to disclose that number. But we focus on both sides. And either you do not have more agents, you can have the AI. This is good. Or you can buy more agents.

Eric: That's OK, too. And that's our plan. All right. Thank you. Thank you. Okay, our next question comes from Peter Levine with Evercore. Great. Thanks for squeezing in. Kelly, you call it an M&A transaction. Can you share with us what you're thinking in terms of inorganic contributions? I mean, inorganic contributions, but what area would you consider?

Speaker Change: No agent that's okay, too so and that's our plan.

Speaker Change: Alright. Thank you. Thank you.

Speaker Change: Okay. Our next question comes from Peter Levine with Evercore.

Peter Levine: Oh, great. Thanks for squeezing me in I'll, just give you quick Kelly you call us on M&A can you share with us what youre thinking in terms of inorganic contribution.

Peter Levine: Hi contributions, but what area would you consider or is it <unk> is it like workflow optimization.

Kelly S. Steckelberg: Is it CCAS? Is it like workflow optimization collaboration? But any sense of kind of where you're thinking or how you're thinking about adding to the portfolio? Thank you. Yeah, we've been exploring opportunities across all of those areas, Peter. We look for opportunities to either accelerate what we already have, which would obviously be in the CCAS space. And a good example is what we did in the past with Solvee around our Zoom Virtual Agent product or something that sits a little bit next to it, WorkVivo is a great example of that as well.

Collaboration, but any sense on kind of where you're thinking or how youre thinking about adding to the portfolio. Thank you.

Kelly S. Steckelberg: Yeah, we've been exploring opportunities actually across all of those areas Peter we.

Kelly S. Steckelberg: Look for opportunities to either accelerate what we already have which would obviously be in the <unk> space and.

Kelly S. Steckelberg: A good example is what we did in the past with Saudi around are doing virtual agent.

Kelly S. Steckelberg: Product or something that sits a little bit next to it which work vivo is a great example of that as well. So we are continuing to look in areas both within our current portfolio as well as around us with things like productivity tools.

Kelly S. Steckelberg: So we are continuing to look in areas both within our current portfolio as well as outside us with things like productivity tools. That's how we're thinking about it. Eric, is there anything you want to add? Yeah, you're so right on.

That's how we're thinking about Eric anything you want to add.

Kelly S. Steckelberg: The right answer is the technology, driven or just to explain our cash or maybe a double down all of our existing services. So you can bring to market in those three things.

Eric: Just either technology-driven or just to expand our task, or maybe double down on our existing services. So it's pretty much those three things. Well, we're into the office. Thank you. Okay, we only have time for one more question, and that comes from George Iwanyc with Oppenheimer.

Eric: Well werent as the offering itself.

Eric: Thank you.

Eric: Thanks.

Eric: Okay. We only have time for one more question and that comes from George <unk> with Oppenheimer.

George Michael Iwanyc: Thanks for getting me in. Kelly, maybe expanding on your comments on the sale side and the reward, you know, how do you feel about your productivity in North America and internationally? And when you look at investing this year, you know, like, where are you putting the most effort?

Thanks for getting me.

George: Kelly, maybe expanding on your comments on the sales side and the re org, how do you feel about your productivity in North America and internationally and when you look at investing this year like where where are you seeing the most effort.

Kelly S. Steckelberg: Yeah, so you saw in our results for Q3 and Q4 that we had reacceleration and sales productivity in the back half of FY24. And again, off to a really fast start for FY25. So excited about that. We are investing in both direct and channel on a global basis, as it's really important that we keep fueling the growth driver that we have here in North America but also reinvest in and reinvigorate our international markets as well.

So you saw in our results for Q3, and Q4 that we had reacceleration and sales productivity in the back half of FY 'twenty, four and again off to a really fast start for FY 'twenty five so excited about that we are investing in both direct and.

George: <unk> channel on a global basis as it's really important that we keep fueling the growth driver that we had here in North America, but also reinvesting in reinvigorating our international markets as well.

Kelly S. Steckelberg: Thank you. Okay, thank you, everyone. This concludes our Q&A, and I would now like to pass things back to Eric for closing comments. Oh, thank you all for your support. Thank you all for your time. Really appreciate it, and see you next quarter. Thank you. Again, this concludes today's release. We thank you all for your participation from our family to yours. Thank you. Goodbye.

Speaker Change: Alright, thank you.

Speaker Change: Okay. Thank you everyone. This concludes our Q&A and I would now like to pass things back to Eric for closing comments.

Eric: Thank you all for your support Thank you all for Todd really appreciate and see you next quarter. Thank you.

Eric: Again. This concludes today's release, we thank you all for your participation from our family tiers.

Eric: <unk>. Thank you.

Eric: Goodbye.