Q4 2025 Zoom Video Communications Inc Earnings Call
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Speaker Change: Hello everyone and welcome to Zoom's Q4 FY25 earnings release webinar. I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.
Speaker Change: These forward looking statements are subject to risks and other factors that could affect our performance and financial results, which we discussed in detail in our filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.
Speaker Change: <unk> assumes no obligation to update any forward looking statements. We may make on today's webinar with that let me turn the discussion over to Eric.
Eric: Thank you Charles Thank you everyone for joining us today.
Eric: Slide 25 was an incredible year marketed by major advancement in AI, the evolution of zoom into AI for us to welcome platform spanning phone hemostat events docks in the mall.
Eric: And our strong momentum in Carnegie Center, and a walk of evil.
Eric: A key highlight has been the rapid adoption of our AI capabilities.
Eric: In monthly active users of zoom AI compiler, okay salary paid to 6% to 8% quarter over quarter.
Eric: Demonstrating the real value AI is providing customers.
Xu: Xu our companion has emerged as a driving force behind our transformation into a AI for us as a company.
Xu: Enabling our customers to this call will enhance productivity opportunities.
Xu: We are always looking ahead moving forward on it.
Imagining what's possible to enable frictionless work.
Xu: And now we look forward to having our customers fully realize the benefits of agenda to AI and discover what's possible with AI agents.
Xu: As part of <unk>, combining toward auto we added at the Wassa agenda capabilities.
Xu: <unk> memory reasoning, all consistent and seamless integration with Microsoft and Google services.
Xu: In April we are launching custom AI companion at all to automate workplace heartless through custom agents.
This will be a personalized AI to create a customer need connected with our existing data and work seamlessly with their third party tools.
Xu: We are also enhancing zoom workplace for clinicians.
Xu: Obligated AI companion that enable clinical noted taking capabilities and a specialized medical features for heska providers, starting a months. Additionally.
Additionally, we are obligating, our venous services by introducing more authentic a capability.
Xu: Zero.
Xu: And we will soon expand our reasoning abilities to handle complex heartless, while maintaining conversational context, while more natural and herbal order costs.
Xu: We are uniquely positioned to succeed again take AI for several reasons.
Xu: Zoom is a system of engagement for our users with the recent information in ongoing conversations.
This exceptional context, along with user engagement allows us to drive greater value for customers.
Xu: Our federal it AI approach less us combine the best models for each task.
Xu: We can't use specialized small language models, where appropriate while leveraging lots of models for more complex reasoning driving both quality and cost efficiency.
Xu: Zuma is known for making complex technology symbol for users.
Xu: We manage the complexity of AI models, while keeping the experience intuitive powerful and connected with popular third party apps.
Xu: We believe our strategic approach positions us favorably to help bring value to the customer we.
Xu: We are focused on delivering critical volume while building toward ambitious vision of AI that are truly amplifies human potential for the customers.
Xu: Our Air Force the work platform continues to gain momentum.
Xu: Driven by our core strength in meetings and expanding portfolio of integrated solutions, such as a phone hemostat events and assume docs whiteboard and zoom rooms.
Xu: We see this in the results zoom workplace.
Xu: Well with Amazon in Q4.
Xu: With Israel workplace zoom phone continues to see strong traction with both new customers and expansions.
Xu: We built upon our strength in retail healthcare and education, which delivered seven of our competence zoom phone deals this quarter.
Xu: The reason the Mitel partnership opens up access to Mitel 17, meaning global and they use us and it demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models and toys.
Xu: Zoom Hemostat continues to serve as the collaboration pop across our platform.
Xu: Our recent redesign of the sidebar has enhanced navigation and our productivity, while our new workflow automation capabilities are driving deeper platform engagement.
Chad: Beyond zoom team, Chad, we are seeing encouraging adoption across a broader portfolio zoom.
Chad: Zuma dogs usage more than doubled quarter over quarter.
Chad: Together with LIBOR, which was our customers a choice recipient in the 2024 got it up peer insights voice of the customer report while video collaboration applications.
Zoom team, Chad and zoom docs are critical components of our AI platform.
Chad: <unk> expanded our system of engagement and allow our customers to the mall with AI.
Chad: Both contact center and what could be delivered exceptional results this quarter in <unk>.
Chad: Carnegie Center, we achieved our largest HR deal in history with a fortune 100 U S Tech company for over 15000 agents.
Chad: <unk>, our ability to win and deliver for the most demanding enterprise customers.
Chad: The number of contact center customers with over $100000.
Chad: <unk> over 100% year over year with with both is pressing on crab and leading <unk> vendors. Our first approach is resonating strongly.
Chad: The majority of our deals are now in the higher tier elite all premium packages.
Chad: In the power and the customer appeal of our comprehensive AI and our workforce engagement capabilities.
Chad: <unk> also had a record quarter driven by strength across all regions.
Chad: The number of work vivo customers grew 89% year over year, because salaries going from 79% in Q3.
Chad: We've done three deals over $1 million.
Each with major global brands.
Chad: Our strategic partnership as a preferred migration partner for Mega workplace has been a strong contributor to this momentum.
Chad: Business solutions are critical components of our first work platform vision.
Chad: <unk> extends our platform from employee engagement customer engagement.
Chad: What could we will bought is our employee collaboration internal engagement and our culture.
Together, they exemplify our strategy of thoughtful expansion into higher growth areas, where we can deliver if of originated volume through our platform approach AI leadership and a rapid innovation for the customer.
Chad: As we look ahead to FY 'twenty six we are focused on our key strategic priorities.
Chad: Expanding our AI capabilities to drive customer value.
Chad: Rapidly innovating within zoom workplace and build upon our momentum in new products, such as contact center and I woke up payroll.
Chad: Despite ongoing macro challenges and uncertainties, we are encouraged that our value proposition and a total cost of ownership are gaining traction in the market.
Chad: Our innovation engine is fired on all cylinders our platform strategy is working.
And we have significant opportunities and it goes back to just to ask sort of a pump.
Chad: Now on top of the record setting Carnegie Center when I, just highlighted let me share some more amazing wins in Q4.
Chad: We are excited to offer zoom Amazon employees and further strengthen our long standing relationship with AWS as our preferred cloud provider.
Chad: This builds on the success, we've achieved helping customers easily procure and deploy zoom through AWS marketplace. Let me also standup Delta Airlines for this year is the first U S airline to celebrate its <unk>.
Chad: For clothing as work available as our employee communications and engagement platform.
Chad: Upon the sunsetting of a mega workplace.
Chad: Strategically chose to migrate it to work in vivo.
Chad: As a part of a multi year deal what could people will suit their entire global workforce reinforcing their strong company culture with omni channel reach and a key features like lots of streaming employee recognition and a comprehensive engagement analytics.
Chad: Let me also.
Chad: <unk> a software group a global mission critical enterprise software leader as well of our newest CX clients for the zoom family.
Chad: Recognizing the simplicity and ease of use of our unified platform. The opera for the Zuma Carnegie Center and assume what Youre Aegean to modernize the way they communicate and collaborate with their customers.
Chad: This incredible wins across our workplace and business services validate our strategy of delivering a full platform of modern integrated AI powered solutions will drive meaningful business value and audit humps for customers.
Chad: Now, let me hand, it over to Michelle who will take us through the financial results.
Thank you, Eric and Hello, everyone I'm excited to be with you again, and Sarah that we hit our topline and profitability guidance.
Chad: In Q4 total revenue grew approximately 3% year over year to one plant $184 billion $4 million above the high end of our guidance.
Chad: Total revenue adjusted for constant currency grew approximately 4% to one $188 billion $9 million just about the high end of our constant currency guidance range.
Chad: Our enterprise revenue career path, 96% year over year, and now makes up 60% of our total revenue up two points year over year.
Chad: We're continuing to see signs of stability in our online business.
Chad: In Q4 average monthly churn was two 8%.
Chad: A 20 basis point improvement every year and our lowest ever churn rate in the fourth quarter.
And our enterprise business, we saw 7% every aircraft and the number of customers contributing more than $100000 in trailing 12 month revenue.
Chad: These customers now make up 31% of our total revenue up one point year over year.
Chad: Our trailing 12 month net dollar expansion rate for enterprise customers in Q4 remained flat year over year and 98%.
Chad: The total number of enterprise customers at the end of Q4 with approximately 192600.
Chad: As we said previously enterprise customer count is more reflective of our go to market motion rather than a direct measure of our enterprise business performance.
Chad: We will continue to do migrations between our two go to market motion in order to best serve our customers as we did last year.
Chad: And as such going forward into the next fiscal year, we will no longer include that metric in our prepared remarks or SEC filings.
Chad: To provide ongoing transparency. We will include it in the earnings that <unk> throughout FY 'twenty.
Chad: We still believe that enterprise revenue growth.
Chad: Such as net dollar expansion are better reflection of the future business and expect future migrations to have minimal impact on these metrics.
Chad: Now back to the financial results.
Chad: Pivoting to our growth internationally, our Americas revenue grew 4% year over year.
Speaker Change: I agree, 2% and APAC grew 3%.
On a constant currency basis, EMEA grew 2% and APAC grew 5% year over year.
Speaker Change: Moving to our non-GAAP results, which as a reminder, excludes stock based compensation and associated payroll taxes acquisition related expenses net gains on strategic investments and all the associated tax effects.
Speaker Change: non-GAAP gross margin in Q4 was 78, 8%.
Speaker Change: Slightly lower than Q4 of last year, primarily due to strategic investments in AI, partially offset by efficiency gains.
Speaker Change: The results in Q4 were in line with our prior commentary and we continue to reiterate our goal of reaching 80% gross margin over the long term.
Speaker Change: non-GAAP income from operations grew 5% year over year to $468 million exceeding the high end of our guidance by $20 million non-GAAP operating margin for Q4 improved to 39, 5% up 81 basis points from Q4 of last year, even amongst.
Speaker Change: Continued investment in AI, our platform and our emerging growth businesses.
Speaker Change: non-GAAP diluted net income per share in Q4 was $1.41 on approximately $317 million non-GAAP diluted weighted average shares outstanding.
Speaker Change: This result, with 11 cents above the high end of our guidance and one lower than Q4 of last year, primarily due to higher income tax and unrealized foreign exchange losses.
Speaker Change: Turning to the balance sheet deferred revenue at the end of the period grew 7% year over year to $135 billion outperforming the 5% to 6% we estimated last quarter.
Speaker Change: The growth was driven by continued refinement of discounting practices as well as ongoing business scrap.
Speaker Change: For Q1, we expect deferred revenue to be up 4% to 5% year over year.
Speaker Change: Looking at both our billed and Unbilled contracts, our RPM increased 6% year over year to approximately $3 $8 billion.
Speaker Change: We expect to recognize 59% of total RPM all its revenue over the next 12 months that is up from 58% in Q4 of last year.
Speaker Change: Operating cash flow in the quarter increased 21% year over year to $425 million pre.
Speaker Change: Free cash flow grew to 25% year over year to $416 million.
Speaker Change: Operating cash flow and free cash flow margins in the quarter expanded to 35, 9% and 35, 2% respectively.
Speaker Change: We ended the quarter with approximately seven $8 billion in cash cash equivalents and marketable securities excluding restricted cash.
Speaker Change: Under our $2 $7 billion share buyback operation authorization in Q4, we purchased $4 3 million shares for $335 million.
Speaker Change: Increasing our repurchases quarter over quarter by $53 million and contributing to the reduction of common shares outstanding in Q4.
Speaker Change: Pivoting from Q4, I wanted to share a few of our full year FY 'twenty five highlights.
Speaker Change: Total revenue grew 3% and total enterprise revenue grew 5% year over year.
Speaker Change: Both of which accelerated in the second half.
Speaker Change: Our free cash flow grew 23% year over year to $1 $8 billion we.
Speaker Change: We also achieved non-GAAP operating margin of 39, 4% at.
Speaker Change: A 20 basis improvement from FY 'twenty four and finally, we made significant progress on stock based compensation down to 20% of revenue representing a three point reduction year over year and slightly ahead of the pace of reduction that we discussed at same token.
Speaker Change: And we repurchased $15 9 million shares for $1 $1 billion contributing to the reduction of common stock outstanding in FY 'twenty five.
Speaker Change: Now turning to guidance in Q1, we expect revenue to be in the range of $1. One six tale to 116 7 billion. This represents approximately 2% year over year growth at the midpoint, our two 6% year over year growth on a constant currency basis.
Speaker Change: As a reminder, Q1 of FY 'twenty.
One fewer day than the prior year.
Speaker Change: We expect non-GAAP operating income to be in the range of $440 million to $445 million.
Speaker Change: Representing an operating margin of 38% at the midpoint.
Speaker Change: Our outlook for non-GAAP earnings per share is $1 29 to.
Speaker Change: Two $1 31 based on approximately 316 million shares outstanding.
Speaker Change: And as a reminder, future share repurchases are not reflected in the share count and EPS guidance.
Speaker Change: For the full year of FY 'twenty, we expect revenue to be in the range at $4 785 to $4 $795 billion, which represents approximately two 7% year over year growth at the midpoint or three 1% year over year growth on a constant currency.
Speaker Change: See basis.
Speaker Change: We expect our non-GAAP operating income to be in the range of 185 to $1 $86 billion representing.
Speaker Change: Representing an operating margin of approximately 39% at the midpoint.
Speaker Change: Our outlook for non-GAAP earnings per share for FY 'twenty.
Speaker Change: It's $5 34.
Speaker Change: To $5 37 based on approximately 318 million shares outstanding.
Speaker Change: For FY 'twenty, we expect free cash flow to be in the range of $1 six eight to $1 $7 billion.
Speaker Change: We're proud of our progress in FY 'twenty five and we're excited about the differentiated Atlantic AI vision and the value that it provides to our customers.
We're going to continue to invest thoughtfully in our priorities that we've outlined while maintaining our focus on profitability and cash flow generation.
Speaker Change: Excited and incredibly grateful for the trust and support of the entire zoom team our customers and our investors.
Speaker Change: Chelsea please queue. The first question.
Speaker Change: Thank you so much Michelle and as Michel mentioned, we will now move in to taking your questions. When I call. Your name. Please turn on your video and on mute and as a reminder, in an effort to hear from everyone. Please limit yourself to one question. Our first question is going to come from Kash Rangan with Goldman Sachs.
Speaker Change: Cash would you go ahead. Thank you so much alright. Thank you so much.
Kash Rangan: Congrats on finishing up the fiscal year, Eric a question for you certainly made a lot of pivotal advances positioning the company to be very first it shows up in the quarter to quarter usage of I assume companion.
Speaker Change: The Amazon deal that you won congratulations.
Kash Rangan: As you look ahead.
Kash Rangan: Do you think that capability is good.
Bruce could become a tailwind for your business and that it starts to drive accelerated maybe the underlying platform and AI features are additive to the revenue growth, we're still stable, but this set the stage for better than stable great. Thank you. So much cash that's a good question.
Kash Rangan: To double down on AI investments oversaw our pole partners for a while right I think I think.
Kash Rangan: It's happening already meaning you look at our low end SMB customer online bars.
Kash Rangan: Combined is part of that at no additional cost.
Kash Rangan: Made our service very sticky and also those are customers that give them very basic example, our committee summary, right. If it works, so well more and more customers followed a value accident for sure. They are going to enjoy using our service model. That's the four low end or high end for sure and we understand it today as a companion.
Kash Rangan: Additional cost, we can or cannot monetize era.
Kash Rangan: So we are going to announce the customized are combined for enterprise customers. We can monetize but most important thing is for billions of services take a contact center for them why we are winning because a lot of AI features like AI expert to assist.
Kash Rangan: A lot of features built into our quality management and so on and so forth all of those are business services.
Kash Rangan: Another great way for us to monetize a yard for workplace for enterprise customer are combined LOE and and also really macabre sort of sticky and improve the <unk>.
Kash Rangan: <unk>, you're essentially at cost and realize we had more and more services and more and more value gets water. They are going to asterias will stay with zoom plus usage also will be higher that's our strategy to leverage AI.
Kash Rangan: Thanks, so much.
Kash Rangan: Thank you guys.
Kash Rangan: Thank you move on to Samad Samana with Jefferies.
Samad Samana: Hi, good evening, and I'll Echo cashes kind words as well to get to see all the progress <unk> is making I guess on the AI side I wanted to follow up on that.
Speaker Change: Eric when you think about.
There's new AI based products, but how it's impacting the decision by larger customers in particular to adopt maybe the existing components of the platform and thinking about expanding leveraging zoom in advance of the AI features that are being released and maybe just to dovetail that into I'll cheat and ask two in one Michelle.
Speaker Change: What are you assuming around AI investments and it does kind of fully embedded into guidance for the year. So those are my two questions.
Yes, so I can address the first part of your question. So if you look at it from a customer or put in a perspective right. So almost the winder.
Speaker Change: Ever been there right in the trial the Pizza Hut story, our customers Tomorrow, all customer who will understand what's the wildly.
Speaker Change: Added to their opinions right. So they with a laggard to take kind of what will test the ARY services, especially look at the value add in our costs right and it will go to our combined.
Speaker Change: All of those combined call features to date at no additional cost right and of course, we like it because of the quarter to get them better and better every quarter and a very useful right no no like some other competitors like to talk about our AI strategy and cost realized that it well, it's very expensive and at a total cost of ownership.
Speaker Change: It's not getting better because the cost of the wireless and all are great. But also it's not a free and you always try to increase price.
Speaker Change: Reason why for us to leverage.
Speaker Change: Our AI technology to build this.
Speaker Change: The crossover initiative is customer and I think we are going to win in the long run because you don't want to tail cost him Hey, Robert Yes, Fisher now Union pay more.
Speaker Change: That's not.
Speaker Change: All right. So that's the reason why we shared our strategy roadmap feature surprising everything with our customers transparently.
Speaker Change: Reflected by the air combat usage, when you more and more customer Trust Zuma has a very good functionalities.
Speaker Change: <unk> and also the trust zoom. They are now going to tighter customer crazy price right I think thats, a good philosophy to long term.
Speaker Change: Yeah.
Speaker Change: And then maybe just to add on with how to think about AI and what's in our guide I would say from a top line perspective, the trends that we're seeing in stemming.
Speaker Change: Turn as well as the contact center elite revenue that Eric talked about those are in our plans, we certainly have revenue and our plans for the more H two focus skus like cosmetics and hand him, but that obviously.
Speaker Change: Obviously would be ramping and not a dominant thing and then in terms of the investment we said last time.
Speaker Change: Being one of our three investments and it's baked into the guide.
Speaker Change: Great. Thank you so much.
Speaker Change: Yeah, Ryan Macwilliams with Barclays has our next question.
Speaker Change: Hey, guys. Good to see you greetings from Switzerland, New one for me.
Speaker Change: You're asking a question on <unk>.
Speaker Change: Michelle do for you lots of growth opportunities presume how would you rank the top three drivers for resumes net new revenue in fiscal 2026 between like contact center AI can phone et cetera, and then as you build up to the full year guide.
Speaker Change: How should we think about what it implies from contributions from the enterprise customer segment in the online grocery.
Speaker Change: And so let me maybe answer the first one and then I'll round back to that the other one Ryan and hope you're well in them.
Speaker Change: But I would say when.
Speaker Change: When you look at the full year guide that we gave of $2 seven when you factor sort of FX and lead.
Speaker Change: Leap year it gets much more than three three range. So just as context within that I would say that we've assumed that online will be flat to slightly down and that enterprise will really be the dominant growth driver.
Speaker Change: So in terms of how to think about the top three.
Speaker Change: I think I would answer it like this slick certainly let me go to the core Ryan where like our core business.
Speaker Change: And when I talk about or it will sort of be inclusive of towne.
Speaker Change: We are pleased with what we're seeing in terms of.
Speaker Change: Record churn and also I would say we're seeing the same in our enterprise business. So we're down cells had sort of peaked and started 25. We're now seeing sequential improvement every single quarter, which is great and so we certainly have an expectation and those are big dollars.
Speaker Change: Then I would go to sort of our adjacent parcel I mean.
My contact center and work vivo and both are certainly important to us where we will be working to continue to grow kind of customer and the successes that we've seen both at market.
Speaker Change: And extend those down through channel and in particular, you're sort of asking a question. So let me let me leave that one in which is just the connection again in our contact center revenue is really being driven by that elite SKU, which is our top 140, SKU, which includes not only inbound and outbound, but AI as well.
Speaker Change: Yes.
Speaker Change: Excellent color thanks, guys.
Speaker Change: We'll move on to meet our Marshall with Morgan Stanley.
Speaker Change: Great. Thank you.
Speaker Change: Maybe just a quick question on just what kind of go to market investments you guys are making kind of as you brought in the portfolio and as you kind of see what has more traction with customers, particularly when it comes to contact center and maybe just asking on the big deal that was one just kind of what was the go to market motion with winning kind of that large cut.
Speaker Change: Thanks.
Do you want me to.
Speaker Change: Okay, that's going to answer a broad broad things and maybe you can layer in from a deal perspective does that sound good.
Speaker Change: Alright, so and it's nice to see you again as well.
Speaker Change: What I would say in terms of our priorities for our go to market and maybe the first one that I would fall out is to continue to move upmarket.
Speaker Change: We've been seeing and we have.
Speaker Change: Re leasing progress and contact center and work data in that space, but also in phone and other so first priority is go to market wise that would certainly be to move our enterprise continue Didnt move our enterprise business at market second thing really important test we've talked about before it's integral to the phone and contact center, but also moving.
Speaker Change: Further down in our customer breadth.
Speaker Change: This is really accelerating the channel.
Speaker Change: And then I would say probably a third to that is returning and our online business tomorrow.
Well Ive sort of said the guide of plus down the ambition of course.
Speaker Change: Is to return it to growth. So that's how I think about my top three priorities.
Eric: Eric do you want to comment on them.
Eric: So yes, maybe.
Eric: Add on water Michel side in terms of doubling down on our channel business.
Eric: <unk> is a new kind of our contact center in Q Talbot 10 deals and our contact center.
Eric: Six six out of the top line.
Eric: Those are to induce a driven by the channel partners.
Eric: And we are getting into and.
Eric: Kind of what you're investing more right to make sure that our channel partner kind of consumer more to our contact center gross so.
Speaker Change: Great. Congrats on the large scale yeah. Thank you and the next question comes from Alex Zukin with Wolfe Research.
Alex Zukin: Guys Congrats on a great quarter maybe.
Alex Zukin: Maybe just to partner right. So first to the extent that you can talk about the demand environment post election, the difference between the two segments in online in enterprise and maybe talk about what youre seeing in SMB, what youre seeing I've gotten questions about federal exposure in all of the dose headlines. So just talk about you mentioned in the script that it's.
Alex Zukin: Still choppy, it's still uncertain, so maybe put a finer point on that.
Alex Zukin: And then.
Alex Zukin: What kind of got you over the line.
Alex Zukin: Amazon in terms of winning that deal and you are now at a point, where youre kind of two of the Max seven are deeply partnered and entrenched with zoom where to some extent they were effectively competing with one or two of your products beforehand. So what is kind of happening and how do you kind of see the opportunity to turn those into.
Alex Zukin: Almost also distribution channels you mentioned the Delta example, with work vivo Amazon I imagine, there's a number of China customers that now maybe your opportunities.
Speaker Change: So Michelle Haber I address the second one you addressed the first question.
Speaker Change: Look I would say I would characterize what we're seeing in the macro environment.
Speaker Change: Mixed but stable.
Speaker Change: To the positive on the enterprise side, we're seeing a lot of upmarket momentum and you can see it in our results.
Speaker Change: I mentioned earlier, so I won't repeat it again, but.
Speaker Change: Sequential improvement in the downtown on the enterprise side.
Speaker Change: Also on the online we're seeing record low churn rates in both Q3 and Q4. So those you can look at it and say positive, but that's certainly open the headlines and you see them.
Speaker Change: And then says of layoffs and you know.
Speaker Change: And this is sort of volatile times, if you will in the in the news and so I would say that that's sort of behind our sentiment that things are still mixed.
Speaker Change: Yes, so regarding the Amazon deal.
Speaker Change: As you all know Amazon was using the time, which was acquisition many years ago right. So.
Speaker Change: Look at it.
Speaker Change: Video conferencing, and becoming more and more important again.
Speaker Change: Zoom normal winter, we would accomplish a full world workplace platform a lot of other services.
Speaker Change: Room system right so Amazon.
Speaker Change: Evaluating all of those services or does he want to find the best.
Speaker Change: Talk to silver their employee needs right so of course Amazon.
Speaker Change: The company does calibrating experience right.
Speaker Change: Looking into all of the services so for sure.
Zoom is the better choice, so Dave with a lag to deploy zoom right to improve their communication and collaboration.
Ken: This is Ken.
Speaker Change: Although all those companies really care about employee experience I think that the <unk>.
Ken: Selected zoom.
Ken: As the vendor so speaking of distributions we already started working together with Amazon I think is a huge opportunity ahead of us and our heartworm lever elaborated those Amazon marketplace by two to drive our top line growth, we're going to see some early signs of success welcome to working together with Amazon to more and more to drive again.
Ken: This is part of our channel partnership is Amazon workplace is doing well for a lot of other companies right. So we also want to be part of that as well. So that's that's a win win I think.
Thanks Alexandra Evercore, Peter Levine has the next question.
Peter Levine: Great. Thank you for taking my questions here.
Peter Levine: So in April when the EA customization da competitor comes becomes available I think it's 11 or $12.
Speaker Change: Can you maybe help us understand how you're thinking about like what's the real use case and then in terms of adoption like what are you envisioning in terms of how many employees within an organization would actually need this type of application and then second for you. Eric you just see the headlines around even in our world in banking where.
Peter Levine: Let people, forcing you back five days a week maybe.
Speaker Change: Maybe just help us understand like how are you thinking about that does that at all.
Speaker Change: But your customers may be thinking about expanding but just would love to know kind of your thoughts on if this back to office about this week's becomes more of a reality.
Speaker Change: Yes, I think.
Speaker Change: Five of these working rig for financial.
Speaker Change: Institutions, I think I fully understand right because it's very important kind of in person and meetings for sure. It's a lot of benefits.
Speaker Change: Fully understand but also at the same time.
Speaker Change: Heavy large.
Speaker Change: The financial institutions, you always have employees.
Speaker Change: Across the country and also a lot of international branch office as well and you talk to the customers partner is doing it.
Speaker Change: Use zoom right I think internal use it right.
Speaker Change: You know might be kind of up and down, but overall and I know towards like a zoom is still very important to be albinus collaboration.
Speaker Change: I do not have any concern I truly respect every company is a fully removed five days in the office. So hybrid episodes provided the same for.
Speaker Change: For each company right. So we just want to help our customers to enable and no matter, which we go and make sure. They have a best collaboration and communication tools right.
Speaker Change: The improve their productivity.
Michel: Michel you want to address the first one.
Michel: Yeah, and maybe I'll ask I'll, let you talk about the use cases, but Peter in regards to your question about <unk>.
Michel: And what are sort of the assumptions or whats the targeting and their habitats fault dollar custom AI companion scale I would say starting with enterprise customers. Obviously, the easiest place to today's hands on Manta is up our own customer base and talk about that.
Michel: Not.
Michel: Just limited to that but we.
Michel: We will be probably giving a lot more I would say at enterprise connect which you can see on that I think there but I.
I would say you know we've assumed some degree of monetization in FY 'twenty six I think you'll see more of it in 2007 and.
Michel: And we think that the dollar price point is going to be a really compelling TCE is free for our customers really differentiated from what others in the market or pricing out.
Michel: Yes, so regarding our customer air combined use cases.
So we gave a customer flexibility to customize their needs I gave a few examples like the one feature logging would have assume service called a video clip.
Michel: We're going to support the standard template hardware support every customer they have a customized template for each of the users there's a part of.
Michel: Combining skewed right and also all kinds of third party integration and the like.
Michel: They prefer right some of those to kind of sort of a part of it because the integration with our data with a knowledge where there is a dictionary lot of scenes right. Each company is different than without a customized so what kind of leverage our companion studio working together with the customer to support their needs and also a similar type of commoditize.
Speaker Change: Thank you very much thank you Peter.
Mark Murphy: We will now hear from Mark Murphy with JP Morgan.
Speaker Change: And I will echo cashes, congrats on finishing the fiscal year.
Speaker Change: Eric I wanted to try to get your thoughts your perspective on deep seek and.
Speaker Change: Any potential you see for.
Speaker Change: Lower inferencing Kosten in AI models <unk> is something that you are testing out.
Speaker Change: And Michelle looking at how strong the cash flow production is.
Speaker Change: Could you speak to the.
Speaker Change: The cost or margin profile for the AI products and what type of gross margin.
Speaker Change: Profile you see you maybe are thinking would be coming in for the AI companion as well.
Speaker Change: Yes, so I'll kind of address your first question regarding the deep sea and I think a few of them.
Speaker Change: Weeks ago, right I did publish a Lincoln and post a bottom I thought about it the deep sea after the earnings call I will forward.
Speaker Change: Lincoln Imposts, so high level I think.
Speaker Change: Given this open source relax it because the open source and look at our former vendors like us kind of we built obligation later.
Speaker Change: The AI technology, we also get lots of electric motor or a lot of our tech and use a lot of open the optimization. So we all can learn from this is beautiful the obligation and the vendors like us.
Speaker Change: Full of laws of angular models. So I'd also like to 30 kilometers zama right also kind of look at the <unk> and also by the way you look at it even for hardware vendors.
Speaker Change: And media Broadcom AMD also good for them as well the reason why you noticed that a lot of demand what's your views and normally they serve where there was a lot very large cloud vendors for us Michael do you bought a lot like game for zoom right, probably we are not on the call BARDA you, maybe a second a variety right and a lot of other company and behind us.
Speaker Change: Large cloud windows.
Speaker Change: Hi.
Speaker Change: We more however, the future.
Speaker Change: Demand and we want to buy more and there are a lot of other companies also want to buy more overall I think it was a beautiful everyone and also look you know the.
Speaker Change: Cost for flagged a former hardware side it largely longer model application referenced everything I looked at it that we would drive the cost down. So that's why overall as good of our industry because it open source and so.
Speaker Change: That's my take on that.
Speaker Change: And then Mark maybe a question about kind of how to think about the margins were not going to obviously give any guidance or probably going forward any specific margins.
Speaker Change: I would say that we look at those very closely and our margins for every activities are coming down.
Speaker Change: In line with what our expectations would be if not more.
Speaker Change: I would say maybe more broadly maybe address where I think he may be going with the question is that.
Speaker Change: We're very pleased with our margin finish in FY 'twenty five.
Speaker Change: And while we don't guide to the margin.
Speaker Change: In 2000, and Seth I would say, we feel good that our increased usage and AI in our spend there.
Speaker Change: It's going to be offset by efficiencies such that we should be able to see in FY 'twenty effects on acceleration of margin.
Speaker Change: In line with sort of not up to the 80% that are you know holding.
Speaker Change: Holding very true I guess mark to the principles that we set on our long term margin and Michelle. Thank you for that but just to clarify I think you said margins for active users are coming down did you mean the cost profile.
Speaker Change: Hi.
Speaker Change: Yes. Thank you so much.
Speaker Change: Our next question will come from Michael <unk> with Wells Fargo.
Speaker Change: Hey, thanks, very much linked to see everyone.
Speaker Change: Intending to continue on the margin question, so theres a little bit of a follow on here, but Michelle first from a full year guide can you just speak to the delta between combined operating and free cash flow margin.
Speaker Change: What's driving that for the upcoming year, and maybe just going back to margin trajectory humans have higher targets suggest margins may come down as investments go up youre guiding for just slight compression on the operating margin side. So maybe just how youre thinking about the trade offs of that still holds or what could shift.
Speaker Change: If you don't mind, thanks very much.
Speaker Change: So let me maybe start with what I think is more tactical but microbiome in correct me if I'm misunderstanding your question on the free cash flow.
Speaker Change: And for 25, we're certainly seen.
Speaker Change: Quite that strong growth, just obviously time timing elements of that pull forward relative to 'twenty six our.
Speaker Change: Our expectation on 26.
Speaker Change: Is that you can still continue to see that OE growth, but you're impacted by timing differences as well as <unk>.
Speaker Change: Different interest conditions and tax conditions. So that's kind of how I would have investors think about free cash flows in terms of your operating income and kind of how we think about it long term I actually think it's heated up beautifully which says.
Speaker Change: Look we are we are going to be first and foremost about revenue growth, but we're also going to balance that with.
Speaker Change: Profitability and our long term guide we gave is sort of what I would call is a wide margin as possibility of things that we would do.
Speaker Change: And really what Eric and I have been centered on is getting clear and clean prioritize business priority.
Speaker Change: To investors. So you know where we're investing in and then really look we are we are going to invest when we see growth.
Speaker Change: But we're also going to be just pushing an ongoing frame of efficiency and I think you really see that in our 26th.
Speaker Change: Guide and I think you should expect to see similar.
Speaker Change: Thanks very much.
Speaker Change: Moving onto Arjun Bhatia with William Blair.
Speaker Change: Perfect. Thank you so much Eric.
Speaker Change: One for you and Michelle one for you Eric.
Speaker Change: You mentioned the Gentex AI.
Speaker Change: As you're moving more towards the Genentech and you're adding agents to your platform. How do you think about just evolving your pricing model does that fall under the broader AI companion or do you anticipate having.
Speaker Change: Different a different pricing approach for Egencia capabilities, and then Michele it seems like Youre, just having a lot of traction with enterprise. It seems like that part of the business is going well when do you think we should see <unk> start to inflect and maybe what are the puts and takes there.
Speaker Change: Going into FY 'twenty six thank you.
Speaker Change: Yes, so regarding the agenda.
Speaker Change: <unk> today look at zoom combined to put although it's already authentic.
Speaker Change: So lucrative for one vote with or without.
Speaker Change: So we already breath identical framework. So like if we have a workplace is in and also have been to the services.
Speaker Change: I mean like.
Speaker Change: Part of our Carnegie Center also supported a third party isn't it as well and meaning this is Scott.
Speaker Change: <unk> technology natural evolution from <unk> to agenda, a framework, where every company is doing that we are doing that as well because this is very important and the new technology, a new framework and a lot of our agents.
Speaker Change: By us and the Lebron zoom, where companies go to cost of most of the computer agent under Basel I.
Speaker Change: I do not think we need to have us special SKU right. Because this is a part of our <unk>.
Our companion studio.
Speaker Change: To offer customers an agenda capabilities.
Speaker Change: And then maybe on your comments on the guide I.
Just continue to reiterate that that full year guide you know it has some headwinds of foreign exchange and leap here.
Speaker Change: Two 7% when you factor them in three three.
Speaker Change: Ill reiterate my comments on online sort of the expectation is that it's flat to slight decline and that really enterprises, what will what we expect to carry the growth and in terms of the elements of what we expect to carry that growth.
And it would be you know an acceleration, but it's the same things we've been talking about and frankly seen in throughout FY 'twenty time, pushing up market gaming channel traction.
Speaker Change: And seen churn and Downfalls and moderate and then you know certainly a growing into our land and expand motions, even further with work female and contact center.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: James Fish with Piper Sandler has the next question.
Speaker Change: Hey, guys. Thanks for the question here.
Speaker Change: Building off of a bunch of the prior ones.
Speaker Change: As we think about a shift more towards a.
Speaker Change: Contribution.
Speaker Change: Are we shifting more towards a consumption model rather than a seat model over time and why wouldn't we see margin compression longer term or how are you guys kind of thinking about balancing seat based pricing and consumption based pricing and also working off from touring prior question.
Speaker Change: You are guiding for a free cash flow conversion rate that is for me.
Speaker Change: You guys just did.
Speaker Change: And you mentioned Michel some pull forward. So how should we think about what sort of got pull forward and the cash flow that won't be repeating or why we wouldn't be closer to a sort of a 100% free cash flow conversion target.
Speaker Change: Yeah and I.
Speaker Change: I can start with that let's take your first question I'm, sorry around how to think about.
Speaker Change: Margins and business models, and why we don't see compression and what I would say is that.
Speaker Change: What we expect to see a similar to what you saw in FY 'twenty time, which is.
Speaker Change: We have seen obvious had or increase in cost from our AI and that you know we have an ongoing methodical all kind of efficiency lift to offset and we certainly expect that probably to continue into FY 'twenty.
Speaker Change: So I think we feel good about our ability to kind of moderate that.
Speaker Change: Maybe other things I would talk about it Eric mentioned in his prepared remarks that we really think the federated approach that we have to AI is an important element to being able to.
Speaker Change: And both give better quality of results, but also an increase.
Speaker Change: Chris cause meaning.
Speaker Change: Being able to match the right model at the right path to take the right action that needs to be done per customer value. So that's really how we're thinking about you know.
Speaker Change: Managing things broadly there is other things, we do more holistically, where we can offset that maybe non NII and our margins things like pillows et cetera that we've talked about them previously.
Speaker Change: And then your question around free cash flow.
Speaker Change: I sort of understood of why why don't we see more of an increase are similar in line with what we signed 25, So let me answer that.
Speaker Change: First of all in FY 'twenty, five we had interest rates.
Speaker Change: That's one.
Speaker Change: We're we're growing off of a large space.
Speaker Change: As well as we saw billings in positive operating income as we go into 2006, when see different interest rate conditions different tax conditions as I mentioned, but still that same growth from operating income and so really its sort of a timing thing. The other thing that I might mention that we've not talked says they explicitly about it.
Speaker Change: Our broad guy who'd be it in revenue our operating income continues to use a consistent methodology towards him. He is before kind of that great inconsistent, where we aspire to beat.
Speaker Change: Thanks James.
Tom Blakey: We will move on to Tom Blakey with Cantor Fitzgerald.
Tom Blakey: Great. Thank you for taking my questions.
Speaker Change: Maybe just it seems like everybody else is doing to I'll try to sneak two in Oregon, Michele on the <unk> side, great successes here.
Tom Blakey: I was wondering if you could talk a little bit more about that longer term plan.
Tom Blakey: <unk> to get see Cas up to 10% of revenue in line with the zoom phone timeline maybe.
Tom Blakey: Maybe that's being pulled in a little bit here with our successes in the higher tiers Kirk and then maybe on work vivo again, just just solid numbers great traction last year wondering with the meta workplace migration opportunity. If you wanted to just maybe double click on that.
Tom Blakey: Maybe this is for Michelle you may be seeing there is still enough runway. There continue second that quick type of growth Accelerant can continue in fiscal 'twenty six did not become more of a headwind would be helpful. Thank you so much.
Tom Blakey: Yes, so Tom regarding the Carnegie Center contributing to our top line growth for sure Theres oversaw our aspiration right to contribute to leveraged a contact center contribute more I think of the timing wise is perfect right. There's a lot of our enterprise customers to deploy on prime solution right.
Tom Blakey: As the largest E R R.
Tom Blakey: So you know.
Tom Blakey: Got it.
Tom Blakey: 100 U S Tech companies.
Tom Blakey: We're using the on prime solution right and when they decided it.
Tom Blakey: You know to migrate to cloud based solution for sure. They wanted to look at all of the cloud vendors they want to make sure the nature would appeal to the cloud.
Tom Blakey: The solution is also the all the Univision AI, it's part of that that's one reason why well much better positioned right and also the protocol and we have high confidence on a go to market side of it we also need to double down on the channel a lot of other <unk> that are doing very well also reflected by more than 50% of top 10 deals.
Tom Blakey: In Q4 also driven by the channel partners as long as the folks on the innovation with AI in all the features to drive the velocity and the same time and listen to our customers and adopt around go to market. I think we are going to be much better positioned in this is a growing and the AI driven.
Tom Blakey: Contact center market.
Speaker Change: And thanks, and maybe I'll hit your work fever, and then some broad comments about the two products together and millwork Diva like you said, we feel great record record bookings excuse me.
Speaker Change: 89% growth in customers. So all very durable things certainly matter and we called that out in our prepared remarks is it driving a lot of that.
Speaker Change: But I'll remind you that we had nonmedical, thus far and so we feel good about our ability to drive bolt frankly, and then we're not going to give guidance you'll have our overall revenue guidance you had kind of the color and context on the enterprise versus online but.
Speaker Change: But I would say that the elements that kind of underlying durable elements of what drove 25, we expect to be present in 'twenty.
Speaker Change: Thank you very much.
Michael Funk: Bank of America's Michael Funk has the next question.
Speaker Change: Great. Thank you. Thank you Erik Thank you Michelle.
Speaker Change: You want to be proud of what you've achieved last two year I wanted to level set.
Speaker Change: <unk> revenue growth because the previous narrative was a march towards mid single digit revenue growth.
Speaker Change: Youre still guiding below a after fiscal 2006, so one of the better receipt of a strategy may be shifted to customer stickiness, meaning barnwell and discounting or other factors are at play here, maybe online churns, we have a bit higher maybe macro has been more difficult.
Speaker Change: We are waiting to have more in my talk about AI solutions, but one of them.
Speaker Change: Better understand at a high level of SaaS revenue growth forecast for longer term because previously with discussions with mid single digit target.
I'll, maybe take that one American until free to jump in but.
Speaker Change: I would say I don't think there's been any change relative to that meaning if you go to the core of our business like our guide and our performance reflects the same thing, which is we have seen sequential improvement in down sell and enterprise.
Speaker Change: We're seeing record level churn low churn excuse me and online.
Speaker Change: And then the elements that will drive 26 are the same move up market broaden channel from a go to market perspective from a product perspective.
Speaker Change: And phone reservoir fever growth in contact center, so I really don't see it as a shift.
In approach.
Speaker Change: And from a macro perspective, we've also seen like a macro.
Speaker Change: Macro conditions.
Speaker Change: Okay, and then maybe a quick math question Michelle maybe it's around you look at the revenue from over 100000, K customers year over year or simply taking a percentage of revenue and number of customers that looks to be declining slightly.
Speaker Change: Is there a change or a shift in a pump up a 100 K customers.
Speaker Change: Different product set that you are selling enter them, whereas my basic math incorrect.
Speaker Change: Over 100, causing a trailing 12 month customers grew 7% am I misunderstanding. Your question, Yes, I would probably simply take a percentage of revenue from those customers and then divide it by the number of customers I get to a lower amount of revenue per customer than a year ago, maybe we can take it offline if dr better better because you're not having to take it in the neck.
Speaker Change: Fair enough. Okay. Thank you very much big picture than some people have the sentiment we feel good about our traction in that market.
Speaker Change: Thank you Michelle Thank you Eric.
Speaker Change: Moving onto Richie <unk> with RBC capital markets.
Wonderful. Thanks, so much for taking my question I'll keep it to one just given timing Eric I appreciate.
<unk> that youre talking about zoom chat at highlighting that in your prepared remarks can you talk a little bit about where you're getting some of the traction and what's the impact that youre seeing in your customer base, whether it's.
Speaker Change: Better churn, whether it's better expansion rates adoption of other adjacent products any color there would be helpful. Thank you.
Speaker Change: Could you talk about our Zuma hemostat right. So yes.
Speaker Change: Yes, so if you look at it maybe as well for the <unk> to serve as you are likely to Q4.
Speaker Change: A bigger deal in the manufacture.
Speaker Change: The market you know what.
Speaker Change: Iqos is solid and the zoo workplaces.
Speaker Change: And also the <unk> thousand zoomed human chat users right because the reason why a customer when we talk to the customers entire zoom workplace suite, the realized zoom or teams had it as part of that is at no additional cost and look at our functionality and a lot of features.
Speaker Change: Wishes Wow why not this one the sunrise zoom by necessity when customers realize the power of zoom and teams that they are all very interest right.
Speaker Change: Reason why if you look at it some thought about companies. They also looked at all.
Speaker Change: Given that they do not have a lot of work.
Speaker Change: The capital right.
Speaker Change: After deploy zoom. They also found zoom teams head. So again from product perspective is really cool product a service because we already have that for a long time, just from marketing perspective, a lot of our customers did not know that right. So that's the reason why we need to figure out are we fixed that problem again. This is the power of the entire zoom workspace suite.
Speaker Change: China is a part of that <unk> deployed imaging and a phone they did not realize that <unk> had a harder part of that why not to use it right now.
Speaker Change: Cmos.
Speaker Change: Fixed out in a marketing problem, maybe adoption problem, but again this is on our radar screen to address that.
Speaker Change: Alright, well. Thank you maybe I'd also highlight it as a current example that stuck with me, which says we saw.
Speaker Change: Our recent customer and our compete versus Microsoft to 12000 yard users you know and they commented that the China and the kind of increase the value with the integral to their decision. So we are well well so early days and we're working on it and we're excited by what we see alright.
Rishi: Alright very helpful. Thanks, Eric Thanks, Michelle. Thank you by the way recently, you also can't use zoom and teams that as well we can connect over zoom or teams. So that's very good I appreciate that very easy to add an excellent context, yes. Thank you Rishi. Thanks, yes.
Speaker Change: We have time for one additional question, which will come from CPE panic Rocky with Mizuho.
Rishi: Go ahead.
Speaker Change: Hi, Thanks for squeezing me in.
Rishi: I'll go back to the contact center.
Speaker Change: If you've already our general manager had for contact center.
If you look at falling after two or three years, you saw that inflection point now contact centers has been now almost like two or three years since we launched.
Speaker Change: Is this a year for contact center or do you think there is some kind of a demand side customers are still trying to pause and.
Speaker Change: Looking at the AI strategy, there is some kind of delay there.
Speaker Change: And also we see like Avaya now it's.
Speaker Change: Going to support the XP customer in less than 200.
Speaker Change: <unk> customers. So how do you see contact center.
Speaker Change: China in terms of inflection.
Speaker Change: When do you think it will be like Paul.
Speaker Change: Yes first of all we do see the momentum right and in Q3 and tumor. So a number of receives the largest deal in Q4 in terms of sulfur.
Speaker Change: For larger digital more and more costs and realize the mouth Zumpano Thunder works so well.
Speaker Change: All the inhibition of the stability and integration with the other core services I think I'll also philosophy I think we just need to focus on execution market opportunity there.
Speaker Change: You look at all of our <unk> deal with the top 10 deals right I think if I recall correctly six or seven to replace replace the existing cloud vendors right. I think the key is really because given two years ago River announced that right. So given the this is a shorter period of time and customer. They do not realize we will have that again this is new market.
Speaker Change: Problem, we got to fix that but we have high confidence on the product side and even though I think.
Speaker Change: We do see the moment a moment now hopefully this year, we're going to make even more progress compared to like the zoom phone growth trajectory, we want to beat a dead right. So that's the overseas our aspiration.
Speaker Change: Great.
Craig: This is Craig here in note seven and 10.
Craig: Seven coming from class III coming from on Prem in the sector tenants the momentum in our panel.
Craig: Yes.
Thanks T D and again, everyone that does conclude our Q&A session for today, Eric Michelle any concluding closing remarks.
Craig: Yes. Thank you all for your time really appreciate it thank you.
Craig: You bet. Thanks, everyone and again this does conclude today's earnings webinar as always we thank you all for joining us and we look forward to seeing you next quarter take care.