Q1 2026 Zoom Video Communications Inc Earnings Call
Needed throughout the meeting Hello, everyone, we'll get started shortly.
Jim: Hello, and welcome to Jim's Q1, FY 'twenty earnings release.
Jim: As a reminder, today's webinar is being recorded I will now hand things over to Charles <unk> head of Investor Relations.
Charles: Charles over to you.
Charles: Thank you Meghan Hello, everyone and welcome to <unk> earnings.
Charles: And after the first.
Charles: Fiscal year 'twenty.
Speaker Change: I'm joined today by Zoom founder and CEO, Eric Yuan.
Michelle Chang: CFO Michelle Chang.
Michelle Chang: Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors deaths in Dot com.
Michelle Chang: On this page you'll be able to find a copy of today's prepared remarks.
Michelle Chang: The slide deck with financial highlights that along with our earnings release include a reconciliation of GAAP to non-GAAP financial results.
Michelle Chang: These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Michelle Chang: During this call we will make forward looking statements, including statements regarding our financial outlook for the second quarter and full fiscal year 2006.
Michelle Chang: Our expectations regarding financial and business trends.
Michelle Chang: Impacts from the macro economic environment, our market position stock repurchase program opportunities go to market initiatives growth strategy and business exploration and product initiatives, including.
Michelle Chang: Future product and feature releases and the expected benefits of such initiatives.
Michelle Chang: 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 risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual reports on Form 10-K.
Michelle Chang: <unk> and quarterly reports on Form 10-Q.
Michelle Chang: <unk> assumes no obligation to update any forward looking statements. We may make on today's webinar and with that let me turn the discussion over to Eric.
Michelle Chang: Who will be day viewing his new customer avatar hers who've been flipped.
Michelle Chang: Over to you Eric.
Eric Yuan: Thank you Charles Thank you everyone for joining us today I'm using our new custom avatars presume clips with AI companion to share my part of the earnings report I am proud to be among the first ever Ceos to use an avatar in an earnings call. It is just one example of how zoom is pushing the boundaries of collaboration and <unk>.
Eric Yuan: Communication at the same time, we know trust and security are essential we take AI generated content seriously and have built in strong safeguards to prevent misuse protect user identities and ensure avatars are used responsibly now let's get into it we delivered another solid quarter showcasing the power of our platform and innovation engine and <unk>.
Eric Yuan: <unk> customers navigate short term challenges with greater efficiency, while positioning them for long term success through AI powered innovation zoom is redefining modern work and delivering major cost savings and productivity gains for our customers. We had a tremendous quarter of innovation and launched several agenda AI innovations that advance our vision of Intel.
Eric Yuan: <unk> productivity zoom tasks helps surface manage and complete tasks across zoom workplace to get more done bringing task together in a centralized management tab, our new calendar manager allows you to ask AI companion to schedule meetings on your behalf soon it will be able to optimize scheduling by suggesting time slots resolving conflicts manner.
Eric Yuan: <unk> meeting updates and proactively blocking focused time, we also made custom AI companion zoom workplace for frontline and zoom workplace for clinicians generally available in Q1 adoption of zoom AI companion continues to grow with monthly active users up nearly 40% quarter over quarter, just last week Raymond James shared in our press release.
Speaker Change: How they are rolling out AI companion meeting summaries firm wide zooms cutting edge AI capabilities will enable financial advisors to offload time consuming administrative work, allowing them to dedicate more time to what truly matters nurturing client relationships and delivering strategic financial guidance AI companion usage is quickly expanding.
Speaker Change: Far beyond summarizing your meetings to helping you answer questions schedule and prepare for meetings search through information build content and catch up freeing you up to focus on higher impact work, while we continue providing tremendous AI value at no additional cost to users with a paid license were now monetizing.
Speaker Change: Through custom AI companion, though only weeks in market, we're seeing strong enthusiasm from several global 2000 trial customers, who are especially excited about features like bring your own dictionary and index meeting summary, templates and our gyro integration. We're also rolling out custom AI companion internally to allow zumiez.
Speaker Change: To get immediate answers from our custom knowledge bases and empower them across a range of skills specific to their function. These milestones in our agenda vision exemplify how we are helping customers stay ahead through continuous innovation focused on delivering real business value zoom workplace continues to drive value for customers.
Speaker Change: And drive customers to adopt other solutions within our growing platform in Q1 2020 for NBA champion Boston Celtics doubled down on zoom as longtime zoom meetings users. The Celtics appreciated zooms unique balance between simplicity and rapid innovation and chose to upgrade to zoom workplace <unk>.
Speaker Change: Enterprise, plus including zoom phone and the game didn't end, there and overtime the Celtics decided to modernize their employee intranet with a custom branded work vivo employee experience solution designed just for their organization and we also landed a leading financial institution, who selected the zoom collab.
Speaker Change: <unk> experienced platform and an over $1 million a deal this allowed them to simplify their tech stack and reduce costs by moving away from teams and other third party solutions and beyond cost they bought into our better together vision that unites the customer experience and collaboration experience under one AI first platform and.
Speaker Change: <unk> are well underway to up sell them to the zoom customer experience platform zoom phone continues to perform strongly with revenue growing in the mid teens. It is also opening new markets for zoom by integrating seamlessly with other productivity suites and delivering a best in class AI first voice experience the adoption of zoom phone.
Speaker Change: Integration with Microsoft teams has grown significantly showing how we can meet customers, where they are and add value within their existing tech stack. We continue to drive encouraging results across our high growth products that are positioned to target lines of business, our customer experience offering has rapidly evolved since its launch.
Speaker Change: Just over three years ago, transforming how customer facing teams engage with their end users in Q1, the number of zoom contact center customers grew 65% year over year and zoom virtual agent landed its largest deal to date as an upsell to contact center altogether zoom customer experience is a triple digit.
Speaker Change: Million <unk> business growing in high double digits. In Q1, we were pleased to see mine cost a leading cyber security company transforming the way businesses manage and secure human risk expand their partnership with zoom already zoom workplace and phone users mine cost valued the.
Speaker Change: <unk> and interoperability of our unified platform. They have now chosen the zoom contact center elite bundle with quality management to further modernize how they communicate and collaborate with their customers zoom revenue accelerator, our AI first sales enablement and conversational intelligence solution continues to.
Speaker Change: To deliver strong results for revenue teams in Q1 licenses grew 72% year over year, reflecting growing traction we landed goose had insurance a major U S insurance distributor with over 2500, producing insurance agents. They started as a zoom phone customer in 2023 in Q1, they decided to add zoom.
Speaker Change: Revenue accelerator in order to further empower their large team of insurance sales reps to dial into additional deal focused AI features to drive higher win rates and faster deal cycles.
Speaker Change: Our employee experience platform work vivo transforms the way HR departments engage their employee bases and build culture total work vivo customer count in Q1 grew 106% year over year, an acceleration from the past two quarters. This strong performance was driven in part by our meta partnership.
Speaker Change: Last month, we welcomed Kim story, as our new Chief marketing officer with her extensive enterprise experience and proven track record of success, Kim will help us amplify zooms compelling value proposition and brand story to drive deeper resonance with customers. We continue to see strong momentum as we expand our channel just yesterday.
Speaker Change: We announced a new strategic partnership with Bell Canada. In addition, we completed a major transformation of our channel systems and processes in Q1, making it easier for partners to scale their businesses with us our channel investments drove some amazing wins in Q1 docks dermatology group, a leading U S dermatology role.
Speaker Change: Came to us through a trusted channel partner going all in on the zoom platform as a brand new customer docks chose the zoom contact center elite package for the ability to manage the complexities of their appointment management billing and inbound patient request through our simple intuitive interfaces and our team's ability to rapidly innovate.
Speaker Change: A powerful integration to one of their key tools and recognizing the importance of uniting their employee and patient experiences under one seamlessly integrated modern platform. They also chose zoom phone along with zoom workplace. As we look ahead, we continue to double down on driving value for customers as they navigate an uncertain macro environment.
Speaker Change: <unk>, our AI first strategy positions us to help customers stay ahead as technology evolves, while our platform approach delivers compelling <unk> advantages now let me hand, it over to Michele to take us through the financial results.
Michele: Thank you, Eric and Hello, everyone I'm excited to be here with you today, let's dive into the financial results.
Michele: In Q1 total revenue grew approximately 3% year over year to one plant $175 billion.
Michele: This result was $8 million above the high end of our guidance.
Speaker Change: As a reminder, Q1 of FY 'twenty had one fewer day. Thank you wanted to FY 'twenty.
Speaker Change: Our enterprise revenue grew approximately 6% year over year now represents 60% of our total revenue up two points year over year.
Speaker Change: We continue to see encouraging signs of stability in our online business in Q1 average monthly churn was two 8% a 40 basis improvement year over year, and our lowest ever churn rate for first quarter.
Speaker Change: Our enterprise business, we saw 8% year over year, and the number of customers contributing more than $100000 in trailing 12 month revenue.
Speaker Change: These customers now make up 32% of our total revenue up two points year over year.
Speaker Change: Our trailing 12 month net dollar expansion rate for enterprise customers in Q1 held steady quarter over quarter at 98%.
Speaker Change: Pivoting to our growth internationally, our Americas revenue grew 4% every year EMEA grew 1% and APAC grew eight 2%.
Speaker Change: Moving to our non-GAAP results, which as a reminder, excludes stock based compensation expense and associated payroll taxes acquisition related expenses.
Speaker Change: Net gains and losses on strategic investments and all associated tax effects.
Speaker Change: non-GAAP gross margin in Q1 was 79, 2%.
Speaker Change: Slightly lower than Q1 of last year as we continue to invest in al we remain focused on driving efficiencies and delivering AI capabilities and a scalable cost effective way and we continue to reiterate our goal of reaching an 80% non-GAAP gross margin over the long term.
Speaker Change: non-GAAP income from operations grew 2% year over year to $467 million.
Speaker Change: Exceeding the high end of our guidance by $22 million.
Speaker Change: non-GAAP operating margin for Q1 was 39, 8% down 23 basis points from Q1 of last year.
Speaker Change: The margin decline was in line with expectations and due to changes in our bonus structure and investments in AI.
Speaker Change: non-GAAP diluted net income per share in Q1 was $1.43 on approximately $313 million non-GAAP diluted weighted average shares outstanding.
Speaker Change: This result was 12 cents above the high end of our guidance and <unk> <unk> higher than Q1 of last year.
Speaker Change: The EPS performance with data strong business results as well as a reduction in diluted weighted average shares outstanding driven by our focus on addressing deletion.
Speaker Change: Buyback and our stock compensation efforts.
Speaker Change: Turning to the balance sheet deferred revenue at the end of the period grew 5% year over year to $1.43 billion in line with the high end of our provided rank.
Speaker Change: The growth was driven by business performance as well as continued refinement of our discounting strategy.
Speaker Change: In Q2, we expect deferred revenue to be up 4% to 5% year over year.
Speaker Change: Looking at both our billed and Unbilled contracts, our RPI increased 6% every year to approximately $3 $9 billion.
Speaker Change: We expect to recognize 61% of the total RPM, though as revenue over the next 12 months.
Speaker Change: From 59% in Q1 of last year.
Speaker Change: Operating cash flow in Q1 with foreign of $99 million representing.
Speaker Change: Representing an operating cash flow margin of 41, 6%.
Speaker Change: Free cash flow in the quarter with $463 million, representing a free cash flow margin of 39, 4%.
Speaker Change: The declines on a year over year basis were due to the timing of tax payments.
Speaker Change: We ended the quarter with approximately seven $8 billion in cash cash equivalents and <unk>.
Speaker Change: Both securities excluding restricted cash.
Speaker Change: In Q1, we accelerated execution of our existing $2.7 billion share buyback plan purchasing five 6 million shares for $418 million, an increase of one 3 million shares quarter over quarter.
Speaker Change: The increase in pace of our share repurchase plan over the course of our buyback authorization has reduced our common stock outstanding and underscores our ongoing commitment to delivering value to our shareholders.
Speaker Change: As we pivot to the outlet we're pleased to raise our full year revenue guidance by $15 million or $5 million on a constant currency basis. We now expect revenue to be in the range of $4 eight to four.
Speaker Change: <unk> eight 1 billion, which represents approximately 3% year over year cross at the mid point or three 2% year over year growth on a constant currency basis.
Speaker Change: This isn't the net result of increasing our online outlook by $10 million to $15 million.
Speaker Change: They totaled $1 price increase.
Speaker Change: ZIP husky is reflecting increased product value to our customers.
Speaker Change: This was offset by a more prudent outlook and our enterprise business due to the more challenging and uncertain macroeconomic environment.
Speaker Change: We're pleased to raise our profitability outlook for the failure of FY 'twenty as well.
Speaker Change: We now expect our non-GAAP operating income to be in the range of 1.865 to $1 $85 billion, representing an operating margin at 38, 9% at the midpoint.
Speaker Change: We are also pleased to raise our outlook for non-GAAP earnings per share for FY 'twenty six from $5 56 to $5 39 based on approximately 312 million shares outstanding.
Speaker Change: We continue to expect free cash flow for FY 'twenty to be.
Speaker Change: <unk> in the range of $1 six eight to $1 $72 billion.
Speaker Change: For Q2, we expect revenue to be in the range of $1 195 to $1 $2 billion.
Speaker Change: It presents approximately 3% year over year growth at the midpoint or three 1% year over year growth on a constant currency basis.
Speaker Change: We expect non-GAAP operating income to be in the range of $460 million to $465 million.
Speaker Change: Presenting the operating margin of $38 six at the midpoint.
Speaker Change: Our outlook for non-GAAP earnings per share is $1 36 to $1 37 based on approximately 310 million shares outstanding.
As a reminder, future share repurchases are not reflected in the share count and EPS guidance.
Speaker Change: In closing as Erik highlighted.
Speaker Change: Out of the rapid pace of innovation towards that.
Speaker Change: Which is delivering real value to our customers at the same time, we remain focused on accelerating our growth.
Speaker Change: While delivering shareholder value through disciplined operations and responsible capital allocation.
Speaker Change: You turn incredible zoom team.
Speaker Change: <unk> community and investors for your trust and support Megan Please queue. The first question.
Speaker Change: Thank you Michelle we will now begin the Q&A portion of the call when I read your name. Please turn on your video and on mute.
Speaker Change: As a reminder, in an effort to hear from everyone. Please limit yourself to only one question.
Speaker Change: Our first question will come from <unk> with Mizuho.
Speaker Change: Great.
Speaker Change: So, Matt and Eric it's great to see.
Speaker Change: All of the thought there.
Speaker Change: So I want to ask you about the zoom AI company and it's good to see that it's growing 40% in may you're growing 40% Q over Q.
Speaker Change: So now that you've embedded base level AI as part of your pitch substrates. So what kind of adoption are you seeing in terms of SMB segment.
Speaker Change: Even seeing free to paid migration are you seeing anything like that and as Youre launching also paid AI company and skew.
Speaker Change: How should we think about the adult.
Speaker Change: Adoption and revenue contribution there.
Speaker Change: Yes, so cities and thank you for first of all I truly love my.
Speaker Change: AI generate all of our top I think.
Speaker Change: We're going to continue using that I can tell you.
Speaker Change: Lack of that experience a lot. So so back to your question about combining first of all if you look at it.
Speaker Change: Number of active users.
Speaker Change: Look at our Q4 and Q1 and there is a five types of mall and media is pretty healthy and more and more customers.
Speaker Change: Enabled by the realized value Wang as embolic, Raymond James So the Leverages xuemei combining.
Speaker Change: Features like a <unk> summary.
Speaker Change: Improve their productivity is pretty accurate and actionable.
Speaker Change: Inside as well.
Speaker Change: I think more and more customers going into animal are combining so in terms of.
Speaker Change: Customized combining and also the monetization I think we already have a few.
Speaker Change: Customers prospect testing of that in now.
Speaker Change: It's pretty powerful and of course, we can.
Speaker Change: Integrated with your.
Speaker Change: Your company is.
Speaker Change: Data index, and dealers' data as well and also like Cup.
Speaker Change: A dictionary and also supported a customized the meeting.
Speaker Change: Median summary, template I know youll customize it.
Speaker Change: Overtime, as well I think with more and more customers and the player on realized the value I'm pretty sure the car.
Speaker Change: Combining kind of Airbus and monetize them all.
Speaker Change: Okay, great. Thank you. Thank you.
Meta Marshall: Our next question will come from meta Marshall with Morgan Stanley.
Meta Marshall: Great. Thank you.
Speaker Change: Congrats on the quarter.
Meta Marshall: I appreciate it.
Meta Marshall: Alright statistics about kind of the increase.
Meta Marshall: Traction with kind of the higher priced skus on the AI portion of contact center, but just any.
Meta Marshall: Any statistics you can give on just kind of either how customers are starting with contact center with the higher priced skus with the kind of virtual agents or just anything to add there and then second.
Meta Marshall: On your kind of more cautious outlook on enterprise is that just based on elongated deal cycles or is that based on just kind of a more cautious outlook on seats.
Meta Marshall: Yes sure.
Meta Marshall: Just the first one the addressable segment. So if you looked at it the zoom Carnegie Center, which is our customer experience platform and assume what's the agent is a very important part of that and you look at Q1 Q1 is our largest quarter intramuscular.
Meta Marshall: Our contribution.
Meta Marshall: And so.
Meta Marshall: We looked at it the number of the sales of zoom, what your agent and is the largest quarter ever so meaning we.
Meta Marshall: Do have a loss of <unk>.
Meta Marshall: Obviously, the opportunity to sell zoom <unk> and.
Meta Marshall: And into our existing installed base and also taken.
Meta Marshall: Zoom for example, right. We also deploy our contact center or long time with our team in Nevada.
Meta Marshall: We do see the huge value because.
Meta Marshall: The two metrics.
Meta Marshall: Haas success, where there is one either set another way as a self service reached after we deploy zoom, which it.
Meta Marshall: It does help us a lot because <unk> had a number of <unk> and <unk>.
Meta Marshall: Guess, what set with surface rig isn't 97.
Meta Marshall: 97%, 97% of those tickets result, with very well without any human agent.
Meta Marshall: So this is huge value. So we do see more and more customers wanted to test.
Meta Marshall: At the same time.
Meta Marshall: Literally by the end of this month, we are going to launch of a new warehouses and what is it.
Meta Marshall: With a lot of new features plus towards the agent will be part of that as well I think a more obviously our opportunity and also more new opportunities as well and to double down on what region, which is based on our companion technology.
Meta Marshall: Maybe for.
Meta Marshall: From my side, two quick comments on our contact center customer experience and then I'll leave or another question on the guide.
Meta Marshall: Two things that I think we're seeing increasingly in terms of our customer buying behavior and customer experience as customers going straight to the elite just because of all the AI value that isn't that.
Meta Marshall: And then maybe the other pattern that I think is clear.
Meta Marshall: Our deal is that this concept of better together frequently customers are wanting communications.
Meta Marshall: And collaboration platform together with the customer experience platform and we see that as a real strong team as to why is <unk>. So I wanted to add that in.
Meta Marshall: On your question on the color on the enterprise.
Meta Marshall: We start by just saying that broadly across online and enterprise the majority of the business in Q1.
Meta Marshall: No change in buying behavior change.
Meta Marshall: <unk> still strong demand.
Meta Marshall: Our fundamentals as you see in all of the stats that we produced record low churn and.
Speaker Change: On line two.
Speaker Change: Our customer deal size over 100000, and enterprise strength of somebody as they expand that Tam.
Meta Marshall: And products that we have are.
Meta Marshall: Still so strong what we saw in terms of my.
Meta Marshall: My comments about primarily prudent going forward.
Meta Marshall: But we saw in Q1 in a couple of customer scenarios and larger U S customers, where there was just more prudent sales along Jason.
Meta Marshall: More scrutiny on deal terms, no losses, but just again a bit of a sales elongation in more scrutiny.
Meta Marshall: So look we feel that going into Q2 and going into the second half we have a great Tcl and business value story, and so that's really where we're pivoting.
Meta Marshall: To make sure that we're really getting out and landing that message with our customers.
Meta Marshall: Great. Thanks.
Speaker Change: Our next question comes from Arjun Bhatia with William Blair.
Speaker Change: Perfect. Thank you.
Carl: Carl Congrats on the spot here.
Carl: Especially on the top side.
Eric Yuan: Eric One thing for you here, maybe on a different topic.
Meta Marshall: James.
Meta Marshall: Integration.
Meta Marshall: With what's going on but I am curious, how we think that's a bad habits.
Meta Marshall: On the core video.
Meta Marshall: Meaning solely from especially now that you've had AI companion power.
Meta Marshall: The market for a little while we're seeing obviously adoption increase tentacles on bundle.
Meta Marshall: Large umbriel capabilities. So is this are you starting to see it.
Meta Marshall: Change the competitive tides.
Meta Marshall: What does it do in terms of new customer acquisition.
Meta Marshall: Platform.
Meta Marshall: Yeah, Great question, so nuclear the value of zoom offering and first of all and <unk>.
Meta Marshall: Employees.
Meta Marshall: Really love assume experience and if you do an annual survey any companies no matter of Bridger solution to deploy if you had to employ and make a decision.
Speaker Change: Have a high confidence the all of you chose zoom platform.
Meta Marshall: The second thing is to look at a total cost of ownership.
Meta Marshall: In particular look at AI, our combined is part of our offering.
Meta Marshall: Paired with the other vendors, who would like to charge a customer.
Meta Marshall: <unk> per user per months right. So menu for those customers truly care about the employee experience truly deep dive to understand a total cost of ownership of those the offerings there.
Meta Marshall: Going into.
Meta Marshall: Keep we're using zoom all go back to has been powerful and Wang example, I get one big a fintech company in Q1, the job at the top of the teams in Australia, the zoom platform because they like it assume experience with.
Meta Marshall: A lot of innovations much more reliable.
Meta Marshall: Great.
Meta Marshall: User interface. They are familiar with so I think as long as we keep improving the product experience make sure zoom.
Meta Marshall: Zoom is the employee choice I think we will see more and more opportunities also you look at it.
Meta Marshall: Our workplace, we're already way beyond meetings, the wildly off of workplace.
Meta Marshall: Deliberate more and more and.
Meta Marshall: While you talk customers and we do see some more opportunities ahead of us.
Meta Marshall: Alright, good to hear thank you and just quickly add in as we're seeing increasingly with the teams integration many more customers.
Meta Marshall: That way so to your question about are we seeing that Haynes and deal with a lot of.
Meta Marshall: Wins that we're proud of in Q1.
Meta Marshall: There were teams integration.
Meta Marshall: Okay. Thank you so much.
Speaker Change: Thank you next definitely have Alex Zukin from Wolfe research.
Speaker Change: Hey, guys. Thanks for taking my question, it's even here for Alex obviously, congrats on the solid quarter and I want to ask another one on the zoom.
Speaker Change: <unk> Center, which I think was super interesting and it's great to see this new disclosure that it's like a triple digit million here our business is growing in high double digits, if I'm not mistaken, but I think you used to disclose year on year growth in terms of the number of customers with larger than 100, okay.
Speaker Change: So can you provide a little more color in terms of the deal sizes that you're seeing that's driving that growth and then maybe more broadly what are you seeing in the competitive environment for <unk> and sort of how are you positioning zoom and what's the what's sort of win rates are you seeing there more greenfield or more replacement deals. Thanks guys.
Speaker Change: Sure I can start.
Speaker Change: Michelle feel free to chime in I think I look at it on a total number of contact center customers year over year.
Speaker Change: We do see the around the 65% gross.
Speaker Change: And.
Speaker Change: Looking at our top 10 deals.
Speaker Change: And then none of the deals are replacing the existing club base.
Speaker Change: Vendors cloud based solutions and also.
Speaker Change: You look at our top 10 deals I think if I recall correctly, a six or seven of June by the channels. So mainly in the channels to really help us and also replace other Clos.
Speaker Change: Club is.
Speaker Change: Windows.
Speaker Change: Because not only do we offer a lot of <unk>.
Speaker Change: <unk> the features but also similar to the integrated with our <unk> platform as well, which is in a part of that is the reason why customer we see the value of our zoom contact center.
Speaker Change: I mean the only.
Speaker Change: The other thing I think those are the metrics that we give for displays are the other one might Peter thread back in the dialogue earlier on the Alere Q. So we are seeing.
Speaker Change: Great traction.
Speaker Change: 10% next test year over year and towards and licenses to our elite scale. So we're really.
Speaker Change: Proud and see a lot of momentum towards our AI first place.
Speaker Change: Also at the same time I wanted to share with you actually look at it a lot of our indirect customers their contact center guests walk us through on Prem. So a lot of opportunities for zoom for other club is cognizant of windows as well and in particular, if you look at it the AIP as to what your agent and also it's also can.
Speaker Change: Play a bigger role and to drive the future growth.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Thank you. Our next question is from Michael Funk with Bank of America.
Speaker Change: Hey, Eric Hey, Michelle This is Matt <unk> on for Mike <unk> clearly.
Speaker Change: For taking the question.
Speaker Change: I'd love some additional color on the early reception from customers to the online monthly pro pricing increase seems pretty modest but would be interested in color on pricing sensitivity any variance in customer churn for that cohort.
Speaker Change: And then assuming this price increase goes well could we start to see pricing be more of a lever in the online business segment, considering all the positive trends with churn.
Speaker Change: So maybe I can take that one Eric.
Speaker Change: One thing that I think is really important to note and you said it is we feel like it's a modest increase but one that reflects really incremental value.
Speaker Change: There to the customer and that's part of the bar that we hold ourselves why do you think about that as sort of the entirety of the platform.
Speaker Change: The AI, but also want to call out that with our price increase in particular with double discharge limit so.
Speaker Change: Look it's a very different online business I would say it and one that we had and maybe an impasse.
Speaker Change: And the evidence points that I'd look at that.
Speaker Change: There are obviously the record low churn that we continue to see quarter after quarter the mix of our customers that have been with us over 16 months.
Speaker Change: <unk> that are buying with us annually. So we feel like we're just in a different place.
Speaker Change: Take price increases very thoughtfully and I would say this isn't the first one we've done them, but no plans to do about this.
Speaker Change: Got it thank you.
William Power: Next up we'll hear from William power with Baird.
Speaker Change: Okay, great. Thanks for.
Speaker Change: Taking the question I actually wanted to circle back on online and kind of the earlier macro.
William Power: Discussion I guess, just trying to understand that.
William Power: Levels of conservatism.
William Power: Bill into the online segment and you're trying to build a little more conservatism it sounds like on the enterprise side.
William Power: Why wouldnt share and maybe start to increase a little bit on online relative to where you've been and I guess, maybe just broadly what are the kind of your assumptions there.
William Power: Good question, yes.
William Power: Yes, so our outlet.
William Power: Really reflects when I look at the more turbulent world than it was maybe the last time, we talked here.
William Power: Yes, just to echo on my earlier comments.
William Power: We saw strong demand across our business, we do not see any impact of macro to online and those types of not sort of reflected that.
William Power: In our outlook.
William Power: And it wasn't a specific customer scenarios in the enterprise, where we decided to take a prudent approach to how we are.
William Power: Thought about outlook and guidance from there.
William Power: Okay, and then I wanted to ask a question on zoom phone.
William Power: Regarding the disclosure of that.
William Power: That's growing mid teens, which I think looks like it's.
William Power: Above industry growth rates based on other peers and whatnot. So it suggest you are continuing to take share on the other hand.
William Power: So a really big market in theory in terms of number of business phones out there. So I wonder if you could just kind of address what youre seeing competitively what the forward growth outlook.
William Power: Opportunity. So is this a mid teens growth from here.
William Power: We accelerate what's kind of the.
William Power: The opportunity is still there.
William Power: Okay.
William Power: From a high level in tumor sulfur opportunity look at at that hotel.
William Power: Install a fund fees.
William Power: Number of on premise is still higher.
William Power: On cloud based assays.
William Power: And I think is.
William Power: Around 100 feet remaining still on premise seats is still a lot of opportunities those customers in the next few years as students to migrate to the modern cloud based solution. We are much better positioned with our entire workplace platform integration of <unk> and that's the reason why our grocery to hopefully.
William Power: Higher.
William Power: The other club is a former.
William Power: Service providers.
William Power: Okay, and maybe just to add in.
William Power: And there's opportunity for exam.
William Power: We have a lot of strong partnerships like the Mitel partnership is a big one for us.
William Power: The on premise SaaS and then.
William Power: We certainly have go to market motion focused on competitive take outs on the cloud.
William Power: And as well as I might just say across both.
William Power: We've been talking about for a couple of earnings cycles herd and investment and maturation in our channel motion.
William Power: With also will be advantageous to our PON business. So we think about it as a big opportunity and maybe the other one that I might.
William Power: Call out is the the new partnership with Bell Canada.
William Power: And then increasingly we are seeing AI.
William Power: Drive deals and seen more new customers to zim penetrate so things that we're encouraged about.
William Power: Okay. Thank you.
Speaker Change: Our next question is from Samad Samana with Jefferies.
Speaker Change: Alright. Thank you for taking my questions and you get to see everybody maybe first just on <unk>.
Speaker Change: The customer growth there is really strong Eric you called out an acceleration in your prepared remarks, how should we think about maybe met him I agree Matt migrations of that piece of that mix and can you just remind us at what point youll lap the amount of benefits and maybe how durable the growth areas and then I have one follow up for Michelle awkward.
Speaker Change: Michel you want to pick it up.
Speaker Change: So look.
Speaker Change: I will say that we grow from both the meta partnership as well as the floor that was consistent before the partnership and that was in place and is certainly we're focused heavily on capitalizing against that.
Speaker Change: Kinda migration.
Speaker Change: And I think we've said before that.
Speaker Change: The second half of the year.
Speaker Change: That that sort of opportunity well normalized.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: You look at a number of them.
Speaker Change: Sorry. Please go ahead.
William Power: I apologize.
Michel: Just to add onto what Michel side, it looked at a number of the.
William Power: Cost.
Speaker Change: What could be about costs year over year, it's more than 100% gross.
William Power: A huge opportunities not only driven by the meta.
William Power: The migrated customers, but also new opportunities as well so.
Speaker Change: Maybe just to punctuate Eric's comments.
William Power: And 90% of our works dealer customers again are needed to them.
William Power: So it's a really great way for us to introduce the breath of our platform as well too.
Speaker Change: Real strong customer and brand names at market.
Speaker Change: Understood and then maybe Michelle just on the buyback acceleration is that more of a reflection.
Speaker Change: Opportunistic because of what happened with market conditions in FY <unk> or is that can we take that as a signal that the buyback will be somewhere closer to these levels. Because that's the way that you guys are thinking about deploying the cash at least first.
Speaker Change: For the short term duration, just help us understand how we should think about the magnitude given that was the biggest buyback activity that <unk> had.
Speaker Change: Yes.
Speaker Change: Yes, So look I would say you know.
Speaker Change: And you saw in our two announcements one I double down on when I started.
Speaker Change: Look this is going to be something that's important to them of that original $2 seven tranche. The two together we have about $1. Two remaining the way that I would think about Q1 is really that it reflects the reinforcement of confidence across myself, Eric on the board.
Speaker Change: Look certainly we intentionally kind of went out there acceleration handle we remain committed to what we said before which is the.
Speaker Change: Our intention and expectation that we will go through the remaining one two in fiscal 'twenty.
Speaker Change: Great. Thank you both for taking my questions I appreciate it thank you.
Speaker Change: Our next question comes from Tyler Radke with Citi.
Speaker Change: Hi, good afternoon, thanks for taking the questions.
Speaker Change: I wanted to go back on the billings outlook or.
Speaker Change: The next quarter I mean, you talked about some of the dynamics on the enterprise side of the business, but I'm wondering if you could sort of help us understand when you started to see some of these macro impacts later end of the business how performance has been.
Speaker Change: The month of April as well as May and then as you think about the online business.
Speaker Change: How are you thinking about the new customer addition, motion I know churn was ahead of expectations, which was good to see but how sensitive is that new customer.
Speaker Change: Acquisition motion to the macro and if you could comment on what Youre seeing there.
Speaker Change: Yeah. So.
Speaker Change: First with the comment on when we saw the enterprise.
Speaker Change: And I would say that we saw.
Speaker Change: That deal.
Speaker Change: Pausing in an elongation.
Speaker Change: Throughout the quarter, but certainly the bulk of our volume and enterprise happens towards the tail end of the quarter and things and more so than tier online question of new customers. We.
Speaker Change: We had a strong quarter in terms of new customers as well as churn.
Speaker Change: And so that's why I started to say no impact macro or no signs that the macro impacting.
Speaker Change: Alright, thank you.
Speaker Change: Next up we'll hear from James fish with Piper Sandler.
James Fish: Hey, guys. Thanks for the questions here just first on the channel transformation what were some of the changes put in place and what's been the early feedback.
James Fish: With that.
Speaker Change: Yes so.
Speaker Change: I can answer that and then they're afraid of something.
Speaker Change: Look I would say first and foremost it's about expanding our partner ecosystem.
Speaker Change: It's about.
Speaker Change: Changing some of that channel and incentives and really doubling down on that and then in particular one of the things that we had been talking about with our partner ecosystem with just the need to help them get from quote to cash faster and so on.
Speaker Change: <unk>.
Speaker Change: They are saying that there was an article in.
Speaker Change: The channel press about some efforts that we've made to really take that time from hours to minutes. So I would say broadly.
Speaker Change: Our investments in the channel and Paul across those three things and then I would just say look the channel investments are very closely targeted towards that phone and contact center business, where we're <unk>.
Speaker Change: Naturally they have both the ability to supplement with customers' need as well as the ability to influence sales.
Speaker Change: And we're pleased with what we see in terms of the number of deals the percentage of deals in both contact center and found that our channel.
Speaker Change: That are heavily channel implant.
Speaker Change: Got it and if I could follow up actually on smart prior question, it's nice to see the 100 million Mark.
Speaker Change: <unk>.
Speaker Change: It seems like most of the success you guys talk about though is coming from that zoom ecosystem customer meeting they already got workplace and phone together. So is there a way to understand what I'm guessing is still a very low percentage in terms of the penetration of contact center into that sort of combined base that uses workplace and phone together. Thanks.
James Fish: So, let's say, we don't we don't disclose that as a metric James but what I would say is we see both bi directional my comments earlier is that we find that really to be a differentiator with customers, where the integrations of being able to go out and talk to customers come back in and resolve.
Speaker Change: Problems in house, we find that to be a real big win for.
Speaker Change: Our us customer.
Speaker Change: Thank you. Our next question comes from Alan Borkowski with Scotiabank.
Alan Borkowski: Hey, Thank you for taking the question and congrats on all the product innovation.
Alan Borkowski: So I wanted to just double click on the revised enterprise revenue outlook, you mentioned that.
Alan Borkowski: There was some deal.
Alan Borkowski: So as you saw in the quarter.
Speaker Change: To be clear are you guiding for a wider range of outcomes.
Alan Borkowski: The macro trends were to remain consistent.
Speaker Change: Potentially see more upside through the rest of the year.
Speaker Change: Can you also just update us on.
Speaker Change: Your your updated timeline for when we could see at or potentially good box to a 100%.
Speaker Change: Yeah. So let me start with the first one our outlook implies a consistent kind of macro environment relative to what we saw in Q1, that's the way to think about the guide.
Speaker Change: In terms of net dollar expansion.
Speaker Change: I would say we're pleased with the stability that we saw has been something that we've seen come in over the last four quarters.
Speaker Change: Certainly a foundation for us in terms of expansion and our and our numbers have been in line with guidance.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Katherine <unk> with Rosenblatt Securities.
Speaker Change: Thank you for taking my questions.
Speaker Change: My Channel question I'll ask about international So can you update us bond that was the big focus is to do internationally people I've talked to said your staff quite a bit in the U K. So can you give us any idea some of the product.
Speaker Change: Key pieces of the business youre focusing on internationally.
Speaker Change: Yeah, I can take that.
Speaker Change: Let me say that our strategy is a global anyhow turn I think.
Speaker Change: The way that we go to market that product that we are working on even our question channel.
Speaker Change: Our go to market and our product strategy, our consistent globally and so.
Speaker Change: Let me just say a little bit more of what we see them really resonating in our EMEA business is really not a better.
Speaker Change: Better together and full buying into the platform.
Speaker Change: Both that communication and collaboration experience together with the customer experience maybe the other one that I would throw in is and we're really seeing our employee experience quite well in EMEA. So we're encouraged about again the broad groceries thesis are resonating in Europe as well.
Speaker Change: Thank you.
Speaker Change: Next up we'll hear from Peter we'd with Bernstein.
Speaker Change: Yeah.
Speaker Change: Peter are you there.
Speaker Change: We can move ahead Peter needs a minute.
Speaker Change: Alright, we're going to move ahead here next up we'll hear from Tom Blakey with Cantor Fitzgerald.
Tom Blakey: Great. Thanks for taking my questions.
Speaker Change: I'm curious just maybe in terms of the elongation Michelle.
Speaker Change: Can you talk about maybe any trends in down cells and enterprise if you've seen that.
Speaker Change: And <unk>, just kind of counterbalancing the reported results with some very strong see castle.
Speaker Change: Zoom phone and then just maybe an update second question.
Speaker Change: Once here about.
Speaker Change: Just reaching that kind of 10%.
Speaker Change: Not a line in the sand, but we talked maybe a year or so ago or longer ago that seek asked with reach about 10% of revenue at the same kind of types type horizon. This forward just like to get an update on that where <unk> sits thank you.
Speaker Change: Yeah.
Speaker Change: Your first question, we continue to see year over year.
Speaker Change: Improvement in churn in enterprise as well as continued.
Speaker Change: Low record churn rate and online so and I think in so many.
Speaker Change: The color I might give under that is that I think increasingly when you look at sort of a.
Speaker Change: Competitive themes.
Speaker Change: And I think they're broadening out.
Speaker Change: Again that holistic value that the vision of kind.
Speaker Change: Kind of better together, Chris the collaboration as well as customer experience.
Speaker Change: We see that the boomerang with the customer and customer love that Eric mentioned.
Speaker Change: Some of ours and others, it's the pace of innovation and the dedication Zim has.
Speaker Change: Two customers and another is to coexist.
Speaker Change: And sort of winning in a different way with things like the teams and the person. So I think we feel good not only about the mega trends.
Speaker Change: But some of the color that you see in the deals are emerging and then to your second question around 10% and disclosures and seek has.
Speaker Change: We've tried to add some dimensions here for investors not only on the customer count, but some of the elite skier dimensions as well as.
Speaker Change: The triple digit.
Speaker Change: So we'll leave it at that for now.
Speaker Change: Thank you.
Speaker Change: Our next question is from Patrick Wall Ravens with citizens.
Speaker Change: Okay.
Austin: Hi, there this is Austin KOL on for Pat Walraven, Eric It was really cool to see the AI Avatar, maybe one day soon more of US will be on this call are using AI avatars and Thats actually what I wanted to ask you about as well.
Speaker Change: What kind of high level trends, maybe you see taking place or conversations with customers right. Now that gives you kind of confidence in <unk> role both in communication and how theyre getting work done so kind of a broad question there, but maybe even specifically like what are the use cases for these avatars and how are you using this stuff internally to shape the.
Speaker Change: Work.
Speaker Change: Yes, great question again and for the fourth for the first time in history.
Speaker Change: We will lead to the AI agenda, our top participating into the earnings call.
Speaker Change: Again, I really love that experience about going to keep improving.
Speaker Change: Our clip is the product back to your question about the AI.
Speaker Change: Dobson and first of all we look at every or services and will be offered to the customer also library.
Speaker Change: Other products like all the basic call features already don't hold while a comedian summary, composer tried to message and suppose now customer re the one Edison water, we can do to integrate with their existing system called the ability and the agent and they are all vendors Logic Bureau agent. We also Bureau agent how do we make sure our agent.
Speaker Change: By combining agenda can framework it uses customized.
Speaker Change: And you still do computer offer is it.
Speaker Change: Huberty with other agent market recently to be announced an integration with <unk> now in the <unk> as well and also essentially we would allow us to transform our business from being a.
Speaker Change: Our collaboration with <unk> <unk> company to be a system of actions.
Speaker Change: Like obviously <unk> right, we have not only have a summary, but also we have.
Speaker Change: Tasks extra Adams, and Aegean will automatically let's say created a zero ticket and ruffalo to track right. It's kind of become our entire business workflow with our AI is it is really hard our union manually.
Speaker Change: Drive this.
Speaker Change: <unk> integrated our systems is not a feasible for now cotton look at Ulta.
Speaker Change: Ultimately everything with agenda a framework.
Speaker Change: Was all of those agent can talk to each other.
Speaker Change: A protocol and also the MSC MCP political right Thats. The reason why we feel very excited together with other vendors, we can become a part of our business workflow.
Speaker Change: On that front and we're very excited.
Speaker Change: Great. Thank you.
Speaker Change: <unk>.
Speaker Change: Our next question is from Peter Levine with Evercore.
Peter Levine: Great. Thank you for squeezing me in here, maybe just to show you guys were talking to a lot more about frontline workers can you maybe just help us understand what that product is it really going after like the Microsoft one of our three skew maybe.
Speaker Change: Maybe just help us understand.
Speaker Change: What the intentions there are.
Speaker Change: Front line and then second.
Speaker Change: My companion to pointed out there is a.
Speaker Change: Amortization.
Speaker Change: <unk> for those that want to customize their your own AI agents can you just is there revenue coming in this year from that product, it's probably more second half, but just can you just help us understand what you're what you're expecting for that thank you.
Speaker Change: So let me start with frontline worker the way to think about that is.
Speaker Change: I mean, let me start with the market opportunity and broadly 80% of the workers in the world.
Speaker Change: Frontline workers and yet only 1% of the SaaS.
Speaker Change: Spend is on that and so what that tells us what our customers tell us is there's a lot of value that they need. So this products was really born out of that and to think about what the product is and so that's I would call. It three buckets.
Speaker Change: On ship communications, its workforce management and its AI assistance sort of the flow of frontline worker.
Speaker Change: Work.
Speaker Change: And so.
Speaker Change: That's kind of how to think about it.
Speaker Change: It just came in to markets we are pleased.
Speaker Change: We've already closed several weeks in post today.
Speaker Change: Closed deals and we're excited with the interest that we see in particular in industries like health care retail manufacturing more same is strong.
Speaker Change: To your second question on SMA I companion.
Speaker Change: And I would tell you where we are equally excited different use case there. That's the two I talked about earlier I won't repeat.
Speaker Change: And we've seen also excitement in the way that you should think about our <unk> outlook for all of this is that we've factored in sort of what we see in measured things given the size and scale of our business. It won't be a unbelievable number in FY 'twenty and we will just continue to update investors as they go through these earnings calls.
Speaker Change: Great. Thank you very much.
Speaker Change: Our final question will come from Matthew Harrigan with benchmark.
Speaker Change: Oh, Thank you published your crowd.
Speaker Change: So.
Speaker Change: Where do you see it feels like a lot of people a lot of people are taking for Russian army approach with just more and more borrowing and video as you improve the alagoas and you get more clever on the backdrop I mean, how is that affecting your business, even though the cost side as well as the opportunity side right.
Speaker Change: So you wanted to take that one sure sure so.
Speaker Change: Our approach is a fed original AI approach, meaning we have our own laws and I'm gonna models. So it caused some customers may just wanted to standardize on our own model and same time with integrated seamlessly with a lot more with the opening of our installed base and its just a federated approach. We also for sure over laboratory and media and also led to cloud GPU.
Speaker Change: And it's very standard on how to optimize our cost as Sim time offered a value. The reason why we can all for the free zoom air combining from our customers because no.
Speaker Change: Optimization.
Speaker Change: Wow.
Speaker Change: Most of the value and of course, we can offer that and customize the air combined is different is Monica enterprise.
Speaker Change: Data or data index, and the integration and that's why it's different it's more like normal.
Speaker Change: Hi.
Speaker Change: <unk> is more like a system integration a lot of other things. If you look at just the pure front, we are very commodity because we're always the bond into the cost and also the value.
Speaker Change: Biologic team working on optimization.
Eric Yuan: Thanks, Eric Nice Salvator.
Speaker Change: Thank you appreciate it.
Speaker Change: Next earnings call, we'd be much better.
Speaker Change: Yeah.
Eric Yuan: Thank you. This concludes the Q&A portion of today's call I will turn it back over to Eric for closing remarks.
Eric Yuan: Thank you all read a pressure for time. Thank you for all those investors, who trust us and we are going to do all we can to truly deliver happiness to you. All thank you appreciate it yeah.
Speaker Change: Thank you Eric and Michelle. This concludes today's earnings call. Thank you all for attending and have a great rest of your day Goodbye.