Q2 2026 Zoom Video Communications Inc Earnings Call
Speaker #2: I'll get started shortly. Hello, and welcome to Zoom's Q2 FY26 earnings release webinar. As a reminder, today's webinar is being recorded. I will now hand things over to Charles Eveslage, head of Investor Relations.
Michelle Chang: will get started shortly.
Megan: Hello, and welcome to Zoom's Q2 FY26 earnings release webinar. As a reminder, today's webinar is being recorded. I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.
Speaker #2: Charles, over to you.
Speaker #3: Thank you, Megan. Hello, everyone, and welcome to Zoom's earnings video webinar for the second quarter of fiscal year 2026. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang.
Charles Eveslage: Thank you, Megan. Hello, everyone, and welcome to Zoom's earnings video webinar for the second quarter of fiscal year 2026. I am joined today by Zoom's Founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.com. Also, on this page, you will be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitution for financial information prepared in accordance with GAAP.
Speaker #3: Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.com. Also, on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results.
Speaker #3: These measures should not be considered in isolation from or as a substitution for financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives, including future product and feature releases and the expected benefits of such initiatives.
Charles Eveslage: During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy, and business aspirations, and product initiatives, including future product and feature releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. 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 FCC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today's webinar.
Speaker #3: 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 report on Form 10-K and quarterly reports on Form 10-Q.
Speaker #3: Zoom 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, who, like last quarter, is giving his prepared remarks via Zoom custom avatar.
Charles Eveslage: With that, let me turn the discussion over to Eric, who, like last quarter, is giving his prepared remarks via Zoom custom avatar. Eric?
Speaker #3: Eric?
Speaker #4: Thank you, Charles. We delivered strong results, highlighted by revenue growing at its fastest rate in 11 quarters. We also achieved meaningful progress on our three key priorities: delivering world-class AI to enhance customer value, rapidly innovating Zoom Workplace, and scaling high-growth departmental solutions.
Eric Yuan: Thank you, Charles. We delivered strong results highlighted by revenue growing at its fastest rate in 11 quarters. We also achieved meaningful progress on our three key priorities: delivering world-class AI to enhance customer value, rapidly innovating Zoom Workplace, and scaling high-growth departmental solutions. Zoom is strengthening its position as a leader in AI-powered collaboration, helping customers work smarter, operate more efficiently, and deliver greater value to their organizations. Reflecting this impact, AI Companion monthly active users have grown over four times year over year, with millions using our AI to boost business value throughout the meeting lifecycle and beyond. AI adoption now extends well beyond meeting summaries, with strong momentum in meeting prep and post-meeting task management, call summaries for Zoom Phone, and AI-first meeting integration and content generation capabilities for Zoom Docs.
Speaker #4: Zoom is strengthening its position as a leader in AI-powered collaboration, helping customers work smarter, operate more efficiently, and deliver greater value to their organizations.
Speaker #4: Reflecting this impact, AI companion monthly active users have grown over four times year-over-year, with millions using our AI to boost business value throughout the meeting lifecycle and beyond.
Speaker #4: AI adoption now extends well beyond meeting summaries. With strong momentum in meeting prep and post-meeting task management, call summaries for Zoom Phone, and AI-first meeting integration and content generation capabilities for Zoom Docs.
Speaker #4: This progress is just the beginning, and we look forward to sharing more AI innovations at Zoomtopia next month. Our broadening AI adoption is also translating into greater customer investment as organizations increasingly see our AI as critical to driving business outcomes.
Eric Yuan: This progress is just the beginning, and we look forward to sharing more AI innovations at Zoomtopia next month. Our broadening AI adoption is also translating into greater customer investment as organizations increasingly see our AI as critical to driving business outcomes. In Q2, a Fortune 200 U.S. tech company deployed Zoom Custom AI Companion, our paid AI add-on for Zoom Workplace, for nearly 60,000 employees to tap into company knowledge during meetings, generate action-ready summaries that power agentic workflows, and integrate directly with their AI bot to streamline IT service operations. Customers are also benefiting from our AI-supporting human agents in our Zoom Contact Center Elite offering, which is a critical component driving revenue growth in Zoom customer experience.
Speaker #4: In Q2, a Fortune 200 U.S. tech company deployed Zoom's custom AI companion, our paid AI add-on for Zoom Workplace, for nearly 60,000 employees to tap into company knowledge during meetings, generate action-ready summaries that power agentic workflows, and integrate directly with their AI bot to streamline IT service operations.
Speaker #4: Customers are also benefiting from our AI-supported human agents in our contact center Elite offering, which is a critical component driving revenue growth in Zoom's customer experience.
Speaker #4: One example is ATPI, a leading UK-based global travel and events management company known for its expertise in complex sectors, who in Q2 selected Zoom Contact Center Elite alongside Zoom Phone to transform their global customer engagement.
Eric Yuan: One example is ATPI, a leading U.K.-based global travel and events management company known for its expertise in complex sectors, who in Q2 selected Zoom Contact Center Elite alongside Zoom Phone to transform their global customer engagement. ATPI chose Zoom over the competition for our Better Together Voice and Contact Center offering, and because of the measurable potential of our AI features across AI Expert Assist, Quality Management, and Workforce Management to significantly reduce hours spent by both agents and supervisors on repeatable tasks. Lastly, we are also excited about the Q2 launch of Virtual Agent 2.0, which advances from conversational to agentic AI designed to deliver measurable customer outcomes. In its first month, we saw deals including SecureOne, a private security company who replaced an expensive manual after-hours answering service with Zoom Virtual Agent for voice.
Speaker #4: ATPI chose Zoom over the competition for our Better Together Voice and Contact Center offering because of the measurable potential of our AI features across AI Expert Assist, quality management, and workforce management to significantly reduce hours spent by both agents and supervisors on repeatable tasks.
Speaker #4: Lastly, we are also excited about the Q2 launch of Virtual Agent 2.0, which advances from conversational to agentic AI, designed to deliver measurable customer outcomes. In its first month, we saw deals including Secure One, a private security company that replaced an expensive manual after-hours answering service with ZVA for Voice.
Speaker #4: The solution integrated seamlessly with their existing Zoom Phone deployment, reduced costs by tens of thousands of dollars annually, and enhanced sales prospecting through intelligent automation.
Eric Yuan: The solution integrated seamlessly with their existing Zoom Phone deployment, reduced costs by tens of thousands of dollars annually, and enhanced sales prospecting through intelligent automation. This is just one example of how Zoom's agentic AI tools can help customers drive both meaningful cost savings and new revenue opportunities. Zoom continues to innovate with Zoom Workplace, delivering a seamless and integrated collaboration experience with Zoom Meetings, Phone, Team Chat, Events, Docs, Whiteboard, and Rooms. We have been honored with four UC Today Awards, recognizing our continued innovation and leadership, including Most Innovative Product for AI Companion, Best UC Platform for Zoom Workplace, Best UCaaS Provider Americas, and Best Contact Center Solution. Furthermore, in recognition of our customer focus and innovation, we are proud to be named a UCaaS leader in the Forrester Wave.
Speaker #4: This is just one example of how Zoom's agentic AI tools can help customers drive both meaningful cost savings and new revenue opportunities. Zoom continues to innovate with Zoom Workplace, delivering a seamless and integrated collaboration experience with Zoom Meetings, Phone, Team Chat, Events, Docs, Whiteboard, and Rooms.
Speaker #4: We have been honored with four UC Today Awards, recognizing our continued innovation and leadership, including Most Innovative Product for AI Companion, Best UC Platform for Zoom Workplace, Best UCaaS Provider Americas, and Best Contact Center Solution.
Speaker #4: Furthermore, in recognition of our customer focus and innovation, we are proud to be named a UCaaS Leader in the Forrester Wave. Our continued momentum reflects not only strong customer demand for our modern collaboration solutions, but also the success of meeting buyers where they are, through preferred channels like AWS Marketplace.
Eric Yuan: Our continued momentum reflects not only strong customer demand for our modern collaboration solutions, but also the success of meeting buyers where they are through preferred channels like AWS Marketplace. In Q2, for example, HubSpot expanded to Zoom Workplace, including Zoom Phone, Rooms, Sessions, Whiteboard, Translated Captions, and more. This will deliver the benefits of our modern, integrated, and cohesive collaboration suite to help them enable hybrid work across their global workforce, reduce costs, and simplify billing on AWS Marketplace. Our focus on customer value led many companies to boomerang to Zoom after trying other services. One such company is F5, a global technology leader in application delivery and security. F5 bounced back to Zoom with a seven-figure ARR deal due to the increased productivity and lower total cost of ownership of our modern, easy-to-use platform.
Speaker #4: In Q2, for example, HubSpot expanded to Zoom Workplace, including Zoom Phone, Rooms, Sessions, Whiteboard, Translated Captions, and more. This will deliver the benefits of our modern, integrated, and cohesive collaboration suite to help them enable hybrid work across their global workforce, reduce costs, and simplify billing on AWS Marketplace.
Speaker #4: Our focus on customer value led many companies to boomerang back to Zoom after trying other services. One such company is F5, a global technology leader in application delivery and security. F5 bounced back to Zoom with a seven-figure ARR deal due to the increased productivity and lower total cost of ownership of our modern, easy-to-use platform.
Speaker #4: And finally, Zoom Phone delivered another strong quarter, sustaining mid-teens ARR growth and gaining market share versus leading competitors. This is an impressive result given its already large scale as a UCaaS leader.
Eric Yuan: Zoom Phone delivered another strong quarter, sustaining mid-teens ARR growth and gaining market share versus leading competitors, an impressive result given its already large scale as a UCaaS leader. Our Better Together vision, unifying best-in-class voice collaboration and customer engagement solutions, drove a major five-year, seven-figure ARR Zoom Phone deal, displacing Cisco, which also includes Workplace and Contact Center Elite. We also continue to drive amazing growth with our customer experience and employee experience solutions. As I mentioned earlier, AI adoption is increasing within our customer experience offering and transforming how brands engage their customers and build loyalty with our set of modern, differentiated AI-first tools. You see this momentum in the number of Zoom Contact Center customers with over $100K ARR, which grew 94% year over year to 229, highlighting our ability to win with large accounts in high-stakes deployments and migrate them into the high-end AI products.
Speaker #4: Our Better Together Vision, unifying best-in-class voice collaboration and customer engagement solutions, drove a major five-year, seven-figure ARR Zoom Phone deal, displacing Cisco. This also includes Workplace and Contact Center Elite.
Speaker #4: We also continue to drive amazing growth with our customer experience and employee experience solutions. As I mentioned earlier, AI adoption is increasing within our customer experience offering and transforming how brands engage their customers and build loyalty with our set of modern, differentiated AI-first tools.
Speaker #4: You see this momentum in the number of Zoom Contact Center customers with over $100,000 ARR, which grew 94% year-over-year to 229, highlighting our ability to win with large accounts in high-stakes deployments and migrate them into the high-end AI products.
Speaker #4: Our top 10 contact center deals were all displacements of leading competitors, and all but one were cloud displacements. Inland Real Estate Group, whose member companies employ more than 1,200 people, faced challenges for years managing disparate systems.
Eric Yuan: Our top 10 contact center deals were all displacements of leading competitors, and all but one were cloud displacements. Inland Real Estate Group, whose member companies employ more than 1,200 people, faced challenges for years managing disparate systems. In Q2, they chose the full Zoom platform, including Zoom Workplace, Zoom Phone, and Zoom Contact Center, to unify their collaboration and customer experience and future-proof their business. We have also made progress in building additional routes to market. We are excited about our newly established collaboration with PwC, which expands our Zoom Contact Center and AI opportunity and ability to meet the needs of global enterprise customers. Together, we have already co-sold several large deals, including a Fortune 50 technology firm for which PwC will provide advisory and implementation services.
Speaker #4: In Q2, they chose the full Zoom platform, including Workplace, Phone, and Contact Center, to unify their collaboration and customer experience and future-proof their business.
Speaker #4: We have also made progress in building additional routes to market. We are excited about our newly established collaboration with PwC, which expands our Zoom Contact Center and AI opportunity and ability to meet the needs of global enterprise customers.
Speaker #4: Together, we have already co-sold several large deals, including a Fortune 50 technology firm, for which PwC will provide advisory and implementation services in Q2.
Eric Yuan: In Q2, our employee experience offering continued to shine, with Workvivo reaching 168 customers with over $100K ARR, up 142% year over year. One of these large deals was Marubeni Corporation, a large diversified Japanese conglomerate that transitioned to Workvivo from Meta Workplace, with more than 10,000 licenses, to elevate how it informs, connects, and engages employees. Before I hand it to Michelle Chang to take us through the financial results, let me close by saying that on September 17th, we look forward to bringing you Zoomtopia 2025 for the people, our biggest event of the year. You will learn about exciting product reveals, inspiring stories, and much more. See you there.
Speaker #4: Our employee experience offering continued to shine, with Workvivo reaching 168 customers with over $100K ARR, up 142% year-over-year. One of these large deals was Marubeni Corporation, a large diversified Japanese conglomerate that transitioned to Workvivo from Meta Workplace with more than 10,000 licenses to elevate how it informs, connects, and engages employees.
Speaker #4: Before I hand it to Michelle to take us through the financial results, let me close by saying that on September 17th, we look forward to bringing you Zoomtopia 2025 for the people, our biggest event of the year.
Speaker #4: You'll learn about exciting product reveals, inspiring stories, and much more. See you there.
Speaker #2: Thank you, Eric, and hello, everybody. I'm excited to share Zoom's Q2 FY26 financial performance today. In Q2, total revenue grew 4.7% year-over-year to $1.217 billion, or 4.4% in constant currency.
Michelle Chang: Thank you, Eric, and hello, everybody. I am excited to share Zoom’s Q2 FY26 financial performance today. In Q2, total revenue grew 4.7% year over year to $1.217 billion, or 4.4% in constant currency. The result was $17 million above the high end of our guidance. Our enterprise business continues to be the key point of strength, with revenue growing 7% year over year and representing 60% of our total revenue, up one point year over year. Our online business continues to show signs of stabilizing. In Q2, average monthly churn was flat year over year at continued lows of 2.9%. In our enterprise business, we saw approximately 9% year over year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers make up 32% of our total revenue, up one point year over year.
Speaker #2: The result was $17 million above the high end of our guidance. Our enterprise business continues to be the key point of strength, with revenue growing 7% year-over-year and representing 60% of our total revenue.
Speaker #2: Up 1.0 year-over-year. Our online business continues to show signs of stabilizing. In Q2, average monthly churn was flat year-over-year, at continued lows of 2.9%.
Speaker #2: In our enterprise business, we saw approximately 9% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers make up 32% of our total revenue, up 1.0 year-over-year.
Speaker #2: Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 held steady at 98%. Pivoting to our growth internationally, our Americas revenue grew 5% year-over-year, EMEA grew 6%, and APAC grew 4%.
Michelle Chang: Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 held steady at 98%. Pivoting to our growth internationally, our Americas revenue grew 5% year over year, EMEA grew 6%, and APAC grew 4%. Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated payroll tax effects. Non-GAAP gross margin in Q2 was 79.8%, up 128 basis points from Q2 of last year, primarily due to cost optimization efforts. We continue to reiterate our long-term goal of 80% non-GAAP gross margins and remain focused in the near term around balancing investments with AI with cost efficiencies. Non-GAAP income from operations grew 10.5% year over year to $503 million, exceeding the high end of our guidance by over $38 million.
Speaker #2: Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated payroll tax effects.
Speaker #2: Non-GAAP growth margin in Q2 was 79.8%, up 128 basis points from Q2 of last year, primarily due to cost optimization efforts. We continue to reiterate our long-term goal of 80% non-GAAP growth margins and remain focused in the near term on balancing investments in AI with cost efficiencies.
Speaker #2: Non-GAAP income from operations grew 10.5% year-over-year, to $503 million, exceeding the high end of our guidance by over $38 million. Non-GAAP operating margin for Q2 was 41.3%.
Michelle Chang: Non-GAAP operating margin for Q2 was 41.3%, up 216 basis points from Q2 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share in Q2 was $1.53 on approximately 308 million non-GAAP diluted weighted average shares outstanding. This result was $0.16 above the high end of our guidance and $0.14 higher than Q2 of FY25. The EPS growth reflects strong business performance, effective cost management, and less dilution driven by our buyback program and disciplined stock compensation management. Turning to the balance sheet, deferred revenue at the end of the period grew 5% year over year to $1.48 billion, slightly ahead of the high end of our previously provided range. In Q3, we expect deferred revenue to be up 4% to 5% year over year.
Speaker #2: Up 216 basis points from Q2 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share in Q2 was $1.53 on approximately $308 million non-GAAP diluted weighted average shares outstanding.
Speaker #2: This result was $0.16 above the high end of our guidance and $0.14 higher than Q2 of FY25. The EPS growth reflects strong business performance, effective cost management, and less dilution, driven by our buyback program and disciplined stock compensation management.
Speaker #2: Turning to the balance sheet, deferred revenue at the end of the period grew 5% year-over-year, to $1.48 billion, slightly ahead of the high end of our previously provided range.
Speaker #2: In Q3, we expect deferred revenue to be up 4% to 5% year-over-year. Looking at both our build and unbuild contracts, our RPO increased over 5% year-over-year to approximately $4 billion.
Michelle Chang: Looking at both our build and unbuild contracts, our RPO increased over 5% year over year to approximately $4 billion. We expect to recognize just under 61% of the total RPO as revenue over the next 12 months, slightly up from 60% in Q2 of FY25. Operating cash flow in Q2 grew 15% year over year to $516 million, representing an operating cash flow margin of 42.4%. Free cash flow in the quarter grew 39% year over year to $508 million, representing a free cash flow margin of 41.7%, up 10 points year over year. The year-over-year increase in free cash flow margin was driven by the timing of tax payments and the lapping of significant PP&E investments. We ended the quarter with approximately $7.8 billion in cash, cash equivalents marketable securities, excluding restricted cash.
Speaker #2: We expect to recognize just under 61% of the total RPO as revenue over the next 12 months, slightly up from 60% in Q2 of FY25.
Speaker #2: Operating cash flow in Q2 grew year-over-year to $516 million, representing an operating cash flow margin of 42.4%. Pre-cash flow in the quarter grew 39% year-over-year to $508 million, representing a pre-cash flow margin of 41.7%, up 10 points year-over-year.
Speaker #2: The year-over-year increase in pre-cash flow 15% margin was driven by the timing of tax payments and the lapping of significant PP&E investments. We ended the quarter with approximately $7.8 billion in cash, cash equivalents, and marketable securities, excluding restricted cash.
Speaker #2: In Q2, we again accelerated the execution of our existing $2.7 billion share buyback plan, purchasing 6 million shares for $463 million—an increase of approximately 389,000 shares quarter over quarter—underscoring our commitment to delivering value to our shareholders.
Michelle Chang: In Q2, we again accelerated execution of our existing $2.7 billion share buyback plan, purchasing 6 million shares for $463 million, an increase of approximately 389,000 shares quarter over quarter, underscoring our commitment to delivering value to our shareholders. Turning to guidance, in Q3, we expect revenue to be in the range of $1.21 to $1.215 billion. This represents approximately 3% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $465 to $470 million, representing an operating margin of 38.6% at the midpoint. Our outlook for non-GAAP earnings per share is $1.42 to $1.44, based on approximately 307 million shares outstanding. As a reminder, future share repurchases are not reflected in the share count and EPS guidance. For the full year of FY26, we're excited to raise both our revenue and our profitability guidance.
Speaker #2: Turning to guidance, in Q3, we expect revenue to be in the range of $1.21 billion to $1.215 billion. This represents approximately 3% year-over-year growth at the midpoint.
Speaker #2: We expect non-GAAP operating income to be in the range of $465 million to $470 million, representing an operating margin of 38.6% at the midpoint.
Speaker #2: Our outlook for non-GAAP earnings per share is $1.42 to $1.44, based on approximately 370 million shares outstanding. As a reminder, future share repurchases are not reflected in the share count and EPS guidance.
Speaker #2: For the full year of FY26, we're excited to raise both our revenue and profitability guidance. We now expect revenue to be in the range of $4.825 to $4.835 billion, which at the midpoint represents approximately 3.5% year-over-year growth.
Michelle Chang: We now expect revenue to be in the range of $4.825 to $4.835 billion, which at the midpoint represents approximately 3.5% year-over-year growth. We expect our non-GAAP operating income to be in the range of $1.905 to $1.915 billion, representing an operating margin of 39.5% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY26 is increasing to $5.81 to $5.84, based on approximately 308 million shares outstanding. With a strength in free cash flow in the first half and increased outlook for operating income in FY26, we now expect free cash flow to be in the range of $1.74 to $1.78 billion for the full year.
Speaker #2: We expect our non-GAAP operating income to be in the range of $1.905 billion to $1.915 billion, representing an operating margin of 39.5% at the midpoint.
Speaker #2: In addition, our outlook for non-GAAP earnings per share in FY26 is increasing to $5.81 to $5.84, based on approximately 380 million shares outstanding.
Speaker #2: With the strength in pre-cash flow in the first half and increased outlook for operating income in FY26, we now expect pre-cash flow to be in the range of $1.74 to $1.78 billion for the full year.
Speaker #2: In closing, we've made progress improving top-line growth. We've sustained best-in-class profitability and reduced dilution. We're executing on our three priorities with discipline and momentum, and we remain committed to building on this success to deliver lasting value for our shareholders.
Michelle Chang: In closing, we've made progress improving top-line growth. We have sustained best-in-class profitability and reduced dilution. We are executing on our three priorities with discipline and momentum, and we remain committed to building on this success to deliver lasting value for our shareholders. Thank you to the entire Zoom team, our customers, and our investors for your trust and support. With that, Megan, please cue the first question.
Speaker #2: Thank you to the entire Zoom team, our customers, and our investors for your trust and support. With that, Megan, please queue the first question.
Speaker #5: 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 unmute.
Unknown Moderator: 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 unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Peter Levine with Evercore.
Speaker #5: As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Peter Levine with Evercore.
Speaker #6: Great. Thank you very much for taking my question and for your interest in a good quarter. Maybe one, Eric, you know, you're seeing kind of, you know, your AI solution really take off, but maybe you can help us share with us, like, what's the ROI that your customers are seeing?
Various Analysts: Great. Thank you very much for taking my question and referencing it on a good quarter. Maybe one of Eric, you are seeing kind of your AI solution really take off, but maybe can you help us share results? What is the ROI that your customers are seeing? In terms of the 2.0, you referenced a pretty large customer that adopted 2.0. We would love to know what is the use case that you are seeing, the ROI? Second, just from a macro perspective, anything you can share with us in terms of what you are hearing or seeing from your customers in terms of their appetite, IT budgets for collaboration?
Speaker #6: Right? In terms of, like, the 2.0 that you referenced, the customer—a pretty large customer—that adopted 2.0. So we’d love to know, like, what’s the use case that you’re seeing the ROI?
Speaker #6: And then second, just from a macro perspective, anything you can share with us in terms of what you're hearing or seeing from your customers in terms of their appetite for IT budgets for collaboration?
Speaker #7: Yeah, great question. So, yeah, I'm using my iPhone to join this earnings call. I think in terms of AI, you know, you are right.
Eric Yuan: Yeah, great question. So yeah, I am using my iPhone to join this earning call. I think in terms of AI, you are right. We launched the Zoom AI Companion 2.0, and hopefully we are also going to launch something exciting at Zoomtopia next month as well. Because two years ago, everyone talked about AI. The first step for us to leverage AI to improve our functionalities, like a meeting summary, transcription, so on and so forth. That is already done very well. The reason why we announced the Zoom 2.0 is how to leverage agentic capabilities.
Speaker #7: We launched the Zoom AI company in 2000, and hopefully we're also going to launch something exciting at Zoomtopia, you know, next month as well.
Speaker #7: Because, you know, two years ago, right, everyone talked about AI, right? The first step for us to leverage AI to improve our functionalities.
Speaker #7: Right? Like meeting summary, transcription, so on and so forth. That's already done very well. And the reason why, you know, we announced the Zoom 2.0 is how to leverage, you know, agentic, you know, the capabilities.
Speaker #7: And also not only do we support the meeting summary, but also look at the entire meeting lifecycle from pre-meeting, how to schedule the meeting to leverage AI, and e-meeting experience, and post-meeting experience, and also how to leverage AI to improve the other product experience like a phone and other, you know, the workplace, the point of product as well.
Eric Yuan: Also, not only do we support the meeting summary, but also look at the entire meeting lifecycle from pre-meeting, how to schedule the meeting to leverage AI, and the in-meeting experience, and the post-meeting experience, and also how to leverage AI to improve the other product experience like Zoom Phone and other Zoom Workplace point of product as well. Overall, the feedback is pretty, pretty positive. Look at the usage, right? Compared to last year in terms of monthly active users, it is four times, four times more in this quarter compared to the quarter last year. I think overall, customers, they all look at how to leverage AI to improve the productivity and work effectiveness. There are so many things for us to do.
Speaker #7: So overall, the feedback is pretty, pretty positive, and look at the usage, right, compared to, you know, last year in terms of monthly active users, it's, you know, it's four times, you know, four times more, right?
Speaker #7: You know, this quarter compared to the quarter last year. But I think overall, customers, they all look at how to leverage AI to improve productivity and work effectiveness.
Speaker #7: And so, so many things for us to do, right? In terms of the IT budget, I think overall, when you look at almost every customer, they all look at how they can leverage AI to make their product better and how to work together with their vendors to leverage AI.
Eric Yuan: In terms of IT budget, I think overall, you look at almost every customer, they all look at how they can leverage AI to make their product better, how to work together with their vendors to leverage AI. That is the reason why many of our customers either already enabled AI Companion or in the process to enable AI Companion, not to mention our AI Companion is part of their offering. We do not charge customers extra except for Custom AI Companion.
Speaker #7: That's the reason why many of our customers are already enabling AI companions or are in the process of enabling AI companions, not to mention that our AI company is part of their offering.
Speaker #7: You know, we do not charge customers extra, except for customized AI companies.
Speaker #6: Thank you very much.
Various Analysts: Thank you very much.
Speaker #7: Appreciate it. Thank you.
Eric Yuan: Appreciate it. Thank you.
Speaker #5: Our next question comes from Meta Marshall with Morgan Stanley.
Unknown Moderator: Our next question comes from Meta Marshall with Morgan Stanley.
Speaker #8: Great. Thanks. Kind of noted the AI companion verticals specific when, kind of with the Fortune 2000 or 200 tech company. And I guess just, you know, how are some of these wins that you're getting on these verticals specific AI companions kind of informing just what customer needs are, what they can do with AI, kind of beyond what we traditionally think of as like summarization?
Meta Marshall: Great, thanks. Kind of noted the AI Companion vertical-specific win with the Fortune 200 U.S. tech company. I guess just, how are some of these wins that you are getting on these vertical-specific AI Companions kind of informing just what customer needs are, what they can do with AI kind of beyond what we traditionally think of as like summarization?
Speaker #7: Yes, great question. So, in essence, we introduced the AI companions, for sure. There were some early adopters, right, who adopted AI early, you know, already for a while.
Eric Yuan: Yeah, it is a very good question. In essence, we introduced the AI Companion. For sure, there were some early adopters, who adopted the AI early for a while. Now they look beyond AI Companion. Are there any other things we can achieve with our AI capabilities? That is the reason why they paid for Custom AI Companion where we connect with their index, their content, or with the customized meeting template for their summary, so on and so forth. I think, for sure, some other customers are still in the process to adopt the AI Companion. AI Companion, as I mentioned earlier, is part of a package. More and more customers are going to adopt that or already adopted that. At the same time, for those customers who already adopted AI Companion, look at it beyond today's AI Companion.
Speaker #7: Now they look beyond AI companions. Are there any other things they can achieve with our AI capabilities? That's the reason why, you know, they paid for customized AI companions where we connect with their index, their content, or with the customized meeting template for their summaries, and so on and so forth.
Speaker #7: I think, you know, for sure, some other customers are still in the process of adopting the AI companion, right? So, AI companions, again, as I mentioned earlier, it's part of a package. More and more customers are going to adopt that.
Speaker #7: Or already adopt that. At the same time, for those customers who are already adopting AI companions, they look beyond today's AI companions. Are there any new things?
Eric Yuan: Are there any new things? That is the reason why we offer Custom AI Companion. I think ultimately, we also want to innovate more. It is not only, do we have an AI Companion 2.0, Custom AI Companion. That is why we are very excited for the new AI Companion announcement at Zoomtopia next month.
Speaker #7: That's the reason why we offer customized AI companions. I think ultimately, we also want to innovate more, right? It's not only that we have an AI company in 2000, customized AI companions.
Speaker #7: You know, that's why, you know, we are very excited, you know, for the new AI companions announcement at Zoomtopia, you know, next month.
Speaker #8: Great. Thanks.
Meta Marshall: Great, thanks.
Speaker #7: Appreciate it. Thank you.
Eric Yuan: Appreciate it. Thank you.
Speaker #5: Our next question comes from Tyler Radke with CITI. Oh, we might be having some technical difficulty. Tyler, are you there? All right, moving on.
Unknown Moderator: Our next question comes from Tyler Radke with City. Oh, we might be having some technical difficulty. Tyler, are you there? All right, moving on. Our next question comes from William Power with Baird.
Speaker #5: Our next question comes from William Power with Baird.
Speaker #9: Okay, great. This is Yanni Samoa, signed for Will Power. Thanks for taking the question. A couple on the online segment: I know you folks instituted a price increase for the monthly Pro SKU earlier this summer.
Rishi Jaluria: Okay, great. This is Yanni Samolis from Will Power. Thanks for taking the question. A couple on the online segment. I know you folks instituted a price increase for the monthly pro SKU earlier this summer, I think. First of all, I think you mentioned last quarter that you are expecting that to add $10 million to $15 million of incremental revenue this year, or at least as it compares to your initial forecast. Based on what you have seen so far, I am wondering if any of your assumptions around that have changed or if your expectations there are still consistent. Also, just taking a step back, I was hoping you could comment on any feedback you have heard from customers so far, just in general. It looks like churn largely held stable.
Speaker #9: I think—so first of all, you know, I think you mentioned last quarter that you were expecting that to add $10 to $15 million of incremental revenue this year.
Speaker #9: Or at least, as you know, as a comparison to your initial forecast. Based on what you've seen so far, I'm wondering if any of your assumptions around that have changed, or if your expectations there are still consistent.
Speaker #9: And then, also just taking a step back, I was hoping you could comment on any feedback you've heard from customers so far, just in general.
Speaker #9: Looks like churn largely held stable. But I'd be curious if you have observed any other changes in customer behavior, maybe customer switching to annual plans to avoid that price increase.
Rishi Jaluria: I would be curious if you have observed any other changes in customer behavior, maybe customers switching to annual plans to avoid that price increase, or any other dynamics that you might have noticed. Thanks.
Speaker #9: Or any other dynamics that you might have noticed. Thanks.
Speaker #2: Yeah, I can take that one. So first, we're pleased with the growth of 1.4% and pleased with continued low churn with that. I'd reiterate that the same range of guidance from 10% to 15% is still on track for that.
Michelle Chang: Yeah, I can take that one. So first, we are pleased with the growth of 1.4% and pleased with continued low churn with that. I would reiterate that the same range of guidance from 10% to 15% is still on track for that. I continue to guide to a flat online number on the full year. We did see, to your question, some shift to long term, but nothing I would say extreme. Maybe a little bit more color in terms of the customer conversation is that we did not see a lot of pushback. I think that is really a statement of it is a relatively small price increase.
Speaker #2: I continue to guide to a flat online number for the full year. We did see, to your question, some shifts to long-term, but nothing I would say is extreme.
Speaker #2: And maybe a little bit more color in terms of the customer conversation is that we didn't see a lot of pushback. I think that's really a statement of it's a relatively small price increase.
Speaker #2: But it has to do, I think, even more with the value that we've put in the workplace SKU, be it AI or so many of the more products in there, as well as with the particular price increase we made to increase storage limits.
Michelle Chang: It has to do, I think, even more with the value that we have put in the Zoom Workplace SKU, be it AI or so many of the more products in there, as well as with the particular price increase, we increased charge limits. For us and what we heard, the value prop was still very much there.
Speaker #2: So, you know, for us, and what we heard, the value proposition was still very much there.
Speaker #9: Okay. Thank you.
Rishi Jaluria: Okay, thank you.
Speaker #5: Our next question is from James Fish with Piper Sandler.
Unknown Moderator: Our next question is from James Fish with Piper Sandler.
Speaker #6: Hey, thanks for the question here. Two-parter, though. Eric, for you, Workvivo continues to have another strong quarter, really, a spike in usage from what we can tell.
Various Analysts: Hey, thanks for the question here. Two-parter though. Eric, for you, Workvivo continues to have another strong quarter, really spike in usage from what we can tell. I guess, what are you seeing with that asset as we head into the back half of the year, both from that partnership angle with Meta and the overall market? Michelle, on the numbers here, you raised by 25 to the top line, beat by 20 on the quarter, have effects in your favor. Walk us through why we're not getting more of a roll forward of kind of the top line upside here. Is it just prudency or anything to think about for the back half of the year? Thanks.
Speaker #6: I guess, what are you seeing with that asset as we head into the back half of the year, both from that partnership angle with Meta and the overall market?
Speaker #6: And then just Michelle, on the numbers here, you raised by $25 million for the top line. Beat by $20 million on the quarter. Have effects in your favor?
Speaker #6: Walk us through why we're not getting more of a roll forward of kind of the top-line upside here. Is it just prudency or anything to think about for the back half of the year?
Speaker #6: Thanks.
Speaker #7: Michelle, do you want me to address the first one?
Eric Yuan: Michelle, you want me to address the first one?
Speaker #5: Sure.
Speaker #7: Perfect. Yeah, so in terms of Workvivo growth, and for sure, you know, the Meta partnership certainly helped us a lot since last year. For now, our top priority mixture is for those customers suited to our Workvivo platform.
Various Analysts: Sure.
Eric Yuan: Yeah, so in terms of Workvivo growth, for sure, Meta partnership certainly helped us a lot since last year. For now, our top priority makes sure for those customers to switch to our Workvivo platform. We got to help them transition to our Workvivo platform very smoothly, right? Make sure every feature works, no regression, that is still the top priority. At the same time, a lot of customers realized they needed to have an employee engagement platform, and more and more opportunities in the pipeline. Also at the same time, we are going to innovate more, right? We will add a lot of innovations upon our Workvivo platform. I think AI is also another way for us to innovate as well to further improve our Workvivo platform experience. I think it used to be we just focused on very, very large deals.
Speaker #7: We got it to, you know, help them, you know, transition to our Workvivo platform, you know, very smoothly, right? Mixture every feature works, no regression.
Speaker #7: And that's still the top priority. At the same time, you know, a lot of customers realized, you know, they needed to have a customer, sorry, the employee engagement platform.
Speaker #7: And more and more opportunities are in the pipeline. At the same time, we are going to innovate more, right? There are a lot of innovations coming to our Workvivo platform.
Speaker #7: I think also the AI is also another way, right, for us to innovate as well, to further improve our Workvivo platform experience. I think, you know, it used to be we just focused on very, very large deals.
Speaker #7: I think a lot of, you know, the commercial, you know, the medium-sized customers also will benefit from deploying Workvivo platform. And that's kind of our next growth opportunity for the Workvivo platform.
Eric Yuan: I think a lot of commercial, medium-sized customers also will benefit from deploying Workvivo platform. That is kind of our next growth opportunity for the Workvivo platform.
Speaker #2: Yeah. Maybe a couple of comments, James, in terms of the forecast. First, as you noted, we feel good about the consistent beat as well as the raise, regardless of U.S. constant currency.
Michelle Chang: Yeah, maybe a couple of comments, James, in terms of the forecast. First, as you noted, we feel good about the consistent beat as well as the raise, regardless of USD or constant currency. We feel good about the steady progress made towards the growth rate, despite dynamic macro conditions. So raising, for example, from 2.7 at the beginning of the year to now 3.5. We feel good about the three areas of strategic focus and the progress that we see within those. Maybe the color that I give you is that, you know, we already talked about online and sort of the guidance being flat. Relatively speaking, the H1 versus H2 dollars, revenue is relatively consistent. It is really the growth rate from enterprise that is driving the H2 outlook.
Speaker #2: We feel good about the steady progress made towards the growth rate. Despite dynamic macro conditions, we are raising, for example, from 2.7% at the beginning of the year to now 3.5%.
Speaker #2: We feel good about the three areas of strategic focus and the progress that we see within those. Maybe the color that I give you is that, you know, we already talked about online and sort of the guidance being flat, relatively speaking, the H1 versus H2 dollars, or, you know, revenue is relatively consistent.
Speaker #2: And it's really the growth rate from enterprise that is driving the H2 outlook. So look, we've used a consistent forecast methodology, and we've assumed macro conditions that are strong in their demand and durable with respect to our drivers.
Michelle Chang: Look, we have used a consistent forecast methodology, and we have assumed macro conditions that are strong in their demand and durable with respect to our drivers, but still a dynamic economic environment. Maybe then if I could insert a little bit, James, some comments on last quarter. You will remember that I said we saw some scrutiny, no losses, but additional scrutiny in some geographies. I am pleased to say that we saw partial abatement to that in Q2. As such, we sort of expected that H2 outlook will be in line with what we saw in Q2.
Speaker #2: But still a dynamic economic environment. Maybe then, if I could insert a little bit, James, some comments on last quarter. You'll remember that I said we saw some scrutiny—no losses, but additional scrutiny in some geographies.
Speaker #2: And I'm pleased to say that we saw partial abatement to that in Q2. As such, we've sort of expected that the H2 outlook will be in line with what we saw in Q2.
Speaker #6: Great to hear. Thank you very much.
Various Analysts: Great to hear. Thank you very much.
Speaker #5: Samad Shamana from Jefferies will take the next question.
Unknown Moderator: Samad Samana from Jefferies will take the next question.
Speaker #10: Hey everyone, this is Billy Fitzsimmons on for Samad. Eric, maybe this is for you. There have been a couple of questions on the AI companion, but I want to dig deeper on the custom AI companion to add on.
Billy from Simmons (for Samad Samana): Hey everyone, this is Billy from Simmons on for Samad. Eric, maybe for you, there have been a couple of questions on the AI Companion, but want to dig deeper on the Custom AI Companion add-on. It is still early. It has only been a few months now since launch, and I am guessing we will hear more at Zoomtopia. But can you share some anecdotes around what some of the initial customers who have purchased the add-on are saying about it? Some prominent use cases day-to-day. I know you have third-party integrations with a bunch of different vendors. Then just how, from a product or sales standpoint, you are getting customers to move from the included AI Companion to the paid add-on. If I could sneak in one more for Michelle, it just launched. It is still early. I imagine it will be more of a fiscal 2027 tailwind.
Speaker #10: It's still early; it's only been a few months now since launch. And I'm guessing we'll hear more at Zoomtopia. But can you share some anecdotes about what some of the initial customers who've purchased the add-on are saying about it?
Speaker #10: Some prominent use cases day-to-day. I know you have third-party integrations with a bunch of different vendors. And then just how from a product or sales standpoint, you're getting customers to move from the included AI companion to the paid add-on.
Speaker #10: And then, if I could sneak in one more for Michelle. It just launched. It's still early; I imagine it'll be more of a fiscal 2027 tailwind.
Speaker #10: But can you just level-set for us if there'll be any kind of benefit in the guide in the back half of this year?
Billy from Simmons (for Samad Samana): But can you just level set for us if there will be any kind of benefit in the guide in the back half of this year? Thank you.
Speaker #10: Thank you.
Speaker #7: Yep. I can address the AI company question. So, first of all, please join our user conference, Zoomtopia, next month. Again, you know, a lot of exciting stuff around the Zoom AI company.
Eric Yuan: I can address the AI Companion question. First of all, please join our user conference Zoomtopia next month. A lot of exciting stuff around the Zoom AI Companion. For those customers who deploy AI Companion for a while, they love AI Companion. However, at the same time, they also ask about what we can do to leverage AI Companion to help them more. Some companies deploy AI Companion. They also have other applications, like ServiceNow, Salesforce, Workday, and a lot of other applications. They are also knowledge-based as well. How to connect with all those different data sources? Some customers, they even use other data index, like Amazon Q or Glean. You also need to connect with them as well. We offer the basic meeting summary template. Customers, they want to have a very flexible, customized template and also connect with their dictionary and their knowledge base.
Speaker #7: You know, for those customers who have been deploying AI with the company for a while, they love the AI capabilities. However, at the same time, they also ask about what they can do to leverage the AI companion to help them more, right?
Speaker #7: Because, you know, some companies deploy AI companions; they also have other applications, you know, like ServiceNow, Salesforce, Workday, and a lot of other applications.
Speaker #7: There are also knowledge bases as well, like how to connect all those different data sources, right? Or some customers, they even use other data indexes, you know, like Amazon Q or Glean, right?
Speaker #7: You also need to connect with them as well. And we offer the basic, you know, meeting summary template. You know, customers, they want to have very flexible customized template.
Speaker #7: And also connect with their, you know, their dictionary and their knowledge base. A lot of, you know, the capabilities, you know, can be added into the AI companion to further improve the AI companion for those customers.
Eric Yuan: A lot of the capabilities can be added into AI Companion to further improve the AI Companion for those customers. That is the reason why those customers talk with us, they want to enable Customized AI Companion. They also share a lot of feedback with us. This is the reason why we want to announce more and more innovations upon our AI Companion platform.
Speaker #7: That's the reason why those customers talk with us: "Hey, do you want to enable a customized AI companion?" They also share a lot of feedback with us.
Speaker #7: And this is the reason why, you know, we want to announce more and more innovations, you know, upon our, you know, AI company platform.
Speaker #2: Yeah. With respect to how to think about AI products and what's in and out of our forecast, I kind of break it into two pieces.
Michelle Chang: With respect to how to think about AI products and what is in and out of our forecast, I break it into two pieces. First, we are already seeing notable progress from AI in our Contact Center business. We have talked about broadly the Contact Center business growing high double digit, and it continues to be. Certainly, our Elite SKU, which is where you get the AI value, as well as Zoom Virtual Agent, are part of that. So I would say that is in the 26 numbers. In terms of the other products, but just GAID in the April timeframe, this is first quarter, and we are pleased with the customer examples that we shared and the pipeline building. But we just continue to emphasize what I have said previously, which is those will not really come in until 27, given law of large numbers, building product, et cetera.
Speaker #2: First, we're already seeing notable progress from AI in our contact center business. We talked about broadly the contact center business growing high double-digit, and it continues to be.
Speaker #2: And certainly, our elite SKU, which is where you get the AI value, as well as DBA, are part of that. So I would sort of say that's in the 26 numbers.
Speaker #2: In terms of the other products that just GA'd in the April timeframe, this is sort of the first quarter, and we're pleased with the customer examples that we shared and the pipeline building. But really, I would just continue to emphasize what I've said previously, which is those won't really come in until 2027.
Speaker #2: Given large numbers, building product, et cetera.
Speaker #10: Thank you.
Billy from Simmons (for Samad Samana): Thank you.
Speaker #5: Our next question is from Michael Funk with Bank of America.
Unknown Moderator: Our next question is from Michael Funk with Bank of America.
Speaker #9: There we go. How are you doing, guys? Very...
Various Analysts: How you doing, guys?
Speaker #2: Good.
Speaker #9: Well, yeah, good to see you all. Also, on the AI products, can you provide any color on the size of the funnel and the growth of the funnel that you’re seeing?
Meta Marshall: Good to see you.
Various Analysts: Yeah, good to see you all. Also, on the AI products, can you provide any color on the size of the funnel and the growth of the funnel that you are seeing? Very strong growth, obviously, in Q2. Any commentary on the uplift in customer ARR from adding AI solution to be helpful?
Speaker #9: Very strong growth, obviously, in Q2. Any commentary on the uplift in customer ARR from adding AI solutions would be helpful.
Speaker #7: Yeah, maybe I can address some of your questions.
Eric Yuan: Yeah, maybe I can address some of your questions.
Speaker #2: I can jump in as well.
Michelle Chang: I can jump in as well.
Eric Yuan: Feel free to chime in.
Speaker #7: Feel free to chime in.
Speaker #2: Yeah.
Speaker #7: Again, there are so many AI questions. I wish our AI company can answer to those questions on behalf of me next time, so. So overall, I think you look at our AI companion, not only for, you know, improve our, you know, meeting our workplace platform.
Michelle Chang: Yeah.
Eric Yuan: Given there are so many AI questions, I wish our AI Companion can answer those questions on behalf of me next time. Overall, I think looking at AI Companion, not only for, you know, improving our, you know, meeting or Zoom Workplace platform, actually AI Companion is the backend, you know, is our AI infrastructure platform. Our other products also benefit a lot from AI Companion. I will give one example. Take a Zoom Virtual Agent 2.0, for example. Literally, we just announced it, you know, recently, and we offer the voice, you know, and the agent. It is very important and very helpful, you know, to our Zoom Contact Center customers. The backend architecture, a lot of, you know, innovations are coming from AI Companion as well.
Speaker #7: Actually, our AI company is a backend, you know, it's our AI infrastructure platform. And also, our other product benefits a lot from the AI company.
Speaker #7: Again, one example: take a Zoom Virtual Agent 2.0, for instance. We just announced that recently, and we offer the voice, you know, the agent.
Speaker #7: And it's very important, very helpful, you know, to our contact center customers. But the backend architecture, a lot of, you know, innovations are coming from AI companies as well.
Speaker #7: So, AI company is a platform, right? It's a phone contact center. Almost every service will benefit from our AI company. Look at the core workplace meeting services; AI company is part of that.
Eric Yuan: So AI Companion is a platform, right? It is a Zoom Phone, a Zoom Contact Center, almost every service will benefit from our AI Companion. Look at the core Zoom Workplace meeting services. AI Companion is part of that. We only monetize for Custom AI Companion. AI Companion is extremely important for us to empower our other services. That is the way for us to further monetize AI Companion.
Speaker #7: We only monetize for our customer AI company. But the AI company is extremely important for us to empower our other services. That way, we can further monetize the AI company.
Speaker #2: Maybe I'll jump in as well. I took sort of the spirit of your question of how do we really think about what we look at with respect to AI and measurement.
Michelle Chang: Maybe I will jump in as well. I took the spirit of your question of how do we really think about what we look at with respect to AI and measurement?
Speaker #2: You know, certainly.
Speaker #7: You can also, Michelle, just, I mean. Yeah. Also, just in the context of, you know, revenue growth acceleration, several years ago, management talked about accelerating revenue back to mid-single digits.
Various Analysts: Michelle, just in the context of revenue growth acceleration, several years ago management talked about accelerating revenue back to mid-single digits. You are well on your way there now, 4.4% constant currency this quarter. So, trying to think about contribution to future growth, talking about funnel size and uplift ARR so we can contextualize the benefit.
Speaker #7: You're well on your way there now at 4.4% constant current for this quarter. So, trying to think about contribution to future growth—talking about funnel size and uplift in ARR—so we can contextualize the benefit.
Speaker #2: Which one do you want me to go over, AI usage, or do you want to go over revenue?
Michelle Chang: Which one do you want? Do you want me to go AI usage, or do you want to go revenue?
Speaker #7: Really, really the usage and then the benefit to annual recurring revenue, if you have any thoughts on that—how it's benefiting.
Various Analysts: Really, really the usage and the benefit to annual recurring revenue, if you have any thoughts on that, how it is benefiting.
Speaker #2: Okay. So look, in terms of the framework of how we think about AI and AI health broadly, we originally started talking about enabled. Then we went to, let's talk about MAU.
Michelle Chang: Okay, so look, in terms of the framework, how we think about AI and AI health, broadly, we originally started talking about enabled. Then we went to, let's talk about MAO. Eric Yuan shared in his write-up that our MAO is up four times year over year, now in the millions. I would say we also look quite heavily at the depth of usage, right? You know, things like moving more into the productivity lifecycle, moving more into the meeting lifecycle with our customers using things like side panels, much more, tasks, much more, using AI integration in products like Zoom Phone, for example, as well as using AI features that are agentic and go across our platform, like things with calendar management. So we look very closely at broad breadth and depth usage. Obviously, innovation and recognition and pace of that is important to Eric Yuan and I.
Speaker #2: Eric shared in his write-up that our MAU is up four times year-over-year, now in the millions. I would say we also look quite heavily at the depth of usage, right?
Speaker #2: You know, things like moving more into the productivity lifecycle, moving more into the meetings lifecycle, with our customers using things like the side panel much more, tasks much more, using AI integration in products like phones, for example, as well as using AI features that are agentic and go across our platform.
Speaker #2: Like things with calendar management. So we look very closely at both breadth and depth of usage. Obviously, innovation, recognition, and the pace of that are important to Eric and me.
Speaker #2: And then, obviously, you hit on the last piece, which is the monetization. And look, I just continue to reiterate the frame I gave earlier, which is, you know, contact center, elite DBA, those are the more mature, or I should say contact center elite is the more mature, putting AI value in all of our paid SKUs and what that could do to churn and bringing in new customers.
Michelle Chang: And then obviously you hit on the last piece, which is the monetization. Look, I just continue to reiterate the frame I gave earlier, which is, you know, Zoom Contact Center Elite, Zoom Virtual Agent. Those are the more mature, or I should say Zoom Contact Center Elite is the more mature. Putting AI value in all of our paid SKUs and what that could do to churn and bringing in new customers, those are sort of the more immediate ones. Then certainly with Custom AI Companion, the 2.0 launch of Zoom Virtual Agent and some of our vertical SKUs, that offers a lot more going forth.
Speaker #2: Those are sort of the more immediate ones. And then certainly with the custom AI companion, the 2.0 launch of ZBA, and some of our vertical SKUs that offer a lot more going for.
Speaker #9: Great. Thank you, Eric. Thank you, Michelle.
Various Analysts: Great, thank you, Eric. Thank you, Michelle. Appreciate it. Thank you.
Speaker #7: Appreciate it. Thank you.
Speaker #5: Alex Zukin with Wolf Research will ask the next question. Alex?
Unknown Moderator: Alex Zukin with Wolf Research will ask the next question. Alex.
Speaker #3: Hey, guys. Thanks for taking the time. Maybe two quick ones. Eric, the first one is for you, and then Michelle, one for you as well.
Various Analysts: Hey guys, thanks for taking the time. Maybe two quick ones, Eric. The first one for you, and then Michelle, one for you as well. Eric, if I think about the way AI adoption is progressing inside of your customer base, both on the online portion as well as the enterprise portion, how is that changing your opinion around the timeline, the timing of monetization to the extent that can start to bend the growth curve and the competitive framing and environment, both against two hyperscalers with two very different opinions on pricing? One, incrementally higher, and one, it is part of it for free. I would love kind of your thought process on that going forward, and then a quick follow-up.
Speaker #3: Eric, if I think about the way AI adoption is progressing inside of your customer base, both on the online portion as well as the enterprise portion, how is that changing your opinion around the timeline, the timing of monetization to the extent that it can start to bend the growth curve?
Speaker #3: And the competitive framing environment, both, you know, against two hyperscalers with two very different opinions on pricing. One, you know, incrementally higher, and one, it's part of it for free.
Speaker #3: I love kind of your thought process on that going forward, and then a quick follow-up.
Speaker #7: Yep. Alex, great question. So, as I mentioned earlier, Zoom AI Companion is a platform. You know, the AI Companion is empowering almost every product. Well, we announced, right, our customers they used.
Eric Yuan: Yeah, Alex, great question. As I mentioned earlier, Zoom AI Companion is a platform. AI Companion is empowering almost every product we announce, or the customers they use. That is the reason why you look at our Zoom Contact Center, for example. Why are we doing so well? Because we look at our top 10 deals. None of out of 10 is switched from other cloud vendors. Because when they look at our product, take a Zoom Virtual Agent, for example. We build everything from ground up. Why the innovation, the speed is very fast? Because we all can leverage the capabilities from AI Companion. We announced Zoom Virtual Agent 2.0. Internally, we deploy that. Our support team is very, very satisfied with the Zoom Virtual Agent powered by AI Companion.
Speaker #7: You know, that's the reason why you look at our contact center, for example. Why we're doing so well? Because you look at our top 10 deals, none of the 10 is switched from other cloud vendors.
Speaker #7: Because when they look at our product, take a Zoom virtual agent, for example. Right? We built everything from the ground up. Why? You know, the innovation, the speed is very fast.
Speaker #7: Because we can already leverage the capabilities of our AI companion, right? We announced Zoom Virtual Agent 2.0. Internally, we deployed that, and our support team is very, very satisfied with the AI Zoom Virtual Agent.
Speaker #7: Powered by AI company. So when we look at AI company as a platform, you know, how to leverage it, empower all other point of services, you know, either phone or contact center, whiteboard, and a lot of other things, we are going to win.
Eric Yuan: When we look at AI Companion as a platform, how to leverage it, empower all other point of services, either Zoom Phone or Zoom Contact Center, Zoom Whiteboard, and a lot of other things, we are going to win. That can help us win more deals. At the same time, look at it as a core meeting product. It is a lot of features, and it is a part of AI Companion. Customers love that as well. Again, we are going to innovate faster. That is the reason why I mentioned a few times. Please join our user conference next month. One of the key themes on Zoomtopia this year, read about AI and Zoom AI Companion.
Speaker #7: That can help us win more deals. And at the same time, you know, look at the other core, the meeting product, right? It's a lot of features, and it's a part of the AI company. Customers love that as well.
Speaker #7: And again, you know, we are going to innovate faster. And you know, that's the reason why I mentioned a few times, and please join our user conference next month.
Speaker #7: You know, one of the key themes I want to Zoomtopia this year, read about AI and Zoom AI company.
Speaker #3: Perfect. Michelle, maybe for you, leading indicators are always important. It sounds like some of the deal cycle elongation that you saw resolved. I assume some of those deals that may have been pushed also closed.
Various Analysts: Perfect. Michelle, maybe for you, leading indicators are always important. It sounds like some of the deal cycle elongation that you saw resolved. I assume some of those deals that may be pushed also closed. Is there anything we are not seeing that is maybe creating a headwind in terms of the CRPO metrics, in terms of billings, that, you know, maybe is not painting the same picture around those KPIs as, you know, the largest beat that you have had in the years on a revenue basis maybe is. So there seems to be a little bit of a divergence. Anything that you can point us to to help us kind of marry those two data points?
Speaker #3: Is there anything we're not seeing that is maybe creating a headwind in terms of the CRPO metrics, in terms of billings, that, you know, maybe is not painting the same picture around those KPIs as, you know, the largest beat that you've had in years on a revenue basis, maybe is?
Speaker #3: So, there seems to be a little bit of a divergence. Is there anything that you can point us to that might help us kind of marry those two data points?
Speaker #2: Yeah. Maybe let me start, Alex, which is backing up on some broad comments on macro and then talk a little bit about RPO.
Michelle Chang: Yeah, let me start, Alex, backing up on some broad comments on macro, then talk a little bit about RPO. First, from a macro perspective, what I said in Q2 or in Q1 last time, was that we saw strong demand, broad strong demand, and we think we have durable drivers in a dynamic macro environment. Certainly, I would say that is still true. It is still a dynamic environment, as we all know. Last time we talked, as you noted, around some scrutiny that we are seeing in some geos. I want to make clear that we have seen a partial abatement of that. We have seen S&B demand continue to be very strong. You see that reflected, I think, in the revenue results.
Speaker #2: So first, from a macro perspective, you know, what I said in Q1 last time was that we saw strong demand—broad strong demand.
Speaker #2: And we think we have durable drivers in a dynamic micro or macro environment. And certainly, I would say that is still true. It's still a dynamic environment.
Speaker #2: As we all know, but last time we talked, as you noted, around some scrutiny that we're seeing in some geographies, I want to make clear that we've seen a partial abatement of that.
Speaker #2: And we've seen SMB demand continue to be very strong. You see that reflected, I think, in the revenue results, and you see it reflected in churn—low churn on the online side, but also churn going down year-over-year consistently over multiple quarters on the enterprise side.
Michelle Chang: You see it reflected in churn, low churn on the online side, but also churn going down, year over year, consistently over multiple quarters on the enterprise side. Look, it is still dynamic, but we feel good about that. To your RPO question, RPO growth of 5% is strong. I would also point out that it is lapping a very high comparable, and that our RPO bookings are sort of the highest in many years. From a current RPO, it is really just the strong comparable at play there. I guess that is what I call out. Maybe one thing we did not touch on, but just in terms of thinking about the overall growth rate, if I sort of look, Alex, with the spirit of your question, we talked about the FX piece. We talked about, the easier comparable might be another thing.
Speaker #2: So look, it's still dynamic, but we feel good about that. To your RPO question, RPO growth of 5% is strong. I would also point out that it's lapping a very high comparable.
Speaker #2: And that our RPO bookings are sort of the highest in many years. From a current RPO, it's really just the strong comparable at play there.
Speaker #2: I guess that's what I call out. Maybe one thing we didn't touch on, but just in terms of thinking about the overall growth rate—if I sort of look, Alex, at the spirit of your question, we talked about the FX piece.
Speaker #2: We talked about how the easier comparable might be another thing. We're lapping that trough that we talked about for a very long time. Additionally, to a much lesser degree, we had some professional services one-time recognition.
Michelle Chang: We are lapping that trust that we talked about for a very long time, as well as to a much lesser degree, we had some professional services, one-time recognition.
Speaker #7: Thank you. Thank you, Alex.
Various Analysts: Thank you.
Eric Yuan: Thank you, Alex.
Speaker #5: Our next question is from Arjun Bhatia with William Blair.
Unknown Moderator: Our next question is from Arjun Bhatia with William Blair.
Speaker #6: Great. Thank you. Eric, I want to touch on a point that you actually brought up proactively on the last question, but context center. And I have a million questions on this, but I'll try to focus it on a couple of questions.
Various Analysts: All right, thank you. Eric, I want to touch on a point that you actually brought up proactively on the last question, contact center. I have a million questions on this, but I will try to focus it on a couple of questions. The fact that you are winning contact center deals against other cloud providers is very surprising, not for anything other than the fact that there are so many on-prem to cloud migrations that are happening. I am curious what is driving the cloud displacements. Are those failed implementations? What are customers seeing, I guess, in Zoom? Is it the AI capabilities? Is it a cleaner tech stack? Is it easier to implement? What are the kind of key drivers that are creating success for Zoom Contact Center, especially against the other cloud providers?
Speaker #6: The fact that you're winning context center deals against other cloud providers is very surprising. Not for anything other than the fact that there are so many on-prem to cloud migrations that are happening, and I'm curious what's driving the cloud displacement.
Speaker #6: Are those failed implementations? And what are customers seeing, I guess, in Zoom? Is it the AI capabilities? Is it a cleaner tech stack? Is it easier to implement?
Speaker #6: What are the key drivers that are creating success for Zoom Contact Center, especially against the other cloud providers?
Speaker #7: Yeah. Great question. Well, it's not a surprising to us. So we know we are going to win. So again, there's a more I think a more reasons you know number and reasons you know customers you know they were not happy to the existing you know cloud contact center providers.
Eric Yuan: a good question. It is not surprising to us. We know we are going to win. There are more reasons. The number one reason is customers were not happy with the existing collapsed contact center providers. If they are not very happy, no matter what you do, they say, "I do not want to switch," right? They are not happy. Sometimes they say the quality is not good, outage, or they are too expensive, or very slow innovation, or architecture is wrong, AI adoption is so slow, and so on. All reasons are very different. However, for those customers, they really want to look at modern contact center solutions. When they test the Zoom team, "Wow, I cannot believe that. You almost have every feature we need." Not to mention, they trust us. They trust our core meeting or phone platform.
Speaker #7: It's not very happy no matter what you do. They say, "I don't want to switch." Right? So they are not happy. You know, sometimes this is either quality not good or an outage.
Speaker #7: All the two experiences are very similar; innovation or architecture is wrong. AI adoption is so slow, and so on. All reasons are very different.
Speaker #7: However, for those customers, they really want to look at modern contact center solutions. When they test the Zoom team, wow, I cannot believe it.
Speaker #7: You almost have every feature we need. Not to mention, you know they trust us. They trust our, you know, the core meeting or phone platform.
Speaker #7: And also, you know, and they know actually our company culture is really focused on delivering happiness. We do all we can to delight our customers.
Eric Yuan: They know our company culture is really focused on delivering happiness. We do all we can to delight our customers, right? Because of the capability, because of the culture, because of the innovation speed, those customers trust Zoom. I will give you one example. Look at recently the UC Awards. Zoom won four awards. One thing you might feel surprising as well, Zoom is the best contact center solution, right? Customers, partners, analysts, they know what we are doing. That is the reason why, given that we have a very solid foundation, we are going to double down on that. As long as we innovate faster, focus on the product and the customer experience, I think we are going to win more. That is kind of the way I look at why we are winning.
Speaker #7: Right? Because of the capabilities, because of the culture, because of the innovation speed, those customers I trust the Zoom. Again, one example: look at the recent UC awards.
Speaker #7: Zoom won four awards. One thing you might find surprising is that Zoom is the best contact center solution, right? So, you know, it's customers, partners, and analysts who know what we're doing.
Speaker #7: That's the reason why you know, and you know, given that we have a very solid foundation, we're going to double down on that. As long as we innovate faster, focus on the product, and the customer experience, I think that we're going to win more.
Speaker #7: So that's kind of the way I look at why, you know, we are winning. So.
Speaker #2: Maybe let me just jump in and give a couple of stats that might give you a little dimension to some of our wins. We look at a lot of our top 10 wins.
Michelle Chang: Maybe let me just jump in and give a couple of stats that might give you a little dimension to some of our wins. We look at a lot of our top 10 wins. Nine of 10 are replacing the leading contact center provider. Seven of 10 on AI. We are seeing triple-digit growth in our leads. Eight of 10 come in from channel. Just another evidence point of us really building out more of a channel and what is resonating with customers.
Speaker #2: So nine of 10 are replacing the leading contact center provider. Seven of 10 on AI. We're seeing triple-digit growth in our leads. And eight of 10 come in from channel.
Speaker #2: So, just, you know, another evidence point of us really building out more of a channel and what's resonating with customers.
Speaker #3: Yeah.
Eric Yuan: Yeah. Yeah. Another thing is you look at the product experience. You know, not like from other vendors, they needed to acquire this company, that company. You know, need to put everything together. The experience is not consistent. You know, we have our own Zoom Virtual Agent. We have our own quality management, workforce management, and core platform integration. It seems to be a very consistent experience. That is another reason why, you know, customers really want to select Zoom as their, you know, Zoom Contact Center solution provider. Thank you.
Speaker #7: Yeah. Another thing, you look at the product experience. You know, not like some other vendors. They needed to acquire this company, that company; you know, you need to put everything together.
Speaker #7: The experience is not consistent. You know, we have our own virtual agent. We have our own quality management, workforce management, and the core platform integration.
Speaker #7: It's a difficult, very consistent experience. That's another reason why you know customers really want to select Zoom as their contact center solution provider.
Speaker #7: Thank you.
Speaker #6: Well, congrats on the success. Thank you, guys.
Various Analysts: Well, congrats on the success. Thank you, guys.
Speaker #7: Appreciate it. Thank you.
Eric Yuan: Appreciate it. Thank you.
Speaker #5: Our next question is from Rishi Jaluria with RBC Capital Markets.
Unknown Moderator: Our next question is from Rishi Jaluria with RBC Capital Markets.
Speaker #8: Wonderful. Thanks so much for taking my questions. Hey, Eric. Hey, Michelle. I really appreciate the time. Nice to see continued strength in the business in spite of everything going on there.
Rishi Jaluria: Wonderful. Thanks so much for taking my questions today, Eric. Hey, Michelle, really appreciate the time. Nice to see continued strength in the business in spite of everything going on there. Maybe two AI-related questions I would like to ask. One for Eric, one for Michelle. From a financial perspective, Eric, you have talked about your ambitions to become an AI-first company, and obviously you are seeing this great traction with your AI SKUs. As we think about the cost of inferencing and all these models, no matter how efficient you are, how do we square that away with the continued raise in cash flow guidance? How should we be thinking about the long-term financial implications as the usage of AI among your customer base grows, as the use cases continue to expand, et cetera?
Speaker #8: Maybe two AI-related questions I'd like to ask. One for Eric, one for Michelle. From a financial perspective, you know, Eric, you've talked about your ambitions to become an AI-first company.
Speaker #8: And obviously, you're seeing this great traction with your AI SKUs. As we think about the cost of inferencing and all these models, right, no matter how efficient you are, how do we square that away with the continued increase in cash flow guidance?
Speaker #8: And how should we be thinking about the long-term financial implications as, you know, the usage of AI among your customer base grows? As the use cases continue to expand, et cetera.
Speaker #8: And then maybe a little bit related to that, you know, obviously, you've been doing great things with AI so far. How do we think about your plan to really leverage all the vast troves of unstructured data that's going through the Zoom platform and, you know, maybe build out even, you know, newer use cases on that in ways that are harder for customers to do themselves and, you know, relies on your domain expertise, your engineering talent, et cetera.
Rishi Jaluria: Then maybe a little bit related to that, obviously you have been doing great things with AI so far. How do we think about your plan to really leverage all the vast trove of unstructured data that is going through the Zoom platform and maybe build out even newer use cases on that in ways that are harder for customers to do themselves and relies on your domain expertise, your engineering talent, et cetera? Thank you.
Speaker #8: Thank you.
Speaker #7: Yeah, yeah, risk is a wonderful question. You are so right. You know, how to leverage the data, right? How to leverage the product, right?
Eric Yuan: Yeah, this is a wonderful question. You are so right. How to leverage the data, how to leverage the product, or AI to create something new? So AI-first experience, I will give one example. I used to schedule a meeting. I needed to go to my calendar to schedule a meeting, or maybe my year to help me to schedule a meeting. It would take a lot of clicks, a lot of manual steps. Nowadays, the way for me to schedule a Zoom meeting, I just go to Zoom AI Companion. I chat with AI Companion. Please schedule a meeting with Michelle next week for 30 minutes. It is a conversational interface. It is a very, very smooth experience. I do not need to click so many things. I do not need to learn any GUI interface. That is AI-first experience. In terms of innovation, you are so right.
Speaker #7: It's all AI to create something new, right? So, AI-first experience—again, one example: I used to schedule a meeting. I need to go to my calendar.
Speaker #7: To schedule a meeting, right? Or maybe my year to help me to schedule a meeting. It would take a lot of clicks, a lot of manual steps.
Speaker #7: Nowadays, the way for me to schedule a Zoom meeting is to go to the Zoom AI company. I can chat with the AI and say, 'Please schedule a meeting with Michelle next week for 30 minutes.'
Speaker #7: And this is a conversational interface. It's a very, very smooth experience. I do not need to click so many things. I do not need to learn any GUI, you know, interface.
Speaker #7: That's an AI-first experience. In terms of innovation, you are so right. You know, we announced 2.0 next month. We're going to announce 3.0. 3.0 really is all about the agentic framework.
Eric Yuan: We announced 2.0 next month. We are going to announce 3.0. 3.0 really everything is about agentic framework, how to automate your work, how to leverage the data. Like I said today, I can use Zoom AI Companion and write a Zoom Doc. I still need to manually create so many things, click here and there. How to leverage AI Companion to help you write something that is very cool and very easy, frictionless experience. I think also another thing is, let us say, in my day-to-day work, I needed to manually do so many things, talk to this application and then open another application. Workflow is becoming more and more important as well. I used to be looking at a workflow. You need to manually and tell the workflow system what do you want. But how to leverage AI?
Speaker #7: Right? How to automate your work. How to leverage the data. You know, like I said today, I can use Zoom AI, a company, and write a Zoom doc.
Speaker #7: I still need to manually, you know, create so many things, click here and there. You know, how to leverage an AI company to help you write something very cool and very, you know, easy, frequently experience.
Speaker #7: I think, you know, another thing is, let's say, in my day-to-day work, I need to manually do so many things. You know, I have to talk to this application and then open another application.
Speaker #7: And workflow is becoming more and more important as well. It used to be you look at a workflow, right? You need to manually, you know, tell the workflow system what you want.
Speaker #7: But how to leverage AI? The interface is just an AI-first experience. I just have a Zoom AI company; what I want is for the Zoom AI company, more like a super agent, to communicate with other systems or applications and get things done, making it fully automated.
Eric Yuan: If it is just the AI-first experience, I just tell Zoom AI Companion what I want. Zoom AI Companion is more like a super agent on top of each of other systems or applications and gets things done, making it fully automated. That is part of our vision. That is the reason why I want to invite you to join the Zoomtopia. Next month, you will see a lot of new capabilities we can introduce to further beef up our core capabilities of AI Companion.
Speaker #7: That's part of our vision. That's the reason why I want to invite you to join the Zoomtopia next month. You will see a lot of new capabilities we're going to introduce to further beef up our, you know, core capabilities as an AI company.
Speaker #2: Maybe, Rishi, I'll hit the more what I took as a P&L question and come back if I didn't answer it. But we're proud of the fact that we're still hitting 79.8% gross margin, up over 100 basis points year over year.
Michelle Chang: Maybe Rishi, I will hit the more what I took as a P&L question and come back if I did not answer it. We are proud of the fact that we are still hitting 79.8% gross margin, up over 100 basis points year over year. That is because we are offsetting AI investments and AI usage with cost optimization. There is a little bit of one-time benefit in the second quarter, but there are durable elements that we are actively working across this on the COG side. I will drop and make some quick comments on the OpEx side of migrating cloud to colo, which still continues to be a lever for us on the COG side.
Speaker #2: That's because we're offsetting AI investments and AI usage. With cost optimization, there's a little bit of one-time benefit in the second quarter, but there are durable elements that we're actively working on across this on the cog side. Then I'll drop and make some quick comments on the optic side.
Speaker #2: Of migrating cloud to Colo, which still continues to be a lever for us on the Cog side. We talked about the federated approach of making sure that we're applying the right model to the right tasks so that we can get both best quality and best price, or best cost for our customers.
Michelle Chang: We talked about the federated approach and making sure that we are applying the right model to the right tasks so that we can get both best quality and best price or best cost for our customers. Obviously, just making sure that we are constantly looking at AI cost perks as we go through. On the R&D side, we have made a lot of investments and will continue to invest in AI. We are going to need to offset that with other efficiencies that we see in the business, of which AI is one for us. We are going to live the same reality that our customers are living there.
Speaker #2: And then, obviously, just making sure that we're constantly looking at AI cost per as we go through. You know, on the R&D side, we've made a lot of investments and we'll continue to invest in AI.
Speaker #2: And look, we're going to need to offset that with other efficiencies that we see in the business, of which AI is one for us.
Speaker #2: So, we are going to, you know, live the same reality that our customers are living in.
Speaker #7: Yeah, very helpful. Awesome. Thanks, Eric. Thanks, Michelle. I really appreciate it.
Rishi Jaluria: Very helpful. Awesome. Thanks, Eric. Thanks, Michelle. Really appreciate it.
Speaker #6: Thank you, Rishi.
Eric Yuan: Thank you, Rishi. Appreciate it.
Speaker #7: Appreciate it.
Speaker #5: Tom Tom Blakey with Cantor Fitzgerald will ask the next question.
Unknown Moderator: Tom Blakey with Cantor Fitzgerald will ask the next question.
Speaker #8: Thank you. Thank you, Eric and Michelle, for the opportunity to ask a question here. I was wondering if you could maybe, it's maybe an extension from some of the questions that were asked prior.
Various Analysts: Thank you. Thank you, Eric and Michelle, for the opportunity to ask a question here. I was wondering if you could maybe, it is maybe an extension from some of the questions that were asked prior. Could you just maybe talk about CCAS and some of the momentum on a sequential basis? That strong 94% callout, Eric, I remember asking you about a year or two ago about the monetization efforts here in CCAS, and you got awfully excited about it. It is an extension for that, maybe for Michelle, what is kind of embedded in guidance there in terms of maybe continued momentum in CCAS? Again, just the sequential growth color would be helpful. If you want, maybe expand on seats versus price, that would be helpful. Again, similarly, continued momentum in Zoom Phone. We have been monitoring this for years.
Speaker #8: Could you just maybe talk about CCaaS and some of the momentum on a sequential basis that strong 94% call out, Eric? I remember asking you about a year or two ago.
Speaker #8: About the monetization efforts here in CCaaS, and you got awfully excited about it. So just, you know, as an extension for that, maybe for Michelle, what is kind of embedded in guidance there in terms of maybe continued momentum in CCaaS?
Speaker #8: So again, just a sequential growth color would be helpful. And if you want, maybe expand on seats versus price; that'd be helpful. And again, similarly, continued momentum in phone.
Speaker #8: We've been monitoring this for years. With this acceleration in CCaaS and continued strong double-digit growth in phone, could you just maybe combine in the one big question, talk about what you're seeing in terms of going into the second half, maybe even further out into fiscal 27 where you know maybe some of the downsells or some of the other kind of structural things that are happening in the core could abate and we can see, you know, kind of like 100% plus kind of NRR going forward with this.
Various Analysts: With this acceleration in CCAS and continued strong double-digit growth in Zoom Phone, just maybe combined into one big question, talk about what you are seeing in terms of going into the second half, maybe even further out into fiscal 2027, where, you know, maybe some of the downsells or some of the other kind of structural things that are happening in the core could abate, and we can see, you know, kind of like 100% plus kind of NRR going forward with this. Again, these strong numbers in CCAS and Zoom Phone are just awesome, Eric. Thank you very much for this question.
Speaker #8: Again, these strong numbers in CCaaS and phone are just awesome, Eric. Thank you very much for the question.
Speaker #7: Thank you, Michelle. Do you want to address our question?
Eric Yuan: Thank you. Michelle, do you want to address that question?
Speaker #2: I mean, look, we don't give kind of forward-looking product guidance for Contact Center and Zoom Phone. So I'd probably just comment on the nature of that and then broadly on expectations for the future.
Michelle Chang: Look, we don't give forward-looking product guidance for Zoom Contact Center and Zoom Phone. So I'd probably just comment on the nature of that and then broadly, expectations for the future. Starting on Zoom Contact Center, another quarter of high double digit, which we're very proud of. I think I covered earlier the nature of the top deal, so I won't repeat it there. Then you mentioned the stat, of course, about us making progress upmarket, which is obviously a key consideration. That is all with a not ZVA 2.0 number. So we look to the future and the reality that our customers are facing in growing labor costs and poor customer experience and see a durable driver in Zoom Contact Center going forward. From a Zoom Phone perspective, we continue to see mid-teens. We said that last time. We're seeing it now.
Speaker #2: So starting on Context Center, another quarter of high double-digit growth, which we are very proud of. I think I covered earlier the nature of the top deal, so I won't repeat that here.
Speaker #2: And then you mentioned the stat, of course, about us making progress up market, which is obviously a key consideration. That is all with a not ZBA 2.0 number.
Speaker #2: And so we look to the future and the reality that our customers are facing in growing labor costs and poor customer experience, and see a durable driver in the contact center going forward.
Speaker #2: From a Zoom Phone perspective, we continue to see mid-teens. We said that last time, and we're seeing it now. Maybe the things that haven't come out as much on this call that I'd mention for investors are really twofold.
Michelle Chang: Maybe the things that haven't come out as much on this call that I mentioned for investors is really twofold. Just how much we're seeing Zoom Phone be a gateway in our deals to other products, right? Starting with meetings, you often go to Zoom Phone, but now much more of a breakdown to Zoom Contact Center. So sort of that better together story of being able to solve the customer problem, go back in the office, and have that seamless experience that Eric Yuan talked about. We see that being a durable thing. Also, some new announcements that we're very excited about with the connection of ZVA and Zoom Phone, as well as we're seeing connections of Zoom Phone to Zoom revenue accelerator. So a lot of real momentum.
Speaker #2: Just how much we're seeing phones be a gateway in our deals to other products, right? Starting with meetings, you often go to the phone. But now there’s much more of a breakdown to contact centers.
Speaker #2: So sort of that better together story of being able to solve the customer problem, go back in the office, and have that seamless experience that Eric talked about.
Speaker #2: And we see that being a durable thing. Also, some new announcements that we're very excited about with the connection of ZBA and Zoom Phone.
Speaker #2: As well as we’re seeing connections of Zoom Phone to Zoom Revenue Accelerator, so a lot of real momentum. Then maybe the second thing that I would say on Zoom Phone that we feel good about when we look to the future is just the AI progress within it.
Michelle Chang: Then maybe the second thing that I would say on Zoom Phone that we would feel good about when we look to the future is just the AI progress within it. Sequentially, the MAO quarter over quarter has gone up over 30%. So we're proud to see that as well.
Speaker #2: So sequentially, the MAU quarter over quarter has gone up over 30%. So we're proud to see that as well.
Speaker #8: Great. Thank you, Michelle.
Rishi Jaluria: Great. Thank you, Michelle.
Speaker #5: Our next question comes from Mark Murphy with J.P. Morgan.
Unknown Moderator: Our next question comes from Mark Murphy with JPMorgan.
Speaker #10: Great. This is on a caller for Mark Murphy. Thank you for taking the question and congrats on the results. Eric, first I just wanted to hit on the recent launch of the AI-first autodialer to streamline outbound sales.
Various Analysts: Great. This is Sona Kohler on for Mark Murphy. Thank you for taking the question and congrats on the results. Eric, first I just wanted to hit on the recent launch of the AI-first auto-dialer to streamline outbound sales. I would love to hear how you're thinking about the long-term opportunity here and some of the feedback you're picking up since launch, and particularly how you see this opening up doors for incremental wallet share in some of your customers. Then I had a quick follow-up for Michelle. Any items to call out in terms of diverging demand patterns, whether by geo or vertical? I saw international growth slightly outpace that of the Americas. Is that as much of that delta largely FX-driven or something else to consider? Thank you.
Speaker #10: I would love to hear how you're thinking about the long-term opportunity here and some of the feedback you're picking up since launch. And in particular, how you see this opening up doors for incremental wallet share in some of your customers?
Speaker #10: And then I had a quick follow-up for Michelle. Any items to call out in terms of diverging demand patterns, whether by geo or vertical?
Speaker #10: I saw international growth slightly outpace that of the Americas. Is that as much of that is that much of that delta largely FX-driven or something else to consider?
Speaker #10: Thank you.
Speaker #7: Yeah. It's a great question. So, regarding the contact center innovations, right? You know, recently in Q2, we had quite a few contact center innovations.
Eric Yuan: Yeah, it's a great question. So regarding the Zoom Contact Center innovations, in Q2, we had quite a few Zoom Contact Center innovations. One thing, as you mentioned, is agentless in the outbound dialers. Essentially, we call that internally, we call that a proactive outreach feature. Essentially, the way it works is it can automatically place outbound calls and pre-recorded messages, something like appointment reminders, without requiring a live agent to do so many things manually. So this is one of the innovations the customer told us they love that. They shared the feedback with us, and we quickly delivered. Again, this is just one of the innovations. That's the reason why I go back to the Zoom Contact Center wins. Why customers like Zoom Contact Center? Because when they share the feedback, we can quickly deliver. It's the, every quarter there are so many innovations. It's like Q2.
Speaker #7: You know, one thing is, as you mentioned, is agent lists, you know, outbound dialers, right? Essentially, we call that internally a proactive outreach feature.
Speaker #7: Essentially, you know, the way it works is that it can automatically place outbound calls and pre-recorded messages, right? You know, something like appointment reminders, and, you know, without requiring a live agent to do so many things manually, right?
Speaker #7: So this is one of the innovations that the customer told us they love, right? They shared the feedback with us, and we quickly delivered.
Speaker #7: Again, this is just one of the innovations. That's the reason why the contact center wins. Why do customers like a Zoom contact center?
Speaker #7: Because when they share the feedback, we can quickly deliver. You know, it's every quarter, so many innovations. And it's like Q2, right?
Speaker #7: And we also deliver, like, you know, another feedback like division features, right? Contact center, the customer user contact center, sometimes user support, you know, internal Hyperdesk uses Zoom in contact center.
Eric Yuan: We also deliver like another feedback like division features. Zoom Contact Center, the customer uses our Zoom Contact Center, sometimes uses a support, internal help desk to use Zoom Contact Center. Also the tech support team also use that. That's the reason why we got to support the divisions as well. So a lot of new innovations we introduced to the market every quarter. Outbound dialers is one of those innovations.
Speaker #7: All the technical support team also uses that, right? You know, that's the reason why we got to support a division as well. So a lot of new innovations we introduced to the market every quarter.
Speaker #7: So, an outbound dialer is just one of those innovations.
Speaker #2: Yeah, maybe I’d also just tag on to what Eric said and say that I’m excited, you know, just as the CFO, a lot of the AI innovations now bring us much more into that value conversation of helping the customer create a better experience for their customers.
Michelle Chang: Yeah, maybe I would also just tag on to what Eric Yuan said and say that I am excited, you know, just as the CFO, that a lot of the AI innovations now bring us much more into that value conversation of helping the customer, you know, create a better experience for their customers, drive revenue increasingly in many instances. So I think it is an exciting direction in terms of the value that we can provide customers. Real quick to your question, I would not really call out any difference in broad demand. Then I would say that FX was primarily an impact on the EMEA result.
Speaker #2: Drive revenue increasingly in many instances. So I think it's an exciting direction in terms of the value that we can provide customers. Real quick to your question, I wouldn't really call out any difference in broad demand, and then I'd say that FX was primarily an impact on the EMEA results.
Speaker #10: Got it. Thank you so much.
Various Analysts: Got it. Thank you so much.
Speaker #5: Our final question comes from CT Panagrahi with Mizuho.
Unknown Moderator: Our final question comes from Siti Panigrahi with Mizuho.
Speaker #6: CT, are you there?
Various Analysts: CT, are you there? It is cool.
Speaker #10: It's cool.
Speaker #6: This is Samir. I'm calling in from the city. One thing I do want to check is if you could double-click on the one-time margin benefit that you saw in the quarter.
Eric Yuan: This is Samad Samana. I am calling in from Citi. One thing I do want to check, if you could double-click on the one-time margin benefit that you saw in the quarter. You mentioned it is because of professional services and some AI-related adjustments you are doing.
Speaker #6: You mentioned it's because of professional services and some AI-related adjustments you are doing. Could you clarify that comment, please?
Megan: You clarify that for me, please?
Speaker #2: Yeah, different. What I talked about with the professional services was sort of a one-time small impact to the Q2 revenue growth rate. And then I think I separately mentioned on the gross margin that we did see some sort of one-time savings costs.
Michelle Chang: Yeah, definitely. What I talked about with the public, professional services, was sort of a one-time, small impact to the Q2 revenue growth rate. I think I separately mentioned on the gross margin that we did see some sort of one-time savings costs. Broadly, what is going on on the revenue side are durable elements to revenue growth, all the things that we talk about, product diversification, moving up market, etc. Broadly, what is going on on the gross margin is incremental AI investments and costs, and we are offsetting those with efficiencies.
Speaker #2: But broadly, what's going on on the revenue side are durable elements to revenue growth, all the things that we talk about: product diversification, moving upmarket, et cetera.
Speaker #2: And broadly, what we’re seeing on the gross margin is incremental AI investments and costs, and we’re offsetting those with efficiencies.
Megan: Great, thanks. Just another clarification, is that for the second half outlook, the main driver is the enterprise side of things, and that is why the beat is not getting carried forward as much as it should be.
Michelle Chang: What I did in the guide was reiterate what I had said previously, that we are going to capture the online price increase in the amount that we previously communicated. We are going to hold to online being flat, which is consistent to what I said last quarter. The raise is really on the enterprise side.
Megan: Got it.
Michelle Chang: Combination of many broad things across enterprise that we talked about today.
Megan: Excellent. Thank you.
Michelle Chang: All right.
Charles Eveslage: Thank you, everyone. This concludes the Q&A portion of today's call. I will turn it back over to Michelle Chang for closing remarks.
Michelle Chang: I just wanted to close and to say that we look forward to hosting everyone for a virtual investor session, Q&A, and a little bit of a presentation after Zoomtopia on the 17th of September. We are going to have an exec panel with Eric Yuan and myself and other Zoom executives, where we are going to have just a time to talk about insights onto our business strategy, key initiatives, and the innovations that we will be debuting. So we look forward to hosting everyone.
Megan: Thank you. Thank you all.
Michelle Chang: Thank you.
Charles Eveslage: Goodbye.