FORM 10-Q Filing Information This section provides essential details regarding the company's quarterly report filing, including registrant information and key share data Registrant Information This report is Zoom Communications, Inc.'s quarterly filing as of July 31, 2025, registered in Delaware with headquarters in San Jose, California, classified as a 'large accelerated filer' - Zoom Communications, Inc.'s quarterly report filing date is July 31, 20252 - The company is incorporated in Delaware and headquartered in San Jose, California2 - The company is classified as a Large Accelerated Filer4 Outstanding Shares Information (As of August 8, 2025) | Share Class | Number of Shares | | :--- | :--- | | Class A Common Stock | 266,453,609 | | Class B Common Stock | 32,835,755 | TABLE OF CONTENTS This section provides an organized listing of all chapters and sub-sections within the quarterly report for easy navigation Special Note Regarding Forward-Looking Statements This section highlights the inherent uncertainties and risks associated with forward-looking statements in the report Nature of Forward-Looking Statements This report contains forward-looking statements about future operations, financial condition, and strategy, which are subject to significant risks and uncertainties - Forward-looking statements cover future financial performance (revenue, costs, gross profit, operating expenses), key business metric trends, liquidity needs, market position and opportunities, growth strategies, AI capability development, platform security and privacy enhancements, customer acquisition and retention capabilities, market expansion, growth management, and macroeconomic conditions (geopolitical conflicts, inflation, interest rate fluctuations, exchange rate fluctuations)9 - Investors should not place undue reliance on forward-looking statements, as actual results may differ materially due to factors described in the "Risk Factors" section, and the company undertakes no obligation to update these statements unless required by law1012 Summary Risk Factors This section provides a concise overview of the primary risks that could materially affect the company's business, financial condition, and operating results Key Business and Operational Risks The company faces multiple business and operational risks, including customer acquisition challenges, revenue growth volatility, service disruptions, intense market competition, and macroeconomic impacts - Business relies on attracting new customers, upselling to existing customers, and converting free users to paid users; any decline will harm the business1518 - Revenue growth rates have fluctuated in the past and may continue to decline in the future1518 - Interruptions, delays, or failures in data center or cloud hosting services could harm service delivery and potentially lead to company liability1518 - The company operates in a highly competitive market, facing challenges from competitors with greater brand recognition, longer operating histories, and more resources1518 - Macroeconomic changes, such as shifts in consumer or business spending, could significantly impact the company's business1518 - Selling to large organizations may lead to longer sales cycles and deployment challenges1518 - Revenue is derived from platform subscription sales, and a decrease in demand for the platform or communication collaboration technology will harm the business1518 - The company has incurred net losses in the past, and there is no guarantee it can maintain or increase profitability in the future1518 - The company may be unable to adapt to rapid technological changes, scale its platform, or develop new features1518 - Security measures have been breached in the past and may occur again, potentially harming reputation, leading to significant fines and liabilities, and impacting sales1518 - The company has a limited operating history at its current business scale, making it difficult to evaluate prospects and future operating results1518 - Failure to comply with privacy, data protection, and information security laws and regulations could harm reputation and business, or lead to significant fines and liabilities1518 - Loss of the CEO or other senior management team members could hinder the execution of business strategy1518 - International business expansion presents business, regulatory, and economic risks1518 - The company may face lawsuits or enforcement requests under U.S. and international laws, increasing operating costs or harming the business1518 - Certain products, such as Zoom Phone, are subject to U.S. federal and international regulations, and non-compliance could harm the business and incur liabilities1518 - The use of generative AI in products and services may lead to operational challenges, legal liabilities, reputational issues, competitive risks, and regulatory concerns1518 - The dual-class stock structure concentrates voting control in pre-IPO shareholders, including executives, employees, and directors, limiting other shareholders' influence over company affairs1518 PART I – Financial Information This section presents the company's unaudited condensed consolidated financial statements and related notes for the reported period Item 1. Financial Statements (Unaudited) This section contains Zoom Communications, Inc.'s unaudited condensed consolidated financial statements as of July 31, 2025, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with related notes Condensed Consolidated Balance Sheets As of July 31, 2025, total assets were $11.044 billion, a slight increase from $10.988 billion on January 31, 2025, driven by growth in marketable securities and strategic investments Condensed Consolidated Balance Sheets Key Data (Units: $ thousand) | Metric | July 31, 2025 | January 31, 2025 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,198,576 | $1,349,380 | | Marketable securities | $6,580,073 | $6,442,329 | | Total Assets | $11,044,063 | $10,988,421 | | Liabilities | | | | Total Liabilities | $2,093,986 | $2,053,337 | | Stockholders' Equity | | | | Total Stockholders' Equity | $8,950,077 | $8,935,084 | - As of July 31, 2025, total assets slightly increased from January 31, 2025, primarily due to growth in marketable securities and strategic investments21 Condensed Consolidated Statements of Operations For the three and six months ended July 31, 2025, the company reported year-over-year growth in both revenue and net income, with three-month revenue up 4.7% and net income up 63.8% Condensed Consolidated Statements of Operations Key Data (Units: $ thousand) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | YoY Change (%) | July 31, 2025 (6 months) | July 31, 2024 (6 months) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,217,227 | $1,162,520 | 4.7% | $2,391,942 | $2,303,754 | 3.8% | | Cost of revenue | $273,165 | $285,089 | -4.2% | $551,567 | $558,391 | -1.2% | | Gross Profit | $944,062 | $877,431 | 7.6% | $1,840,375 | $1,745,363 | 5.4% | | Operating Income | $321,735 | $202,370 | 59.0% | $563,327 | $405,392 | 39.0% | | Net gain on strategic investments | $45,056 | $3,107 | 1350.1% | $31,437 | $20,461 | 53.6% | | Net Income | $358,592 | $219,015 | 63.8% | $613,195 | $435,323 | 40.8% | | Basic Net Income Per Share | $1.19 | $0.71 | 67.6% | $2.02 | $1.41 | 43.3% | | Diluted Net Income Per Share | $1.16 | $0.70 | 65.7% | $1.97 | $1.38 | 42.8% | - Gross margin improved for both the three and six-month periods, reaching 77.6% (2025) and 75.5% (2024), and 76.9% (2025) and 75.8% (2024), respectively30 Condensed Consolidated Statements of Comprehensive Income For the three and six months ended July 31, 2025, comprehensive income was $343 million and $608 million, respectively, both higher than the prior year, with other comprehensive income (loss) primarily influenced by unrealized gains and losses on available-for-sale securities Condensed Consolidated Statements of Comprehensive Income Key Data (Units: $ thousand) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $358,592 | $219,015 | $613,195 | $435,323 | | Net unrealized (loss) gain on available-for-sale securities | $(15,622) | $19,681 | $(5,467) | $1,128 | | Comprehensive Income | $342,970 | $238,696 | $607,728 | $436,451 | Condensed Consolidated Statements of Stockholders' Equity As of July 31, 2025, total stockholders' equity was $8.950 billion, a slight increase from $8.935 billion on January 31, 2025, reflecting stock repurchases and share issuances related to equity incentive plans Condensed Consolidated Stockholders' Equity Key Data (Units: $ thousand) | Metric | July 31, 2025 | January 31, 2025 | | :--- | :--- | :--- | | Common Stock | $299 | $305 | | Additional Paid-in Capital | $4,537,542 | $5,130,271 | | Retained Earnings | $4,412,713 | $3,799,518 | | Total Stockholders' Equity | $8,950,077 | $8,935,084 | - As of July 31, 2025, the company repurchased and retired 5,950,898 shares of Class A common stock totaling $463.4 million (three months) and 11,512,818 shares totaling $881.4 million (six months)2932 - Share issuances resulted from stock option exercises, restricted stock unit releases, and the employee stock purchase plan, while stock repurchases and tax payments related to net settlement of equity awards reduced share count2932 Condensed Consolidated Statements of Cash Flows For the six months ended July 31, 2025, net cash provided by operating activities was $1.005 billion, slightly lower than the prior year, while net cash used in investing activities significantly decreased, and net cash used in financing activities substantially increased due to stock repurchases Condensed Consolidated Cash Flows Key Data (Units: $ thousand) | Metric | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,005,201 | $1,037,525 | | Net cash used in investing activities | $(185,803) | $(648,734) | | Net cash used in financing activities | $(985,392) | $(398,716) | | Net decrease in cash, cash equivalents, and restricted cash | $(152,718) | $(16,071) | | Cash, cash equivalents, and restricted cash at end of period | $1,208,699 | $1,549,309 | - Operating cash flow slightly decreased, but cash outflow from investing activities significantly reduced, primarily due to lower net purchases of marketable securities and decreased property and equipment purchases35 - Cash outflow from financing activities significantly increased, mainly due to higher stock repurchase expenditures and tax payments related to net settlement of equity awards35 Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, covering business overview, significant accounting policies, revenue recognition, investments, fair value measurements, balance sheet components, commitments and contingencies, stockholders' equity and equity incentive plans, income taxes, net income per share, segment information, and subsequent events 1. Summary of Business and Significant Accounting Policies Zoom Communications, Inc. provides an AI-first open work platform, enabling seamless communication and collaboration through products like Zoom Workplace, Zoom Business Services, and Employee Experience, while evaluating impacts of recent accounting standard updates - Zoom offers an AI-first open work platform, with products including Zoom Workplace (Meetings and Phone), Zoom Business Services (Contact Center), and Employee Experience (Workvivo)38 - The company is evaluating the impact of ASU 2023-09 (income tax disclosures), ASU 2024-03 (expense classification disclosures), and ASU 2025-05 (credit losses on receivables and contract assets) on its consolidated financial statements454647 2. Revenue Recognition Revenue primarily derives from subscription agreements, with the Americas contributing approximately 72%, APAC 12%, and EMEA 16%; remaining performance obligations total $3.976 billion, with 61% expected to be recognized within 12 months Revenue by Geographic Region (Units: $ thousand) | Region | July 31, 2025 (3 months) | Revenue Share (%) | July 31, 2024 (3 months) | Revenue Share (%) | July 31, 2025 (6 months) | Revenue Share (%) | July 31, 2024 (6 months) | Revenue Share (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Americas | $873,974 | 71.8% | $835,728 | 71.9% | $1,721,670 | 72.0% | $1,654,411 | 71.8% | | APAC | $148,337 | 12.2% | $142,315 | 12.2% | $290,108 | 12.1% | $280,629 | 12.2% | | EMEA | $194,916 | 16.0% | $184,477 | 15.9% | $380,164 | 15.9% | $368,714 | 16.0% | | Total | $1,217,227 | 100.0% | $1,162,520 | 100.0% | $2,391,942 | 100.0% | $2,303,754 | 100.0% | - As of July 31, 2025, total remaining performance obligations were $3.9761 billion, with 61% expected to be recognized as revenue within the next 12 months51 3. Investments As of July 31, 2025, the company held $6.580 billion in marketable securities, primarily U.S. government agency securities, agency bonds, and corporate debt, alongside $648 million in strategic investments, mainly equity securities Marketable Securities Composition (Units: $ thousand) | Security Type | Fair Value as of July 31, 2025 | Fair Value as of January 31, 2025 | | :--- | :--- | :--- | | U.S. government agency securities | $4,789,387 | $4,415,930 | | Agency bonds | $991,578 | $1,174,484 | | Corporate and other debt securities | $730,731 | $720,795 | | Treasury bills | $65,414 | $110,279 | | Commercial paper | $2,963 | $20,841 | | Total | $6,580,073 | $6,442,329 | Strategic Investments Composition (Units: $ thousand) | Investment Type | Total as of July 31, 2025 | Total as of January 31, 2025 | | :--- | :--- | :--- | | Equity securities | $643,962 | $587,031 | | Debt securities | $3,946 | $4,450 | | Total | $647,908 | $591,481 | 4. Fair Value Measurements The company employs a three-level hierarchy for fair value measurement of financial assets, classifying highly liquid assets as Level 1, observable market input assets as Level 2, and private debt securities as Level 3 - The company classifies highly liquid money market funds and publicly traded equity securities as Level 1 within the fair value hierarchy56 - Commercial paper, agency bonds, corporate and other debt securities, U.S. government agency securities, and Treasury bills are classified as Level 2, as their valuations use observable market inputs56 - Private debt securities are classified as Level 3 due to the lack of relevant observable market data56 5. Balance Sheet Components This section details key balance sheet components, including net accounts receivable, prepaid expenses and other current assets, net property and equipment, other non-current assets, accrued expenses and other current liabilities, and other non-current liabilities Accounts Receivable, Net (Units: $ thousand) | Metric | July 31, 2025 | January 31, 2025 | | :--- | :--- | :--- | | Gross accounts receivable | $539,700 | $517,306 | | Less: Allowance for credit losses | $(17,987) | $(17,262) | | Less: Allowance for returns | $(4,914) | $(4,816) | | Accounts Receivable, Net | $516,799 | $495,228 | Property and Equipment, Net (Units: $ thousand) | Metric | July 31, 2025 | January 31, 2025 | | :--- | :--- | :--- | | Servers | $423,793 | $427,664 | | Software | $144,924 | $123,259 | | Computer and office equipment | $44,489 | $47,021 | | Leasehold improvements | $57,169 | $54,885 | | Furniture and fixtures | $5,681 | $5,767 | | Total Property and Equipment | $676,056 | $658,596 | | Less: Accumulated depreciation and amortization | $(374,599) | $(328,121) | | Property and Equipment, Net | $301,457 | $330,475 | Accrued Expenses and Other Current Liabilities (Units: $ thousand) | Metric | July 31, 2025 | January 31, 2025 | | :--- | :--- | :--- | | Accrued expenses | $171,850 | $200,416 | | Accrued compensation and benefits | $135,851 | $193,110 | | Income tax liabilities | $21,080 | $18,815 | | Sales and other non-income tax liabilities | $39,622 | $41,755 | | Customer deposit liabilities | $55,220 | $47,312 | | Operating lease liabilities (current) | $22,243 | $27,026 | | Other | $25,151 | $30,128 | | Total | $471,017 | $558,562 | 6. Commitments and Contingencies The company faces various legal proceedings and investigations, including a concluded SEC investigation, a court-approved shareholder derivative settlement, and a $150 million securities class action settlement - The SEC concluded its investigation into the company on July 30, 2025, without recommending enforcement action, leading to the reversal of $18 million in previously accrued expenses64 - A shareholder derivative lawsuit was settled and approved by the court on July 31, 2025, with the company agreeing to implement corporate governance reforms and pay $1.35 million in plaintiffs' attorneys' fees65 - A securities class action lawsuit reached a $150 million settlement agreement, with the company paying $60 million (after $90 million insurance coverage), which received preliminary approval on May 28, 2025, and a motion for final approval was filed on July 18, 202567 7. Stockholders' Equity and Equity Incentive Plans The company has authorized Class A and Class B common stock, with a $2.7 billion stock repurchase program, of which $881.4 million in Class A common stock has been repurchased, leaving $724.7 million authorized for future repurchases - The company's Board of Directors has authorized a total of $2.7 billion for Class A common stock repurchases (approved $1.5 billion in February 2024 and an additional $1.2 billion in November 2024)70 Stock Repurchase Activity (As of July 31, 2025) | Period | Number of Class A Common Stock Repurchased | Total Amount Repurchased ($ million) | | :--- | :--- | :--- | | For the three months ended July 31, 2025 | 5,950,898 | $463.4 | | For the six months ended July 31, 2025 | 11,512,818 | $881.4 | | Remaining Repurchase Authorization | - | $724.7 | - As of July 31, 2025, unrecognized stock-based compensation expense related to RSUs was $1.3675 billion, expected to be recognized over 2.7 years; for ESPP, it was $24.8 million, expected over 1.2 years7476 Stock-Based Compensation Expense (Units: $ thousand) | Expense Category | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $24,222 | $31,299 | $51,649 | $62,874 | | Research and development | $70,476 | $81,597 | $143,412 | $164,166 | | Sales and marketing | $63,094 | $84,225 | $131,527 | $161,459 | | General and administrative | $30,907 | $40,829 | $63,680 | $78,876 | | Total Stock-Based Compensation Expense | $188,699 | $237,950 | $390,268 | $467,375 | 8. Income Taxes For the three and six months ended July 31, 2025, income tax expense increased by 21.2% and 0.8%, respectively, with the effective tax rate decreasing due to changes in pre-tax income and stock-based compensation tax impacts Income Tax Expense and Effective Tax Rate (Units: $ thousand) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Income Before Income Taxes | $448,162 | $292,889 | $763,927 | $584,853 | | Income Tax Expense | $89,570 | $73,874 | $150,732 | $149,530 | | Effective Tax Rate | 20.0% | 25.2% | 19.7% | 25.6% | - The effective tax rate decreased year-over-year, primarily due to increased income before income taxes and changes in tax shortfalls related to stock-based compensation and tax benefits78 9. Net Income Per Share For the three and six months ended July 31, 2025, both basic and diluted net income per share significantly increased, reaching $1.19 and $1.16 for three months, and $2.02 and $1.97 for six months, respectively Net Income Per Share (Units: $) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | :--- | :--- | | Basic Net Income Per Share | $1.19 | $0.71 | $2.02 | $1.41 | | Diluted Net Income Per Share | $1.16 | $0.70 | $1.97 | $1.38 | - Certain potential common shares were excluded from diluted net income per share calculation because their inclusion would have been anti-dilutive79 10. Segment information The company operates as a single operating and reportable segment, as the Chief Operating Decision Maker (CODM) manages business activities on a consolidated basis, using consolidated net income to allocate resources and assess performance - The company has only one operating and reportable segment because the Chief Operating Decision Maker (CODM) manages business activities on a consolidated basis80 - The CODM uses consolidated net income to monitor results and decide whether to reinvest profits, without using asset or liability information to evaluate segment performance81 11. Subsequent Events As of August 22, 2025, the company assessed subsequent events and recognized an approximate $400 million unrealized gain on a strategic investment after July 31, 2025, reflecting an increase in fair value of an equity investment in a private company following an observable transaction in August 2025 - After July 31, 2025, the company recognized an approximate $400 million unrealized gain on a strategic investment, stemming from an increase in the fair value of an equity investment in a private company following an observable transaction in August 202584 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results as of July 31, 2025, highlighting its AI-first platform strategy, macroeconomic impacts, key performance drivers, non-GAAP financial measures, and detailed operational comparisons Overview Zoom Communications, Inc. provides an AI-first open work platform, enhancing productivity, collaboration, and business outcomes through Zoom Workplace, Zoom Business Services, and Employee Experience, with a commitment to responsible AI use - Zoom's platform is an AI-first open work platform designed to enable seamless communication and collaboration through products like Zoom Workplace, Zoom Business Services, and Employee Experience8687 - The company continuously invests in AI, expanding its agent AI skills, agents, and models, focusing on supporting individual productivity, enhancing collaboration, and helping customer teams improve efficiency88 - Zoom employs a federated AI approach, dynamically leveraging multiple large language models (LLMs), including OpenAI, Anthropic, and Meta, as well as small language models (SLMs)8889 - The company is committed to responsible AI use, not using customers' audio, video, chat, screen sharing, attachments, or other communication-type customer content to train Zoom or its third-party AI models89 - The Zoom platform prioritizes security and privacy, featuring 30 globally hosted data centers and robust encryption options90 Macroeconomic Conditions and Other Factors Macroeconomic conditions, including geopolitical conflicts, inflation, interest rate, and exchange rate fluctuations, continue to create uncertainty for subscription demand, leading to extended sales cycles and increased IT budget scrutiny - The macroeconomic environment, including geopolitical conflicts, inflationary pressures, interest rate fluctuations, and foreign exchange rate volatility, continues to create uncertainty for demand for the company's open work platform subscriptions93 - These factors have led to extended sales cycles and increased scrutiny of IT budgets by existing and potential customers93 - Although enterprise customer revenue continues to grow, the growth rate is affected by factors such as increased market penetration, heightened competition, and business maturity93 - The enactment of the "One Big Beautiful Bill Act" (OBBBA) introduced new corporate income tax provisions, including an immediate deduction option for R&D expenses and a permanent extension of 100% bonus depreciation, but its impact on the financial statements as of July 31, 2025, is not significant95 Key Factors Affecting Our Performance Company performance is influenced by new customer acquisition, expansion within existing enterprise customers (measured by net dollar expansion rate), online customer retention (measured by average monthly churn rate), platform innovation, and international market opportunities Acquiring New Customers The company is focused on continuously increasing its customer base for Zoom Workplace and Zoom Business Services, investing in sales and marketing to capture market opportunities and attract new customers - The company focuses on increasing the number of customers for Zoom Workplace and Zoom Business Services and plans to continue investing in sales and marketing to attract new customers97 Expansion of Zoom Across Existing Enterprise Customers The company measures existing enterprise customer growth by net dollar expansion rate, which was 98% for both July 31, 2025, and 2024, seeking growth through platform innovation and product promotion despite macroeconomic headwinds - Enterprise customer revenue as a percentage of total revenue increased for both the three and six-month periods, reaching 60.0% (2025) and 58.7% (2024), and 60.0% (2025) and 58.5% (2024), respectively99 Enterprise Customer Net Dollar Expansion Rate | Metric | July 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | Net Dollar Expansion Rate for Trailing 12 Months | 98% | 98% | - The company seeks future growth from existing customers through platform innovation and AI applications, as well as promoting products like Zoom Phone, Zoom Contact Center, and Workvivo98 Retention of Online Customers Online customer revenue as a percentage of total revenue decreased for both the three and six-month periods, while the average monthly churn rate remained stable or slightly decreased, and long-term online customers consistently contributed to online Monthly Recurring Revenue (MRR) Online Customer Revenue Percentage | Period | July 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | 3 months | 40.0% | 41.3% | | 6 months | 40.0% | 41.5% | Online Customer Average Monthly Churn Rate | Period | July 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | 3 months | 2.9% | 2.9% | | 6 months | 2.9% | 3.1% | - As of July 31, 2025, online customers with at least 16 months of service contributed 74.9% to total online MRR, slightly higher than 74.4% in 2024100 Innovation and Expansion of Our Platform The company continuously invests in enhancing Zoom Workplace and Zoom Business Services, particularly in AI, launching new products and features like Zoom AI Companion, Zoom Docs, and Zoom Tasks, while expanding Zoom Phone and emphasizing an open platform strategy with End-to-End Encryption (E2EE) - Continuous investment in AI, with a focus on expanding agent AI skills, agents, and models102103104105106 - Launch of new products and enhancements, including Zoom AI Companion, Zoom Docs, Zoom Tasks, and ongoing improvements to Phone, Meetings, Zoom Rooms, Sessions, Webinars, Events, Workvivo, and Contact Center102103104105106 - Zoom Phone calling plans are available in over 45 countries and territories102103104105106 - Introduction of the next-generation Zoom Virtual Agent, leveraging agent AI to autonomously resolve customer support issues and integrate with platforms like Zoom Contact Center102103104105106 - Zoom is an open platform, encouraging third-party developers to expand the product portfolio through integrations with major third-party applications, aiming to become a ubiquitous communication and collaboration platform102103104105106 - Provides End-to-End Encryption (E2EE) for meetings with up to 1,000 participants and one-on-one Zoom Phone calls within the same account102103104105106 - Launched post-quantum E2EE in May 2024, making it the first Unified Communications as a Service (UCaaS) provider to offer a post-quantum E2EE solution for video conferencing102103104105106 International Opportunity International markets represent a significant long-term growth opportunity, with APAC and EMEA revenues consistently contributing around 28% of total revenue, despite challenges in international expansion International Revenue Percentage (APAC and EMEA) | Period | July 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | 3 months | 28.2% | 28.1% | | 6 months | 28.0% | 28.2% | - The company sells in international markets through strategic partners and resellers, but international expansion faces challenges such as multilingual, multicultural, legal, regulatory, and economic risks107 Key Business Metric The company tracks customers contributing over $100,000 in annual revenue to gauge large organization penetration; as of July 31, 2025, these customers totaled 4,274, an 8.7% increase year-over-year, contributing 32.2% of total revenue Customers with TTM Revenue of Over $100,000 and Revenue Contribution | Metric | July 31, 2025 | July 31, 2024 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Number of Customers | 4,274 | 3,933 | 8.7% | | Revenue Contribution Percentage (3 months) | 32.2% | 30.5% | 1.7pp | | Revenue Contribution Percentage (6 months) | 32.2% | 30.4% | 1.8pp | Non-GAAP Financial Measure The company uses Free Cash Flow (FCF) as a non-GAAP liquidity metric, defined as net cash provided by operating activities less purchases of property and equipment; for the six months ended July 31, 2025, FCF was $971 million, a 3.9% increase year-over-year - Free Cash Flow (FCF) is defined as GAAP net cash provided by operating activities less purchases of property and equipment111 Free Cash Flow (Non-GAAP) (Units: $ thousand) | Metric | July 31, 2025 (6 months) | July 31, 2024 (6 months) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,005,201 | $1,037,525 | -3.1% | | Less: Purchases of property and equipment | $(33,876) | $(102,742) | -67.0% | | Free Cash Flow (Non-GAAP) | $971,325 | $934,783 | 3.9% | Components of Results of Operations This section details the components of the company's operating results, including revenue, cost of revenue, operating expenses (R&D, sales and marketing, G&A), net gain on strategic investments, other income, and income tax expense - Revenue primarily derives from customer subscriptions to the unified communications and collaboration platform, as well as professional services, consulting services, and online event hosting114 - Cost of revenue mainly includes data center, third-party cloud hosting, PSTN services, personnel-related expenses, capitalized software development and intangible asset amortization, royalties, and allocated overhead115 - Operating expenses include research and development (personnel-related expenses, equipment depreciation), sales and marketing (personnel-related expenses, advertising, promotions, credit card processing fees, amortization of deferred contract acquisition costs), and general and administrative (personnel-related expenses, professional service fees, allowance for credit losses, litigation, and regulatory expenses)116117118 - Net gain on strategic investments primarily includes revaluation gains and losses on equity investments; other income, net, mainly includes interest income and net appreciation from marketable securities and the impact of foreign exchange rate changes119120 Results of Operations This section provides a detailed comparison of operating results for the three and six months ended July 31, 2025, covering revenue, cost of revenue, gross profit, operating expenses, strategic investment gains, other income, and income tax expense Comparison of the Three Months Ended July 31, 2025 and 2024 For the three months ended July 31, 2025, revenue grew 4.7% to $1.217 billion, cost of revenue decreased 4.2%, and gross margin improved to 77.6%, while operating expenses declined, and net gain on strategic investments significantly increased Three Months Operating Results Key Data (Units: $ thousand) | Metric | July 31, 2025 | July 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,217,227 | $1,162,520 | 4.7% | | Cost of revenue | $273,165 | $285,089 | (4.2)% | | Gross Profit | $944,062 | $877,431 | 7.6% | | Gross Margin | 77.6% | 75.5% | 2.1pp | | Research and development expenses | $206,447 | $206,756 | (0.1)% | | Sales and marketing expenses | $338,995 | $358,770 | (5.5)% | | General and administrative expenses | $76,885 | $109,535 | (29.8)% | | Net gain on strategic investments | $45,056 | $3,107 | 1350.1% | | Other income, net | $81,371 | $87,412 | (6.9)% | | Income tax expense | $89,570 | $73,874 | 21.2% | - Revenue growth was primarily driven by a 7.0% increase in enterprise customer revenue, with 57.4% from new customers and 42.6% from existing customers, and a 1.4% increase in online customer revenue123 - General and administrative expenses significantly decreased by 29.8%, mainly due to the reversal of $18 million in accrued expenses related to the SEC investigation and reduced personnel-related expenses, including stock-based compensation129 Comparison of the Six Months Ended July 31, 2025 and 2024 For the six months ended July 31, 2025, revenue grew 3.8% to $2.392 billion, cost of revenue decreased 1.2%, and gross margin improved to 76.9%, while operating expenses declined, and net gain on strategic investments increased 53.6% Six Months Operating Results Key Data (Units: $ thousand) | Metric | July 31, 2025 | July 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $2,391,942 | $2,303,754 | 3.8% | | Cost of revenue | $551,567 | $558,391 | (1.2)% | | Gross Profit | $1,840,375 | $1,745,363 | 5.4% | | Gross Margin | 76.9% | 75.8% | 1.1pp | | Research and development expenses | $411,863 | $412,314 | (0.1)% | | Sales and marketing expenses | $685,965 | $706,778 | (2.9)% | | General and administrative expenses | $179,220 | $220,879 | (18.9)% | | Net gain on strategic investments | $31,437 | $20,461 | 53.6% | | Other income, net | $169,163 | $159,000 | 6.4% | | Income tax expense | $150,732 | $149,530 | 0.8% | - Revenue growth was primarily driven by a 6.4% increase in enterprise customer revenue, with 53.6% from new customers and 46.4% from existing customers, while online customer revenue remained flat year-over-year133 - Other income, net, increased by 6.4%, primarily due to a $13 million increase from foreign exchange rate changes, partially offset by a $3.3 million decrease in investment income from cash and marketable securities141 Liquidity and Capital Resources As of July 31, 2025, the company held $7.8 billion in cash, cash equivalents, and marketable securities, primarily for working capital and growth investments, expecting sufficient liquidity for the next 12 months, and reiterating its stock repurchase program - As of July 31, 2025, the company held $7.8 billion in cash, cash equivalents, and marketable securities, primarily for working capital and growth investments143 - The company expects its existing cash, cash equivalents, and marketable securities, combined with net cash provided by operating activities, to be sufficient to meet funding needs for at least the next 12 months145 Cash Flow Summary (Units: $ thousand) | Cash Flow Type | July 31, 2025 (6 months) | July 31, 2024 (6 months) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,005,201 | $1,037,525 | | Net cash used in investing activities | $(185,803) | $(648,734) | | Net cash used in financing activities | $(985,392) | $(398,716) | - Net cash provided by operating activities for the six months ended July 31, 2025, was $1.0052 billion, a slight decrease from the prior year, mainly due to timing differences in working capital account payments149 - Net cash used in investing activities significantly decreased, primarily due to lower net purchases of marketable securities and decreased purchases of property and equipment150151 - Net cash used in financing activities significantly increased, mainly due to higher stock repurchase expenditures ($883.3 million) and tax payments related to net settlement of equity awards ($137.5 million)152153 - The company's Board of Directors has authorized a total of $2.7 billion for Class A common stock repurchases; as of July 31, 2025, $881.4 million has been repurchased, with $724.7 million remaining authorized for repurchase154156 Critical Accounting Estimates There were no significant changes to the company's critical accounting estimates during this reporting period compared to those disclosed in the annual report as of January 31, 2025 - There were no significant changes to the company's critical accounting estimates during this reporting period compared to those disclosed in the annual report as of January 31, 2025158 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency and interest rate risks; while most revenue is USD-denominated, international operations expose it to foreign exchange fluctuations, though historical impact has been immaterial, and short-term investments limit interest rate risk Foreign Currency and Exchange Risk Most of the company's revenue is USD-denominated, but a portion of revenue and expenses are in non-USD currencies, exposing it to foreign exchange fluctuations; a hypothetical 10% change in exchange rates has not had a material impact historically, and the company currently does not hedge - For the six months ended July 31, 2025, 19.6% of the company's revenue and 17.5% of its expenses were denominated in non-USD currencies159 - A hypothetical 10% change in foreign exchange rates has not had a material impact on the company's historical condensed consolidated financial statements159 - The company currently does not engage in foreign currency hedging but may consider it in the future based on changes in exposure159 Interest Rate Risk As of July 31, 2025, the company held $1.199 billion in cash and cash equivalents and $6.580 billion in marketable securities; these short-term investments, primarily for working capital, result in immaterial interest rate risk exposure - As of July 31, 2025, the company held $1.1986 billion in cash and cash equivalents and $6.5801 billion in marketable securities160 - The company's primary investment objectives are capital preservation and maximizing returns, without engaging in trading or speculative activities160 - Due to the short-term nature of its investments, the company does not face significant interest rate change risk, and a hypothetical 10% change in interest rates has not had a material impact on historical financial statements160161 Item 4. Controls and Procedures Management assessed the company's disclosure controls and procedures as effective at a reasonable assurance level as of July 31, 2025, with no material changes to internal controls during the quarter, acknowledging inherent limitations in all control systems - As of July 31, 2025, the company's management, including the Chief Executive Officer and Chief Financial Officer, assessed its disclosure controls and procedures as effective162 - There were no material changes in internal controls reported for the quarter ended July 31, 2025163 - Management acknowledges that any control system has inherent limitations and cannot prevent all errors and fraud, providing reasonable rather than absolute assurance164 PART II – Other Information This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity security sales, defaults, and exhibits Item 1. Legal Proceedings This section refers to the detailed information on legal proceedings, including Department of Justice and SEC investigations and shareholder lawsuits, found in Note 6 to the financial statements - Legal proceedings information can be found in Note 6, "Commitments and Contingencies," to the financial statements167 Item 1A. Risk Factors Investing in the company's securities involves high risk, and this section details various risks related to the business, industry, legal and regulatory environment, intellectual property, and Class A common stock ownership, which could materially adversely affect the company's business, financial condition, and operating results Risks Related to Our Business and Our Industry The company faces business and industry risks including customer acquisition and retention challenges, revenue growth volatility, service disruptions, intense market competition, macroeconomic impacts, and uncertainties regarding profitability and technology adaptation - The company's business depends on attracting new customers, upselling to existing customers, and converting free users to paid users; any decline will harm the business169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Revenue growth rates have fluctuated in the past and may continue to decline in the future169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Interruptions, delays, or failures in data center or cloud hosting services could harm service delivery and potentially lead to company liability169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The company operates in a highly competitive market, facing challenges from competitors with greater brand recognition, longer operating histories, and more resources169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Macroeconomic changes, such as shifts in consumer or business spending, could significantly impact the company's business169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Selling to large organizations may lead to longer sales cycles and deployment challenges169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Revenue is derived from platform subscription sales, and a decrease in demand for the platform or communication collaboration technology will harm the business169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The company has incurred net losses in the past, and there is no guarantee it can maintain or increase profitability in the future169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The company may be unable to adapt to rapid technological changes, scale its platform, or develop new features169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Security measures have been breached in the past and may occur again, potentially harming reputation, leading to significant fines and liabilities, and impacting sales169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The company has a limited operating history at its current business scale, making it difficult to evaluate prospects and future operating results169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Failure to comply with privacy, data protection, and information security laws and regulations could harm reputation and business, or lead to significant fines and liabilities169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Loss of the CEO or other senior management team members could hinder the execution of business strategy169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - International business expansion presents business, regulatory, and economic risks169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The company may face lawsuits or enforcement requests under U.S. and international laws, increasing operating costs or harming the business169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - Certain products, such as Zoom Phone, are subject to U.S. federal and international regulations, and non-compliance could harm the business and incur liabilities169172174177181182183185187194197198200206225228229230231237245247248249251256257258263265[267](index=267&type=chunk] - The use of generative AI in products and services may lead to
Zoom(ZM) - 2026 Q2 - Quarterly Report