Financial Data and Key Metrics - Total revenue for Q2 FY25 was $1.163 billion, up 2% YoY, exceeding guidance by $13 million [13] - Enterprise revenue grew 4% YoY, representing 59% of total revenue, up from 58% a year ago [13] - Online Average Monthly Churn decreased to 2.9%, the lowest rate ever reported, down from 3.2% in Q2 FY24 [13] - Non-GAAP gross margin was 78.6%, compared to 80.3% in Q2 FY24, primarily due to investments in AI and data center upgrades [15] - Non-GAAP operating income was $456 million, with a 39.2% operating margin, compared to 40.5% in Q2 FY24 [16] - Non-GAAP diluted EPS was $1.39, $0.18 above the high end of guidance and $0.05 higher than Q2 FY24 [16] - Operating cash flow grew 34% YoY to $449 million, and free cash flow grew 26% YoY to $365 million [17] Business Line Performance - Zoom AI Companion reached 1.2 million enabled accounts by the end of Q2 [12] - Workvivo achieved 69 customers with over $100,000 in ARR, roughly doubling YoY [12] - Zoom Contact Center surpassed 1,100 customers, representing over 100% YoY growth [12] - The company launched Zoom Docs, integrating productivity tools into the Zoom platform [5] - Zoom Webinar now supports up to 1 million attendees, showcasing scalability [4] Market Performance - Americas revenue grew 3% YoY, EMEA was flat, and APAC declined by 2% [14] - On a constant currency basis, APAC grew 1%, while EMEA declined 1% YoY [14] - The company saw 7% YoY growth in the up-market, with 3,933 customers contributing over $100,000 in trailing 12-month revenue [13] Strategy and Industry Competition - The company is focusing on expanding its platform with AI capabilities, particularly through Zoom AI Companion, which enhances productivity across meetings, chat, and contact center operations [6] - Zoom is transitioning into the 2.0 phase of AI-enabled work, where AI Companion will provide contextual insights and perform tasks on behalf of users [7] - The company is leveraging its modern architecture to compete in the contact center market, displacing legacy solutions and first-generation cloud-based systems [5][29] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong adoption of AI Companion and the success of Workvivo in driving employee engagement [12][22] - The company expects to reaccelerate growth in Q3, with revenue guidance of $1.16 billion to $1.165 billion, representing 2.3% YoY growth at the midpoint [18] - Full-year FY25 revenue is expected to be between $4.63 billion and $4.64 billion, with non-GAAP operating income of $1.79 billion to $1.8 billion [18] Other Important Information - CFO Kelly Steckelberg announced her departure after seven years, with a comprehensive search underway for her replacement [10][11] - The company repurchased 4.8 million shares for $288 million in Q2, up from 2.4 million shares for $150 million in Q1 [17] Q&A Session Summary Question: Interest in AI Companion and investment plans - AI Companion is widely adopted across Zoom products, with meeting summaries being the most popular feature [20] - The company plans to enhance AI Companion further, with new features to be announced at Zoomtopia in October [20] Question: Workvivo adoption drivers - Workvivo is driving employee engagement, particularly in large enterprises, with significant new customer wins in Q2 [22] Question: Macroeconomic impact on online and enterprise segments - The company sees stability in enterprise retention rates and expects net dollar expansion to reaccelerate by mid-next year [25] - SMB and small customers face headwinds due to economic concerns, but overall performance is in line with expectations [26] Question: Contact Center competitive advantages and revenue contribution timeline - Zoom Contact Center is winning deals due to its modern architecture, AI capabilities, and seamless integration with other Zoom products [28][29] - The company does not expect Contact Center to become a material revenue contributor until it reaches 10% of total revenue, similar to Zoom Phone's trajectory [55] Question: AI Companion cost and monetization strategy - AI Companion is included in the core Zoom offering at no additional cost, but the company plans to monetize AI features in premium services like Contact Center [31] Question: Gross margin impact from generative AI - The company is guiding to a 79% gross margin for FY25, with a long-term target of 80%, despite prioritizing AI investments [32] Question: New business growth in the online segment - The company is adding features and offerings to drive growth in the online segment, though SMBs remain cautious due to economic uncertainty [36] Question: Large Contact Center win details - The largest Contact Center win in Q2 was driven by the customer's trust in Zoom's innovation speed, AI capabilities, and modern architecture [37][38] Question: Contact Center usage (internal vs. external) - The majority of Contact Center usage is for external customer engagement, with some internal IT help desk applications [39] Question: Tracking AI Companion success - The company tracks AI Companion success through account activations and usage metrics like meeting summaries [41][42] Question: Net dollar expansion and upmarket growth - Net dollar expansion is expected to reaccelerate by mid-next year, driven by Zoom Phone, Contact Center, and Workvivo [43][44] Question: Capital allocation strategy - The company is considering M&A opportunities to accelerate growth, particularly in AI and new product areas [53][54] Question: Contact Center revenue target - Contact Center is in its second year, and the company expects it to follow a similar trajectory to Zoom Phone, which took five years to reach 10% of revenue [55] Question: Drivers of Contact Center wins - Contact Center wins are driven by modern architecture, AI capabilities, stability, and competitive pricing [58][59] Question: UC and Contact Center pipeline - The company sees strong synergy between Zoom Phone and Contact Center, with each driving demand for the other [62] Question: AI products driving expansion - AI Companion is enhancing customer trust and driving expansion, particularly in premium services like Contact Center [64] Question: Contact Center customer mix - Contact Center deals are getting larger, with a focus on premium tiers and AI features, driving higher ASPs [66] Question: Online retention improvement - Online retention improved due to platform enhancements, with churn at a record low despite seasonal pressures [68] Question: AI regulation impact - The company is taking a cautious approach to AI regulation, with no significant impact on business so far [70] Question: International performance - EMEA revenue declined due to economic challenges, but the company is investing in the region with new leadership and facilities [72]
Zoom(ZM) - 2025 Q2 - Earnings Call Transcript