Zoom(ZM) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 FY23 grew 8% year-over-year to $1.099 billion, approximately $16 million below the low end of guidance due to a stronger U.S. dollar and weaker new online sales [6][11] - Non-GAAP gross margin improved to 78.9% from 76.2% year-over-year, with expectations to maintain approximately 78% for the remainder of the year [8] - Non-GAAP diluted earnings per share was $1.05, exceeding guidance by 13 cents [9] Business Line Data and Key Metrics Changes - Revenue from enterprise customers grew 27% year-over-year, representing 54% of total revenue, up from 46% a year ago [6][7] - The number of enterprise customers increased 18% year-over-year to approximately 204,100, with a net dollar expansion rate of 120% [7] - Zoom Phone achieved significant milestones, with the number of customers with 10,000 or more paid seats increasing 112% year-over-year [3][6] Market Data and Key Metrics Changes - Revenue growth in the Americas and APAC was 12% and 10% year-over-year, respectively, while EMEA experienced an 8% decline due to macroeconomic factors [7] - The impact of the Russia-Ukraine war and a strengthening dollar contributed to challenges in the EMEA market [7][11] Company Strategy and Development Direction - The company is focused on driving innovation and customer satisfaction through strategic investments, particularly in R&D and sales [3][8] - Zoom aims to enhance its platform strategy, with Zoom Rooms and Zoom Phone being critical components, and is seeing early traction in Zoom Contact Center and Zoom IQ for Sales [3][6] - The company is committed to building a unified communications platform to replace legacy systems, which is expected to drive future growth [3][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the macroeconomic challenges but emphasized the strong growth in the enterprise segment, driven by cloud migration and digital transformation [2][3] - The company expects enterprise revenue to grow in the low to mid-20s, while online business is projected to decline by 7% to 8% for the year [10][11] - Management remains cautious and is adjusting spending to focus on high ROI areas while maintaining a target non-GAAP operating margin of approximately 33% [11] Other Important Information - The company ended the quarter with approximately $5.5 billion in cash and cash equivalents, and has initiated a stock repurchase program [9][10] - The upcoming Zoomtopia event is expected to showcase the company's platform strategy and innovations [11] Q&A Session Summary Question: Impact of macro factors on guidance - Management indicated that the majority of the $115 million impact on guidance is related to the online segment, with enterprise showing strength despite longer sales cycles [12][13] Question: Sales cycles for large deals - Management noted that Q2 saw high win rates for Zoom Phone, with expectations for revenue to flow through as enterprise customers consolidate their communication needs [13][18] Question: Online business performance - Management confirmed stability in retention rates for online business, with expectations for improvement in the second half of the year [22] Question: Growth sustainability in enterprise - Management stated that growth is coming from both ramping reps and selling into the existing customer base, with a focus on expanding product offerings [25][28]