Financial Data and Key Metrics - Q1 total revenue was $1.105 billion, up 3% YoY and 5% in constant currency, exceeding guidance by $20 million [96] - Enterprise business grew 13% YoY, representing 57% of total revenue, up from 52% a year ago [96] - Number of Enterprise customers grew 9% YoY to approximately 215,900 [97] - Trailing 12-month net dollar expansion rate for Enterprise customers was 112% [97] - Non-GAAP gross margin was 80.5%, exceeding the long-term target [119] - Operating cash flow was $418 million, and free cash flow was $397 million [124] Business Line Data and Key Metrics - Zoom Phone surpassed 10% of revenue in Q1 [119] - Online revenue stabilized, with average monthly churn decreasing to 3.1% from 3.6% YoY [120] - Contact Center and Zoom Virtual Agent are key focus areas, with investments in go-to-market strategies [19][185] - Workvivo acquisition is expected to enhance employee communication and engagement, with minimal immediate financial impact [200] Market Data and Key Metrics - Americas revenue grew 8% YoY, while EMEA and APAC declined by 8% and 5%, respectively, due to headcount reductions and currency impacts [121] - Enterprise customers contributing over $100,000 in trailing 12-month revenue grew 23% YoY, representing 29% of total revenue [97] Company Strategy and Industry Competition - AI is a key focus, with investments in generative AI to enhance productivity across the platform [115][116] - Federated approach to AI, leveraging partnerships with Anthropic and OpenAI, aims to deliver customized solutions [115][148] - Hybrid work remains a significant opportunity, with Zoom positioned to support evolving workstyles [164][184] - Price increases and buy flow optimizations have positively impacted Online revenue stabilization [120][188] Management Commentary on Operating Environment and Future Outlook - Management expects Online revenue to stabilize at approximately $480 million in Q2 and remain flat for the rest of FY24 [125] - FY24 revenue guidance is updated to $4.465 billion to $4.485 billion, representing 2% YoY growth [125] - Non-GAAP operating income is expected to be $1.63 billion to $1.65 billion, with a 37% margin [126] - Long-term focus on reaccelerating growth, particularly in Enterprise and Online segments, with investments in innovation and go-to-market strategies [56][204] Other Important Information - Legal settlement expected in Q2 or Q3, impacting cash flow outlook for FY24 [103][68] - R&D expense grew 25% YoY to $106 million, reflecting investments in AI and product expansion [99] - Sales and marketing expense grew 4% YoY to $278 million, while G&A expense declined 10% to $84 million [100] Q&A Summary Question: Impact of Microsoft Teams debundling on Zoom's collaboration strategy - Management believes the adjustment in Enterprise growth is due to internal reorganization rather than competition, with confidence in the new sales structure [6][26] Question: Monetization of generative AI and enterprise revenue deceleration - Generative AI features like Zoom IQ for Sales are monetized through new services and paid features, with multiple opportunities for upselling [193] - Enterprise revenue deceleration is attributed to sales reorganization and macro uncertainty, with expectations of reacceleration in the back half of the year [26][204] Question: Verticalization of AI solutions - AI solutions are being tailored for specific departments (e.g., sales, HR) and vertical industries (e.g., healthcare, legal), leveraging proprietary data for differentiation [144][182] Question: Impact of hybrid work on product opportunities - Hybrid work has created new use cases for Zoom, such as supporting multiple cameras in conference rooms and enhancing employee engagement through Workvivo [164][184] Question: Contact Center adoption and go-to-market strategy - Contact Center adoption is progressing, with a focus on hiring specialists and improving go-to-market execution [19][185] Question: Online segment stabilization and price increase impact - Online segment has stabilized due to price increases and buy flow optimizations, with churn rates improving to 3.1% [120][188] Question: Workvivo acquisition and revenue opportunity - Workvivo is seen as a long-term opportunity to enhance employee communication, with potential for cross-selling into existing customer base [190][191] Question: Margin outlook and investment priorities - Management expects margins to peak in the high 30s to 40% range, with potential for margin compression as investments in growth opportunities increase [195]
Zoom(ZM) - 2024 Q1 - Earnings Call Transcript