Zoom Video Communications, Inc. Price & Performance (ZM)

Thank you, Charles.

Thank you, everyone. Joining us today. IFRS twenty five was an incredible year marked by major advancements AI, the evolution of Zoom into an AI first work platform spanning phone team chat, events, docs, and more. And a strong momentum in contact center and work available. A key highlight has been the rapid adoption of our AI capabilities growth in monthly active users of Zoom AI combining, accelerated to 68% quarter over quarter, demonstrating the real value AI is providing customers. Zoom AI company has emerged as a driving force behind our transformation into an AI first company enabling our customers to discover enhanced productivity opportunities. We are always looking ahead moving forward and reimagining what's possible to enable frictionless work And now we look forward to helping our customers fully realize the benefits of agenetic AI and discover what's possible with AI agents. As part of AI combining two point zero, we added advanced agentic capabilities, including memory, [indiscernible] orchestration, and a seamless integration with Microsoft and Google services. In April, we are launching custom AI companion NL, to automate workplace tasks through custom This will personalize AI to fit the customer needs connect with their existing data and work seamlessly with their third party tools.

We are also enhancing Zoom Workplace for clinicians with an upgraded AI company, that will enable clinical note taking capabilities and specialized medical features for healthcare providers starting in March. Additionally, we are upgrading our business services by introducing more authentic capabilities Zoom virtual agent will soon expand reasoning abilities to handle complex tasks while maintaining conversational context for more natural and helpful outcomes. We are uniquely positioned to succeed in Identical AI for several reasons. Zoom is a system of engagement for our users with the recent [indiscernible] in ongoing conversations This exceptional context along with user engagement, allows us to drive greater value for customers. Our federated AI approach lets us combine the best models for each task we can use specialized small language models where appropriate while leveraging large models for more complex reasoning. Driving both quality and cost efficiency. Zoom is known for making complex technologies simple, [indiscernible] we manage the complexity of AI models while keeping the experience intuitive [indiscernible] And connected with popular third party apps. We believe our strategic approach positions us favorably will help bring value to the customer. We are focused on delivering practical value while building toward an ambitious vision of AI that truly human potential for the customer.

Our AI first work platform continues to gain momentum. Driven by our core strengths in meetings and expanding portfolio of integrated solutions such as Phone Team Chat, Events, and Zoom Docs. Whiteboard and Zoom rooms, We see this in the results, Zoom [indiscernible] had a big win with Amazon in Q4, Within Zoom Workplace, Zoom Phone continues to see strong traction both new customers and expansions, We built upon our strengths in retail, health care and education which delivered seven of our top 10 Zoom Phone deals This quarter, The recent MITEL partnership opens up access to Mitel's 70,000,000 global end users, and demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models a choice [indiscernible] continues to serve as a collaboration hub across our platform, The recent redesign of the sidebar has enhanced navigation and productivity. While our new workflow automation capabilities are driving deeper platform engagement, Beyond Zoom Team Chat, We are seeing encouraging adoption across our broader portfolio Zoom Docs uses more than doubled quarter over quarter Together with Viber, which was a customer's choice recipient Voice of the Customer report, [indiscernible] Zoom Team Chat and Zoom Docs are critical components of our AI first platform vision.

That expands our system of engagement and allows customers to do more with AI. Both conversational and work label delivered exceptional results This quarter, in Cognigy Center, we achieved our largest ARR deal in history with a Fortune 100 US tech company for over 15,000 agents. Demonstrating our ability to win and deliver for the most demanding enterprise customers, The number of contact center customers with over $100,000 in ARR grew over 100% year over year, with wins both displacing on prem and leading CCaaS vendors Our AI first approach is resonating strongly The majority of our deals are now in the higher tier [indiscernible] or premium packages validating the power and customer appeal of our comprehensive AI and workforce engagement capabilities. Workable also had a record quarter driven by strength across all regions. The total number of WorkVue customers grew 89% year over year. Accelerating from 79% in q three. We signed three deals over $1,000,000 in ARR, each with major global brands. Our strategic partnership as a preferred migration partner, [indiscernible] has been a strong contributor to this momentum These solutions are critical components of our AI first work platform vision, Contact Center extends our platform from employee engagement to customer engagement.

While 26 Zoom, we are focused on our key strategic priorities. Expanding our AI capabilities to drive customer value rapidly innovating within Zoom Workplace [indiscernible] building upon momentum in new products such as contact center and Workable, Despite ongoing macro challenges, and uncertainties, we are encouraged that our value proposition and the total cost of ownership are gaining traction in the market. Our innovation engine is firing on all cylinders Our platform strategy is working. And we have significant opportunities and growth vectors to execute upon. Now on top of the [indiscernible] I just highlighted. Let me share some more amazing wins in q four. We are excited to offer Zoom for Amazon employees and further strengthen our long standing [indiscernible] with AWS as our preferred cloud provider, This builds on the success we've achieved helping customers easily procure and deploy Zoom through AWS Marketplace.

Let me also thank DERTA Airlines who this year is the first US airline to celebrate its centennial, for choosing WorkVue as their employee communications and engagement platform. Upon a sunsetting of a meta workplace, data strategically chose to migrate to WorkPeople As part of a multiyear deal, WorkPeople will serve data's entire global workforce reinforcing their strong company culture with omni channel reach and key features [indiscernible] live streaming, employee recognition, and a comprehensive engagement Let me also thank Cloud Software Group a global mission critical enterprise software [indiscernible] as one of our newest CX clients to the Zoom family, Recognizing the simplicity and ease of use of our unified platform, We offer for the Zoom contact center and Zoom virtual agent modernize the way they communicate and collaborate with their customers. These incredible wins across the workplace and business services validated our strategy of delivering a full platform of more than integrated AI powered solutions to drive meaningful business value and it all comes for customers. Now let me hand over to Michel, who will take us through the financial results. Thank you.

Thank you, Eric, and hello, everyone. I'm excited to be with you again and share that we beat our top line and profitability guidance. In Q4, total revenue grew up to $1,184,000,000 $4,000,000 above the high end of our guidance. Total revenue adjusted for constant currency grew approximately 4% to $1,188,000,000 $9,000,000 above the high end of our constant currency guidance range. Our enterprise revenue grew approximately 6% year over year and now makes up 60% of our total revenue. Up two points year over year. We are continuing to see signs of stability in our online business. In Q4, average monthly churn was 2.8%, a 20 basis point improvement year over year and our lowest ever churn rate in the fourth quarter. In our enterprise business, we saw 7% year over year growth in the number of customers contributing more than $100,000 in trailing twelve month revenue. These customers now make up 31% of our total revenue, up one point year over year. Our trailing twelve month net dollar expansion rate for enterprise customers in Q4 remained flat year over year at 98%. The total number of enterprise customers at the end of q four was approximately 192,600. As we said previously, enterprise customer account is more reflective of our go to market motion rather than a direct measure of our enterprise business performance.

We will continue to do migrations between our two go to market motions in order to best serve our customers as we did last year. And as such, going forward into the next fiscal year, we will no longer include this metric in our prepared remarks or SEC filings. To provide ongoing transparency, we will include it in the earnings deck appendix throughout f y twenty six. We still believe that enterprise revenue growth and KPI such as net dollar expansion are better reflections of the future business and expect future migrations to have minimal impact on these metrics. Now I'm back to the financial results. Pivoting to our growth internationally, our Americas revenue grew 4% year over year. EMEA grew 2% and APAC grew 3%. On a constant currency basis, EMEA grew 2%, and APAC grew 5% year over year. Moving to our non GAAP results. Which as a reminder excludes stock based compensation and associated payroll taxes, acquisition related expenses, net gains on strategic investments, and all associated tax effects. Non GAAP gross margin in Q4 was 78.8%, slightly lower than Q4 of last year. Primarily due to strategic investments in AI, partially offset by efficiency gains. The results in Q4 were in line with our prior commentary.

And we continue to reiterate our goal of reaching 80% gross margin over the long term. [indiscernible] [indiscernible] to $468,000,000 exceeding the high end of our guidance by $20,000,000 Non GAAP operating margin for Q4 improved to 39.5% up 81 basis points from Q4 of last year, even amongst continued investment in AI, our platform, and our emerging growth businesses. Non GAAP diluted net income per share in Q4 was $1.41 on approximately 317,000,000 non GAAP diluted weighted average shares outstanding. This result was 11¢ above the high end of our guidance and $0.01 lower than Q4 of last year. Primarily due to higher income tax and unrealized foreign exchange losses. Turning to the balance sheet. Deferred revenue at the end of the period grew 7% year over year to $1,350,000,000 outperforming the fine to 6% we estimated last quarter. Growth was driven by continued refinement of discounting practices, as well as ongoing business growth. For Q1, we expect deferred revenue to be up 4% to 5% year over year. Looking at both our build and unbilled contracts, our RPO increased 6% year over year. To approximately $3,800,000,000 We expect to recognize 59% of total RPO as revenue over the next twelve months.

That is up from 58% in Q4 of last year. Operating cash flow in the quarter increased 21% year over year $425,000,000 Free cash flow grew 25% year over year to $416,000,000 Operating cash flow and free cash flow margins in the quarter expanded to 35.935.2%, respectively. We ended the quarter with approximately $7,800,000,000 in cash cash equivalents and marketable securities, excluding restricted cash. Under our $2,700,000,000 share buyback authorization, authorization, in Q4, we purchased 4,300,000.0 shares, for $355,000,000 Increasing our repurchases quarter over quarter by $53,000,000 and contributing to the reduction of common share outstanding in Q4. Pivoting from Q4, I wanted to share a few of our full year f y 25 highlights. Total revenue, grew 3% and total enterprise revenue grew 5% year over year. Both of which accelerated in the second half. Our free cash flow grew 23% year over year to $1,800,000,000 We also achieved a non GAAP operating margin of 39.4%, a 20 basis improvement from FY 'twenty four. And finally, we made significant progress on stock based compensation. Down to 20% of revenue, representing a three point reduction and slightly ahead of the pace of reduction that we discussed at [indiscernible] And we repurchased 15,900,000.0 shares for $1,100,000,000 contributing to the reduction of common stock outstanding in f y '25.

Now turning to guidance. In Q1, we expect revenue to be in the range of $1,162,000,000 to $1,167,000,000 This represents approximately 2% year over year growth at the midpoint or 2.6% year over year growth on a constant currency basis. As a reminder, q one of f y twenty six one fewer day than the prior year. We expect non GAAP operating income to be in the range of $440,000,000 to $440,000,000 We expect non GAAP operating income to be in the range of $440,000,000 million dollars to $445,000,000 representing an operating margin of 38% at the midpoint. Our outlook for non GAAP earnings per share is $1.29 to $1.31 based on approximately hundred and 16,000,000 shares outstanding. And as a reminder, future share repurchases are not reflected in the share count and EPS guidance. For the full year of f y twenty six, we expect revenue to be in the range of 4.785 to $4,795,000,000 which represents approximately 2.7% year over year growth at the midpoint or 3.1% year over year growth on a constant currency basis. We expect our non GAAP operating income to be in the range of $1,850,000,000 to $1,860,000,000 representing an operating margin of approximately 39%.

Our outlook for non GAAP earnings per share for FY 'twenty six is $5.34 to $5.37 based on approximately $318,000,000 shares outstanding. For FY 2026, we expect free cash flow to be in the range of $1,680,000,000 to $1,720,000,000 We're proud of our progress in f r '25. And we're excited about the differentiated AgenTek AI vision the value that it provides to our customers. Going to continue to invest thoughtfully in our priorities, that we've outlined while maintaining our focus on profitability and cash flow generation.

We're excited and incredibly grateful for the trust and support of the entire Zoom team, our customers, and our investors. Kelsey, please queue the first question.

Thank you so much, Michelle. And as Michelle mentioned, we will now move into taking your questions. When I call your name, please turn on your video and unmute. And as a reminder, in an effort to hear from everyone, to come from Kash Rangan with Goldman Sachs. Kash, would you Yes, go ahead. Thank you so much.

Hi. Thank you so much. Congrats on finishing up the fiscal year. Eric, a question for you. You've certainly made a lot of pivotal advances positioning the company to be very AI first. It shows up in the quarter to quarter usage of Zoom companion, the Amazon deal that you won congratulations. As you look ahead, Do you think the AI capability is good when do you think the AI capabilities could become a tailwind for your business and that it starts to drive, accelerate maybe the underlying platform, and the AI features are additive to the revenue growth rate still stable, but could this set the stage up for better than stable? Thank you so much.

Yes, Kash, that's a great question. So to double down on AI investment, it's always our top partners, right, for a while, right? I think it's it's happening already. Meaning, you look at our, you know, low end SMB customer online buyers. You know, AI combining is part of that at no additional cost. Made our service very sticky also the customers give very basic example, like a meeting summary, right? It works so well, More and more customers, you know, found the value. Actually, you know, for sure, they could they are going to enjoy using our service more. Right? That's for low end. For high end, for sure, and we understand that today's AI combining and it will additional cost, we cannot we cannot monetize forever.

April, are going to announce the customized AI component for enterprise customers we can monetize. But the most important thing is for business services. Take a contact center for example. Why we are winning? Because a lot of features, you know, like AI export assist, know, AI, you know, a lot of features built into our quality management. And so on and so forth. But all those are being their services. This is another great way for us to monetize AI.

For workplace and for enterprise customer air company. Low end and also really make our sort of sticky and improve the the the the value. Essentially, customer realize we're adding more and more services, more and more value. Guess what? They are going to, you know, stay with Zoom. Stay with Zoom. Plus, you know, usage also would be higher. That's our strategy to leverage AI.

Thank you so much. [indiscernible] We'll move on to Samad Samana with Jefferies. Hi, good evening and I'll echo Kash's kind words as well. It's good to see the progress that Zoom is making. I guess on the AI side, I want to follow-up on that Eric, when you think about there's new AI based products, but how is AI impacting the decision by larger customers in particular to adopt maybe the existing components of the platform and thinking about expanding leveraging Zoom in advance of the AI features that are being released And maybe just a dovetail then to Altshi and ask two in one, Michelle, what are you assuming around AI investments and are those fully embedded into guidance for the year? So those are my two questions.

Yes. So I can address the first part of your AI question. So you look at it from a customer or or or even partner [indiscernible] almost the vendor almost every vendor, right, is trying to pitch their AI story. A customer is smart. Our customer really understand what's the value the AI added to to their business. Right? So they would like to take, you know, kind of to test the area services especially look at the value and the cost. Right? And look at our AI company, you know, that's in the all those, AI combining core features today, at a new additional cost. Right? And the customer really like it because of the quality they're getting better and better every quarter and very useful. Right? Not like some other competitors, right? You talk about their AI strategy and customers realize that, wow, it's very expensive. And the total cost of the ownership, it's not getting better. Because of the value is not great, but also it's not a free And they always try to increase price.

You know, that's the reason why, you know, for us to leverage our AI technology, to build this, the the the trusted relationship with the customer. And I think that we are going to win in the long run because you don't want tell customers, hey, well, yeah, Fisher now. You need to pay more. Right? You need to do this, do that. That's not that's not right. So that's the reason why we shared our AI strategy, roadmap, features, pricing, everything with our customers you know, transparently, you know, reflected by the the AI combined usage. You know, while we need more and more customer trust. Zoom has a very good AI functionalities and also the trust that Zoom, they are now going to, you know, the customer, you know, crazy price. Right? Think that's a way for us to be the long term, you know, the the winning, you know?

And then, maybe just to add on with how to think about AI and what's in our guide. Would say from a top line perspective, the trends that we're seeing and stemming churn as well as the contact center elite revenue that Eric talked about. Those are our plans. We certainly have revenue in our plans for the more focused SKUs like Custom AI companion, but those will still be obviously be ramping and not a dominant thing. And then in terms of the investment, we said last time that this would be one of our three investments and it's baked into the guide.

Great. Thank you, Bud, so much.

Ryan McWilliams with Barclays has the next question.

Hey, guys. Good to see you. Greetings from Switzerland. This is a new one for me out of your estimate question on earnings call.

Michelle, two for you, lots of growth opportunities for Zoom Zoom.

How would you rank the top three drivers for Zoom's net new revenue in fiscal twenty twenty six between like contact center, AIs and phone, etcetera. And then as you built up the full year guide, how should we think about what it implies from contributions from the enterprise customer segment and the online grocery?

So let me maybe answer the first one and then I'll round back to the other one, Ryan, and hope you're well in Switzerland. But I would say when you look at the full year guide that we gave of $2,700,000 when you factor sort of FX and leap year, it gets much more in $3,300,000 range. So just as context, within that, I would say that we've assumed that online will be flat to slightly down. That enterprise will really be the dominant growth driver. So in terms of how to think about the top three, I think I would answer it like this. Look, certainly let me go to the core, Ryan, where like our core business, and when I talk about core, it'll sort of be inclusive of phone. You know, we are pleased with what we're seeing in terms of record churn. And also, I would say, we're seeing the same in our enterprise business. So where down sells had sort of peaked in the start of twenty five, we're now seeing sequential improvement every single quarter. Which is great. And so certainly have an expectation and those are big Then I would go to sort of our adjacent fast flowing TAM like contact center and WorkVivo and both are certainly important to us where We'll be working to continue to grow customer and the successes that we've seen both upmarket and extend those down through channel.

And in particular, you sort of asked AI question, so let me leave that one in, which is just a connection again that our contact center revenue is really being driven by the elite SKU, which is our top 140 SKU. Includes not only inbound, outbound, but AI as well. So Excellent.

Appreciate the color. We'll move on to Meta Marshall with Morgan Stanley.

Great. Thank you. [indiscernible] quick question on just what kind of go to market investments you guys are making kind of as you brought in the portfolio and as you kind of see what has more traction with customers, particularly when it comes to contact center. And maybe just asking on the big deal that was won, just kind of what was the go to market motion with winning kind of that large customer? Thanks.

Do you want me to I was going to answer broad things and maybe you can layer in from a deal perspective. Does that sound good? All right. So, nice to see you again as well. What I would say in terms of our priorities for our go to market maybe the first one that I would call out is just to continue the move up market. That we've been seeing. We have releasing progress in contact center and WorkVIVO in that but also in phone and others.

So first priority go to market wise would certainly be to move our enterprise continue to move our enterprise business up market. Second thing, really important to us, we've talked about it before, it's integral to phone and contact center, but also moving further down in our customer breadth, which is really accelerating the channel. And then I would say probably third to that is returning our online business to growth.

While I've sort of said the guide was flat to down, the ambition, of course, is to return it to growth. So that's how I think about our top three priorities. Eric, do you want to comment on the [indiscernible] to add on what Michelle said, in terms of soft doubling down our channel, you know, the business, Look at our contact center in top 10 deals. [indiscernible] those 10 deals are driven by the the channel partners. So and we are going to and kind of investing more, right, to make sure that the channel you know, partner can contribute more to our contact center growth. So Great. Congrats on the large deal. Yes.

Thank you. And the next question comes from Alex Zukin with Wolfe Research.

Guys, congrats on a great quarter. Maybe just two parter. Right?

So first, to the extent, Eric, that you can talk about the demand environment, post election, the difference between the two segments in online and enterprise, and maybe talk about what you're seeing in SMB, what you're seeing I've gotten questions about federal exposure and all of the doge headlines. So just talk about you mentioned in the script that it's still choppy, it's still uncertain. Maybe put a finer point on that. And then what kind of got you over the line with Amazon in terms of winning that deal? And you're now at a point where kind of two of the Mag seven, are are deeply partnered and entrenched with Zoom Zoom to some extent they were effectively competing with one or two of your products beforehand. So what is kind of happening and how do you kind of see the almost also distribution channels. You mentioned the Delta example with WorkVivo, Amazon Zoom imagine has a number of Chime customers that now maybe are opportunities. So Michel, how about I address the second one? You addressed the first one?

So, look, I would say I would characterize what we're seeing in the macro environment as mixed but stable. To the positive on the enterprise side, we're seeing a lot of upmarket momentum and you can see it in our results. I mentioned earlier, so I won't repeat it again, but sequential improvement in the down sells on the enterprise side. Also on the online, we're seeing record low churn rates in both Q3 and Q4. So those you can look at and say positive, but certainly you open the headlines and you see elements of layoffs and ambitious or sort of volatile times, if you will, in the news. And so I would say that's sort of behind our sentiment that things are still mixed.

Yes. So regarding Amazon deal, as we all know, right, Amazon was using the time, which was acquisition done many years ago, right? So and you look at the video conferencing, and that is becoming more and more important. Again, Zoom, not only just video conferencing, the full work, you know, workplace platform, a lot of other services, even in a conference room assistant. Right? So MNO know, they are evaluating all those services. They want to find out the best you know, the product, you know, to to to serve their employee needs, right? So cost Amazon's, you know, greater company does care about the employee experience. Right? By looking, you know, into all the services. Right? So for sure, you know, Zoom is the the best of the choice. Right? So they would like to [indiscernible] Zoom, right, to improve their communication collaboration, you know, the the the needs. That's just kind of, you know, for all those companies, right, really care about employee experience. I think know, select Zoom as a as a vendor. Speaking of distribution, you know, we already started working together with Amazon. I think it's a huge opportunity ahead of us how to leverage those Amazon marketplace.

Right, to to drive, you know, our top line growth. We already see some early signs of success going to work together with the Amazon team more and more to drive, you know, again, that's a a this is part of a channel you know, partnership. Right? It's Amazon Workplace is doing very well a lot of other companies. Right? So we also want to be part of that as well. So that's, that's a win win, I think.

Yeah. Thanks, Alex. And Evercore's Peter Levine has the next question.

Great. Thank you for taking my questions here. Two so in April when the AI customization, the AI companion comes available, I think it's $11 or $12 a seat. Can you maybe help us understand how you're thinking about like what's the real use case? And then in terms of adoption, like what are you envisioning? In terms of how many employees within an organization would actually need this type of application? And then second for you, Eric, if you see the headlines around even in our world and banking where a lot of people forcing you back five days a week, Maybe just help us understand like how are you thinking about that? Does that at all prohibit your customers Zoom maybe thinking about expanding? But just would love to know kind of your thoughts on if this back to office five days a week becomes more of a reality Yes. I think five days working week is, you know, for for financial institutions, I think our full end Right? Because it's very important, right, you know, kind of in person and meetings, you know, for sure, there's a lot of benefit. You know, I'm I fully understand But also at the same time, and it look like for every large, you know, the financial institutions, you always have employees you know, across the the the the country and also a lot of international branch offices as well.

You talk to the customers, partners. This is when you use Zoom. Right? I think internal usage. Right? You know, like, my, you know, you know, might be, you know, kind of up and down. But overall, in a tools like Zoom, it's still very important to be a business collaboration tool. Right? We I I do not have any concern I truly respect every company decision. It's a fully remote or five days in office or hybrid. Every sort of rider you know, the thing for each company. Right? So we just want to help. You know, our customers to enable no matter which way they go and make sure they have a best collaboration and communication tools, right, to help them improve their productivity. Ming, Xiaoy, you want to address the first one?

Yeah.

Maybe I'll let you talk about the use cases. But Peter, in regards to your question about what are sort of the assumptions or what's the targeting in our head with the $12 I would say, starting with enterprise customers, obviously, the easiest place to sort of hunt on that is up our own customer base and talk about that. But certainly not just limited to that. But we'll be probably giving a lot more, I would say, at Enterprise Connect which you can see on the thing there. But I would say, we've assumed some degree of monetization in FY 'twenty six. I think you'll see more of it in 'twenty seven. And we think that the $12 price point is going to be a really compelling TCO story for our customers really differentiated from what others in the market are pricing out.

Yeah. So regarding the customer AI combined use cases, you know, high level is we give a customer flexibility. To customize their needs. You know, I'll give a few examples. So I one feature, like, we have Zoom Zoom service called a video clip. You know, we are going to support the standard template. Right? How to support every customer? They have a customized template. For each of the users. This is part of, you know, a combined studio. Right? Also all kinds of third party integration. Right? And, like, you know, they they prefer, right, you know, some of those kind of third party application integration, our data, with our knowledge, with their their, you know, dictionary, you know, a lot of things. Right? Each company different than without, like, a customized we can leverage our combined studio to work together with the customer to support their needs, and also at the same time, Thank you very much. Thank you, Peter. We'll now hear from Mark Murphy with JPMorgan. Oh, thank you. And I will echo Kash's congrats on finishing the fiscal year.

Eric, I wanted to try to get your thoughts, your perspective on DeepSeq and any potential you see for lower inferencing costs in AI models DeepSeq is something that you're testing out. And Michelle, looking at how strong the cash flow production is, Can you speak to the the cost or margin profile for the AI products And what type of gross margin profile do you see you maybe are thinking would be coming in for the AI companion as well?

Yes. So Mark, yes, I can address your first question regarding the deep sea And I think a few weeks ago, right, I did a published LinkedIn post you know, about my sort, about the deep sea after the earning call, I will forward forward you that LinkedIn post. But high level, I think, you know, given this is open source, I really like it because of the open source. Right? You look at it from vendors like us, you know, kind of we build a application layer and, the AI technology. We also build our own language language model a lot of techniques. Right? You know, a lot of optimizations, so on and so forth. We all can learn from. Right? This is good for the application and the vendors like us. [indiscernible] a telegram, for example, right? It also can look at the deep sea And also, by the way, look at even for hardware, vendors, you know, like, NVIDIA, Broadcom, AMD, also good for them as well. The reason why, you know, there's a lot of demand for GPUs. Right? And normally, you know, they serve those a lot very large cloud cloud vendors first, right, because they bought a lot.

You know, like, even for Zoom, right, probably we are not on the top priority, maybe the second priority. Right?

And a lot of other company in behind us, You know, with, you know, large cloud vendors, they they don't buy, you know, we more. I, however, the huge demand, we wanna buy more. And after that, a lot of other companies also want to buy more. Overall, I think it's good for everyone. [indiscernible] the cost for like a former a hardware side, a large language model, the application, reference, you know, everything, As you look at that, we will drive the cost down.

That's why overall, that's a good for industry. And because of open source. Right? And so and that that's, you know, that's my take, on that.

And then, Mark, maybe your question about kind of how to think about the margins. We're not going to obviously give in any guidance or probably going forward any AI specific margins? But I would say that we look at those very closely and our margins for every active user are coming down in line with what our expectations would be, if not more. I would say maybe more broadly, to maybe address where I think you may be going with the question question is that we're very pleased with our margin finish in FY 2025. And while we don't guide to the margin, in 2026, I would say we feel good that our in increased usage in AI and our spend there is going to be offset by efficiencies such that we should be able to see in FY 2026 some acceleration of margin in line with sort of not up to the $80,000,000 but holding very true, I guess Mark the principles that we set in our long term margins.

And Michelle, thank you, Seth. Just to clarify, I think you said margins for active users are coming down. Did you mean the cost profile is coming down?

Cost Thank you so much. Thank you, Mark. Our next question will come from Michael Turrin with Wells Fargo.

Hey, thanks very much, Lisa. See everyone. I was intending to continue on the margin question. So there's a little bit of a follow on here. But Michelle, first on the full year guide, can you just speak to the delta between implied operating and free cash flow margin what's driving that for the upcoming year? And maybe just going back to margin trajectory, Zoom has had prior targets that suggest margins may come down as investments go out. You're guiding for just slight compression on the operating margin side. So maybe just how you're thinking about the trade offs that still holds or what could shift that at all if you don't mind? Thanks very much.

Perfect. So let me start with that what I think is more tactical, but Michael, by all means correct me if I'm misunderstanding your question. On the free cash flow, for 2025, we're certainly seeing quite the strong growth. There's obviously timing elements of that, some pull forward relative to '26. Our expectation on '26 is that you still continue to see that OI growth, but you're impacted by timing differences as well as different interest conditions and tax conditions. It's kind of how I would have investors think about free cash flows. Terms of your operating income and kind of how we think about it long term, I guess think you teed it up beautifully, which is look, we are going to be first and foremost about revenue growth. But we are also going to balance that with profitability. And our long term guide, we gave sort of what I would call is a wide margin of possibility of things that we would do. And really what Eric and I have been centered on is giving clear and clean prioritized business priorities to investors so you know where we're investing in. And then really look, we are going to invest when we see growth.

But we're also going to be just pushing an ongoing frame of efficiency. And I think you really see that in our 26 guide, and I think you should expect to see similar.

Thanks very much. Moving on to Arjun Batya with William Blair.

Perfect. Thank you so much. Eric, I have one for you and Michelle on for you. You mentioned the GenTek AI As you're moving more towards Agentic and you're adding agents to your platform, how do you think about just evolving your pricing model Does that fall under the broader AI companion or do you anticipate having different pricing approach for Agented capabilities? And then Michelle, it seems like you're just having a lot of traction with enterprise. It seems like that part of the business is going well. When do you think we should see NRR start to inflect and maybe what are the puts and takes there? Going into FY 2026?

Yes. So regarding the agenda capabilities, today, look at Zoom AI combined to put out, it's already agenda identical framework. Right? So, like, we have a workplace agent and also have a business services you know, agent. I mean, we call, you know, like a part of a contact center. [indiscernible] support a third party agent as well. And, you know, meaning this is going more like a technology natural evolution Zoom Gen AI identity framework, where every company doing that, we are doing that as well because know, this is very important and the the the new technology, new framework and a lot of our agents, right, were built by us and the Revit or Zoom AI company studio Customers can build agent in Revolve. Do not think we need to have a special SKU, right, because this is part of our the 2.7 Zoom you factor them in 3.3 I'll reiterate my comments on online, sort of the expectation is that it's flat to slight decline. [indiscernible] to carry the growth. And in terms of the elements of what we expect to carry the growth, and it would be an acceleration, but it's the same things we've been talking about and frankly seen in throughout FY 'twenty five.

Pushing up market gaining channel traction, and seeing churn and down sells moderate and then certainly growing into our land and expand motion even further with WorkVivo and contact center. Hey, Bert.

James Fish with Piper Sandler has the next question.

Hey, guys. Thanks for the question here.

Building off of a bunch of the prior ones, as we think about a shift more towards AI contribution, Aren't we shifting more towards a consumption model rather than a seat model over time? Why wouldn't we see margin compression longer term? Or how are you guys kind of thinking about balancing seed based pricing and consumption based pricing and also working off of Turin's prior question, you are guiding for a free cash flow conversion rate that is beneath what you guys just did and you mentioned Michelle some pull forward. So how should we think about what sort of got pull forward in the cash flow that wouldn't be repeating or why we wouldn't be closer to a 100% free cash flow conversion at that time? [indiscernible] I can start with that. Let's see. Your first question was sort of around how to think about margins and business models and why we don't see compression. And what I would say is that, what we expect to see is similar to what you saw in FY '25, which is [indiscernible] increase in costs from our AI and that we have an ongoing methodical kind of efficiency list to offset and we certainly expect that broadly to continue into FY 2026.

So I think we feel good about our ability to kind of moderate that. Maybe other things I would talk about, Eric mentioned in his prepared remarks, but we really think the federated approach that we have to AI is an important element being able to both give better quality, of results, but also improved cost, meaning being able to match the right model at the right cost to the right action that needs to be done for customer value. So managing things broadly. There's other things we do more holistically where we can off stuff that's maybe not in AI. In our margins, things like colos, etcetera, that we've talked And then your question around free cash flow, I sort of understood of why don't we see more of an increase similar in line with what we saw in 2025. So let me answer that. First of all, in FY 2025, we had interest rates that were growing off of a large base. As well as we saw billings and positive operating income. As we go into 2026, we'll see different interest rate conditions, different tax conditions, as I mentioned, but still that same growth from operating income. So really it's sort of the timing thing.

The other thing that I might mention that we've not talked as explicitly about is our broad guide, beginning revenue, our operating income continues to use a consistent methodology to what Zoom has used before kind of that prudent consistent where we aspire to beat.

Thanks.

Thanks, James.

We'll move on to Tom Blakey with Cantor Fitzgerald.

Great.

Thank you for taking my questions.

Maybe just seems like everybody else is doing too. I'll try sneak to in Eric and Michelle. On the CCaaS side, great successes here I was wondering if you could talk a little bit more about that longer term plan to get CCaaS up to 10% of revenue in line with the Zoom Zoom timeline [indiscernible] maybe that's being pulled in a little bit here. With successes in the higher tiers, Eric. And then maybe on WorkVIVO, again, just solid numbers, great traction last year. Wondering with the meta workplace migration [indiscernible] Maybe this is for Michelle. If you're maybe seeing there's still enough runway there that [indiscernible] That quick type of growth accelerate can continue in fiscal twenty six and not become more of a headwind. Be helpful. Thank you so much.

Yes. So Tom, regarding the contact center, can [indiscernible] aspiration, right, to contribute to leverage the context that will contribute more. Think the timing wise is perfect. Right? There's a lot of interest customers still deploy on prem. Solution. Right? You take this largest ARR you know, win. Right? So Fortune 100 U. S. Tech companies that they were using on prem solutions, right? And when they decided to migrate to cloud based solution, for sure, they wanted to look at all the cloud vendors. They want to make sure the native to build it to cloud, the know, the solution is also the the all the innovations, you know, the AI is part of that. That's the reason why we're much better positioned. Right? And also, you know, the product line, we have higher confidence On the go to market side, we also needed to double down on the channel. A lot of things we are seeing are doing very well, also reflected by, you know, more than 50% of top 10 you know, deals in Q4, also driven by the channel partners. As long as it focus on the innovation with AI and all the features, right, drive the velocity.

At the same time and listen to customers and double down on go to market side. I think, you know, well, going to be much better positioned and this is a growing and the AI driven and the content center market. [indiscernible] thanks. Maybe I'll hit your work, Vivo, and then some broad comments about the two products together. From a work, 89% growth in customer. So all very durable things. Certainly, Meta, and we called that out in our prepared remarks, is driving a lot of that. But I'll remind you that we had non meta growth before and so we feel good about our ability to drive both. Frankly. And then we're not going to give guidance. You have our overall revenue guidance. You have kind of the color and context on the enterprise versus online split. But I would say that the elements that kind of underlying durable elements of what drove '25, we expect to be present in 2026.

Thank you very much.

Bank of America's Michael Funk has the next question. Great. Thank you. Thank you, Eric. Thank you, Michelle.

You want to be proud of what you've achieved in the last two years.

I wanted to level set the discussion around revenue growth though, because the previous narrative was a March towards mid single digit revenue growth. You're still guiding below that for fiscal twenty twenty six. So [indiscernible] to customer stickiness, meaning bundling and discounting or if there are other factors that are at play here, maybe online churns being a little bit higher maybe macro has been more difficult. Maybe you're waiting to have more monetizable AI solutions. But want a better understanding of kind of level set that revenue growth forecast for longer term, because previously it was discussed as a mid single digit target.

I'll maybe take that one. Mary can then feel free to jump in. But I would say I don't think there's been a change relative to that, meaning [indiscernible] and our performance reflect the same thing, which is we are seeing sequential improvements in down sell in enterprise. We're seeing record level churn low churn, excuse me, in online. And then the elements that will drive 26 are the same move up market, broaden channel Zoom a go to market perspective, from a product perspective, growth in phone, growth in Workiva, growth in contact center. So I really don't see it as a shift [indiscernible] And Zoom a macro perspective, we've also seen like macro conditions.

Okay. And maybe a quick math question, Michelle. Maybe around new thing. If you look at the revenue from over $100,000 customers year over year simply taking a percentage revenue, number of customers it looks to be declining slightly Is there a change or a shift in those 100,000 customers Is it different product set that you're selling into them?

Worth my basic math incorrect.

Our over one hundred thousand, trillion twelve month grew 7% Am I misunderstanding your question?

Yes. But if I simply take the percentage of revenue from those customers and then divide it by the number of customers, get to a lower amount of revenue per customer than a year ago. Maybe we can take it offline if that's a better better idea. I'm happy happy to take it in the next file if you're Okay. Thank you very much.

Big picture, so people have the sentiment. We feel good about our traction in upmarket. Great. Thank you, Michelle. Thank you, Eric. Moving on to Rishi Jaluria with RBC Capital Markets.

Wonderful. Thanks so much for taking my question. I'll keep it to one just given time [indiscernible] in your prepared remarks. Can you talk a little bit about where you're getting some of the traction? And what's the impact that you're seeing in your customer base, whether it's better churn, whether it's better expansion rates, adoption of other adjacent products, Any color there would be helpful. Thank you.

Thank you, Jis. You talk about our Zoom or Teams chat, right? [indiscernible] Yeah. So you look at it, maybe use one of the deals I want to share with you, like, at Q4, right? We a big deal in the manufacture, the market, right? Know, like a 30,000 Zoom workplace seats. And also the 12,000 Zoom team chat. Users. Right? Because the reason why, you know, customer, you know, when we talk to the customer's entire Zoom workplace suite, and Zoom Zoom team chat is part of that.

It is at at no additional cost. Look at the functionality and a lot of features and innovations. Wow, why not? You know, this one is standardized, you know, Zoom, right? Essentially, when the customer realized the power of Zoom team chat, they are all very interested. Right? You know, that's the reason why you look at some startup companies. Right? They also look at, they want they, you know, given the they do not have a lot of you know, the the capital, right?

When they operate Zoom, they also found, you know, our Zoom team chat. So again, from product perspective, it's a pretty cool product. Service because we already have that for a long time.

Just Zoom marketing perspective, a lot of customers did not know that. Right? So that's the reason why we need to figure out a way to fix that problem.

Again, this is the power of the entire Zoom Workplace suite. You know, Team Chatter is part of that. Many customers deployed the meetings and the phone. They did not realize A team chat are already part of that. Why not use that? Right? So you know, and, you know, we needed to know, fix that under the marketing problem or maybe the adoption, you know, problem. Right? Again, this is on our reader screen. To address that. Wonderful. Thank you. Maybe I'd also highlight, Rish, just a current example that just stuck with me, which is we saw a recent customer in a Compute versus Microsoft to 12,000 users, and they commented that the chat and the kind of inclusive value was integral to their decision. So we are well, it's still early days and we're working on it. We're excited by what we see. All right. Very helpful. Thanks, Eric. Thanks, Michelle.

Thank you. By the way, Rishi, you also can use Zoom Teams chat as well. We can connect over Zoom Teams chat. So, yeah, I'll do that. I appreciate that. Yeah.

Very easy to add an accidental contact.

Thank you, Rishi. Thank you. [indiscernible] We have time for one additional question, which will come from Siti Panagrahi with Mizuho. Siti, go ahead.

Hi. Thanks for squeezing in.

I'll go back to the contact center. Eric, if you were to general manager hats for contact center, and if you look at phone, after two, three years, we saw the inflection point. Now contact center has been now almost like two, three years since we launched. Is this a year for contact center or do you think there's some kind of it's a demand side customer still trying to pause and looking at the AI strategy, there's some kind of delay there And also we see like Avaya now it's not going to support in the ASP customer less than 206 customers. So how do you see contact center opportunity in terms of inflection? Is When do you think it'll be like porn?

Yes. First of all, we do see the momentum. Right? And in Q3, in terms of a number of overseas, the largest deal, Q4 in terms of [indiscernible] More and more customers realize, wow, Zoom Zoom center, you know, works so well. And look at all the innovations of scalability and integration with the other core services, I think also plus AI. I think we just needed to focus on execution, market opportunity there. You know, we we look at our top top deals, top 10 deals. Right? I think if I recall correctly, six or seven to replace replace the existing cloud vendors. Don't know. The key is really because given another two years ago, right, we announced that, right? So given the shorter period of time and customers, they do not realize we have Again, this is the marketing problem. You know, we got to fix that. We have high confidence on the product side And, you know, I think, you know, we we do see the the the momentum momentum now.

Hopefully, this year, we can make even more progress compared to the Zoom Zoom growth trajectory. We want to beat that. Right? So that's always our aspiration.

And then, Sidi, just for your notes, it was seven of ten seven coming from cloud, three coming from on prem and the six of 10 is the momentum in our channel. [indiscernible] And again, everyone, that does conclude our Q and A session for today. Eric, Michele, any concluding, closing remarks?

Yes.

Thank you all for your time. I really appreciate it.

Thank you.

You bet. Thanks everyone. And again, this does conclude today's earnings webinar. As always, we thank you all for joining us and we look forward to seeing you next quarter. Take care.

Thank you.