Zoom Communications, Inc. Q1 FY2027 Earnings Call

Hello and welcome to Zoom's Q1 FY2027 earnings release webinar. I will now hand things over to Charles Evislage, Head of Investor Relations. Charles, over to you.

Thank you, Catherine. Hello, everyone, and welcome to Zoom's earnings webinar for the first quarter of fiscal year 2027. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the the Investor Relations page at investors.zoom.com. Also, on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the second quarter in full fiscal year 2027, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives, including future product and future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today and actual results may differ materially these forward-looking statements are subject to risks and other factors that could affect our performance and our financial results which we discuss in detail in our filings with the sec including our annual report on form 10k and quarterly reports on form 10q zoom assumes no obligation to update any forward-looking statements we may make today on today's webinar and with that let me turn the discussion over to eric who is giving his prepared remarks by a zoom custom avatar thank you charles fy27 is off to a good start continuing the momentum from fy26 q1 revenue grew 5.5 exceeding the high end of our guidance

and among our best growth rates in recent years this progress underscores the increasing value of our system of action for modern work to help accelerate that vision we appointed russell dicker as Chief Product Officer, Russell brings more than 25 years of product leadership experience across Microsoft, Google, and Amazon, including leading Microsoft Teams product and data science teams. He will help drive our AI-first roadmap as we connect conversations, workflows, and outcomes through our system of action. The foundation of our system of action is Zoom Workplace, where context is created across the full meetings and work-life cycle. With AI Companion, that context becomes actionable, helping customers drive productivity, automate follow-through, and turn everyday collaboration into measurable business value. In Q1, AI Companion usage continued to scale, with paid MAUs growing 184% year-over-year, driven by strong early adoption of AI Companion 3.0 capabilities. MyNotes has quickly emerged as a breakout product, surpassing 1.5 million monthly active users, excluding trial users just four months after launch. It gives users a personal AI note-taker that captures context across Zoom, in-person, and third-party meetings, helping them stay present while turning conversations into organized takeaways, action items, and follow-through. Altogether, AI Companion 3.0 brings agentic retrieval across Zoom and connected work sources, extending AI companion beyond meeting summaries into a broader workflow layer that turns conversations into action. This AI momentum is also reinforcing the strength of our core business. In Q1, 15 of our top 20 wins included Zoom Workplace or Zoom Phone, as customers increasingly choose Zoom for secure AI-first communications that improve productivity, reduce complexity, and turn conversations into action. zoom workplace continues to win on product quality platform breadth and security in q1 a major government contractor came back to zoom for the full suite of zoom workplace phone events and webinars in a seven-figure arr deal displacing teams and cisco calling the customer chose zoom to meet stringent government security requirements and unlock insights from live communications data to support its broader AI workflows. Zoom Phone continued to grow ARR in the mid-teens, taking share as customers modernize voice on our reliable, flexible platform that integrates with their existing workflows and extends AI into everyday communications. A great example of this is Baptist Health in Jacksonville, Florida, who in Q1 chose Zoom Phone to support 16,000 workers across more than 200 points of care in a seven-figure ARR deal. Baptist Health selected Zoom Phone because of its reliability, hybrid flexibility, and industry-specific integrations. Taken together, these wins show a consistent pattern. Customers are choosing Zoom as a secure, integrated, multi-product platform, often displacing multiple vendors and expanding over time as AI becomes embedded in their workflows. This reinforces our confidence in Zoom's ability to turn conversations into action and drive durable platform expansion. Our progress elevating workplace with AI sets the foundation for our second priority, driving growth in new AI revenue streams. As customers experience the value of AI Companion in Zoom Workplace, custom AI Companion is the natural next step that takes them from conversation to action by unlocking agentic search, customization, and agentic workflows. Raymond James is a strong example of this expansion motion. After adopting AI Companion for meeting summaries, they expanded in Q1 to Custom AI Companion across approximately 10,000 seats, giving Wealth Advisors more tailored AI workflows and customized summaries with the security, compliance, and centralized oversight required in financial services. Custom AI Companion also wins on its ability to support agentic workflows. In Q1, as part of MongoDB's upgrade to Zoom Workplace Enterprise Plus, Zoom Contact Center, and ZVA, they chose Custom AI Companion to translate live conversations into completed actions across their IT ticketing, customer relationship management, and other third-party systems. Just as Custom AI Companion creates an AI monetization path within Zoom Workplace, ZVA Receptionist represents an important new monetization layer for Zoom Phone. ZVA receptionist turns Zoom phone into an AI-powered front door for the business, helping customers qualify callers, capture context, answer common questions, and root requests to the right person or team. In Q1, we saw it deliver real business value across a variety of customers, including an industry association, improving lead capture and lowering costs, an insurance firm automating after-hours and overflow calls, and a law firm managing high call volume by filtering on supported requests so staff can focus on actionable cases. We also added AI innovation to employee experience with the launch of SEER by Work Vivo, expanding from employee communications into AI-powered people intelligence and creating another path for AI monetization. SEER helps leaders listen to employee feedback, measure engagement, understand sentiment with AI, act through built-in communication tools, and track progress in real time. Beyond these application-level AI monetization layers, Zoom AI Services opens our core AI technologies to customers and developers. Launched in March, Zoom AI Services extends our speech recognition advantage honed across countless daily meetings and ranked among the top models on the Hugging Face Open ASR leaderboard. Its Scribe API gives customers and developers high-quality, flexible speech-to-text across platforms, with early adoption from BPOs like InflectionCX, validating the real-world value of our ASR technology. We are also extending AI into high-value vertical workflows. BrightHire, which brings conversational AI to recruiting and hiring, had a strong quarter, with continued momentum in tech and other sectors. In Q1, BrightHire landed Figma on its core product to help support consistent, objective, and calibrated hiring decisions and expanded with HubSpot from its core interview intelligence product into BrightHire screen its AI interviewer to support go-to market hiring. Taken together, these examples show how we are extending Zoom AI beyond core collaboration into a broader monetization engine across workplace, AI services, and vertical workflows. The same combination of AI, context, and workflow orchestration is also driving our third priority, scaling AI-first customer experience. The same AI-first platform that powers Zoom workplace and phone also extends to customer engagement. This is a true point of differentiation. Zoom is one of the few scaled companies with a native platform that bridges UC and CX. By connecting collaboration, voice, contact center, virtual agents, expert assist, and more, we help customers carry context across teams, channels, and systems, moving from reactive service to faster, more intelligent resolution and measurable business value. To further bolster the suite in March, we introduced CX Insights, a new SKU within ZCX that gives business and CX leaders a natural language way to analyze CX data across contact center, workforce management, quality management, and virtual agent. We also announced AI Expert Assist 3.0, Customer Workflow Orchestration, Advanced Quality Management for Virtual Agent, and New Workforce Management Capabilities to help organizations deliver better outcomes with greater efficiency. Zoom customer experience continued to accelerate in Q1 with high double-digit growth driven by paid AI in nine of the top 10 ZCX deals, showing that customers are increasingly turning to Zoom to automate service, empower agents, and improve resolution. Zoom customer experience is emerging as a key growth driver and represents the strategic expansion of our platform into mission critical customer operations we are increasingly winning competitive displacements and larger deals as customers look to consolidate contact center and uc systems with a unified ai workflow and analytics platform that works across all channels let me bring this to life with a couple of customer wins showcasing the strength of our full system of action we landed chelsea one of the world's most recognized football clubs. They selected Zoom Phone, ZCC Elite, and ZVA Chat to modernize fan engagement across touchpoints. Zoom will help the club deliver faster, more personalized experiences while creating a connected data foundation to improve insight, efficiency, and long-term growth. Also in Q1 Caliber Collision, a leading automobile repair provider chose to deploy Zoom Phone with ZCC Elite in order to streamline their customer experience across more than 1,800 repair centers and their central contact center, eliminate the cold call experience for customers and provide unified CX analytics for end-to-end visibility. We also saw a strong full CX platform win in Japan with Rensa, who selected Zoom Virtual Agent, Agentless Dialer and ZCC Elite to modernize high-volume customer interactions. They chose Zoom for the flexibility and automation capabilities of the platform and are using Zoom Virtual Agent in a differentiated way for outbound engagement, including pre-confirmation calls tied to electricity and gas connections, which helps free teams for higher-value sales activity. Taken together, our progress across our three priorities gives us confidence in the opportunity ahead. As customers increasingly adopt Zoom as an AI-powered system of action, we are excited to turn that momentum into durable growth and long-term value. Michelle will now take us through our Q1 financial results. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to be here with you today to share Zoom's Q1 FY27 performance. In Q1, total revenue grew 5.5% year-over-year to $1.24 billion, or 4.6% in constant currency. This result was $14 million above the high end of our guidance. Our enterprise business continues to be strong, with revenue growing 7.2% year-over-year, representing 61% of our total revenue, up one point year-over-year. In our online business, Q1 average monthly churn was 3%, as compared to 2.8 percent in q1 of fy26 within our enterprise business we saw eight percent year-over-year growth in the number of customers contributing more than a hundred thousand dollars in trailing 12-month revenue these customers now make up 33 percent of our total revenue up one point year over year our trailing 12-month net dollar expansion rate for enterprise customers in q1 improved to 99 looking at our international growth our america's revenue and emea revenue both grew five percent year every year while apec grew six percent the emea growth rate was predominantly driven by year-over-year changes in foreign exchange rates moving to our non-gap results which as a reminder exclude stock-based compensation expenses and associated payroll taxes, acquisition-related expenses, net gains or losses on strategic investments, and all associated tax effects. Non-GAAP gross margin in Q1 was 79.9%, up 70 basis points from Q1 of last year, primarily due to our continued cost optimization efforts aligned with our long-term target of 80 percent our non-gap income from operations grew nine percent year over year to 509 million dollars exceeding the high end of our guidance by 17 million dollars non-gap operating margin for q1 was 41.1 percent up 130 basis points from q1 of last year the operating margin improvement was primarily driven by the accounting amortization change we discussed last quarter and our gross margin improvements this was partially offset by the second year of our shift from sbc to cash bonus compensation non-gap diluted net income per share in q1 increased to one dollar 55 cents on approximately 300 million non-gap diluted weighted average shares outstanding this result was 13 cents above the high end of our guidance and $0.12 higher than Q1 of last year. The EPS growth reflects strong business performance, effective cost management, as well as anti-dilution efforts across our buyback program and stock compensation management. Turning to the balance sheet, deferred revenue at the end of Q1 grew 5% year-over-year to $1.49 billion, above the high end of our previously provided range of 1% to 2%. For Q2, we expect deferred revenue to be up 2% to 3% year-over-year. As we discussed last quarter, larger and longer-duration competitive takeouts in phone and contact center can include grace periods that affect deferred revenue timing. In Q1, fewer contracts than expected required such terms. We continue to expect some quarter-to-quarter variability based on the timing and the structure of larger deals. Looking at both our billed and unbilled contracts, our RPO increased 11% year-over-year to approximately $4.3 billion, driven by non-current RPO growth of 19%. The strong growth in non-current RPO reflects our continued success landing larger, longer-term multi-product platform deals in q1 operating cash flow grew seven percent year over year to 522 million dollars representing an operating cash flow margin of 42.1 percent of 50 basis points year over year free cash flow in the quarter grew eight percent year over year to 500 million dollars representing a free cash flow margin of 40.4 percent up 100 basis points year over year we ended the quarter with 7.7 billion dollars in cash cash equivalents marketable securities excluding restricted cash in q1 we repurchased 4.2 million shares for 362 million dollars across the pre-existing 3.7 billion dollar share repurchase plan we've repurchased a total of 40.4 million shares for $3.1 billion. Turning to the guidance. For Q2, we expect revenue to be in the range of $1.265 to $1.27 billion, representing 4.1% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $508 to $513 million, dollars representing an operating margin of 40.3 percent at the midpoint our outlook for non-gap earnings per share is one dollar 45 cents to one dollar 47 cents based on approximately 304 million shares outstanding for the full year for fy27 we're pleased to raise both our revenue and profitability guidance we now expect revenue to be in the range of 5.08 to 5.09 billion dollars which at the midpoint represents 4.4 percent year-over-year growth we expect our non-gap operating income to be in the range of 2.065 to 2.075 billion dollars representing an operating margin of 40.7% at the mid-pump. In addition, our outlook for non-GAAP earnings per share in FY27 is increasing to $5.96 to $6 based on approximately 304 million shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. We continue to expect free cash flows for FY27 to be in the range of $1.7 to $1.74 billion. As indicated in our press release today, we are excited to announce our board has authorized an incremental $1 billion share repurchase. This reinforces our board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder value. In closing, Q1 was a strong start to FY27, with continued execution across our three priorities and growing adoption of Zoom as an AI-first system of action. We are encouraged by progress, scaling customer experience, and the early momentum across new AI revenue streams. we remain on track to surpass five billion dollars in revenue this year while maintaining our focus on profitability cash flow generation and shareholder returns thank you to our customers investors and of course the entire zoom team for your trust and support with that catherine please queue up the first question thank you michelle we will now begin the q a portion of the call.

When I read your name, please turn on your video and unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Alex Zucan with Wolf Research.

Hey guys, thanks for taking the time and taking the question and congrats on a really solid quarter. I guess maybe Eric, first one for you, when you think about the execution that you're seeing, particularly both in the AI products and particularly on, you know, ZCX, which sounds like it didn't need as much discounting or flexibility in terms of billings terms as before. Maybe what are you seeing in the pull through from some of your AI solutions and how much incremental expansion of your wallet within customers is that driving? And Michelle, I've got a quick follow-up for you.

Yeah. So Alex has this great question. And so, you know, speaking of ZCX, right, you look at the now out of the top 10 deals, you know, paid AI was involved, right? And it's meaning AI has really helped out with ZCX. And also look at the top 10 ZCX deals, four of them also includes ZVA as well. So as we further improve our ZCX product, specifically doubling down on AI, our pricing model is getting more and more flexible. For now, you take ZCX, for example, is a usage-based. Very soon, we are going to introduce all the companies. Some customers like all the companies, some customers like a prepaid usage-based. So we are very flexible. We co-innovative with the customer in terms of product innovation, AI features, and also the business model as well. That's why we have high confidence. ZVA, just one example, ZRA, all those vertical AI product, we are taking the same approach.

Excellent. And then, Michelle, kind of maybe just a two-parter for you, really strong execution on billings. I think some of your best performance that we've seen for you guys in a while. Maybe what drove that? You referenced, I think, some of it in the script, but maybe just how much of it was better execution and demand environment versus maybe some other stuff. And then online, maybe a little higher churn than we've seen in some time. So kind of maybe a little bit of a tale of two cities and curious if you can just unpack both of those dynamics.

Yeah. And your question is in part, you know, sort of what changed on the deferred revenue as well as just broadly what we're seeing kind of in enterprise buildings. So look, in enterprise billings, Alex, it's exactly what we've been talking to investors about. We're diversifying our product set. We're working on churn year over year, continued its trend of going down. And we're working on AI monetization. And look, I think you can see that across the three parties that we talk about, right? So much progress from now going up 184%, additional customer references, and even new products coming in AI. And then certainly Eric covered a lot of the contact center. Maybe I'll add in my favorites of high double digits that now for the second quarter in a row has even increased on top of that. So look, broadly, the answer is durable revenue from the enterprise that's driving it. With respect to the sort of deferred revenue, maybe I'll add a mechanical element. Look, I think because I think for investors, we may see more variability in this. We saw a 5% growth versus the sort of one to two that we guided out because we just didn't see the need with the nature of the customer contracts to kind of leverage those early grace periods that I mentioned in February. And look, those grace periods are great for Zoom. They come with less discount, longer term deals. They ease our customers into large competitive wins. And look, if we don't need them in a quarter, we won't take that second question on turn. Look, I would say we saw a nominal uptick in turn and online. I really don't read too much into it. It's been a long term low turn for us. I think we're making progress.

As investors can see, we said we would stabilize our business and online and we've done that both in terms of revenue, as well as just in the nature of our online business is far more stable um and look it's a nominal uptick in churn and online thank you guys our next question comes from city panagrahi from mizuho all right uh thank thanks for taking my question uh um just continue the alex question um your revenue accelerated five and five and a half percent this quarter i think that's one of the best rate growth rate we have seen in recent years and you talked about some of this ai monetization paid skew in my notes so how much of that acceleration is attributable to this ai monetization uh versus you know broader enterprise deal activity that you saw and how should we think about the durability of that pace in the backup back half of fiscal 27 uh given your guidance implies some kind of deceleration in the second up yeah perfect i'll go ahead and take that one um so look 5.5 percent growth um we're super pleased to your comment it's among our highest uh and a beat of high guide uh look it's important to note that some of that was fx driven uh so in terms of like modeling and thinking about

future going forward um and so then maybe let me break it down by enterprising online um from an enterprise perspective what we're seeing is very durable growth and the drivers many of which i touched on in the in the alex answer but let me uh add a few here we saw 7.2 revenue growth in enterprise up from 7.1 in q4 but that's with a 60 bips impact of that white label churn right so clearly product diversification ai monetization moving up market moving into new channels all the things that we've said uh and working on churn as well all the things that we said would be sort of durable elements with investors we're seeing the fruits of from an online perspective um you know that we saw a little so mechanically for investors modeling you do see a little bit more of the fx impact and online just because it's a little bit more international based and we faced an easier comparable with no price increase in the prior Q1, but we'll have it here. So you will see, we're still projecting online to be a slight growth on the full year, but you will see some diesel in the growth rate in Q2 through Q4.

Okay, great. Thank you.

All right.

Our next question comes from Josh Baer with Morgan Stanley.

Excellent. Thanks for the question. I wanted to ask about Custom AI companion. A little bit more about the path to conversion. What are some of the features or the use cases in custom that are really key to that conversion?

And then also wondering what can be done from an in-product perspective or from a sales perspective to help to drive that conversion? yeah so josh this is a great question so you know when it comes to customize a company we have a few key features you know like enterprise agentic retrieval and also the the workflow builder and also the uh agentic builder as well like customers some castle like you know you know like workflow or agent or enterprise search all three are part of the key features for customer ai company and And speaking of how to leverage customer company, drive product usage, or maybe when the customer use the product to discover the customer company, I'll give you one example. Today, when you schedule a Zoom call, you can attach a meeting with a workflow. So meaning during the meeting with General My Notes, after the meeting is over, a workflow will automatically take over to get something done for you. customers really like that vision, you know, focus on the conversation to completion, right? Without a customer and a company, we really cannot, you know, transform our business from conversation-centric business to completion-centric. That's why, you know, customer and company is great, the part of that, you know, the vision.

Excellent. Thanks, Eric. And maybe a quick one for Michelle. I mean, low 40s operating margins and free cash flow margins are obviously excellent. I'm just wondering from here, where can margins go and if they can expand, what are the largest sources of leverage?

Yeah, I mean, I think, first of all, just to give credit, maybe I'll even add one in there. You know, we're super pleased with our pre-cash flow generation had a strong Q1 in regards to that, you know, operating margins plus 40, best in class, as you know. Also worth noting that our gout margins, you know, are equally important. So look, we're going to keep working at that. Maybe I'd say, you know, on the COGS front, we continue to make sure that we've got an always-on kind of efficiency. So as the AI costs spike in a good way, with usage, we've got offsetting measures against it. I would say a lot of internal capital allocation, making sure that every dollar and headcount that we deploy is sort of to its best ROI and is oriented around those three priorities of growth that we talk about with investors. It's not just a frame to talk to you guys, it's how we run the company internally. And then look, you know, I would say broadly AI, I'm super excited at what custom AI companion has done even in the finance team to reinvent things. And look, we are our own customer zero. And my favorite example is in Contact Center, we've been able to remove costs out of our own customer support organization at the same time that we also raised our customer CSAT and improved our response time. So making sure we're using each dollar to its best purpose, being our first own users of AI, and then continuing to kind of work on margins.

Great.

Thank you. congrats on the uh consistent thank you josh our next question comes from james fish with piper sandler james sorry you are muted yeah uh hey thanks for the question here uh so maybe on the cx side um you guys talked about some strength here and salesforce launched their own native voice within cx so i guess how are you thinking about the impact on on zoom cx in terms of kind where you guys typically compete uh what you're seeing competitively in that space you know granted it's early days but they they do have a large agent force and general crm install base um overall and and it seemed like you guys also highlighted a few boomerang deals more more so is there you know something incremental you're trying to call out here or or what's the causation uh thanks guys Yes, Salesforce is a great customer and partner.

We are entering into this market from a different angle and their students read about CRM and marketing club and so on and so forth. We entered into this market based on our customer feedback because many customers already deploy our UC solutions, our meeting solutions. Naturally, the next step read about a contact center. right it's more like a you look at you look at a contact center it's more like a conversation centric right rather than the the system record centric right that's is that's kind of our key differentiation and a plus you know we have an infrastructure layer you know when customer call the the agent you know the infrastructure also our UC system you know and quite often if agent want to take on the video that's also our strength as well right and with uh AI company or customer and combining i think well very i i think you know uh we offer a very differentiated you know solution and plus zva and also cx inside a lot of ai innovations that's the reason why customer

trust us so and then james on your your comment or question around the winbacks um i think a lot of them are because of this sort of better together across the contact center back into zoom workplace um you know that differentiated um approach versus we're also seeing a lot of on-prem uh displacement so uh rather than something in the quarter i think we've been highlighting more and more of those increasingly and so it's it's something um we see because of a better differentiated kind of position inside and outside of the company um and i think just times times are changing and more of that on-prem uh base is being unseated okay thanks eric thanks

Michelle. Thank you.

Next, we have a question from Michael Funk with Bank of America.

All right, guys, give me give me one second here.

No worries.

Yeah, a little.

It happens even on earnings calls and every day.

There we go. Yeah, thank you all for that. So, you know, a couple of questions for me. You already touched on it briefly, Michelle, but I wanted to hear more about your success moving up market and contact center and how you'll be more successful and winning those deals, more established providers, functionality or even bidding process. And then another one just on use of cash, and you get asked all the time on this, but Eric, love to hear from you on how you think about capability to grow AI organically versus potential to maybe acquire are some interesting capabilities or platforms?

Yeah, so maybe, Michelle, free to chat me, maybe address the ZCX. So we built a very scalable and ZCX platform, right? And because quite often, a lot of customers, they want to deploy ZCX, they would like to leverage channel partners. So you look at our top 10 deals, 10 out of 10 are channel-driven deals to sell to enterprise, meaning from go-to-market side it's already scalable our channel partners they know how to pitch up story how to sell to our enterprise customers and also look at you know our top 10 deals in eight out of 10 deals we are replacing some other ccasts vendors so meaning you know look at the entire ccast market is pretty big and we're replacing almost the area of them so So because of a product, rich feature and innovation, and also the AI, plus our UC and CC combined in a story. And that's the reason why we're winning. You look at the top 10 ZSX deals, 4 out of 10 also include the phone deals, 4 out of the 10 also include the ZSX as well. Now, there's a UC and a CC combination also helping us a lot. So in terms of organic growth to build AI or the acquisition, you know, first of all, we look at everything from a customer perspective, what kind of services or features they want us to innovate together, you know, and like a search, like a organic workflow, right? We want to build up ourselves. However, if there's any other innovative startup companies, we are willing to. but we're also very disciplined and make sure either the technology or the the the the customer and some you know the the the services you know we cannot build we are going to leverage the acquisition again you know look at our uh r d you know 26 percent right and the the the you know in terms of uh revenue you know the the percentage is pretty large spending right we have so many great top talents you know we have a high confidence we can build a lot of innovations at the same time see michael if you know of any great startup companies with great technology we

are very open-minded of course very very nice quarter guys thank you appreciate it up next we have a question from jackson aider with key bank great hey guys good to see you um the question i had was on uh the online uh segment michelle um with churn just kind of ticking up a little bit but also revenue accelerating that kind of suggests to me that maybe net new customers or you know either customer additions or arfu for the net new customers is is healthier than maybe you'd expect you just talk about maybe the dynamics of the online net new customer ads

you're seeing yeah let me let me kind of attack it from a revenue perspective i think it may be a little easier um to digest so our q1 revenue went up 2.8 percent in q1 um really important to bring in my comments earlier on fx well you know which lifted the total number uh will have a sort of disproportionate impact um to online as well as we lapped um a quarter prior where we didn't have sort of the impact of a price increase but then let me pivot and kind of talk about what i think we're seeing more broadly in online uh revenue and kind of how to think about it going forward um so look we saw some you know continued progress with low churn uh it's a very different base than sort of what we had in the pandemic you can see that i think in so many ways and then i think um we're we're getting more of a frame of sort of how to land and expand within that bringing down um customer or products excuse me that the hunt and enterprise where they make sense for online customers bringing new paths to ai monetization my notes being a great example of that um and then certainly uh new products and acquisitions since eric just mentioned them uh we did welcome um bonsai but i think that's sort of you know it's the dynamic sort of popping up q1 um and then look there is durable and strength in our online business. And that's why we continue to think that it will grow slightly in FY27.

And then a real quick follow-up, we continue to kind of see this non-current RPO, outgrow current RPO. So is it customer-led, are customers looking for longer-term deals?

Is Zoom really kind of pushing longer-term deals just curious about like the the pushing yeah what we're seeing there is is just a reflection of what we've been talking about if you think about our uh levers for growth uh and kind of growth inflection are changing more into the phone more into contact center more into ai um and contact center in particular comes with longer term deals than maybe a traditional uh zoom meetings and so that's really what you're seeing there and look we're pleased that it uh that it went up even versus q4 which tends to be our biggest selling quarter um and look too i i might throw in uh deals over a million dollars was one of the the strongest uh that we've seen uh even in a q1 so

i think it's something that really just reflects more where our business is going yeah thanks guys thank you up next we have a question from william power with baird great thanks uh yanni samola signed for willpower tonight good to see the enterprise on our arctic hire i was hoping you could just talk a bit about that inflection and then more broadly maybe a bit about how conversations are going with your enterprise customers or renewal you know i know there's some headlines out there about seat counts but wondering if there's anything you'd call out there if that's still maybe status quo um and then you already talked a little bit about discounting but just how are you thinking about discipline there given the value of the platform um and the ai products that you're offering thanks i'll try and take those in

order uh net dollar expansion look um we've been saying to investors that they the intent would be to inflect that and we're pleased to see in this quarter um a modest improvement most of that um just to avoid repeating myself is the same durable thing that we've been talking about ai monetization product diversification um you know and and you know the intent in the in the fullness of time is that that thing would continue uh to grow uh off those dynamics we will have a little bit of the uh white label churn that we mentioned uh going forward to your second question which i took to be kind of of the macro nature look we continue to see strong um and durable enterprise conditions um and more importantly sometimes we don't always get to control the conditions that we're given but i think zoom has a very strong tco story um even within whatever conditions we're giving and it's only getting stronger as we move into this system of action we're moving into a very different relationship with our customers that we're very excited about. And then remind me on your third part of your question here. What was the third part?

Yeah, just, I mean, philosophy around discounting, discipline around that.

Yeah. So generally, you know, we do price raises in enterprise, and you've seen us do that on phone and contact center. But generally, we try and And we'll do those when sort of market conditions or competitive dynamics make sense. But more and large, you know, we work discounting. We work deal terms and conditions, as you would expect us to do. And we feel good about where we are with deal health, as well as opportunities going forward.

Awesome. Super helpful.

Our next question comes from Alan Verkofsky with BTIG.

Awesome. Thanks for taking the question here. Eric, I have a question on the AI momentum you're seeing. You've been rolling out a lot of new functionality. And based on the conversations you're having, can you talk through how the average customer's perception of Zoom being a system of action in the enterprise progressed over this past quarter? And then just as a follow-up, another question on custom AI companion. Can you share what kind of trends you're seeing in terms of adoption today? Are there specific industries or size of customers where you're maybe seeing more success with? Any other caller would be helpful.

Yeah, Alan, such a great question. And interestingly enough, this morning I did a call with one of our big customers in the financial sector. And exactly the same, you know, as you said, right? What's the customer perception about Zoom? Are you an AI company or not an AI company? company. For now, in my view, when I talk to so many customers, for now, they all view like NVIDIA or OpenAI and Solpeak as an AI company. Everybody else, I'm not sure from a cost perspective, they think any other software company, the AI company. I think that's right because whenever the new technology, you look at the stack from infrastructure later, the the cloud infrastructure, the chip layer, and also large language model, more like an AI company. But more and more, and practitioner, you will see some company will emerge as an AI company. I think we won't be part of that because of our AI innovation. When customers, they tested my news feature, they love that. When I shared our new innovation, we are going to announce next month, We love that. More and more, when customer and they deploy all those innovative AI services, give them some time for sure. Wow, this is an AI company. For now, because, you know, as I explained the technology stack, right? So that's the perception. So I'm sorry, what's your second part of the question?

The second part was just any trends you're seeing in terms of customers that are adopting custom AI companion, maybe specific industries or more upmarket, mid-market, just generally any trends would be helpful in terms of what you're seeing there.

Yeah, so look at not only for a lot of enterprise customers, SMB, even including the solopreneurs, I think in terms of a conversation-centric AI, like a transcription summary, all the there the cx inside zv all those i think is is is doing very well adopted very well i mean side of that that's more like a composition centric ai and when we announce a new product which is focused on completion that also will help us to change the constant perception a perception right more like hey how to leverage zoom ai to build agent how to leverage ai build workflow attached with the conversation and how to live with ai to to focus on organic retrieval i think

more and more you know we shift our focus to ai completion part got it perfect thank you guys thank you our next question comes from tyler radke with city hi thank you this is kylie on today for tyler and congrats on a great start to the year um one for both of you eric maybe starting with you. As enterprises figure out that build versus buy allocation, how is Zoom positioning the new AI services and custom AI companion to win that wallet share, especially with it launching in March and Scribe seeing some early adoption? What would you call out as some of the biggest moats for that and the others coming on the roadmap?

Yeah, good question. Yeah, you mentioned our AI service is that we offer the speech and the API service because, you know, when customer tests that, the quality is much better than any other competitors, right? This is kind of a speaker of our, you know, the product and also meaning also have a great AI talent. That's one. Two, when we, you know, build all those AI, you know, services, we also co-innovate the customer. Even before build, we already shared why I want to build those services. Customer resonates very well. That's the reason why next month we'll have some quite a few announcements. Some customers in the pilot, they really like that, right? Because of the co-innovation. And also, especially for a lot of customers, even AI is such a great technology, the adoption speed is not as fast as we want. That's why we also have some you know, FD, you know, full-time deployment engineer working together, you know, take a ZVA, for example. Some individual customers really like our technology, but, you know, if you want to let them deploy those solutions, take some time. We have FD working together with those enterprise customers, drive the AI adoption. That's another way for us to win. Overall, we have high confidence about our AI innovation.

Great. And then one for you, Michelle. I understand it's early on AI services. So with all of the monetization avenues you're now offering for AI, what would you rank order as sort of the most significant drivers in the upcoming 12 to 18 months?

Yeah. First, I know there's a lot out there that like to put out the AI revenue stat. Let me just use this opportunity to throw in, to me, the most important thing is to ensure that AI monetization inflects total revenue growth. And so look, that's already happening from a XAM perspective. Clearly the area where we have the most momentum, and you hear that even reflected in our three priority wording, is to scale the clear signal that we have in customer experience. And I won't add to all the metrics because I think Eric covered a couple and I've covered a couple, but that's clearly the most important. And then look within new revenue streams of AI, look at how much just even quarter over quarter, we're just bringing new to the market. And so look, we get excited. There's progress in things like ZRA, WorkVivo came out with new stuff relative to AI monetization, clearly custom AI companion. And look, services is one. I wouldn't put it at the top of the list, maybe just answer the question explicitly. And then look, I'd be remiss if i didn't say also that you know ai usage and and threading that in is also a very important indirect measure uh in terms of how to think about um monetization meaning putting it in our paid skews at no additional cost is intended to reduce churn and bring in new interest in customers um so we get excited and look every single quarter there's just a lot more momentum coming at us and we look forward to talking about it with investors going on going forward but by the way we have some very exciting new product solution announcement next month all our ai driven product so thank you appreciate it yeah our next question comes from andrew king with rosenblot

securities hey there thanks for taking my question and congrats on the really strong quarter just wanted to double click on that uh renso win in japan it was really notable because it's the first time i can remember hearing of zva being deployed for outbound engagement rather than a traditional inbound deflection how large is that outbound zva opportunity in your view and is this an emerging use case that you're looking to actively build go to market around and is there any um needed pricing change for the outbound versus inbound thank you so those are two different use cases it's hard to see which one is uh it's bigger because you know

you are so right and you know naturally you think probably focus on inbound that's not the case because you look at the technology all the bond right you know i think is i think even you might be even larger right because you know you know more more and more you know and the companies right they want to level the ai technology to reach as many customers as possible right and And that's why outbound, I feel like even more opportunity. Again, the same technology, the same technology stack. You know, we just focus on all those different use cases, right? That's kind of the platform approach. And yeah, when we started like a few years ago, we also just focused on inbound. And now I feel like outbound, inbound, sometimes in the hybrid, I think will bring us a lot of new, exciting opportunities.

And then just any comments on if there's any needed pricing structure changes between outbound versus inbound?

It's a great question. I think inbound, right, more like a usage or auto-com-based. You know, auto-bound, we also want to focus on like the auto-com-based, right? Asking that model, you know, customer resonated very well, right? If I reach like a 1,000 prospect to level our technology, right? If only 5 out of 1,000, you know, reply back, you get the leads. I think it does not make any sense, right?

So that's why auto-com-based model, I think, is more and more for autobond got it thank you yeah thank you our next question comes from peter weed with bernstein and there we go sorry i'm uh at the airport harder to get it unmuted um you know i think you've talked about this in the past but maybe uh remind us um is obviously doing really well for you guys. But if we look forward, one of the areas where there seems to be a lot of pressure from AI and perhaps the scale of people employed, how do you see that impacting your revenue opportunity? And kind of when you look at how you can price and maybe get value, how you kind of stay away from potential challenges there?

You want to address that? a little bit Peter there but I think your question was sort of how do we find the right balance between sort of consumptive and per user business models did I get it right but I think very specifically in contact center itself where you know I think there's some some pressure maybe yeah um so this is a good one because it's it's actually I think a little bit different for zoom than it is maybe some of the legacy players look legacy players have um and part of why I think you're seeing us when uh i think eric gave it but if not eight of ten uh were legacy displacements of our top 10 deals in contact center and look it's because we don't have uh the tech debt uh we come at cotton center contact center with a very fresh and modern approach an ai first approach um to your question maybe more specifically we also don't have the business model pressure And so, look, our agent-assisted product, we have a per-user, three-tiered structure, kind of get better best, best being the elite, where we kind of get to the AI value. And increasingly, we're introducing where I think kind of the market is going, and Eric touched on this a little bit earlier, a more consumptive-based business model, potentially outcomes one base, and that is the pricing structure for ZBA. and zoom added a new uh really important layer this quarter of insights to be able to look across that entire stack and that is consumptive as well so yeah peter from a high level let's say any customer if they are going to hire more and more human agent is great they can deploy more zoom zcx seats if you want to hire you know do not want to have more human agent guess what they can deploy more zoom zva as well right so we are giving customer very flexible solution i appreciate it

thank you thank you peter our next question comes from peter levine with evercore hey guys this is charlie for peter um thanks very much for taking our question and uh congrats on the strong quarter um michelle one for you on capital returns um with the new uh 1 billion authorization on top of the 625 million remaining you now have about 1.6 billion of um you know buyback capacity against almost 8 billion of cash and i think last quarter um you framed buyback as a minimum offsetting dilution yeah but um the size of this uh incremental authorization uh feels like a step

in posture and and how should we best think about the pace and um size of buyback from here thanks in guys yeah i mean i i don't see it as different i think um this is an area where investors given zoom feedback and we do have a large cash balance even though it went down you know we're a very free cash flow generative uh company and look i'm proud of the progress that we've made in buybacks um and i don't necessarily think about it per se by tranche so um you know we tend to think more holistically we've um authorized 4.7 billion in total that's been a big uh change for zoom and now we've executed against 3.1 of that and so look we have 1.6 remaining and we're gonna leverage that we think that's a great sign this latest tranche of confidence that uh eric myself and the board have in where zoom is going and look we'll we'll you know we'll leverage that as it makes sense relative to what's going on in the market and stock price um but it's something i i wouldn't get overly thought or thinking about about a particular tranche rather than keeping the kind of broader perspective in mind great thank you our last question today comes from tom blakey with cantor fitzgerald oh i think i'm on there thank you uh eric and michelle for taking

the question i just maybe as a final question uh it's a good wrap up here i think with the big ai disruption that you were hinting at uh eric could you just maybe talk about uh the durability of the communications app if you will the communications layer when you talk with customers and maybe as a secondary to that um you know just what is the strategic value of the data the real-time data that you can bring to AI applications when you talk to your customers to kind of illuminate the value proposition of what Zoom is selling to these large customers.

Tom, thank you. I wish you are the first one to ask me this question because those two have the most important questions in my view. So I think, first of all, if you look at the prior AI era for any of us to complete a task, normally it will need a two-step, right? step one you and i have a zoom call or in-person conversation right let's say i'm a source in a rap i talk with you you are a potential customer after the zoom call guess what i look at my manual notes and log into the back in the system and you know how big is this deal and so on so forth so i just update the back in the system that's two-step process in the ai era with the ai technology it become one step. Zoom interface will remain the same, but after Zoom conversations, my agent will automatically get the work done for me, right? That's a beautiful part of the AI. I dramatically automated all those work I used to spend a lot of time working on. Another example, like a doctor, a patient, you know, spend a certain minute talking to a patient. After the conversation, patient they need to spend a lot of time to orbit epic now with ai as everything can be done automatically right that's why zoom is become in the human to human interaction not only remains the same but it becomes more and more important because the zoom uh combination will generate a lot of very i've seen meaningful important asset or data to help you drive your next step you know without, I call that a context layer. Let's take this Zoom call, for example, after this Zoom call is over, I have a huge context, how to level the AI, you know, generate the insights, the tasks, get the thing done. I think about uniquely positioned because of AI, because of human-to-human interaction. Because I cannot imagine, right, your agent and my agent are talking to each other, we are not going to use zoom it will never worked in my view so that's why zoom call we become more important in the ai era yeah it can't be displaced so that's great absolutely otherwise what do we do if you send your agent my agent to work together so it's never worked in my view thank you thank you thank you we have one more question today from arjun batia from william blair oh perfect um Thank you.

Let me see. I got to change my camera. Wow. There we go. Thanks for taking the question. Congrats on the strong quarter. Eric, actually, I'll follow up on that last question because I think one of the important or interesting rather use cases or customer examples you pointed out in the prepared remarks was the Mongo example where, you know, they were basically taking actions in CRM ticketing from a Zoom conversation. but how how aware are customers that zoom can do this right and that you are becoming this system of action and maybe what do you need to do on the go-to-market side to really um you know raise awareness that hey this is we're kind of evolving as a as a as a company and it's becoming a lot more strategic yeah it's a great question you know first of all you know we have a a new release

next month and based on all the customer feedback for sure that you know from a quality from a future perspective much better. And afterwards, you're right. We just need to double down on go-to-market side and make sure everyone are aware of that. For sure, we have a little bit of awareness problem. Customers do not know that. But at the same time, a huge opportunity. And I think, you know, internally, based on our Zoom employee feedback, a lot of people mentioned, wow, I did not realize, you know, you can do this, you can do that. I think it does tell us and the product is ready and we just, you know, take on our marketing machine and make sure every of our customer, they can take on those very cool features. And that's exactly our focus in the next few months and quarters. If you have any good idea, please let us know. I really appreciate it.

Yes, I will keep you posted. Thank you so much. Appreciate it.

This concludes the Q&A portion of today's call. I'll now turn it back over to Eric for closing remarks.

Yes, thank you to every great customers, partners, Zoom employees, and also thank you to our beloved investors. I truly appreciate for your great support. And we are going to work as hard as we can in the AI area to build some innovative solutions to delight our customers. See you next quarter. Thank you.

This concludes today's earnings call. Thank you all for attending and have a great rest of your day.