Earnings Call Transcript
Zoom Communications, Inc. (ZM)
Earnings Call Transcript - ZM Q2 2025
Charles Eveslage, Head of Investor Relations
Thank you, David. Hello everyone, and welcome to Zoom's earnings video webinar for the second quarter of fiscal year 2025. I’m joined today by Zoom’s Founder and CEO, Eric Yuan, and Zoom’s CFO, Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.Zoom.us. 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. During this call we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2025; our expectations regarding financial and business trends; impacts from the macroeconomic environment, our market position, opportunities, go-to-market initiatives, growth strategy and business aspirations; and the product initiatives and 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 financial results, which we discuss in detail in our filings with the SEC, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today’s webinar. And with that, let me turn the discussion over to Eric.
Eric Yuan, CEO
Hey, thank you, Charles. Thank you everyone for joining us today. We had a strong quarter marked by broadening our Zoom Workplace offering, marching up market with contact center, and deepening the AI capabilities that underpin our entire platform. The roll-out of Zoom Workplace features over the last few months represents the most significant upgrade to the Zoom experience in years. We reinvigorated the UI with the simplicity and reliability that has defined Zoom from the very beginning, while also adding to the capabilities of Zoom Meetings, Zoom Team Chat and Zoom Phone and strengthening how AI Companion operates across these modalities. We also brought Zoom Rooms, Visitor Management, and Workplace Reservation to the next level in order to better support our customers' flexible work needs. And just days ago, we announced the launch of a new Zoom Webinar offering that can host up to 1 million attendees, revolutionizing how organizations can connect with massive audiences and demonstrating the clear scalability advantage inherent in our modern architecture. Earlier this month, we took another major step towards our platform vision by launching Zoom Docs. Docs fits right into our strategy of expanding the platform across more touch points in the productivity lifecycle, helping to effortlessly transform information from Zoom Meetings into actionable documents, tasks, and knowledge bases, so teams can stay focused on meaningful work. In Q2, we landed our largest deal for a new Contact Center customer, who chose our top-tier Elite CX package coupled with Zoom Phone. We are seeing increased adoption of our advanced Contact Center packages, as customers seek to utilize our AI capabilities to enhance agent performance. Of our top 10 Contact Center wins, all represented displacements of major contact center vendors, and 40% were migrations off of first generation cloud-based solutions. These metrics highlight how well our Contact Center meets the needs of customers and prospects, while also validating our better together strategy. In fact, most Contact Center wins represent either existing Zoom Workplace customers, who add on Contact Center; or new customers to Zoom, who buy Contact Center in conjunction with Zoom Workplace. This demonstrates the desire for seamlessly integrated customer and employee experience solutions, which Zoom excels at delivering. The seamless integration of the customer and employee experience rests upon Zoom’s AI Companion technology as a fabric to unify the whole platform. Today, AI Companion enhances an employee’s capabilities using generative AI to boost productivity through features like meeting summary, chat compose, image generation, live translation, and enhanced features in Contact Center. As these features have grown in popularity, we are happy to share that Zoom AI Companion is now enabled on over 1.2 million accounts. But we have only scratched the surface. Our progress broadening Zoom Workplace, building out enhanced AI tools for Contact Center and amassing a large base of AI users sets us up well to transition into the 2.0 phase of AI-enabled work. In this phase, Zoom AI Companion will move beyond enhancing skills to simplifying your workday, providing contextual insights, and performing tasks on your behalf. It will do this by operating across our collaboration platform to ensure your day is interconnected and productive. We will have more to share about our AI strategy at Zoomtopia in October. We hope you can join us. Now, let me recognize some of our amazing customers. First, let me thank TIAA, a leading provider of secure retirements and outcome-focused investment solutions, for strengthening their partnership with Zoom. A long-time customer, TIAA upgraded to Zoom Workplace Enterprise Plus and added Zoom Contact Center and Quality Management in Q2, in order to further enhance the employee and customer experience. I would also like to thank Prime Inc., one of the largest trucking and freight delivery companies in North America. Prime came to us through the channel and chose to further elevate the experience they provide their drivers with Zoom Contact Center and Quality Management. But the value did not stop there. Recognizing the power of our natively integrated employee and customer experience platform, they added Zoom Workplace, as well as Webinar and Rooms to support the collaboration and flexible work needs of their corporate offices. In addition, I’d like to thank Lyra Health, a leader in workforce mental health benefits, for integrating Zoom’s Video SDK Toolkit into their platform. Lyra has successfully migrated to Zoom, bringing our cutting-edge video technology directly into their applications, exemplifying our developer-focused approach. Finally, Workvivo had an amazing quarter, with wins including a leading Southeast Asian bank and a famed European automotive brand. Workvivo’s success was extended by the Meta partnership, which contributed some exciting new logos in Q2 including a major North American telco. We are so happy to provide these companies with an Employee Experience platform that elevates the way they inform, connect and engage employees and integrates seamlessly with the broader Zoom portfolio. I’d like to take this opportunity to share the news that after almost seven years, Kelly has made the decision to leave Zoom. Kelly joined Zoom about two years before our successful IPO in April 2019 and her role in that has been a highlight of her time here. She will leverage her skills in helping companies scale and building successful businesses to help another startup in that process for the next Zoom. She has been an integral part of the Zoom journey – steering our IPO in 2019 and continuing the momentum as our customer base rapidly expanded during the pandemic. Under her strong financial leadership, Zoom has maintained a consistent track record of profitability and cash flow growth. We are conducting a comprehensive search for our next CFO with the assistance of a leading executive search firm. Kelly will be staying on through Q3 earnings, and given that we have a robust finance organization through her commitment to talent development, I am confident there will be a seamless transition. We wish Kelly all the best. Now, I’ll pass it off to Kelly.
Kelly Steckelberg, CFO
Thank you, Eric. I want to thank you and the entire Zoom team for an incredible experience over the past seven years. Zoom has not only made work more productive, but we have transformed the everyday lives of people globally. As Eric mentioned, I am committed to stay through Q3 earnings, so this is not goodbye; we’ll get to see each other again and I will help with a seamless transition. Now, back to the earnings. We are pleased that we beat our top-line and profitability guidance in Q2. Here are a few achievements from the quarter: First, Zoom AI Companion reached approximately 1.2 million accounts enabled as of the end of Q2. Second, we saw amazing traction with Workvivo as we reached 69 customers with over $100,000 in ARR, roughly doubling year-over-year. And finally, we surpassed 1,100 Zoom Contact Center customers, representing more than 100% year-over-year growth. Now, let’s dive into the financial results. In Q2, total revenue came in at $1.163 billion dollars, up 2% year-over-year. This result was approximately $13 million above the high-end of our guidance. Our Enterprise revenue grew 4% year-over-year and represented 59% of total revenue, up from 58% a year ago. Online Average Monthly Churn came in at 2.9%, down from 3.2% in Q2 of FY ‘24. This is the lowest rate that we have ever reported. We saw 7% year-over-year growth in the up-market as we ended the quarter with 3,933 customers contributing more than $100,000 in trailing 12 months revenue. These customers represented 31% of revenue, up from 29% in Q2 of FY ‘24. Our trailing 12-month Net Dollar Expansion rate for Enterprise customers in Q2 came in at 98%. The number of Enterprise customers at the end of Q2 was approximately 191,600. Please note, this metric has diminished in value over time as we focus on upselling existing customers and landing larger prospects with Zoom Phone, Zoom Contact Center, and other new products. Our Americas revenue grew 3% year-over-year, while EMEA was flat and APAC declined by 2%. On a constant currency basis, APAC grew 1% and EMEA declined 1% year-over-year. Moving to our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated tax effects. Non-GAAP gross margin in Q2 was 78.6%, as compared to 80.3% in Q2 of last year, mainly due to investments in AI, as well as upgrades to our data center backbone. For the full-year of FY ‘25, we continue to expect our gross margin to be approximately 79%, before improving towards our long-term target of 80%. Non-GAAP income from operations came in at $456 million, exceeding the high end of our guidance of $420 million. This translates to a 39.2% non-GAAP operating margin for Q2, as compared to 40.5% in Q2 of last year. Non-GAAP diluted net income per share in Q2 was $1.39 on approximately 314 million non-GAAP diluted weighted average shares outstanding. This result was $0.18 above the high-end of our guidance and $0.05 higher than Q2 of last year. Turning to the balance sheet. Deferred revenue at the end of the period grew 3% year-over-year to $1.41 billion. The growth was roughly two percentage points higher than the growth rate provided last quarter, partially due to the continued refinement of discounting practices, as well as lengthening billing terms. For Q3, we expect deferred revenue to be up approximately 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 8% year-over-year to approximately $3.78 billion. We expect to recognize approximately 60% of the total RPO as revenue over the next 12 months, up from 59% in Q2 of last year. Operating cash flow in the quarter grew 34% year-over-year to $449 million. Free cash flow grew 26% year-over-year to $365 million. Our operating cash flow and free cash flow margins expanded to 38.7% and 31.4%, respectively. The year-over-year improvement in our cash flow metrics is due to higher collections from increased billings, higher interest income, and a prior year legal settlement. We ended the quarter with approximately $7.5 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. Under the existing $1.5 billion share buy-back plan, in Q2 we purchased 4.8 million shares for $288 million, this was up from 2.4 million shares for $150 million in Q1. Turning to guidance. For Q3, we expect revenue to be in the range of $1.16 billion to $1.165 billion, which at the midpoint represents approximately 2.3% year-over-year growth. We expect non-GAAP operating income to be in the range of $438 million to 443 million. Our outlook for non-GAAP earnings per share is $1.29 to $1.31 based on approximately 314 million shares outstanding. We are pleased to raise our top-line and profitability outlook for the full-year of FY ‘25. We now expect revenue to be in the range of $4.63 billion to 4.64 billion, which at the midpoint represents approximately 2.4% year-over-year growth. We expect our non-GAAP operating income to be in the range of $1.79 billion to $1.8 billion, representing an operating margin of 38.7%, at the midpoint. Our outlook for non-GAAP earnings per share for FY ‘25 is $5.29 to $5.32, based on approximately 316 million shares outstanding. With the strength in free cash flow in the first-half and increased outlook for operating income in FY ‘25, we now expect free cash flow to be in the range of $1.58 billion to $1.62 billion for the full-year. Thank you to the entire Zoom team, our customers, our community, and our investors for your trust and support.
Operator, Operator
Thank you, Kelly. We will now move into the Q&A session. Our first question will come from Meta Marshall with Morgan Stanley. Meta?
Meta Marshall, Analyst
Great. Thanks so much. Maybe just a quick question for Eric. Just where are you seeing kind of the most interest in the AI Companion products or kind of the most usage? And just how does it inform how you're kind of looking to invest going forward? Thank you.
Eric Yuan, CEO
Yes, that's a great question. First, I want to highlight that our customers really appreciate Zoom AI Companion. It performs exceptionally well and does not incur any additional costs, unlike some other vendors who impose high fees. In our case, it is included in our package. We introduced the AI Companion some time ago, and it enhances nearly every product, including Zoom Meetings, Phone, Team Chat, and more. For instance, in Zoom Meetings, the primary use case is meeting summaries, which we continually improve. The quality of these summaries has gotten better over time, and we made significant upgrades in July. We also leverage our AI Companion to enhance our business services, such as in the Contact Center, where we rolled out features in Q2 that utilize AI for expert assistance, automatic engagement, disposition, and wrap-up notes. Every service and feature is examined for ways to use the AI Companion to enrich the product experience. We are excited about the many new features that will be available in the coming months and quarters, and we look forward to announcing several enhancements during Zoomtopia in October.
Meta Marshall, Analyst
Great, thanks. Looking forward to it.
Operator, Operator
Okay, our next question comes from Arjun Bhatia with William Blair.
Unidentified Analyst, Analyst
Hi, this is Chris on for Arjun. Real quick. And then in similar vein, I wanted to get a better understanding of what's helping drive some of the strong adoption you've seen recently in Workvivo, where are customers seeing the most value with that.
Eric Yuan, CEO
So in terms of Workvivo, I think, first of all, it's really helped employee engagement. In particular, given the flexible work in how to seamlessly engage your employees no matter where they are. This is very important, right? You cannot leverage the meetings or phone or chat to do that. You have to have a new service. That's the reason why we acquired Workvivo before, right? And that solution works very well. A lot of the companies, especially for very large enterprise customers, realize the value, right? And the experience works so well with their UI, and in order to mention recently, Meta, right, they decided to retire their platform and Zoom is the only platform they supported for migration and further have us, right. Essentially, when customers look at the Zoom platform on the one hand, communication; on the other hand, collaboration. At the same time, engagement becomes more and more important. That's the reason why Workvivo is putting out such a big load. So we closed a lot of new logos in Q2, and quite a few very large deals are also in the pipeline as well. So we are very excited about the Workvivo platform. By the way, internally, we are also using Workvivo for any announcement, any news; employees just go to the Workvivo interface rather than go to the emails or chat messages, which are really not scalable or friendly either.
Operator, Operator
Okay. Our next question comes from William Power with Baird. William?
William Power, Analyst
Okay. Great, thanks. And Kelly, thanks for all the great help here over the years. So like we'll still have it for a little while, though, which is great. I want to start, I guess, on macro, right? I mean, that's still kind of center stage of being concerns about the health of the consumer. And so I guess I wondered within the online segment, if you could comment on expectations and kind of what you're seeing real-time in the market, I mean, the churn rate suggests that things are going relatively well there, at least okay. But we kind of what's baked in from a consumer macro standpoint. And then the other side of that is just be great to kind of hear what you're seeing on Enterprise in terms of sales cycles, down sales, on the video front, et cetera. Thanks.
Kelly Steckelberg, CFO
Eric, do you want to say anything generally first?
Eric Yuan, CEO
You may dive in. Just go ahead. Yes, thank you.
Kelly Steckelberg, CFO
In terms of Enterprise, we continue to experience growth, which is reflected in our guidance for the year. Our retention rates have remained stable, and we expect this to positively impact our net dollar expansion, which we anticipate will start to reaccelerate by the middle of next year. If you take a closer look at our guidance, you'll notice that we forecast Q2 to be the low point for year-over-year growth this year, with a rebound expected in Q3. We're very excited about this. Regarding online, as you've mentioned, we see ongoing improvement in our retention rates, which reflects the significant progress we're making on the platform, including the Zoom AI Companion features that Eric discussed, available to our paying online customers. It's encouraging to see this development. However, we have faced some headwinds in the SMB and small customer segments, likely due to economic concerns, but these trends are fairly consistent with our original full-year forecasts. We're monitoring this situation closely.
William Power, Analyst
Okay, thank you.
Kelly Steckelberg, CFO
Yes.
Operator, Operator
Okay, thank you. Our next question comes from Siti Panigrahi with Mizuho. Siti?
Siti Panigrahi, Analyst
Hi, can you hear me?
Eric Yuan, CEO
Yes.
Kelly Steckelberg, CFO
Yes. Hi, Siti.
Siti Panigrahi, Analyst
Great, great. Thanks for taking my question. And Kelly, it's great working with you. So my question about Contact Center. It's good to see some traction in the Contact Center side, but we are hearing from your peers about the macro pressure they are seeing in this market. So how do you see the Zoom Contact Center features and capabilities compared to your competitors? Like what's helping you win against them? And then the question, like when should we expect Contact Center to be a material revenue contributor?
Eric Yuan, CEO
Yes, I can start, and Kelly can jump in as well. Firstly, if we look at our key achievements in the second quarter, we secured our largest deal during this period. When we compare the past few quarters, it’s clear we are making substantial progress. In large deals, if I remember correctly, we closed about 90 in the first quarter and approximately 117 in the second quarter. Customers trust Zoom because many of them have been with us for a long time, and they recognize our commitment to innovating alongside them. Our speed of innovation, particularly in AI features, sets us apart from our competitors. In addition to our core Contact Center offering, we've developed our own workforce management and quality management solutions, unlike some rivals who rely on reselling other integrations. Customers can see our serious dedication to the Contact Center, and our feature set is robust. The integration with our other UC platforms is also seamless. Moreover, feedback from customers who conducted proofs of concept shows that our Contact Center works exceptionally well and is powerful, contributing to our growing momentum. We have strong confidence in our feature set, and we do not lose customers due to any lack of features.
Kelly Steckelberg, CFO
And remember, even with the new pricing tiers we've introduced, we remain very competitive against others in the market. From a total cost of ownership perspective, when combined with our modern architecture, I believe there's a strong incentive for our customers to make the switch.
Eric Yuan, CEO
And also another thing is every time we made a commitment, we did deliver; that's another way to build trust. We make the FedRAMP in Q2 and the PCI components and so on and forth, right? We did deliver, so…
Siti Panigrahi, Analyst
Great, thank you.
Operator, Operator
Thank you, Siti.
Kelly Steckelberg, CFO
Thank you, Siti.
Operator, Operator
Our next question comes from Ryan MacWilliams with Barclays. Ryan?
Ryan MacWilliams, Analyst
Hey, thanks for taking the question. So now that you're seeing more adoption, Kelly, of Zoom Companion, how do you think about the cost of providing these generative AI features and capabilities? And do you think Zoom could eventually charge on a usage basis for power users or just trying to weigh cost versus revenue opportunities here?
Eric Yuan, CEO
That's a great question. Our approach is always to view everything from the customer's standpoint, especially considering the current economic climate. Companies are looking to cut costs and consolidate expenses. I believe we should not charge customers for AI Companion. When we introduced AI Companion, we intended it to be free for our core workplace and collaboration services. However, we plan to monetize our business services, like Contact Center and other new offerings. As I've mentioned in prior earnings calls, we will charge for new solutions and billing services linked to AI, but we want to keep our workplace offerings free. I truly appreciate the hard work of our AI team, their focus on quality, and their cost-reduction efforts. This is why many customers recognize our value; they see the overall cost of ownership, including support and AI costs, and realize it's more beneficial to invest further in their Zoom deployment. That's why we believe we will continue to succeed.
Kelly Steckelberg, CFO
Yes. I mean we're guiding to 79% for this year, which we will reflect the prioritization of AI, but also the very strong discipline that we continue to apply. And we are holding to our long-term target for gross margins of 80%. But of course, we think at this point in time, it's very important to prioritize these investments as they really set us up for future growth.
Ryan MacWilliams, Analyst
I definitely think it makes sense to focus on it first. Excellent, thanks, guys.
Eric Yuan, CEO
Yes. Just one more thing. I also want to give credit to our dev office team. On the right hand, for sure, we are going to buy more and more GPUs, right? And also, level that have our team tried to save the money from other areas, fully automated and so on and so forth, right? So that's another way for us to save the cost, right, to make some room for AI.
Ryan MacWilliams, Analyst
Appreciate it. Thank you.
Eric Yuan, CEO
Thank you.
Kelly Steckelberg, CFO
Thanks, Ryan.
Operator, Operator
Okay, our next question comes from Tyler Radke with Citi. Tyler?
Tyler Radke, Analyst
Yes, can you hear me okay?
Eric Yuan, CEO
Yes.
Kelly Steckelberg, CFO
Hi, Tyler. Yes.
Tyler Radke, Analyst
Hey, good to see you. Thanks for the question. Kelly, I'm curious about the new business side, especially in light of the stabilization or record high in the online renewal rate. I know Wendy and the team have been working on initiatives to improve that area. How do you view the new business side compared to a couple of quarters ago?
Kelly Steckelberg, CFO
Yes. So Wendy and the team continue to do a great job of adding features, looking for additional offerings to continue to expand our growth there. I think in terms of our quarter, we certainly saw growth and are very pleased to be able to raise our guidance across the board. The one area that we have seen some headwinds, which I think is very consistent with what you're hearing from peers is in the SMB and the really small business area because everybody is concerned about the future of the economy and being very thoughtful about buying decisions. With that said, it's roughly in line with where we were expecting coming into the year, which is why you've seen us continue to execute against our guidance and be able to raise going forward.
Tyler Radke, Analyst
Thank you, Kelly, and best of luck.
Kelly Steckelberg, CFO
Thank you.
Operator, Operator
Okay, our next question comes from Parker Lane with Stifel. Parker?
Unidentified Analyst, Analyst
Yes, guys. Hi, this is Jack on for Parker. Congrats on the nice quarter. Wanted to touch on that large win in the Contact Center. What kind of initiatives was this customer looking to accomplish? And why did they ultimately choose Zoom? Thanks.
Eric Yuan, CEO
I believe this customer assessed various Contact Center solutions in the market and wanted to gain insight into our roadmap and architecture, particularly regarding our AI initiative. They compared multiple offerings, including Zoom, looking at features, AI capabilities, pricing, and brand recognition. They have strong trust in our team, as we have consistently innovated alongside our customers in the past, such as with the Zoom Phone. Ultimately, trust is key; they are confident that we can innovate quickly and collaboratively. We delivered on our promises, and compared to traditional solutions, we move faster and embrace AI more effectively. Our new solution, built on modern architecture, offers a significantly better experience. So, it makes sense for them to choose Zoom.
Operator, Operator
Okay, thank you. Our next question comes from Michael Funk with Bank of America. Michael?
Michael Funk, Analyst
Hi, good evening. Thank you for the questions, and Kelly, thank you again for the help for over the years. I know I'll see you next quarter as well. Another question on Contact Center, if I can. Just a clarification, the recent wins, are they more skewed towards internal or external Contact Center? So meaning employees versus customers?
Eric Yuan, CEO
For external, primarily external, right? They use that to engage with their customers and their partners, right? When we launched many quarters ago, right, some of the customers use our Contact Center for internal IT help desk, but now the majority is just for the external PC and for the support team, customer engagement in the team, so…
Michael Funk, Analyst
That's very helpful. Thank you, Eric. Kelly, you mentioned earlier this year that you expected contact center growth to ramp up similarly to phone growth. That was a good benchmark for growth expectations. Are you experiencing growth above those expectations for the Contact Center or is it in line with them?
Kelly Steckelberg, CFO
We're in line with that. So it hasn't changed dramatically. I mean, we're very pleased with how both Phone and Contact Center are continuing to drive growth, but it is more in line with what we had expected.
Michael Funk, Analyst
Great. Thank you, both.
Kelly Steckelberg, CFO
Yes.
Eric Yuan, CEO
Thank you.
Operator, Operator
Thank you. Our next question comes from Mark Murphy with JPMorgan.
Arti Vula, Analyst
Hey, thanks for taking my question. Arti here from Mark Murphy, and Kelly, thanks for all the help you provided us. One question I had is when you're looking at Zoom AI Companion, we've heard a lot of great things in the field if customers kind of comparing that to other products that are offered out there. Can you kind of remind us about how you guys think about tracking success with the product internally, given that you don't charge for it directly beyond having millions of people using it? Is there any way you track it, whether it's utilization improvement in retention, anything along those lines?
Kelly Steckelberg, CFO
Yes. The metrics we focus on include account activation, specifically how many customer accounts have been activated. For larger enterprises, there is typically an approval process, which we monitor. Internally, we also keep track of metrics like the number of meeting summaries produced, among other usage indicators, to assess our success and usage.
Eric Yuan, CEO
And so very often, we never have EDCs with our customers. And also, they share the stories like how Zoom AI Companion like is very accurate summary; action items are helping their employees' productivity as well. A lot of very positive feedback about adopting Zoom AI Companion.
Arti Vula, Analyst
That’s great to hear. Thank you.
Eric Yuan, CEO
Thank you.
Operator, Operator
Okay, our next question comes from James Fish with Piper Sandler. James?
James Fish, Analyst
Hey, guys. Kelly, it's been great working with you. And my question is more directed at you. You had mentioned here, we're talking about a 98% trailing 12-month retention rate. And it sounds as if we're starting to see the bottom of that. In fact, our math would imply actually above 100% today on the end period. So can you break down what you're getting across expansion mix between upsell of seats, if you are starting to see upsell seats, again, across meetings or other products, any pricing changes, adoption of other products like Phone or Contact Center at this point in terms of how it's impacting that expansion? And I get rounding is involved, but should we not be interpreting that, that upmarket is accelerating at this point, but similar to what we saw from a dollar perspective, because if you run the math there would suggest like 9% potentially, if you just use the absolute number?
Kelly Steckelberg, CFO
Certainly. When we look ahead, the growth for the second half of this year and into next year is primarily driven by our upmarket direct segment. Specifically, customers with over $100,000 in trailing 12 months are growing at a year-over-year rate of 7%, which exceeds our overall revenue growth rate, indicating healthy momentum. We have also observed stabilization in our net dollar expansion, which typically leads our publicly reported metrics. By the middle of next year, we anticipate this will reaccelerate, supported by the strong performance of products like Zoom Phone and Contact Center, with Workvivo serving both as an add-on and a product for new customers. Additionally, we've seen stabilization in our enterprise retention rates, which is encouraging, even as seat additions for meetings might not be significant. This stability in renewal rates is a positive sign for our customer relationships.
James Fish, Analyst
Helpful. Thanks again.
Kelly Steckelberg, CFO
Yes.
Operator, Operator
Okay, our next question comes from Peter Weed with Bernstein. Peter?
Kelly Steckelberg, CFO
Hi, Peter.
Peter Weed, Analyst
Thank you. Oh boy, this is not going to be very pretty if I'm on that setting.
Kelly Steckelberg, CFO
There you go.
Peter Weed, Analyst
There we go. No, you should have me in a normal mode on my camera.
Kelly Steckelberg, CFO
You look great.
Peter Weed, Analyst
Hey, thank you very much. I appreciate it. And Kelly, we will miss you. I mean you've been very open and honest with us over time, and it's been very helpful. I'd love to follow-up that last question on expansion. And I think you've been talking about getting to stabilization about now. When we unpack that, that number, at least in our model, it does look like on a quarter-over-quarter basis, the upmarket definitely saw some strength, whereas the kind of down market was a little bit flatter, which I think historically has always been the case because there's a little bit of cannibalization that comes out of that going into the upmarket. When you look forward from here, where are you seeing those early accelerations going on? How do you think about those escalating over the coming quarters? Is it the type of thing where we can start to see this building on itself like quarter-over-quarter? Or you just said middle of next year, which makes it seem like this is like one step up, and then you expect it to be flat, like how is that kind of shaping up?
Kelly Steckelberg, CFO
Let me clarify a couple of things. The net dollar expansion rate is expected to stabilize and start to grow again in the middle of next year. This is based on a trailing 12-month metric. Looking at the revenue guidance, Q2 was projected to be the low point in year-over-year growth. Due to the strong contributions from Contact Center, Phone, and Workvivo, we anticipate growth to reaccelerate starting in Q3. This, along with stabilization in our enterprise retention rate and ongoing improvements online, is driving the reacceleration and strength we expect to see in the future.
Peter Weed, Analyst
And when you kind of look at the underlying components then that are driving that strength, I guess it's probably not seats; it's many of these additional, I guess, products and versions that have pushed into the market. When you think about the balance between those, getting people to sign up for one versus adding a Contact Center or these types of things. Give us some color on the contribution of both of those as this acceleration kind of moves forward.
Kelly Steckelberg, CFO
Yes. We do see expansion. Land and expand is a motion that we see. Of course, historically, it's been the motion we've seen for meetings, but we also see it for Phone. We see it for Contact Center, as well as especially as we keep adding more — Eric touched on this is the right we've really expanded the features and functionality on Contact Center that allow it to really serve externally. Things like PCI compliance and FedRAMP and all the social integrations, which are a necessary component for any company to talk to its external customer base, that’s what's really led to some of this acceleration that we're seeing in Contact Center. Yes. That's right.
Operator, Operator
Okay, our next question comes from Peter Levine with Evercore. Peter?
Kelly Steckelberg, CFO
Hi, Peter.
Peter Levine, Analyst
Hi, Kelly. Thank you for taking my question. Regarding capital allocation, could you share your strategy on retaining your competitive edge given that you have $7.5 billion in cash? We've noticed your expansion into areas like Contact Center and productivity apps. How should investors understand your plans for deploying that capital? While there is a buyback in place, it has been some time since we've seen any significant activity. Can you clarify your strategy for reaccelerating top-line growth? Are you considering new products or technology? Please help us understand your thinking on this.
Eric Yuan, CEO
Yes. So from a high level, we look at everything from a customer perspective, right? Quite often when we talk about innovating together. Sometimes, customers really better needed this feature and they take a Workvivo for example, like customers say, yes, I really like employee engagement tools. We know we cannot build that in a timely manner. We have to go through the M&A. As we look at our platform play and also plus AI plus billing services, there's so many opportunities out there. I do not think we can build everything organically, even if we want to, right, sort of what a culture before. But now we are more aggressive and go to, hey, how to quickly add those new services or features, right, to beef up our existing offering, and that's kind of one of the top priorities here we are working on. Of course, especially given the AI era, right, and you have to move faster. In my view, it's more like a lot of M&A opportunities down the road. That is kind of our strategy.
Peter Levine, Analyst
And then, Kelly, if you're willing to share a number with Contact Center, can you share the revenue number or at least the target in terms of — because we roll hit 10%, you gave us that milestone. Is there an internal plan on when you think Contact Center will hit 10%?
Kelly Steckelberg, CFO
When we hit 10%, we, of course, will start disclosing it. But remember, it was in like Zoom Phone's fifth year of its life, I think, before it hit that metric and Contact Center is, what, in its second year of life. While we're thrilled with its performance, we aren't quite yet. It’s going to be a while before we get to that stage where we would be disclosing the percentage of revenue. That's why for now, we're disclosing customer counts and giving you other metrics around like the top 10 being displacements, trying to give you color about what we're seeing in the market, but it will be a little bit before we get to that metric specifically.
Peter Levine, Analyst
Thank you very much.
Kelly Steckelberg, CFO
Yes.
Operator, Operator
Okay, our next question comes from Rich Magnus with Wolfe Research. Rich?
Unidentified Analyst, Analyst
Hey guys, it's Rich on for Alex. Just wanted to come back to the large ads for contact center you were highlighting and the top 10 wins being displacements. You said 40% were from legacy migrations. So of the six that were not replacing the first gen solutions, what were the biggest drivers of those wins? Was it pricing, AI functionality or something else that we're missing? Thanks.
Kelly Steckelberg, CFO
So I just want to be super clear about it for a second. So of the top 10 wins, all were displacements; six of them were replacing on-prem existing legacy; and four were replacing other cloud solutions. So I think, again, all of them — I mean, Eric, you feel free to chime in now, but it just highlights the modern architecture, the contact center that's built with AI at its core from the very beginning.
Eric Yuan, CEO
And also, Rich, believe it or not, actually quite often customer mission, the stability also plays a very important role because comes Contact Center, which is very important. We constantly engage with their customers; you have reverse stability, right? Some of when customers just do not like the stability from other solutions, right? They know actually Zoom always delivers a very stable service with a scalable architecture and so on and so forth. That also plays a role as well, right? I think everything together; I think stability, modern architecture, pricing, AI, and faster innovation—all together, we are winning.
Operator, Operator
Okay, thank you. Our next question comes from Catharine Trebnick with Rosenblatt Securities. Catharine?
Catharine Trebnick, Analyst
I'm always late. Sorry, guys. Good to see you both. My question is about the Contact Center. I noticed they just released their $5 phone. I was curious about your pipeline for UC and Contact Center. How is that progressing?
Eric Yuan, CEO
Yes, Kelly, feel free to chime in, I can comment on the UC offering.
Kelly Steckelberg, CFO
Yes. Why don't you do that first, please.
Eric Yuan, CEO
Yes. Again, it's hard to comment on our competitors' move into the UC and the timing will tell. In my view, I set a mistake—how could they compete against the others like Zoom and others, right? We had so many years' experience with a great scalable architecture. This is hard to believe they have been to win UC space. I could be wrong, but I have a high confidence; they are not going to win the UC space. Because a lot of the investment in technology features, integration, and scalability stability, again, I don't believe that.
Kelly Steckelberg, CFO
Yes. And we see Contact Center driving new leads of Contact Center driving need and desire for Zoom Phone; we see it come the other way as well as Zoom Phone driving. We talked about this in the prepared remarks about this being better together, which is really inherent with what we're seeing across the platform. Zoom AI Companion being able to leverage all of that across the entire platform just brings so much power to it that I think you're going to continue to see the ongoing combination of those two products and the rest of the platform be very strong.
Catharine Trebnick, Analyst
So just in essence, back to the UC piece, there is no disruption whatsoever even though it was a $5 price?
Eric Yuan, CEO
You mean, $4 lot of, you know, if customer see, why we want to do that? Why do I want to take the risk, deploy something new? More like today, you already have an iPhone and Android phone; you want to introduce a new phone? Who's going to deploy that? Who's going to buy that? So that's my view.
Catharine Trebnick, Analyst
No, I had to ask the question. Thank you.
Eric Yuan, CEO
Yes, great question. Thank you.
Kelly Steckelberg, CFO
Thank you, Catharine.
Operator, Operator
Okay, thank you. Our next question comes from Matthew VanVliet with BTIG. Matthew?
Unidentified Analyst, Analyst
Hey, guys. Can you hear me?
Kelly Steckelberg, CFO
Yes.
Unidentified Analyst, Analyst
Hey, it’s Spencer on for Matt. Thank you for taking our question and congrats on the quarter. I apologize if this was already asked. But how are the AI products and key functionalities driving expansion with existing customers? How much of it is like premium tiers or upselling the premium tiers of the existing footprint versus selling to new phones, Contact Center or just other cross-selling products? Thank you.
Eric Yuan, CEO
If you look at our current installed base for Workplace customers, they recognize the value we provide. Many have been using Zoom for a significant period and appreciate the experience. We continue to add more value without increasing costs. This will build long-term trust, as customers know they can rely on Zoom. Unlike some other vendors who offer free services but later increase prices for additional features, that's not how we operate. Regarding premium services, take Contact Center as an example. Our AI Companion is a significant differentiator because customers have confidence in our AI capabilities. Each quarter, we introduce new AI features to innovate. We aim to enhance the value for our existing customers while also guiding them towards essential features that improve their experience.
Unidentified Analyst, Analyst
Thank you, guys.
Eric Yuan, CEO
Thank you.
Kelly Steckelberg, CFO
Thank you.
Operator, Operator
Our next question comes from Samad Samana with Jefferies. Samad?
Samad Samana, Analyst
Hi, good evening and thanks for taking my questions. So maybe first, just on CCaaS. Is there anything you give us in terms of the mix of those 1,100 customers? How many of those are maybe like 100-plus seat deployments versus under that? Just any sense of SMB versus Enterprise in the mix there? And kind of related, what's the attach rate of CCaaS into the 100,000-plus installed base that the company has?
Kelly Steckelberg, CFO
Let me think about this. So we've certainly seen growth in the 100,000 customers for Contact Center. We're up to 117,000 that we disclosed. So you can see that they're moving into that realm for sure. And we've been working in the channel and working with partners to also think about how we help these customers with their digital transformation. In terms of the disbursement across that — the size of our deals, what I would say is they are definitely getting larger. They're getting larger for a couple of reasons because as we talked about, this added functionality, allowing them to use it externally, and as we talked about this either last quarter or the quarter before, that was the introduction of the pricing tiers. If you remember, we started with one pricing tier. We eventually added two more; the AI agent is in the highest tier. We actually saw our ASPs for Contact Center almost double quarter-over-quarter because it's such a premium feature. When I look at the Q2 deals, the majority of them were purchasing in one of the top 2 tiers, so all of that is contributing to what I would say is not only expansion in terms of seat count but expansion in terms of value being derived from the product.
Samad Samana, Analyst
Got you. And then maybe just on the online retention, it's great to see that improvement there. I'm curious how much of that is due to either the new features that you released versus moving further away from the tightening of the grace period—and it’s even better than it was before that slight uptick last quarter, right? So is this like the new durable assumption that we should make? Is that pretty reasonable? Just how are you thinking through that?
Kelly Steckelberg, CFO
Yes. So, I mean this is a great question. I guess it's a question all the time. Can it keep getting better? I will tell you that we are modeling it to stay at about 3%. I think that's a really positive rate. But we continue to see improvements on the platform, and I think that's what you're seeing in this quarter because we did see a little bit of the pull forward, if you will, last quarter for the change in the dunning period, as you mentioned. But this is a clean quarter, right, meaning that it should really reflect. If you remember, historically, Q2 is a larger—typically a large seasonally high churn period because of summer holidays. Typically, for online, we see higher churn rates in Q2 and in Q4 because of summer and holiday breaks, and we don't put friction in the cancellation cycle because we want customers to use the product as they need. So I think it's very costly to see this down this record low churn rate in a seasonally high quarter.
Samad Samana, Analyst
Great. Thank you both so much.
Kelly Steckelberg, CFO
Yes, thank you.
Operator, Operator
Okay, our next question comes from Matthew Harrigan with Benchmark. Matthew?
Matthew Harrigan, Analyst
Thank you. Are you seeing anything in the broad sweep of AI regulation in the U.S. or Europe that you think can dampen innovation? It sounds like you've modulated some of your data set gathering activity in Europe in response to some political concerns. What's your view there?
Eric Yuan, CEO
I think it comes with AI. We are taking a very responsive approach, right? That's the reason why we launch AI Companion; we already mentioned, we are not going to use any of our customer data to train our AI models, right? We take customers' data very, very seriously, right? And as a customer, they know that they trust our brand and trust of what we're doing. So far, I do not see any impact in terms of regulation. Again, AI is moving rapidly, right? Almost the EMEA here and we all look at the potential regulation. But so far, impact actually to us, to our business, I think it's extremely limited. Meeting summary, a very important feature, a customer likes that. I think we do not use our customer data to train our AI model. And why not keep using it? I think there's no impact so far.
Matthew Harrigan, Analyst
Great. Thanks, Eric. I guess one more brilliant presentation to come from you, Kelly. Thank you.
Kelly Steckelberg, CFO
Yes. Thank you, Matthew.
Operator, Operator
Our next question comes from Patrick Walravens with JMP Securities. Patrick?
Austin Cole, Analyst
Hey, this is Austin Cole on for Pat. Just wanted to touch on international, if I’m not mistaken, Kelly, you mentioned EMEA shrank 1% in constant currency, and those revenues declined last year as well. If I just look at where we're at this year, looking like may be on track to shrink again. Just wondering if you could talk about what your presence is there and kind of how you're seeing demand in those international regions.
Kelly Steckelberg, CFO
Yes. We have definitely noticed that the economy in EMEA, particularly, continues to be affected by the ongoing wars on the continent. This is something that, in general, I believe all of our peers are experiencing as well. We are in the process of implementing a new leadership team there, which I am looking forward to. Additionally, we are very focused on investing in the region. Just last quarter, we launched our London Executive Briefing Center, which is an excellent opportunity to bring together customers, partners, and prospects to experience the expanded Zoom 2.0 story in a beautiful setting. This is a key area where we are concentrating our efforts to invest and accelerate growth.
Austin Cole, Analyst
Great. Thank you.
Kelly Steckelberg, CFO
Yes.
Operator, Operator
Okay, thank you so much, everyone. This concludes our Q&A session. I'll now pass it back to Eric for closing comments. Eric?
Eric Yuan, CEO
Yes. First of all, thank you all for asking about all those great questions. We are very, very grateful. And also thank you for every Zoomies for their hard work, and we are going to continue to innovate. Thank you all for your trust and as you all next quarter. Thank you.
Kelly Steckelberg, CFO
Bye, everybody.
Operator, Operator
This concludes today's earnings release. We thank you all for your participation. Enjoy the rest of your evening. Thank you.