Earnings Call Transcript - ZM Q4 2025

Charles Eveslage, Head of Investor Relations

Thank you, Kelcey. Hello everyone, and welcome to Zoom's earnings video webinar for the fourth quarter and full fiscal year 2025. 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 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. 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 first quarter and full fiscal year 2026; 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 feature 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 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

Thank you, Charles. Thank you everyone for joining us today. Our FY25 was an incredible year, marked by major advancements in AI, the evolution of Zoom into an AI-first work platform spanning Phone, Team Chat, Events, Docs, and more, and strong momentum in Contact Center and Workvivo. A key highlight has been the rapid adoption of our AI capabilities, growth in monthly active users of Zoom AI Companion accelerated to 68% quarter-over-quarter, demonstrating the real value AI is providing customers. Zoom AI Companion has emerged as the driving force behind our transformation into an AI-first company, enabling our customers to discover enhanced productivity opportunities. We are always looking ahead, moving forward, and reimagining what’s possible to enable frictionless work. And now, we look forward to helping our customers fully realize the benefits of agentic AI and discover what’s possible with AI agents. As part of AI Companion 2.0, we added advanced agentic capabilities, including memory, reasoning, orchestration, and seamless integration with Microsoft and Google services. In April, we're launching Custom AI Companion add-on to automate workplace tasks through custom agents. This will personalize AI to fit customer needs, connect with their existing data, and work seamlessly with their third-party tools. We are also enhancing Zoom Workplace for Clinicians with an upgraded AI Companion that will enable clinical note-taking capabilities and specialized medical features for healthcare providers starting in March. Additionally, we are upgrading our Business Services by introducing more agentic capabilities. Zoom Virtual Agent will soon expand reasoning abilities to handle complex tasks while maintaining conversational context for more natural and helpful outcomes. We are uniquely positioned to succeed in agentic AI for several reasons: Zoom is a system of engagement for our users with recent information in ongoing conversations. This exceptional context along with user engagement allows us to drive greater value for customers. Our federated AI approach lets us combine the best models for each task. We can use specialized small language models where appropriate while leveraging larger models for more complex reasoning, driving both quality and cost efficiency. Zoom is known for making complex technology simple for users. We manage the complexity of AI models while keeping the experience intuitive, powerful, and connected with popular third-party apps. We believe our strategic approach positions us favorably to help bring value to the customer. We're focused on delivering practical value while building toward an ambitious vision of AI that truly amplifies human potential for the customer. Our AI-first work platform continues to gain momentum, driven by our core strengths in meetings and expanding portfolio of integrated solutions such as Phone, Team Chat, Events and Zoom Docs, Whiteboard, and Zoom Rooms. We see this in the results; Zoom Workplace had a big win with Amazon in Q4. Within Zoom Workplace, Zoom Phone continues to see strong traction with both new customers and expansions. We built upon our strength in retail, healthcare, and education, which delivered seven of our top ten Zoom Phone deals this quarter. The recent Mitel partnership opens up access to Mitel’s 70 million global end users and demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models and choice. Zoom Team Chat continues to serve as the collaboration hub across our platform. The recent redesign of the sidebar has enhanced navigation and productivity, while our new workflow automation capabilities are driving deeper platform engagement. Beyond Zoom Team Chat, we are seeing encouraging adoption across our broader portfolio. Zoom Docs usage more than doubled quarter-over-quarter. Together with Whiteboard, which was a Customers’ Choice recipient in the 2024 Gartner Peer Insight, Voice of the Customer report for Visual Collaboration Applications, Zoom Team Chat and Zoom Docs are critical components of our AI-first platform vision that expand our system of engagement and allow customers to do more with AI. Both Contact Center and Workvivo delivered exceptional results this quarter. In Contact Center, we achieved our largest ARR deal in history with a Fortune 100 US tech company for over 15,000 agents, demonstrating our ability to win and deliver for the most demanding enterprise customers. The number of Contact Center customers with over $100,000 in ARR grew over 100% year-over-year with wins both displacing on-prem and leading CCaaS vendors. Our AI-first approach is resonating strongly, the majority of our deals are now in the higher-tier Elite or Premium packages, validating the power and customer appeal of our comprehensive AI and workforce engagement capabilities. Workvivo also had a record quarter driven by strength across all regions. The total number of Workvivo customers grew 89% year-over-year, accelerating from 79% in Q3. We signed three deals over $1 million in ARR, each with major global brands. Our strategic partnership as the preferred migration partner for Meta Workplace has been a strong contributor to this momentum. These solutions are critical components of our AI-first work platform vision. Contact Center extends our platform from employee engagement to customer engagement, while Workvivo broadens our employee collaboration to internal engagement and culture. Together they exemplify our strategy of thoughtful expansion into high-growth areas where we can deliver differentiated value through our platform approach, AI leadership, and rapid innovation for the customer. As we look ahead to FY26, we are focused on our key strategic priorities: expanding our AI capabilities to drive customer value, rapidly innovating within Zoom Workplace, and building upon momentum in new products such as Contact Center and Workvivo. Despite ongoing macro challenges and uncertainties, we are encouraged that our value proposition and total cost of ownership are gaining traction in the market. Our innovation engine is firing on all cylinders, our platform strategy is working, and we have significant opportunities and growth vectors to execute upon. Now, on top of the record-setting Contact Center win I just highlighted, let me share some more amazing wins in Q4. We are excited to offer Zoom to Amazon employees and further strengthen our longstanding relationship with AWS as our preferred cloud provider. This builds on the success we’ve achieved helping customers easily procure and deploy Zoom through AWS Marketplace. Let me also thank Delta Air Lines, who this year is the first U.S. airline to celebrate its centennial, for choosing Workvivo as their employee communications and engagement platform. Upon the sunsetting of Meta Workplace, Delta strategically chose to migrate to Workvivo. As part of a multi-year deal, Workvivo will serve Delta's entire global workforce, reinforcing their strong company culture with omni-channel reach and key features like live streaming, employee recognition, and comprehensive engagement analytics. Let me also thank Cloud Software Group, a global mission critical enterprise software leader, as one of our newest CX clients to the Zoom family. Recognizing the simplicity and ease-of-use of our unified platform, they opted for the Zoom Contact Center and Zoom Virtual Agent to modernize the way they communicate and collaborate with their customers. These incredible wins across Workplace and Business Services validate our strategy of delivering a full platform of modern, integrated AI-powered solutions to drive meaningful business value and outcomes for customers. Now, let me hand it over to Michelle to take us through the financial results. Thank you.

Michelle Chang, CFO

Thank you, Eric. And hello everyone, I’m excited to be with you again and share that we beat our top-line and profitability guidance. In Q4, total revenue grew approximately 3% year-over-year to $1.184 billion, $4 million above the high end of our guidance. Total revenue adjusted for constant currency grew approximately 4% to $1.188 billion, $9 million above the high end of our constant currency guidance range. Our Enterprise revenue grew approximately 6% year-over-year and now makes up 60% of our total revenue, up 2 points year-over-year. We are continuing to see signs of stability in our Online business. In Q4, Average Monthly Churn was 2.8%, a 20 basis point improvement year-over-year, and our lowest ever churn rate in a fourth quarter. In our Enterprise business, we saw 7% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 31% of our total revenue, up 1 point year-over-year. Our trailing 12-month net dollar expansion rate for Enterprise customers in Q4 remained flat quarter-over-quarter at 98%. The total number of Enterprise customers at the end of Q4 was approximately 192,600. As we have said previously, Enterprise Customer Count is more reflective of our go-to-market motion rather than a direct measure of our Enterprise business performance. We will continue to do migrations between our two go-to-market motions in order to better serve our customers as we did last year, and as such going forward into next fiscal year, will no longer include this metric in our prepared remarks or SEC filings. To provide ongoing transparency we will include it in the earnings deck appendix through FY26. We still believe that enterprise revenue growth and KPIs such as Net Dollar Expansion are better reflections of our future business and expect future migrations to have minimal impact on these metrics. Now, back to our financial results. Pivoting to our growth internationally; our Americas revenue grew 4% year-over-year, EMEA grew 2%, and APAC grew 3%. On a constant currency basis, EMEA grew 2% and APAC grew 5% year-over-year. Moving to our non-GAAP results, which as a reminder exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, and all associated tax effects. Non-GAAP gross margin in Q4 was 78.8%, slightly lower than Q4 of last year, primarily due to our strategic investments in AI, partially offset by efficiency gains. The results in Q4 were in-line with our prior commentary, and we continue to reiterate our goal of reaching 80% gross margin over the long term. Non-GAAP income from operations grew by 5% year-over-year to $468 million, exceeding the high end of our guidance by $20 million. Non-GAAP operating margin for Q4 improved to 39.5%, up 81 basis points from Q4 of last year, even amongst continued investment in AI, our platform, and our emerging growth businesses. Non-GAAP diluted net income per share in Q4 was $1.41 on approximately 317 million non-GAAP diluted weighted average shares outstanding. This result was $0.11 above the high end of our guidance and $0.01 lower than Q4 of last year, primarily due to higher income tax and unrealized foreign exchange losses. Turning to the balance sheet. Deferred revenue at the end of the period grew 7% year-over-year to $1.35 billion, outperforming the 5% to 6% we estimated last quarter. The growth was driven by the continued refinement of discounting practices, as well as ongoing business growth. For Q1, we expect deferred revenue to be up 4% to 5% year over year. Looking at both our billed and unbilled contracts, our RPO increased 6% year-over-year to approximately $3.8 billion. We expect to recognize 59% of the total RPO as revenue over the next 12 months, up from 58% in Q4 of last year. Operating cash flow in the quarter increased 21% year-over-year to $425 million. Free cash flow grew 25% year-over-year to $416 million. Operating cash flow and free cash flow margins in the quarter expanded to 35.9% and 35.2%, respectively. We ended the quarter with approximately $7.8 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. Under our $2.7 billion share buy-back authorization, in Q4 we purchased 4.3 million shares for $355 million, increasing our repurchases quarter-over-quarter by $53 million and contributing to the reduction of common shares outstanding in Q4. Pivoting from Q4, I would like to share a few of our full year FY25 highlights. Total revenue grew 3% and total enterprise revenue grew 5% year-over-year, both of which accelerated in the second half. Our free cash flow grew 23% year-over-year to $1.8 billion. We also achieved a non-GAAP operating margin of 39.4%, a 20 basis point improvement from FY24. And finally, we made significant progress on stock-based compensation, down to 20% of revenue, representing a 3-point reduction year-over-year and slightly ahead of the pace of reduction discussed at Zoomtopia. And we repurchased 15.9 million shares for $1.1 billion, contributing to the reduction of common stock outstanding in FY25. Now turning to guidance. In Q1, we expect revenue to be in the range of $1.162 billion to $1.167 billion. This represents approximately 2% year-over-year growth at the midpoint, or 2.6% year-over-year growth on a constant currency basis. As a reminder, Q1 of FY26 has one fewer day than the prior year. We expect non-GAAP operating income to be in the range of $440 million to $445 million, representing an operating margin of 38% at the midpoint. Our outlook for non-GAAP earnings per share is $1.29 to $1.31 based on approximately 316 million shares outstanding. And as a reminder, future share repurchases are not reflected in Share Count and EPS guidance. For the full year of FY26, we expect revenue to be in the range of $4.785 billion to $4.795 billion, which represents approximately 2.7% year-over-year growth at the midpoint, or 3.1% year-over-year growth on a constant currency basis. We expect our non-GAAP operating income to be in the range of $1.85 billion to $1.86 billion, representing an operating margin of approximately 39% at the midpoint. Our outlook for non-GAAP earnings per share for FY26 is $5.34 to $5.37, based on approximately 318 million shares outstanding. For FY26, we expect free cash flow to be in the range of $1.68 billion to $1.72 billion. We are proud of our progress in FY25 and we’re excited about the differentiated agentic AI vision and the value it’s delivering to customers. We'll continue to invest thoughtfully in our priorities that we’ve outlined while maintaining our focus on profitability and cash flow generation. We are excited and incredibly grateful for the trust and support of the entire Zoom team, our customers, and our investors.

Kash Rangan, Analyst

Hi, thank you very much. Congratulations on completing the fiscal year. Eric, I have a question for you. You've made significant strides in positioning the company as AI-first, as seen in the quarter-to-quarter usage of Zoom Companion and the Amazon deal you secured. Congratulations on that. Looking forward, where do you believe the AI capabilities could provide a boost for your business? Could they help to drive and accelerate the underlying platform, with the AI features contributing to revenue growth? While we're currently stable, is it possible that this could pave the way for growth beyond just stability? Thank you again.

Eric Yuan, CEO

Kash, that's a great question. That's to double down on AI investment; it's always our top priority. Right? For a while. Right? I think it's happening already, meaning if you look at our low-end SMB customer online buyers, AI Companion is part of that at no additional cost, which has made our service very sticky and also the customers give a very basic example, like meeting summary, right? It works so well, more and more customers follow the value. Actually, for sure, they are going to enjoy using our service model, right? That's for low end. For high end, for sure, and we understand that today AI Companion, at an additional cost, we cannot monetize. However, in April, we are going to announce the customized compliant for interested customers. We can monetize. But the most important thing is for business services. You take a Contact Center, for example, why we are winning? Because a lot of AI features like AI Expert Assist and a lot of features built into our quality management and so on and so forth. But all those business services, that's another great way for us to monetize AI for workplace and for enterprise customer AI Companion low end and also really make our service ticket better and improve the value that customers realize we are adding more and more services, more and more value. Guess what, they are going to see with Zoom plus; usage also will be higher. That's our strategy to leverage the AI.

Samad Samana, Analyst

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

Eric Yuan, CEO

I can address your question about AI from the perspective of our customers and partners. Nearly every vendor is trying to promote their AI solutions, and customers are savvy; they want to understand the real value AI brings to their business. They are interested in testing our services, specifically focusing on the value and cost. Our AI Companion, with all its core features, comes at no extra cost, and customers appreciate it because the quality improves every quarter. In contrast, some competitors' AI strategies can appear costly, and when customers see the high total cost of ownership, it can be a turn-off, especially if prices continue to rise without delivering sufficient value. We aim to build a trusted relationship by leveraging our AI technology, and I believe this will lead to our long-term success. Instead of pushing customers to pay more for perceived efficiencies, we share our AI strategy, roadmap, features, and pricing openly, which enhances trust. Zoom is known for its strong AI capabilities, and customers are now recognizing that value, which positions us well for future growth.

Michelle Chang, CFO

And then maybe just to add on with how to think about AI and what's in our guide. I would say from a top-line perspective, the trends that we're seeing in stemming churn as well as the contact center elite revenue that Eric talks about, those are in our plans. We certainly have revenue in our plans for the more H2 focused SKUs like custom AI companion, but those will still obviously be ramping and not a dominant thing. And then in terms of the investment, we said last time that this would be one of our three investments, and it's baked into the guidance.

Ryan MacWilliams, Analyst

Hi guys. Good to see you. Greetings from Switzerland. This is a new one for me, out of here asking the question on earnings call. Michelle, two for you. Lots of growth opportunities for Zoom. How would you rank the top 3 drivers for Zoom's net new revenue in fiscal 2026 between like Contact Center, AI and Phone, et cetera? And then as you build up for the full year guide, how should we think about what it implies from contributions from the enterprise customer segment and the online grocery?

Michelle Chang, CFO

Let me address the first question and then I'll circle back to the other one, Ryan, and I hope you're doing well in Switzerland. Our full year guidance is at 2.7%, but when you consider foreign exchange and the leap year, it adjusts to about 3.3%. For context, we anticipate that online will be flat to slightly down, while enterprise will be the primary growth driver. In thinking about the top three revenue drivers, let’s focus on our core business, which includes Phone. We are encouraged by the record churn rates we are experiencing, and the same positive trend is evident in our enterprise business. After peaks in downfalls at the beginning of 2025, we've seen consistent improvement every quarter, which is promising. We have high expectations for these areas. Additionally, our adjacent paths, such as contact center and Workvivo, are also significant. We aim to grow our customer base and continue the successes we've had in premium markets while also extending our reach down the channel. Regarding your question about AI, I want to highlight that our contact center revenue is significantly influenced by our elite SKU, which includes both inbound and outbound capabilities, as well as AI features.

Meta Marshall, Analyst

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

Michelle Chang, CFO

Do you want me to?

Eric Yuan, CEO

Yes, go ahead.

Michelle Chang, CFO

I was going to answer broad things and maybe you can layer in from a deal perspective. Does that sound good? All right. So it's nice to see you again as well. What I would say in terms of our priorities for our go-to-market, maybe the first one that I would call out is just to continue the move up market that we've been seeing. We have really seen progress in contact center and Workvivo in that space, but also in phone and others. So first priority, go-to-market wise would certainly be to move our enterprise business up market. Second thing really important to us, we've talked about it before, is integral to phone and contact center, but also moving further down in our customer breadth, which is really accelerating the channel. And then I would say, probably third to that is returning our online business to growth. While I sort of said the guide was flat down, the ambition, of course, is to return it to growth. So that's how I think about our top three priorities. Eric, do you want to comment on the field?

Eric Yuan, CEO

Yes. So yes, maybe to add on what Michelle said in terms of doubling down our channel, the business; look at our contact center in Q4, top 10 deals in contact center, six out of those 10 deals are driven by the channel partners. So we are going to invest more, right, to make sure that the channel partner can contribute more to our content center growth.

Alex Zukin, Analyst

Guys, congrats on a great quarter. Maybe just a two-parter, right? So first, to the extent, Eric, that you can talk about the demand environment post-election, the difference between the two segments in online and enterprise. And maybe talk about what you're seeing in SMB? What you're seeing I've gotten questions about federal exposure and all the Doge headlines. So just talk about you mentioned in the script that it's still choppy, it's still uncertain. So maybe put a finer point on that. And then what kind of got you over the line with Amazon in terms of winning that deal? And you're now at a point where kind of two of the MAG7 are deeply partnered and entrenched with Zoom, where to some extent they were effectively competing with one or two of your products beforehand. So what is kind of happening and how do you kind of see the opportunity to turn those into almost also distribution channels? You mentioned the Delta example with Workvivo. Amazon, I imagine, has a number of Chime customers that now maybe are opportunities.

Eric Yuan, CEO

So, Michelle, how about I address the second one? You addressed the first one.

Michelle Chang, CFO

I would describe the current macro environment as mixed but stable. On the positive side for the enterprise, we are experiencing significant momentum and this is reflected in our results. I have mentioned before that we are seeing sequential improvement in the down sells in the enterprise sector. Additionally, our online platform is achieving record low churn rates in both Q3 and Q4, which is encouraging. However, when you look at the news, there are reports of layoffs and a generally volatile atmosphere. This contributes to our sentiment that the situation remains mixed.

Eric Yuan, CEO

Yes. So regarding the Amazon deal, as you all know, right, Amazon was using the Chime, which was acquired many years ago, right? So you look at the video conferencing, and that is becoming more and more important. Again, Zoom not only just video conferencing but the full workplace platform with a lot of other services even in the conference room system, right? So Amazon, they are evaluating all those services. They want to find the best product to serve their employee needs, right? So Amazon, great company, does care for employee experience, right? By looking into all the services, right? So for sure, Zoom is the best choice, right? So they would like to deploy Zoom, right, to improve their communication and collaboration needs. That is kind of for all those companies that really care about employee experience; I think they all will select Zoom as a vendor. So speaking of distribution, we already started working together with Amazon. I think there is a huge opportunity ahead of us how to leverage the Amazon marketplace to drive our top-line growth. We already see some early signs of success. We're working together with the Amazon team more and more to drive, again, this is part of a channel partnership, right? Amazon workplace is doing very well for a lot of other companies, right? So we also want to be part of that as well. So, we think this is a win-win.

Peter Levine, Analyst

Great. Thank you for taking my questions here. So in April when the AI customization, the AI companion comes available, I think it's $11 or $12 a seat. Can you maybe help us understand how you're thinking about what the real use case is? And then in terms of adoption, like what are you envisioning in terms of how many employees within an organization would actually need this type of application? And then second for you, Eric, you do see the headlines around even in our world and banking, where a lot of people force me back five days a week. Maybe just help us understand how you’re thinking about that. Does that at all prohibit your customers maybe thinking about expanding? But just would love to know kind of your thoughts on if this back to office five days a week becomes more of a reality.

Eric Yuan, CEO

Yes, I think five days working week is for financial institutions. I think I fully understand, right? Because it's very important, like kind of in-person meetings for sure; there's a lot of benefit, I fully understand. But also at the same time, for every large financial institution, you always have employees across the country and also a lot of international branch offices as well. And you talk to the customers, partners, you still use Zoom, right? I think internal usage might be kind of up and down. But overall, on a truth like Zoom, it's still very important to be a business collaboration tool. I do not have any concerns. I truly respect every company decision, either fully remote or five days in office or hybrid. We sort of the thing for each company, right? So we just want to help our customers to enable, and no matter which way they go, and then make sure they have the best collaboration and communication tools to help them improve their productivity. Michelle, do you want to address the first one?

Michelle Chang, CFO

Yes. Maybe I'll let you talk about the use cases. But, Peter, in regards to your question about what are sort of the assumptions or what's the targeting in our head with the $12 custom AI companion SKU. I would say, starting with enterprise customers, obviously, the easiest place to sort of hunt on that is up our own customer base and talk about that, but certainly not just limited to that. But we'll be probably giving a lot more, I would say, at Enterprise Connect, which you can see on that, the thing there. But I would say we've assumed some degree of monetization in FY 2026. I think you'll see more of it in 2027. And we think that the $12 price point is going to be a really compelling TCO story for our customers really differentiated from what others in the market are pricing up.

Eric Yuan, CEO

Yes. So regarding the customer combining use cases, high level is we give customers flexibility to customize their needs. I give a few examples like one feature; we have a Zoom service called a video clip. We are going to support the standard template, right, how to support every customer; they have a customized template for each of the users; this is part of a Companion Studio, right, and also all kinds of third-party integration, right, and they like, they prefer, right some of those kind of third-party application integration with their data, with their knowledge, with their dictionary, a lot of things, right. Each company is different; they would not get customized, so we can leverage our Companion Studio to work together with the customer to support their needs and also at the same time we can monetize.

Mark Murphy, Analyst

Thank you. And I will echo Kash's congrats on finishing the fiscal year. Eric, I wanted to try to get your thoughts, your perspective on DeepSeek and any potential you see for lower inferencing costs in AI models if DeepSeek is something that you're testing out? And Michelle, looking at how strong the cash flow production is, can you speak to the cost or margin profile for the AI products? And what type of gross margin profile you see you maybe are thinking would be coming into the AI Companion as well?

Eric Yuan, CEO

Yes. So, Mark, yes, I can address your first question regarding DeepSeek. I think a few weeks ago, right, I did publish a LinkedIn post about my thoughts on DeepSeek after the earning call, I will forward that LinkedIn post. For high level, I think given this is open source, I really like to be called open source, right? If you look at it from vendors like us, kind of we build application layer and the AI technology; we also build our own large language model, a lot of techniques, news, a lot of open optimizations, so as well as we all can learn from. This is good for the application and the vendors like us. And as you can follow large language models, I also like to take a lot more for example, right, also kind of look at the DeepSeek and also by the way, look at even for hardware vendors like Media, Broadcom, and others that also are good for Zoom as well. The reason why there is a lot of demand for GPUs, right, and normally they serve those very large cloud vendors first, because we bought a lot. Like for Zoom, probably we are not on the top priority, maybe second priority, and a lot of other companies behind us with large cloud vendors, they don't want to buy way more. However, the huge demand, we want to buy more. After that, a lot of other companies also want to buy more. Overall, I think it's good for everyone. And also the cost for like from hardware side, large language model, the application, reference, everything. As you look at that, we will drive the cost down. That's why overall, that's a beautiful industry because it's open source.

Michelle Chang, CFO

And then, Mark, maybe your question about kind of how to think about the margins. We're not going to obviously give in any guidance or probably going forward any AI specific margins. But I would say that we look at those very closely and our margins for every active user are coming down in line with what our expectations would be, if not more. What I would say maybe more broadly to maybe address where I think you may be going with the question is that we're very pleased with our margin finish in FY25. And while we don't guide to the margin in 2026, I would say we feel good that our increased usage in AI and our spend there is going to be offset by efficiencies such that we should be able to see in FY 2026, some acceleration of margin in line with sort of not up to the 80% but holding very true to the principles that we set in our long-term margins.

Michael Turrin, Analyst

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

Michelle Chang, CFO

Perfect. So let me start with what I think is more tactical, but Michael, by all means, correct me if I'm misunderstanding your question. On the free cash flow, for 2025, we're certainly seeing quite the strong growth. There's obviously timing elements of that that can pull forward relative to 2026. Our expectation on 2026 is that you still continue to see that OI growth, but you're impacted by timing differences, as well as different interest conditions and tax conditions. So it's kind of how I would have investors think about free cash flows. In terms of your operating income and kind of how we think about it long term, I actually think you keyed that beautifully, which is, look, we are going to be first and foremost about revenue growth, so we are also going to balance that with profitability. Our long term guide, we gave what I would call as a wide margin of possibility of things that we would do. And really what Eric and I have been centered on is giving clear and clean prioritized business priorities to investors, so you know where we're investing in. And then really, look, we are going to invest when we see growth, but we're also going to be just pushing an ongoing frame of efficiency. And I think you really see that in our '26 guide, and I think you should expect to see similar.

Arjun Bhatia, Analyst

Perfect. Thank you so much. Eric, you mentioned agentic AI. As you're moving more towards agentic and you're adding agents to your platform, how do you think about just evolving your pricing model? Does that fall under the broader AI companion? Or do you anticipate having a different pricing approach for agent capabilities? And then, Michelle, it seems like you're just having a lot of traction with enterprise. It seems like that part of the business is going well. When do you think we should see NRR start to inflect and maybe what are the puts and takes there going into FY26? Thank you.

Eric Yuan, CEO

Yes. So regarding the agentic capabilities, today, you look at Zoom AI combined product; it's already agentic, right? Essentially look at it for $1 to $2 to $2, right? We already embrace the authentic framework, right? We have a workplace agent and also have business-as-a-service agent, I mean, like a part of a contact center. We also can support a third-party agent as well. And meaning, this is more like a technology natural evolution from GenAI to Agentic framework, where every company is doing that; we are doing that as well because this is very important and the new technology, new framework. A lot of agents were built by us and are live at Zoom AI companion studio; customers who can build the agent as well. I do not think we need to have a special SKU, right? Because this is part of our Zoom AI companion studio, right, and to offer customers agentic capabilities.

Michelle Chang, CFO

And then maybe on your comments on the guide, I just continue to reiterate that that full year guide has some headwinds of foreign exchange and leap year sort of without 2.7 when you factor them in 3.3. I'll reiterate my comments on online sort of the expectation is that it's flat to slight decline and that really enterprises what we expect to carry the growth. And in terms of the elements of what we expect to carry the growth, it would be an acceleration, but it's the same things we've been talking about and frankly seen throughout FY25, pushing up market, gaining channel traction, and seeing churn and down sells moderate.

James Fish, Analyst

Hey guys. Thanks for the question here. Building off of a bunch of the prior ones, but as we think about a shift more towards AI contribution, are we shifting more towards a consumption model rather than a seat model over time? And why wouldn't we see margin compression longer term? Or how are you guys kind of thinking about balancing fee-based pricing and consumption-based pricing? And also working off of Turin's prior question, you are guiding for a free cash flow conversion rate that is beneath what you guys just did, and you mentioned, Michelle, some pull forward. So how should we think about what sort of pull forward in the cash flow that wouldn't be repeating or why we wouldn't be closer to a sort of 100% free cash flow conversion at times?

Michelle Chang, CFO

Yes. I can start with that. Let's see, your first question was sort of around how to think about margins and business models and why we don't see compression. And what I would say is that what we expect to see is similar to what you saw in FY25, which is we're seeing an obvious increase in costs from our AI and that we have an ongoing methodical kind of efficiency list to offset, and we certainly expect that broadly to continue into FY26. So I think we feel good about our ability to kind of moderate that. Maybe other things I would talk about, Eric mentioned in his prepared remarks, but we really think the federated approach that we have to AI is an important element to being able to both give better quality of results, but also improves costs, meaning being able to match the right model at the right cost to the right action that needs to be done for customer value. So that's really how we're thinking about managing things broadly.

Siti Panigrahi, Analyst

Hi. Thanks for squeezing me in. I'll go back to the contact center. Eric, if you wear your General Manager hat for the contact center, and if you look at phone, after two, three years, we saw the inflection point. Now contact center has been now almost like two, three years since we launched. Is this a year for the contact center? Or do you think there's some kind of it's a demand side, customers still trying to pause and looking at the AI strategy, there's some kind of delay there? And also, we see like Avaya now is not going to support the AXP customer; less than 200 fixed customers. So how do you see the contact center opportunity in terms of inflection? When do you think it will be like phone?

Eric Yuan, CEO

Yes. First of all, we do see the momentum, right? And in Q3, in terms of a number of seats, larger the deal, Q4 in terms of ARR, so larger the deal. More and more customers realize, wow, Zoom contact center works so well. Look at all the innovation and the scalability and integration with other core services, I think also plus AI. I think we just needed to focus on execution and the market opportunity there. We look at our top 10 deals; I think if I recall correctly, six or seven to replace the existing cloud vendors, right? The key is really because given two years ago, I've announced that, right? So given the shorter period of time and customers do not realize we have that. Again, this is a marketing problem. We've got to fix that, but we have high confidence on the product side. I think we do see momentum now. Hopefully, this year, we can make even more progress compared to like the Zoom phone growth trajectory. We want to beat that, right? So that's always our aspiration.

Michelle Chang, CFO

And then, Siti, please bear your note. It was seven of ten, seven coming from cloud, three coming from on-prem, and the six of 10 is the momentum in our channel.

Operator, Operator

Thank you very much. Our first question will be from Kash Rangan at Goldman Sachs. Kash, please proceed. Thank you again.

Eric Yuan, CEO

Thank you all for your time. Really appreciate it.

Michelle Chang, CFO

Yeah, thank you.

Operator, Operator

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