Zoom Communications Aktie

All right. I think we're good to get started than ever. Delighted to have Michelle from Zoom, Zoom CFO, here with us today. Thank you so much for coming.

My pleasure.

We'll get right into it. As Zoom combines its conversational context with data from customers' other applications, how does the platform evolve into a more strategic orchestration layer?

Yes. This is an important step for Zoom. And look, I think everyone is kind of reinventing themselves in an AI era, and it's certainly true for Zoom, not only in terms of just how we even reinvent our core in our meetings business, but we've broadened so much out of our meetings business, which I know we'll talk about today, and it's about reinventing that. So what Zoom talks about is there's going to be systems of engagement and systems of record. We're obviously coming at it from an engagement perspective. But really what matters to the customer is getting them to action because when we know there's action, then there's business value. And the good news is when we can deliver business value to our customers, it drives revenue.

So what we're really focused on within that is we sit at the context of so many conversations. The differential for Zoom in terms of an AI era and why we win is the shift to platform that you were mentioning is because there's so much that happens in human-to-human conversations that just gets lost. It never sits in a system of record. It never sits -- and even today, it is sort of just dispersed pre-AI world in a system of engagement. So we're really excited about this and think there's a real differentiator for Zoom both in the context that we have in the AI, obviously, our quality and all of that, but also in the context that we can see not only inside the company, but outside the company. So I know we'll get to unpacking that more as we get.

Yes. And on that point, I guess, the strategic case for Zoom increasingly rests on the idea that conversational context is a differentiated asset. So what does Zoom know because it sits inside live conversations that another enterprise software company can't easily recreate?

Yes. It is that context, right? And I'll give you sort of an example because that context is so hard to capture anywhere. And yet it's really a lot of where the value for a lot of companies sits is in that human-to-human connection. So Eric talks about this, our CEO talks about this as human-to-human connections will always persist. It's the ingenuity, the creativity of humans. That's where that will reside and humans to systems and systems to system, those are going to change as we get into an AI world. But really, there's a deep belief at Zoom that, that human connection prevails. And so let me give a couple of examples of that of what we talk about when we talk about system of action and why we think Zoom has a unique differential.

Let's say I'm an engineer. I sit through a Monday morning meeting to review specs and whatever. We're sitting there talking the conversation goes all over. I have now a database of all the conversations, but I take that conversation intelligence and I update it into Jira without even leaving the Zoom platform. That's what we're talking about when we talk about system of action.

Let's say, I'm selling you something, right? Conversation goes all over the place. We make decisions. But it's that -- taking that conversation, updating automatically without a seller having to spend more cycles into Salesforce and be able to take action off of it that really creates a system of action. And Zoom is excited about this because when we can do that, there's such value for the customer. When there's value for the customer, there's revenue per se.

Yes. And you framed Zoom's growth inflection around product diversification, AI monetization, focusing upmarket channel expansion and then also lowering churn. Which of these have kind of progressed the furthest, I'd say, over the last kind of 6 to 12 months? And where do you feel like you have the largest execution gap to come?

So look, our growth story, I guess, first before I kind of get to parsing it out is won in an enterprise. Our online business, we've been working to stabilize. That represents about 38% of our business. Our growth, our growth inflection, which is all what Zoom is about these days, is all in the enterprise side. And I would say it's a bit interrelated to some of the dynamics that you said. So we've been moving from just being a meetings company to much more diversified product set. A lot of that diversified product set sits in an AI world, and a lot of it is underscored with channel and moving up market. So those things kind of all begin to intertwined, but those are really the dynamics that are driving that inflection in growth.

And look, in terms of execution and all of that. Look, I think we've seen tremendous pace of innovation from our engineering. It's really just the sharpening of our portfolio. And I think you're going to see that. You've seen it come in, faster innovation, sharpening portfolio. And on the sales side, it's a lot of just ongoing operational excellence.

We often get the question from investors whenever we see kind of a period where fundamentals improve, is this structural or cyclical? And so on the enterprise business specifically, what gives you kind of confidence that this represents a structural improvement in the growth rate of that business rather than just a period.

Yes. So let me maybe then unpack our enterprise growth story with -- I thought it was very important when I came on as CFO to really hone for investors what are the things that will drive durable growth. How can -- I would get the question all the time. How can you get to double-digit growth? And look, it's not just important to talk about investors, and I got to turn around and talk to all of Zoom about it. And so we landed on our 3 priorities that now we use every time we talk to investors, it frames our earnings scripts every time, but it also frames where we make our investments internally and where we think the growth comes from.

First and most mature, you've got to infuse AI into our core in our meetings business, in our phone business, which we call Workplace, we've got to continually reinvent those because they represent great launching pads. And the thing that gives me confidence that this isn't just a one-off, if you will, is we're seeing churn go down year-over-year, multi-quarter year trend. Phone, strong grower for us, clearly taking share, growth in the teens. Then go to the next one, which is we know we have strength in customer experience. We know there's a convergence and a nice synergy, in particular for Zoom with UCaaS and CCaaS. And so we've got to figure out the scale there, and you're seeing proof of durability in quarter in and quarter out. It's driven by AI. It's high double digit, meaning just south of 100% growth like quarter in and quarter out. And we're just getting started in terms of our product portfolio, and we can come back to that.

And then you go to that innovation of AI and then the other pieces we can monetize in ZoomMate that I'm sure we'll talk about and then things like our Common Room and ZRA product with sales AI. And I'm like -- think about where we are in those stages, and that gives me a ton of confidence for durability.

Yes. So starting a little bit higher level on the AI strategy, and then we'll go into the specific products. Zoom's Federated AI architecture lets you kind of route workloads across different models and your own smaller models. How do you think about the benefits of that approach for both product quality and unit economics?

Yes. Look, I think that Zoom is -- was an early adopter of the Federated. In a time when a lot of people were going all in with one model, I think Zoom took a very differentiated approach. Now it's become more norm, but it's essential for quality and cost. So to your question.

And what it means for Zoom is, hey, we're going to have an SLM that's going to be where we take all of our high-volume stuff and we grind cost out and we get super good at quality in a way that others just can't match, and you're seeing that. And we're going to have LLM where they're sort of the cutting edge, and we want to use those and test and we'll use them opportunistically, and we won't just be linked to one provider. And then look, it's going to also be an open source play for Zoom as well.

And look, this combination of things as well as flexibility in how customers deploy on-prem, how they want to, we see it as winning in large deals. There are deals that we mentioned a multimillion dollar ARR in the last quarter alone, and Zoom's approach to AI was a key differential in the deal, not only churn, but upselling as well.

Yes. And when you're putting new products out into markets that have that kind of like AI functionality built in. How do you think about whether to just add those to your core offerings and not necessarily directly monetize versus when you directly monetize?

Yes. This is another one. I'll give Zoom credit when I came in. They had put AI value in their meetings paid SKUs at no additional cost. And I have to say, first, that was like, wow, but it made sense the more you began to think about customers will expect a certain amount of AI value just as part of it. Similar analogy like cars just have seat belts, right? And so what we tend to think about is really focusing maniacally on customer value. And that's where we believe we'll monetize. And look, as part of it, there'll be some like meeting summaries or capturing notes that people will just expect that as part of the meetings experience. But look, we're also going to hold ourselves to ROI there. We ought to expect reduction in churn. We ought to expect bringing in new customers, maybe some competitive wins. But then we'll reserve sort of the side of the paywall, things where we feel like we have unique value and things like ZoomMate and our sales AI and obviously, customer experience, where the customer then can very clearly see the ROI of their AI deployment.

Yes. And then on customer experience specifically, currently, Zoom, I'd say the cleanest source of direct AI monetization. So as virtual agents automate more interactions, how does that expand Zoom's revenue opportunity rather than just creating pressure, I'd say, on like existing seats?

Yes. This is such a good one, and I love the question because I think it's -- some people that are maybe more looking at this as traditional players in contact center, maybe don't understand the chapter that Zoom entered in, right? So Zoom entered as sort of an AI-first customer experience with a differentiated approach that I'm going to talk about. But before I go to it, why it's important is we kind of came in with a modern fresh approach. We don't have the tech debt and the business model transition that a lot of the more traditional players that started in customer experience are grappling with. But look, it's not enough just to be that. We really embrace the AI first.

And I think Zoom is really unique on 2 particular fronts. We've approached our customer experience as sort of a holistic approach. We're going to be there in traditional contact center. We're going to be there when agents need to be assisted with AI, and we're going to be there in virtual agents, which is also opening up new markets. But Zoom differentiates by stitching that together with intelligence and being able to hand off seamlessly to that within contact center and then across to UCaaS as well. And so I think that's a lot of what is driving. If you look at the underlying signals in our customer experience business, that's what's driving the formula of success.

Yes. And then ZoomMate kind of expands the monetization, I'd say, opportunity outside of customer experience. But it's kind of much earlier in that adoption curve. So what have you learned from initial customers about their willingness to pay for something that's more of the horizontal AI?

Yes. So first, for those that may be less familiar with ZoomMate, think of this as that behind the paywall AI value for meetings business primarily. And so look, there's 3 value props, and then I'll talk about maybe what we're seeing in enterprise customers versus more small customers. The value prop is the ability once you have that virality of AI usage in the meeting space, in the phone base to be able to search even if it's not a Zoom meeting, even if it's not Zoom e-mail. So Microsoft Teams, Google Mail, Slack chat, the ability to search across all of the customer's assets as well as their enterprise systems, those integrations. So that's value prop number one from ZoomMate. Second one is the ability then to take that intelligence and move it into agentic orchestration, simple tasks and actions. And the third one is the ability to turn it into creation at the end.

A simple example, I'd say just in case that sounds like a bunch of tech words. Let's say we're in a sales meeting. I can take all of those sales calls no matter where they happen, have a base of knowledge, marry that with Salesforce data and e-mails with the customer. I can query on it and learn. I have a base that just keeps getting smarter with me, turn it into simple actions of updating Salesforce and then turn it into a custom RFP at the end. So look at enterprise customers, very different conversations. It starts with governance, trust, integration, search.

With SMB, it's far more, I want to be out of the box, simple to deploy, help me with this problem that I have. And so look, a lot of our big wins that we shared with investors have been on the enterprise side. We put some big names that have done wall-to-wall deployment like MongoDB, Oracle, Salesforce, and we're proud of those. And it's also about bringing that value to our SMB and online audiences as well.

Yes. As you see customers shift out of the seat-based pricing model and kind of go more towards a hybrid consumption outcome-based pricing model, how are you seeing them adapt in those sales processes? And how has that kind of evolved over the past year or 2?

Yes. So first, I think it's worth noting kind of where Zoom is in that journey. Look, we have hybrid in ZoomMate. We have full consumptive in things like ZRA. Still as a percentage for Zoom, it's small. Look, this is a lot of where the market is going. And together with our customers, we are working through it. A lot of it is visibility, understanding, walking customers through it. They may have been burned before in terms of large surprises not by us, but it's a lot of helping them understand, getting comfort and then making sure that our sellers -- we tend to not pivot our sellers by consumption or per user, but we pivot them on adding value to the customer and think that's the right answer for our sales side.

Yes. And as you're seeing AI become larger from a usage perspective within your customer base, how are you kind of thinking about the different margin levers that you can look at in order to maintain consistent gross margins over the next couple of quarters, acknowledging that I think usage is the most important thing for a lot of companies right now.

Yes. Look, I'd say it starts with the top line. When you focus on business value, that brings the top line in. I think where people get sideways is where they forget that you owe the customer business value at the end of the day. So I think it starts there. Look, Zoom has best-in-class margins. And our AI usage has gone up somewhere in the 100% to 200% growth year-over-year for quite some time, and we've been able to do that and still with an expanding portfolio, hold to gross margins.

Well, the formula for that, I would say, is the Federated stuff that we talked about before as well as it is just efficiencies in our core. And then look, staying true to that monetization piece. And then look, we have to work that SLM to LLM and now open source gives us a great new lever to go after.

Yes. And you guys are kind of operating at that high-end watermark that we see companies from an operating margin perspective, so 40% non-GAAP margin. How do you think about that going forward? Like as you start to invest in more growth initiatives, how do you think about the ROI of that? And then does that kind of indicate there's more operating leverage still to come for the company? Or any...

First, let me start with gross margin, which we're still holding to a long-term 80%, which is phenomenal even despite all of those. So starting there, what I've said to investors is you should think about our FY '27 operating margin guidance, which is 40.7% in our latest guide, as reflective of where we'll be. Only when we see a more notable inflection in revenue growth, will we change sort of our operating margin. And that's because, like I've said very consistently, my focus will be on growth first and foremost, getting that growth to inflect, and we're proud of the progress. But at the same time, when we're at 5% growth, we have to be also maintaining our margins. And so look, we'll be very thoughtful about how we navigate that, but that's the guidance that we've given to investors.

Yes. I'm pivoting a little bit to more of the specific product question. Workvivo has now surpassed $100 million in ARR and is expanding from kind of an employee communications tool into kind of a broader AI native digital headquarters, as you guys have said. How does Workvivo's role within the broader Zoom platform change as more employees and knowledge and work moving into that platform?

I love -- first, let me say Workvivo sort of started as our employee experience product, and I love what they're doing this year. One, it's fun to see them pass the $100 million milestone because it's a great example of an acquired product set for Zoom. But even more, I talked about the Federated model. We talked about the advantages that, that gives to Zoom. But there's also a secret ingredient in Zoom where we build sort of once with our core AI technology and then leverage that in different ways. If we think about the system of action of taking conversation to completion, there's a lot of reusable parts in that, and that's going to also be a key ingredient, and Workvivo is a great example of that.

So they announced Seer, which is using kind of AI to get insights about your employee base. And they put AI in sort of an AI-first digital employee experience infused in there. Well, they did it with the backbone of what Zoom had produced. And so I love that, and now it opens new revenue streams to continue to inflect the growth rate for Workvivo.

And then Zoom Revenue Accelerator and then Common Room as well kind of continue to extend Zoom outside of that just sales conversation and into getting more buyer signals, prospecting and a lot of things that can happen before that conversation even begins. So how kind of broad is your ambition within the revenue technology stack? And like how do you kind of view the bounds of where you'll go and where you won't go?

Yes. Look, I think you'll see us our Common Room, which is sort of that insights piece that you talked about, together with ZRA, which was an existing product that sort of took that conversational intelligence when we're in a sales call and having that into completion, it's a great marrying of 2 product sets to deliver something that others in the industry can't do.

Look, we'll keep investors updated about where the product portfolio goes. But the thing I want to make sure I get out to investors is this is an area where Zoom has a right to win because a lot of our meetings basically occur and sellers' calls happen on Zoom Phone and happen on Zoom Meetings. And if they don't, we have the open ecosystem approach. So it's an area where I think taking that conversational intelligence to completion is a really great opportunity. And we hear from CROs all the time of just wanting less complexity in their tech stack and wanting something that fuses it together. And so really excited about what Zoom is doing in the combination of the 2. And I think that you're going to see that rise in our priorities as we move forward.

And then on the phone piece, that continues to grow at a double-digit rate. It's kind of also scaled very nicely as well. So it's not growing double digits on a small base. It's growing double digits on a big base. It's continued to be kind of more dependent on replacing on-premise systems and kind of going after that like old core phone system, I would say. So do you see that as kind of like the primary driver from here? Or do you think it kind of could use other levers again?

What's driving our phone base is a couple of things. Yes, it's on-prem because those -- a lot of people on on-prem are rethinking in an AI world. But it's almost equally -- last quarter, we had a lot of on-prem that can tend to be lumpy, but we drive both off of the cloud and on-prem. So Zoom has a healthy flow from both. And what I love about it is it's giving some real nice adjacencies to Zoom.

Think about contact center. Frequently, we see contact center and Zoom deals go hand-in-hand, customers wanting that simplicity of one stack. But we also see Zoom even opening up new -- or Zoom Phone opening up new AI doors and things like we have a product AI reception. We'll think about what a natural adjacency that is to a phone sale and what value that can provide to customers that need, sort of, an always-on simple help and resolution for their customers and what cost savings that can be.

So I get excited both about the durability of the team's growth of feeding both office cloud and on-prem as well as the adjacencies that it gives us to land and expand in our base from there.

And this applies a little bit to Zoom Phone, but also probably to the broader suite. How much are you seeing AI start to become a part of decisions that customers are making when they're thinking about like future-proofing their tech stack? Or does that still feel kind of like a newer opportunity?

AI is in any conversation. And that's why like if I go back to our priorities, every single one talks about AI. We got to reinvent the meeting for AI. We've got to fuse AI and some. We're clearly winning in contact center because of the AI disruption and because we have a tremendous product to meet that moment. And then we got to add new vertical scenarios in Common Room and ZRA and horizontal scenarios in ZoomMate. And so AI is the red thread to all of those where it's no longer just some AI for AI's sake. But I would say the era that we're moving into is prove the real value. And that's why I love our approach is like customer first, how do you show value to them. And when we can do that with incremental sales or productivity or higher CSAT and cost reductions and resolution times, that's when Zoom is going to win.

I think there's been a perception at least that Zoom has kind of historically won through this best-of-breed approach. But increasingly, you're depending on a broader platform adoption in order to grow. So how do you kind of preserve that product differentiation and that best-of-breed, like, quality while also going after a broader platform opportunity?

Yes. Look, I give our CEO a lot of credit for that. Look, it's how he thinks. If I think about the ethos of Zoom, if you will, it's simplicity, reliability, open. Look, those are critical and value for the customer. Those are as critical in yesterday of building the meetings core as they are in an AI world. And I think that's why you're seeing us focus on customer value, focus on simple and reliable scenarios to deliver that value. And then certainly, in an AI world, an open ecosystem, it's not going to just be everyone does all their AI with one person. That's not going to be the AI world we live in.

Yes. And then anything on like AI budgets and how you're seeing at least enterprise customers start to make room in their organization for AI, understanding a lot of it can be like value-based pricing, but any kind of help that you can give us getting in the minds of your customers that can...

Yes. Look, I'll give you the CFO perspective, which is, I think a lot of -- it's clearly driving value from an R&D perspective and pace of innovation. You can see that so much of what I even talked about in that third priority came in the last 6 months.

Customer experience, I think that that's one of the first leading indicators of AI. Just from the standpoint that like customers can see how we can solve the chronic issues of resolution time, having to repeat yourself, which leads to poor CSAT. And so in terms of unlocking budgets, I think it starts with that customer value. And it's a lot of -- it's going to come from other areas that aren't necessarily tech spend. So it's going to come from, if you will, in the old cloud days, the analog to digital transformation of budgets that ultimately drives that. And look, I think maybe to throw in one because I probably forgot to mention it earlier. I think there's a lot of companies that put out AI stats of money. And to me, the only stat that matters is, is AI inflecting your revenue growth in total? And so for Zoom, it's a bit complicated because it comes in indirect monetization and direct monetization. But the thing I care most about is, are we adding value for our customers. And when we do, does it impact our revenue growth.

And I think some of the products that we talked about here, some of them are organic, some of them are inorganic. I think we've definitely seen software companies in general become more acquisitive in this AI era and kind of go into the private markets more often. Curious what your philosophy has been and if there's been kind of any change to that philosophy just as a result of the amount of innovation we're seeing in the private market.

Yes. Look, I would say is there's clearly been a change. Zoom has acquired 2 companies in its 15-year history and 3 in the last year. And I think it's because there is a lot of value out there, but you also have to be very careful. And so what I have tried to do with investors is really sharpen our talk track of how to think about when we will acquire. So what we've said is we'll acquire as part of 1 of those 3 priorities. We will acquire and it won't slow down the progress that we're making. We'll acquire with strong financials, meaning a clear thesis of payoffs and return and getting things to durable margins, et cetera, and inflecting revenue growth with synergies. And look, as a result, for Zoom, that means largely small- to medium-sized acquisitions, which is what you saw us do with Bonsai, BrightHire and Common Room.

And as customer expectations have continued to evolve for Zoom kind of reflective of how you're selling more of a platform today, any kind of direction that customers are pulling you into next? Like how do you think about kind of what that next leg is going forward?

Look, I think the conversations with customers are about AI trust and governance. I think the conversations have gone beyond AI for AI's sake and are very much like prove the value. And that's great because I think that's where Zoom has really focused to. So there's a great meeting of those 2. And look, there's probably a bit of ahead of us, if I give one sort of on the future, is this consumptive? And what does that look like? And how do I think about budgeting that differently as part of that.

Yes. Any kind of early look or tidbits you're willing to give us ahead of the Zoomtopia conference in October?

Let's see. I think with Zoomtopia, I think you're going to continue to see AI innovation. And I think you're going to see us continue to sharpen those 3 priorities of the growth represent what gets us back to double-digit, more durable revenue growth. And I think you're going to see us sharpen them even more for investors, just the turning of the crank as we go further on in our journey. And look, I think you're going to continue to see Zoom be Zoom, simple, innovative, fast-paced while sticking to customer and our core. And we're excited to have an Investor Day, too. So we'll -- I think from an Investor Day, you can expect us to translate what we see at Zoomtopia to investors and how you think about that relative to our growth. And we'll have some longer-term guidance in there and some fun stats to share as well.

Well, I appreciate it so much. Please join me in thanking Michelle.

Thank you.

Hello, everyone, and welcome to Zoom's Q2 FY 2027 Earnings Release webinar. I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.

Thank you, Catherine. Hello, everyone, and welcome to Zoom's earnings webinar for the second quarter of fiscal year 2027, and I'm joined today by Zoom's Founder and CEO, Eric Yuan; and Zoom's CFO, Michelle Chang.

Today, I'm giving my prepared remarks by Zoom Custom Avatar and so will Eric and Michelle. After the scripted portion of the call, Eric and Michelle will be on camera live to answer your questions.

Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.com. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

During this call, we will make forward-looking statements including statements regarding our financial outlook for the third quarter and full fiscal year 2027, our expectations regarding financial and business trends impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, including our AI strategy and investments 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, who is also giving his prepared remarks via Zoom Custom Avatar.

Thank you, Charles. FY '27 continues to progress well. Total revenue grew 4.9% with enterprise revenue growing 7.8%, its strongest rate in 3 years. The enterprise acceleration was driven by our focused execution against our 3 priorities of elevating workplace with AI, scaling AI first customer experience and driving growth in new AI products.

This progress reflects our success in bringing our AI first system of action vision to life, helping customers reduce costs and create greater business value. That vision is grounded in Zoom Workplace, which we continue to enhance with AI. Across Workplace and our broader communications platform, AI is becoming increasingly embedded in how users work throughout the communication and collaboration life cycle.

Licensed monthly active users of our AI features in Workplace grew 125% year-over-year. We are even more encouraged by the broadening engagement, which has expanded from reactive communication summaries into active querying and building workflows, turning insights into action and conversations into outcomes.

Our wins in Q2 speak to our growing ability to win as a system of action for modern work. We saw 1 of the largest U.S. tech companies renew Zoom Workplace in a deal that expanded its ARR by $1.9 million, driven by the deep employee appreciation for the Zoom meetings and rooms experience, our AI vision and our ability to integrate and coexist with Google Workspace.

With ARR growing in the teens, Zoom Phone continues to demonstrate its value, both as a natural add-on to Zoom workplace and increasingly as a driver to broader platform adoption. We saw both dynamics in Q2 and A major U.S. wealth manager upgraded to Zoom Workplace Enterprise Primer, including a wall-to-wall rollout of Zoom phone replacing multiple vendors. Zoom Phone is also creating pull-through for our broader platform. For example, QXO, a large North American distributor and installer of building products chose Zoom Phone company-wide for roughly 8,000 employees alongside Zoom Contact Center to unify their UCaaS and CCaaS systems, integrate with Microsoft Teams and automatically drive CRM updates from live interactions. We were also very pleased with the progress of our employee experience offering within our system of action.

In Q2, a leading U.S. insurer and major Zoom Workplace and Phone user expanded into Workvivo, marking 1 of Workvivo's largest ever deals as it also surpassed $100 million in ARR. We are also priming Workvivo for the AI era by launching Workvivo HQ and AI native digital headquarters built on Zoom's AI technology, bringing communication, knowledge and action together for every employee. On a global luxury retail brand selected Workvivo HQ as their employee experience platform and will deploy Workvivo HQ agent to give thousands of frontline workers faster access to ANSYS from their policies and databases.

As you can see, customers are choosing Zoom as an AI-first secure integrated multiproduct system of action, sometimes displacing multiple vendors, other times coexisting with them. This progress exemplifies our ability to meet customers where they are, turn conversations into business value while driving durable platform expansion for Zoom.

Customer experience is a clear example of our platform strategy translating into growth and direct AI monetization. In Q2, Zoom CX ARR continued to grow at a high double-digit year-over-year rate, and we set a record for the number of 7-figure ARR deals. AI continues to drive this momentum with paid AI in 9 of the top 10 Zoom CX deals showing growing demand for a system of action that connects automation, human agents and intelligence. We saw rapid adoption in Zoom virtual agent, both as a Zoom Contact Center attached and as a stand-alone offering with its customer count growing more than 250% year-over-year. ZVA's voice and chat agents go beyond simply answering questions. They resolve issues, complete multistep workflows and escalate to human agents with full context when needed. This validates our vision of moving customers from chatbots to resolution agents turning conversations into resolved outcomes at scale.

Increasingly, customers are going all in on Zoom CX, combining our virtual agent and agent-assisted AI solutions to enable seamless transitions from automated self-service to human support. For example, in Q2, 1 of the largest U.S. banks chose ZVA while expanding its existing ZCC lead deployment to enable self-service alongside AI-assisted human support, helping them scale to meet surging help desk volume. For others, the value is in breaking down the fragmentation between UCaaS and CCaaS solutions and bringing communications onto a unified platform. In Q2, a leading enterprise software company selected ZVA Voice as a natural extension to Zoom Phone as they look to modernize their customer experience.

We also saw a major U.S. cybersecurity company select Zoom Contact Center to replace multiple vendors and securely unify their UCaaS and CCaaS solutions Building on their use of Zoom video in customer interactions and allowing agents to escalate voice calls to ZCC video session seamlessly and natively.

It is not only customer recognition. Early this month, Zoom was named the leader in the IDC MarketScape for AgentixCCOS. This progress demonstrates the momentum behind Zoom CX and validates our differentiated approach, a unified AI-first system of action that connects self-service, human support and internal communications to deliver better customer outcomes at scale.

Our progress in enhancing workplace and scaling customer experience gives us a natural foundation from which to deliver new AI value to our customers in horizontal and vertical scenarios. In horizontal AI, we launched Zoom Mate in June, bringing our system of action strategy to life for our workplace users through AI first productivity tools, agentic search and agentic workflows. We've already seen interest spanning our Zoom workplace base from small businesses to the world's largest enterprises. By combining Zoom conversation data and proprietary intelligence with other enterprise systems, Zoom Mate turns conversations into completed work and business value. In Q2, we were delighted to see the University of Newcastle in Australia, already a full platform Zoom customer add Zoom Mate to further enhance its collaboration and communication capabilities.

As we expand the system of action across the enterprise, we are using Zoom's unique position in live communications to capture context and intend and apply that intelligence to vertical workflows. Sales is a strong example Zoom Revenue Accelerator, our revenue orchestration solution turns live sales conversations into intelligence that supports coaching and action to improve seller productivity and win rates. ZRA had another strong quarter with paid customers growing 41% year-over-year. Common room extends this value upstream, creating a fuller end-to-end revenue intelligence and orchestration solution together with ZRA and the broader Zoom platform. We closed the acquisition in mid-July, adding buyer intelligence that unifies fragmented signals to identify in-market accounts, key buyers and the right reasons to engage.

In Q2, Okta expanded their common room contract as they look to further capture the value that AI-driven buyer intelligence delivers by consolidating customer insights across platforms and surfacing real-time buyer signals to convert deals into wins faster.

Across our 3 priorities, the common thread is clear. Zoom is deepening its value to our customers as a system of action. We are embedding AI across our platform to turn conversational context into action and deliver what customers want, real AI value that produces outcomes. We are encouraged by the momentum across our platform and proud of our progress expanding AI monetization to durable growth and most importantly, deliver enduring value for our customers.

Michelle, via Zoom Custom Avatar, will now take us through our Q2 financial results. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to be with you today to share Zoom's Q2 FY 2027 financial performance. In Q2, total revenue grew 4.9% year-over-year to $1.28 billion or 4.7% in constant currency. This result was $7 million above the high end of our guidance. Our enterprise business drove the outperformance with revenue growing 7.8% year-over-year, representing 62% of our total revenue, up 2 points year-over-year.

In our online business, Q2 average monthly churn was 2.9%, in line with Q2 of last year. Within our enterprise business, we saw 8% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 33% of our total revenue, up 1 point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 was 99%, up 1 point from the prior year period and in line with the prior quarter.

Looking at our international growth. Our Americas revenue grew 6% year-over-year, EMEA grew 2% and APAC grew 4%. Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expense and associated payroll taxes, net litigation settlements, acquisition-related expenses, net gains or losses on strategic investments and all associated tax effects.

Non-GAAP gross margin in Q2 was 79.1% compared to 79.8% in Q2 of last year. We continue to deliver strong gross margins as we broaden our AI product portfolio and optimize for scaling customer adoption. Non-GAAP income from operations grew 1% year-over-year to $510 million, in line with our guidance. Non-GAAP operating margin for Q2 was 40% compared to 41.3% in Q2 of last year. We continue to deliver very strong operating margins while improving top line growth as we further invest in our growing portfolio of AI products and drive future efficiencies in our AI infrastructure. Non-GAAP diluted net income per share in Q2 increased to $1.55 on approximately $300 million non-GAAP diluted weighted average shares outstanding. This result was $0.08 above the high end of our guidance and $0.02 higher than Q2 of last year. The EPS growth reflects strong top line performance as well as antidilution driven by our buyback program and disciplined stock compensation management.

Turning to the balance sheet. Deferred revenue at the end of Q2 grew 6% year-over-year to $1.56 billion, above the high end of our previously provided range of 2% to 3%. For Q3, we expect deferred revenue to be up 3% to 4% year-over-year.

Looking at both our billed and unbilled contracts, our RPO increased 14% year-over-year to approximately $4.5 billion, driven by noncurrent RPO growth of 25%. The strong growth in RPO reflects our continued success landing larger, longer-term multiproduct platform deals, demonstrating growing demand for our AI first platform.

In Q2, operating cash flow was $495 million, representing an operating cash flow margin of 38.7%. Free cash flow in the quarter was $472 million, representing a free cash flow margin of 37%. We ended the quarter with $7.2 billion in cash and cash equivalents and marketable securities, excluding restricted cash. In Q2, we repurchased 3.7 million shares for approximately $352 million. across our $4.7 billion share repurchase plan, we've repurchased a total of 44.2 million shares for $3.4 billion.

Turning to guidance. For Q3, we expect revenue to be in the range of $1.275 billion to $1.28 billion, representing 3.9% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $510 million to $515 million, representing an operating margin of 40.1% at the midpoint. Our outlook for non-GAAP earnings per share is $1.46 to $1.48 based on approximately 301 million shares outstanding.

For the full year of FY '27, we are excited to raise our revenue and EPS guidance. We now expect revenue to be in the range of $5.085 billion to $5.095 billion which represents 4.5% year-over-year growth at the midpoint. Our increased revenue outlook assumes enterprise revenue growing faster than expected, partially offset by flat online growth. We continue to expect our non-GAAP operating income to be in the range of $2.065 billion to $2.075 billion, representing an operating margin of 40.7% at the midpoint.

In addition, our outlook for non-GAAP earnings per share in fiscal year '27 is increasing to $6.08 and to $6.12 based on approximately 301 million shares outstanding.

As a reminder, future share repurchases are not reflected in share count and EPS guidance. We are also pleased to raise our free cash flow outlook for the full year, which we now expect to be in the range of $1.78 billion to $1.82 billion. This raise reflects the strength in free cash flow in the first half as well as a downward revision in our CapEx spend for the year.

In closing, Q2 was a good quarter with continued execution across our 3 priorities and growing adoption of Zoom as an AI-first system of action. We are pleased with our progress in AI monetization, led by customer experience and early momentum across new AI revenue streams. We remain on track to surpass $5 billion in revenue this year while maintaining our focus on profitability, cash flow generation and shareholder returns. Thank you to our customers, investors and of course, the entire Zoom team for your trust and support.

With that, Catherine, please queue up the first question.

[Operator Instructions] Our first question will come from Matt Bullock with Bank of America.

It's nice to be working with you again. I was maybe hoping Michelle and Eric, you can elaborate on what you're seeing in terms of phone demand and customer purchasing behavior in second quarter. And then maybe help us think through the outlook for modeling the rest of the year.

In your latter product question, Matthew, is on the entirety of the business or Phone uniquely?

Phone specifically.

Yes. Eric, did you want to lead off? I'm happy to take this one as well.

Go ahead, please. .

Yes. So look, we're really encouraged with our Phone results. You saw us highlight a lot of the things about it continues to be in teen growth. Maybe give a little bit of context and color, Matthew to other dimensions that we're seeing. I think we're seeing strong takeout motions. 10 of our top 10 deals were takeouts. We're seeing continued strength in verticals and international. We're seeing that continued UCaaS and CCaaS. And then maybe 2 new elements within Phone before I flip to talking about the revenue guide that I would call out is, I think increasingly, it's going to be a great pathway to other AI monetization. Meaning, we're seeing it set up a lot of ZRA deals, Zoom make deals, Zoom virtual AI reception as sales. So we're encouraged by that. And we're also seeing strong momentum in our team's integration. So with respect to our guide, look, it represents a constant currency beat and raise. We're pleased with the progress to the full year. It's a raise from where we came in at the beginning was at 4.1% growth. So now guiding at the mid of 4.5%. And that's up versus last year. And also, I'll remind investors about that headwind of a white label deal that we had that had about a 6 -- 40 bps, excuse me, impact to the top line. Look, the fundamental headline in our growth inflection is enterprise. You saw from Eric, the 3-year highest growth rate, I'm sure we'll get to talking more about that. And then we tempered it slightly with results in online.

That's great. And maybe just 1 more to follow up, if I could. It looks like the strongest RPO quarter in a few years, really nice step-up and you mentioned a couple of things, landing larger, longer duration contracts, but I was hoping you could expand maybe on some of the underlying drivers of what you think is driving the strength and the step-up in bookings in the quarter?

Yes. Look, I think it tells the story of our enterprise business at large. Look, if you look at that 7.8%, the strongest in 3 years, even worth with that white label turn headwind that I talked about that had about a 60 bps impact to enterprise. You see it in the NDE inflection. And look, it's really what we've been telling investors we would work on product diversification, AI monetization moving up market, expanding in new routes to market with channel while working our churn. And look, as we move into these different businesses and we move into that deeper relationship that Eric talked about with our customers, it will come with longer, larger AI-related deals.

Our next question comes from Samik Chatterjee with JPMorgan.

Maybe if you can talk a bit more about the record 7-figure deals that you highlighted for the quarter, how is the composition of these deals changing as you sort of see these regard deals come through. Is this being more driven by Contact Center? So are you seeing more AI attach sort of starting to make these deals larger in size? Just curious in terms of with it's like certain products that are driving some of the deal sizes to expand over time? And how should we think about that?

And a quick follow-up for you, Michelle, just on the gross margin side. how we're looking to sort of continuously navigate the increase in compute cost as well, particularly as we saw gross margins quarter slightly in the quarter. How do we think about sort of managing those on an ongoing basis.

Yes. Let me start with the first one. Look, I think it's both, and it's all the elements that I just talked through with Matthew on sort of the enterprise business. So I won't and repeated the stuff that I think you're referencing, however, was in contact center. So let me maybe make some comments about what we're seeing in contact center before I hit gross margin. Look, we continue to see it in high double digit. We're clearly taking share. It's driven by we're winning in that market. So we saw a record quarter of 1 million-plus deals in contact center as well as we saw strength in over $100,000 and $1 million in our all of it. And look, it's the same dynamics that we've been highlighting quarter in and quarter out with investors. We're displacing big competitors. It's off the backs of AI, and we're encouraged by our investments in channel ruling being part of that. Look, when it comes to gross margins, look, I think the teams have done a beautiful job in holding gross margins best-in-class. They go and they can have some variability from any quarter 1 to the other. But we've been able to hold that as we shift to an enterprise business and AI usage goes up. We had a little bit of a growth in expenses this quarter as we saw AIUs to spike with some of our new products. And look, as is everyone, we will work to optimize that in the second half, and we continue to reiterate our comments about holding to long-term margins. Maybe let me say, I'll give you kind of the quick version of what gives us confidence in working to those margins is our federated approach in AI. Being able to take best model for the right time at the right cost and be able to fluidly direct traffic in between that, while we work to bring high volumes on to the MSM. Additionally, we sort of create products once in our core, and then we take those core technologies and we infuse them throughout our products. That, together with additional kind of areas of improvement in our core gives us confidence on the long-term 80%.

Up next, we have a question from James Fish with Piper Sandler.

Maybe just on ZBA a lot of consumption models out there for paid AI, interested in seeing attach across contact center and as a stand-alone. I guess, how are you guys balancing or looking at consumption or usage models rather than kind of per seat monetization? How that impacts the model? And then secondly, you guys increased online the price back in mid-March by mid-single digits. Still not seeing much turn activity really, and you're even seeing that 16-month-plus cohort move higher in terms of the growth rate. So I guess, how much more price elasticity do you guys think you have understanding you guys don't typically increase price just for the sake of it.

Eric, do you want to take the consumption? Or do you want -- I'm happy to take it too.

Yes, go ahead.

Look, we benefit broadly from per user models. That's what's been the norm. But look, the market at large is shifting to more consumptive. And so you've seen us in ZBA which was sort of where the root of your question was, but we also employ full consumptive, outcome-based and the combination of per user with a certain amount of consumptive. Look, I think there's benefits to customers on both sides of the fence, and there's learnings for everyone involved. But broadly, our approach is to match what makes sense relative to market and competitive dynamics and ultimately what's in the customer's best interest. Your second question about progress and online. Look, I'm not going to make any comments about future pricing in that other than to just reiterate what you were sort of noting -- this is our second round of price increase. We did 1 to the monthly and then on annual, so you can kind of think about it as 1 all up of roughly 6% in our online business. And to your point, we didn't really see a massive or really any change in our churn. It remains low. And to your point, those customers that have been with us for over 16 months just continues to inflect up. So look, we think that's a really good sign about the stability of our base in our online business. We're going to work on sort of land and expand. And look, we contemplate price increases as we think they make sense and we work discounts down in the enterprise. And there's really nothing that I'd sort of add to it about any future plan.

Our next question comes from Peter Levine with Evercore.

Maybe I guess if you look at like phone ARR, it's still growing teens, even size and scale. But I guess the question is like how much more run rate do you see like remains in phone, particularly within your existing kind of workplace installed base if you look at phone today, is it still acting as an entry point for CX or is it still like an add on to meetings? Just more curious, like how much room do you have left a Phone. And then Michelle, a similar question with contact center. Like how much of those net new deals that you saw this quarter, which was impressive to see were like net new customers to Zoom? Or are these all just kind of renewals upsells that you kind of saw just the execution.

Yes. Let me hit Phone first, and then I'll get to Contact Center. So look, I think we've been growing in the teens for a while and clearly gaining share. And look, if you think about it from a market perspective, there's about, I think, 130-some-odd cloud suits and about 150 million equivalent on-prem. And so we are winning in both and feel good about our ability to capture competitive share there. And this quarter was no different. 10 of our top 10 deals in involved takeouts. And I'll note, it can differ, Peter, from 1 quarter to the next. But this quarter saw a large percentage of those in online. Look, to your question of kind of the UCaaS CCA synergies, about 5 of our top 10 phone deals had contact center in them. So it gives you the sense that both like you're bringing in customers outside of them. And then clearly, there's a UCaaS CCAS connection. And then when I go to contact center, I think we're clearly seeing a lot of new inroads. And what I say by that is some of them, of course, come from phone. So if you look at it, I think, 3 of the top 10 deals in contact center had phone on them. But then there's also a clear signal that some of them are just coming for contact center in and of themselves. And look, sometimes that comes, and I think you saw the customer examples in Eric's prepared remarks, some coming in through ZVA some coming in through contact center and some going all in with him from day 1. So clearly, there's an AI story and contact center. Clearly, there's a competitive displacement across both. And I think these represent durable drivers for sum for the foreseeable future.

Our next question comes from Elizabeth Porter with Morgan Stanley.

Great. I wanted to follow up on the Enterprise revenue acceleration. And you highlighted that it was the strongest growth in 3 years. While the trailing 12-month enterprise NDR remained about that 99%. So how should we think about the balance of acceleration between some of these new logos, larger initial lands where you highlight in displacements and expansion of the installed base? And are there any products, whether it's phone, CX or paid AI, they're more influential in moving that NDR sustainably above 100%?

There's a lot in there. So keep me honest Elizabeth when I -- if I don't get to some of the nuances in your question. Let me start with NDE and then I'll kind of work back to enterprise and kind of the fundamental drivers and broadly, kind of the balance of new versus expansion, if I got sort of frame up your questions. From an NDE perspective, look, I think we said for a the goal is obviously to move that up and 100 and beyond. And you're seeing it go up to 99% now for the second quarter. I will remind investors we have that white label churn that will come in a touch more in the second half. But look, [indiscernible] tells the story of enterprise. It tells the 7.8% growth in enterprise a 60 bps increase even quarter-over-quarter. And then factor in, again, that white label churn headwind and you can kind of get a sense of where the enterprise growth is. It's off product diversification, all these same factors kind of play through net dollar expansion we're diversifying the product set. Big headlines there are obviously phone, contact center, but also the onset of a lot of AI monetization that the teams have been working very hard on. It's helpful. The way we think about it, the way we talk to investors, the way we run the company, allocate resources, are those 3 priorities, that we framed in our prepared remarks are really the fundamental building blocks for our long-term growth. And we feel good about there are at different stages, but we feel good about those. So those are kind of durable things that you can continue to watch. Maybe the last thing that I'll say is we continue to make progress in churn and deal dynamics in the enterprise space. And certainly, that plus moving up market, we think, are durable elements to continue.

Maybe 1 last comment on sort of new versus expansion. It's clearly coming from but, I guess, I'd go back to kind of, I think it was Peter's question on contact center and phone. Clearly, we're benefiting from a Zoom based and our customers there. But increasingly, with AI monetization, new routes and new products being delivered plus contact center. It's also helping us to bring in net new customers to Zoom and that's supported by our investments in our channel.

By the way, to add on to what Michelle said, right? Just look at the corner center, for example, right? Customers now want to look at the cloud-based content center, but also look at agent capability. you look at the latest report from IDC marketscape for genic CCAs. Zooms named a leader in a much better position than a lot of traditional cloud content center vendors, right? -- it does speak of the capability of Zoom Contact Center with agentic capability and a much better position, I think.

Next up, we have a question from Samad Samana with Jefferies.

Maybe just on the common room acquisition. Help us think through what the contribution there was to the guidance? And then from a strategic perspective, how should we see that maybe pairing with the revenue accelerator or offering that you already have? And how does it fit into kind of this overall theme of of adding more robust functionality as maybe borderline front office functionality, if I would put it that way.

Eric, do you want to maybe start with the thesis of why common room and then I'll jump in with sort of the numbers components.

Absolutely. So in terms of strategic value, you look at our AI capabilities, we built a further and also not only do we add those capabilities to the horizontal product lines but also we focus on the lens of the business, right, like a content center and ZRA as well. I think become more and more important because we add more and more capability to our ZRA we build those products organically and also how to accelerate the ZRA portfolio, right? That's why we acquired the common rooms. With common rooms with ZRA plus upcoming the engagement or forecast a lot of new capabilities in the pipeline, our Z is also uniquely positioned to win in the sales space. Essentially, we have AI vertical product to target s department. I think that's a big opportunity for the future quarters. We are very excited about that synergy between ZRA as well as and the common rooms opportunity.

Yes. And maybe just to give a little bit more in terms of the guidance. Obviously, our prior guidance included acquisitions like Bright hire, Common was folded in here. Look, these are early-stage companies. While common room was Zoom's largest acquisition to date at million. These are early-stage companies. And so they're going to be de minimis to the impact of our revenue to a $5 billion base. But for all the things Eric said, we're excited about what they can meet into our future growth to our system of action, vision. And I think the combination of ZRA together with common room is a perfect example of what we're talking about in system of action, moving into a different layer of value now helping our customers help drive their revenue. So we're really excited about the future potential and then maybe just a comment. Of course, when you do acquisitions like this, they don't come with Zoom best-in-class margins. And so maybe an element of why we kind of met margins and helped them on the full year is we obviously folded that in. And we'll continue to work those as the businesses scale and abate that difference.

Yes, a little bit more color about that integration because common rumors, basically in Seat, we have large AI team over there. I think engineered integration, product integration, in the sales integration, we're doing very well just after just a few rigs up close to the deal. So this is very promising.

Our next question comes from Siti Panigrahi with Mizuho.

I just wanted to dig into the contact center. This is 1 area you see most of the AI-driven innovations coming into the sale a few years -- also recently, we saw open a presence there and even some of the CRM vendors trying to get into native voice and CX capabilities. So how are you seeing the competitive landscape evolving? And what's the Zoom well against some of the other new entrants in the market?

Yes, great question. First of all, so many players in that market, it is good news, right, because this market is growing a lot of opportunities ahead of us. At the same time, we look at our right, I think you need to get a position because for those customers, like they deploy like meetings, the phone and contact center, right, essentially, they would like to consolidate into 1 vendor because look at the AI, I think you have access to all the data in a way better than -- those are other vendors, right? So they only focus on 1 piece, like UCAs CCAR, or just is. We have everything. That's one. Two, you look at our technology and fee to the AI, our AIR technology, I think, is 1 of the best technology in the world, right? Look at the latency and also, we build all those technologies by ourselves. We also can leverage the third party as well. I think a further approach put us in a unique position. You look at latency and the speech quality, ASRT, keep improving those features, I think also better position -- and also, we already want to trust in particular for a lot of enterprise customers over the past many years and they deploy the meetings. We tell them we are giving the phone, doing very well. We tell them build the content also doing very well. Now we added a VA and they trust our brand as well with [indiscernible] technology, we have high confidence. We can execute very well compared to any other vendors.

Our next question is from Jackson Ader with KeyBanc.

I actually had a question on that particular topic. Eric, on like the difference in contact center, you guys talked about seeing strength in contact center and virtual agent and that sometimes it is combined and sometimes it would be so like virtual yet would be sold separately. It's like a stand-alone product. Just curious, we're talking a lot about bundling. We're talking a lot about consolidating onto a single platform. And so I'm curious how prevalent is it virtual agent to be sold on a stand-alone basis? And what are the kind of merits of that? And then, Michelle, just quickly, any kind of net expansion rate you can share on the contact center piece. Is this a land-and-expand motion? Or is it just like big lands and not much expansion effort.

Yes. So yes, speaking of ZVA, right, in Q2, a leading enterprise software company, they deployed service before they deployed a Zvi and natural extensions to from. So many customers, the people or meetings might look ZVA. The deployed phone also might be looking at Zibi as well. Or for sure, for connected customers also look at Zs well essentially we can bound Ziv and content together as 1 solution. And also, we sell the V separately as well, right? Customer-earnin Zoom meeting or phone in country center. They also look at severe as well. It cost it's something new and it's the new market opportunity. So we focus on the 2 things in the product experience and make sure and the builder [indiscernible] customers really like. The second thing we own the technology. The speed of innovation is always something customers really like. And that's why I think if you look at our Z opportunity. I think we are much better positioned. And even if we announced that we a little bit late compared to some start-up vendors, but as you look at our speed of innovation, we have high confidence we're going to keep gaining market share.

And maybe just to layer on with sort of maybe some stats in terms of thinking about kind of the typical motions that we see. The short answer is it's a variety of that. And that's why in our prepared remarks, we wanted to kind of paint the different picture of what we're seeing in our customers. But maybe just to give you a couple of stats. In our top 10 ZBA deals, of 10 came with contact center. So I think it gives you a sense that it is both a cell with motion, meaning when they want that full platform that Eric is talking about. And they want to go all in with them. And it also paints the picture that some of the customers are starting in ZBA and then it gives us an opportunity to land and expand from there. Similar sort of comments, I think in -- on the contact center side of our top 10 deals, 7 and 10 were elite. So that's an agent being assisted by and 4 of our top 10 more VA. So all of that a way of sort of numerically saying, there's many paths to the growth here, and we think it for that reason, it gives us a lot to go on going forward.

Our next question comes from Ryan MacWilliams with Wells Fargo.

Tow-part question for me. For Michelle, just on the online segment, it seems like growth is slightly lower than last quarter. Anything to call out on SMBs more broadly? Or is it due to generally lapping the price increase? And then for Eric, as we're seeing AI models improve in organizations build systems around their data and AI, how are your leading edge AI customers building AI use cases off the data they gather over Zoom and how do you think this data gravity help Zoom your stickiness in enterprises going forward?

Yes. So let me comment about our online business. Look, I would characterize our Q2 results as solid low churn. And I think that low insurance as -- and I think there was an earlier question on this, but we're having success at demonstrating customer value even amidst the backdrop of a price increase. And you saw the stability of the base go up even further. Look, we took an opportunity and I'll emphasize it here to sort of temper out of prudence, our full year guidance, which had been slightly increased to flat. And we're adjusting that really due to dynamics that we saw in Q2, at the top of funnel across the industry, where people are just discovering products in different ways and we're aggressively working to address that, meaning they're going from search to more AI. We're active in addressing that, and the prudence is really just a near-term statement of expectations. The big picture is to continue to work to that business to return to growth that comes with components of working churn, which we feel very good about product expansion, which we've never had such a broad portfolio expansion products that we can open up to our online customers due to our AI innovation. And then just continuing to work things like what does this look like in an AI world, where we think our brand is also going to be very helpful to us. and working on conversion. We have a great TCO story that I might also end with from an SMB perspective that I feel like we're going to be able to do great with the audience.

Yes. So back to the second part of the question, I think the data, as we all know, is extremely important for customers to have -- so we look at all of our services. We want to make sure we look at everything from a customer perspective, meaning like how to make sure our data accessible by customer because they might use other large land models. And let's take my news, for example, we expose the context layer, right? So that's the one. Two, is customers yes, we also can lever the Zoom AI service as well, like Zoom right? And as Sumit can sit for all the customer in the content, not only Zoom data, but also the third party as well, give a customer capability and to search, to create agent, drive workflow as well. Yes, essentially, if you look at it for both sides, we expose our data API through MCB, and also the customer can lever our AI service as well. Essentially, that's -- both of those 2 are extremely important for us to leverage the AI because of the data.

Up next, we have a question from Alex Zukin with Wolfe Research.

Maybe just 2 quick ones. Eric, can you talk a little bit about the contribution from your new pricing models, both the outcome-based pricing and the consumption-based pricing. When would you expect that to start actually showing up more meaningfully in the net retention rates and in revenue. And then Michelle, just really -- I think the strongest bookings growth, calculated bookings growth and billings growth in a long time. How much should we read into that from a forward-looking perspective around the potential for continuing to see accelerating enterprise growth over the coming quarters.

Alex, so in terms of pricing as well as outcome-based pricing is more like for the new AI product. I do not think that works for meeting or fun, right? So speaking of the opportunity, take a VA, for example, by and large still usage based. But we are embracing all the comp base pricing because some customers like that, some cost side still like usage business. So we support -- we have flexibility to support that. As we gain more and more market share for Zvi, I think we will see the more and more -- the older companies pricing probably can contribute to our top line growth. Again, this is something new. -- and the market Zalo a new product as well. So but we have a confidence to support all kinds of monetizes opportunities. Especially for -- interest customers, give me the are taking cost. I think more and more, we will embrace the autocom based pricing.

Look on the RPO, I think it's a little bit of both in our best quarters, let me remind that we always tell investors that the best indicator of future performance is our revenue guide. So you have that. At the same time, look, you're seeing the trend in RPO inflect all up, and it's coming off a long-term RPO and it's because of durable drivers. It's because we're moving our business diversifying in products that come with larger deals, longer-term deals. And so from that standpoint, those would be durable elements moving up market even further. Those would be elements that would be durable. But in terms of doing calculus to get that back into revenue, we continue to point to our revenue guide.

So by the way, Alex, Speaking of Autocam business pricing, we also look at other services as well, like ZRA and brighter as well -- and we look at all those vertical AI products, right, whenever it makes sense for us to support the outcome business pricing model. We would like to do that because this is good for customers as well.

Maybe I'll sneak 1 in, Eric, on voice. And anything that -- any exciting elements that we should think about as -- it seems like you have a meaningful opportunity to lean in on voice, again, maybe following from that consumption-based pricing opportunity as well.

Right API is a great consumption base, right? And also like we already have, I think, probably the best ASR model, right? Based on our smaller model with Postini and doing very well. We published the API as well and also based on all the tests, ASR is a much better position. At the same time, to have full feature speeds, API assets, we also needed to support the TTS as well. And the team is working hard on that. If you have both SR and also TPS and also along with other services, will have a full, I think, speech AI opportunity ahead of us. We're very excited about that.

Our next question comes from Patrick Walravens with Citizens.

Great. My favorite part to your call was your custom avatars, Eric. And I think it's such a good real-time example of voice AI for us. So Charles, yours and you had to do the dreaded.

Patrick, I think you're on mute.

Oh, really?

It's okay.

So Charles had fairly uniform pacing, few pauses and his intonation consistently fell at the end of the phrase. Eric, yours was better and Michelle I wasn't -- did you actually use your custom Avatar?

I did.

It was fantastic. Really great. So what -- just help us understand what causes the difference? And like if a bank wants to use them or if we want our virtual agents to sound really human, what do we have to do to train them, so they sound as much like Michelle as possible?

Well, I'll answer that, Eric, because I will admit when Eric had a me to do this, I was a laggard in the adoption curve. And it literally took me 2 minutes to set up and there's some connotes that I think like being as natural as you possibly can, but it literally takes think under 2 minutes to basically get your Avatar set up. And then, of course, we have human in the loop and making sure we review what the Avatar says. But a really fun way, I think, to demonstrate our technology and super easy and for me, Eric, you can give the tech version of this answer, but for me, it was just being as natural as you possibly can and set up with the avatar because then it just sort of flows through.

So Patrick, your observation about share voice is right on. The reason why this is the first time for Micro use customized to, meaning she is using the latest or Yes, I created is 6 months ago. So we is getting better to better -- and maybe next quarter, I'm going to create a new 1 live our latest working. By the way -- and it's not for our download I would like maybe somebody my our can answer to any question as well, then I can stay here just to listen to the call. So that's our breeding.

Our next question comes from Tyler Radke with Citi.

Yes. So the enterprise bookings and raise on enterprise look pretty solid. I was wondering if you could help us understand just where we are in terms of contact center milestones. I think 5 quarters ago, you talked about it hitting $100 million of ARR for Zoom CX. You've talked about high double-digit growth for multiple quarters. So will you update this at $200 million, $250 million -- and is that kind of the biggest driver of the enterprise raise that you're seeing? And then just a quick follow-up question for Michelle. Can you just touch on what's driving the lower CapEx for the year as well?

Look, I think in regards to milestones, like we're going to give them period that makes sense. That doesn't mean they come every 10 -- and look, you have when it sort of crossed the 100. And then I think since then, we've seen high double digits, you can sort of guess mate from there. Look, the components to the enterprise inflection are the same things I've been highlighting. It's product diversification of which CX is a piece of that. It's AI monetization, of which CX is part of that. It's moving up market. is part of that. But the theme being it's building out a channel and CS is part of that, but it's certainly not just CX alone. The other thing that I will say on maybe the core enterprise standpoint, and I think this is a 1 that investors frequently asked about. The year-over-year churn has gone down and that's been a steady trend over the last year to 2. And then people will ask on occasion about pricing elements and all of that. And that's been something that we've been working very hard on in finance, together with sales to really make sure that we're getting discounts down and deal terms up and auto renewal. So Look, all of it out a long way of saying that many components go into that enterprise growth and certainly, CX is part of them. On the CapEx, look, I would say, I think when we went in the year, the guidance was $70 million of CapEx. And just to remind investors, FY '26 was really a low year in CapEx, and so we were returning more to normal states. Look, we took a decision that benefited our free cash flow raised by about $40 million to simply extend in 1 of our data centers, the useful life of the asset by 2 years. And so because CapEx was sort of a lumpy kind of story going into the free cash flow and more so because of the anomalous here in FY '26, we just simply wanted to update to investors. Worth also saying we're not a huge CapEx business, and none of this is really AI. It's more just dynamics in our core.

Our next question comes from Allan Verkhovski with BTIG.

Michelle, a 2-parter for you. One, can you share what trends you're seeing in enterprise workplace see growth across larger versus smaller customers? And then the second part is, given the updated fiscal '27 the constant currency total revenue guide implies roughly $30 million more enterprise revenue. Can you talk through the main drivers of confidence in such a strong rate? And is it fair to assume given the prior comment that common room is contributing about $10 million or less than that to that updated guidance?

Yes. A lot in there. Let me try and get to. So look, from a workload perspective, what we typically talk about with investors is an online churn rate. And look, you've seen that continue to be low. I think at our lowest we're at 2.7, 2.9 is very much in the norm. And to my earlier comments, we feel great about what that says about both the stability of our business with our customers over 16 months going up 75% as well as the incremental value that we've put in our platform -- on the enterprise side, what we talk to with investors is the dollars of the churn going down year-over-year. And certainly, Q2 continued in that. So we don't really give too much disclosure rather than those 2, but I would broadly call the trends very much in line with what we've been seeing. On the constant currency and the enterprise, look, for the sake of rerepeating myself, it's all the same dynamics that I've been highlighting on our enterprise growth product diversity product diversification, excuse me, AI monetization, moving upmarket, building out a channel and keeping that churn low and then obviously, we folded in our common room in this. We're not -- just because it's a small component of our revenue, we're not going to get into sort of quantifying it, but it certainly was folded into the revenue guide and then I'll just reiterate my comment that these are very early stage companies that we're very encouraged with the growth and what they can mean to our system of action to all the things Eric commented on earlier. But relative to a $5 billion base, these are de minimis kind of impact.

Our last question comes from William Power with Baird.

Okay. Great. Thanks for sneaking me in here. Maybe to that, if I can. Let me start on Workvivo. That was a nice milestone update in the quarter. kind of love to understand the ongoing cross-sell opportunity. My suspicion is probably still early, but how we think about that and what that kind of portends for the continuing growth in that product. And then, Michelle, just given the strength you're seeing in enterprise RPO, I'm just trying to kind of square that with the full year revenue raise versus the beat in feels like some conservatism. Just anything to think about in the second half of the year on that front.

Eric, do you want to take Workvivo?

Sure. Absolutely. I think speaking of work via opportunity, we are very excited that because look at the opportunities we won over the past few quarters, quite often, those customers are not as Zoom customer at all. but they deployed the work wave. So meaning for all of our -- a lot of integrated customer installed base, more opportunities for us to upsell Workvivo. And also Workvivo and launched the Workvivo HQ, AI-driven product as well, because the AI era, data becoming more and more important, right? So -- and customer -- the employee engagement is so becoming more and more important, right, to drive the company culture and with Workvivo HQ. I think Workvivo, I think is better positioned than before this new launch. So we're very excited about more and more opportunities in the enterprise space to win more deals.

And then maybe with the guide, let me just talk to kind of the full year and the dynamics that I think out. Look from a constant currency, it represents a beat of 7.5% and a raise of 9% on the full year. And we feel good about kind of the dynamics underlying that and already guiding to 4.5% growth halfway through the year. And considering I'll just continue to remind investors of that white label churn that has a 40 bps point. So you can kind of look at that relative to the growth rate of last year. Look, fundamentally, I think I've drained it in so many questions. What's behind that is our enterprise growth inflection. You saw this quarter, it's 1 of the best growth rates we've had in 3 years. It's product diversification, it's AI, moving up market, keeping churn low and delivering against those 3 priorities that we talk about, which are going to be the durable elements of our growth going forward. Maybe the only 1 that I would just -- we talked about it earlier, but to your question of kind of how to reconcile it -- we took the opportunity to kind of slightly temper the expectation on online. We've said previously slight growth. We adjusted down in this earnings to flat, really because of a dynamic that we saw in Q2 continued to be low turn to all the conversation earlier. But saw some changes, I think, along with the rest of the industry and top look funnel in terms of our customers and how they discover us. And we're actively working to adjust those and just wanted to be prudent with the near-term guidance.

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

Thank you. So to all Zoom employees, customers and partners and also investors, we truly appreciate for your support. We will continue innovating to build something we proud and also delight our customers. Thank you so much. See you next quarter.

Thank you.

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

All right. We'll go ahead and get started. Thank you, everyone, for joining us. Thank you, Michelle, for being here. Michelle's CFO of Zoom. Before we get started, some disclosures. My name is Arjun Bhatia. I am the research analyst here at William Blair, who covers Zoom. For a full list of disclosures and conflicts go to our website at williamblair.com.

All right. Let's get started. So Zoom, I think you've been on quite a journey as a company. I think maybe a lot of investors here that still think Zoom is just a meetings company. There's a kind of maybe an updated version of what you do. But just talk about how the company has changed since the initial sort of hockey stick in 2020? What's different about the platform and how it's sort of broadened out from just meetings to everything that you do today? Yes.

All right. Awesome. Is this on? Yes. Okay. So it's such a good question and such a good way to kind of start the day because, look, it's a blessing and I guess, a little bit of a curse when you have such a strong brand that everybody associates with the meetings. And so really, if you think about it, Zoom went through just enormous growth in the pandemic and then went through years of what I would call reinvention and differentiation, really diversifying our product set, taking a moment to say where are natural adjacencies that we can go. And really, what you're seeing, I would say, in the last year, 1.5 years is us fully stepping into and the rest of the world getting to see a little bit of all that we've become. And so this picture kind of describes it, but let me maybe breathe a little bit more life into it.

So if you think about like we have this core in meetings, we moved naturally into phone, which is another big business for us. And there were natural adjacencies of sort of webinar. And then came sort of this AI era, and we've moved more into contact center and new AI revenue streams. But all of this sort of a way to say, if you think about all that Zoom can see of what happens inside the organization, when you're on that meeting, you're having the conversation, be it a sales call, internal call to try and make some decisions, there's so much unstructured data and so much context and decisions that can be easy to get lost and so it's the power of sort of all that Zoom knows about what happens inside an organization as well as now a much more diversified product portfolio that also expands beyond the boundaries of an organization and products like customer experience.

And really, if you think about it, where we are going is about reinventing the modern workplace into a system of action, right? We used to be just about conversations and having a great quality conversation. But for us now, the journey going forward is far more about that context of what we can see inside and outside the organization and how we can help bring together really into meaningful actions. So we call it conversation to completion for our customers because ultimately, completion is what drives business value. So I'm sure we'll get into different pieces of that. But at a high level, moving far more from a meetings to more of a platform, diversified product set, all in service to this concept of reinventing the modern workplace into a system of action.

Is there like a like real-world sort of practical example of what this system of action looks like once it's implemented?

Yes. We were laughing last night because I'm like sometimes these things feel like corporate words out. So let me give 2 tangible examples of what I mean. Maybe I'll give an inside organization one and an outside organization. So think about inside the organization, you're a seller, right? You're having to meet with the customer, but you meet with customers all day. So you don't remember last time when you met with the last customer, what the heck you talked about. Well, all of a sudden with AI, you can query all your meetings. You've had various conversations with them over the year. Maybe other people in your organization have had conversations. So all of a sudden, you're preparing for the meeting with far more context and richness of information than you've ever had before. Then you go to the meeting, right? It goes in all sorts of different directions, right? Conversation wonders, customer has various needs.

And all of a sudden, you have a very easy package summary of what happened in the meeting that can just automatically be sent off in the way that you want to, to recap what the meeting happened. But let's say you're a seller who hates updating Salesforce afterwards. You can just -- it's listening to your entire conversation of your meeting and it's updating Salesforce in the background. Let's say, you decided that you wanted to have a follow-up meeting. It's listening in the background. It's matching your 2 calendars and it's figuring out when you can meet next. Well, let's say the conversation was a long one, and there's a lot going on with the customers, and there's 1 million tasks that you need to follow up on. It's capturing all of those in the background that can go into the meeting summary or can just be for you in your personal context so that you don't forget because you've got 5 more customer meetings afterwards.

And so that whole concept is then you can begin to get a sense of how that meetings life cycle gets a lot more rich and becomes much more of a system of action where you're taking that action in the context of kind of where the work is getting done. Let me give you another one inside -- or across outside the organization, and then it will go into inside as well. So let's say you're an agent in a contact center, right? You get a call from a customer. Let's say it goes even to a virtual agent before. They have some quick simple needs that just get addressed without even having to involve an agent. Let's say there's a more complex problem. It goes to an agent, the agent is new. The agent, like there's a lot of turnover in contact center, has never dealt with this problem. But all of a sudden, AI is assisting them in solving the problem and using the richness of all the things that have happened before and it knows how to solve the problem even though the agent might not have been aware previously.

Let's say, the third problem that the customer had when they called in is extra complex, right? And they need to talk to manufacturing or they need to talk to engineering. And let's say it even is complex where they need to like show them the problem with video. All of a sudden, you have the richness of being able to turn on a camera, show the problem, route the call back into the inside of the organization to get it resolved to go back and serve the customer. Let's even take it a step further with AI because all of a sudden, you can see how the system of action that we're talking about is already delivering much more value for the customer. Let's say, now with a product that we just released in the spring, let's say you're the Head of Engineering, and you don't want to just know about that single customer.

You want to know what are the top problems that people are calling in. Let's say you're the CEO who wants to know what are the top 3 things and are they changing? And let's say you just want to get this update daily. You can essentially have an agent that is looking across the richness of your contact center organization, feeding it up to you and you have that richness of that system of action and intelligence in new and cool ways that we think are really frankly, going to develop new value for our customer. Like gone are the days where we just have excitement for AI for AI's sake. It's about can you prove real-life business value. So we're excited about this. Yes.

Very interesting. And in that first example, you're essentially taking all this unstructured data that from conversations that are happening on Zoom. And in some cases, you're even feeding into third-party systems and those systems can then take action based on a conversation that you had with them.

Yes. And it's such a good point because, look, those conversations don't just have to be on Zoom. They can be on Meet, they can be on Teams. They can be in person. So we have a new product called MyNotes, where it's basically like a virtual personal note taker. So you can just turn it on. So in any scenario, we're there to meet the customer and have that conversation so that you can kind of experience that and you don't just have to be on Zoom.

Yes. Okay. Very interesting. And I think yesterday, you announced sort of a...

Yes, ZoomMate.

Yes, that's right. And Productivity -- yes.

And then the AI Productivity. Which is in ZoomMate too.

Okay. I got you. Okay. Perfect. So what -- how do those sort of add on to this value proposition sort of your own personal assistant or maybe you can talk a little bit about that, yes.

And so for those of you guys who are all busy that may have missed the headline. Basically, you know how I talked about this concept of a conversation to completion. ZoomMate is really this completion part. So if you think about where Zoom started their AI journey, it was a lot of conversation and recording the conversation, summarizing it, capturing the key decisions, the actions and stuff. And so what we announced in ZoomMate, we've been working our way there, but this is sort of the rebranding and the big moment of completion is really our paid AI off the sort of horizontal of our meetings and phone business. So Zoom, just as background, took kind of a differentiated position where we decided that AI value should be in the core of our meeting suite and our phone suite to our paid customers at no additional cost.

So ZoomMate is sort of the paid tranche of that, the higher value. And you basically get 3 things in ZoomMate. One, the ability to search, the ability to search over third-party data, the ability to search over your own company's assets, the ability to search, of course, over web and then also your personal notes and stuff like that. So a really powerful search engine, how many times a day do we all try and find something. Second piece of value is really about orchestration. And in this, it's that multi-tier, you need to take an action, writing back to a Jira ticket, writing back to the Salesforce ticket, being able to, in the flow of your work, take action and go in multisteps.

Sometimes that can be creating tasks and executing them, scheduling a meeting, like the example that I talked about, sometimes it's also a third party like rewriting up to Salesforce or Jira. The third part is really about this concept of completion, and it's where you get back into the AI Productivity Suite. And so look, we announced things that would be sort of like a document writer, a spreadsheet and sort of a slides concept. And this is really not about productivity suite for productivity suite's sake because I think we're in a different era with the AI. We're -- again, everything in an AI world is kind of getting rethought. And so this is about in the flow of the work, take that meeting example with the sales that we talked about earlier. We went in different directions.

I heard things unique to the customer. And I have some kind of can decks that I like to share after the fact about how we can meet their problem. But now all of a sudden, I can say, if I have ZoomMate, create a personalized PowerPoint for my customer that's an RFP, right? And so look, you're always going to want to have human in the loop and all those things. But all of a sudden, I can walk out of that meeting, take action, not just to summarize the meeting and do the actions like we talked about before, but actually to turn it into like a customized presentation that you can leave the customer with in case there were other people that weren't able to attend or they want to think further about it. So it's really that completion of the circle.

And it becomes like very end-to-end versus just...

100%.

Yes. Okay. And maybe let's talk about monetization. So ZoomMate will be monetized. Maybe talk about like where you are just generally on the AI monetization journey today and -- because this is an evolution, right, of things that you've had. So talk about that and then like how you see that sort of changing in the future?

For ZoomMate in particular or Zoom at large?

ZoomMate in particular, I'll start with that and then we can go other directions, yes.

So look, I guess, broadly, and we'll go back to this, like to me, AI monetization, the true barometer has to be, does it impact your revenue growth all up, right? These concepts of just putting out big stats, I think, are a little dated. They can be good for flashy stuff. But like ultimately, what matters is does it inflect the overall revenue growth of the company. And so that's how we think about it. And so to answer the headline at a high level, yes, it's already inflecting our revenue growth. It's an important point of what's driving sort of Zoom's revenue growth inflection. I talked about how we put AI Companion. So think about that as that's the summary of the conversations and the meetings. That's the stuff that's included in our paid SKUs at no additional cost. So that's our indirect monetization. ZoomMate is the horizontal play on top of that. And it's a $20 SKU with some AI credits in it, meaning you have it per user per month, so you get that predictability with a certain amount of consumption to experience it and then you'll have packs on top of it.

Okay. Interesting. And then I think your point on just it has to inflect the revenue growth, like that's the barometer for success. I think it's an important one. And you have been -- AI Companion has been included in your free plans. Like what has that done just from a competitive perspective? Like is it driving more customers to the platform? Is it reducing churn? Like what are the positives that you see from adding that value to customers?

Yes. I mean I think, look, we think about it on a couple of different lenses, and then I'll maybe talk about the competitive -- well, let me hit the competitive and then get back to why Zoom. Look, I think at the time, Zoom took a differentiated position of putting it in our paid SKUs at no additional cost. That's things like meeting summaries, capture my actions, send the notes out afterwards. Those kind of -- I join a meeting late. I can't join a meeting. I have access to be able to query with AI, all the sorts of things that I would want to know. And look, that was differentiated at the time with the intent of really -- look, Zoom is a very customer-focused company, like wanting our customers to really get in and understand what AI in a meeting scenario would look like. And so we're pleased with our results. But I think competitively, let me hit that.

The -- you've seen some in the market move to that, try to monetize and then move. And then I think there's others that have large CapEx bills that are hanging on more so trying to monetize from step 1. And look, from our standpoint, we've taken much more like we want to get that virality of use in our customer base. We want them to be out there experiencing it. We want to start to create that meetings life cycle. in part because of some of the indirect monetization elements that you talked about, like it will bring in new customers. It will bring in -- we have quite a large free base at Zoom. We'll have some of that, that may come into a monetization SKU. So there's sort of the free conversion certainly creates more sticky and reducing churn.

And then we've certainly seen a lot of this AI value bring in new customers. So for us, we look at as barometers to success, indirect monetization, but also just getting that virality of usage. And in our last earnings, we announced that our MAU was up 184%, been up 2 to 3x for many years or quarters since we've had it out. So something that we're excited about. And then we also announced this concept of MyNotes. So think of this as like your personal note taker granola-ish, you can have it even if the host doesn't want to turn on a note-taking capability, you have the ability to take notes at the same time. And we announced that MyNotes even 4 months into its introduction has hit 1 million or 1.5 million. So...

Interesting.

We're excited about a lot of the new scenarios coming to...

And it all becomes like searchable under one sort of umbrella, which is, I think, a challenge and I personally have a lot with my current -- yes.

We have this concept of -- we call it Canvas, right? Think of it as, again, third-party meetings in person with you and I were just having a conversation, I could turn on MyNotes, have it listen to the full context of our meeting, Teams, Google, Zoom, no matter how or where you meet because a lot of our customers need on various platforms even in the context of a day. And then all of a sudden, it's writing back to Canvas. And you have literally every meeting that you've ever participated in. You have the meeting summaries as well as you have other things. And all of a sudden, you have the richness of an AI data set to be able to search over. I'm sure you meet with oodles of investors and clients and think about the power of what that can unlock.

Yes. I think that sounds very valuable. Okay. I want to touch on monetization of now the sort of the upgrade path, right? Customers come in, you're saying AI, sort of what you've embedded into the platform is driving new customers that's driving a free-to-paid sort of conversion. And then you have this premium SKU with Zoom. What is getting customers to sort of upgrade? And I would love to hear just maybe I hear about this like customers are very -- they're dealing with a lot of AI from a lot of directions, and they're trying to figure out how to implement AI to get sort of practical value. So where are customers sort of in that readiness journey to upgrade from the free embedded Zoom AI capabilities to then a premium SKU? Are we still early on? Or is this sort of taken off?

I think the AI journey is still at a meta level early on. Look, there are some customers that are all in and embracing it and fully into that. And then there's others that are maybe more like, okay, I want to try the MyNotes SKU. I want to try the summaries. I want to try that. And so really, our whole land and expand is about kind of providing an entry point no matter where you are in sort of the maturity if you want to go all in. And we haven't talked a lot about contact center, but that's another huge AI inflection point for us. We have that full platform suite, and then we have everything down to, I just want to turn on note taker. And so I think at a meta industry level, we're early on. But look, it is -- to just reemphasize my point earlier, it is inflecting our revenue growth all up already, so.

Okay. Let's talk about some of the other drivers because you have also broadened out the platform quite a bit from just meetings to phone contact center, even internal sort of employee experience type use cases. So maybe we'll start with phones since I think it's the biggest. You've announced it's passed 10 million seats. It's sort of sustaining growth in the mid-teens. Where are we in the journey of sort of penetrating the Zoom Phone TAM? And how much more runway is there left for growth in that product? Because it seems like a big contributor.

Yes. So our phone business, you gave all the stats, so I won't reiterate, but it's a great area of growth for us in mid-teens and one where we're clearly taking share. So let me talk a little bit -- I mean, I could give you the market stats, right? Like our cloud seats, they estimated something like 130 million plus, on-prem, 150 million plus. We're winning on both fronts, right? So let me maybe talk a little bit about why I think we're winning and seeing such continued share. There's all the traditional Zoom, a fast pace of innovation, strong quality, security, kind of all the customer ethos and innovation. So setting those aside even another great. I think increasingly, what you're seeing in phone is winning on kind of 3 vectors. And I think you see this on a lot of the customer examples in our earnings remarks. But we spend a lot of time doing kind of last mile engineering to opening up some verticals, right, which is really just you've got those scenarios.

There are unique for those that maybe don't spend all their day on the phone, there are verticals where this is a critical component. So we've done some last mile vertical engineering that's really opening up new markets. Second one is AI. If you can imagine if -- and maybe for us that spend our day in front of a computer, it's a little hard to realize, but there's a ton of people that spend all day on the phone. right? Imagine having to summarize that with AI and all the voice mails in that. And so there's some really powerful AI examples that are turning out to be big wins for customers. And then the third vector is we are one of the only players in the market that has scale in UCaaS and CCaaS. And so this concept of the system of action is better together and having that is a clear win. So we're seeing a lot of our large phone wins print in our largest contact center and vice versa.

Okay. And Contact center, you're actually -- I think it was a year ago that you announced you've passed $100 million in ARR. We're actually seeing sort of I think you're seeing legacy, but also modern sort of CCaaS players. And so what's the sort of the edge there that you have? It's UC and CC together, but I'm sure there's others from like a product perspective that...

Yes. And so you gave the stat about crossing the $100 million. We've also continued over several quarters to grow at high double digits, meaning closer to $100 million, right? And even in the last 2 quarters, inflecting further. So what is driving that? It's this concept of AI. Unlike a legacy player, this is, I think, one of the things that maybe we're continually out there talking to investors about because they look at like a NICE or a Genesys and they say, aren't you going to lose seats with agents? And Zoom is coming at this in a very different chapter with a fresh modern AI perspective where we don't have either the legacy tech debt or the legacy business models, and we come at it where it's, in essence, all accretive. And that's why we're taking share. So like if you look at our top 10 deals, 8 of 10 -- and it varies, it's usually like somewhere in between 8 and 10 per quarter. Our legacy CCaaS providers, you tend to not have the modern in the top 10s, but we're winning in both.

And we're winning, as you said, on the sort of the UCaaS and CCaaS strength, and that's really a differentiator. But look, we also win on just the fullness and the strength of our platform. Our customers constantly say, you can -- what we put on a list and ask like a legacy player to provide, they tell us we'll be ready in a year or 2 and you're able to deliver in 3 to 6 months. So that fast pace of innovation as well as that full concept of we've got a virtual agent. That virtual agent for Zoom is a relatively new entrant. It's an area where we spent a lot more time. So that's part of what is inflecting that high double-digit growth. So we got a virtual agent, an AI-assisted agent SKU. And now we've got this intelligence layer that I referenced earlier across the top. And so look, we think it's that fullness of that platform as well as the UCaaS, CCaaS as well as just strength in the product in general, that's really a differentiator for Zoom.

Okay. I want to sort of bring it all together a little bit because you have all these like different growth vectors that are driving the business. You said growth is already inflecting. I think in the past, it was low single digits. Now it's getting closer to mid-single digits. And so what is -- what are your kind of aspirations for the business over time? Like what can the growth rate be? What do you aspire to get the business to operate at?

Maybe I'll do a little bit because we haven't really hit on this before, but just some grounding in kind of Zoom's business, 40% of our business is our online business. Think of that as solopreneur, SMB, 60% is enterprise. Think of that as SMB all the way up to full Fortune 10. We've really been -- and I separate this in our growth story because I think they have 2 different stories of growth. In online, this is the area where post pandemic, we were declining, right? And so we've worked very hard on stabilization, right? And we've taken it from declining 8% to flat to now last year, we took it to growth. And I think that's a lot of that platform value. Some of it is just sheer distance from the pandemic.

70 -- close to 75% of our customers have been with us for over 16 months. So just -- it's a very different base. And now I'm getting super excited, and we'll start talking to investors more. But I think that path to land and expand in online is getting clearer. Bringing down products that might -- that already exist in enterprise and bringing them to online. We made a cool acquisition in Bonsai that's sort of like an all-in-one package for solopreneurs to get started on that's CRM and billing and things like that. And so adding with acquisition, stabilizing the base and then bringing in AI value, things like MyNotes, when was the last time beyond a meeting limit that we had something kind of new and differentiated to sell that freebase.

So I'm getting excited about a lot of the routes that we'll see in online. But for right now, it's like moderate kind of low single-digit growth that we're kind of -- that's how I think about that. And look, it's our enterprise business that's really going to be the differentiator for growth. That's where that full suite, if you will, of product differentiation comes in. That's where the fullness of our AI platform, the fullness of this vision that we talk about comes in. And growth really comes from product diversification, AI monetization and new routes to market. So we haven't talked as much about channel, but Zoom has been working very much to build out a channel, essential when you're in sort of phone and contact center businesses. And I think we're seeing great fruits of labor there, so.

All right. That is all the time we have. Michelle, thank you so much. Fascinating conversation. Thank you, everyone, for joining.

All right, take care.

Hello, and welcome to Zoom's Q1 FY 2027 Earnings Release Webinar.

I will now hand things over to Charles Evaslage, Head of Investor Relations. Charles, over to you.

Thank you, Catherine. Hello, everyone, and welcome to Zoom's earnings webinar for the first quarter of fiscal year 2027. I'm joined today by Zoom's Founder and CEO, Eric Yuan; and Zoom's CFO, Michelle Chang.

Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.com. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

During this call, we will make forward-looking statements, including statements regarding our financial outlook for the second quarter and full fiscal year 2027, our expectations regarding financial and business trends impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations and product initiatives, including future product and 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 our 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 today on today's webinar.

And with that, let me turn the discussion over to Eric, who is giving his prepared remarks by via Zoom Custom Avatar.

Thank you, Charles. FY '27 is off to a good start, continuing the momentum from FY '26. Q1 revenue grew 5.5%, exceeding the high end of our guidance and among our best growth rates in recent years. This progress underscores the increasing value of our system of action for modern work. To help accelerate that vision, we appointed Russell Dicker as Chief Product Officer. Russell brings more than 25 years of product leadership experience across Microsoft, Google and Amazon, including leading Microsoft Teams product and data science teams. He will help drive our AI-first road map as we connect conversations, workflows and outcomes through our system of action.

The foundation of our system of action is Zoom Workplace where context is created across the full meetings and work life cycle. With AI Companion, that context becomes actionable, helping customers drive productivity, automate follow-through and turn everyday collaboration into measurable business value.

In Q1, AI companion usage continued to scale with paid MAUs growing 184% year-over-year, driven by strong early adoption of AI Companion 3.0 capabilities.

My Notes has quickly emerged as a breakout product, surpassing 1.5 million monthly active users, excluding trial users just 4 months after launch. It gives users a personal AI note taker that captures context across Zoom, in-person and third-party meetings, helping them stay present while turning conversations into organized takeaways, action items and follow through.

Altogether, AI Companion 3.0 brings agentic retrieval across Zoom and connected workforces, extending AI Companion beyond meeting summaries into a broader workflow layer that turns conversations into action.

This AI momentum is also reinforcing the strength of our core business. In Q1, 15 of our top 20 wins included Zoom Workplace or Zoom Phone as customers increasingly choose Zoom for secure AI-first communications that improve productivity, reduce complexity and turn conversations into action.

Zoom Workplace continues to win on product quality, platform breadth and security. In Q1, a major government contractor came back to Zoom for the full suite of Zoom Workplace, Phone, Events and Webinars in a 7-figure ARR deal displacing Teams and Cisco calling. The customer chose Zoom to meet stringent government security requirements and unlock insights from live communications data to support its broader AI workflows.

Zoom Phone continued to grow ARR in the mid-teens, taking share as customers modernize voice on our reliable, flexible platform that integrates with their existing workflows and extends AI into everyday communications. A great example of this is Baptist Health in Jacksonville, Florida, who in Q1, chose Zoom Phone to support 16,000 workers across more than 200 points of care in a 7-figure ARR deal. Baptist Health selected Zoom Phone because of its reliability, hybrid flexibility and industry-specific integrations.

Taken together, these wins show a consistent pattern. Customers are choosing Zoom as a secure integrated multiproduct platform, often displacing multiple vendors and expanding over time as AI becomes embedded in their workflows. This reinforces our confidence in Zoom's ability to turn conversations into action and drive durable platform expansion.

Our progress elevating workplace with AI sets the foundation for our second priority, driving growth in new AI revenue streams. As customers experience the value of AI Companion and Zoom Workplace, custom AI Companion is the natural next step that takes them from conversation to action by unlocking agentic search, customization and agentic workflows. Raymond James is a strong example of this expansion motion. After adopting AI Companion for meeting summaries, they expanded in Q1 to custom AI Companion across approximately 10,000 seats giving wealth advisers more tailored AI workflows and customized summaries with the security, compliance and centralized oversight required in financial services.

Custom AI Companion also wins on its ability to support agentic workflows. In Q1, as part of MongoDB's upgrade to Zoom Workplace Enterprise Plus, Zoom Contact Center and ZVA, they chose custom AI Companion to translate live conversations into completed actions across their IT ticketing, customer relationship management and other third-party systems.

Just as custom AI Companion creates an AI monetization path within Zoom Workplace, ZVA Receptionist represents an important new monetization layer for Zoom Phone. ZVA Receptionist turned Zoom Phone into an AI-powered front door for the business, helping customers qualify callers, capture context, answer common questions and route request to the right person or team.

In Q1, we saw a deliver real business value across a variety of customers, including an industry association, improving lead capture and lowering costs and insurance firm automating after hours and overflow calls and a law firm managing high call volume by filtering on supported requests, so staff can focus on actionable cases.

We also added AI innovation to employee experience with the launch of Seer by Workvivo, expanding from employee communications into AI-powered people intelligence and creating another path for AI monetization. Seer helps leaders listen to employee feedback, measure engagement, understand sentiment with AI, act through built-in communication tools and track progress in real time.

Beyond these application level AI monetization layers, Zoom AI Services opens our core AI technologies to customers and developers. Launched in March, Zoom AI Services extends our speech recognition advantage, honed across countless daily meetings and ranked among the top models on the Hugging Face open ASR leaderboard. It's scribe API gives customers and developers high-quality, flexible speech to text across platforms with early adoption from BPOs like Inflection CX, validating the real-world value of our ASR technology.

We are also extending AI into high-value vertical workflows. BrightHire, which brings conversational AI to recruiting and hiring had a strong quarter with continued momentum in tech and other sectors. In Q1, BrightHire landed Figma on its core product to help support consistent, objective and calibrated hiring decisions and expanded with HubSpot from its core interview intelligence product into bright higher screen its AI interviewer to support go-to-market hiring.

Taken together, these examples show how we are extending Zoom AI beyond core collaboration into a broader monetization engine across workplace, AI services and vertical workflows.

The same combination of AI, context and workflow orchestration is also driving our third priority, scaling AI-first customer experience. The same AI-first platform that powers Zoom Workplace and Phone also extends to customer engagement. This is a true point of differentiation. Zoom is 1 of the few scaled companies with a native platform that bridges UC and CX. By connecting collaboration, voice, contact center, virtual agents, expert assist and more, we help customers carry context across teams channels and systems, moving from reactive service to faster, more intelligent resolution and measurable business value.

To further bolster the suite in March, we introduced CX Insights, a new SKU within ZCX that gives business and CX leaders a natural language way to analyze CX data across contact center, workforce management, quality management and virtual agent.

We also announced AI Expert Assist 3.0 customer workflow orchestration, advanced quality management for virtual agent and new workforce management capabilities to help organizations deliver better outcomes with greater efficiency.

Zoom customer experience continued to accelerate in Q1 with high double-digit growth driven by paid AI in 9 of the top 10 ZCX deals, showing that customers are increasingly turning to Zoom to automate service, empower agents and improve resolution.

Zoom customer experience is emerging as a key growth driver and represents the strategic expansion of our platform into mission-critical customer operations. We are increasingly winning competitive displacements and larger deals as customers look to consolidate contact center and UC systems with a unified AI workflow and analytics platform that works across all channels.

Let me bring this to life with a couple of customer wins. Showcasing the strength of our full system of action, we landed Chelsea Fc, 1 of the world's most recognized football clubs. They selected Zoom Phone, ZCC Elite and ZVA Chat to modernize fan engagement across touch points. Zoom will help the club deliver faster, more personalized experiences while creating a connected data foundation to improve insight, efficiency and long-term growth.

Also in Q1, Caliber Collision, a leading automobile repair provider chose to deploy Zoom Phone with ZCC Elite in order to streamline their customer experience across more than 1,800 repair centers and their central contact center, eliminate the cold call experience for customers and provide unified CX analytics for end-to-end visibility.

We also saw a strong full CX platform win in Japan with Renxa, who selected Zoom Virtual Agent, Agentless Dialer and ZCC Elite to modernize high-volume customer interactions. They chose Zoom for the flexibility and automation capabilities of the platform and are using Zoom Virtual Agent in a differentiated way for outbound engagement, including pre confirmation calls tied to electricity and gas connections, which helps free teams for higher-value sales activity.

Taken together, our progress across our 3 priorities gives us confidence in the opportunity ahead. As customers increasingly adopt Zoom as an AI-powered system of action, we are excited to turn that momentum into durable growth and long-term value.

Michelle will now take us through our Q1 financial results. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to be here with you today to share Zoom's Q1 FY '27 performance.

In Q1, total revenue grew 5.5% year-over-year to $1.24 billion or 4.6% in constant currency. This result was $14 million above the high end of our guidance.

Our enterprise business continues to be strong with revenue growing 7.2% year-over-year, representing 61% of our total revenue, up 1 point year-over-year.

In our online business, Q1 average monthly churn was 3% as compared to 2.8% in Q1 of FY '26.

Within our enterprise business, we saw 8% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 33% of our total revenue, up 1 point year-over-year.

Our trailing 12-month net dollar expansion rate for enterprise customers in Q1 improved to 99%.

Looking at our international growth. Our Americas revenue and EMEA revenue both grew 5% year-over-year, while APAC grew 6%. The EMEA growth rate was predominantly driven by year-over-year changes in foreign exchange rates.

Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expenses and associated payroll taxes acquisition-related expenses, net gains or losses on strategic investments and all associated tax effects.

Non-GAAP gross margin in Q1 was 79.9%, up 70 basis points from Q1 of last year, primarily due to our continued cost optimization efforts aligned with our long-term target of 80%.

Our non-GAAP income from operations grew 9% year-over-year to $509 million, exceeding the high end of our guidance by $17 million.

Non-GAAP operating margin for Q1 was 41.1%, up 130 basis points from Q1 of last year. The operating margin improvement was primarily driven by the accounting amortization change we discussed last quarter and our gross margin improvements. This was partially offset by the second year of our shift from SBC to cash bonus compensation.

Non-GAAP diluted net income per share in Q1 increased to $1.55 on approximately $300 million non-GAAP diluted weighted average shares outstanding. This result was $0.13 above the high end of our guidance and $0.12 higher than Q1 of last year. The EPS growth reflects strong business performance, effective cost management as well as antidilution efforts across our buyback program and stock compensation management.

Turning to the balance sheet. Deferred revenue at the end of Q1 grew 5% year-over-year to $1.49 billion, above the high end of our previously provided range of 1% to 2%. For Q2, we expect deferred revenue to be up 2% to 3% year-over-year.

As we discussed last quarter, larger and longer-duration competitive takeouts in phone and contact center can include grace periods that affect deferred revenue timing. In Q1, fewer contracts than expected required such terms. We continue to expect some quarter-to-quarter variability based on the timing and the structure of larger deals.

Looking at both our billed and unbilled contracts, our RPO increased 11% year-over-year to approximately $4.3 billion, driven by noncurrent RPO growth of 19%. The strong growth in noncurrent RPO reflects our continued success, manning larger, longer-term multiproduct platform deals.

In Q1, operating cash flow grew 7% year-over-year to $522 million, representing an operating cash flow margin of 42.1%, up 50 basis points year-over-year.

Free cash flow in the quarter grew 8% year-over-year to $500 million, representing a free cash flow margin of 40.4%, up 100 basis points year-over-year.

We ended the quarter with $7.7 billion in cash, cash equivalents marketable securities, excluding restricted cash.

In Q1, we repurchased 4.2 million shares for $362 million across the pre-existing $3.7 billion share repurchase plan. We've repurchased a total of 40.4 million shares for $3.1 billion.

Turning to the guidance. For Q2, we expect revenue to be in the range of $1.265 billion to $1.27 billion, representing 4.1% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $508 million to $513 million, representing an operating margin of 40.3% at the midpoint. Our outlook for non-GAAP earnings per share is $1.45 to $1.47, based on approximately 304 million shares outstanding.

For the full year for FY '27, we're pleased to raise both our revenue and profitability guidance. We now expect revenue to be in the range of $5.08 billion to $5.09 billion, which, at the midpoint, represents 4.4% year-over-year growth. We expect our non-GAAP operating income to be in the range of $2.065 billion to $2.075 billion, representing an operating margin of 40.7% at the midpoint.

In addition, our outlook for non-GAAP earnings per share in FY '27 is increasing to $5.96 to $6 based on approximately 304 million shares outstanding.

As a reminder, future share repurchases are not reflected in share count and EPS guidance.

We continue to expect free cash flows for FY '27 to be in the range of $1.7 billion to $1.74 billion.

As indicated in our released today. We are excited to announce our Board has authorized an incremental $1 billion share repurchase. This reinforces our Board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder value.

In closing, Q1 was a strong start to FY '27, with continued execution across our 3 priorities and growing adoption of Zoom as an AI-first system adoption. We are encouraged by progress scaling customer experience and the early momentum across new AI revenue strength. We remain on track to surpass $5 billion in revenue this year, while maintaining our focus on profitability, cash flow generation and shareholder returns. Thank you to our customers, investors and of course, the entire Zoom team for your trust and support.

With that, Catherine, please queue up the first question.

[Operator Instructions] Our first question will come from Alex Zukin with Wolfe Research.

Congrats on a really solid quarter. I guess maybe, Eric, first 1 for you. When you think about the execution that you're seeing, particularly both on the AI products and particularly on ZCX, which sounds like it didn't need as much discounting or flexibility in terms of billings terms before. Maybe what are you seeing in the pull-through from some of your AI solutions? And how much incremental expansion of your wallet within customers is that driving? And Michelle, I've got a quick follow-up for you.

Yes. So Alex asked [indiscernible] question. And so speaking of ZCX, right, you look at the -- now out of top 10 deals paid AI was involved, right? And it's meaning AI has really helped out with ZCX and also look at the top 10 CZX 4 of them also includes ZVA as well, right? So as we further improve our -- the ZCX product, specifically doubling down on AI, our pricing model is getting more and more flexible. For now, it takes 6, ZCX example, is usage based. Very soon, we are going to reduce all the companies, right? Some customers like autocom based, some customer like a prepaid usage base, right? So we are very flexible, right? We co-innovate with the customer in terms of product innovation, AI features and also the business model as well. That's why we have high company just run exam, CRE, all those vertical AI product, we are taking the same approach.

Excellent. And then, Michelle, kind of maybe just a 2-quarter for you. Really strong execution on billings. I think some of your best outperformance that we've seen for you guys in a while. Maybe what drove that you referenced, I think it in the script, but maybe just how much of it was better execution in the demand environment versus maybe some other stuff? And then online, maybe a little higher churn than we've seen in some time. So kind of maybe a little bit of a tale of 2 cities. I'm curious if you can just unpack both of those dynamics.

And your question is in part sort of what changes on the deferred revenue as well as just broadly what we're seeing kind of in enterprise billings?

Yes.

So look, in Enterprise billings, Alex, it's exactly what we've been talking to investors we're diversifying our product set. We're working on churn year-over-year, continued its trend of going down. And we're working on AI monetization. And look, I think you can see that across the 3 parties that we talk about, right, so much progress from now going up 184% additional customer references and even new products coming in NII. And then certainly, Eric covered a lot of the contact center, maybe I'll add in my favorites of high double digits that now for the second quarter in a row has even increased on top of that.

So look, broadly, the answer is durable revenue from the enterprise that's driving it. With respect to the sort of deferred revenue, maybe I'll add a mechanical element.

Look, I think -- because I think for investors, we may see more variability in this. We saw a 5% growth versus the sort of 1% to 2% that we guided at, because we just didn't see the need with the nature of the customer contracts to kind of leverage those early grace periods that I mentioned in February. And look, those grace periods are great presume. They come with less discount, longer-term deals. They ease our customers into large competitive wins.

And look, if we don't give them in a quarter, we won't take that.

Second question on churn. Look, I would say we saw a nominal uptick in turn in online. I really don't read too much into it. It's been a long term, low churn for us. I think we're making progress. As investors can see, we said we would stabilize our business in online, and we've done that both in terms of revenue as well as just in the nature of our online business is far more stable. And look, it's a nominal uptick in churn in online.

Our next question comes from Siti Panigrahi from Mizuho.

All right. Just continue to Alex question. Your revenue accelerated 5.5% this quarter. I think that's 1 of the best growth that we have seen in recent years. And you talked about some of this AI monetization, bed SKU in my notes. So how much of that acceleration is attributable to this AI monetization versus broader enterprise deal activity that you saw? And how should we think about the durability of that pace in the back half of fiscal '27 given your guidance implies some kind of deceleration in the second half?

Yes. Perfect. I'll go ahead and take that one. So look, 5.5% growth. We're super pleased to your comment. It's among our highest and a beta high guide. Look, it's important to note that some of that was FX driven. So in terms of like modeling and thinking about future going forward. And so then maybe let me break it down by enterprise and online.

From an enterprise perspective, what we're seeing is very durable growth and the drivers, many of which I touched on in the Alex answer, but let me add a few here. We saw 7.2% revenue growth in enterprise, up from 7.1% in Q4 and but that's with a 60 bps impact of that white label churn, right? So clearly, product diversification, AI monetization, moving up market, moving into new channels, all the things that we've said and working on churn as well. All the things that we said would be sort of durable elements with investors, we're seeing the fruits of.

From an online perspective, that we saw a little -- some mechanically for investors modeling. You do see a little bit more of the FX impact in online, just give because it's a little bit more international base and we faced an easier comparable with no price increase in the prior Q1, but we'll have it here. So you will see -- we're still projecting online to be a slight growth on the full year, but you will see some decel in the growth rate in Q2 through 4.

Our next question comes from Josh Baer with Morgan Stanley.

Excellent. Thanks for the question. I wanted to ask about custom AI companion. A little bit more about the path to conversion. What are some of the features of the use cases in custom that are really key to that conversion? And then also wondering what can be done from like an in-product perspective or from a sales perspective to help to drive back conversion?

Yes. So Josh, this is a good question. So when it comes to Customer AI Companion, we have a few key features like enterprise agenetic retrieval and also the workflow builder and also the agentic builder as well. Customers, some costs were like workflow or agent or in press. All 3 are part of the key features or customer AI Companion. And speaking of how to leverage Customer AI Companion in driver product usage or maybe when the customers use the product, to discover the Customer AI Companion, I give 1 example. Today, when you schedule a Zoom call, right? You can attach meeting with the workflow. So meaning during the meeting, general my notes after meeting workflow will automatically take over to get something done for you. Customers really like the vision, focus on the combination to completion, right? With all the customer AI companion, we really cannot transform our business from accommodation-centric -- business to completion-centric. That's why Customer AI Companion is as good as part of that vision.

Excellent. And maybe a quick 1 for Michelle. I mean low 40s operating margins and free cash flow margins are obviously excellent. I'm just wondering from here where can margins go? And if they can expand, what are the largest sources of leverage?

Yes. I mean I think, first of all, just to give credit, maybe I'll even add 1 in there. We're super pleased with our free cash flow generation, have a strong Q1 in regards to that. Operating margins plus 40, best-in-class, as you know. Also worth noting that our GAAP margins are equally important. So look, we're going to keep working at that. Maybe I'd say on the COGS front, we continue to make sure that we've got an always on kind of efficiency. So as the AI cost spike in a good way with usage, we've got offsetting measures against it. I would say a lot of internal capital allocation, making sure that every dollar and head count that we deploy is sort of to its best ROI and is oriented around those 3 priorities of growth that we talked about with investors. It's not just a frame to talk to you guys. It's how we run the company internally.

And then look, I would say, broadly AI. Super excited at what Customer AI Companion has done even in the finance team to reinvent things. And look, we are our own customer zero. And my favorite example is in contact center, we've been able to remove costs out of our own customer support organization at the same time that we also raised our customer sees that and improved our response time. So making sure we're using each dollar to its best purpose being our first own users of AI and then continuing to kind of work on margins.

Congrats on the consistent [indiscernible].

Thank you, Josh.

Our next question comes from James Fish with Piper Sandler.

James, sorry, you are muted.

Yes. Thanks for the question here. So maybe on the CX side, you guys talked about some strength here and Salesforce launched their own native voice within. So I guess how are you thinking about the impact on Zoom CX in terms of kind of where you guys typically compete what you're seeing competitively in that space. Granted it's early days, but they do have a large agent force and general CRM installed base overall. And it seems like you guys also highlighted a few boomerang deals more so. Is there something incremental you're trying to call out here? Or what's the causation?

Yes. So yes, Salesforce is a great customer and partner. And we are entering into this market from a different angle. And their strength is really about like CRM and marketing cloud and so on and so forth. If we enter into this market based on our customer feedback many customers already deploy our use solutions, meeting solutions, naturally, the next step really about the contact center, right? It's more of a -- you look at the contact center, it's more like a conversation centric, right, rather than the system record centric. That's kind of our key differentiation. And plus we have an infrastructure leader when customers call the agent, the infrastructure also our UC system. And quite often, if agents want to tag on the video, that's also our strength as well, right? And with combining our customer and company, I think we -- I think we offer a very differentiated DCI solution and plus ZVA and also CX Insight, a lot of AI innovations. That's the reason why customers trust us.

And then, James, on your comment or question around the win backs. I think a lot of them are because of the sort of better together across the contact center back into an workplace, that differentiated approach versus we're also seeing a lot of on-prem displacement. So rather than something in the quarter, I think we've been highlighting more of those increasingly. And so it's something we see because of our differentiated kind of position inside and outside of the company. And I think times are changing and more than on-prem base as being unseated.

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

Give me 1 second here.

No worries.

Yes. a little...

It happens even on earnings calls and every day out there..

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

Yes. So maybe Michelle feel free to chime in, maybe I address the ZCX. So we built a very scalable and ZCX platform, right? And because quite often, a lot in customer, they want to deploy ZCX they would like to leverage the channel partners. So if you look at our top 10 deals, 10 out of 10 are channel-driven deals to sell the enterprise, meaning from go-to-market side is already scalable. Our channel partners, they know how to pitch up story, how to sell to our enterprise customers. And also, if you look at our top 10 deals, in 8 out of 10 deals, we are replacing some other CCS vendors. So we look at the entire cost market is pretty big, and we are replacing almost 1 of them. So because of our product reach feature and innovation and also the AI and plus our UC and CC combined story. And that's the reason why we are winning. You look at the top 10 ZCX deals, 4 out of 10 also included a [indiscernible] deals, 4 of the 10 also include the CS as well. The UC/CC combination also are having us a lot.

So in terms of organic growth, to build the AI or the acquisition, first of all, we look at everything from a customer perspective, what kind of services or features they want us to innovate together to and like a search like a genetic workflow, right? We want to build up ourselves. However, if there any other innovative starter companies, we are willing to, but we're also very disciplined and make sure either the technology or the customer and some of the services we cannot build, we are going to lever the acquisition. Again, looking at our R&D, 26% in the -- in terms of revenue, the percentage is pretty large spending, right? We have so many great top talents we have high confidence. We can build a lot of innovations. At the same time, see macro if you know of any great starter companies with good technology, we are a very open minded.

Of course, very nice quarter, guys.

Up next, we have a question from Jackson Ader with KeyBanc.

The question I have was on the online segment, Michelle. With churn just kind of ticking up a little bit, but also revenue accelerating that kind of suggests that maybe net new customers or either customer additions or ARPU for the net new customers is healthier than maybe you'd expect. Can you just talk about maybe the dynamics of the online net new customer adds you're seeing?

Yes. Let me kind of attack it from a revenue perspective. So I think it may be a little easier to digest. So our Q1 revenue went up 2.8% in Q1. Really important to bring in my comments earlier on FX, which looked at the total number, we'll have a sort of a disproportionate impact to online as well as we lapped quarter prior, where we didn't have sort of the impact of the price increase. But then let me pivot and kind of talk about what I think we're seeing more broadly in online revenue and kind of how to think about it going forward. So look, we saw some continued progress with low term. It's a very different base than sort of what we had in the pandemic. You can see that, I think, in so many ways. And then I think we're getting more of a frame of sort of how to land and expand within that, bringing down customer -- or products, excuse me, the hunt in enterprise, where they make sense for online customers, bringing new paths to AI monetization. My Notes being a great example of that. And then certainly, new products and acquisitions, since Eric just mentioned them, we did welcome bonds. But I think that's sort of -- it's the dynamic sort of popping up Q1. And then look, there is durable and strength in our online business, and that's why we continue to think that it will grow slightly in FY '27.

And then a real quick follow-up. If we continue to kind of see this noncurrent RPO or outgrow current RPO. So is this -- is it customer led? Are customers looking for longer-term deals? Is Zoom really kind of pushing longer-term deals? Just curious about what the push and pool they're dynamic.

Yes. What we're seeing there is just a reflection of what we've been talking about. If you think about our levers for growth and kind of growth inflection are changing, more into the phone, more into contact center, more into AI. And contact center, in particular, comes with longer-term deals than maybe a traditional Zoom meetings. And so that's really what you're seeing there. And look, we're pleased that it went up even versus Q4, which tends to be our biggest selling quarter. And look to, I might throw in deals over $1 million was 1 of the strongest that we've seen even in Q1. So I think it's something that really just reflects more where our business is going.

Next, we have a question from William Power with Baird.

Great. Ioannis Samoilis on for Will Power tonight. Good to see the enterprise NRR tick higher. I was hoping you could just talk a bit about that inflection. And then more broadly, maybe a bit about how conversations are going with your enterprise customers or renewal. I know there's some headlines out there about seat counts. But wondering if there's anything you'd call out there, if that's still maybe status quo. And then you already talked a little bit about discounting, but just how you're thinking about discipline there given the value of the platform and AI products that you're offering?

I'll try and take those in order. [indiscernible] expansion, but we've been saying to investors that the intent would be to inflect that, and we were pleased to see in this quarter, a modest improvement. Most of that, just to avoid repeating myself, is the same durable thing that we've been talking about. AI monetization, product diversification. And the intent in the fullness of time is that, that thing would continue to grow off those dynamics. We will have a little bit of the white label churn that we mentioned going forward.

To your second question, which I took to be kind of of the macro nature, look, we continue to see strong and durable enterprise conditions. And more importantly, sometimes we don't always get to control the conditions that we're giving. But I think Sam has a very strong TCO story even within whatever conditions we're giving, and it's only getting stronger as we move into the system of action. We're moving into a very different relationship with our customers. that we're very excited about.

And then remind me on your third part of your question here. What was the third part?

Yes. Just -- I mean last [indiscernible] on discounting discipline around that [indiscernible].

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

Our next question comes from Allan Verkhovski with BTIG.

Eric, I have a question on the AI momentum you're seeing. You've been rolling out a lot of new functionality. And based on the conversations you're having, can you talk through how the average customer's perception as some being a system of action and the enterprise progressed over this past quarter?

And then just as a follow-up, another question on custom AI companion. Can you share what kind of trends you're seeing in terms of adoption today? Are there specific industries or size of customers where you're maybe seeing more success with? Any other color would be helpful.

Yes, Allan, it's a great question. And interestingly enough, this morning, I did the call with 1 of our big customers in the financial sector, is that the same -- as you said, right, what's the customer perspection about Zoom? Are you an AI company or not AI company. For now, in my view, and I talk to so many customers, but not the over like NVIDIA or the opening and so big as AI company. Everybody else I'm not sure the cost from a cost perspective, they think any other software company, the AI company. I think that's -- naturally, I think that's right because whenever the new technology, you look at the stack, right? From infrastructure leader, right, the cloud infrastructure, the triple layer and also large lane model more like an AI company. But more and more, and precision, you will see some company will emerge as an AI company. I think we won't be part of that because of our AI innovation. When customers, they tested our my news feature, they love that. When I shared our -- the new innovation, we are going to announce next month. We love that. More and more, when customer and they deploy all those innovative air services give some time for sure, wow, this is a company for now because as I expand technology stack, right, so that's the perception.

So I'm sorry, what was your second part of the question?

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

Yes. So look at -- not only for a lot of enterprise customers, SMB, including the solopreneurs. I think in terms of composition centric AI, like transcription summary all there the CX Insight, ZV, all those, I think, is doing very well adopted very well. I mean started that as small composition centric AI. And when we announced a new product, which is focused on completion, that also we have at [indiscernible] perception, more like, hey, how level Zoom to build aging debt workflow attached with the composition and how level AI to focus on organic retrieval. I think more and more, we shifted our focus to AI completion part.

Our next question comes from Tyler Radke with Citi.

This is Kylie on today for Tyler, and congrats on a great start to the year. One for both of you, Eric, maybe starting with you. As enterprises figure out that build versus buy allocation, how is Zoom positioning the new AI services and custom AI companion to win that wallet share, especially with it launching in March and scribe seeing some early adoption, what would you call out as some of the biggest moats for that and the others coming on the road map?

Yes. Good question. You mentioned our AI services that we offer the speeds and the API service costs when customer test that, the quality much better than any other competitors, right? This is kind of a speaker of our the product and also many also have a great AI talent. That's what to when we build all those AI services, we also co-innovate customer. even before a build, we already shared why on to build those services, customers resonate very well. That's the reason why in the next month, we'll have some quite a few [indiscernible] customers in the pilot. They really like that, right? Because the co-innovation and also to -- especially for later customers, even AI is such a great technology, the adoption speed is not as fast as we want. That's why we also have some FD, full-time deployment engineer, working together, take a ZVA, for example, some integral customer relief technology. But if you want to let us zoom deploy those solutions take some time. We have FD working together with our enterprise customers, drive the adoption. That's another way for us for overall, we have high confidence about our AR innovation.

Great. And then 1 for you, Michelle. I understand it's early on AI services. So with all of the monetization avenues you're now offering for what would you rank order as sort of the most significant drivers in the upcoming 12 to 18 months?

Yes. First, no, there's a lot out there that I'd like to put out the AI revenue stat. Let me just use this opportunity to throw and to me, the most important thing is to ensure that AI monetization inflects your total revenue growth. And so look, that's already happening from a Zoom perspective. Clearly, the area where we have the most momentum. And you hear that even reflected in our 3 priority wording is to scale the clear signal that we have and customer experience. And I won't add to all the metrics as I think Eric covered a couple and I've covered a couple. But that's clearly the most important. And then look, within new revenue streams, of I look at how much just even quarter-over-quarter, we're just bringing new to the market. And so look, we get excited. There's progress in things like ZRA, Workvivo came out with new stuff relative to monetization, clearly, custom companion. And look, services is one. I wouldn't put it at the top of the list, maybe just answer the question explicitly. And then look, I'd be remiss if I didn't say also that AI usage and threading that in is also a very important indirect measure in terms of how to think about monetization, meaning putting it in our paid SKUs at no additional cost, is intended to reduce churn and bring in new interesting customers. So we are excited. And look, every single quarter, there's just a lot more momentum coming at us, and we look forward to talking about it with investors going forward.

By the way, we have some very exciting new product solution announcement next month. All our AI-driven product.

Our next question comes from Andrew King with Rosenblat Securities.

Congrats on the really strong quarter. Just wanted to double-click on the Renxo win in Japan. It was really notable because it's the first time I can remember hearing of ZVA being for outbound engagement rather than traditional inbound inflection. How large is that outbound ZVA opportunity in your view? And is this an emerging use case that you're looking to actively build go-to-market around? And is there any needed pricing change for the outbound versus inbound?

So those are 2 different user cases. It's hard to say which 1 is bigger because you are still right. And naturally, you think probably focus on inbound. That's not the case because you look at the technology, all the bond, right? I think even it might be even larger, right? Because more and more the companies, right, they want to lever the AI technology to reach as many customers as possible, right? And that's why out bond, I feel like even more opportunity. Again, the same technology, same technology stack, we just focus on all those different use cases, right? That's kind of the platform approach. And yes, when we started a few years ago, we also just focused on inbound. And now I feel like outbound, inbound some hybrid, I think will bring us a lot of new exciting opportunities.

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

It's a great question. I think inbound more like a usage or outcome based. Outbound, we also want to focus on like the outcome based asking that more to customer resonate very well, right? If rates like when sold in the prospect to lever our technology, right? [indiscernible] reply back, you get the lease, I think, a dynamic aces, right? So that's why outcome business model, I think, is more and more for outbound.

Our next question comes from Peter Weed with Bernstein.

There we go.

Sorry, I'm [indiscernible]. Harder to get it unmuted. I think you've talked about this in the past, but maybe remind us or is obviously doing really well for you guys. But if we look forward, 1 of the areas where there seems to be a lot of pressure from AI and perhaps the scale of people employed on centers. How do you see that impacting your revenue opportunity? And kind of when you look at how you can price and maybe get value, how you kind of stay away from base potential challenge extent?

Michelle, do you want to address that?

I would add a little bit Peter there, but I think your question was sort of how do we find the right balance between sort of consumptive and per user business models. Did I get it right?

Well, I think very specifically in contact center itself, where I think there's some pressure maybe.

Yes. So this is a good 1 because it's actually, I think, a little bit different for Zoom than it is maybe some of the legacy players. Look, legacy players have -- and part of why I think you're seeing this when -- I think Eric gave it, but if not 8 of 10 were legacy displacements of our top 10 deals and contact center. And look, it's because we don't have the tech debt, we come at contact center with a very fresh and modern approach an AI-first approach.

To your question, maybe more specifically, we also don't have the business model pressure. And so look, our agent-assisted product, we have a per user 3-tiered structure kind of get better, best, best being the elite we kind of get to the AI value. And increasing that we're introducing, where I think kind of the market is going and Eric touched on this a little bit earlier, a more consumptive based business model potentially outcomes on various and not is the pricing structure for ZVA and Zoom added a new really important layer this quarter of Insights to be able to look across that entire stack and not as consumptive as well.

So Peter, from a high level, let's see any customer, if they are going to hire more and more human agents, it's great. They can deploy more Zooms exercise. If you want a high -- do normally have more human agent, guess well, they can deploy more Zoom ZVA as well, right? So we are giving customers a very flexible solution.

Our next question comes from Peter Levine with Evercore.

This is Charlie for Peter, congrats on a strong quarter. Michelle, 1 for you on capital returns. With the new $1 billion authorization on top of the $625 million remaining you now have about $1.6 billion of buyback capacity against almost $8 billion of cash. And I think last quarter, you framed buyback as a minimum offsetting dilution. But the size of this incremental authorization feels like a step-up in posture. And how should we best think about the pace and size of buyback from here?

Yes. I mean I don't see it as different. I think this is an area where investors have given Zoom feedback. We do have a large cash balance, even though it went down. We're a very free cash flow generative company. And look, I'm proud of the progress that we've made in buybacks. And I don't necessarily think about it per se by tranche. So we tend to think more holistically, we authorized $4.7 billion in total. That's been a big change for Zoom. And now we've executed against $3.1 billion of that. And so look, we have 1.6 remaining, and we're going to leverage that. We think that's a great sign this latest tranche of confidence that Eric, myself and the Board have in wherein is going. And look, we'll leverage that as it makes sense relative to what's going on in the market and stock price. But it's something I wouldn't get overly or thinking about a particular tranche rather than keeping a kind of broader perspective in mind.

Our last question today comes from Tom Blakey with Cantor Fitzgerald.

I think I'm on here. Thank you, Eric, and chest maybe as a final question, it's a good wrap up here. I think with the big AI disruption that you were hinting at, Eric, can you just maybe talk about the durability of the communications app, if you will, of a communications layer when you talk with customers? And maybe as a secondary to that, just what is the strategic value of the data, the real-time data that you can bring to AI applications when you talk to your customers to kind of illuminate the value proposition of what Zoom is selling to these large customers.

Tom, thank you. I wish you are the first 1 to ask with this question because those 2 are the most important questions in my view. So I think, first of all, if you look at the private area for any of us, to complete the task. Normally, it will need 2 steps, right? Stepway and I have a Zoom call or in-person commination, right? Let's say I'm an so wrap. I talk with you, you are a potential customer. after the on call, guess what? I look at my manual notes and log in to the back in the system and bigger this deal and so on so forth, right up back in the system. That's a 2-step process. In the AI with AI technology become 1 step. Zoom interface will remain the same, but our Zoom conversations were my agent will automatically get the work down phone, right? That's a beautiful part of the AI, dramatically automated all those work. I used to spend a lot of time working on. Another example, like a doctor, the patient spend a certain minutes talking to a patient after the composition patient, they need to spend a lot of time to operate it now with AI as everything can be done automatically, right? That's why Zoom has become the human-to-human interaction, not only remain the same, but become more and more important because the Zoom combination. We generate a lot of very meaningful important asset data to help you drive your next step. Without -- I call that a context ale. Let me take this Zoom call, for example. After the Zoom call is through, I have a huge context how to lever the AI, generate inside the task is to get the thing done. I think we're uniquely position because of AI, because of human to human interaction, because I cannot imagine, right, your age my age and talk with each other. We are not going to zoom it will never worked in my view. So that's why Zoom core will become more important in the AI area.

That can't be displaced.

Absolutely. Otherwise, what do we do? If you send your agent, my agent to work together, so it's never worked in my view.

We have 1 more question today from Arjun Bhatia from William Blair.

Perfect. Let me see. I got to change my camera. We -- there we go. Congrats on the strong quarter. Eric, actually, I'll follow up on that last question because I think 1 of the important or interesting rather use cases or customer examples, as you pointed out in the prepared remarks was the Mongo example where they were basically taking actions in CRM ticketing from a Zoom conversation. But how aware are customers that Zoom can do this, right, and that you are becoming this system of action? And maybe what do you need to do on the go-to-market side to really raise awareness that, hey, this is -- we're kind of evolving as a company, and it's becoming a lot more strategic.

Yes. It's a great question. First of all, we have a new release next month and based on the customer feedback, for sure that from a quality, from a future perspective, much better and afterwards, you are right, we toned on go-to-market side and make sure everyone work that. For sure, we have a little bit of awareness problem. Customers do not know that. But at the same time, the huge opportunity. And I think internally, based on our assuming product feedback, a lot of implementation, wow, I did not realize you can do this, can do that. I think it does tell us and the product is ready and we think on our marketing machine and make the area of our customer, and they can think on those vertical features. And that's exactly our focus in the next few months and quarters. And if you have any good idea, please let us know, I really appreciate.

Yes. I will keep you posted.

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

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

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

All right. Let's get started. Before we get started, some disclosures. Important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. My name is Josh Baer, software analyst at Morgan Stanley. And we are thrilled to have Michelle Chang, CFO of Zoom here today. Thank you so much for joining us.

My total pleasure.

Awesome. Maybe Michelle to set the stage, Zoom closed out the year growing enterprise revenue, 7% in Q4, now represents over 60% of the business, when you look at that improved growth trajectory, could you unpack what were the key changes that really bent that growth curve for you?

Yes. So maybe for those that don't follow Zoom as closely, we've had growth that at an overall level was 3% and 3%, and then we finished last year at 4.4%. So an inflection of 130 basis points. And enterprise, to your question is sort of the headliner of that. And there'd really be kind of 4 things that I would call out.

First is product diversification. We've moved a lot as a company from just being a median company to a much more portfolio. So clearly, and I'm sure we'll get into more conversations there. That's 1 of the Second one is AI monetization. It's very clear that AI monetization is inflecting our growth rates. So that's tremendous to see. The third is an investment in our channel.

Right, with where we need to go from a product perspective. We have been investing very heavily in our channel of all flavors, not just incentives, but building out the maturity there. And the last one would be really just continuing to hone our execution from an enterprise perspective in our direct sales organization. And so clearly, that's playing out as well.

Excellent. And we will dig into all of those thinking about as you head into FY '27, I mean what are the key -- the top operating priorities that sort of can sustain that momentum that you've had over the last year?

So look, we have 3 priorities that we're about as a company. And these 3 priorities, they shape everything we do from where we put our dollars because they are the things that will inflect our growth rate even more. Maybe as a build on to your prior question.

The first one is that we have got to infuse AI in our core business. So that means for us, workplaces, which is where meetings is as well as our phone. That's priority number one. Priority number two is this is probably the most forward thinking of our 3 priorities. We've got to get new routes to air monetization and up and running, be the horizontal or vertical. And I'm sure we'll unpack each one of these as we go.

And then the third one is Zoom is really getting into a great moment with our contact center business, which is one of those product diversification that I mentioned. And we've just got to get behind scaling that because the market is in transformation, and we have great momentum behind what we're doing.

Excellent. Before we dig into AI, I wanted to get your perspective on the demand environment. So when you're sitting with chief information officers, other CFOs, how is this collaboration and UCaaS space, how are budgets being allocated? Is there a trend from best-of-breed to consolidation? And how does that impact where you're investing and playing in the market?

Yes. Look, I think it's changing. If I thought maybe a year ago in some of the conversations, it was a mix of best of breed, best of suite, if you will, and to which I think Zoom has a great response to each in best of breed.

We're clearly known for being excellent and chosen by customers at what we do, invest of suites. We have not only a holistic platform but also the ability to integrate with so many others. So one of the things I love about coming to Zoom is we embrace kind of the customer where they are on their journey. If they own Microsoft or Google, great, bring that in, and that becomes essential in the third category, which is really where I think the shift in conversation is, which is to what I would call, pragmatic AI.

Not flashy, everybody needs it to AI, but show me pragmatic value from an AI perspective. So that's a breed investor suite conversations, I think, are still there. Good CFOs always kind of grind on those things. But I think far more the conversations get down to AI pragmatic value and how can I prove it out.

Awesome. Well, let's jump into AI. Obviously, a key debate on the whole sector, assessing the risks and opportunities around AI, particularly around incumbent SaaS. And so I want to just directly ask you, how is Zoom positioned specifically for AI?

Yes. So this is a good one, I think, to make sure people understand. Eric has a great way, our CEO of talking about this, so I'll kind of leverage it here. If you think about the interactions in the world, there was -- there's always been human-to-human interactions. Then there was human to system and increasingly, their systems assistant.

And look, in an AI world, all of those probably exist in some form or fashion, but the thing that doesn't go away is that human connection. And probably what used to then be 2 or 3 steps just becomes kind of singular gets more streamlined in nature.

And so where Zoom we think is going and why I look at this and get really excited about our future in an AI world is really around something called system of action. If you think about it, there's system of records, there's systems of engagement. And none of those quite fit in an AI world, right?

What everyone is having to reinvent themselves, right, towards something that we talk about as a system of action. And that system of action is really about going from conversations that happen every day into tangible real business value, pragmatic AI value and action.

And so Zoom, you might say, well, okay, we have heard those buzzwords or I've heard all that, like why does Zoom sort of win in this, and it's really, I think, on a couple of dimensions. For Zoom, we think about the work that happens in the system of action as work that happens inside an organization and work that happens outside of mineral organization.

And historically, the world has thought about those is very different, very siloed off things. And yet in an AI world, I think they begin to blend and in really good ways from a customer perspective, and so Zoom has a great mix of things inside the organization outside the organization that really get lit up, and I'm sure we'll talk about that as we get to things like phone and contact center.

The other reasons that we're hearing great things about great response from customers in AI is obviously things like quality and approach an open ecosystem and trust and all those -- but look, it's that context that exists across that system of action.

You think about all the unstructured data that we all have as we go from one meeting to the next, and we can't remember who decided what or who said what or what action you took in that and just what a powerful advantage that is to zoom in an AI world. Is the ability to take all those unstructured dialogues and take them from conversation to completion.

Perfect. Eric also uses the word AI-first company. You've got a federated approach. I mean how does that approach show up in your cost structure today? And thinking about all of this AI usage as that scales how do you protect Zoom's gross margins and operating margins?

Yes. So like in a CFO, I'm not about just endless AI investments. They got to -- they got to come with a return on the monetization side that I'm sure we'll talk about. But look, they also have to be rationalized from a profitable perspective. Because in the end, it's all just business. It's not an investment for an investment sake.

So we spend a lot of time on the monetization side, but to your question more uniquely on the cost. What Zoom does in its federated approach is say that we're going to use a combination of SLM and LLMs. Depending on kind of the volumes, we're going to take a more every day common things, and we're going to run them through an SLM and we're going to take more specialized stuff and run it through an LLM.

And that really translates into 2 things from a Zoom perspective. One, the quality goes higher; and two, the cost goes down, right? And so one of the ways that we're able to still say, in an AI world, where usage is going up 3x year-over-year, we're going to hold to those long-term margins of 80% is because of this federated approach.

So look, there's also things like AI cost pairs will naturally come down. And we're going to keep working on our core backbone of COGS and other things that we use to offset. And then maybe I'll give you one more as a key piece to how we're able to continue to adhere to gross margins at the 80% best-in-class range.

And that is our own product. Look, I'm sure we'll get into this more, but like any company, Zoom has a contact center. And like any company, I used to be a CFO of a contact center, they're the worst businesses now. The costs go up and CSAT is always not what we would want it to be. And so look, we leverage in our own company, our own contact center, virtual agent or agent assistant. And we use that is really a means to get costs down as well.

Excellent. Maybe while we're on the topic of monetization, AI monetization, could you talk a little bit more about that framework for you have a base level of AI in paid SKUs. So no extra charge. You've got a custom AI companion and then AI tiers in the contact center suite.

So how are you thinking about the revenue opportunity for AI?

Yes. Let me break it down and give some categories to all the things you just talked about because I think it's helpful. And there's a visual that we did as part of Zoomtopia if anyone wants to go to our investor website.

First, we started out on our AI journey and really taking at the time what was kind of an unusual decision to democratize AI. Meaning we put AI in for all paid SKUs into like Zoom meetings and workplace SKUs. And obviously, there's some degree of monetization there, churn reduction, bringing in new customer stickiness of the platform, okay?

But then we moved into sort of the more explicitly monetized. And we tend to think about it in 2 buckets: horizontal and then vertical. On the horizontal front, if you think about the base of virality of usage that you get sort of in the workplace or from our phone SKU, that core priority that I talked about, you then have the ability behind a pay wall, if you will, to say we're going to monetize in scenarios where the customer is getting incremental value.

More search, their own data, their ability to create their own agents, so high kind of high-value scenario. And then there's what we call vertical. So this one is a bit odd in his naming, but let me unpack what it means. Contact center, for example, is a huge area where you can get AI value. If you think about all those painful moments we've all had is customers where you call in and you're in an incessant loop or you're repeating yourself, or you can't even get to your answer, like the value that AI can bring to that is tremendous, and that is the largest place where Zoom is monetizing AI right now.

But then if you think about that what we're doing, taking that conversation into action. We believe there's great other scenarios in vertical, which is ultimately, I think, where the value is easy as to prove to a customer where they will monetize.

So we made a recent acquisition of BrightHire as well as we have like Zoom Revenue Accelerator, which is our AI SKU focused on our sales organization.

Okay. That's great. I want to ask one on Anthropic. You have a minority stake. The most -- after this past quarter, we learned there's a strategic investment portion of the balance sheet and correct me if I'm wrong, the current amount, $1.6 billion in that line reflects the current valuation. I want to make sure that I'm framing that right. But then I'm also wondering, beyond the economic relationship, is there like a broader partnership that you can speak to?

So we have a Zoom ventures fun and it's about investing in things that are going to be helpful to our product road map, just key strategic partnerships, so many companies have them and so do we. So you're exactly right. The total base of that is $1.6 billion, of which the most significant portion is anthropic.

And so if it's helpful to investors to sort of reverse engineering math, what we talked about in earnings was we had a gain of $532 million pretax, and that was predominantly off of a minority stake in Anthropic. But look, to your more meta question, we think about the federated approach that we took look at deeply based on anthropic.

Quad runs throughout our product set. We are on their customer advisory board. We look at road maps together with them as we do many other AI companies. But I would say we have a great relationship with Anthropic and it's been a great investment for us outside of land and look forward to an deeply part of our [ Federated. ]

Okay. Excellent. Let's dig into some of these product areas. So maybe first, starting with contact center, where you have some very rapid growth recently, Zoom CX and Gartner Magic Quadrant. At a high level, like how would you characterize the demand environment today in that space? And how are you scaling up market or what needs to happen to move more upmarket in the coming years?

Yes. I mean maybe I got into it earlier, so I'll just -- I'll reference to it, which is just for any one of us that is called into a company to try and get a problem resolved, it's painful. Even with all the tech that exist in legacy players to date. And you think about the 17 million agents out there, $200 billion worth of spend.

And what is really poor experience from most companies with the most important people in their business. And so look, that's to me the broad opportunity, and that's how we think about it. But I think that's also how the opportunity is today, right? So I think a lot of our customers come in and are like, oh my gosh, how can AI and how can technology help me improve get my cost down or how can they get my CSAT up?

But I think that's only a piece of where the story is going. And so I think increasingly, what you'll see, and I think you see this a little bit in VVA, and I'll break down our products here for a minute and explain what it is, where it actually becomes really proactive, positive tool to be able to interact with your customers to get better insights of them to help to light them in other ways.

And so all of a sudden, technology and AI enables you to take what was a very cost-intensive problematic thing into potentially a very positive revenue driving things. So we get excited when we hear our customers' early thinking and stories in this regard. And we have 2 products is helpful. I mentioned them earlier.

One, we have a contact center traditional product in non and AI SKU that is assisting the agent with AI and resolving the customer's issue. That's Zoom Contact Center. And we have Zoom Virtual Assistant, which is no agent in the picture, just an AI bot, if you will, talking alongside you and solving the customers.

That's great. I think you laid out the opportunity really well to disrupt this market. But why specifically does Zoom when you think about either contact center with AI assist or ZVA? Is it total cost of ownership? Is it integration with the broader Zoom platform? Like what's driving those ways?

Yes. I'm going to come back to this because I think they're secondary. What I think we're seeing is the market transformation that I talked about. And why Zoom is winning is unlike a lot of the legacy players, the names that all of us know, they've got that from a legacy basis, they're trying to move forward versus in sort of starting with a fresh position.

And so I think that's what's driving us to be the faster center into Magic Quadrant, right? And I think it really reflects itself in our revenue. If you look at our top 10 deals, 10 out of 10 are AI. And so -- and if you look at that high double-digit revenue growth even growing or inflecting in Q4, it is exactly that's driving it.

So first sort of reason of why we win is clearly AI and I would say there's a bunch of things that I would group into what you talked about, like Zoom is trusted, it's secure. We have a fast pace of innovation. We have an open ecosystem and integration philosophy. All the sort of traditional Zoom [indiscernible] that have us displacing large names that you all would think of. So our top 10 largest deals, 7 out of 10 are displacement.

And then there may be a third kind of category that I would call out that we see as a pattern in our wins. And that is this concept of -- remember earlier, I talked about a system of action, where there's work that sort of happens inside an organization, work that happens outside of an organization.

And just how much those worlds are being blurred and AI is taking conversations to completion. Where we see a lot of wins are people that come in with phones or meetings in their base and then they have contact center for communications outside the organization. But it turns out, customers really just want to solve problems.

They don't tend to think about them as necessarily having to be 2 sets of products. And so this concept we call is sort of better together where you can have technology that seamlessly goes out and solve the customer from them, comes back and resolve it and seamlessly goes back out again. And so we win all of that a long-winded way of saying we went a lot with phone and contact center together.

Great answer. Maybe to follow up on phone, that has a nice mid-teens type of growth rate. Like how -- where are we in the maturity of that product? Is it more about upselling contact center into the Zoom phone base? Or are you still landing with Zoom Phone?

I think if you ask me that question last year this time, I would have said, well, the mental model we have is relative to the Zoom base, how penetrated are we? And I think -- 2 years ago, we gave the stat of 19% penetrated. And I would have felt good about that, right? Like there's progress and then there's opportunity on the upside.

And it's still true -- but then you look at the AI value that our customers are turning on in phone and that combination of contact center where we actually now see a lot of new customers coming in, in contact center and then wanting that single platform that I talked about, and they're pulling customers in the bars.

So all of that a way of saying that mid-teens growth, that 10 million seats, we still see runway ahead.

Excellent. One of the 4 sort of buckets of driving growth that you mentioned was the channel, hoping we could expand on that a little bit. What is the channel's contribution to your enterprise growth?

Yes. So if you think about those 3 priorities that I talked about, about -- okay, it's about maintaining and growing the median space and the phone the channel is essential to film, right? It's just how customers want to interact with it, right? So essential to that piece.

Then you go to new scenarios of AI depending on how you define channel also important there. But then you go to the scaling our customer experience or contact center and channel is just central for that. So if you look at -- and that's why we've been building out this channel ecosystem to go with it.

It's not going to be enough just to have the Zoom sellers directly selling on it. We've got to invest in a broad channel ecosystem because it's integral to the businesses that we're entering. And it also great gives us, frankly, great routes to market.

So we now have built out a notable channel ecosystem where companies are betting their business on us. They're one of the stats we check is how many of them are new customers to zoom. And are they able to upsell is on that? And we're really pleased so far with the progress that we had.

Said another way, it's a majority of our both phone and content.

Excellent. Go ahead. I want to make sure we get into some numbers, given that you're CFO, and I'm an analyst, and then we can come back to some other questions if we have time. So growth versus margins if growth can continue accelerating call it, high single digits, even low double digits.

I mean what does that mean for operating margins and profitability. Right now, your operating margins that you're running out are trending well ahead of, I think, 33% to 36%. Prior long-term model. So how should we think about growth versus margins?

Yes. Great question. And the way I traditionally answered this by saying like my focus as CFO was on growth rate inflection. First and foremost, that's what I am about, and we're really pleased with the results that we have. Right? We're not -- maybe where investors always want more, and that's good, we'll keep going.

But look, our first focus is on growth. And you don't get the right to do that and I'll hold profitability in our Zoom Co.. And so we just guided to '27. We guided to 40.5% operating margin. And so look, to your point, dramatically better than sort of our long-term guidance had been more in the 33% to 36%.

And really, what I would say is I've been -- will, at some point, update the long-range guidance. So we're not going to tap into margins in that ZIP code until we see notably more growth inflection. That's just important to me as the CFO. And so the guidance that I've given investors even before this last earnings was you can expect to see something more like '27 until it is very clear to everyone why we would take margins into that kind of Zoom Co.

Excellent. Your net retention rate has been very stable around 98%. What needs to happen to drive that above 100%? And what is the takeaway as far as the path from here?

So look, it's the same things that I talked about. It's continuing to diversify our product. Its growth in enterprise. We stabilized our online business and grew for the first time since FY '22. It's about taking that into mid-growth is single-digit range.

It's about continuing to focus on enterprise and the product diversification and those are going to be the building blocks that frankly get us to revenue growth. I mean we look at net dollar expansion, but it's not where we run the company. We run the company to grow because there are limitations to the metric.

And so from that standpoint, we feel great that we saw 130 bps of revenue acceleration in these conditions and out of the gate guided to an acceleration minus the piece that I talked.

Excellent. Let's move to free cash flow, which I think was $1.9 billion last fiscal year, which was close to a 40% margin.

This year's guidance, FY '27 looks for 1.7 to 1.74. So can you help bridge the gap as far as the year-over-year?

Yes. So first, what I would say is we've used a consistent forecast methodology. So we'll let investors kind of factor in that element based on our history. But there's 3 areas that I talked about that are taking the cash flow down. And so we wanted to give as much clarity as we could to investors in that.

First and most material is last year, in FY '26, we had a low CapEx share. We just -- we -- there are certain cycles of refresh post pandemic when we refresh our database. This is not AI CapEx. This is like just core infrastructure CapEx, low comparable, more normalized comparable. That's about $75 million.

But look, again, in a world where we're holding best-in-class operating margins, I feel good about that kind of trade-off. It's more a cash flow dynamic. Second thing is we obviously have large cash balances close to $8 billion interest rates coming down sort of an interest rate phenomenon as things come due.

And that's about $50 million. And then the third piece is we made a decision to move from less stock-based comp to more cash-based comp accretive to GAAP margin, but has some headwinds in terms of cash flow.

We're now through all of that. all of this in terms of what I think may be the intuitive question from investors is like, what does this mean? This is manic going down on a permanent state. It means that it's a bit more of a comparable and temporal thing, such that cash flow should continue to grow more like what they have post this year.

Okay. Great. I'm going to ask one more, and then we'll pull the audience. So on M&A, you have a very healthy balance sheet. I think $8 billion in cash. How should we think about buybacks versus small M&A versus something more transformational, what's the takeaway on M&A and maybe more broadly, capital allocation.

Yes. Let me start capital allocation, and I'll round this out at M&A at the end. Look, just as I said, growth was going to be my #1 priority with that comes, you have to be excellent at capital allocation. I think this company has made a lot of progress in capital allocation.

Meaning if I just take internal capital allocation, I think there's a lot that we've done to say -- these are our priorities. These are the building blocks for long-term revenue growth. And accordingly, we will invest in them, and we will reduce other things to drive it. More internal, but look at that's important step. That's what's underlying the conviction to a revenue growth acceleration.

The second thing, we've become more buyback in nature. For a while. We hadn't done those when I first came in, I added $1 billion to it. And last quarter, added another $1 billion such that we've announced $3.7 billion of buyback and executed against $2.7 billion.

The other thing I want to make sure because there was so much -- there's so much in the February earnings that people really got investors kept saying, well, give me the frame, tell me how to think about buybacks, how can I model it in going forward.

And so what we gave guidance is that in FY and beyond, we will do buybacks as a means to keep with offset dilution at a minimum. And then to your M&A question, look, in these conditions, it's great to have a strong balance sheet, and it's also an advantage in being able to look at things, the right thing.

I said on the other side of many of our M&A, but broadly, how we think about what we would look at, it's 1 of those 3 priorities. We're going to be thoughtful and disciplined, of course, -- it's going to be for growth accretion. It will not slow down the company in its growth rate. And so what we've said then is, okay, well, that sounds like a little bit of words. What does that mean in terms of the size, which is often what investors want to know and what we've said is that will translate more into small to medium and in nature.

Any questions see one. The mic is on its way.

A quick follow-up just on when you mentioned the right things. I mean, in broader software, everyone is wondering about you have maybe the old legacy version of SaaS software and then the transformations or transitions everyone's kind of going to -- like when we think about M&A, do we need businesses that already are maybe already on the transition side? Or are we willing to even look at a business that is maybe a bit more regular and we can actually make it go through that transition ourselves?

In terms of what we're looking at for M&A, I look like we're limiting it per se, but I would say probably more vers pragmatically to the AI side, meaning people that have already found acceleration, talent for a whole host of reasons, I would say a beer is more towards the [indiscernible]

And a quick clarification just on the free cash flow and like more to the temporal nature. And like how should we be thinking about the OBBA cash impact to that this year at all?

Tax.

On free cash flow yes, just the OBBA cash .

Yes. So what we said in the tax is that it will be a tailwind to cash taxes, but a headwind, slight headwind to the effective tax rate, such that really no different than what we've said to investors, but we did give clarity that the ETR will be somewhere in the 22% to 23%. Thank you. right I'll hop back into my list. We talked through a lot of the really attractive growth rate products driving that enterprise acceleration.

I do want to ask one on online, just given it is still a meaningful part of the business. You've talked about how online is a fundamentally different business today than it was during the pandemic. Could you expand on that? And really, how should we think about the growth profile in assessing the overall composition and mix of the company?

So first, maybe I'll just take advantage of our little time here to get and make sure everyone is sort of aware. So our online business is sub-40% just shy of like 40% of an revenue. it went through, as you can imagine, some kind of turbulent times post pandemic, where we went from like an 8% decline to last year, 25% flat to the first time we grew which is a good moment in the year we just finished, and now we're guiding to slight growth.

To your comment, what I look at when I say it's fundamentally a different business is over 75% of our customers in our online business have been with us for over 18 months. The rest think of them as more monthly and cyclical in nature. So it shows that you've got a sticky user base.

And I think -- to your question of like what are the building blocks of growth? Obviously, it starts with the foundation that loves the product that's in there using it all the time, that's been with you for a while. So it starts with that stable base. Look, in terms of growth, I would say -- I'd bucket it into 2 pieces that are ultimately going to drive growth for the online business.

The first is by adding more value or product to the customer. It seems intuitive. But I think all too often, people talk about it as a price increase. Zoom has done 2 rounds of price increase here when really what it is, is us able to realize the price increase with really no impact to churn because we built out a platform with Zoom, you can get not only meetings, but chat and calendar and whiteboard and all these things that you enable a tremendous value for our customer and vendor consolidation. Think of these as small businesses, solar printers. So that's a huge win for them without having to stitch together all the tech, et cetera, right?

And we added AI value. So the combination of those are really allowing us to both retain that base, build off that stable base and be able to grow it. But look, we're not kind of stopping there. We're working to add new incremental product value. We acquired a company called Bona. I think of this as like project management, customer relationship management, really at the solopreneur, which tends to be a big part of Zoom's business. and something that maybe we hadn't focused in on a lot.

And look, we're continually kind of working on adding that product value. I'll give you an AI fund one, which is -- we talked about AI monetization is putting AI value in our core online SKUs, but we also just announced think of like a granola compete and personal assistance that comes with you to all your Zoom meetings, and it takes notes for you. And so it just shows kind of how we're beginning to get more back into product value for the online customer so that's bucket number one. And by far, the most important. The second is just there's more that we can do in working on our PLG motions, our buy flows, our customer journey, and so look, that's more on the execution element but something that we're focused on.

Perfect. Michelle, we are over time. Really appreciate the conversation. Thanks for coming. Thank you.

Thank you for having me. Thank you.

Hello, everyone, and welcome to Zoom's Q4 FY 2026 Earnings release webinar.

I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.

Thank you, Catherine. Hello, everyone, and welcome to Zoom's earnings video webinar for the fourth quarter and full fiscal year 2026. 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.com. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2027, our expectations regarding financial and business trends, impacts from a 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, who's giving his prepared remarks by Zoom Custom Avatar.

Thank you, Charles. FY '26 was a pivotal year for Zoom and for our industry. We grew Q4 revenue 5.3% and full year FY '26 revenue, 4.4% and an acceleration of 130 basis points over FY '25. These results reflect the increasing value of our platform with innovations like AI Companion 3.0 as our platform expands and evolves into an AI-powered system of action for modern work.

The inflection in growth reflects a structural shift in the market. Organizations are moving beyond systems of record and engagement towards AI-driven systems of action that help customers and employees get real work done.

Zoom is uniquely positioned to lead this transition. We bridge work both inside and outside the organization across collaboration, customer experience and employee experience using AI to take conversations all the way to completion.

And this directly connects to the 3 priorities we outlined last quarter to bring this system of action to life. First, elevate the workplace with AI; second, drive growth of new AI products; and third, scale AI first customer experience.

Let me start by speaking about scaling AI first customer experience. Zoom's advantage in customer experience comes from embedding it within our broader system of action, not treating it as a stand-alone solution as many competitors do. our CX platform is differentiated because it is built on the same platform that powers collaboration inside the organization and extend seamlessly to customer engagement and other external workflows. By unifying internal and external workflows, we eliminate traditional silos and enable customer journeys to move continuously from conversation to completion.

Within customer experience itself, Zoom delivers a cohesive set of intelligent capabilities that empower both human and virtual agents and turn live interactions into coordinated action across teams and systems to drive outcomes.

Our AI innovation across AI-assisted human agents and virtual agents is translating into improved service outcomes and cost savings for our customers and incremental revenue for Zoom. You see this in ZCX ARR continuing to grow in high double digits, and in fact, accelerating in Q4 driven by AI monetization. More concretely, you see it in the story, our deal composition tells about why customers choose us. Every 1 of our top 10 deals this quarter included paid AI and 7 represented competitive displacements of leading CCaaS vendors.

Let me bring this to life with some Q4 customer wins. We welcomed Aeroflow Health, a medical device company who chose Zoom Contact Center and a major Q4 deal spanning ZCC Elite and ZVA Voice plus Chat to replace a leading CCaaS vendor due to our bold AI vision for CX and ability to execute.

We also saw many expansions. MLB and OPENLANE both began a Zoom Contact Center customers and in Q4, bought a combination of ZCC Elite and ZVA Voice to deliver reimagine AI-first human plus virtual agent customer service. In other cases, customers are adopting the full Zoom CX suite alongside Zoom Phone and Workplace to transform service operations end-to-end. For example, in Q4, a major insurance provider decided to replace an expensive contact center stitched to an AI point solution with our unified Zoom Phone, Zoom Contact Center and ZVA voice to automate call triage reduce agent workload and increase overall efficiency.

We also partnered with Surrey & Sussex Healthcare NHS Trust, who administers regional NHS services to modernize their manual fragmented inbound call operations through a single secure digital platform powered by Zoom Phone, Zoom Contact Center and ZVA Voice plus Chat to enable AI-powered self-service improve wait times, reduce missed appointments and enhance overall patient outcomes and call operations efficiency.

These wins also demonstrate the momentum behind Zoom virtual agent and the customer response to our voice AI within the CX suite. Only a few quarters in market ZVA voice has already been included in 4 of our top 10 CX deals.

We are also starting to see ZVA voice bringing new customers and act as a beachhead for potential expansion into large organizations. In Q4, we signed a nearly 7-figure ARR deal with a leading U.S. retailer leveraging ZVA to handle inbound calls across more than 1,100 locations.

ZVA 3.0 announced yesterday builds upon this growing momentum. It operates across voice and chat, taking action across systems, executing complex multistep workflows, learning continuously from how human agents resolve issues and seamlessly bringing people into the conversation with full context when needed. That's how we are helping enterprises close the loop on customer issues at scale. And it's a powerful example of how our CX platform can drive measurable efficiency, better experiences and real business value for our customers.

Our second priority is to grow AI revenue streams beyond customer experience and to extend the system of action to new AI products across vertical and horizontal workflows.

Zoom Revenue Accelerator, our revenue orchestration platform that uses the power of Zoom AI to drive prospective coaching CRM automation and more is a great example of this vertical value. ZRA had a strong quarter. The number of customers purchasing it grew 50% year-over-year, and its largest Q4 transaction spanned HR services, real estate, technology and automotive sectors.

Another great example of vertical workflows is BrightHire, which we were very excited to close in Q4 and bring similar conversation AI value to recruiting and hiring. Bright hire is early in its growth path Together, we have a tremendous opportunity to combine BrightHire's domain-specific AI capabilities with Zoom's product breadth and distribution advantages to transform how organizations recruit, hire and retain talent.

We are also making progress with custom AI companion, which brings horizontal value to workflows across Zoom Workplace and beyond. We're proud to welcome the following new customers showing the breadth of what this product can unlock.

Harmonic, a leader in virtualized broadband and video streaming solutions added Custom AI Companion wall-to-wall to their Workplace deployment to integrate across multiple third-party tools and support knowledge retention, sales enablement and employee onboarding.

Custom AI Companion also made headway in sectors like education, where AI literacy is of paramount importance for both students and administrators. In Q4, Grand Valley State University adopted it wall-to-wall alongside Zoom work for education, supporting their efforts to streamline help desk and other student-facing processes by connecting administrators and community members more seamlessly with internal knowledge bases and workflows. At the same time, they added ZVA to their existing Zoom Contact Center to provide students with more responsive omnichannel support.

Last, the foundation of our system of action sits within Zoom workplace, spanning the full meetings and work life cycle where context is created and work moves forward. by evolving collaboration into an engine of action while preserving the flexibility of an open ecosystem, Zoom Workplace remains simple, reliable and deeply preferred by solopreneurs and Fortune 10 companies alike.

Q4 marked a big step forward with the launch of AI Companion 3.0, advancing our system of action by turning meetings from one-off events into engines of ongoing work.

As innovation accelerates adoption continues to grow and broaden. In Q4, AI companion monthly active users more than tripled year-over-year MAUs engaging AI through the side panel more than doubled quarter-over-quarter. And within Zoom Phone, MAUs using AI features increased 35% sequentially. This momentum reflects not only scale, but expanding depth of engagement across workflows.

We also revitalized our core Zoom Workplace client simplifying the user experience with refreshed interfaces and streamlined navigation to make action even more intuitive.

Our product master continues to translate into competitive wins and meaningful displacements across Meetings, Phone, Chat and beyond. Zoom Phone had some great competitive wins and phone ARR continues to grow in the mid-teens. Let me highlight some customer wins to bring this to life. In Q4, we landed a Fortune 10 customer on Zoom Phone in a large and competitive deal for 140,000 seats replacing Cisco Calling.

We also secured 2 major U.S. financial institutions on Zoom Workplace and Phone displacing teams and Cisco Calling. Additionally, we significantly expanded our footprint with a leading global bank, adding nearly 50,000 Zoom Phone seats in Q4 and bringing their total deployment to an incredible 150,000 seats.

These financial sector wins highlight our ability to meet the complex, highly regulated needs of the industry. our customer-centric approach to innovation, particularly around AI and security, enables institutions to ensure compliance, mitigate regulatory risk and modernize operations.

The momentum is similar in healthcare, where we witnessed a growing number of Workplace and Phone wins that also added customer experience. They are choosing Zoom not only for sector-specific capabilities, but for the differentiation offered by our cohesive AI-first system of action, spanning patient engagement, care coordination and back-office collaboration.

In the age of AI, Zoom becomes more essential. We are building the system of action that turns conversations into coordinated execution across work inside the organization and with the world outside including customer engagement, sales, recruiting and more. By connecting collaboration to action, Zoom drives measurable outcomes, and we're still early in what this system can unlock.

Now let me turn it over to Michelle to take us through the financials. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to be with you today to share Zoom's Q4 and full FY '26 financial performance. In Q4, total revenue grew 5.3% year-over-year to $1.25 billion or 4.8% in constant currency. This result was $12 million above the high end of our guidance.

Our Enterprise business continues to be strong with revenue growing 7.1% year-over-year, representing 61% of our total revenue, up 1 point year-over-year. And our Online business continues to show signs of stabilizing. In Q4, average monthly churn was 2.9% as compared to 2.8% in Q4 of FY '25 in our Enterprise business, we saw a 9% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 33% of our total revenue, up 2 points year-over-year.

Our trailing 12-month net dollar expansion rate for enterprise customers in Q4 continues to hold steady at 98%. Pivoting to our growth internationally. Our Americas revenue grew 6% year-over-year. EMEA grew 5%, and APAC grew 3%.

Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expense and associated payroll taxes, met litigation settlements, acquisition-related expenses, impairments of assets, charitable donations of common stock, tax benefits from discrete activities net gains on strategic investments and all associated tax effects.

Non-GAAP gross margin in Q4 was 79.8%, up 1 point from Q4 of last year. primarily due to continued cost optimization efforts, while we remain focused on investing in the. Non-GAAP income from operations grew 4.6% year-over-year to $490 million, exceeding the high end of our guidance by $8 million. Non-GAAP operating margin for Q4 was 39.3% as compared to 39.5% in the prior year period. The slight margin decline was due to changes in our bonus structure and investments in AI.

Non-GAAP diluted net income per share in Q4 increased by $0.03 year-over-year to $1.44 and on approximately 303 million non-GAAP diluted weighted average shares outstanding. This result included a headwind of approximately $0.11 and from higher-than-expected taxes due in part to tax true-ups discrete to the quarter.

Turning to the balance sheet. Deferred revenue at the end of Q4 grew 5% year-over-year to $1.42 billion, above the high end of our previously provided range. For Q1, we expect deferred revenue to be up 1% to 2% year-over-year. which takes into account the recent trend of larger and longer duration competitive takeouts in Phone and Contact Center that often include credits to defray transition costs.

Looking at both our build and unbilled contracts, our RPO increased over 10% year-over-year to approximately $4.2 billion. We expect to recognize 57% of the total RPO as revenue over the next 12 months, down 2 points year-over-year.

In Q4, we had operating cash flow of $355 million as compared to $425 million in the prior year period. Free cash flow was $338 million, as compared to $416 million in the prior year period. Our Q4 operating cash flow and free cash flow margins were 28.4% and 27.1%, respectively. We ended the quarter with $7.8 billion in cash, cash equivalents and marketable securities, excluding restricted cash.

Under the current $3.7 billion share buyback plan in Q4, we repurchased 3.8 million shares for approximately $324 million. That brought our total repurchase under the plan to 36.3 million shares for $2.7 billion at the end of Q4. Looking into FY '27 and beyond, we intend to leverage buybacks to at a minimum offset dilution on a yearly basis. reflecting management's confidence and long-term commitment to shareholder value creation.

Pivoting from Q4, I'd like to highlight some of the major financial milestones for the full FY '26. Total revenue for FY '26 grew 4.4%, and our enterprise revenue grew 6.5%, both accelerating 130 basis points year-over-year. Along with the top line progress, we also improved margins. We reached a non-GAAP gross margin of 79.7%, up 80 basis points from the prior year, and a non-GAAP operating margin of 40.4%, up 100 basis points from the prior year. Free cash flow grew 6.4% to $1.9 billion.

And finally, we continue to be strong stewards of shareholder capital. We reduced stock-based compensation expense by 18% in FY '26. That, combined with the continued execution of our buyback allowed us to reduce our diluted weighted average shares outstanding by 2.5%.

Turning to guidance. In Q1, we expect revenue to be in the range of $1.22 billion to $1.225 billion. This represents 4.1% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $487 million to $492 million, representing an operating margin of 40% at the midpoint. Our outlook for non-GAAP earnings per share is $1.40 to $1.42 based on approximately 304 million shares outstanding.

For FY '27, we expect revenue to cross the $5 billion milestone and land in the range of $5.065 to $5.075 billion, which at the midpoint represents 4.1% year-over-year growth. We expect our non-GAAP operating income to be in the range of $2.05 billion to $2.06 billion, representing an operating margin of 40.5% at the midpoint. This margin guidance includes a temporal tailwind of 180 basis points related to an accounting amortization change, offset by 70 basis points of pressure from the second era of our shift from SBC to cash bonus compensation.

In addition, our outlook for non-GAAP earnings per share in FY '27 and is $5.77 to $5.81 based on approximately 300 million shares outstanding. Included in this guidance is an interest income headwind of approximately $50 million in FY '27 due to lower yields in the declining rate environment. As a reminder, future share repurchases are not reflected in the share count and our EPS guidance.

For FY '27, we expect free cash flow to be in the range of $1.7 billion to $1.74 billion. which includes approximately $75 million of incremental CapEx related to the post-pandemic refreshment cycle of assets across our U.S. data centers as well as similar interest income headwinds previously mentioned.

As we end FY '26 and we move into FY '27, we're thrilled with our progress. and we're excited about our differentiated vision as an AI-first system of action. This success gives us confidence in our ability to grow durably beyond $5 billion in revenue across progress in meetings continued growth in foam, scaling our AI-first customer experience and in introducing new AI revenue streams.

We're excited to do all of this and still maintain our focus on profitability, cash flow generation and shareholder returns. Thank you to our customers, investors and of course, the entire Zoom team for your trust and your support.

With that, Catherine, please queue up the first question.

[Operator Instructions] Our first question will come from Arjun Bhatia with William Blair.

Eric, maybe one for you, we'll start. I'm just curious how you think about AI monetization progress in fiscal 2027? You called out a couple of examples of customers adopting custom AI companion and going wall-to-wall. How do you think that and your broader portfolio of sort of AI products evolves in terms of adoption and contribution to revenue next year?

Yes, it's a great question. So we're very optimistic about our AI technology monetization in FY '27, driven by, first of all, and customized AI combined. More and more in the customers, they see the value and if we like cause company or be for free, but customer combined is different, we can monetize. That's and expect, right, to drive the monetization. At the same time, we have very solid AI combining 3 foundation and the team working so hard to innovate. We leverage that technology to empower other use cases like ZVA, Zoom Konica Center, Zoom Phone and ZRA almost every -- those product lines for customer experience or sales experience even for wave, we can have to empower those -- the vertical use cases.

Also, we can monetize it. Again, take the ZCX, for example, right? Look at top 106 deals we closed for of the order attest with Zoom Voice Agent, right? Zoom was is built upon our AI technology. We see more and more opportunity like that. I cannot be more excited than before because of AI and because of our monetization strategy for AI.

Our next question comes from Allan Verkhovski from BTIG.

Awesome. Congrats on the strong quarter here. Great to see the acceleration and Zoom customer experience. Michelle, I wanted to ask you, and I'll stick to a question here, but on the Q1 deferred revenue growth guidance of 1.5% the midpoint, can you just quantify the impact from the larger competitive takeouts? And for the fiscal '27 revenue guidance, can you just give us some color like what you're assuming for enterprise and online revenue growth?

Sure. No problem. Let me touch on the deferred revenue 1 because I think this is one that's really important for investors to understand and maybe not read into it as you traditionally might First of all, it's important to note this is a billing dynamic and not sort of a rev rec thing. What we saw was a recent trend that's actually great for Zoom's business of wins in large and longer competitive platforms where we're providing a grace period to our customers to help them with that transition. This is good for Zoom. This is intentional.

And I think maybe just one other piece for investors. You can see that the fruits of that so much in Eric script and you can see it in the long-term RPO that's up 15% relative to 3% in Q3. So a couple of thoughts on different revenue. In terms of the guide, at 4.1%, One other thing that I want to make sure we call out to investors is included in that guide is a 40 basis headwind on of pressure from a single large competitor white labeling that churned at the end of FY '26.

Setting that aside to your broader question, we expect online to have slight growth sort of in the range of what they had this year. And really, it's going to be an enterprise that's the headline for the growth. And it's going to be the source of things that we talked about in this earnings and that, frankly, we've been talking about with investors which is progress in AI monetization, progress and product diversification and building out new routes to market, upmarket and with our channel.

Awesome. Congrats on the strong quarter, guys.

Our next question will come from Peter Levine from Evercore.

Eric, one for you. I think in a world where AI models or provider or the AI model providers are essentially they're controlling the intelligence layer and theoretically could build AI native collaboration suites on top of their capabilities. So I guess, question like what's like in terms of technology or with structural barriers, I think, prevent them from disintermediating Zoom?

Like what's the moat that you be all like we'll defend your market data of the infrastructure, it's the enterprise relationships, brand equity. But like -- or is it something deeper? I guess is like how do you think about that risk? And then how would you debunk the concerns that like AI could ultimately replace you guys?

Wonderful question. I think -- if you think about the mission-critical communication like Zoom, reliability is extremely important, right? It's got to work every time and cannot see todays meeting, we now work, tomorrow might work, no 1 is going to use it, right? And security also extremely important, right? You need all kind of security features as being plus ease of use. The reason why the customer choose to use Zoom.

Back to the AI. I think I'm an engineer, right? I also now starting writing code as well with the AI coding tools, I think it's extremely hard to replicate what we built over the past many years because, first of all, a lot of code still sit pass code to open out the video all a lot of things, right? Today, you look at AI according to sits so hard to build a very scalable and the leverage, the native OS over build all kind of code. It's not as straightforward. You can build a very easy system high-end choice. But it's more like toys, nobody going to use that because this is a collaboration. It's not a system of record or database or store information, even UI don't know work. You know how to use that, right? It's fine.

But with any company missing critical video collapsing tools like Zoom is really hard to leverage the AI coding to replicate what we ship. I have very high confidence. And by the way, no matter what we do, we still need tools like Zoom, right, human to human connection, interaction is still very important.

Michelle, a follow-up on net retention, 98%. Can you maybe just help us first to get all the new products that you're having. You're seeing upsell contact center of voice. When does that reflection? When can we see that in the model?

Yes. So great question on NDE. Look, we've said that it will rebound in the long term, we've not put guidance. And when it rebounds, it's going to be off of so many of the drivers that we're talking about here, progress in churn phone and mid-teens, contact center in high double digits and obviously, the onset of look, we're going to run the business sort of to revenue growth and you have our 2017 guidance there.

But a couple of notes maybe for investors about headwinds relative to NDE. First of all, I just want to go back to that white label churn that we talked about of competitive white label churn that will obviously put some pressure -- and then the other thing that I'd call out for investors is actually good pressure, which is with Workvivo and contact center, we're seeing them bring in new customers to Zing. And look, in the fullness of time, that will replicate through our net dollar expansion. But obviously, it will take a little bit more time. So just 2 more mechanical things to take into consideration.

Our next question comes from Siti Panigrahi from Mizuo. .

Chad on here for Citi. I think the Americas revenue growth trend has been pretty clear and quite strong throughout this fiscal year. I was wondering if you could dive a little bit into the trends you're seeing internationally and sort of any key initiatives there for the up the current year to reaccelerate growth there?

Eric, do you want to take one? Or do you want me to?

Yes, go ahead.

Yes. I mean, look, I would point to -- we're pleased. I think we give the constant currency growth rates, but they're up and growing across our international business. Maybe the thing that I would call out is, I think as we move into areas like contact center, and phone as well as Workvivo, that's giving us together with investments in channel, an opportunity really to break into international markets.

So it is something that we're investing in. We've also done maybe more local investments like U.K. data center. But it's something that we're focused on and with our broader product expansion, AI monetization, as well as channel investments is something we think will grow in the future.

Next up, we have a question from Alex Zukin with Wolfe Research.

I'll maybe make mine pretty quick. There's been a lot of questions around, I think, just your ownership structure of some of the larger foundation model companies. I know we haven't talked about it or asked about it, but given it's such a wide-ranging topic, maybe I'll let you address it to the extent that you want to specifically maybe on the anthropic stake.

And then Michelle, for you just any comments about how clearly the growth on phone contact center was really, really strong this year. As you look at the guide implicit, I know you don't give product level guidance, but as we think about the sustainability of mid-teens growth in phone, the sustainability of whatever very high rates of growth are in Zoom contact center. How should we think about those particularly since you don't want us to pull any kind of forward link dimension from the deferred?

Perfect. So let me hit on profit purse and then we will round Alex, with the product question. Look, in our results, you will see a total strategic investment. Zoom has a Zoom ventures that we use to strategically invest in tech that we feel like is important to Zoom. And you'll see the total balance of that $1.6 billion. And in Q4, you'll see a gain of $532 million pretax. This is due mainly, of course, to the change in the valuation of anthropic after their last round.

Look, we have a minority stake that Anthropic is a critical partner Zoom has long standing, talked about our federated approach to AI and Anthropic is key to our road map and a great partner in our federated approach. On the sort of durability, if I get your question right, Alex, on phone. I really look at just we've seen continue, I'm going to hit phone and then I'll wrap with contact center. Phone. We've been seeing very durable mid-teens growth. Look, we haven't updated our penetration stats in Zoom.

But in Zoomtopia, I think in '24, we said it was 19% of our meeting space. I think that just both speaks to progress and opportunity going forward. And then look, on the phone side, I just look at all the examples that Eric talked about, leading insurance, Cisco win and F10, Cisco win, major fast food chain, RingCentral wind and really feel like a major U.S. bank of Microsoft, Cisco win. So we feel great about the share gains on phone.

On contact center, what I would point to there is just multiple quarters, now 4 quarters at high double digit and actually Q4 accelerating off that. But really, and I think, Alex, you've been a great noter of this is to look at the makeup of contact center as reflective of where we will go. For many quarters, we've been talking about the majority of the top 10 deals being large displacements. We've been talking for quarters about the value really coming in AI, now 10, up 10. And to Eric's point, 4 of 10 in voice, which has been a new entrant for zoom in the summer. We did a 2.0 refresh. And even yesterday, we announced 3 0.

And really, maybe if I could wrap with 1 stat, which is how often times these things come together. And I think it's a great example of what Eric introduced in the system action of both inside the organization and outside just what a powerful element that is. And 6 of our 10 largest contact center deals, as an example, pulled through foam as well.

So just quickly, Alex, it's such a great question to add on to what Michelle said. We talk about the top 10 Zoom phone deals, Zoom contact center deals are doing very well. This is more like a lot of enterprise I think this year, you look at SMB, also a huge opportunity. The reason why we was AI, our air is very affordable, federal approved, right? You look at the last December, I look at a test. Zoom rank #1 for a while, right? So because those investments because of the price and also the latency of the technology, I think we have a huge opportunity for all of those SMB costs as well because of AI.

And especially true, just to mark Eric's comment because it's such a good one that is especially true in BA. So great to see the new product value, which will really open up new opportunities on the market.

Up next, we have a question from Josh Baer with Morgan Stanley.

Great. Thank you very much for the question. And congrats on a strong quarter. You obviously have the horizontal tools that every single knowledge worker in the world can use, but you're also building this portfolio of very departmental solutions, marketing, sales, HR, contact center. So a strategy question for you, Eric. How do you balance addressing additional departments and roles with new products versus going deep into these areas, rolling out more solutions in these departments that you're already in and balancing all of that with the horizontal play?

Josh, wonderful questions. Speaking of what it goes to [indiscernible] a lot of my time, right? I use that for 3 quarters already. As you can see, the quality is getting better and better, right? It's kind of one of the vertical use case for marketing team. Having said that, I think given the AI evolution AI coding tools, I think we have a foundational technology. Now we can do both.

On horizontal front, right, we keep innovating and more feature services, right? And the delivery happens to customers. You see the companies a little bit announced in the last December. And also in terms of innovation, a lot of thing going to new innovations announced at Enterprise Connect, that's on the horizontal front. Look at each vertical use case, either departmental use case or vertical market use cases I think because of AI, I think we can monetize.

That's why we also want to double down on those use cases. customer support, my example, CRE, webinar, BrightHire, almost are in vertical use is, I think we can lever eye to quickly penetrate into those markets. We never thought out before. That's why we are very excited because of AI.

We have a question from Tyler Radke with Citi.

I wanted to ask you about the custom AI companion. You noted some good wins, I think, in higher education and some other verticals in the quarter. But how are you thinking about that in terms of a driver for FY '27. And is this something where you're seeing list price sort of be realized in the field? Or is there still sort of heavy discounting? Just give us an understanding of sort of how that rolls out from a go-to-market perspective.

So you got the customer AI combining. Again, AI combining is part of our offering. It's for free, it's become more and more powerful. But the way for us to monetize AI combining is to go through the customer and combine, in particular for medium and large customers because with the third-party applications, connectors and also building a workflow and no code workflow to the build agent. And that's kind of our vision right from a composition to completion. If you do not have a very flexible workflow builder, so how do you build an agent, how can you complete a task, right?

So because it used to be zoom just collaboration. Now with the customer and company with workflow connecting with all the third-party applications, more skills, more agent and the then we can achieve from a composition to completion. And also not only workflow, but also customer company also can give you the enterprise now retrievable functionality, right? You can connect so many third-party applications, right? I do not need to log into different systems. With Zoom AI combined interface, I can search for any information and help you write a document to achieve the task.

Essentially customer company is a customized workflow builder and also the information search capabilities to connect with all kinds of third-party enterprise applications is extremely powerful, and we can monetize for those targeted enterprise customers. I think Tal maybe have...

Can you hear me?

Yes, yes.

Sorry, just any way to -- is that going to be a contributor to FY '27? Or is it still kind of early days in terms of that monetization of the premium AI custom copay?

It already contributed, right, to our group. So all close the big customer combines in the quarter and Q3 and Q4 with more innovation, for sure, it's going to help us more in FY '27.

Up next, we have a question from Seth Gilbert with UBS.

Maybe just one, if I hold the online growth, online year-over-year growth at about 1.2% for fiscal '27 that would imply that the enterprise decelerates by about 1 point from the 4Q exit rate of 7%. So maybe a question for you, Michelle. Can you talk about some of the puts and takes here that could cause enterprise to outperform?

Yes. Is there a question on Q4? Or is it more on guidance going forward?

It's more on guiding going forward. So yes, sorry.

Yes. Look, let me talk about online, and then I'll finish with enterprise. I think online, so pleased to see it return to growth. It was the first time we've had growth since fiscal '22. And look, that growth comes off of adding value in our portfolio of workplace portfolio as well as AI. And that's why we're able to realize on a price increase as well as keep record low churn. Our guide assumes an additional price increase on the annual SKU. So in line with monthly, it's really just intended to do the same thing as the prior but bring them into value.

But look, Seth, to your more meta question, Enterprise is going to be the durable driver for growth going forward. And I'll just continue to hit home the components. It's making progress in meeting churn. It's keeping Phone in that sort of mid-teens growth range. It's continuing with that better together story to pull along Contact Center and realize the AI value. That is by far where we are seeing the most immediate pulls of the incremental AI monetization in both agent-assisted AI as well as the ZVA that Eric and I talked about. And then look, there's so much coming on from an AI monetization perspective, both in product, Workvivo phone.

But additionally, beyond that in new SKUs. We've now opened up a note taker SKU to our free base as well as making continually products like ZRA even better. So we look out to the forward and we're excited about the progress that we made this year, 130 bps kind of up year-over-year, and we're equally excited, if not more, on the go forward.

Up next, we have a question from Tom Blakey with Cantor Fitzgerald.

Eric, or Michelle, I'd like to hear about maybe some quantifying of these credits that you called out, that was interesting. And even if it's -- you can't call it out numerically, just how they're trending. I think the numerical help would kind of understand, help us as a group understand what kind of headwinds we're talking about that as I know, Eric, you're managing this business for a multiyear basis here as they -- you guys are innovating and taking share when they come off, like what that would look like? And I have a follow-up, if I may.

Yes, I can take that. So look, it's in line with what I said earlier, which is Again, I just want to continue to emphasize that investors don't read into this as normal, these are great competitive wins where we're providing a grace period, so that in exchange for a larger and longer-term competitive platform win. Think of this as helpful in sizing, Tom, is really the primary driver between the decel in Q4 relative to the guide in Q1. And if helpful on the other side, maybe what I'd point to is connecting you to that uptick in long-term RPO as helping.

Yes, that would be helpful. And then, Eric, just combining you and Michelle's comments here, Michelle is guiding us to grow online kind of relatively flat, but you seem awfully excited about the SMB opportunity to maybe equally do as well. I know it's early days in terms of maybe tackling the successes that you've had on the enterprise side with CX and phone, but is it safe to assume that, that's maybe not imply or imputed in that one kind of watch out guide for fiscal '27 online?

Yes. So mission SMB customers more like a high end higher not online bars like SMB customers, right? It used to be let's look at a multiple solution now because of power for AI. And also, I think we have a huge opportunity to serve those SMB customers. Because we have a very rich product portfolio, great AI capabilities yes. is not of what the individual for online buyers, yes.

Michelle, could you comment on BrightHire, anything on the top or bottom line impact into fiscal '27? And that's it for me.

Yes. So it closed mid-Q4. So I think that the impact to Q4 is sort of de minimis. The guide reflects obviously right hire. And I would just say that -- it's a perfect example, I think, of what Eric laid out in the earlier question with regards to vertical and horizontal value. So this is a business where we share common customers, so there's sort of mutual benefits. And this is a product where we have similarities with really taking AI value to rethink, poring kind of approach, more insights, efficiencies as well as then you have Workvivo on the other side of sort of thinking about the life cycle of kind of human talent. So it's something that they use Zoom and all of their interviews. And so we look at it and there's natural synergies in there relatively small. This is a small acquisition. You can see the size of it, sub-100 to the total.

Our next question comes from Samad Samana with Jefferies. .

So I wanted to ask about pricing. You guys have continued to create a lot of value. You've obviously -- part of it is to drive better retention, which we've seen over the years. Some of it is to be expressed in kind of monetary terms. How are you thinking about that balance for fiscal '27, Michelle? And what are you assuming in the guidance, if anything, from a price increase perspective? And to the extent -- I'm sorry, 11-part question. I'm learning from some of my peers. But if you have, can you give us a sense of like timing around that assumption as well?

All right. I may hit explicitly be online, and then I'll move and talk about our enterprise because I think the dynamics look a little bit different. So our online guide includes a price increase of 6% to go on effective mid-March to our annual SKU. So think of this as this is really the flip side of what we did last year. And I really encourage investors not to think about it as a price increase. Price increase is just one mechanism for realizing incremental value to customer.

So price increase ongoing, if you will, is not something that Zoom is going to use. It's going to come with incremental value. In this case, it came with much more value across chat calendar meetings, whiteboard, et cetera, et cetera, in our workplace as well as AI value. So that's really what's behind that. So that's sort of how to think about the online side. And on the enterprise side as well, one, important to note that those prices then impacted the enterprise. But look, there, we're going to focus much more on total contract value, things like discounting and contracts, sorry, duration. And those would be baked into our guide given.

Our next question comes from Ryan MacWilliams with Wells Fargo. .

This is Chris on for Ryan. Eric, you've mentioned in the past a doubling down on the product side. And so we were curious if in the last few months, you've seen any product velocity improvements from agentic coding tools like you're mentioning. And if you're thinking about product investments any different this year compared to last year?

Yes. So a while back, so we already adopt AI coding tools, it's getting more and more powerful. And especially for the new product development, right, or new service, right, certainly accelerated our pizza of innovation. But at the same time, we also have a lot of existing services, right, and a lot of code written by up engineers, right? I do know in the AI coding tools is powerful enough, right, to maintain all those millions of the less of a quarter yet, right? So I mean started that, you look at not only for engineers, but also the UI designers, product managers, almost every we connect AI cold intros to improve our productivity. Essentially, we drive the innovation, the speed.

And you get the product area we invest like ZVA, for sure, is really a great example, and we're kind of building a lot of new features. And it's probably in terms of speed, and better than any time in our company's history, right? That's the reason why over the past few months, the cost of feedback, wow, you add this feature, the other feature, a much better position. This is a great example because the AI coding tools, and also because of the way we embrace the AI. So again, not only for engineers, but entire the product development, the life cycle.

Next question comes from Jackson Ader with KeyBanc.

Great. The question I have is on is around the channel. And I think you guys have made a bunch of improvements and enhancements to the channel partner program, the last few quarters and last year. And so really, I'm curious, number one, any kind of continued enhancements that you definitely know are going to be implemented here that should help for growth in 2027?

And then also, it seems like -- I understand there are some kind of headwinds, tailwinds to the margin. for fiscal '27. And I'm just curious, is that due to the mix of the type of investments you're making, meaning channel versus direct? Or is it just the overall amount of investments that you're making?

Yes. Let me go ahead and take that, and then Eric can pepper in as he see fit. Look, channel, if you think about sort of those durable elements of revenue growth is going to be essential to things like its own business and the contact center. And it's just how customers procure in that space. And also, it just speaks to beyond just the software, the consulting deployment, just how customers interact with partners. And look, we're very -- this is something we've been very intentional about, and I think you could see it in our revenue growth inflection.

Look, in terms of quick couple of stats and things of why we feel great about our investments. You can see it in our large contact center wins mine of 10 in channel, our channel base continues to grow. And frankly, the proportion of new customers coming from channel to me is especially exciting. The kinds of things that we're investing in to your question, look, it's around incentives. We made starting last year a lot of system capabilities and portals so that we really help enable especially to all of the product value that Eric mentioned, in things like ZVA coming out at incrementally past levels, we want to make sure that our ecosystem is ready there with us, and so we'll invest in that.

And then maybe the last channel investment that I would mention is we're bridging that into things like systems providers, which we think is going to be really important going forward. On your -- on the operating margin guide, let me make some comments because I want to make sure that people really understand the bigger picture here. So we guided to 4.5% at the midpoint. We want to, obviously, beyond the mechanics of reminding that we've used as a consistent forecast methodology.

We really want to make sure the investors understand the 2 dynamics, which are not channel were up 180 basis points due to the amortization change that we referenced in the script. And then that's offset in part by the comp changes we're in our second year of shifting from stock-based compensation to cash. So those are really the headlines to think about in terms of the op margin versus anything channel.

Our next question comes from William Power with Baird.

Eric, really encouraging to see continued progress on Zoom Phone and obviously the broader ARR growth trends. But I'm particularly interested in the Cisco displacements. I think historically, there's just been a lot of inertia with some of these legacy phone systems, especially the large enterprises have. So I'm just kind of curious, is this just a function of working through the sales cycle? Is it a function of enterprises just becoming that much more comfortable with Zoom Phone quality what's kind of putting you over top here? And maybe just help us kind of understand the sustainability of some of these large opportunities.

Yes. That's a wonderful question. Believe it or not, actually look at the total FUM deployment. A lot of -- I think probably still more than 5%. I did not get the new number, still on-prem deployment, I mean, for large interest customer, right? And deployed the on-prem phone from Cisco for a long time and said, yes, it's okay. It's not great, and why they want to hurry to migrate to the cloud, right? This is kind of assortment entirely before.

Now with AI, as a strong reason for those the very lining of the customer, they cannot have the for the on-prem, right? So that's why I would say that will be acceleration for those large integrated customers migrate away from on private cloud, Zoom is much better positioned. We win quite a few very large, very completed phone deployment for on-prem to the cloud. Again, AI is a driver and for those customers to migrate the AI first cloud from system. And that's -- yes, that's the driver.

And maybe just to put the numbers to what Eric said, it's about 130-plus million seats in the cloud and about 150-ish million on-prem. So Eric spot on, right at 50-50.

So lots of opportunity. .

Yes. Yes. Huge, because if not beat, it's hard to comment them. They say, is okay. I used it for 20 years, it's okay. But now it's great opportunity ahead of us.

Maybe the last thing that I'd mention is just increasingly how the deals reflect it's not just 1 alone as a workload. It's that sort of wanting that whole system of action. I think that's why you see so many contacts on our phone and deals coming together. And so as we think about large competitive displacements I think the inability to kind of have that full portfolio is one of the reason.

And our last question for today comes from Catharine Trebnick with Rosenblat Securities.

Okay. Thanks for speaking in. A quick question on the channel. So I get the fact that you go direct with the phone in the contact center, and you did mention systems. And you did talk this quarter that you had many more deals that were bundled. So are you seeing a different buying pattern from the enterprise and the SMBs that are forcing you or maybe being more or the system integrators are more attractive to you? Can you pull that back, but for me?

Your question, Catherine, is are we seeing, I mean I would...

Yes, it seems like you had more bundles this quarter than you have typically discussed. So how is that changing your go-to-market motion and you're working with the different partners because most of the partners typically just sell the phone at the contact center. So it seems to me if it's a more complex deal that you're going to need either a direct sales force or more of a system integrator.

Yes. I mean I would say what we saw in Q4 was just an intensification of the pattern that we've seen previously, which is just what a natural sale it is for phone and contact center a chem together. And then frequently, that also comes with a meetings portfolio. And look, in a lot of the deals, did they also include other great IM products, yes. I think it speaks to sort of where the market is going, that system of action that we talked about, also stitching the AI value in. And then certainly, content investments that you've noted and your step about investments in the channel.

Well, the other part is you see the enterprise want to move more towards a platform like they are in security and that you're feeling you have enough product pieces now to be part of that platform.

Yes. I mean I'll jump in and then, Eric, you should certainly jump in as well. I do think -- and you're seeing in a lot of those large deals, those platform things. I don't think it means all of them. I don't think like anything, there's a binary answer. But maybe just as a quick data point, like if you look at our top 10 deals and contact center of 10 included phones. So I think it's just an indicator that there is both those that really want that platform, that whole system of action stitch together with AI. And then there's others that are just going to have their own technology and come at it in different ways.

But look, I think maybe just to the third revenue conversation, I see that as a great sign. It's these all-in with Zoom, large, longer-term deals. So I think there's some really great things on the future for our Contact Center business.

Just quickly add on to want to Michelle said. So the Zoom workplace is our UCaaS platform. Contact Center is a CCaaS especially for those large invite customers, right? When they look at it from on-prem to club, maybe from the pre-AI solutions to AI solutions. If you can combine those 2 consolidated those 2 systems into 1 platform, 1 vendor, why not? This is a great ROI. That's the reason why quite often you say both UCaaS and CCaaS will bring in together. So that's the reason.

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

Thank you for Zoom employees, customers, partners and investors for your greater support and we should appreciate. We are very, very optimistic about FY '27. So see you next quarter. Thank you.

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

Thank you all.

Hello, and welcome to Zoom's Q3 FY '26 Earnings Release Webinar. As a reminder, today's webinar is being recorded. It is now my pleasure to introduce Charles Eveslage, Head of Investor Relations. Charles, over to you.

Thank you, Megan. Hello, everyone, and welcome to Zoom's earnings video webinar for the third quarter of fiscal year 2026. 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.com. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

After this call, we will make forward-looking statements, including statements regarding our financial outlook for the fourth 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 future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially.

These forward-looking statements are subject to risks and other factors that could affect our performance and 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, who is giving his prepared remarks by a Zoom custom Avatar. Eric?

Thank you, Charles. We delivered strong results this quarter with broad momentum across products, industries and customer segments from online to our largest enterprise accounts. This performance reflects the durability of our business, driven by the growing value we are delivering for customers as we evolve from a communications leader to an AI-first platform for work and customer experience. Our vision is to be the AI-first work platform for human connection. As we march towards this vision, we are focused on 3 priorities: elevating core products with AI, driving growth of new AI products and scaling AI-first customer experience.

Pivoting to our first priority at Zoomtopia, we unveiled AI Companion 3.0, our next-generation agentic AI that's transforming how work gets done. We're evolving Zoom into an AI-first system of action going beyond summarization to be your agent to proactively prepare for meetings, follow up on tasks and drive work forward. AI Companion runs on our federated AI architecture, which lets customers use Zoom's models alongside their own or trusted third-party models unlike closed systems elsewhere.

Spanning meetings, phone, chat, whiteboard and soon the web, Zoom brings intelligent assistance wherever work happens across major platforms. And customers are responding. AI companion adoption continued to surge more than 4x year-over-year, underscoring demand for smarter, more seamless ways to work. In tandem with AI companion growth, we saw continued strength across Zoom Workplace. Team Chat monthly active users rose 20% year-over-year. As the canvas for asynchronous work, chat turns meetings into persistent workspaces. And with AI companion, it provides summaries, composition tools and easier search capabilities so customers can keep work in context, reduce app sprawl and take action faster.

Our employee experience offering continued to shine even as we lap the strong momentum of our previous Meta partnership. Workvivo logos grew nearly 70% year-over-year to 1,225 with customers spanning mid-market up to the Fortune 10. Last, Zoom Phone surpassed 10 million paid seats early in Q3, marking a major milestone and reinforcing its leadership in unified communications. It continues to perform well with consistent ARR growth in the mid-teens and numerous sizable wins in financial services and health care. For example, Rothman Orthopedics, Platinum Dermatology and a reputable clinic adopted Zoom Phone for its unified platform, advanced AI capabilities and health care-specific integrations and compliance tools, enabling seamless collaboration and better patient care.

AI isn't just bolstering our core, it's opening new revenue streams and deeper customer value through customization and automation. Two quarters in, custom AI Companion is scaling with several Fortune 200 wins and broad interest. Oracle, already a major Zoom workplace and contact center customer, chose to deepen its partnership with us this quarter. As one of the world's leaders in AI and enterprise technology, Oracle adopted Zoom Custom AI Companion to create powerful AI-powered assistance across its global workforce, helping employees turn everyday conversations into actionable insights. We were also delighted to see Salesforce deepen its partnership with Zoom by adding Custom AI Companion.

Alongside horizontal momentum, we're extending AI into collaboration adjacent verticals as well. In Q4, we agreed to acquire BrightHire, a leading AI-powered hiring intelligence platform that elevates every stage of the hiring process, enhancing one of the most critical business workflows while also strengthening our collaboration platform. The same AI innovation powering how teams collaborate is also transforming how companies engage their customers and Zoom is at the center. Customer experience is one of our fastest-growing businesses and an important long-term growth vector for Zoom.

In Q3, customer experience delivered a phenomenal quarter with ARR continuing to grow in the high double digits. And early in the quarter, we were honored to be included in the 2025 Gartner Magic Quadrant for Contact Center as a service only 3 years after launching Zoom Contact Center. Within customer experience, AI has become a clear differentiator, creating additional monetization opportunities. 9 of our top 10 CX deals involve paid AI, such as Zoom Virtual Agent or AI Expert Assist as enterprises use Zoom to deliver faster, more personalized service. For example, SolarWinds, LegalShield and Bromcom chose Zoom to replace fragmented legacy systems with one unified AI-first platform.

They turned to Zoom for its integrated approach across workplace, phone and contact center and for the innovation of Virtual Agent 2.0, which helps simplify operations and enable faster, more intelligent customer engagement. We're encouraged by the rapid momentum of our CX portfolio, reflected in external recognition and customer wins and driven by our AI differentiation and deep workplace integration. This progress advances our platform strategy to deliver a unified solution and expand long-term growth.

In summary, we're executing a clear plan, AI-led innovation, platform expansion and disciplined durable growth. We're pairing innovation with financial rigor, delivering strong profitability and cash flow while investing for long-term growth. With accelerating adoption and marquee enterprise partnerships, we're turning our AI momentum into measurable value for customers and shareholders. Now let me turn it over to Michelle to take us through the financials. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to share Zoom's Q3 FY '26 financial performance today. In Q3, total revenue grew 4.4% year-over-year to $1.23 billion or 4.2% in constant currency. This result was $15 million above the high end of our guidance. Our enterprise revenue grew 6.1% year-over-year, representing 60% of our total revenue, up 1 point year-over-year. Our online business continues to show signs of stabilizing. In Q3, average monthly churn was 2.7%, in line with Q3 of last year and at an all-time low.

In our enterprise business, we saw 9% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers make up 32% of our total revenue, up 1 point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q3 continues to hold steady at 98%. Pivoting to our growth internationally. Our Americas revenue grew 5% year-over-year. EMEA grew 3% and APAC grew 4%. Moving to our non-GAAP results, which excludes 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 Q3 was 80%, up 117 basis points from Q3 of last year, primarily due to cost optimization efforts. We remain focused in the near term around balancing investments in AI with cost efficiencies. Non-GAAP income from operations grew 11% year-over-year to $507 million, exceeding the high end of our guidance by $37 million. Non-GAAP operating margin in Q3 was 41.2%, up 234 basis points from Q3 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share in Q3 increased to $1.52 on approximately 305 million non-GAAP diluted weighted average shares outstanding.

This result was $0.08 above the high end of our guidance and $0.14 higher than Q3 of last year. The EPS growth reflects strong business performance, effective cost management as well as anti-dilution driven by our buyback program and our disciplined stock compensation management. Turning to the balance sheet. Deferred revenue at the end of Q3 grew 5% year-over-year to $1.44 billion, towards the high end of our previously provided range. In Q4, we expect deferred revenue to be up to 4% to 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 8% year-over-year to $4 billion.

We expect to recognize 60% of the total RPO as revenue over the next 12 months, down 1 point year-over-year. Operating cash flow in Q3 grew 30% year-over-year to $629 million, representing an operating cash flow margin of 51.2%. Free cash flow margin in the quarter grew 34% year-over-year to $614 million, representing a free cash flow margin of 50%, up 11 points year-over-year. The year-over-year increase in free cash flow margins was driven by improvements in the collection process as well as stronger billings. We ended the quarter with $7.9 billion in cash, cash equivalents and marketable securities, excluding restricted cash.

Under the pre-existing $2.7 billion share buyback plan in Q3, we purchased 5.1 million shares for $414 million. As of the end of Q3, we repurchased 32.5 million shares for $2.4 billion. Turning to guidance. In Q4, we expect revenue to be in the range of $1.23 billion to $1.235 billion. This represents approximately 4.1% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $477 million to $482 million, representing an operating margin of 38.9% at the midpoint. Our outlook for non-GAAP earnings per share is $1.48 to $1.49 based on approximately 305 million shares outstanding.

For the full year of FY '26, we are excited to raise both our revenue and profitability guidance. We now expect revenue to be in the range of $4.852 billion to $4.857 billion, which at the midpoint represents approximately 4.1% year-over-year growth. We now expect our non-GAAP operating income to be in the range of $1.955 billion to $1.96 billion, representing an operating margin of 40.3% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY '26 is increasing to $5.95 to $5.97 based on approximately 308 million shares outstanding.

As a reminder, future share repurchases are not reflected in share count and EPS guidance. With the strong free cash flow results in Q3 and increased outlook for operating income in FY '26, we now expect free cash flow to be in the range of $1.86 billion to $1.88 billion for the full year, which at the midpoint represents approximately 3.4% year-over-year growth. As indicated in our press release today, we are also excited to announce our Board has authorized an incremental $1 billion share repurchase. This reinforces our Board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder returns.

In closing, we've made progress improving top line growth. We've sustained best-in-class profitability, and we've reduced dilution. We're executing on our 3 priorities with discipline and momentum and remain committed to building on this success to deliver lasting value for our shareholders. Thank you to our customers, investors and of course, the entire Zoom team for your trust and support. With that, Megan, please queue up the first question.

[Operator Instructions]. Our first question will come from Tyler Radke with Citi.

All right. So really nice to see the stabilization and acceleration in the business as well as the margin expansion. Just a multi-parter here on growth. So can you -- if we look at Q4, the outlook looks very strong. How should we be thinking about that as a jumping off point into next year? And I ask because I know there were some price increases that you took on the online business this year. How do you think about pricing heading into next year? And then big picture, you're kind of near that 5% growth mark, certainly should be by Q4. What do you need? What are sort of the stepping stones to get back to a 10% growth over the long run?

Yes. I can jump in and take that one. First of all, we're not sort of at our planning process to the stage of getting FY '27 guidance. We're going to go ahead and do that as per the normal kind of same process in February. With that said, maybe to touch on a couple of your questions with more specifics. Any pricing kind of elements we would -- we always try and give real clarity to investors. If we choose to do that, you would also get that in the February time zone. So maybe let me just pause a little bit and share some thoughts about how we think about kind of long-term growth First, with this latest forecast, enterprise will continue to be the predominant growth driver.

With this latest round, you'll see that we do expect online to be a slight increase on the full year. And really, the elements that investors should have top of mind as they think about growth path for '27 or even beyond that are the same elements that we've been talking about, first and foremost, stabilization, excuse me, of churn. And then product diversification, moving upmarket. And really those 3 priorities are going to be also the predominant drivers and focus of growth going forward.

Our next question is from Michael Funk with Bank of America.

Yes. Great. Great. Maybe a related question asked a slightly different way. So looking at the enterprise net dollar expansion you reported, still below 100%, clearly, an opportunity to help drive top line growth if that does improve. Several competitors, though noted they're continuing to see post-COVID seat-based contraction. So can you peel apart the pressure on NDE and if you're also seeing post-COVID seat-based contraction? And if you are, when do you expect that to turn and maybe contribute to more positive top line growth?

Sure. First, thanks for the question. Look, we're pleased after 6 quarters to see the net dollar expansion stabilizing. We're not going to sort of guide to inflection, but certainly inflection is the goal. What I would say in terms of how to think about it, maybe just a continued reminder for investors that when we have products like Contact Center and Workvivo that tend to bring in new customers to Zoom, those will obviously take a little while to play through the dynamic of the metric. But overall, in terms of your maybe more specific question about seat count, that's not something that we've seen be a huge element to our quarter. Certainly, always customers here and there will have seat pressures, but we've seen overall a very strong macro demand.

Our next question is from Rishi Jaluria with RBC Capital Markets.

There we go. My apologies on that. Maybe just one simple one for me. Coming out of Zoomtopia, there was conversation around M&A. And I know you've done some 2 small tuck-ins right now. Is this just kind of how we should be thinking about M&A for you going forward in terms of it will be more technological, low tuck-in in nature, obviously accelerating your road map? Or is there a potential for maybe more transformational M&A?

Yes. Thanks, Rishi, for the question. Really, I would say our thoughts on M&A are very consistent to kind of what I said previously, really no change just to update investors. But let me go ahead and recap them just for everybody's knowledge. First of all, is that we're going to be very thoughtful and disciplined in both acquisitions and integrations. We're going to make sure that they're strategically aligned with synergies and obviously coming with sound financials. And for Zoom, that typically will mean small- to medium-sized investments. Think of the Bonsi and BrightHire M&A as small in nature, if helpful.

Our next question comes from Josh Baer with Morgan Stanley.

Congrats on the beat and raise. I wanted to double-click on growth, enterprise growth from one more angle, just really double-clicking on Zoom Phone ARR, which is growing mid-teens, customer experience, high double-digit growth, Workvivo, you have rapid growth there. Could you walk through each of those growth areas? Just wondering how you think about the sustainability of those growth vectors.

Yes. Maybe I can take that one. And maybe I'll use the opportunity as well, Josh, just to call out to investors that we made a slight tweak to the 3 priorities that we've been highlighting to investors, really 2 themes of what we were trying to get across. One, AI in all of our priorities; and two, really just sharpening kind of the language with which we talked about our priorities. So let me introduce them or reintroduce some of the same as what Eric talked about in the script and give an update to sort of get at your product-specific question.

The first one is really about elevating workplace with AI. And broadly, what that means is AI over the entire meeting life cycle. And the things that I would think about in terms of growth and progress that we saw in Q3 there are continued progress against churn. It is the fifth consecutive quarter on enterprise sort of year-over-year declines on churn, and you obviously heard the call out in online for record low churns. But not just that, it's the Zoom Phone. And increasingly, how much AI comes up in our win rates, you see it in the 10 million seats in the mid-teen growth.

Second big priority for us is to drive new products with AI. I should mention on the previous one, also integral to that, that sort of sets up the second one is getting that AI usage going. And so that's where we continue to see 4x year-over-year MAU increase in our AI. When it comes to new products in AI, we have sort of the horizontal that builds up that AI usage, and you see the big names in Salesforce and Oracle. Still early days, but pleased to see that in our second quarter and building off the names we shared last quarter.

And certainly, then there's vertical, be it our ZRA product, our new BrightHire acquisition. And then last to kind of get at your contact center question or comment is really to scale AI-first customer experience, whether that's agent-assisted or virtual agent. really there, what you're seeing called out by Eric in his script is strong high digit -- high double-digit, excuse me, revenue growth, customer growth in the 60-plus percent. And then also just in the nature of the deals, a strong AI preference, 9 of the top 10 deals pulling AI and many pulling both virtual and our agent assisted. So a lot that we're excited about as we pivot to growth going forward to update on our product side.

Next up, we'll hear from Ryan MacWilliams with Wells Fargo.

Good to see you again. Really cool to see the AI Avatar in the prepared remarks, maybe one day, I'll be asking AI Michelle about growth next year. Just kidding.

[indiscernible] Ryan, to talk to one another.

Yes. AI Mac, I don't know if you can recreate the Philly accent. But just one for Eric actually. So Zoom has had really strong product velocity historically. And as product development time line shrink even further with Agentic coding. Do you think this offer Zoom the opportunity to build more product density into your existing products with new features or expand into new product categories?

Well, that is a great question. I think in the AI era, I think every business is, right, and are facing the similar challenge and also the great opportunities. So the innovation speed is unprecedented. Look at the way the engineer write the code, Look at the marketing sales team, how they leverage the AI to automate the process. We got to leverage AI to reinvent everything. The good news, I have an engineering background, right? And I think I have to -- I also determined, right, to spend way more time than any time in my career to double down, triple down on the product side.

I think there's a huge opportunity, meaning we have to change the company culture and make sure [indiscernible] engineers, right? The way they write the code is totally different. The way they troubleshoot the test also is very different. We need to make sure every engineer, even if they write the tens of thousand lines of code before, they have to embrace AI now. Back to your question, I truly believe the innovation speed will be much faster to build new features and new services, right? I think that's an opportunity. And we are much better positioned, right? And again, I'm figuring out a way to really spend more time on that.

That's the reason why I can tell you, I couldn't be more excited now. Finally, I think we are going back to the early days of Zoom, double on the product, leverage the AI, build innovative services. And you are right.

Our next question comes from Patrick Walravens with Citizens.

Let me add my congratulations. I love the accident that you picked there. I don't know what it was, but it was fantastic. Can you go into some detail and help us understand exactly how the Salesforce win works? Like Eric, if you're sitting there with [indiscernible], how do you pitch it, right? And then just give us some details on how it changes the experience for people at Salesforce.

Yes. So Salesforce is a great company. Mark is a great friend also with our [indiscernible], I'm pretty sure he think about AI every day as well. Look at the Salesforce event, right? In June force is very successful, the Agentic force event, very successful, right? So they have Agentic force framework. They also have a customer and how to integrate our AI -- I mean, sorry, the customer [indiscernible], right, to integrate with the agentic force the framework. Essentially, we drive the productivity. right? Because they have a framework with our customer company together, for sure, that's no-brainer, right, to integrate together.

Given our customer, why not, right, to enable this feature. That's how this conversation started. That's the reason why they decided to move forward with the customized company. More and more customers realize the potential of not only for Zoom AI company, but also the customized AI company. I think that's the reason why in the next month, we are going to announce our Zoom AI Company 3.0 with GA, right? So a lot of opportunity ahead of us. Salesforce, again, just one example. Thank you. Yes. I will invite you to test our AI Company 3.0 next month whenever we're with GA. So I'm pretty excited. So our employees really like that too.

Our next question comes from Alex Zukin with Wolfe Research.

Eric, I'd love to test out that virtual avatar when it's ready for GA. Maybe just a quick one for you and a quick one for Michelle. For you, Eric, when you think about AI monetization that you're seeing in the business in the quarter and in the coming quarters, maybe talk about that a little bit. And then Michelle, for deferred revenue was a little bit light of your high end of your guide this quarter, but it seems like it's actually a pretty strong guide for next quarter. Was there anything that shifted from one quarter to the next or pushed out or pulled in that maybe explains that?

So Alex, by the way, the virtual feature already there, right? This is the third time I'm using my AI avatar for our earnings call, right? I free up a lot of my time. I really love that. So back to your question to monetize AI, as Michelle mentioned, right, look at the few priorities, right, Elevate Zoom Workplace with AI and double down on the AI-centric product. You look at our horizontal collaboration suite, AI companion, as Michelle mentioned, right, if you look at the usage year-over-year, already 4x more, right? Customer coming, we can monetize team. And also we are going to have introduced the new SKU to monetize AI company as well online, and that is on one hand.

On the other hand, we also have vertical services like Zoom Contact Center, right, and virtual agent Zoom AI Assistant, right? And also the Zoom Revenue Accelerator for each of those departmental applications, including the vertical market solutions like Zoom Workplace for educators, right, and clinicians and also for the frontline workers, a lot of AI features already built in, we can monetize. Notable mention Zoom AI combined 3.0 will be ready next month. I think almost everywhere, and we can leverage AI, improve the productivity, improve the features. At the same time, we also can monetize as well.

It's not a single thing, right? a single product, we want to monetize. It's almost everywhere across the entire product portfolio. Back to the BrightHire acquisition. The reason why we acquired that company also leverage AI to improve the hiring as well. So essentially, AI is a foundation for us. We can monetize, we can innovate.

Yes. And it's helpful, Alex, maybe just to tag on to Eric, and then I'll hit your deferred revenue question. We produced Zoomtopia as sort of a framework of AI monetization because it does kind of monetize indirectly and directly in different ways. Happy to share that with investors after. And to Eric's point, as you go through that framework that we shared with investors, progress on every single front in the third quarter. To your deferred revenue question, look, we ended upper end of the range, gave a very consistent guidance in Q4. So nothing really to call out. Results were sort of as expected on the deferred revenue.

Our next question comes from Timothy Horan with Oppenheimer.

Issue with other apps that are really important to kind of improve on your overall productivity strategy for software?

First part of the question says, sorry. Cut out. Can you -- would you mind repeating that.

Yes, sure. Sorry, Michelle. An important part of the strategy, I think, is to integrate with other productivity software apps. Can you talk about some of the most critical ones and where you are in that process?

Yes. Eric, do you want to take that?

Sure. I think, first of all, we have -- we are way beyond video conferencing, right? So we have so many other services we would like to integrate. At the same time, look at the ecosystem, right? We do integrate with Google ecosystem well and Microsoft ecosystem well as well and plus ServiceNow, Salesforce and Atlassian, all those popular productivity tools, right? We all work on the integration. Again, this is the open ecosystem. And also, we listen to our customers very carefully. Whenever they tell us, hey, they need more integration, we also work on that as well. So.

And is AI making that easier or harder at this point?

And easy and harder, meaning the reason why easy for sure, from an execution perspective, for sure, easier. The harder part is because of the AI every customer, they want to tell us, hey, given the AI era, can you integrate more, right? Can you release in a timely manner, right? So the requirement is different, right? So from that perspective, a little bit harder, but it really goes on to execution. So I have confidence our team can deliver.

Our next question is from Seth Gilbert with UBS.

Thanks for the question. Free cash flow is a bit above what we and the Street were modeling and free cash flow margin hit 50%. I'm curious if you call out anything additional here? Were there any onetime benefits to free cash flow?

Yes. Thanks, Seth. Obviously, we're pleased with the Q3 results. And as such, it made sense to update the full year guidance as well. So I'm pleased with the overall progress, frankly, that we made since the beginning of the year, our kind of guidance. With that said, to your question specifically on the onetime, look, there are very durable results as part of that. You see that obviously in our core financials. The one thing that we did put into the script that I would make sure I emphasize with investors is we made some changes as part of our collections process, really looking at that more end-to-end as a new CFO coming in and as a result, we were able to make real notable progress on DSO.

Those are sustainable changes to our DSO. But obviously, you won't continue to see that marked progress as we go forward, meaning it won't continue to accelerate off that. So you can kind of think about that as durable but onetime a bit in nature.

Yes, by the way, our CFO Michelle. She did a great job, really drive the team, right, dramatically improve our collection process. This is very sustainable.

Next, we'll hear from James Fish with Piper Sandler.

Maybe, Eric, for you on BrightHire. Is this the start of expanding into other mission-critical business workflows? Or how should we think about -- I'm not asking about the M&A strategy, but more about that sort of broader platform expansion. And Michelle, how should we think at this point about the duration of the overall installed base?

Well, this is a great question. So -- and my great friend, Jim Cramer, he made a comment recently, right? And this is Zoom would become more than just Zoom, right? And that's actually our strategy over the past few years. double down on Zoom Phone, launched Zoom Contact Center, leverage our technology, right, to focus on those business mission-critical use cases. We are already doing that already over the past few years. BrightHire acquisition is just another way for us to double down on business mission-critical applications. We cannot build everything by ourselves, right? Why not, right? So we do not have a great remote hiring solution to target HR remote high-end use case, right? BrightHire fits very well to our strategy.

You will see that more and more, we are going to leverage AI because data AI and focus on those business mission-critical use cases. We more than just video conferencing, and this is all our strategy over the past few years, and we are going to continue that strategy. So your comment is right.

And just I get to your right question, your question on installed base was in regards to BrightHire or?

No, it was a separate question around the duration that you're seeing because it seems as though you guys are doing pretty well on sort of cross-sell of existing products, and you're seeing that show up also on the long-term RPO, really driving some growth here on the overall RPO. So just trying to understand where the duration of the enterprise contracts has gone.

Yes. Look, I think, look, many quarter-to-quarter, you're going to see fluctuations. We've had a very consistent RPO trend in the current. Very pleased with the current quarter RPO that went up, which really reflects a couple of large contact center and AI deals in particular. And so Look, I would say it varies from quarter-to-quarter, but we're very pleased with the upsell progress that we have relative to our upsell base as well as kind of what I was referencing earlier, which is bringing in new customers to the Zoom ecosystem. And in particular to the duration of deals, I would say sort of stabilized. There's obviously AI and contact center that brings in sort of longer-term nature of contracts, but a relatively stable trend with it.

Our next question is from Mark Murphy with JPMorgan.

This is Arti on for Mark Murphy. Congrats on the strong quarter. We recently spoke with a Zoom partner who was very positive on Zoom's products, pricing, just overall value prop. And they kind of called out particular momentum within the mid-market, legacy migrations, adoption of contact center AI products. From where you sit, are you seeing this relative strength in the mid-market segment as well?

Yes. I would say to that end, I think we are. We're seeing a strong uptick of AI usage as well as strong uptick of usage in our 3-plus products. And certainly, this is, I would say, a sweet spot for Zoom from small business down to low-end enterprise and something that we're pleased with the results that we're seeing. And I think you can see it play out in many of our financial metrics.

By the way, to add on to what Michelle just said, the reason why that mid-market, our sweet spot is, number one, those mid-market customers, they really embrace technology faster than any other segment, right? Two, mid-market customers truly care about employee experience, right? And they really want to deploy the best solution with a much better total cost of ownership. That's the reason why that's our sweet spot. That's the reason why we're winning over there.

Our next question is from Siti Panigrahi with Mizuho.

This is Chad Tiba on here for Citi. Just wondering if you could touch on sort of the broader demand environment. I know there were some moving pieces earlier in the year, sort of how that shaped out during the quarter and expectations for the rest of the year.

Yes. So look, I think in the quarter, we saw further improvement. I think you see it in metrics like our customers over 100,000 growing at 9%. Look, that doesn't mean that we're not going to see some seat pressure like we talked about earlier, that's certainly our business model and we won't be immune. But we saw broad consistent demand across both enterprise and online and full abatement, if that was your specific question, to what we referenced in our Q1 earnings. So with respect to our forecast, it assumes similar conditions to what we saw in the third quarter.

And maybe to end with sort of where Eric left us in the last question, Zoom, what we're going to focus on is not any conditions from one day to the next, given we are in a dynamic environment, but on providing sustainable TCO and business value to our customers. So sort of in the line of in uncertain conditions, you control what you can control. And to Eric's point earlier, we have a fantastic TCO story that we're leaning in on with our customers.

Next, we'll hear from Jackson Ader with KeyBanc.

Michelle, on the, call it, the non-revenue top line metrics, you've talked about billings, you've talked about RPO. I'm just curious like as you shift more of your business towards the enterprise, when should we expect those non-revenue metrics to start to outgrow maybe your overall revenue metrics on the top line?

I mean in terms of the non-revenue metrics, I would point to things like our AI usage. I would point to product momentum type stats to which they already are outpacing our revenue growth. So I don't know, Jackson, correct me if I'm sort of missing your question, but I think those are the sorts of nonspecific explicit revenue drivers that I look at, and I would say they're already outpacing.

No, no, no, that's helpful. Yes. Just curious about the dynamics there.

Yes. Just quickly, Jackson, you're right. you're right, AI usage is really #1. The metrics we are looking at that every day. At the same time, the CSAT, other metrics also look at that, right? The customers are pretty happy not only for online customers, online buys, SMB and all the way to enterprise customers. We also measure CSAT as well.

Our next question is from Peter Levine with Evercore.

Maybe just a follow-up, I think, on Jim Fisher's question. If you think about -- Eric, you mentioned a lot about employee experience on this call and I look at BrightHire, I mean is this like the on-ramp into like Zoom getting into the HR stack, if it's interviewing, onboarding engagement. Just curious if you can maybe just talk about how you view -- is this the on-ramp into HR. And then if you think of other segments that you can get into, can you maybe just help us understand like where else Zoom can go with the platform expansion?

Well, Peter, this is a great question. If you look at our core competency, look at our technology, right, in the collaboration and productivity suite and AI, this is our core technology and how to apply those technologies, right, into the use case, that's kind of every quarter, every year we are looking, right? That's the reason why a few years ago, we introduced the contact center, essentially to target the support and IT help desk, those kind of use cases department. We also have Zoom revenue accelerator, right, to target the sales department, right? We also have Zoom webinar plus also target marketing department.

You look at HR, HR is I would say is a huge use case. We are not going to focus on every use case at all, but we just focus on the remote hiring, right? Because we can leverage our technology. That's a very different use case. right? For those each department, how to leverage our product, AI and data, right, to improve the use case, that's our focus, including the vertical segment as well, like educators, clinicians as well. So if you understand our strategy, expanding strategy, you look at which department, which vertical market might benefit from our technology, AI and data, right? That's kind of thing we are going to focus on. So [indiscernible] hiring brightHire for sure, fits very well to our strategy for expansion.

Our next question is from Tom Blakey with Cantor Fitzgerald.

A couple of quick ones, really just one for you, Eric, and a clarification for you, Michelle. Eric, you were key in leading the charge in terms of the higher pricing tiers in CX, and it's great to see the success you're having there. Another Zoom heritage is disrupting markets in terms of technology and pricing and products. You have some peers in CX talking about maybe possibly disrupting the CX market with regard to consumption-based pricing. I would love to hear your comments in terms of some forward-looking possible kind of statements there in terms of how Zoom could compete in the consumption-led CX market.

And just, Michelle, from a clarification perspective, I think you made some comment about online growth kind of up thinking off of fiscal 3Q, maybe possibly in fiscal 4Q when there was a decel in enterprise. Can you maybe clarify what we possibly could expect in terms of that mix would be helpful in fiscal 4Q.

Tom, thank you for a good question. Just curious, your background is virtual background or real?

That is as fake as it can be.

Oh my God. I do not [indiscernible] so well. I did not realize that is real. So anyway, Yes, thank you. So back to your question, so you are so right on. Remember, I was Zoom Contact Center General Manager for a while, right? very excited about our contact center workforce management, quality management, those product over the past few years. but guess what? And because of AI, we have leveraged AI introduced a new product, which is a virtual agent, either chat-based agent or the voice agent. I feel like that's becoming more and more important, right? And because we have both we have the traditional contact center solution versus a virtual agent solution.

In terms of consumption of the business model, I think it will fit very well to our virtual agent, right? And because like customer deploy technology, right, how often they use a virtual agent, how many times use a virtual agent, right? So we got to based on how happy customer they are, right, for every call, right? If virtual agent can truly help address the customer issues, customers should pay for us. Otherwise, they should not because you fall back to the traditional agent solution, right? I think from that perspective, we are indeed thinking about the consumption-based model for the virtual agent or AI-based agentic technology. And yes, we are working on that. That's a great question.

Just to clarify, the virtual agent, while our agent-assisted product is a per user model, our ZVA product that Eric is referencing is already a consumptive business model. And certainly, then I think many in the industry talk about tying it more to outcome-based and we obviously are looking into that. But I just want to make sure it was clear that we are already consumptive based on our ZBA product. To my comments to clarify on the online, I was just with one more quarter clarity and the full year guidance out there.

So full year guidance of 4.1% at the midpoint. All I was trying to do in my comments is say that we've used a consistent forecast methodology. And previously to the investors, we've been saying sort of flattish online revenue. And obviously, with now most of the year playing out and the results realized in the online, we're just adjusting that to a tweak of slightly increasing. That's all.

Our next question is from William Power with Baird.

Great. Eric, maybe let's stick with your contact center GM hat for a moment. But, can you maybe remind us and maybe update us where we are on contact center go-to-market? Where are we in terms of the opportunity in terms of channel partner reach? And I guess if you extend that, the opportunity outside the U.S., U.S. versus international, and I assume international is still on the earlier front.

Yes. So William, by the way, I was the contact center GM, I'm not any more like it. So if I do that, maybe focus on the virtual agent. But anyway, so back to your question, I think -- look at our -- the customers, right, [indiscernible] our platform last quarter, many of them are switching from other cloud vendors to Zoom Contact Center, right? That's the reason why channel partners are becoming our most important go-to-market strategy for our contact center solution. We are doubling down not only for U.S. market for international market as well because the contact center is very different buyers and the channels become increasingly important.

We already invested that now and also we're going to invest more, right? And for the -- in terms of the virtual agent and not only do we leverage our sales team channel partners, we're also thinking about the product-led growth because guess what, some of the developers for -- let's say, take the SMB customers, they can leverage our API, deploy those virtual agent technology by themselves. That's why I think about how to monetize contact center to leverage our product growth to target developers as well. That's another area we are looking into as well.

And it's helpful maybe just to punctuate Eric's comments to your GTM question in particular. We look at top 10 deals in contact center as sort of reflective of the demand and the customer signal that we see. It's helpful, 9 out of 10 of our largest deals were channel driven. So it's a very important investment to us and one that we're very pleased with the results.

Next, we'll hear from Arjun Bhatia with William Blair.

This is Alinda on for Arjun. A question here on just like what type of customers are adopting custom AI companions in particular? And what incremental value are they seeing from the custom AI companion versus customers using the free AI companion?

I think we -- for sure, we want to SMB, medium-sized, all the way to enterprise customers adopt customer AI companion as quickly as possible. But to start with, we focus on the relatively large enterprise customers for customer AI companion. The reason why the demand another reason is because look at our -- the value of customer AI companion, we can integrate with custom third-party applications. We can have agentic framework and for the data search as well and a lot of functionality features built for those a little bit complicated enterprise use cases, right? And that's the reason why we start from there. So for sure, we do have -- we want to introduce SKU for online buyers as well to empower the small and medium-sized business as well.

Our next question is from Catherine Trebnick with Rosenblatt Securities.

This is Andrew King on for Catherine Trebnick. Just since Nick Tid's come in and started revamping your channel partners program, can you just give us any more color to how that channel partner platform is performing? Obviously, that 9 out of 10 is a great metric to hear. Just any further color there? And then also within that, you were one of the earliest to pivot to a partner-led professional services organization. Can you just give us a little bit of color as to how that may be helping you win certain deals?

Yes. Maybe I can lead out on that one. So first, for a company that's going to focus on phone and customer experience, having a healthy, vibrant channel ecosystem is just part of the game, meaning it's how customers often want to buy. They're certainly a part of the deployment and services after. And so Zoom offers both a deep direct as well as through channel. It's also to Eric's comments earlier, I think one of the questions earlier integral to sort of our international expansion where Zoom has opportunity to go. In terms of how to think about success, I shared the earlier contact center, but also, we're just very pleased with a lot of the forward-looking metrics that we see with our channel ecosystem, Pipe up 30%.

The majority of contact center deals I talked about earlier coming from partner, over 50% of our large phone deals coming from partner and the types of partners that are transacting with us is also growing. So all in all, it's been a very big investment. And to my earlier comments, something that we're very pleased with the results.

Our final question comes from Peter Weed with Bernstein.

Thank you very much. I guess the Peters on this call have similar mind. I was really interested in BrightHire, and I appreciated your response around kind of a vertical-specific focus that you have, which makes a lot of sense, and I can understand why you're excited about that. How should we think about that opportunity? Like when you think of it relative to your existing customer base, how much of this is more of an upsell opportunity to them versus expanding the TAM to new customers? And when you kind of think about the monetization, how does this add to your stack and really could expand the TAM or generate revenue upside for the business?

Yes, maybe I can take that one and give you sort of the finance version because Eric talked about BrightHire earlier. First of all, it starts a lot at those critical conversations. One thing Zoom is fantastic at is really just nailing those critical conversations with our customers and that there couldn't be a more critical conversation for our customers than who and how they hire. It also offers Zoom the ability as AI monetization plays out across different markets to have a very tangible scenario for customers where the value point is very clear.

And so it certainly represents one of those vertical AI monetization scenarios. It's a large and unpenetrated market at roughly $3 billion. And so it certainly allows us to help them scale and also then gives us sort of an upsell piece beyond it. And they're a category leader in sort of a large TAM that is growing. So it's something we're very excited about.

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

So yes, thank you. Thank you, Megan. Thank you for every investor, customer and partners' great support and trust. We truly appreciate. Thank you for every Zoom employee's hard work and dedication. Wishing you all have a wonderful holiday season. Thank you.

Thanks, everyone.

This concludes today's earnings call. Thank you all for attending, and have a happy holiday season.

Hello, and welcome. As a reminder, today's webinar is being recorded. I will now hand things over to Charles Eveslage Head of Investor Relations. Charles, over to you.

Thank you, Annabeth. We're excited to host you all for another Zoomtopia and hope you're able to catch the keynote and other content earlier today. And here's our agenda: First, Michelle will take us through a short presentation highlighting vision priorities, our execution towards the top line and also towards shareholder returns and framing the news of today for this financially focused audience. Then Michelle will be joined by Eric, our CEO, Kim Storin, our CMO; Graeme Geddes, our Head of Sales. And we'll have a Q&A portion of the call then, and we'll be allowing sell-side analysts to ask their questions live. But also if you are an investor on the EMEA tend audience, please feel free to submit questions through the Zoom Q&A portal, and we will do our best to get to your question.

Now just a few housekeeping items. A copy of the presentation today can be downloaded on our Investor Relations page. The presentation does include non-GAAP financial metrics. These should not be considered in isolation from or as a substitution for GAAP metrics. You can find a reconciliation to GAAP in our appendix in the deck and also in our most recent 10-Q filed with the SEC.

And then on the next slide, we will be making forward-looking statements on the call today. These are predictions, and actual results may differ materially. Forward-looking statements are subject to risks and other factors that could impact our financial results and performance, which we discuss in detail in our filings with the SEC on Form 10-Q and Form 10-K and Zoom assumes no obligation to update any forward-looking statements we may make today. And with no further ado, let me hand it over to Michelle.

So let me just say a warm welcome to everyone. We're so excited to have you here with us on this day. We're hoping just to have a little conversation about where we're going as a company and beyond the keynotes. What we've been working on in terms of AI innovation and innovation across our products. And then hopefully, you picked up on a big theme of Zoomtopia was the real value that we are working to provide to our customers in AI and beyond. And then certainly, because it's this audience, we are going to share how all of this is already and will continue to be composed into shareholder value.

So as Charles mentioned, I'm going to open up with some words and then we will move to the Q&A after. So look, this Zoomtopia for me is kind of a moment. It was a year ago at Zoomtopia on my second day that I started at Zoom and it's hard to believe that it's been a year. I remember thinking back to that day about so much excitement to be joining an iconic company, so much excitement for what I had understood at the moment, the path that they were on and the seeds they had planted. And I was excited and get humbled about how I could come on to the team. And it's so fun to be here a year later with even more context and excitement built for the potential for this company. And so I hope this quote, you know, captures the broad theme of what I wanted to talk about, which is both very much excitement for the vision and where we're going. And as this group all knows, you have to be also delivering in the near term. And so the beautiful balance, if you will, between those two things.

So with that, it felt right to start out with something we call the Zoomnoculars, Zoom and binoculars, for those not picking up on it. And this is really the best visual representation of our vision. So I thought it would be nice to kind of step back from our normal dialogues of earnings and quarterly in and out grinding of results to really just reorient on Zoom's mission, which has become an AI-first work platform for human connection.

And what I love about this slide is just it shows the breadth and expansiveness of our vision. This is not the same Zoom as hopefully you heard so many times today in the keynote, this is not the same Zoom of the pandemic. And what I also love about this slide is that true to our vision and our mission: Human connection remains at the center of everything we did. As a remarkable credit to the company that Eric has started that even today across so many of the demos and customer conversations that came through so clearly. And yet, it's this beautiful mix between technology and humanity that kind of reinforce one another and then are amplified in this new world of AI. So I thought I'd just start us with this. And I wanted to show the connection to this group about the 3 priorities that Eric and I talked to investors so much about. With that sort of broad vision and with the breadth of the portfolio, with human connection at the site, we've really narrowed it into 3 priorities. And I'll start over to the left-hand side, which is it really starts at helping our customers experience not just the meetings that we think know and love Zoom, but really extending that into workplace things like chat and e-mail and calendar, whether it Zoom's products or others, right, we want to meet the customer where they are. And we want to help combat that digital overload that we talked about at the keynote earlier today, that overwhelming app proliferation and now only even more so, it seems with AI.

So we start sort of on the priority of let's make sure that our customers see them and experience thus far beyond meetings in our workplace. And the second priority is really moving to -- Zoom has moved already substantially to natural adjacencies whether it's off the strong backbone of our communications platform or just natural adjacencies in customer conversations, we've expanded our TAM substantially whether it's things like webinar, and I'd love to see that highlighted on the stage today, seeing companies really run their business on Zoom or whether it's things like contact center and all the momentum that we'll be talking about there, some really powerful examples of how much more Zoom is to its customers in this new era. And then certainly, it's the AI that really brings this all together. And what I loved about and we'll talk about it here a little bit more, was just a real customer value again at the center of all of that.

So look, with this group, I also just wanted to start by reemphasizing our total cost of ownership. Zoom, this is, I think, fundamental to Zoom, it's the heart of kind of how we are. It's centered to why we put the customer at the center. And with that is a deep reference for delivering value for them. And it also just felt timely in these macro conditions to reemphasize what I think is a very strong story for our customers. Obviously, if you kind of start out on the left-hand side, we deliver cost savings to our customer value priced. We can help consolidate vendors. We can help even traditional cost-saving ideas like T&E. And also, we've taken a very democratized view of AI. You heard it celebrated earlier. We continue to have AI value in our paid SKUs at no additional cost. The lift what excites me even more so is moving to the right-hand side. And then moving to the right-hand side, we're getting deeper and deeper into the customer value story. So in the middle piece, we're deep in those moments that really matter to our customers. So many examples this morning about companies that are running their business on Zoom or so many great examples of C-suites and win backs that we can talk later with Graeme on just it really coming down that when customers have those moments that matter, they rely on Zoom to deliver.

And increasingly, I'm pleased to talk about the third pillar of value, which is really around our platform value. Increasingly, we see customers choose Zoom because of that powerful story of Workplace and Phone, together with our customer experience, how much sort of silos that eliminates and the value of them laying AI on top of those assets as what it can do to move Zoom and our customers into a new era where technology is actually helping drive revenue and drive better customer relationships. So love so much of that demoed and showcased frankly, today at Zoomtopia.

All right. It wouldn't be an investor presentation if we didn't use the moment to also highlight our progress, right? It's great to have a vision. And we're super excited about where we're going. The look it also requires that we deliver in the near term. And I am so pleased to share with you some of the progress that we've made in the last year. I said from day 1, my focus was going to be on inflecting the growth rate. That was going to be my #1 focus. And look, 1 year in, I am proud to see the progress in our results of last earnings but also in our guide. And what I love even more, obviously say I'm a numbers person, and I love to see that number go up, but what I love even more is the durable elements that are driving it. We're making progress in our core. We're diversifying our product set. We're getting new routes to market with big investments in channel and we're monetizing on AI. So excited to share, and I'm going to click into each one of these as we go and if we've stabilized our online business.

So let me give a little bit more context and color about our online business because look, stabilizing is sort of the foundation here and what has been our goal in this space. Churn, you can see that we went from mid-3s to high 2s even with the price increase is something we're very proud of, the quality of our base. I say that so many of you when I get the chance that this isn't the same online business that it was during the pandemic. Even if we go back 3 years, not even all the way sort of endemic, over 70% of our customers -- 75% here, have been with us for over 16 months. So just showing that commitment and stickiness of our customers. And look, all of this then composes and going from an online business that back in FY '23 was declining 8% to now flat. So something we're super proud of. But look, this isn't about just stabilizing our online business. It's about growing our online business. And I loved the focus back on the people of Zoomtopia, and I love the comments from Upwork and Kim in the earlier dialogue because I think it just really speaks to getting back as a company to our solar proneurs and our SMBs and how we can help them fuel their business in this new AI era.

So with that, let me pivot to our enterprise business. Look, you all know these stats well, and we're proud of them. Our enterprise business, and we have Graeme here and joining us, has accelerated in its growth rate, which is amazing to see, now represents 60% of our business. And as even a further kind of measurement of moving upmarket, that percentage of customers over $100,000 just continues to grow. I put this slide in there. Really, there are some new things on it that I'm excited to share, excuse me, but I thought it was a good visual of kind of how investors should think about the different product sets to win.

First and farthest to the left-hand side, you have the more mature businesses and things like workplace, but also rooms and webinar. Where we've really gone in into my earlier comments, like stabilized and reduce churn there. You see the enterprise churn every quarter, which I mentioned earlier, but also enterprise dollar churn.

Now in the last 4 quarters, it has gone down every single quarter. And that's because of that strong platform value. It's because of the AI value that's in that. And it's back to, again, so many of the things that I think you heard echoed from our own customers today at Zoomtopia, which is love the product, the resilience simplicity, the cost. There's many different words that come out, but getting strength back in core and continuing to grow in rooms and webinar.

In the middle, we've got a growth at scale product income. We've got an ARR that's growing in the mid-teens, which is exciting to see we're gaining share, and I'm excited to share with all of you that we've surpassed the $10 million mark in seats. And so I know that's been something that investors have been wanting us to comment on, and so I wanted to share it with you here today. And then look, on the right-hand side, we've got contact center and customer experience in Workvivo. And look, I think many of you have seen the stats, but I'll take the opportunity just to reemphasize them, triple-digit ARR and contact center, high double-digit growth, taking share from top CCaaS 9 out of 10 of the largest deals that we had from named -- big named CCaaS providers. And that's why you saw Zoom got into the Gartner Magic Quadrant. I think one of the fastest, if not the fastest entrance into the Magic Quadrant, so it's amazing to see. And look, Workvivo as well, continued growth in customers over 100,000. So really proud of the product momentum that we've got going.

And so look, I always think it's a good time in these investor moments to then show real life examples of them. And Graeme can give some of the details if it's curious not just about these deals, but about what he sees, but sometimes, I think that these things are best composed when you look at real live customer examples of what that growth looks like. And so our first one I love because it's about mid-market. And look, hopefully, you heard a tone today of really that resurgence and really getting back to talking about our solar printer SMB and mid-market business, and I love this mid-market example. Of course, not only because because of the uplift. But because if you look at the product progression of the customer, you see almost every single product, frankly, that Zoom has. So it's great to see examples of this.

And if you go to the next one, here is another great example of the Fortune 100 tech company, but so many others like this that just illustrate that what we call better together story that they start on workplace with Phone, they're adding Contact Center. And then if I even go to the last one, so great to see the uplift, but then look at even that and seeing that progression now into our paid AI SKUs with a large tech companies. So we're excited for the momentum that we see here and what it means even in the short time since its GA.

And look, one more slide here of financial progress before I get to the Zoomtopia is that I'd be remiss if in addition to talking about the growth acceleration, I didn't also mention sort of the robustness of or other financial metrics. Whether it's on the left-hand side, profitability industry-leading, best-in-class over 40%. And that's as we build out all of the things that you saw come out to at Zoomtopia. So very proud of that. We continue to be a massive cash flow generator in the center. So I was pleased to even raise our cash flow guidance in those last earnings. And then look, investors gave us a great push on shareholder return. And through a combination of what we made some changes on stock-based compensation and buybacks, I'm just so proud of the tremendous progress that we're -- that we've made here. Our stock-based comp as a percentage of revenue is tracking 1 year ahead of where we said even this time last year when I first joined here.

We're through 73% of our buyback even of what we announced under a year ago. And all of that composes to negative 2% dilution to our shares. So a lot of progress that I'm very proud of on the financial front [indiscernible] at Zoomtopia. And I wanted just to give my words to all of the investors of on my favorite pieces that we talked about at Zoomtopia today, really just to set some foundation for a great Q&A later.

So look, we have this great slide and I think I'd be remiss if I didn't say it to investors because you look -- you all talk to other companies that are out there pitching the AI story and I love this because it gives just a succinct articulation of why Zoom, from an AI perspective. And look, I think it starts with that rich unstructured data, how much context and data is gathered just in your Workday throughout that meeting's life cycle and beyond in the Workplace, whether that's in the boardrooms to startups to our earlier mentioned share in telehealth. Just how much richness of context we have on the user as part of that.

Second, the win in AI is a natural place for Zoom, not only because of what we have on the communication and collaborations front, but what we bring also in the employee experience and then the Contact Center or customer experience. And you saw such a great example in [indiscernible] Ninja on stage earlier, just how much more value we can tap into when you look across that, and that sort of better together story.

And then last, Zoom wins in this AI era not only because of structurally who we are, but also because of how, right? Our focus on seamless workflows and integrations, and you saw those brought out on the keynote earlier, but also our differentiated approach to an open platform and our strong commitment to trust and customer choice. I think Zoom never trains on customer data and gives the customers a lot more controls being able to choose how they want AI to be used in their organization. So some really great things to build off. And certainly, the big headline out of Zoomtopia was AI Companion 3.0. If you think about it, 1.0 was all about meeting summary, all about like how to capture the key takeaways, the next steps and summarize, and it was simple and powerful on [indiscernible]. But last year at Zoomtopia, we announced 2.0, and that went further to not just summarizing stuff, but helping you sort of think across your workflow and surface that critical information, but hopefully today, in Zoomtopia, you've got a much better sense of where we're going with AI Companion 3.0.

Truly stepping into that agent I love that phrase of getting to higher quality results faster because, look, it's all about what you can do to deliver business value and actionable business outcomes. And look, I think you see that as a massive driver for why AI Companion users are up -- or now is up 4x year-over-year with millions now relying on it for these kind of things. And that's even before we deliver some of the really powerful scenarios that we talked about earlier.

So with that, look, I won't go deep on these slides, but I wanted to include them because I think they do a really powerful job for for somebody that maybe missed all of the demos. I'm just beginning to visualize with all of these words and all of the companies that all of you survey, [indiscernible] you be able to really internalize what it looks like for Zoom to be able to stitch these things together. So this first site is all about the meetings experience, right? But it's not just the meeting in and on the meeting. We all know that a lot of the meeting happens before when you're preparing or thinking about whether you even need to be there at all, I may have to use some of those features we heard about earlier at Zoomtopia to end the meeting, keeping us on the track and aligned, helping you show up prepared. I don't know about you, but my days are filled with meetings back to back, and I don't know how I get time to prepare for all of them, and I'm personally excited about a lot of the value.

Look, it's also about meeting just for meeting's sake with no action and follow-up afterwards, don't drive impact. And so that connection of closing that cycle afterwards. And this slide is just doing that same thing of being able to really internalize what it looks like, not on just the workplace front, but now you're moving more into marketing and sales and moving more into customer support, whether it's taking the meetings and turning into leads and driving the action.

I love so many of the ZRA demos that we had earlier are certainly in customer experience, where it's resolving them before you even have to get to an agent or when you get an agent, having a far better experience and then that really becoming a virtuous learning loop for a company. And even I think this was shared at a couple of points, but even seeing customers able to drive revenue off of that. I mean who would have thought is that prior CFO of a contact center, all my thoughts were about controlling costs and getting CSAT to a better stage, never did I think about it as something that might one day drive revenue.

So look to this audience, I wanted just to create a slide that really just helped articulate AI monetization. Because look, in the way that way we've talked about it, it can get easy to sort of lose this. So look, think about all of this as Zoom AI. And there's going to be ways that we indirectly monetize and ways that we directly monetize. In indirect monetization, that's things like AI Companion 3.0 that we announced today that will go horizontal in your Workplace to deliver all of those things like meeting summaries and schedule assistant and prep, all of those great demos in paid SKUs at no additional cost. And look, I say indirect monetization because look, once we get customers in and using an experience that, we know they're not going to want to leave, and we'll be great customers in a much deeper way where we're adding a lot more value to them.

Okay, let's go to the direct side of the house. We have horizontal things in custom AI Companion that example that I talked about earlier, where it was that power of that third-party integration, the ability to really begin to stitch business process together along with, obviously, all of that personalization and customization, and that will be one way that we monetize at $12 per user per month. And then while that is new to market at GA in the spring, there's a lot of stuff that we're already monetizing on with AI value. And that's best kind of showcased in a lot of the things that we've talked about over earnings and customer experience.

Our elite SKU is really where that AI value resides. But now with ZVA 2.0 that we announced over the summer, such an ability to take the power of AI technology and really bring that to our customers. Certainly, ZVA is another great example of that. We highlighted many fun examples in our last earnings but also building into vertical and industry solutions as well. So hopefully, this visual is just a helpful picture of where we're going in terms of monetization and just how to think about it. And look, I won't do this slide justice, but I'd be remiss if in Zoomtopia, I didn't include it just to show the progress over the years as a company that we've made.

And to highlight and celebrate the accolades. Look, we've been a Magic Quadrant leader in UCaaS for 5 years in a row, and I could not be more proud to add the customer experience for the first time. Again, one of the fastest growing on the Magic Quadrant. And of course, you heard us talk about it earlier. But we're branding even to the any, which is super fun.

So with that, I just want to end with one slide, which is just kind of recapping. Look, we're excited about the differentiated and compelling AI-first vision that we have. And look, hopefully, if you took nothing out the way, we're moving at a fever pitch to innovate with customer value at the summer of everything that we do. We know that all of you will hold us accountable to delivering financial fundamentals, and we're going to keep doing that quarter in and quarter out. And then look, hopefully, the other key takeaway here is just that relentless focus on customer value. I know I speak for Kim and Graeme and Eric and myself when I say we're super excited about where we're going. And with that, we're excited to hear what is top of mind for all of you. So with people who probably need no introduction, I am joined by Eric Yuan, our CEO; Graeme, our CRO; and Kim, our CMO. So with that, Annabeth, do you want to open us up for questions?

[Operator Instructions]

Our first question will come from Kasthuri Rangan at Goldman Sachs.

Should we circle back?

Our next question will come from Alex Zukin at Wolfe Research.

Thanks for making yourselves available. I mean -- maybe one for me, a lot of the presentations at today were focused on the SMB, which is exciting and intuitively makes sense since there's a sense that it might be easier for SMBs to adopt all things AI. In that context, can you put a finer point on how you would compare AI adoption, engagement, usage of the features and functions across the platform within the SMB versus enterprise? And how do you think that ultimately that will be reflected in your financial KPIs? Do you anticipate faster monetization of AI functionality in the SMB cohort or in the enterprise cohort?

Maybe I can take that. Yes, I mean, I'd love to hear your comments, Alex, because I'm excited that we're kind of getting back to really talking about SMB and solo [indiscernible], but nobody should walk away with that as confusing. We also have many great examples with enterprise customers and the examples that I shared here with you. So certainly, the focus at Zoom is on Enterprise and I do think we see higher usage in SMB, and I think that's natural for so many of the things that were highlighted in the survey and talked about earlier. I don't know. I think we're still finding our way. I'll love Mark's comments earlier about we're all sort of learning as we go on AI. I think it will monetize. But I guess, at the same time, Alex, I'd call out that one of our biggest, most powerful customers was also a very large enterprise customer. So I think we'll monetize across the board. And then we're all learning that as we go.

Our next question comes from James Fish at Piper Sandler.

Eric, maybe for you. Michelle just outlined that binoculars workplace versus business services and the ecosystem as kind of the vision. Does the third leg to the stool need to get added into a broader customer data or system of record type of play? And then Michelle, last year, you were really focusing on cross-sell. Is there any way to think about the progress made there, ARR contribution from plus 4 products? I believe last year was about 66%. Is there an update to that?

Eric, do you want to take the first one?

Yes, sure. So many years ago before the AI becomes something meaningful, we -- our strategy is focus on composition, right, meaning after composition is over, we really do not want to have any data left whatsoever, right? That's always a strategy a long time ago. But given the AI, I think we have some intelligent information in coming out of the competition has become more and more important. That's the 1 hand, meaning we can help customers, right, and leverage AI, leverage the conversations to create the insider information, that's why.

Two, actually, our AI Companion 3.0 is becoming more and more powerful. Essentially, we can connect with the customer side of the data, right, all kinds of data sources, all kinds of applications together with all the Zoom content, I think that's part of the reason why we launched AI Companion 3.0, right? Really help you from a composition to become a system of actions, right? Have you make a decision not to come with this anymore, right? With the Zoom conversation and data and the customer application the data with our AI Companion 3.0, something like a deep research, right. Also can be done upon the Zoom AI Companion 2.0 we demonstrated this morning at our Zoomtopia. That's why we become very, very important. Again, this is the journey from a communication collaboration company to become a system of action company.

And then maybe on the question on cross-sell. Cross-sell is still a massive revenue driver for us. I don't think we've given a stat to the over 4, but certainly, it's going up into the right. And I think you can see that. It was sort of what I was trying to illustrate in that product diversification and so many of the examples that we see even better together is that, that land and expand, if you will, is alive and well.

Yes. And Michelle, maybe I'll just comment on that one. I think the customer examples that you had both within the SMB and the enterprise really speak to that opportunity that we have as the platforms expanded within that ability to upsell, cross-sell. And so not just the capabilities that are here today, but also a lot of the products and services that we announced here at Zoomtopia, right, unlocking new opportunities for the teams in terms of having customer conversations and delivering more value.

Our next question comes from Michael Funk at Bank of America.

Yes. Great. Thank you all for doing this. Eric, so watching the presentation last year and this year, it appears you're edging more into the work management space, some functionality with AI Companion, so what are your aspirations here? And how should we think about Zoom competing directly with pure work management providers like Asana and Monday. And if my interpretation is correct, what is your ability to do this organically or inorganically?

Yes. So great question, Michael. I think you look at Asana and Monday, both of our customers and partners, right? So Again, our -- as I mentioned earlier, I really want to become a system of action company, at the same time, an open system. I don't know think Zoom can build everything. And we've got to look at what kind of customers are using. We have open the system, right? We built -- used to be the conversation communication. Now with communication conversation plus the data generated out of that conversation communication plus connecting with all kinds of applications customers using, no matter Monday or Asana, right. With AI, we can deliver a great experience. For some other customers, they think like AI may be good enough, they do not want to create [indiscernible], it's okay, right? I think overall, we look at everything from a customer perspective. Any tools you want to use, great, we integrate it very well. Anything they do want to deploy, it's not going to integrate, they want to use AI Companion, use on our own [indiscernible] absolute way. So that's kind of our strategy. Again, [indiscernible] our great partners and customers.

Our next question comes from Samad Samana at Jefferies.

Appreciate it. First of all, thank you for all the information today. Good to see the updates and the progress, Michelle, in the year that you've been there. My question is going to go for Graeme though who we don't get to speak with very often. And Graeme, what I was wondering is, is that there's kind of 2 questions that I have. First, over the last year, how has AI and how enterprises are approaching it changed Zoom's go-to-market motion and/or the typical sales cycle with the mid-market enterprise customers, how have their focal points or needs evolved. Then completely separately, how does Zoom itself leveraging AI in the go-to-market motion? And has it impacted your top of the funnel or sales efficiencies?

Yes. Maybe I'll segment Michelle had mentioned both horizontal and the business services elements of AI and within -- I'll maybe start with the business services aspects, those are the areas that our customers have been really the fastest to adopt. We definitely have a lot of momentum last year, really supercharging our customer experience business right with an AI-first approach, how do we help agents be more efficient. How do we do Zoom virtual agent to do call deflection, right, and reduce call handle times, right? So -- and then also helping our customers with things like Zoom revenue accelerator, right? How do we help sales teams be more efficient within the ways that they drive top line revenue. So I think that those have continued to grow, right, in terms of areas of opportunity. But the most poignant from a year-over-year perspective in both the mid-market and enterprise has been really this idea of the horizontal types of use cases and as evidenced with AI companion and now custom AI companion. You've heard Eric mentioned multiple times, Michelle mentioned earlier, but this idea of how do we go from a system of engagement, right, to a system of action.

And the way that our customers think about that is really how do I go from a conversation to completion. And so it's no longer about having a medium to talk about a topic and then to have to auction those topics after the fact, Zoom as a complete collaboration platform can help you in terms of synchronous, asynchronous communications right, assigning tasks, and then ultimately integrating with the applications that matter to your business and helping you get that work done. Those conversations, we weren't necessarily having at the depth that we are now. That wasn't something last year, but that's really coming into focus this year, where our customers are really looking at what are those agent workflows to truly drive kind of transformational productivity within their employee base.

Yes. By the way, Samad, the reason why you do not see Graeme very often, he is working so hard to close the deals.

We want that. Listen, we want executives to go out there and close big deals. We just want to ask Michelle about results when it's time. So I promise I'll go back to keeping my questions. Thank you for the time.

Our next question comes from Mark Murphy at JPMorgan.

Great to see you. We really appreciate the time here. I wanted to ask a very big picture. How ubiquitous do you think AI Companion can become in the full list of time. I think, Michelle, you mentioned millions of monthly actives, which is great. But do you envision it kind of reaching mainstream adoption, something that would just be sort of standard gear and then with these genetic features look a lot more powerful in version 3, is there some kind of killer usage scenario in there that you think is going to kind of drive like a leg up in the -- in terms of monetization, like is there something in there where you say beyond what was in version 2, there's going to be kind of a legging up to get people into the custom AI Companion, right, or some kind of modality where you'd be monetizing it?

Yes. Eric, do you maybe want to take the ubiquitous AI question and Graeme, do you want to comment on the custom companion and what we're seeing at the face of the customer.

Go ahead, we can cover both.

Okay.

[indiscernible], feel free to me as well, yes.

He's not closing any deals right now.

Exactly. That's the reason why. He's already part of conversion, why not, so.

So to take the first part of that question, I do think -- and really when we think in the fullness of our vision is an first work platform for human connection, right. The AI piece of that answers the question, which is it is absolutely kind of the cornerstone by which we think that our customers will be interfacing with the breadth of the Zoom platform, right? So the UI for Zoom will be AI first, and you'll see that become more important over time. And so I think that, that's the journey that we're on. But AI Companion is really that kind of think of it as that centerpiece of the way that you interface with every single different service that you saw within the Zoomnoculars.

To the second kind of question of what is that what are the use cases within custom companion that we're seeing as kind of areas of opportunity. So the areas that are very top of mind for customers right now is really deep integrations into the systems of record and applications that they have, so how can we -- again, that conversation all the way to completion type of -- I have a conversation about a product requirement or a product feature. How does that automatically create, right, a Jira ticket or submission with no user having to manually write that, right?

Humans still in the loop, but automating that workflow as 1 example of where our customers are really excited. We also talked today about new coming capabilities to really anchor AI companion in the systems that you have, but also your enterprise data sets. So you can make it from within AI companion, your answers can be grounded within the contextual data, right across your enterprise. And that's an area that our customers are really, really excited about because it really untap a lot of that opportunity for productivity. So I'd say those are 2 of the areas. And then in the demos, I think you saw the interface for AI Companion is changing as well. So it's going from kind of a side companion to a front and center use case, both within the homepage as well as a web approach. And I think that change from a UI right, really putting it front and center is an area where we will see a lot more kind of focal point driving that need for -- from AI companion into custom AI Companion.

Our next question comes from Josh Reilly at Needham.

All right. I wanted to ask a question here on the channel. You've done a really good job historically selling through the channel for contact center. But as we move forward here and the breadth of products, obviously, it continues to deepen, how are you thinking about the channel strategy to drive sales productivity across the entire enterprise.

So yes. So I'll definitely take this one. So channel is absolutely focal for us in Michelle's presentation. She really talked about it as kind of diversifying our routes to market. So in some markets selling direct selling through kind of referral resale distributors and really unlocking these additional routes around resale partners, service providers, global GSIs, but then also with partnerships like our AWS marketplace, some of the cloud distributors as well. And so it's the -- really, our philosophy is to make sure that our products and services are available in any way that our customers want to transact and so that depth and breadth has been something that we've been very focused on, and we've been making tangible progress.

I think you kind of highlighted that right in when we look at areas like our phone and our CX business very channel-centric seeing that opportunity and that growth, we just announced partnerships with Bell Canada, right? So an example point of unlocking opportunity in that market through service provider partnerships and more to come.

And just to add on, this is a big investment area for us. If we are to scale going back to kind of those growth businesses in both on and contact center, we've made substantial investments here both in like kind of core reseller and referral motions that Graeme talked about, but also love to see the diversification of our channel set. So it's something we're actively investing in.

Can we go back, Annabeth, sorry to interrupt, just to Goldman. I think for whatever reason, they had a phone issue. Yes. Our next question will be coming from Kash Rangan at Goldman Sachs.

Great to get together with you guys. I had a bit of a nebulous question. the browser became the user interface for enterprise software. This happened like 25 years ago. Now there's talk that AI becomes -- so browser was a new UI back then it's old. AI becomes a new UI. To the extent that Michelle, you've had experience at Microsoft, Eric, of course, you're the OG, you've been through many tech cycles before. How do you envision that AI becoming the new UI and if that were to take hold, how does the interaction model of Zoom change because we're used to filing of the Zoom and working in a certain way with that's like a 7- to 8-year kind of a thing. So as user habits change and you have AI native workforces starting to hit their desks, how do you see the UI of Zoom changing that it becomes a little bit different and accommodative of the big sea change that the industry is going through right now.

Yes, I can start. So Michelle, Graeme and Kim, feel free to chime in. And you also expert on -- in the face as well. So first of all, Kash, that's a great, great observation, you are so right on. You look at the past 30 or 40 years, you look at the technology paradigm shift, right, from PC and to mobile to cloud and to notice Internet and also the AI, right, this kind of more technology evolution because the most important impact to any user is interface, user interface. Actually, any user do not care about what came of technology behind the set, but they care about what's the user interface, the interactive base, right? That's the key.

I think AI does created a huge opportunity. It's not because of AI, I guess it's already [indiscernible] because of a huge opportunity. The reason why is today, you look at the applications built over the past many years, every begins the same. [indiscernible] a desktop application, broad application or mobile location, Guess what? You still need to learn how to use, navigate those applications. You need to building a menus, and all the [indiscernible], all the logic, you learn how to use that, right? Not to mention every time you introduce a new world.

If you want to compete, it's really hard. You need to do recruiter so many engineers to replicate whatever other partners -- or the vendors already built for you. Now with AI, it is very different, almost every application. They do not care about the browser, they do not care about mobile, do not care about desktop, that's not a key anymore. The key is how you interact with us new applications is the chat interface or the voice interface or the video interface down the road, those 3 interface.

All those menus give [indiscernible] over like a PowerPoint. I use the same Powerpoint 35 years ago. Today, my kids do they want to learn how to use those the menus, the functions? No. This is to use AI. Hey, I want to put a slide deck for my next travel. And maybe tell the AI Companion, hey, where maybe recharter those few friends. They also know some -- the agenda, right, or something like that, right and the AI Companion will automatically created a slidedeck for you. That's interface.

So browser, mobile and desktop all those have become -- that's not critical, critical how you position your obligation to interactive in the user with the chat or the voice or the video. That's a huge opportunity. That's the reason why that's AI first interface. That's a reason why we see wow, amazing. We are going to reinvent ourselves and also reinvent the way for us to live and work. That's a huge opportunity.

Kash, let me give you the end user equivalent. Like if I think back a year ago, I was probably at Microsoft since starting in e-mail, but you would go to e-mail and you would look through everything you need to do, then you would go to chat and look through everything. And then you know what I mean, look at your calendar and go through and now I literally just begin my day with what's the most important thing that Kim and I go over on top? What's the most important thing across chat comma e-mails, et cetera, what are my big meetings today and then I go almost immediately into prepare for the meeting, right, prepare for the big mail or whatever that thing to get out. And so, I don't know, just a fundamental user side to kind of stitch together some of the differences that Eric is talking about.

Yes, I have to give credit for this question to Mark Murphy, who sat next to you yesterday and somebody asked him, what's the value of an application software company. You said, user interface just to thinking, you know what, maybe that's the way to finish the questions so credit to Mark. Thank you.

And maybe the only thing I would add to that, in the example that I gave with custom AI Companion earlier, I actually think it brings to light some of these changing dynamics around the interface. When we talk about from conversation to completion, right, we could be in a meeting having a conversation about a topic right? And when AI Companion can understand the context of what we're discussing, right, understand the context of how to actually achieve that objective, right, assign a task, ask if I wanted to complete that task. I tell it, yes and it goes and it does that through integrations across the rest of your enterprise, right, that already is changing the interface of how users are getting work done. So we're already there in terms of seeing the -- what those downstream impacts are in terms of the impact on the user interface within different systems.

By the way, quickly Kash, user interface is, I think, only meaningful in the age of AI. In the old ages, that's not a called user interface. That's application interface, that's not human interface. Now with AI, as a true user interface.

Our next question comes from Jamie Reynolds at Morgan Stanley.

This is Jamie on for Meta. Maybe just going back to some of the SMB-oriented comments earlier and just the pace at which you are adding features to the platform. Are we nearing the point where that segment can maybe kind of move from the stabilization to one of growth?

Yes. Mike, Kim, do you want to recap. I know maybe some investors didn't -- weren't able to dial in because there's a lot of the competing events for the keynote. Do you want to summarize because I think it would be interesting for investors the kind of headlines out of the joint app work study? And then maybe I can go in with some thoughts on online growth?

Yes, absolutely. So I think what we're seeing with SMB is absolutely that they are adopting AI in a really meaningful way. And I think that does provide us with an opportunity. As we see from the study that we're going to be releasing in, in a lot more detail, they're already seeing true ROI. And I think some of that is probably because they don't have the tech debt that you see in a lot of enterprises. So they can really jump in and apply AI into their workflow in a really meaningful and much more simple way than a more complicated, larger organization.

And so we're already seeing so many of these companies, whether they're SMB or solopreneurs extracting ROI after only a year of using AI. And so I do think that it provides us with a tremendous opportunity to reinvigorate the brand in the SMB and solopreneur segment in a way that we will go from stabilization to more meaningful growth over time. And the more that we -- like from a marketing standpoint, engage with those solopreneurs and help them unlock that super hero of AI next to them and really help them.

They want it to be easy and embedded into the workflow and only Zoom can do that. From a platform standpoint, from a meetings workflow standpoint, and so I am very bullish right now on our ability to unlock more value out of the SMB and solopreneur segment. And the research that we did with Upwork really proves that this is an opportunity to go big on. And again, it doesn't mean that we're not focused on the enterprise, but I think they have a faster path to ROI because of the smaller size of their organizations.

Yes. And perfectly said, I won't answer that maybe I'll just say that's why in my comments earlier, I just highlighted that, yes, we're stable and there's been such progress accent those measures that I talked about. Make no mistake, this group thinks there's growth there, and that is the ambition of myself and Eric to return that business to growth. And so stay tuned. I think even the price increase and what we saw speaks to just the value that we have with those customers. And so I love seeing Kim's return to highlight that customer set in this example -- sorry, in this event in particular.

Before we move on to the next analyst question, I'd like to hand the call over to Charles, who has a question from one of our attendees.

Yes. Just a reminder, if you're in the attendee audience, feel free to submit a question through the Zoom Q&A portal. And this question, I'll probably hand over to Graeme. The question comes from Robbie Arancio, "how hard is it for enterprises to ground their data in AI companion? What are the constraints to uptake? And what constraints from a technical perspective, what data are they actually integrating, where is it coming from?"

Yes. So probably some of the most common sources that they're grounding their data is really just integrating into things that they're already doing today. So e-mail and calendar integration, whether they'd be on Google or Microsoft. And then with custom AI Companion expanding that into additional applications, whether it be their CRMs, right, HubSpot, Salesforce, ticketing systems like ServiceNow, HR systems like Workday, Atlassian from a Jira perspective, right? So one of the areas that Zooms extremely well known for is simplicity and ease of use. And so making sure that our customers can make those integrations is absolutely kind of the focal point from how do those customers actually enable that those connections. But leveraging the connections that we've already done, so we seamlessly integrate historically into those applications, but then taking it to the next level in terms of the ability to do agent to agent-type handoffs, which we talked about at the keynote today. Very excited about the opportunity there, which we're doing upcoming with ServiceNow, as an example. So the answer is, it's really whatever those enterprise systems of record enterprise applications that our customers may have, integrating into those systems. And then the ability, as a user to ground your AI companion responses with fundamental knowledge of whatever it is that you have access to within those systems, right?

So the ability for my team to questions within AI Companion about a holiday schedule, and it's going to pull that from Workvivo or from a Workday article and surface that to the user. It's just one example of the types of data sources that are integrating into AI Companion and then what that enterprise value is.

Our next question comes from Seth Gilbert at UBS.

This is Seth on for Karl. I think it's well understood that the enterprise adoption of AI is slower compared with the faster-moving SMB customers. So maybe to follow up on a previous question about AI attached and the enterprise. I was wondering if you could talk about needing to wait for the AI or needing to wait for the add-on AI products like custom AI companion, ERA, industry solutions and even the elite SKU of the contact center to percolate through the enterprise base in order to keep Michelle on her revenue acceleration journey in fiscal '27 or maybe fiscal '28.

Do you want to start with that, Graham, and then I can lay on with some thoughts from the revenue.

Yes. So what I would say is when we look across -- as an example, our customer experience, whether it be in the SMBs or enterprise are elite SKUs, right, that are AI-powered, AI-centric are kind of a cornerstone of what it is that we're talking to and enabling our customers there. So I don't think that there's necessarily a difference in terms of where the customer is seeing value in the types of conversations they're looking to have, the same with our Zoom Virtual Agent, right? So ZVA 2.0, right, an agentic voice and chatbot for customer experience. We do see a lot of momentum in kind of the mid-market SMB.

And I think from a deployment perspective, growing into the enterprise, which we'll see kind of growing in momentum over time. And then from the custom AI companion use cases, I think Michelle touched on it earlier, definitely the opportunity for kind of SMB mid-market customers to get out the gates a little faster and having enterprise sales cycles being a little bit longer, but definitely have proof points and I think one that we shared here with a very, very large company moving forward with custom companion enterprise-wide. So building momentum there from a horizontal AI perspective. And Michelle, I don't know if you have any other comments you want to make.

The only thing I would say and maybe, Seth, I didn't get your question fully right, so apologies if not. But I would say we're already there in terms of monetizing on the elite SKU, increasingly on ZVA with the latest announcement. But a lot of these like custom AI Companion and ZVA 2.0 were just months-ago releases. And so I guess just to remind people that the thing that's been out the longest is really what's driving sort of AI revenue on the elite SKU piece.

Our next question comes from Alinda Li at William Blair.

The AI Companion through panel operates across to Zoom platform, but also integrates with the third-party systems to help take action using user insights. But given the sensitive nature of these insights, how does Zoom ensure customers to the data privacy and security and how do you balance the drive for innovation with the need to maintain reliability and security as the platform scales.

It's a great question. Eric, do you want to lead out on that?

Sure, I can. So Graeme and Kim, do you want to tell me first. I appreciate you probably -- much better answer.

Yes. So what I would say -- yes, I think the comment would be is that foundational to all of it is really the idea of security, privacy, reliability. So that's kind of the starting point by which all of these conversations kind of take off Michelle mentioned in her opening remarks just about our continued commitment. We do not -- we will not train on customer data. And that as a cornerstone in bedrock to having our customers really trust right, their data with Zoom and then also making sure that we have really robust controls at an admin level as well as kind of role-based access control. So that end users are only getting access to the data that they should be getting kind of being really fundamental for a lot of these capabilities.

So we have a lot of conversations with our customers to make sure that there -- they have a common understanding of the administrative capabilities that we have to really kind of dial in the privacy settings that they're looking for across their enterprise. So I think it's started from the beginning. So it isn't something that we're sitting here now trying to really kind of think through. So Eric, I don't know if you have any other thoughts.

No, [indiscernible] about that. Great answer.

I think maybe just as evidence of that to add to what Graeme said. I think it's pleasing to me to see so many of our customers that are security -- cybersecurity companies in and of themselves and large tech companies is just the strong confidence that people have in all of the things that Graeme just underscored.

Our next question comes from Patrick Walravens at Citizens.

Thank you, and thank you so much for hosting us. So Eric, I'm not asking about guidance. I know the answer to that is we haven't given it, but do you aspire to get back to double-digit growth and keeping it really simple for like a portfolio manager. Zoom is going to get back into the double digits, what's going to get you there?

Patrick, that's a good question. I think the best executive to answer to this question is Michelle.

Over to me.

She's incharge of allocating funds to our R&D team for us where to double down, where to tip down, where to step back and what's our growth trajectory down the road.

Michelle, do you aspire to get to double growth and if you do, how will you get there?

There you go. Look, I'm not going to say a number, Patrick. But yes, I think this company has growth above and beyond where it is today. And look, I go back to the same things that are driving it today. We've got to continue to have stabilization in our core like I love the momentum that we continue to see in phone. We are taking share, obviously, from the [ Ring Centrals ] of the world, but also that team's integration and then just what a gateway our phone business is to things like customer experience, right? And even not alone, like focusing in on enterprise, focusing on that, but then you add things like work Vivo and AI monetization that we're just sort of experiencing and on the enterprise side, I get excited about where we're headed.

And then on the online side, I mean, I think we covered it earlier. But the ambition, I'm pleased to say that what in '23 to '25, Patrick, we went from minus 8 to [ 5 ]. So think about now with that stable base of customers that you heard today are running their business on Zoom when we can really focus in on having a world-class PLG motion and really honing that customer value, I think there's growth in online, and that's certainly all of our ambitions here on this call. Yes, that's not the number that you want me to say, Patrick, but yes, I think there's growth far beyond where we are as a company today.

By the way, Patrick, just quickly, during COVID, our growth were the 3 digits. Now that's single digit. You look at all the numbers on the table was missing, that's double digit, right?

Yes. And let's go, you got it.

And actually, Patrick, I left one out. So let me tag in with one more thought, which is inorganic and the ability to sort of look across that product customer set to those priorities that I kind of opened up with and drive that. We have a very healthy balance sheet. It's a good time, I would argue it to sort of buy a company and stating.

Our next question comes from Siti Panigrahi at Mizuho.

All right. Thanks for hosting this. And Eric, it's good to see your basketball shots getting better. I can't wait for your dunking next year. Well, Michelle, I want to ask a Contact Center, maybe it's for Eric too. I feel like you guys have done a lot of product features in the fastest ever product that you added so many features. So I still see like 2% of ARR contact center. So what else you could do to further a adoption? Is it the market at this point? That's where not market not ready to adopt? Or is it go-to-market? What's at this point, what are the challenges you are facing to further accelerate that? Or when should we see that inflection point?

I would say you're seeing it now, clearly and I think what you're seeing is a lot of the numbers and just kind of building into it and sort of the maturity of that. Certainly, there is things that we are working on from a go-to-market. We talked about channel earlier, so I won't repeat the comments, but that would be one really -- we've been working on our core contact center product, and we're thrilled to see that in the Magic Quadrant. Look, we aspired a leader, so we'll continue to work there. ZVA might be another piece of kind of the product portfolio that we're focused on building out. A lot of customers, especially further down market, may never have a full contact center product and may just go ZVA 100%. But I don't think -- look, the market is certainly changing very rapidly around us. I talk to CFOs all day long, and it's certainly one of, I think, the more tangible examples of AI. So I don't think it's that. I think it's just us building to that. And I would argue that you're seeing the moment of inflection already.

Our next question will come from Max Persico at RBC Capital Markets.

Great. Thanks, I've got Max on for Rishi Jaluria. I wanted to hit on international markets. I know in the past, we've talked about that being an important piece of the puzzle from a go-to-market perspective. on the contact center side, but even for the overall business. And so maybe could you just dig into what are the investments that you're making from a go-to-market perspective on the international side of the business? And I guess, what type of traction you're seeing there? And how important that piece is to driving -- accelerating top line growth for the overall business?

I'll maybe start with just some of the investments. And then Michelle, if you have any comments as far as specific or acute numbers. But Max, what I would say is it really ties to the comments that we mentioned about diversifying our routes to market and making sure that we're available for purchase in all the different ways that our customers want to buy and what we found when we look at the international business, the channel plays such a key and critical role, whether it be [indiscernible] and resellers, whether it be service providers or GSIs, but really leveraging that breadth of channel diversity and channel relationship to accelerate in markets where we either may or may not have presence from a direct capacity or the ability to take to market. So those are the investments that you heard Michelle make where she really articulated we're investing heavily in systems tooling capabilities, enablement of these channel partnerships and channel partners. And then as we start that engine really leveraging that to be the driver of growth in these international markets.

So Michelle, I don't know if there are any specific numbers that we want to share here today, but Max, that's where I would say really the focal point. You can really think of channel and international almost synonymously because that's the way that we're going to unlock that potential opportunity.

Yes. From my side, I don't know that I'd layer on with specific numbers, but just to say, like you're right in calling it out. It is an opportunity for Zoom, which tends to be a more U.S.-centric business. It's part of how I think about that additional routes to market. So kind of maybe layering on and just adding a plus 1 to what Graeme has said, that is sort of where our thinking and investment is at expanding that route to market, both channel/international.

[Operator Instructions]

Our next question is from Matthew Harrigan at Benchmark.

I'm sorry. Actually, I had a cybersecurity question. I was going to withdraw it after you kind of gave a broad [indiscernible] answer. But do you have any specifics on what happened in August with the Windows vulnerability because it was fairly substantial in terms of enabling device control and all of that and fairly broad gamut of issues.

So Matthew, [indiscernible], I don't know what to answer to these questions.

The question again is what?

You had a fairly major security issue in August that basically allowed piracy take full device control with [indiscernible] credentials even. And I think it got passed relatively quickly. I actually grew the question because you had an earlier cybersecurity question. So I apologize. But if you have any details on that specific instance, it would be great. Thanks.

I don't think -- I'm happy to follow back up.

Yes, we better check with this. I don't know the context of [indiscernible] response.

[indiscernible] out in the weeds. I apologize.

Okay. Okay. We'll follow back up.

Our next question comes from Andrew King at Rosenblatt Securities.

Just wanted to double-click and contact center a little bit. Earlier in September, we saw that Salesforce announced 4,000 customer support layoffs. And they highlighted that they were really heavily focusing on leveraging AI to make this move possible. However, we've also seen other companies such as Klarna announced similar moves, but then retract those reductions in headcount as they found that just wasn't viable for them. Could you just give us a little bit of an idea of what sort of trends you're seeing with Contact Center customers specifically around AI adoption and seat count growth?

Maybe I'll start. I'll share -- really, it's 2 different markets that we hear. So there's a cohort of customers that are looking at AI as a way to supercharge their agents and make them more efficient, right, to drive productivity to drive kind of deeper relationships, giving contextual information to the agent so they can actually better understand the customer's acute pain point, their history, right? And it's really a lot more about improving customer satisfaction and NPS than it is about reducing cost. And I think Michelle, you had heard right, where CX could actually be a driver of top line, not just a cost center. And there's a cohort of customers that are very focused on how AI can help enable that as an outcome. And then there's another cohort of customers that are very excited about how some of these agentic capabilities like ZVA 2.0, our virtual agent [indiscernible] do call deflection, where they don't need to increase the number of agents that they have or even potentially reduce by leveraging AI technologies to allow customers to self-serve. What I would say is that those conversations are really, what I would say is kind of dependent on the industry that customers are in, right, whether there's high touch, high service, right, maybe it's high volume.

So Andrew, I think maybe the question -- the answer would be, right, is it really depends. And our approach is to have really, really robust technologies to address the acute needs that our customers have either side of the fence that they're on, right? If they want to focus on how do they make their agents more efficient or do they want to do more deflection, right? We have a great solution for them. But I would say the overarching umbrella that what we're seeing in the market is we're seeing that there's more dollars being spent on technology either side, right? But overall, there are more dollars being spent on technology to help solve on both sides. So we view that as definitely a tailwind across our CX business as a whole.

Just to add in, Andrew, just as a reminder to investors, we have a dual business model here on the agent-assisted sort of AI stuff, that's a per user business model and on the ZVA which is sort of virtual -- 100% virtual, that's a sort of consumptive pack. And then if helpful, what we've been talking about, Andrew, with investors is really just giving context and color. We talk about the high double digit. We talk about the customers over $100,000, and you saw those on this slide earlier. And then we talk a lot about the nature of what we're seeing in our top 10 deals, 8 of 10 in channels, supporting many of the things we have talked about here, 7 of 10 of AI, again, reflecting Graeme's comments, 9 of 10 [indiscernible] and 9 of 10 leading CCaaS providers. So just to kind of give you a sense of where the momentum is within our business.

Our next question comes from Jackson Ader at KeyBanc.

This is Jack on for Jackson. I was wondering if you could talk about the differentiation, helping you guys take market share in CCaaS with Zoom Contact Center and win deals. And then if I could sneak one more in, what happens to a customer's cost when AI Companion starts integrating into all these different systems of record like HR systems, ERP, et cetera.

So what I'll make the comment on the CX side. From a differentiation perspective, very much the AI-first approach, so that's -- I think Michelle just talked about 7 of 10 largest deals, right, kind of having the AI capabilities, so that's really core. The core foundational elements and our strength in voice and video being kind of a cornerstone, area of opportunity and strength.

The total experience -- so the ability across both not just a CCaaS platform but a UCaaS platform and also an employee experience platform, the ability to orchestrate and tie all of that together, where it's the customer, the agent, the ability to seamlessly pull in an expert, right, and the ability to then tie that into agent workflows. So the ability -- kind of the breadth of the platform we see as kind of a very great differentiator and then Michelle mentioned, right, that 8 of our top 10 wins coming from kind of the large existing CCaaS providers. And it's really around the ease of administration and the simplicity of use.

And I think that's quite often, right, an underserved or underappreciated element, but the ability to really the simplicity of tying all of that together, especially powered by AI is kind of the cornerstone of where the customers are seeing differentiation. To the latter point, I think you had asked a question just in terms of the cost from a customer in terms of -- so I would just say it's early. We have seen some vendors in terms of what their approaches are in terms of agent to agent workflows and how that's going to be monetized across vendors.

So kind of more to come there. But so far, what we see, there's kind of an ecosystem of vendors where we're working closely together to make sure that we can unlock those workflows for our customers. So ones that we talked about today, for example, with ServiceNow, right, the ability to really tie together to solutions that our customers may be using to have an outcome there from an agent to agent perspective. So early days, but we'll see kind of what happens over time with regards to kind of the total monetization there.

Our next question comes from Kylie Towbin at Citi.

I'm on for Tyler Radke. Maybe, Eric, to start, it would be great to hear your view on the investor debate around SaaS companies seeing increasing competition from VIBE coding platforms and the potential for both SMBs and enterprises, to potentially do more internal building versus buying of software and maybe where you see the biggest opportunities to strengthen your moat using AI at Zoom.

And then for Michelle, last year, you guys spoke about a long-term margin target of 33% to 36%. Just wanted to confirm that we should still think about this as the goal over the next few years as you invest in your own infrastructure and product ramp, that would be excluding any potential M&A.

Yes. So Michelle, I can address the first one and -- so yes. Regarding the SaaS opportunity, first of all, I still think it's a huge potential for SaaS company. Only problem is if a SaaS company, they stop innovating. Let's say, they do not embracing AI. They do not occur about a customer user interface, they will lag behind. The reason why is, let's say, the [indiscernible] establish a SaaS company, right? Today, for sure, there's a new AI tools [indiscernible] available, right? You can hire maybe less than 50 engineers to achieve your bigger competitors probably spend many years effort to achieve, but that's one side of the story.

The key is really about it, I'm pretty sure all those SaaS companies, they all look at what kind of AI opportunities bring it to their customers. They are going to evolve interface, and that's on 2. And also, we already generate a lot of content data, right? How do make sure AI and our content work together to create something more meaningful every customer. I think that's still much better positioned for all those SaaS companies, right?

As meaningful -- in my view, actually, I'm previous almost major SaaS companies, they are doubling down AI. So on that front, I'm still seeing a much better position. So in terms of how to leverage AI to further strengthen our moat, as I mentioned earlier, right? So we built all kinds of application interface, how to make sure to leverage AI to create 2 human interface. That's why. Two is how to make sure generally more meaningful content, how to integrate it with customer content, how to integrate with customer application under the have lay of combined. And this Zoom will be transitioned into our system of action company.

Why we have a meeting like this, why have a conversation like this. The goal, as Graeme mentioned, is really not about the competition itself, really about to get a task done, right? Look at completed task, right? That's kind of how we leverage that. So -- and if we can put it off, I think Zoom will be a very different company. That's not the communication company. That will be the system of action in the company in the age of AI.

Let me tag in with an answer to the question on long-term margins. Look, I just reiterate kind of what I've been talking about, our top focus, my top focus is going to be on growing top line, and getting -- addressing the issues with shareholder return while maintaining best-in-class profitability. We gave the long-term guidance a year ago, as you noted, and we've since reiterated, so I won't add new words to it. But for investors to think about that guide of 33 to 36 is sort of an outer bound. And then we won't leverage that until there is a meaningful growth inflection.

Our last question comes from Jack McShane at Stifel.

This is Jack on for Parker. You all made a point that contact center wins are often from leading cloud vendors, not just legacy providers. Have you seen this vendor replacement motion accelerate in an agentic world as organizations rethink their tech stacks to optimize for -- and if so, how can Zoom make this customer acquisition source more sustainable?

So maybe I'll start with -- so yes, I think the risk -- the replacement, we have definitely seen the traction and the opportunity from a cloud to cloud perspective. And it's where we're seeing a lot of opportunity and wins currently. I don't think it's necessarily about sustainability like the opportunity there is significant, and there's still so much work to be done. And that's not to say that that's at the expense of the opportunity with customers that still have maybe legacy traditional prem-based solutions, but it's very much front and center for us. The customers that have already transitioned to the cloud are looking for that next generation, how do they actually enable AI workflows. And so because they've already taken that first step, taking that second step is something that we're able to capitalize on, and we're seeing a lot of traction with that cloud to cloud migration.

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

Yes. So look, I'll be simple and brief and simply thank investors for your time and your commitment and being here with us for Zoomtopia. But hopefully, you took away from this and the earlier came out. This group was super excited about not only where we're going, but in the real results that we're delivering here today. And look, we are going to continue to be focused on what has made -- while we reinvent ourselves in many ways, we're going to continue to be anchored on what made Zoom, Zoom and that is keeping the customer at the center of what everything -- everything that we do and really making sure that we're leaning in on customer value, in particular. So excited, and we will see all of you on the earnings call next again?

Thank you, Michelle. This concludes today's call. Thank you for attending, and have a great rest of your day, everyone.