Zoom - Q1 2025
May 20, 2024
Transcript
Kelcey McKinley (Head of Investor Relations)
I will now hand things over to Charles Esworthy, incoming Head of Investor Relations. Charles, over to you.
Charles Esworthy (Head of Investor Relations)
Thank you, Kelsey. Hello, everyone, and welcome to Zoom's earnings video webinar for the Q1 of FY 2025. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Kelly Steckelberg. Our earnings press release was issued today after the market closed. It may be downloaded from the Investor Relations page at investors.zoom.us. Also, on this page, you'll be able to find a copy of today's prepared remarks and a slide deck, which, with financial highlights that, along with our press release, include a reconciliation of GAAP to non-GAAP financial results.
During this call, we will make forward-looking statements, including statements regarding our financial outlook for the Q2 and full fiscal year 2025, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives, 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. With that, let me turn the discussion over to Eric.
Eric Yuan (CEO)
Thank you, Charles. Thank you, everyone, for joining us today. Our rapid innovation over the years has taken us far beyond video conferencing. Every step of the way has been guided by our mission to solve customer problems and enable greater productivity. In the process, we have very deliberately created a communication and collaboration powerhouse with AI infused natively across the platform. Time and time again, we are recognized as a leader by Gartner, G2, TrustRadius, and many others. We are so pleased that in March, Fast Company added Zoom to their prestigious list of the World's Most Innovative Companies of 2024, further validating our dedication, further validating our dedication to providing our customers with a high-quality open collaboration platform powered by AI that just works.
In March, we announced Zoom Workplace, our AI-powered collaboration platform designed to help our customers streamline communications, improve productivity, increase employee engagement, and optimize in-person time. With the launch of Zoom Workplace, our new enhancement and capabilities like multi-speaker view, document collaboration, AI-powered portrait lighting, along with upcoming features and products like Ask AI Companion, which will work across the platform to help employees make the most of their time. The Workplace launch also boosts Zoom Phone, Team Chat, Events, and Whiteboard, with many more AI Companion capabilities to help make customers more productive. One of the core pillars of Zoom Workplace is optimizing in-person time and embracing flexible work. Our services portfolio has expanded from Zoom Rooms into integrated adjacencies like workplace reservation, visitor management, and digital signage.
As of the end of Q1, the cumulative number of Zoom Rooms licenses purchased was over 2 million, and in the last three months, we provisioned over 100,000 desks in workspace reservations to support in-office work. Leading financial services and legal firms, such as Capital One and Cooley, use Zoom Rooms to support their globally dispersed hybrid workforce, and others, like Flex and Bayada Home Health Care, have expanded from Zoom Rooms to workspace reservation in order to optimize in-office time. Zoom Workplace is also designed to increase employee engagement through the integration of Workvivo into our platform. In Q1, we landed a major telco customer on Workvivo, who bought approximately 100,000 seats, and Workvivo was named Meta's only preferred migration partner for its customers as it retires Workplace from Meta.
Our success in employee experience represents an important beachhead for us in upselling customers on the full suite. Zoom Workplace exists alongside and is designed to seamlessly integrate with our business services, including Zoom Events, Revenue Accelerator, Contact Center, Virtual Agent, and others. Zoom Contact Center, launched only two years ago, is ready for prime time. We now support PCI compliance, opening the door for customers that have payment processing in their workflows. We also received FedRAMP moderate authorization for our essentials and premium skills, allowing U.S. government agencies and entities doing business with them to leverage Zoom Contact Center. We have launched all key social channels, including Facebook Messenger, WhatsApp, and Gmail, and have enabled direct transfers between Contact Center agents and other departments via Zoom Phone, helping to further bridge the employee and customer experiences.
As a result of how far the product has come, we have seen strong growth in the number of deals where we have beat or displaced a Gartner top four CCaaS player. We have also strengthened our channel partnerships, leading to a significant increase in our channel wins and ability to compete for larger deals. ASPs are heading north, buoyed by the popularity of our higher-tier packages that allow agents and managers to lean further into AI, with AI Expert Assist, workforce management, quality management, and more. Now, let me recognize some of our amazing customers. First, let me thank Expedia, who needs no introduction, for becoming a lighthouse Zoom Revenue Accelerator customer in the quarter, leaning heavily into our AI products to drive revenue. A power user of Zoom Phone for years, they wanted to better automate workflows, coach sellers, and drive efficiencies.
We partnered with them on an initial quadruple-digit Zoom Revenue Accelerator deal, which includes working directly with their team to improve and tailor the product based on their business model and industry-specific use case. We're so excited about this AI-centric partnership to drive value for Expedia and continuously improve our platform based on customer feedback. Let me also thank Major League Baseball. A year ago, MLB made a highly strategic decision to adopt Zoom Contact Center. In Q1, they chose to expand our successful partnership by integrating Zoom Quality Management into their Zoom Contact Center deployment. This enhancement further strengthens their fan engagement strategy and streamline business operations. MLB was particularly impressed by the interactive features, enhanced accessibility, and the ability of Zoom Quality Management to support virtual fan engagement.
Let me also thank Centerstone, a nonprofit health system specializing in mental health and substance use disorder treatments for individuals, families, and veterans, for doubling down on Zoom. Seeing strong value from their existing Zoom Meetings, Zoom Phone, and Rooms deployment, in Q1, they expanded Zoom Phone and added Zoom Contact Center in order to leverage AI to provide better care, and Zoom Team Chat in order to streamline communications, in all from a single platform. I'm also very excited to share that we greatly expanded our footprint with a leading global financial services firm, who doubled their Zoom Phone seats to over 100,000. We're so pleased to see more customers adopting our Zoom Workplace and Business Services products in order to reap the benefit of our modern, natively integrated, AI-powered technologies. And with that, I'll pass it over to Kelly. Thank you.
Kelly Steckelberg (CFO)
Thank you, Eric, and hello, everyone. Let's start with some exciting milestones for our emerging products in Q1. We saw additional traction in Zoom Contact Center as we reached 90 customers with over $100,000 in ARR, representing a 246% year-over-year growth. This was driven by our recently launched higher pricing tiers, as well as our success in larger deals. Zoom Phone saw continued expansion upmarket. With the addition of the marquee financial services quarter customer Eric just mentioned, we now have five customers with 100,000 or more Zoom Phone seats. Zoom AI Companion has grown significantly in just eight months, with over 700,000 customer accounts enabled as of today. These customers range all the way from solopreneurs up to enterprises with over 100,000 users.
Embedding AI across all aspects of Zoom Workplace and Business Services is a key priority as we continue to drive productivity and engagement for our customers. Now, let's dive into the financial results. In Q1, total revenue came in at $1.141 billion, up 3% year-over-year. This result was approximately $16 million above the high end of our guidance. Our enterprise revenue grew 5% year-over-year and represented 58% of total revenue, up from 57% a year ago. Online average monthly churn came in at 3.2%, as compared to 3.1% in Q1 of FY 2024. The slight uptick in churn was related to tightening up the grace period for unmade payments, which pulled some churn forward.
Absent this change, online average monthly churn would remain consistent with the last two quarters at 3.0%, the lowest we have ever reported. We saw 8% year-over-year growth in the upmarket as we ended the quarter with 3,883 customers, contributing more than $100,000 in trailing twelve months revenue. These customers represented 30% of revenue, up from 29% in Q1 of FY 2024. As a reminder, our classification of enterprise versus online is determined by how we engage the customer, with enterprise referring to customers who are supported by our direct sales team, resellers, or strategic partners, and online referring to customers who self-serve. During Q1, as part of an effort to improve the customer experience and drive greater efficiency in our operations, we transitioned 26,800 enterprise customers with low ARR to online.
The number of enterprise customers at the end of Q1 after accounting for the transition was approximately 191,000. It is important to note that while the customer transition had a noticeable impact on our number of enterprise customers in Q1, the associated revenue was de minimis, representing an approximately $4 million shift from enterprise to online. Additionally, our trailing twelve-month net dollar expansion rate for enterprise customers in Q1 came in at 99%, which was not affected by this transition. Our Americas revenue grew 4% year-over-year, while EMEA increased by 2% and APAC declined by 2%. The APAC performance was due to the FX headwinds in Japan and Australia. Moving now to our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, and all associated tax effects.
Non-GAAP gross margin in Q1 was 79.3%, which was slightly lower than 80.5% in Q1 of last year, mainly due to our investments in AI innovation. In Q2, we will incur one-time investments to upgrade our data center backbone and expect gross margins to dip to 78% for the quarter. For the full year of FY 2025, we continue to expect our gross margin to be approximately 79%. Non-GAAP income from operations grew by 8% year over year to $457 million, exceeding the high end of our guidance of $415 million. This translates to a 40% non-GAAP operating margin for Q1, an improvement from 38.2% in Q1 of last year.
Non-GAAP diluted net income per share in Q1 was $1.35 on approximately 315 million non-GAAP diluted weighted average shares outstanding. This result was 15 cents above the high end of our guidance and 19 cents higher than Q1 of last year. Turning to the balance sheet. Deferred revenue at the end of the period was $1.35 billion, down approximately 1% from Q1 of last year. This was roughly 3 percentage points higher than the range we provided last quarter, partially due to tightening up our discounting practices last year. For Q2, we expect deferred revenue to be up approximately 1% year over year. Looking at both our billed and unbilled contracts, our RPO increased 5% year over year to approximately $3.67 billion.
We expect to recognize approximately 59% of the total RPO as revenue over the next twelve months, consistent with Q1 of last year. Operating cash flow in the quarter grew 41% year-over-year to $588 million. Free cash flow, free cash flow grew 44% year-over-year to $570 million. Our operating cash flow and free cash flow margins expanded to 51.5% and 49.9% respectively. The sharp increase in our cash flow metrics was due to stronger collections, targeted expense management, and higher interest income. We ended the quarter with approximately $7.4 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. Last quarter, we announced the authorization of a $1.5 billion share buyback plan.
As of the end of Q1, we had repurchased $150 million of stock, representing 2.4 million shares. Now turning to guidance. For Q2, we expect revenue to be in the range of $1.145-$1.15 billion, representing approximately 1% year-over-year growth. We expect non-GAAP operating income to be in the range of $415-$420 million. Our outlook for non-GAAP earnings per share is $1.20-$1.21, based on approximately 316 million shares outstanding. We are pleased to raise our top line and profitability outlook for the full year of FY 2025.
We now expect revenue to be in the range of $4.61 billion-$4.62 billion, which represents approximately 2% year-over-year growth. We still believe that Q2 will be the low point from a year-over-year growth perspective, and for it to improve from there. We forecast our Non-GAAP operating income to be in the range of $1.74 billion-$1.75 billion, representing an operating margin of 37.8% at the midpoint. Our outlook for Non-GAAP earnings per share for FY 2025 is $4.99-$5.02, based on approximately 319 million shares outstanding. Moving on to Free Cash Flow. Please remember that due to the timing of U.S. federal and state tax payments, we pay two quarters' worth in Q2 and minimal amounts in Q1.
Primarily due to the seasonality and AI-related CapEx, we expect free cash flow in Q2 to decrease by approximately 50%-60% quarter-over-quarter, before normalizing in Q3 and Q4. With the strength in free cash flow in Q1 and increased outlook for operating income in FY 2025, we now expect free cash flow to be towards the high end of our range of $1.44-$1.48 billion for the full year. Thank you to the entire Zoom team, our customers, our community, and our investors for your trust and support. Kelsey, please cue up the first question.
Operator (participant)
Thank you so much, Kelly. Like Kelly mentioned, we're going to go ahead and move on to taking your questions. When I call your name, please turn on your video and unmute. As a reminder, to try to hear from everyone, please limit yourself to one question. Our first question will come from Meta Marshall with Morgan Stanley.
Meta Marshall (Analyst)
Great. Thanks. Appreciate it. And congrats on the quarter. A couple of questions. Maybe just to start with, you could just give a sense of what you're seeing kind of on the SMB side of the environment, just given kind of commentary from others throughout the quarter. And then second, just maybe on DB&E, and, you know, you noted last quarter that you expected fiscal Q2 to kind of be the down point of the year, if that still kind of holds as you look throughout the year. Thanks.
Kelly Steckelberg (CFO)
Sure. So hi, Meta. As we're looking at the outlook for the rest of the year, as we mentioned, we do still expect Q2 to be the low point from a year-over-year growth perspective, and that the Net Dollar Expansion Rate will follow similarly behind that. When you look at the in quarter Net Dollar Expansion Rate, you'll see that it actually was consistent quarter-over-quarter, so we're starting to see that stabilization, and we think that that's a really good indicator that the Net Dollar Expansion Rate on trailing 12 months will similarly follow. And then in terms of SMB, you know, we saw, I think, similar performance across all of our different segments of our enterprise business.
Both you heard about some of the amazing customer wins that we had in the upmarket, but also some really nice ones in SMB as well.
Meta Marshall (Analyst)
Great. Thanks. I'll pass it on.
Operator (participant)
Thanks, Meta. We'll now move on to Samad Samana with Jefferies.
Samad Samana (Analyst)
Hi, good evening. Thanks for taking my question. So Eric, I wanted to dig into the CCAS side. As you mentioned, the product strategy for prime time, and we took investors to see it at Enterprise Connect as well a couple of months ago. So I was wondering if maybe you could just help us understand .You know, I understand the payment side, but when you think about prime time, how would you define that? Has the uptime gotten better? And you're clearly seeing larger logos. So how should we think about what prime time means, right? Should we see an inflection in larger customers going forward?
Eric Yuan (CEO)
Yeah, it's a great question. First of all, you know, just over 2 years ago, right, we launched the Zoom Contact Center. You look at our quarterly progress, every quarter we added so many, you know, the customers, right? So that's one thing, right, is customer trust of a Contact Center, the product. In terms of prime time, you look at the just recent quarter, right? You know, like, I give you two examples, right? You know, so like one of the Silicon Valley-based cloud software company, you know, they deployed, you know, our competitor solution, which is one of the top 3 in the cloud, is a CCaaS, you know, the provider. And guess what?
You know, they switched to our Contact Center platform because they really like our feature set, you know, seamless integration, and there was a greater uptime and also a lot of AI features built in, right? That's one example. Another example, we're also competing against another very also one of the top three, you know, CCaaS vendors, right? For the largest deal in Q1. You know, guess what? We won. And this is not a small deal. It's not like a few, you know, the hundred. That's more than 1,000 seats. That's another big deal, right? And so those two are just examples. Also, you look at our, you know, total installed base, you know, just look at the ARR, more than 100,000, right, for those customers, right?
You look at the end of Q1, we have you know, around 90, and the you know deals like that, right? You know, look at it compared to last year, almost you know, 250% year-over-year growth. I think with all those you know the factors in, I would say, yeah, this this is prime time. And the most important thing is the customer trusts our brand. They know, and we listen to customers, and we innovate. That's the reason why our Contact Center, we're making very good progress. It's you know, it's the prime time, so
Samad Samana (Analyst)
Great. Thank you so much.
Eric Yuan (CEO)
Thank you.
Operator (participant)
Our next question will come from Michael Funk with Bank of America.
Michael Funk (Analyst)
Yeah. Thank you all for the question tonight. And Eric, you touched on it briefly with the last question, but love to hear about the competitive environment today, maybe even contrast it with 12 or 24 months ago, and specifically pricing, and how pricing is changing, whether or not people are more competitive, less competitive. And then I guess related to that, if we're seeing more competition from Microsoft on the video side.
Eric Yuan (CEO)
Yeah, so sorry, you're talking pricing on the Contact Center or overall?
Michael Funk (Analyst)
Really, really, really the entire platform, now that more competitors are probably likely bundling solutions, you know, just the general pricing trends.
Eric Yuan (CEO)
Yeah. Overall, I think only one competitor, they bundle the solution together, which is Microsoft, right? So, and, so, you know, over the past few years, right, for sure, there is some, you know, impact. You know, you already saw the numbers over the past several years because of their bundling strategy. However, if you look at, you know, our installed base, you know, like a year ago, right, we increased the online price, and, you know, we do see a very positive feedback. You know, customers really appreciated our service. And also look at our, you know, installed base, and a lot of customers really like our service. The reason why, the reason why our customers' employees, they like Zoom... they truly enjoy using Zoom, right? They, when they use other competitor's product, guess what?
They do not like it, right? Even if the bundle, you know, the price is sort of free. However, when customers, they deep dive, they look at a total cost of ownership, in terms of support cost and AI cost, guess what? I think we're in a much better position now. That's the reason why I think, you know, we not like every time we talk customer, conference, customer always, you know, telling us, "Hey, you know, your price," or those kind of things. Customer really appreciate, right? They want to deploy the best ability service. That's the reason why I we did not see, you know, the big, you know, price pressure, you know, over the, you know, at least in the last quarter.
I think we maintained our price, you know, the strategy very well, so.
Michael Funk (Analyst)
Okay, and just very quickly, so your last comment there, you didn't really see price pressure last quarter. Did... Should I take that to mean that pricing is stabilizing relative to where it was, pricing is getting better?
Eric Yuan (CEO)
I think so, because you look at the overall online trend, right? In kind of a historical low, right, as Kelly, you know, mentioned earlier, right? And also, look at our enterprise customer as well, because we have a lot of other services, upsell, you know, entire, you know, the product suite. And I think, you know, it's a much better position now.
Michael Funk (Analyst)
Great. Thank you, Eric. Thank you, Kelly.
Eric Yuan (CEO)
Appreciate it. Thank you.
Operator (participant)
We will now hear from Rishi Jaluria with RBC Capital Markets.
Rishi Jaluria (Analyst)
Oh, wonderful. Thanks, Eric, thanks, Kelly, for taking my question. I just wanted to ask, following up on the CCaaS side, Eric, you made the comment that you have either displaced or beaten each of the top four CCaaS vendors as ranked by Gartner. Can you provide a little more color on those wins, maybe, and what vector did you tend to win those on? Was it on pricing? Was it on certain features and capabilities you have that they don't have? Maybe help us understand and provide more color, that'd be helpful. Thank you.
Eric Yuan (CEO)
Yeah, so yeah, just to give two examples, right? A lot of other examples. You know, if you look at it, just the two examples. I do not think just one factor, you know? And to let a customer make that decision, they look at, first of all, do they trust this vendor or not, right? And they look at the product roadmap, look at existing feature set, look at the integration, look at the AI features. They also look at the pricing, and, you know, all those factors, they think, you know... Because, you know, so some customers, they trusted Zoom years ago, right? Many years ago. They deployed Zoom, boom. They say, "Yeah, this is a great story." You know, we are going to replicate that story. That's the reason why customers, yes.
But interestingly enough, you know, those customers, some of the, the logos we won in Q1, they are not even know the Zoom customers, but they trust our brand. They know, you know, we are very innovative. You look at all other CCaaS vendors, guess what? Their solution was, were not built recently, right? It's a long time ago, from on-prem to cloud, and it's really, you know, sort of a clunky interface, and that's the reason why we have high confidence we are going to win more deals, so.
Rishi Jaluria (Analyst)
Right. Thank you.
Eric Yuan (CEO)
Thank you.
Operator (participant)
Our next question will come from Siti Panigrahi with Mizuho. Siti, please go ahead.
Siti Panigrahi (Analyst)
Thank you. I saw the demo of your Zoom Workplace. Very impressive in terms of, like, AI feature, like Ask AI Companion that you added, Eric. So I have a couple of questions. Firstly, like, how do you see, you know, this Zoom Workplace? How do you plan to what's your strategy in terms of branding or go-to-market, you know, push this product? And do you see this more traction on the, more on the low end, like small business segment, or more on the enterprise side? And if you combine this Workplace with AI, should we expect this to drive more free to paid migration? And if so, when should we start seeing that effect? Thank you.
Eric Yuan (CEO)
Yeah, it's a great question. You know, it's great to know you like our Zoom Workplace. I think it's not only drive, you know, the revenue growth, adoption, not only SMB, enterprise customers. Overall, if you take a step back, right, you look at the Zoom Workplace, look at the first, you know, the 10 years, right, in Zoom wonderful journey. Essentially, more like our slogan is, "Meet happy," right? For now, we have a collaboration platform, and customers, they can live within a platform to get all the work done, right? That not mean they should use everything from Zoom, but we do have a collaboration platform. We also can coexist with other vendors very well, like Microsoft or Google, ServiceNow, Salesforce or Atlassian, all those, the SaaS leaders.
At the same time, you know, you look at the customer requirements, right? And when they use Zoom Meetings, you know, from Phone or Team Chat, Whiteboard, and a Contact Center, a lot of things together, that's a full collaboration, you know, platform. Used to be, you know, from "meet happy," now to "the work happy," right? That's sort of our slogan evolution, right? And also, AI is a part of that. Look at our Workplace customers. Guess what? AI is not only a part of that, but also at no additional cost, right? So that is our vision, and essentially, you know, in the form of, you know, many years ago, from one application service provider and into a full collaboration suite. And SaaS customer for sure, they likes that.
Enterprise customer, they want to deploy the best ability service, they also like that too. So plus, it's an open platform. That's the reason why we are doubling down our Workplace, the platform, to become a, a work, you know, happy platform.
Siti Panigrahi (Analyst)
Thank you.
Eric Yuan (CEO)
Thank you.
Operator (participant)
Moving on to Catharine Trebnick with Rosenblatt Securities.
Catharine Trebnick (Analyst)
Hi, thanks for taking my question. Can you update us on the partner program? What I'm really trying to dig into is really how you are positioning yourself competitively, competitively against Ring and the traditional partners. Thanks.
Eric Yuan (CEO)
You, Callie?
Kelly Steckelberg (CFO)
... Eric, are you, you want me to take that? Okay.
Eric Yuan (CEO)
Yeah, go ahead.
Kelly Steckelberg (CFO)
Yeah, so we continue with our partners and with our direct sales organization. We continue to win, I think, not only against other, you know, providers in the Phone cloud, but also, as Eric just mentioned, on the Contact Center side, as I think several vectors, right? It's around pricing and total cost of ownership. It's around the momentum, because of the ease of use of deploying and selling this product. We believe that our partners should be able to see that value in not only the deal, you know, the end user, but also in their deals as well. And if you're asking about, you know, compensation to the partners, we continue to ensure that our partner programs are competitive, but also appropriate.
You know, we are always thinking about the impact to them as well as to our internal margins. As you've heard us talk about last quarter and also this quarter, we have some additional partnerships that we've been named as the preferred partner migration for not only Meta, but if you remember, also Twilio as well.
Eric Yuan (CEO)
Yeah.
Catharine Trebnick (Analyst)
Yeah, thank you.
Eric Yuan (CEO)
Yeah, just quickly to add on to what Kelly said, those are partnerships, you know, most of the time, because the reason why I have all those good partners, because the customers, they ask me for that, right? Because they say, "Yeah, they zero in on one or two to build more business with Zoom," and that's the reason why we have Zoom many partners, and recently, like Avaya or Meta, right? This is great examples, so...
Operator (participant)
Thanks, Catharine. And Ryan McWilliams with Barclays, please go ahead with your question.
Ryan McWilliams (Analyst)
Appreciate it. Kelly and Eric, you beat me to it, as usual. I was gonna ask about the Meta and Avaya partnership. So, you know, great to see that, you know, they chose Workvivo as the migration partner for their workplace solution. I guess, to double-click on that, do you have any sense of the timing on how these customers could move over, and how would you frame the opportunity for this partnership? And then just on the Avaya partnership, love to just hear, like, kind of what exactly that partnership is trying to get at, and how that can open the door for more customer relationships between you guys. Thanks.
Eric Yuan (CEO)
It looks like I know your question now, so thank you for asking those two questions. So in terms of a Meta partnership, right, I think, you know, Meta is such a great company, focused on the, you know, a lot of AI Llama 3, and this is great, you know, open source. That's the reason why, you know, and they wanted to retire their Workplace from Meta product. You know, for sure, they talk to their customers and understand, you know, we have a Zoom Workvivo platform, is a very preferred, you know, solution. And many, you know, as I mentioned earlier, right, we just won a very large technical deals. It's not a small deal, 100,000 seats, right? So the very mature platform is a lot of innovations. That's the reason why, you know, Zoom, you know, became the preferred partner.
We are going to work together, right, to make sure all those Workplace from Meta customers have a smooth transition, right? In the next, I think in the next 12-18 months, you know, I can well, you know, work together with Meta, with customers, make sure the entire transition period are very, very similar, so we have a high confidence. You know, they are a great, you know, partner, and not only a customer, but also a great partner, I mean, Meta. So, and, we are, well, again, we are very excited about that partnership, about that, you know, the transition. In terms of Avaya deals, right? So, you know, Avaya, you know, they have a lot of very, very big, large enterprise customers who deployed both UCaaS and CCaaS solutions.
Those large enterprise customers, they are not fully ready to migrate everything to the cloud. You know, you look at integrations, a lot of many, many years' effort they put, it's almost impossible to migrate to cloud overnight. However, they also want to leverage a lot of, you know, the features, like AI features, a lot of innovations, right? So that's the reason why the customer, they share it with both of us, both, you know, online from Avaya. And so, you know, when they are not ready to move to the cloud, they also do not want an on-premise solution. Guess what? This is a hybrid architecture, by how to leverage Zoom Workplace client, right, to talk with Avaya on-prem, in future service, right?
On the one hand, the Zoom Workplace client has a lot of rich features they can leverage. On the other hand, they also can seamlessly, seamlessly integrate with Avaya on-prem future service. I think that's, you know, is the, the winning partnership, right? Benefit us, benefit Avaya, benefit the, the customers, in particular for all those very, very big, very complicated, you know, the, the enterprise customers. That's the reason why I think this hybrid architecture will help customer a lot.
Ryan McWilliams (Analyst)
Appreciate the color. Thanks, guys.
Eric Yuan (CEO)
Thank you.
Operator (participant)
Baird's Will Power has the next question.
Will Power (Analyst)
Okay, great. Hopefully, you can hear me okay, calling from my mobile. I guess, Kelly, for you, can you talk about the enterprise growth outlook from here? Should we expect that to trough in Q2 as well, and then accelerate? And I guess tied to that, maybe just help us understand your level of confidence in raising the full-year guidance to reflect the, you know, the Q1, being given we're still pretty early in the year here.
Kelly Steckelberg (CFO)
Yeah. So hi, Will. Yes, we expect that enterprise growth will follow the similar trend that we've discussed for the entire company, with Q2 being the low point for FY 2025 from a year-over-year growth perspective, and then seeing reacceleration in the back half from there. In terms of our confidence for the year, you know, we applied a similar approach that we always do to setting guidance, which is, you know, talking to our sales organization, of course, looking at the pipeline that we're seeing, also the trends that we're seeing with online and what's on deck in terms of initiatives, what's the performance we're seeing for churn, and then looking at all of that, putting it together, and coming up with our outlook.
Will Power (Analyst)
Thank you.
Eric Yuan (CEO)
Yep.
Operator (participant)
We will move on to Tyler Radke with Citi.
Tyler Radke (Analyst)
Hi, Kelly. Hi, Eric. Thanks for taking the question. Kelly, to start off just on the enterprise customers, appreciate the explanation on the-
Kelly Steckelberg (CFO)
Yeah
Tyler Radke (Analyst)
The movement of some of those customers moving online. Although I think if I back that out, it's still declined sequentially. So I was wondering if you could unpack kind of the drivers of that enterprise customer number, and then how you're thinking about growth of that long term? And then second of all, just as we think about the billings outlook, I think that came in a little bit stronger for the Q2, despite revenue being a little bit below consensus. Should we think about that as kind of I guess, what are the puts and takes on that that would be kind of driving the divergence, any change in billings terms we should be thinking about?
Kelly Steckelberg (CFO)
Yeah. So first of all, on the enterprise number, it didn't decline quarter-over-quarter. I just wanna be clear, even if you back out those numbers. So it should be up. You know, we've discussed this in the past, that as our strategy, especially on selling Zoom Phone and Contact Center, is selling into our existing install base, and that as more of our revenue growth is coming from these emerging products and selling into our existing install base, that you should expect those customer adds to not grow at the same rate that they did historically. But it did grow quarter-over-quarter. So I just wanna be clear about that. And then, in terms of...
You know, we've said this before, too, which is, I know it's not always what you wanna hear, but in terms of billings and RPO, really the best indicator that I can give you of the future is our revenue guidance itself. So, there are, you know, changes in the trends in terms of... I should say it this way, we continue to see strength and movement from monthly to annual to multi-year billing terms, so that's really positive. As well as we see, you know, expansion and growth into those longer tenured customers in online, which typically also means they've expanded into longer billing terms. And we've also seen some benefit, as we mentioned, as we've really been more thoughtful about our discounting practices, which includes fewer free periods in the enterprise.
And so all of that is leading to the growth that you're seeing, from billings and the deferred revenue side of things.
Tyler Radke (Analyst)
Great. Thank you.
Kelly Steckelberg (CFO)
Yep.
Operator (participant)
We are moving right along, so we will now hear from Alex Zukin with Wolfe Research.
Alex Zukin (Analyst)
Hey, guys. Thanks for taking the question.
Kelly Steckelberg (CFO)
Hi, Alex.
Alex Zukin (Analyst)
First, I just want to acknowledge, we saw something from you guys this quarter we haven't seen in a long time: accelerating enterprise revenue growth, accelerating enterprise billings growth, and declining OpEx. So just maybe stack rank for us, like, if you look at all the things you called out, whether it's Contact Center, Phone, Workvivo, even the sales product and the quality management product you referenced in the prepared remarks, Eric, stack rank where those, kind of landed in terms of the driving factors or the driving force behind that acceleration. And then I got a quick follow-up.
Kelly Steckelberg (CFO)
Yeah, Eric-
Eric Yuan (CEO)
Yeah, Kelly, you, you want to take it?
Kelly Steckelberg (CFO)
Yeah, sure. Let me, let me talk about revenue, and then you can talk about sort of the business momentum in general. But, you know, Zoom Phone continues to be a very strong growth driver. Very pleased with the growing momentum we are seeing from Contact Center, and then Workvivo also gaining in its own right. In terms of, you know, relative overall dollars, Workvivo is still, a smaller component of the business, but is growing very, very quickly, so certainly contributing, and, some really exciting customers that are coming to, to Zoom as a result of, of both Contact Center and Workvivo. And also, we had one, a new customer coming from, Zoom Revenue Accelerator as well this quarter. So that's really exciting to see these emerging products that are bringing new customers and new logos to the company.
I think in terms of momentum, we're excited across all of those verticals, but kind of in that order.
Eric Yuan (CEO)
Yeah, yeah. Alex-
Kelly Steckelberg (CFO)
Eric, anything else you wanna add?
Eric Yuan (CEO)
Sure. Yeah, Alex, that's a great observation. I think, to echo what Kelly said, that momentum, you know, is boils down to our product strategy. Essentially, there are two key pillars. The first one is the Zoom Workplace, the second one is, Business Services. You look at the Workplace, Zoom Workplace, right? For those customer deploying meetings and the Phone now, and they have a Zoom Workplace client, and they try to consolidate, right, some other solution, like a Zoom Team Chat is great, flexible, you know, very scalable chat solution is part of that at no additional cost. We need to put out other viable solutions. Look at Zoom has a viable. Zoom has a Meeting for scheduler, functionality as well, right? You know, a lot of features is a part of the, the, the, Zoom Workplace.
But what's more important is that they look at it, they take the Zoom Meeting summary feature, for example, that's our AI feature. When they test the feature, their feedback is not only positive, they say, "Wow, I cannot believe that. It's worked so well," plus at no additional cost. They also trust, like, our AI vision as well. This is kind of a workplace. You know, plus, you know, the reason why the Meta, this great company, should remind why they pick up Zoom Workvivo. Because they also look at it from their customer perspective. They want to pick out the best, you know, the partner who can deploy a greater solution, right? AI a part of that. You know, Workvivo also part of our Workplace platform. You look at the Business Services, you know, Contact Center for support team-...
Revenue Accelerator for sales team, event sessions for marketing team, and all those new services, right? Also will help us a lot. You know, again, you know, back to the, the Contact Center story, a lot of opportunities, a lot of enterprise customers buying a lot of still on-premise solution. You know, they are thinking about which collaborative Contact Center solution they can trust, they can count on in the next 5-10 years. Zoom is a much better platform. That's the reason why I think that's kind of, you know, and the momentum, you know, is coming, you know, really focused on the enterprise side, so.
Alex Zukin (Analyst)
And Eric, maybe just on pricing. You got to ask this question a couple times. It feels like you're talking about it being stable. You also raised price, and you didn't see a real change in churn. I guess, I know you don't like raising price too many times, but if you think about just the strategy of continuing to add a tremendous amount of value, whether it's through consolidation or incremental functionality like sales or quality management, is the opportunity? If you look at the ACV uplift in those two accounts that you called out for Expedia and MLB, and you look at that across your pipeline for adding those types of features, assuming some kind of attach rate, what's that opportunity look like for you guys?
Eric Yuan (CEO)
Yeah, I can talk about business side. Kelly, feel free to chime in on the revenue side. I think you look at it, this is Expedia is a great example, right? And they deployed Revenue Accelerator, right? Again, those are business services, right? It's kind of, I would say, it's very compelling service, right? You know, we are not going to, you know, competitor, compare, competitor to the other competitors. A, we are going to dramatically lower the price. That's not our case, because there's a huge value. AI is part of that, not like a Workplace. AI add-on is additional cost, right? However, AI is playing a very big role for all of the business services, right? And also, most of them, you know, are enterprise customers, right?
That's the reason why I think, you know, we are doubling down all those business services. And the pricing is, you know, is kind of, not like, when we offered a Meeting service many years ago, right? It's a better pricing, better product, better service. And however, here is a very different story, right? You know, we compete against, you know, any other competitors. Also, the price is, you know, also, you know, customer like that as well, you know, because they do not want to use Zoom at all, just a low price. That's not the case for business services, because of the huge value.
Kelly Steckelberg (CFO)
Yeah. In terms of the revenue upside, Alex, it kind of varies by product because certain products have much higher ASPs. For example, like Zoom Contact Center than Meetings. But of course, the attach rate in terms of number of seats isn't 1-to-1, right? There's a lesser ratio there. Zoom Phone, you know, we saw an attach rate of generally 1-to-1, or do see an attach rate, I should say, of 1-to-1 from Meetings to Phone. Sometimes even greater when we look at customers that we've talked about here before, that have a, you know, bigger attach rate because they have Phone in retail locations, for example. So it just varies.
The thing that I will say is generally a lot of these emerging products also have better gross margins, which is helpful when you look at something like, like Contact Center because of the ASP, especially with the rollout of the pricing tiers. We saw the ASPs for those products almost double from quarter-to-quarter with the rollout of the new pricing tiers. And I think that will continue as the features and functionality, especially in those upper tiers, continues to expand.
Alex Zukin (Analyst)
Perfect. Congrats, guys. Thanks a lot.
Kelly Steckelberg (CFO)
Thanks.
Eric Yuan (CEO)
Thank you, Alex.
Catharine Trebnick (Analyst)
Matthew Van Vliet with BTIG has the next question.
Matthew Van Vliet (Analyst)
Hey, good afternoon. Thanks for taking the question. I guess on the last point, you know, as you include more AI companion in the mix, you know, how do you feel like that's actually monetizing maybe more seats, a larger opportunity at those individual customers, than maybe limited by, you know, only Phone or only Meetings? How is the workspace and sort of bringing all this together helping drive deal sizes higher?
Eric Yuan (CEO)
I think AI Companion not only, you know, to help our Meetings and the Phones or Team Chat, it's across entire Zoom Workplace platform, plus all the business services, right? And because our federated AI approach, you look at our Workplace, you know, the deployment, right, for the entire collaboration platform, and not only make all those services better, but also is, you know, customer appreciated, right? We rather, you know, the charging customer more, right? You know, they do add more value to customers because at no additional cost, right? That's kind of a power, you know, a part of the Zoom AI Companion. At the same time, in terms of monetization, as I mentioned earlier, look at all of our business services. You know, AI is a key differentiation, right?
We leverage AI, and also you know, we charge a premium price as well, and just because this is the value. At the same time, you know, we also you know, are going to leverage you know, AI Companion to build a lot of new things, new services, like Ask AI Companion. That will be introduced later this year, and also some other new services what we are working on as well. But overall, I think AI for the existing collaboration customers add more value for new services, right? And also, you know, we can charge a premium price, plus also can leverage AI Companion to build new services. You know, given the Edge AI you know, is coming and there's a lot of new opportunities.
Matthew Van Vliet (Analyst)
Thank you.
Eric Yuan (CEO)
Thank you.
Catharine Trebnick (Analyst)
We will now hear from Ryan Koontz with Needham.
Ryan Koontz (Analyst)
Thanks for the question. First, Kelly, quick housekeeping one. The reclassification of customers, is that expected to change any of your KPIs, like NER and like that, turning those in the right direction at all?
Kelly Steckelberg (CFO)
... I mean, no significant, as we mentioned, although the, the number was pretty significant, the revenue shift from enterprise to online was only $4 million. And we, as we indicated, it didn't change because it was so de minimis, the impact on net dollar expansion calculation, for example, didn't, it didn't make it didn't move it at all.
Ryan Koontz (Analyst)
Got it. Helpful. And Eric, maybe a quick strategic question on events. Any update there in terms of how the ecosystem's building out? I know that's a complex market to penetrate. Any updates you have for us there? Thanks.
Eric Yuan (CEO)
Yeah, great question. I do not think I gave a few examples about that, but I can tell you Zoom Events are doing extremely well. And you look at every quarter contribution to our, to our revenue growth is, you know, the reason why it's kind of, it's, you know, we had a webinar a long, long time ago, right? You know, and, and then Zoom introduced the Zoom Sessions events. It's a very, you know, trustable brand. It will offer the most flexible, you know, the events and service. And I think that service, you know, is going to help us more and more. Because you look at any other competitors, right, you know, most important competitor take up, you know, the very large one, they even do not have something similar, you know? And this is probably their product on par with our webinar.
Now we have is Events and Sessions, right? You know, we are the... We offer the best Events and Sessions, you know, and for our customers. That's the reason why for almost every enterprise customer, when you look at the very large events, you know, Zoom is, you know, is the best platform. Our competitor even do not have that, so. Oh, by the way, also forgot to mention, actually, you know, it's not only for events in itself, essentially a lot of our customers use Zoom, you know, for to improve their working, you know, so marketing, you know, the efficiency, right? How to drive the leads generation, you know, and our workflow, right, integrate very well with our Events and Sessions, so.
Ryan Koontz (Analyst)
Great. Thank you.
Eric Yuan (CEO)
Thank you.
Operator (participant)
We will now hear from James Fish with Piper Sandler.
James Fish (Analyst)
Hey, guys. Thanks for the question here. Maybe just bridging the Phone and Contact Center opportunity, whether... it's kind of hard to probably parse this out in the entire install base, but as we think about those greater than 90 Contact Center accounts over 100K, maybe could you go over the overlap of adoption between Phone and Contact Center, how that packaging of the two is going together, and if you guys are starting to see that pipeline or backlog increase for cloud conversions across those spaces relative to the last year? Thanks, guys.
Eric Yuan (CEO)
Yeah, sure. So, yeah, Kelly, feel free to chime in. Because you look at it, you know, when we started, we saw you look at the quarterly, the Contact Center, you know, the deals we won. We thought probably most of customer will be the existing customer, right? Either Meeting customer or the Phone customers. However, that's not right. And quite often some customers, they are not a Meeting customer, not a Phone customers, but, you know, they became the first customer to deploy the Zoom Contact Center. So that means, you know, we have a lot of opportunities for existing installed base. So we need to double down on that because the product already works very well. And plus, you know, buyers are different.
We also—that's the reason why we invest more to our channel partnership as well. I think, you know, more and more existing installer base, right, after they've heard about our Contact Center's, you know, success story, I think we are going to see acceleration of our Contact Center business growth, so.
James Fish (Analyst)
Thank you.
Eric Yuan (CEO)
Thank you.
Operator (participant)
We have one additional question, which will come from Michael Turrin with Wells Fargo.
Michael Turrin (Analyst)
Oh, hey, hey, thanks for squeezing me in. Kelly, you had a few comments on tightening discounts, tightening grace periods, just as things for us to be mindful of
in terms of the model. I'm wondering if that's somewhat standard operating procedure for Zoom, or if that's coming from more confidence that the business is now stabilizing. And if you're just able to help us with visibility you have from here into Q2, marking the low point in terms of growth and any additional driver details on drivers there is useful. Thank you. Yeah, I think that, you know, the discounting, we started working on being more thoughtful and disciplined about that last year. We've talked about that several times before, and you're starting to see the impact and the benefit of that rolling through the results this year, which makes sense as customers are coming up for renewal, especially some of those ones that are on annual accounts.
Kelly Steckelberg (CFO)
And then in terms of tightening up the dunning period, I think that it's just, you know, as we continue to mature as an organization and really be thoughtful about not only what's good for our business, but what's good for our customers as well, and seeing that it was just the right time. And we continuously go through and look at our, you know, financial and accounting policies and make sure that those align with what's right, again, right for the business and right for our customers as well. I think it's more about that, and less about sort of anything else that's happening in the business, other than just being thoughtful and maturing into some of those policies.
Michael Turrin (Analyst)
Thank you.
Kelly Steckelberg (CFO)
Yeah.
Operator (participant)
Again, that is all the time we have for questions today. That concludes our questions. I'll turn it back to Eric for any closing comments you might have.
Eric Yuan (CEO)
Yes, thank you all for joining us today. Really appreciate, and we are working as hard as we can to truly deliver happiness to our customers and partners. And also, I'd like to leverage this opportunity to thank every Zoomies for their hard work, and I really appreciate it. Thank you all for your time. See you next quarter.
Operator (participant)
Thank you so much, Eric and Kelly. And again, everyone, this concludes today's earnings release. We thank you all for your participation. Enjoy your summer, and we will see you next quarter.
