- Total Revenue: $1.141 billion, up 3% year-over-year.
- Enterprise Revenue: Grew 5% year-over-year, representing 58% of total revenue.
- Online Average Monthly Churn: 3.2%, compared to 3.1% in Q1 FY '24.
- Upmarket Customer Growth: 3,883 customers contributing more than $100,000 in trailing 12 months revenue, up 8% year-over-year.
- Non-GAAP Gross Margin: 79.3%, slightly lower than 80.5% in Q1 of last year.
- Non-GAAP Income from Operations: $457 million, up 8% year-over-year, with a 40% non-GAAP operating margin.
- Non-GAAP Diluted Net Income per Share: $1.35, $0.15 above guidance.
- Deferred Revenue: $1.35 billion, down approximately 1% from Q1 of last year.
- RPO (Remaining Performance Obligation): $3.67 billion, up 5% year-over-year.
- Operating Cash Flow: $588 million, up 41% year-over-year.
- Free Cash Flow: $570 million, up 44% year-over-year.
- Cash, Cash Equivalents, and Marketable Securities: $7.4 billion.
- Share Buyback: $150 million of stock repurchased, representing 2.4 million shares.
- Q2 Revenue Guidance: $1.145 billion to $1.15 billion.
- Q2 Non-GAAP Operating Income Guidance: $415 million to $420 million.
- Q2 Non-GAAP EPS Guidance: $1.20 to $1.21.
- FY '25 Revenue Guidance: $4.61 billion to $4.62 billion.
- FY '25 Non-GAAP Operating Income Guidance: $1.74 billion to $1.75 billion.
- FY '25 Non-GAAP EPS Guidance: $4.99 to $5.02.
- FY '25 Free Cash Flow Guidance: Towards the high end of $1.44 billion to $1.48 billion.
Release Date: May 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zoom Video Communications Inc (ZM, Financial) reported total revenue of $1.141 billion for Q1, up 3% year-over-year, exceeding the high end of their guidance by $16 million.
- Enterprise revenue grew by 5% year-over-year, representing 58% of total revenue, up from 57% a year ago.
- Zoom Contact Center saw significant growth, reaching 90 customers with over $100,000 in ARR, representing a 246% year-over-year growth.
- Zoom Phone continued to expand upmarket, now having 5 customers with 100,000 or more Zoom Phone seats.
- Operating cash flow grew 41% year-over-year to $588 million, and free cash flow grew 44% year-over-year to $570 million, with margins expanding to 51.5% and 49.9%, respectively.
Negative Points
- Online average monthly churn increased slightly to 3.2% from 3.1% in Q1 of FY '24, attributed to tightening the grace period for unmade payments.
- APAC revenue declined by 2% year-over-year, primarily due to FX headwinds in Japan and Australia.
- Non-GAAP gross margin in Q1 was 79.3%, down from 80.5% in Q1 of last year, mainly due to investments in AI innovation.
- Deferred revenue at the end of the period was $1.35 billion, down approximately 1% from Q1 of last year.
- For Q2, Zoom Video Communications Inc (ZM) expects revenue growth to be only around 1% year-over-year, indicating a potential slowdown.
Q & A Highlights
Q: Congrats on the quarter. Can you give a sense of what you're seeing on the SMB side of the environment and if fiscal Q2 is still expected to be the low point of the year?
A: We still expect Q2 to be the low point from a year-over-year growth perspective, and the net dollar expansion rate will follow similarly. SMB performance was consistent across all segments, with notable wins in both upmarket and SMB.
Q: Can you elaborate on what you mean by the Contact Center being "ready for prime time"?
A: "Prime time" means our Contact Center product has matured significantly, evidenced by winning deals against top competitors and achieving strong growth. Customers trust our brand, appreciate our seamless integration, and value our AI features.
Q: How is the competitive environment today compared to 12 or 24 months ago, especially regarding pricing and competition from Microsoft?
A: Microsoft remains our main competitor due to their bundling strategy. Despite this, our customers prefer Zoom for its superior service and lower total cost of ownership. We have not seen significant price pressure recently, and our churn rates are at historical lows.
Q: Can you provide more color on your wins against the top 4 CCaaS vendors?
A: Our wins are driven by multiple factors, including trust in our brand, product roadmap, feature set, integration, AI capabilities, and pricing. Some customers chose Zoom Contact Center even without being existing Zoom customers, highlighting our strong brand reputation.
Q: How do you see the Zoom Workspace evolving, and what is your strategy for driving adoption?
A: Zoom Workspace aims to provide a comprehensive collaboration platform that integrates seamlessly with other vendors. It appeals to both SMB and enterprise customers by offering a full suite of tools, including AI features, at no additional cost. This strategy is expected to drive both free-to-paid migrations and overall adoption.
Q: Can you update us on the partner program and how you are positioning against competitors like RingCentral?
A: We continue to win against competitors by offering better pricing, total cost of ownership, and ease of deployment. Our partner programs are competitive and designed to benefit both partners and our internal margins. Recent partnerships with Meta and Twilio highlight our strong market position.
Q: Can you discuss the timing and impact of the Meta and Avaya partnerships?
A: The Meta partnership involves transitioning Workplace for Meta customers to Zoom Workvivo over the next 12-18 months. The Avaya partnership allows large enterprise customers to leverage Zoom's features while maintaining their on-premise solutions, providing a hybrid architecture that benefits all parties.
Q: Can you talk about the Enterprise growth outlook and your confidence in raising the full-year guidance?
A: We expect enterprise growth to follow a similar trend, with Q2 being the low point and reacceleration in the back half of the year. Our confidence in raising the full-year guidance is based on strong pipeline visibility, sales organization feedback, and positive trends in churn and discounting practices.
Q: How is the AI Companion driving deal sizes and adoption across the Zoom platform?
A: AI Companion enhances all aspects of the Zoom Workplace platform and Business Services, adding significant value at no additional cost. This drives higher adoption and deal sizes, especially in Business Services where AI features command a premium price.
Q: How are you seeing the overlap and adoption between Zoom Phone and Contact Center?
A: While many Contact Center customers are existing Zoom customers, we also see new customers adopting Contact Center first. This indicates significant opportunities for cross-selling and accelerating growth within our existing installed base.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
