ZM - Earnings call transcript Q3 2021 | Zoom Video Communications, Inc.

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Operator

Hello, everyone, and welcome to Zoom's Third Quarter Fiscal Year 2021 Earnings Release. I’d like to remind everyone that this call is being recorded. At this time, I'm going to hand the call over to Tom McCallum, Head of Investor Relations.

Tom McCallum

Thank you, Matt. Hello everyone, and welcome to Zoom's earnings video webinar for the third quarter of fiscal 2021.

webinar Yuan. recording the and Zoom’s start Eric CEO, will with from a Founder We CFO, Steckelberg Zoom’s our Then Kelly outlook. quarter discuss and the will join to

will session We by a then approximately Q&A will Kelly pm have that end Pacific. at X:XX hosted

release Also, press after today a you'll find along results. able on be the issued and page on a the Investor to today's and from page of slide the release, was financial Relations closed prepared GAAP copy the may highlights earnings financial our Our with non-GAAP market downloaded include with Zoom.com remarks of reconciliation website. a deck to be that, earnings

assumes latest we Zoom our today’s the statements including SEC, on XX-Q. press fiscal differ During are fourth are obligation continued financial any other on and including based expansion, believe size with plans are These and expenditures, detail filings future results, objectives future margins, the for actual could this predictions quarter affect about forward-looking that subject for our market trends, guidance factors financial webinar. and which and strategies, revenue, statements strategy, These on we discuss of performance results events our will growth our or projected in XXXX, COVID-XX our make in and full what forward-looking pandemic rates, our only costs, we and of and and statements the today’s to investments, initiatives, call other position, anticipated earnings that the market and may our materially. to we and make year operations business. statements growth today, may release XXXX forward-looking no risks estimated performance our growth, update impact the and

Eric from Now hear let’s

Eric Yuan

all all personal join well. I hope I I today I are you live a conflict sorry so you arise. that Hello, am but doing can’t had

our to want times. U.S., and the customers, and gratitude of these express the Zoom partners for Thanksgiving in of I are in commitment season we during of support my investors As employees the our ongoing the unprecedented

truly inspire all every You day. motivate and us

few let share business recent you Now with me a highlights.

grew QX. in year-over-year revenue First, XXX%

well XX Second, our year-over-year. XXXX Solutions, that, with Zoom Research the are as has XXX% Quadrant more Meeting Magic we Meeting And Zoom just sixth the as year than the sales for Magic a year Communications in in This delighted and a grew the Leader very inclusion recently, the a Quadrant for Solutions. is of the qualified customers for employees with Magic as Unified UCaaS Service. execution, in Gartner Gartner first strong named Quadrant Leader has in for

are Secretary also Napolitano thrilled of Directors. to very Janet welcome to Board our We

where We for high-quality quarter also users. exciting to provide committed had their the customers to experience wins a products Zoom multiple in

Peloton like Peloton a consolidated would vendor I Peloton Zoom their to First, family. provide Zoom to service feature-rich buying to the to the one to leading platform. employees. is Meetings interactive fitness welcome Zoom Rooms communication QX, and video more both In

deployment. XX,XXX the the deploy will to Phones to currently global honored service in committed Peloton their Zoom employees. engagement technology, internet leader across increasing with global Impressed they A locations members long Zoom the customer to to They application, are with and very grown committed UCaaS services have meetings the Rakuten. across services term billion We the than licenses, Zoom Zoom more Rooms simplicity full where ease facilitating has have a is is deploying all globe. by the the Zoom and in X.X feature-rich Rakuten of X,XXX the a are Rakuten and around commitment world.

many hard well educators provide to The schools all X.X options recognize video you in popular during children’s of Education, The all. enabled And around privacy. needs Ministry crisis. you, leadership Peloton. use Israel’s Education. XXX,XXX to institutions. customers. of Ministry educational Education teachers Thank at Ministry for oversees the to you and Zoom. Thank all you, you all the Also love Ministry told most which meetings about the me for Rakuten. work Thank this We Thank that, for became for because other the and has Zoom are students to their of security education globe, simplicity, of you, also Israel app and its want you Israel thank public heroes. has to I million stability as

trust Your the energize and happiness team. entire Zoom

we community event event. premier virtually October, had let Zoomtopia. event the This over of favorite viewers year, talk Now Zoomtopia, on unique was technology. year’s Zoom about XXX,XXX In attend our me my and customer held

over re-imagining to they to platform event over Presentation] With customer scale all let business and first our but well well, events. had new offer. truly business our as they Zoom you what that, virtual with platform. and Zoom a deliver Zoom. XX successful ranging are employees Zoom, who communities services just the to also customers OnZoom performed communication over customers Zoom of scope during our We of their have sharing across of thank want to third look into that is were XXX are We do several new from to very our and including for truly continue We here companies able too community world new the verticals, can collaboration. all demonstrate over proud Fortune businesses, and the turn at quarter. and to that that Zoom small the their is I’m who over incredible this aspects not I things me summary, delivering and speakers, stories In X,XXX this for to to how [Audio-Visual Kelly, also happiness. OnZoom showcased conducting delivered has of our and user the business team integrated size

Kelly Steckelberg

work by and connect the to many Hello, anywhere, inspired could to join creative all be QX everybody, been have we’re anywhere so customers glad In we ways learn today. our anywhere. you using Zoom us continued

$XXX top revenue our achieving by Let XXX% grew start QX, and outlook a then me FYXX. the $X both full range revenue discuss results online and year-over-year line $XXX due run-rate. increased in well of strong result for our billion in our reviewing marketing QX, million execution million churn. exceeded of Total year direct sales businesses, guidance high and for to to QX our the financial lower-than-expected This end as as

new products, broad-based verticals, growth industry subscriptions XX% customer This increase. accounted for in of was quarter, increase, due which approximately provided to provided customers customers, For and approximately revenue subscriptions XX% accounted for cohorts. to of the the geographies while the the existing year-over-year to across demand was primarily

at customer look QX. a take metrics Let’s the key for

quarter increase. We trailing with with than a number continued ended XXX% than new QX. more XXX% added customers up-market these customers approximately to months of more Year-over-year, we a of generating with revenue. total see adds the $XXX,XXX employees, more a with is QX, in over employees customers exited as have the the employees. we This QX QX, quarter. XX,XXX represented year-over-year. of an expansion up customers of highest XXX,XXX revenue, had during We more than twelve customers with XX XX representing in approximately more In added than of customers XX approximately XX% increase We approximately XXX XXX,XXX in we than X,XXX

individuals XX In growth small of XX% or QX. customers Zoom their and and or from XX% of fewer benefit to our continued up also represented customers with revenue, fewer segment employees, as in businesses in with XX maintained employees QX, adopted significant We licenses. from approximately

support employees growth was than expansion XX of communications dollar more as quarter. customers and grew trust and quarter XXX% be consecutive platform XX over strong continue to domestic Americas with the to for over their choice. net customers Both during had Zoom markets Our the for year-over-year. XXX% international video existing

and We invest QX XX% grew was EMEA on XXX% year-over-year APAC international in combined global the capitalize to consistent to and our increased plan brand Our expansion and revenue. to revenue of awareness at opportunity. with continue

donation as services. continued utilization X.X partially higher to K-XX XXX,XXX turning and margin in expense experiencing also The due fall. pandemic, cloud focus an public to with ended payroll higher I impact and the of in and percentage and is we last over the minutes, gross of net back Non-GAAP rate third quarter-over-quarter. results, margin taxes, increase XX.X%, the It GAAP XX.X% of users, free annualized related compared profitability non-GAAP acquisition-related both the usage are to associated to gross that non-GAAP the which of drove dramatic common growth We approximately increase Now XX.X% XX% quarter run trillion was went to quarter to exclude strong our meeting school in profitability. quarter. to year execution last charitable from stock demand income compensation perspectives. expenses. stock-based due in and the in our on will a is in those QX educational including The institutions

significant that usage We participants the a virtually. the are free percentage students paid returned classroom both education and of as in sector, thrilled teachers millions the and was of to from

million, to be supporting our gross of year-over-year. committed was with how expense pandemic, to QX unclear Consequently, consistent starting towards into to R&D we it in target as of the year margins QX uncertainty the margins the gross expect before is $XX next longevity be impacted With long long-term community. will XX% we margin. approximately the remain the fiscal global improve up

than total top QX R&D strong approximately year was revenue, of As growth. lower last a mainly due expense line the was X%, which to percentage

reflects We $XX expansion due further million. QX security This over marketing to platform. growth. into expense of future XX% million was to an and last drive R&D or our are innovation, prioritize year investments committed increase for primarily to and to drive hiring $XXX Sales

of in we basis to our to in and deliver from marketing to opportunities. year-over-year marketing total XXX% sales marketing of quarters capture QX G&A We expense of plan decrease on efficiencies and continued functions QX scale the size. $XX virtual year growth support production was was adding on expense capacity last to next a and to mainly several line invest programs our continue over top a to from our G&A market approximately up percentage as a share due company to million, As a sales Zoomtopia. and XX%, strong growth the revenue,

last $XXX line, This of from exceeding operating non-GAAP This The upside margin of revenue quarter in a total of the result year. year. undistributed an guidance. more last million to bottom earnings. than translates of non-GAAP FYXX’s our adjusting approximately quarter. decrease This the shares average margin year’s G&A QX compared on from higher $X.XX, is to and and operating for than outstanding the XXX decrease $X.XX expense weighted increase for a XX.X%, and approximately earnings was to the Non-GAAP high last non-GAAP, over $X.XX carried our As guidance QX QX QX end is million XX.X%. of income XX.X% a share third X%, in per result a percentage of of revenue, with QX was

quarter the Turning to the the up deferred balance at year-over-year. end sheet, million, XXX% was $XXX revenue of

our execution strong demand at RPO the XXX% from our $X.X The Looking is billed with billion, consistent year-over-year. the million up both unbilled and approximately RPO contracts, increase totaled in $XXX quarter. and in

recognize from $XXX QX year. million, million in operating increase was The $X.X cash year. the flow collections. XX billings RPO to revenue to $XX cash. securities, in strong cash of $XXX marketable with of in and billion next million $XXX expect last last billion attributable in QX million, to and months or as excluding QX the in equivalents last exceptional up million total flow ended approximately is QX or We up from had over We compared cash approximately restricted year. QX XX% Free We $XX $X.X cash, as XX%

to semi-annual fourth of cash the quarter, center data related our outflows of ESPP as we to purchases have we QX. additional in cadence build to expect net a For see capital the reminder, infrastructure. occur the And from will out expenditures

pleased guidance, to extent Zoom’s concerns non-GAAP and associated our for FYXX for pandemic largely outlook, the Now and the unknown. economic turning revenue raise we of optimistic both profitability. remain we’re please and And although that remain its COVID-XX on impact outlook to note

on based business our higher perspective environment. of outlook the Our current is FYXX for

the million $XXX $XXX of For to the million. expect fourth be quarter, range in we revenue to

expect operating range the to We million non-GAAP to of $XXX $XXX income million. in be

$X.XX to Our XXX outlook million shares $X.XX outstanding. on for is approximately non-GAAP earnings per share based

[ph] year of which expect full be the would in $X.XX to the billion, billion be FYXX, year-over-year growth. $X.XXX] XXX% For range approximately of revenue to $X.XX [Sic, we

million $XXX expect which the operating We to to to year-over-year approximately income in non-GAAP of be would XXX% approximately XXX% million $XXX range growth. be

to questions. the to Our With world collaboration it outstanding. high-quality, is enabling be the outlook earnings secured is a for as frictionless up connection platform. open based non-GAAP XXX communications $X.XX, Zoom $X.XX the with is entire and share on Thank Zoom per driving for you to privileged and closing, changing, million that we In approximately worldwide our shares force team.

video now Matt, yet please this your interactive of If queue meeting. question. for you’ve first not enabled our please up so the do portion

Operator

our Winslow And Fargo. with from Wells first question Phil is

Philip Winslow

thanks XX fabulous that want for this another Really two employees, taking quarter. to on again Hi, than my I want I and quarter. customer in questions to on question, on. congrats fewer focus segment strong here with that obviously focus really

First, I'm these -- small translate from the contracts, sorry, seeing an question can employee trends monthly you and that then more terms And of and plus Zoom about if update some to you're XX% between couple on Phone initiatives segment. XX then talked wonder of is, that. I compare plus the attach businesses, to wonder past annual in of if second contrast you customers over give these you calls, us

Kelly Steckelberg

It's specifically, we're So annual, connect really prospects have monthly to but a the agreement. and about part area. the continue. the value going of continue movement that and It's in of focus seen to to team. see convert to terms Zoom of that the that marketing talk significant about to term customers people in doing we're we're activities And of something we want those our longer to not excited those

the great So across Zoom up seen Phone, business, business that's have in great. this, way And terms segments to from performance enterprise. of we of the then small what's all all consistent about

see in Zoom highest had QX. performance in to to our we continue strong Phone, we date as again fact, once In deal

very about there. excited to So continuing progress see

Philip Winslow

once Kelly. my again, for And few of with Thanks, your been education. daughter’s over the Great. thanks I support Zooms I've thank for past on K-XX school that. weeks. two you

Kelly Steckelberg

you, thank Phil. Great,

Tom McCallum

please, Matt. question Next

Operator

is next Bhavan William from with Blair. Our question Suri

Bhavan Suri

guys. Hey,

as -- was you there. afield? any -- product, global expansion look you've about you something how extension area the Zoom congrats Kelly in my PBX Phone, and to center. ones. gone opportunity, -- built you've explore, might natural understand the linearity there of a you've what visit? Or Love sort then an into might too quickly, got in you echo on quarter, deals at various is and is that a be you call me areas, that and the you area might quick might terms but Let far One, Two the really think got you've that of like of an work,

Kelly Steckelberg

Bhavan, thank you, you. see to great Yeah,

the And call opportunity terms their especially we agree strategy is today. strong seamless move pre-COVID. is contact fulfillment a more out customer as, do we Zoom to to well in sales expect very center our of with with many strategy, of gives choice, back more way. we the provider our great we direct towards terms center the center them. than way you, to we're today have as we center with customers saw QX And more really with we And we're Phone online. credit they're part as around more And seasonality loaded move the we was kind be to going call are the many see QX, are approaching linearity, the it we think it loaded and partnerships in buying integrations works traditional our as So channel, there that them it see our and buying of through it And of Zoom with that of that front that will that a start, that in of XX end through contact into important work to providers continue end than with but in fewer as center contact card. that really traditional via What employees, seasonality, strength that Phone. base then, of especially

Bhavan Suri

you. Got it. Thank

Kelly Steckelberg

you. thank Yeah,

Operator

question next with JPMorgan. The from Sterling is Auty

Sterling Auty

thanks. guys. Yeah, Hi,

better the So to that churn Kelly, specifically employees. in base, back or than And comment the entire to quarter. customers expected Was attributable I to the the less want made was smaller these circle customers? that customer with you to specifically, XX than

Kelly Steckelberg

business. Churn actually segments all better Sterling. the was of across Hi,

the the focused into fewer to the more which customers expanding, team Zoom trying products, is convert to buy integrated than mentioned that to we've So seen, But even marketing upmarket people that makes as earlier, annual XX retentive. very in in also continuing are monthly makes base. I also ecosystem and more more them on them

we saw of So across that the all segments business actually.

Sterling Auty

as under budget and you end get to that XX% the Should year fall of back XX% revenue that perhaps large bigger maybe spend flush of enterprise. by in

Kelly Steckelberg

by would of channel, down base. will dominated XX over more employee sales yes, percentage We the towards direct from we back and think eventually that certainly that which being our sales fewer time drive revenue our of bookings move ultimately than then

Sterling Auty

you. Thank

Operator

is from question Fish Next James Piper Sandler. with

James Fish

to our on about had business on the Zoom what take? in I any additionally, than would percentage over this What the understanding. beta know Hey, be second down if I one, Kelly. quarter? a And $XXX,XXX customers Hope from is monetization think Zoom, few Commission And size of years a But this came But holiday. last still can the the Phone. squeeze there weeks of Zoomtopia? does greater Zoom way great strategy here in developed has you quarter this how few curious focus road? just since is my the revenue a it's

Kelly Steckelberg

hi, see Great Okay, James. to you.

the them. Zoom, In working platform. strategy we our at host, is it not happening ensuring see that saw the terms yes, needs platform on there. meeting and video, but guys on And ready out, some been is certainly it can the is checked that really if only And or beta what is also just but look, are We've still happening making that you classes focused the events really of of the cool around transaction this a point. monetization of I we're the customers more that have you and are go internally, you platform. the things for transition hope announced in seamless haven't on that not and yet on the and

strategy one need next that is. next Yeah, that to We year. what we're platform on to to of your how don't significant And sometime terms second greater question, probably we it, will our than have the expect exactly look, building it really out and to about announce And focusing sorry, itself. revenue in look revenue monetization But contribution a in thinking I of year. from I of then see customers just terms percentage hundred. need second. we're

Let James. me you, it I come have stuff. back my to

me back come Let to you.

James Fish

Just have Tom come or later. to back me

Sounds you. Thank good.

Operator

Marshall right. Meta next question Morgan All The Stanley. from be with will

Meta Marshall

Hi, thanks.

maybe tactical kind Xk? does that So Thanks. a in a space? pretty this global of just room lot noted meaningful given Is there the to kind of a point. of, the Zoomtopia, looking you capability that opportunity? see then you're M&A Do do And being expansion subset. How about that grow you to terms that your kind you to feel Xk, meaningful your at or in attack change expansion discussed out your staff of have customer I cash just of M&A? balance how staff how within within feel you to wanted at room of viewpoint

Kelly Steckelberg

see Hi, Meta, nice you. to

where little huge global in of focus time to, for spin. to seeing tremendous the marketing the continue globe, a bit this terms Xk, is past. for just have into it to those in now So very But really us markets expansion with us share take a able And historically we seed there, would to quickly, we're demand. addressing we're we taken area in of And go the of talked the serve about because in take us. an hire around to and has awareness how certainly, increase with created opportunity brand staff international share, it markets

in we're do to of be international And to excited cash, and M&A, opportunity. very that and watch terms And about quickly balance we that. our additive. So growing opportunities Abe cash that the address for yes, certainly something continuously are then, Smith with team would

either past, talents. those two watching the in would And think for talked about in areas we've the opportunities that extend our our that look opportunity. or could we technology continuously right the are we're I M&A for

Meta Marshall

Thanks.

Tom McCallum

is this Tom. Hi,

on it out coming that last Just is XXXk. wanted the question asked, to from than James point greater the XX%

Kelly Steckelberg

Thank you, Tom.

Operator

Heather from Sachs. Bellini question with Next is Goldman

Heather Bellini

the Hey, collaboration just about Kelly, quick thinking growth -- you in seen right given two there another just tremendous team-based And chat pandemic that driving were you guys on much. to during continue And how there. One, thank that and there if you now, chat functionality ability guess, the as category giving really customers Zoom XXX,XXX dynamics I’ve much competitive a you questions. so of and Phone, specifically, see your follow-up, to well. just has adds. I quarter compete thoughts have playing any big also how out have over -- terms just

Kelly Steckelberg

And ask our don't you have as customers is chat Zoom innovate we have think important explicitly And Zoom Zoom are to around specific itself. Zoom Phone. and to reminder, to we've product come Zoom part of and really continuing our is a product than at for embedded much expansion greater called look that seen then natural it. out and we've tie features seen with Phone as customers of committed Phone when meetings driving that XXXk, I we we certainly a suite, of our category. into in the customers how overall continue So product functionality especially more terms number Phone very a does And it the It's in develop in Chat.

something As continue look we the be to today. would And milestone We could in along done future. the metrics disclose just way. metrics, Phone for we haven't it said about Zoom opportunities we'll yet that at

Heather Bellini

Thank you.

Kelly Steckelberg

Heather. you, Thank

Operator

Mizuho. with Panigrahi Next question is from Siti

Siti Panigrahi

I productivity. taking about for the to wanting ask Kelly. sales Hi, my was Thanks question.

a this You lot sales year. of people added

fiscal dollar talk are in market? QX, productivity fiscal expense in or So you about terms in could in productivity guidance? of up your assuming QX segment up what you million the the And sales market

Kelly Steckelberg

QX, But are when across the from to And QX, rates. business. So when results, strong to look -- come to looking next levels. in that's about care we're And at see they our about that's you normalized we're productivity should FYXX about how but QX, are sales returning you reps thinking how working QX starting forward a about segments high to pre-COVID to year, and on to and QX We're thinking it we're normalized continue still you sales down that more plan to down the productivity of into it. thinking more think all we level. our at when obviously

Siti Panigrahi

you. Great, thank

Kelly Steckelberg

Siti. Thanks,

Operator

with Our next Matt is question from BTIG. VanVliet

Matthew VanVliet

thanks for Hi, sort taking the business? And international little of then difference the of question. any have side looks a little markets of are dig or you the impediments or seeing in to bit infrastructure Can in in bit being difficult were you How are difficulty] invested penetrate, U.S. now are whether a to from you sort either are security that you've that gotten [technical of more like? it's on past elements those the secondarily, more the -- what terms start?

Kelly Steckelberg

Yeah.

of borne basis and fruit. about part terms last certainly taken talk global months. me let security as a a lot of So second first, have all on we've obviously the nine company initiatives that we the have on And over this the of a privacy, question, the in focused

confidence the As local also markets, well we've a the as base there. building as of teams invest continued to with in customer trust and helps putting lot that

the different terms US -- asked? ask minutes So usage, what there. that And how you is did what in then, question, in terms of progress was certainly we've about the is you seen of the

Matthew VanVliet

seeing are any there, are of, more kind you customers, it's individuals there mix customers, larger just our whether No, differences? of [ph]

Kelly Steckelberg

segments Yeah. internationally. Again, strength we've across seen all

quarter remember, think was You international largest an in customer. our it quarter, I last was the customer

make So continuing we're we're there. the really progress about to excited

Matthew VanVliet

you. Thank

Kelly Steckelberg

you, Matt. Thank

Operator

with Power Our next from question Will is Baird.

Will Power

really noted growth, usage Great, guess, sequentially. I strong thanks. you Kelly, Yeah. the

seeing You frame cited kind that paid I've other second of look could at help growth. to be way we're was education of cut kind that And provide verticals. I driven the terms to would versus of of versus guess broader to kind color, growth. XX% Anyway generally question. free you a by around, growth usage in any how much

Kelly Steckelberg

in of free of usage. So said from was fastest percentage strong our the a paid was And in both verticals. education, total elevated in certainly our is as the be remarks, I one large It percentage QX. prepared paid. growth and to second the growing of the but continues Education an again vertical usage

make So progress to about really excited the as well. there we continue

Will Power

record quarter, largest with noted and customers you'd stood were any the number go what was any to verticals in great. there? which among in second geographies out, there XXX,XXX of Kind Okay, to respect my then of particular stood key [ph] point changes that to drivers question, and the Anything improvement cohort, that -- you drove kind that of out market? the

Kelly Steckelberg

No, it all across really well. markets, as diversified all and was I think verticals that segments all

this remote continuing they and expansion as I about extension in to well the the working continued sales as are think it's brand their productive safe as time. that ensuring during organization of more our about companies employees well are the as increased awareness. keeping think as this And

Will Power

you. Thank

Operator

Our Taz is next from Koujalgi with question Guggenheim.

Imtiaz Koujalgi

question my had on average Thanks I the for a question. taking deal sizes.

But the deal number can the which consumers? every average at you last the of quarters, Has at land sizes on that expected. you you're down, gone If has that is few quarter new new changed comment the adding initial all, for sizes? look customers

Kelly Steckelberg

We haven't seen a significant size. in our change deal overall

customers land of our we it. remember, doing you very important And and still is If a see strategy. expand sales part

Phone Rakuten, also are customers we Zoom and Peloton about on example, added then customers starting add see talked of for and that Meetings, We today, the on two -- later. that Zoom with

a really overall the especially significant change at the not start. in deal So size,

Imtiaz Koujalgi

Thank you.

Operator

is question next from Our Walter Pritchard with Citi.

Kelly Steckelberg

Hey, Walter.

Walter Pritchard

There we are.

Okay.

about Sorry that.

commonality notice expected. within that you understand? -- was of churn, or did I'm you You that any help But noted be wondering below coincident churn that you the did to the seemed churn that us causing that could what trends customers or

Kelly Steckelberg

pandemic. No, correlate it's somewhat overall the -- the to churn

level see shutdown, was see of fewer continue see what than of or shelter with even course, or customers XX markets, improved uncertainty place in with employees. variance. volatility, we as the of orders, locations, we But at so segment forecasting. And to terms were originally that in in an we We the most

success. to before actions I having where in talked monthly we're definitely from about As due converting to these part It's contracts. customers that's annual

Walter Pritchard

Thank you.

Kelly Steckelberg

Yeah.

Operator

with question Chrane next from is Our Zane Bernstein.

Zane Chrane

you could time. model named us thanks And follow What terms do I quick host adoption, that make you Kelly, growth? wondering up. overall host have it mean model? you distinction? for why if of I does to business And Hi, strategy, versus explain active on of was then taking the customers the a for pricing what are portion pricing in a

Kelly Steckelberg

Sure, hi, Zane.

approach, is exactly at allows the and it grow them, come and to in to in hosts uses what of and because comfortable going feels customers So that. their named Zoom to terms that then be, we hosts that why versus aren't level a buy have active sure into are

it's for to So very to great a it And adopting video extending going a to way organization what their somebody that's used not communications, expanding it's part assess level and maybe of for be. newly effective that opportunity a them may have usage to it have is or the mechanism before. that of

percentage segments, not It's In depending mix, that buy. those and how on something customers customer to comes terms disclose. that, we a of what really that's from the want

Zane Chrane

in it year? think monetization lag? active we long the far and Or a pricing That's as should are it quarter? a about Is one revenue the model, how how host it general? we the Is about is relationship between month on that How customers Is think should between usage? helpful. as the usage? And that lag versus a

Kelly Steckelberg

Yeah, active we're to our model And typical prevalent our focused so most again, on course, happiness customers. of the -- structure delivering host customers. the market up in is

that access be, The So watermark was all for first for at a would And fraction And where a are look then would of these -- things year, for usage are year. then structure of pay next high be They a of number those that would after hosts. they have their typical some we certain would true the licenses. a the of set that for negotiable. up to year. would deal their

Zane Chrane

QX in those have anniversary? customers monetization maybe? should be as that So next last that or year expanded may interpret should hit year improved QX, of significantly that QX, not QX we still Those see meaning have in the we year, in one that

Kelly Steckelberg

potential customers where in of for a contract. There's through started that they've minimum if absolutely step scenario, the their the Yes. up those at we their yes, in commitments expanded them that there's beginning

Zane Chrane

and congrats Super helpful. Thank very much again. you

Kelly Steckelberg

Thanks Zane.

Operator

question next from Credit Suisse. Zelnick is Brad Our with

Brad Zelnick

Hey, much. How thank so you doing? you Tom. Kelly. guys Great, are Hi,

Kelly Steckelberg

good. I'm are How Brad. Hi, you?

Brad Zelnick

Thank well. I echo my Very congrats. you.

Just growth bit following the all sequentially, an on a seems to out up only a would But Americas why be any geographies, EMEA, question around. just X%, or about earlier question, if I healthy at to call Asia-Pac? weaker little look reason it growth relative --

Kelly Steckelberg

there No, to nothing out. significant call

cycle. was optimistic of beginning And if the at QX, that reverting think situation. QX, you in look by as the impacted unfortunately, the Europe sort and back nothing a to some gotten in to the pandemic just Some some dependent of of regions these the where regions Again, quarter, from half QX. really we've happening seen sort upon are otherwise very of larger across deals of these that's markets of I we've significant And note. of is back of are these growth

little the a variable So bit happening with what's pandemic overall itself. in it's

Brad Zelnick

Great. any that are If for against you share? could And updates a there? measure throw What's strategy, just follow-up the on you, channel that? the how performing of can I in you success

Kelly Steckelberg

Yeah.

part channel. way touched, not around potential the be something That's evaluate continue we be or a is all, the we long especially percentage that that channel to for might of it touched first of in but that to we've the future. at -- one we time, Zoom is revenue come continues disclosed and our channel is it through disclosure in something looking that or through Phone is touched So measure internally, term important ways itself. And internationally internally it of the the strategy, by the that long of the measure publicly

Brad Zelnick

question. Great, so for taking thank the much you

Kelly Steckelberg

you, Thank Brad.

Operator

Up have next we Richard, Needham. unmute? Richard Valera you Hey with can

Richard Valera

Sorry that. about

Sorry. Hi, Kelly.

about Sorry that.

Kelly Steckelberg

Hey, Rich.

Richard Valera

so Yeah, margins. on question operating

quarter, expenses that You looked started And see in you you margin. finally up revenue. expected with decline catching op had like to this

in You’re quarter. guiding for one fourth another the

that know trajectory I you think several of next revenue versus quarters? And and into quarters us decreasing of last of quarter, fiscal talk operating about think kind margins you takes you said how few that expenses expected for about I op Can you ‘XX. the margins.

Kelly Steckelberg

hiring term a we like some focusing is to also X% platforms Phone sales on well, sales I of other prioritizing, continue then, spending the so across some you our marketing, Zoom. target revenue. products be to Zoom of course, our spend, X% capacity, to new And long invest and about on R&D. at as of absolutely margin and XX%. closer adding We as an of around more to in think if functional and focused in promoting on little like look bit we're want that we areas think really to area That of Yeah, of would

investing So those to the that's And we decrease. thinking areas the -- why should term, expect as we're are said margin to see over over continue that you long about in. that

Richard Valera

could quick just a up, it, follow I if phone. on Got

lot to a you that recently lifetime. to where that You've complete expanded most competitively international And footprint. Are think phone it? short you product be? you product I of to need guess to major functionality of you now add to its And features outstanding in the to terms be want over added where are Where you functionality need any or really there

Kelly Steckelberg

deployment we're think from quarter native functionality perspective. well we we Zoom announced XX feature Phone from a competitive we're as markets a that last perspective. Yeah, situated and you said, very in And

great feel the we're about seeing we've around continued and made Phone. excited the really progress that in that So are progress about

Richard Valera

Kelly. Thanks, Great.

Kelly Steckelberg

Yeah, thank you.

Operator

question is Our next DA Davidson. from Jaluria with Rishi

Rishi Jaluria

business. to Kelly, in my the for Nice continued see taking thanks strength much Hey, so questions.

start apologize added is Thanks. which, users -- that things on enabling but Look, touch with down you makes given year, at very a And impact -- makes understand how so of you appreciate all free don't into is next directly side, seats it customers? the Just Zoom a talking the rationale think you're the a the you're up about again. Phone people think the there? especially since break there quarter? this, sense, within along sense doing is associated on just wanted big on customer you to free I cost impact ton to follow of gross travel, have only an you're doing going I how margins And removing those point Thanksgiving, of free actually friendly then if Zoom which we you K-XX. And help things? to Phone already some Can limits this many us like mentioned

Kelly Steckelberg

thanks you Rishi, to hi, too. So

And margin [technical to in about range, In it to the looking terms future, of prepared foreseeable for us you we and gross margin, difficulty] we at that. on really also this outlook excited give do around opportunity the in for aren’t be as the point, At the the a you expect Thanksgiving, holidays to to going they I change part we're and gross hosts, our think back several want like for moving customers, this should -- least term a quarters we we're our don't the terms this very long free starts of be before target. out. of value and then to free, ecosystem. breaking really We out important towards to it our in a eventually continue again break very they're free think

sitting in terms they be I in of expenses. if if sitting marketing weren't we sales them would we gross of as -- margin, it in have our those and think So didn't

companies what might that's to a we've those the spend. just just trade-off compares functional in why and this So chosen to build our you difference other way is the see that go-to-market

Rishi Jaluria

of the did sorry, quarter, you…? seats just in terms I'm you. in Thank Zoom out Phone

Kelly Steckelberg

not yeah, the setting you tell said, deal quarter. as had I will number -- QX disclosing Sorry, don't we to disclose highest, the record date in of seats exactly I largest any and we're deals. the added in other we

that. about excited very So

Rishi Jaluria

Thank Kelly. Wonderful. you,

Operator

next Zukin with is Alex question The RBC. from

Alex Zukin

of respect with how lot how think kind but asking Again, business Tom. the year. to Phone imagine expected, year. forward? -- taking would I the investors question for back given about better they do to given was churn at how specific can you next know and So turn talked you're go people the you a not being than would the high congrats guess level, around attach? you Kelly, for as guidance, commentary and to you rate Zoom does work, that going a would you good school, I about talk to about a And talked this do I not be us you it from Is Phone way. long it we any swung think attach, to you swung for growth time going calibrating be more Thanks by off guiding Kelly Zoom? provide, Zoom for more churn, a get their to is post-pandemic, grow can -- Zoom year? the on is, commentary go by clarity the question, next Hey, all a quarter. turn pull haven't they But next we that

Kelly Steckelberg

things. of Sure, I couple think a

for vaccine accelerated as that time. we're during of trends of hope And certainly stay. working excited are support possible, First features sort a functionality some environment. hybrid to about work this customers back of Zoomtopia, are that started trends think remote a all period all, as have that the that going pre-pandemic we for about I the work to work soon and and And here we remote some while to potentially this to announced in likely enable employees of at example, and thinking

the are some of So some are better are people in remotely which and -- of them these enable meant communications Smart when really like to office. Gallery, employees things are working the

-- towards growth the year. of looking our really our growing that going employees. market, for supporting that flexibility environment their in is provide drivers, of to absolutely to customers fastest are was especially believe an key Phone product the absolutely. and And next we're to like to continue drivers want terms So that, then, It Zoom QX. up key one in

our QX, of are there And to excited think key in install our see So a acquired if we customers base. this driver absolutely selling you year. be base significant into that that QX and to QX, And that for they continue we've about strategy to support meetings expect to next Zoom momentum. of

Alex Zukin

churn a think particularly churn, to the those are pandemic you when for some those the year? different even then -- to for some that seeing you into next a that and is if going globally from vaccine-led confidence But up have then you and breaking do guidance, world, the QX follow again, as assumptions and down about as And on go in it's churn assumption now Kelly rates, stage engagement around you not regions of give a more start what's what cohorts as to -- go right, give today. you're the cohort, -- just on you you trends like going the consumer are great

Kelly Steckelberg

XX predict well than approach mean, are and to believe to a that continue the I the prudent segment elevated of level saw, we in base. is the our the extremely assume with will as so as so what compared taking we taking pre-pandemic elevated fewer market the can't pandemic be customer we that where churn to the customers are an both, we compared up We do market, Yeah, we mass approach.

overall, what So We've relative we haven't slight from our changed. just like seen improvements assumptions were -- the expecting.

value many I to to this annual. well this already a help people we've think and monthly the in assuming that's the be this from is embracing to people due time, to Zoom, making as people about, how work value remote factors that as is talked to for continuing going convert very see and we're see the efforts long

Alex Zukin

Great, so thank you much. safe. Stay

Kelly Steckelberg

you, Thank too. you, Alex. Thank you

Operator

question is next Securities. Rosenblatt from Our with Koontz Ryan

Ryan Koontz

up? with the Thank a Technologies, that Lumen for bit CenturyLink, do you that’s little bit expand expand in Hi, frame potential Can relationships? little the great. that former would question. your DSP you do something envision a the And market, you How Thanks there? you. channel relationship you

Kelly Steckelberg

Yeah.

love for an as continues really us. to is opportunity area this driving for that channel But year. area because growth earlier, certainly all of an So specific don't I driver -- growth channel comment partners and on we relationships, of We a area be focus for an an our be next equally. will mentioned

Ryan Koontz

Helpful, thank you.

Kelly Steckelberg

Yeah.

Operator

is question Roderick from with Stifel. next Tom Our

Tom Roderick

great Hi, Matt. for Thanks, Kelly, Yeah. you. this. Thanks see doing to

about geographically of or we've just product. We've go do year. obviously, to the need the for disperse and us lot as of in and to seen developments be and sort was Phone come before model, time marketing, all structurally we on enhancements So the on get advancements, to sales And investments back at numbers that. to rise in a go Very How as you the just geographies leverage question operating they with the margin you all structurally, see just the back bit then, the that in you little sequentially, of talk more bit that one Zoom next about interesting -- Zoom? Can does R&D? I as R&D a it more help at. with seen especially they're down over into much think throw a we where R&D want

Kelly Steckelberg

Yeah, sure.

consulting in platform. then privacy to decrease the that term, quarter-over-quarter. decrease So naturally, want to And and there geographic mentioned, talent of that will you investment that long locations diversify a perspective, out in from dollar security we to to point that's why we you That's was to And terms terms right. agreement on that level from fact our our due target of the hiring. significant to the QX a pretty continuing XX%-ish. dollar and be QX, that's It increase be. QX, is pool, in your related really exactly build R&D start is see as where of to And

continuing hiring India, that also as us we've We’re they previously multiple really on in U.S., wherever well. And to has great do define working and expand to talked talent the locations really enabled in the about talent are. in focused best and as remotely

development sun well. opportunity XX/X, So us all talent of this only increase the pool for that will diversifies give as and help hiring, our our but not as spending, us it also to follow approach

Tom Roderick

and you mentioned consulting agreement. Yeah, glad I'm the

mean, the that So quickly. follow-up, out overall paying? held really all quite there performance What's to the for end system to option just up a of from corporate I encryption, how relative really, on customers been the that? keeping the quickly an you clients not has and just And feedback got end as

Kelly Steckelberg

just with meeting. so up it available for to participants today is Yeah, and in free XXX all paid their clarify, to customers

it's -- in are we in technical far So review. this generally of state available but

largely has differently positive. go we seen any And feedback would haven't that customers, indicate need from our any taking with it. approach So so that to we impact market that and our to far, been

Tom Roderick

Congratulations. Great. Thank you.

Kelly Steckelberg

Tom. you, Thank you. Thank

Operator

Ittia Our with next Kidron from question Oppenheimer. is

Ittia Kidron

Kelly. Hi, great again, results. Thanks Thanks.

-- churn quarter your into the made about a on churn Federal actually the quarter? you the heading Alex's the assumption question vertical September to clarification or transpired that you're then that question make third fourth depth and into assuming sorry, Are understand it third vertical. change I'm quarter. my the is in the I question taking clarification a Just heading same a that actual quarter vertical, you for in And just is the for the ran regarding churn, you assumption me assumptions sure a as

going look quarter. did it God the within vertical forward. your that So does fell October pipeline how behave How and around

Kelly Steckelberg

Yeah.

actuality assume we about are using consistent into assumptions were we're using as that consistent are QX. -- came how with So we into churn QX, And we're as more thinking continue more that to are of it And actually heading was we necessarily the I modeling to our we assuming not the looking we that was one into terms mentioned government early then QX. that see strongest our of QX, in that in in education growing strongest growing came improvement QX. verticals quarter-over-quarter verticals, vertical

is So the excited to that make. progress team about continuing

Ittia Kidron

That's great. Thanks.

Kelly Steckelberg

Yeah, thank you, Ittia.

Operator

with Shelby is Securities. are FBN next there? from Hey, Shelby, Our you question Seyrafi

Shelby Seyrafi

you Can hear me?

Operator

Yeah, here we go.

Kelly Steckelberg

you There hi, Shelby. are,

Shelby Seyrafi

hi. Yeah,

was Was factor, which usage cloud, So near public free on lowering for QX, the term. increase? you're pressured the the margin, outlook the gross bigger and or the the in

Kelly Steckelberg

impact the about same They comparable a honestly. two. having pretty are the split both It's between

Shelby Seyrafi

guys hit, when a in middle And a obviously, we're for the time first second wave wave. you have And is brutal you, Okay. second one benefited lot. I the last of the

to over over second the some two, past typical the see point month wave? higher than So I'm of the trying months, just because if, six inflection the trend seen or past you've

Kelly Steckelberg

like in I we've point an experienced that we seen QX. wouldn't inflection say

Shelby Seyrafi

slightly wave, No, second the higher, I of kind any know that, but because effect. just positive of

Kelly Steckelberg

It's really early.

second way we what pandemic. you're QX. be in seeing we And gave in be -- that guidance into that that whichever when the think to terms seeing we're wave I of happening, characterizing we're on is that based what falling mean, thus I reflected business of true that would describing some understand currently of the would be environment just the the around around you're

Shelby Seyrafi

Okay, thanks a lot.

Kelly Steckelberg

Yeah.

Operator

All right.

one for more time question. have We

Stephens. last question is Ryan our with So McWilliams from

Ryan MacWilliams

again. Kelly. Hey, once for in squeezing me guys Thanks,

Kelly Steckelberg

Hey, Ryan.

Ryan MacWilliams

recently year, taking changing? and into things Thanks. I'm that's seeing just to footprint return here. maybe an Zoom normal office talk Rooms, Zoom and how about is enabling about haven't One more we next optimistic their But hopefully talked Rooms, and enterprises video are as approach discussions starting you about thing now rationalizing

Kelly Steckelberg

we Yeah, are. actually

this to they Zoom how customers going update And seeing a they're to while thinking go and put to that potentially we're or an empty opportunity employee Rooms. is why how they work that and split I'm back about maintains enable taking and offices will so environment create this So are workforce I have created in in going environment, hybrid really home, the in communication their are inclusive an and going really which call if especially from -- example, an excited is working people democratization that's empower right. That's as to beneficial, Gallery, all Smart about we're remote now experience is been between working for this that's office. if the

on All size of same this screen. the squares our

that workers hybrid provide to to start some their to And eventually continue so remote going we to in Smart back sort Gallery enable to when is approach. a companies of go

Ryan MacWilliams

the on for question. Congrats Thanks the results. taking

Kelly Steckelberg

Ryan. Yeah, you, thank

Operator

That was our last question for today.

Kelly Steckelberg

QX, possible. employees Zoom you, And and Thank to We during joining Matt. all us. Okay. made so all of your for thank you appreciate our again thank support our much that quarter you

Tom McCallum

Thank you, everyone.

Zoom Video Communications (ZM) 30 Nov 202021 Q3 Earnings call transcript