Zoom Communications, Inc.

Hello, everyone, and welcome to Zoom's Q4 FY25 earnings release webinar. I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.

Thank you, Kelsey. Hello, everyone, and welcome to Zoom's earnings video webinar for the fourth quarter and full fiscal year 2025. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.us. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives, including future product and future releases, and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings of 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.

Thank you, Charles. Thank you, everyone, for joining us today. I-525 was an incredible year marked by major advancement in AI, the evolution of Zoom into an AI-first work platform, spanning phone, team chat, events, docs, and more, and a strong momentum in contact center and work available. A key highlight has been the rapid adoption of our AI capabilities. Growth in monthly active users of Zoom AI company accelerated to 68% quarter over quarter, demonstrating the real value AI is providing customers. Zoom AI Company has emerged as a driving force behind our transformation into an AI-focused company, enabling our customers to discover enhanced productivity opportunities. We are always looking ahead, moving forward, and reimagining what's possible to enable frictionless work. And now we look forward to helping our customers fully realize the benefits of agentic AI and discover what's possible with AI agents. As part of AI Companion 2.0, we added advanced agentic capabilities, including memory, reasoning, orchestration, and seamless integration with Microsoft and Google services. In April, we are launching Custom AI Companion Add-On to automate workplace tasks through custom agents. This will personalize AI to fit customer needs, connect with their existing data, and work seamlessly with their third-party tools. We are also enhancing Zoom Workplace for clinicians with an upgraded AI company that will enable clinical note-taking capabilities and specialized medical features for healthcare providers starting in March. Additionally, we are upgrading our business services by introducing more authentic capabilities. Zoom Virtual Agent will soon expand reasoning abilities to handle complex tasks while maintaining conversational context for more natural and helpful outcomes. We are uniquely positioned to succeed in Authentic AI for several reasons. Zoom is a system of engagement for our users with recent information in ongoing conversations. This exceptional context, along with user engagement, allows us to drive greater value for customers. Our federated AI approach lets us combine the best models for each task. We can use specialized small language models where appropriate, while leveraging large models for more complex reasoning, driving both quality and cost efficiency. Zoom is known for making complex technology simple for users. We manage the complexity of AI models while keeping the experience intuitive, powerful, and connected with popular third-party apps. We believe our strategic approach positions us favorably to help bring value to the customer. we are focused on delivering practical value while building toward an ambitious vision of AI that truly amplifies human potential for the customers. Our AI-first work platform continues to gain momentum, joined by our core strengths in meetings and expanding portfolio of integrated solutions such as phone, team chat, events, and Zoom docs, whiteboard, and Zoom rooms. We see this in the results. Zoom Workplace had a big win with Amazon in Q4. Within Zoom Workplace, Zoom Phone continues to see strong traction with both new customers and expansions. We build upon our strengths in retail, healthcare, and education, which delivered seven of our top 10 Zoom Phone deals this quarter. The recent Mitel partnership opens up access to Mitel's 70 million global end users and demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models and choice. Zoom team chat continues to serve as a collaboration hub across our platform. The recent redesign of the sidebar has enhanced navigation and productivity, while our new workflow automation capabilities are driving deeper platform engagement. Beyond Zoom team chat, we are seeing encouraging adoption across our board portfolio. Zoom docs usage more than doubled quarter over quarter, together with Weibo, which was a customer's choice recipient in the 2024 Gartner Peer Insights Voice of the Customer report for virtual collaboration applications. Zoom team chat and Zoom docs are critical components of our AI-focused platform vision that expand our system of engagement and allow customers to do more with AI. Both Contact Center and Workvivo delivered exceptional results this quarter. In Contact Center, we achieved our largest ARR deal in history with a Fortune 100 US tech company for over 15,000 agents, demonstrating our ability to win and deliver for the most demanding enterprise customers. The number of contact center customers with over $100,000 in ARR grew over 100% year-over-year, with wins both displacing on-crime and leading CCaaS vendors. Our AI-first approach is resonating strongly. The majority of our deals are now in the higher-tier elite or premium packages, validating the power and customer appeal of our comprehensive AI and workforce engagement capabilities. Workvivo also had a record quarter driven by strength across all regions. The total number of Workvivo customers grew 89% year over year, accelerating from 79% in Q3. We've signed three deals over $1 million in ARR, each with major global brands. Our strategic partnership as a preferred migration partner for Meta Workplace has been a strong contributor to this momentum. These solutions are critical components of our AI-first work platform vision. Contact Center extends our platform from employee engagement to customer engagement, while WorkVivo broadens our employee collaboration to internal engagement and culture. Together, they exemplify our strategy of thoughtful expansion into high-growth areas where we can deliver differentiated value through our platform approach, AI leadership, and rapid innovation for the customer. As we look ahead to FY26, we are focused on our key strategic priorities, expanding our AI capabilities to drive customer value, rapidly innovating within Zoom Workplace, and building upon momentum in new products such as Contact Center and WorkVivo. Despite ongoing macro challenges and uncertainties, we are encouraged that our value proposition and total cost of ownership are gaining traction in the market. Our innovation engine is firing on all cylinders, our platform strategy is working, and we have significant opportunities and growth vectors to excel upon. Now, on top of the record-setting Conexant win I just highlighted, let me share some more amazing wins in Q4. We are excited to offer Zoom to Amazon employees and further strengthen our long-standing relationship with AWS as our preferred cloud provider. This builds on the success we've achieved helping customers easily procure and deploy Zoom through AWS marketplace. Let me also thank Delta Airlines, who this year is the first US airline to celebrate its centennial for choosing WorkVivo as their employee communications and engagement platform. Upon the sunsetting of Metro Workplace, Delta strategically chose to migrate to WorkVivo. As part of a multi-year deal, WorkVivo will serve Delta's entire global workforce, reinforcing their strong company culture with omni-channel reach and key features like live streaming, employee recognition, and comprehensive engagement analytics. Let me also thank Cloud Software Group, a global mission-critical enterprise software leader, as one of our newest CX clients to the Zoom family. Recognizing the simplicity and ease of use of our unified platform, they opted for the Zoom Connect Center and Zoom Virtual Agent to modernize the way they communicate and collaborate with their customers. These incredible wins across workplace and business services validated our strategy of delivering a full platform of modern, integrated, AI-powered solutions to drive meaningful business value and outcomes for customers. Now, let me hand over to Michelle to take us through the financial results. Thank you.

Thank you, Eric, and hello, everyone. I'm excited to be with you again and share that we beat our top line and profitability guidance. In Q4, total revenue grew approximately 3% year over year to $1.184 billion, $4 million above the high end of our guidance. Total revenue adjusted for constant currency grew approximately 4% to $1.188 billion, $9 million above the high end of our constant currency guidance range. Our enterprise revenue grew approximately 6% year-over-year and now makes up 60% of our total revenue, up two points year-over-year. We are continuing to see signs of stability in our online business. In Q4, average monthly churn was 2.8%, a 20 basis point improvement year-over-year, and our lowest ever churn rate in a fourth quarter. In our enterprise business, we saw 7% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 31% of our total revenue, up one point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q4 remained flat year over year at 98%. The total number of enterprise customers at the end of Q4 was approximately 192,600. As we said previously, enterprise customer count is more reflective of our go-to-market motion rather than a direct measure of our enterprise business performance. We will continue to do migrations between our two go-to-market motions in order to best serve our customers as we did last year. And as such, going forward into the next fiscal year, we will no longer include this metric in our prepared remarks or SEC filings. To provide ongoing transparency, we will include it in the earnings deck appendix throughout FY26. We still believe that enterprise revenue growth and KPIs such as net dollar expansion are better reflections of the future business and expect future migrations to have minimal impact on these metrics. Now back to the financial results. Pivoting to our growth internationally, our America's revenue grew 4% year over year. EMEA grew 2% and APAC grew 3%. On a constant currency basis, EMEA grew 2%, and APAC grew 5% year-over-year. Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, and all associated tax effects. Non-GAAP gross margin in Q4 was 78.8%, slightly lower than Q4 of last year, primarily due to strategic investments in AI partially offset by efficiency gains. The results in Q4 were in line with our prior commentary, and we continue to reiterate our goal of reaching 80% gross margin over the long term. Non-GAAP income from operations grew 5% year-over-year to $468 million, exceeding the high end of our guidance by $20 million. Non-GAAP operating margin for Q4 improved to 39.5%, up 81 basis points from Q4 of last year, even amongst continued investment in AI, our platform, and our emerging growth businesses. Non-GAAP diluted net income per share in Q4 was $1.41 on approximately 317 million non-GAAP diluted weighted average shares outstanding. This result was 11 cents above the high end of our guidance and one cent lower than Q4 of last year, primarily due to higher income tax and unrealized foreign exchange losses. Turning to the balance sheet, deferred revenue at the end of the period grew 7% year-over-year to $1.35 billion, outperforming the 5% to 6% we estimated last quarter. The growth was driven by continued refinement of discounting practices as well as ongoing business growth. For Q1, we expect deferred revenue to be up 4% to 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 6% year-over-year to approximately $3.8 billion. We expect to recognize 59% of total RPO as revenue over the next 12 months. That is up from 58% in Q4 of last year. Operating cash flow in the quarter increased 21% year-over-year to $425 million. Free cash flow grew 25% year-over-year to $416 million. Operating cash flow and free cash flow margins in the quarter expanded to 35.9% and 35.2% respectively. We ended the quarter with approximately $7.8 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. Under our $2.7 billion share buyback authorization, in Q4, we purchased 4.3 million shares for $355 million, increasing our repurchases quarter over quarter by $53 million and contributing to the reduction of common share outstanding in Q4. Pivoting from Q4, I wanted to share a few of our full year FY25 highlights. Total revenue grew 3% and total enterprise revenue grew 5% year-over-year, both of which accelerated in the second half. Our free cash flow grew 23% year-over-year to $1.8 billion. We also achieved a non-GAAP operating margin of 39.4%, a 20 basis improvement from FY24. And finally, we made significant progress on stock-based compensation, down to 20% of revenue, representing a three-point reduction year over year, and slightly ahead of the pace of reduction that we discussed at Zoom Tokyo. And we repurchased 15.9 million shares for $1.1 billion, contributing to the reduction of common stock outstanding than FY25. Now turning to guidance. In Q1, we expect revenue to be in the range of $1.162 to $1.167 billion. This represents approximately 2% year-over-year growth at the midpoint or 2.6% year-over-year growth on a constant currency basis. As a reminder, Q1 of FY26 has one fewer day than the prior year. We expect non-GAAP operating income to be in the range of $440 to $445 million, representing an operating margin of 38% at the midpoint. our outlook for non-GAAP earnings per share is $1.29 to $1.31, based on approximately 316 million shares outstanding. And as a reminder, future share repurchases are not reflected in the share count and EPS guidance. For the full year of FY26, we expect revenue to be in the range of $4.785 to $4.795 billion, which represents approximately 2.7% year-over-year growth at the midpoint or 3.1% year-over-year growth on a constant currency basis. We expect our non-GAAP operating income to be in the range of $1.85 to $1.86 billion, representing an operating margin of approximately 39% at the midpoint. Our outlook for non-GAAP earnings per share for FY26 is $5.34 to $5.37, based on approximately 318 million shares outstanding. For FY26, we expect free cash flow to be in the range of $1.68 to $1.72 billion. We're proud of our progress in F425, and we're excited about the differentiated, agentic AI vision and the value that it provides to our customers. We're going to continue to invest thoughtfully in our priorities that we've outlined while maintaining our focus on profitability and cash flow generation. We're excited and incredibly grateful for the trust and support of the entire Zoom team, our customers, and our investors. Kelsey, please cue the first question.

Thank you so much, Michelle. And as Michelle mentioned, we will now move into taking your questions. When I call your name, please turn on your video and unmute. And as a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question is going to come from Cash Rangan with Goldman Sachs. Cash, would you go ahead? Thank you so much.

Hi, thank you so much. Congrats on finishing up the fiscal year. Eric, a question for you. You've certainly made a lot of pivotal advances positioning the company to be very AI-first. It shows up in the quarter-to-quarter usage of Zoom Companion, the Amazon deal that you won. Congratulations. As you look ahead, do you think the AI capabilities could When do you think the AI capabilities could become a tailwind for your business in that it starts to drive, accelerate maybe the underlying platform and the AI features are additive to the revenue growth rate? We're still stable, but could this set the stage up for better than stable growth? Thank you so much.

Cash, that's a great question. That's, you know, to double down on AI investment, it's always our top priority, right, for a while, right? I think it's happening already, meaning you look at our, you know, low-end SMB customer online buyers, you know, AI company is part of that at no additional cost. you know, made, you know, made our service very sticky. And also the customers give very basic example, like a meeting summary, right? As it works so well, more and more customers, you know, follow the value. Actually, you know, for sure, they are going to enjoy using our service more, right? That's for Rowan. For high-end, you know, for sure, you know, and we understand that today's AI companion and additional costs, we cannot monetize. However, in April, we are going to announce the customized AI companion. You know, for enterprise customers, we can monetize. But the most important thing is for business services. Take a contact center, for example. Why we're winning? Because a lot of AI features, like AI expert assist, AI, a lot of features built into our quality management and so on and so forth. For all those business services, this is another great way for us to monetize AI. For workplace, for enterprise customer air company, low-end and also really make our service sticky and improve the value. Essentially, customers realize we're at more and more services, more and more value. Guess what? They are going to, you know, still resume, plus, you know, usage also will be higher. That's our strategy to leverage AI.

Thank you so much.

Thank you, Kev.

We'll move on to Samad Samana with Jefferies.

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

Yeah, so I can address the first part of your AI question. So you look at it from a customer or even partner perspective, right? So almost the vendor, almost every vendor, right? If they try to pitch their AI story, a customer is smart. Our customer will understand what's the value, right? the AI added, you know, to their business, right? So they would like to take, you know, kind of to test every services, you know, especially look at the value and the cost, right? And look at our AI company, you know, all those, you know, AI company core features today at a new additional cost, right? And the customer really like it because the quality is getting better and better every quarter and very useful, right? Not like some other competitors, right? You talk about their AI strategy and customers realize that, wow, it's very expensive. And the total cost of ownership is not getting better because the value is not great, but also it's not free. And you always try to increase price. You know, that's the reason why, you know, for us to leverage our AI technology to build this, you know, the trust relationship with customer. And I think that we are going to win in the long run because you don't want to tell a customer, hey, we have an AI feature now. You need to pay more, right? You need to do this, do that. That's not right. So that's the reason why we share our AI strategy, roadmap, features, pricing, everything with our customers, you know, transparently. you know, reflected by the AI company usage, you know, we're winning more and more customer trust. You know, Zoom has a very good AI, you know, functionalities, and also the trust of Zoom, they are now going to, you know, charge a customer, you know, crazy price, right? I think that's where for us to be the long-term, you know, the winning, you know.

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

Great. Thank you both so much.

Ryan McWilliams with Barclays has the next question.

Hey guys, good to see you. Greetings from Switzerland. This is a new one for me out here asking a question on our install. Michelle, two for you, lots of growth opportunities for Zoom. How would you rank the top three drivers for Zoom's net new revenue in fiscal 2026 between like contact center, AI, Zoom phone, et cetera? And then as you built up the full year guide, how should we think about what it implies from contributions from the enterprise customer segment and the online grocery?

Perfect. So let me maybe answer the first one and then I'll round back to the other one, Ryan, and hope you're well in Switzerland. But I would say, you know, when you look at the full year guide that we gave of 2.7, when you factor sort of FX and Leap year gets much more in 3.3 range. So just as context within that, I would say that we've assumed that online will be flat to slightly down and that enterprise will really be the dominant growth driver. So in terms of how to think about the top three. I think I would answer it like this. Look, certainly, let me go to the core, Ryan, where like our core business. And when I talk about core, it'll sort of be inclusive of a phone. You know, we are pleased with what we're seeing in terms of record churn. And also, I would say we're seeing the same in our enterprise business. So where downsells had sort of peaked in the start of 25, we're now seeing sequential improvement every single quarter, which is great. And so we certainly have an expectation. And those are big dollars. Then I would go to sort of our adjacent fast-growing TAM, like Contact Center and WorkVivo, and both are certainly important to us, where we'll be working to continue to grow kind of customer and the successes that we've seen both upmarket and extend those down through channel. And in particular, you sort of asked an AI question, so let me leave that one in, which is, Just a connection, again, that our contact center revenue is really being driven by that elite SKU, which is our top 140 SKU, which includes not only inbound to outbound, but AI as well.

Excellent. Appreciate the color. Thanks, guys.

We'll move on to meet a Marshall with Morgan Stanley.

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

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

Yeah, so yeah, maybe to add on what Michelle said, you know, in terms of doubling down on our channel, the business, and look at our contact center in Q, you know, top 10 deals and a contact center, you know, six, you know, six out of the top, those 10 deals are driven by the channel partners. So, and we are going to, you know, and, you know, kind of for investing more, right, to make sure that the channel, you know, partner can contribute more to our contact center growth, so.

Great, congrats on that Lars.

Thank you.

And the next question comes from Alex Zukin with Wolf Research.

Guys, congrats on a great quarter. Maybe just two-parter, right? So first, to the extent, Eric, that you can talk about the demand environment post-election, the difference between the two segments and online and enterprise, and maybe talk about what you're seeing in SMB, what you're seeing, you know, I've gotten questions about federal exposure and all the Doge headlines. So just talk about, you mentioned in the script that it's still choppy, it's still uncertain. So maybe put a finer point on that. And then, Eric, what kind of got you over the line with Amazon in terms of winning that deal? And you're now at a point where, you know, kind of two of the Mag7 are deeply partnered and entrenched with Zoom, where to some extent they were effectively competing with one or two of your products beforehand. So what is kind of happening and how do you kind of see the opportunity to turn those into almost also distribution channels? You mentioned the Delta example with Workvivo. Amazon, I imagine, has a number of Chime customers that now maybe are opportunities.

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

So look, I would say I would characterize what we're seeing in the macro environment as mixed but stable. To the positive, on the enterprise side, we're seeing a lot of upmarket momentum, and you can see it in our results. I mentioned earlier, so I won't repeat it again, but sequential improvement in the downsells on the enterprise side. Also on the online, we're seeing record low churn rates in both Q3 and Q4. So those you can look at and stay positive, but certainly you open the headlines and you see elements of layoffs and ups. ambitious or, you know, sort of volatile times, if you will, in the news. And so I would say that's sort of behind our sentiment that things are still mixed.

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

Thanks, Alex. And Evercore's Peter Levine has the next question.

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

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

Yeah, maybe I'll let you talk about the use cases, but Peter, in regards to your question about what are sort of the assumptions or what's the targeting in our head with the $12 custom AI companion SKU, I would say, you know, starting with enterprise customers, obviously the easiest place to sort of hunt on that is up our own customer base and talk about that, but certainly not just limited to that. But we'll be probably giving a lot more, I would say, at Enterprise Connect, which you can see on the thing there. But I would say, you know, we've assumed some degree of monetization in FY26. I think you'll see more of it in 27. And we think that the $12 price point is going to be a really compelling TCO story for our customers, really differentiated from what others in the market are pricing out.

Yeah. So regarding the customer air company use cases, you know, high level is we give a customer flexibility to customize their needs. You know, I give a few examples, like one feature, like we have a Zoom service called a video clip. You know, we are going to support the standard template, right? How to support every customer. They have a customized template. for each of the users. This is part of a, you know, a company studio, right? And also all kinds of third party integration, right? And they like, you know, they prefer, right? You know, some of those kind of third party application integration with their data, with their knowledge, with their, you know, the dictionary, you know, a lot of things, right? Each company is different. They would like to customize. So we can leverage our company studio to work together with the customer to support their needs. And also at the same time, we can monetize. Thank you very much. Thank you, Peter.

We'll now hear from Mark Murphy with JP Morgan.

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

Yeah, so Mark, yeah, I can address your first question regarding the deep seek. And I think a few weeks ago, right, I did publish a LinkedIn post, you know, about my thought about the deep seek after, you know, the earning call, I will forward it for you that LinkedIn post. But high level, I think, you know, given this is open source, I really like it because the open source, right, you look at it from vendors like us. you know, kind of we build obligation layer and the AI technology. We also build our own large language model. A lot of techniques, right? You know, a lot of optimization, so on and so forth. We all can learn from, right? This is good for the obligation and the vendors like us. And I look at, you know, for a large language model. So I also like to take a lot more, for example, right? Also kind of look at the deep seek. And also, by the way, look at it even for hardware vendors, you know, like NVIDIA, Broadcom, AMD, also good for them as well. The reason why, you know, there's a lot of demand for GPUs, right? And normally, you know, they serve those very large cloud vendors first, right? Because they bought a lot. You know, like even for Zoom, right? Probably we are not on the top priority, maybe the second priority, right? And a lot of other companies behind us You know, with, you know, large cloud vendors, they may not buy, you know, win more. However, the huge demand, we want to buy more. And after that, a lot of other companies also want to buy more. Overall, I think it's good for everyone. And also, you know, the cost, you know, for like from hardware side, large language model, application, reference, you know, everything. I look at that, we will drive the cost down. That's why overall, that's good for industry. because it's open source, right? And that's my take on that.

And then, Mark, maybe your question about kind of how to think about the margins. We're not going to obviously give in any guidance or probably going forward any AI-specific margins, but I would say that we look at those very closely, and our margins for every active user are coming down in line with what our expectations would be, if not more. What I would say maybe more broadly to maybe address where I think you may be going with the question is that we're very pleased with our margin finish in FY25. And while we don't guide to the margin in 26, I would say we feel good that our increased usage in AI and our spend there is going to be offset by efficiencies such that we should be able to see in FY26, some acceleration of margin in line with sort of not up to the 80, but, you know, holding very true, I guess, Mark, to the principles that we set on our long-term margins.

And Michelle, thank you for that. But just to clarify, I think you said margins for active users are coming down. Did you mean the cost profile is coming down? Yeah, cost. Thank you so much.

Thank you, Mark.

Our next question will come from Michael Turn with Wells Fargo.

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

Perfect. So let me start with what I think is more tactical, but Michael, by all means, correct me if I'm misunderstanding your question. On the free cash flow, you know, for 25, we're certainly seeing, you know, quite the strong growth. There's obviously timing elements of that, some pull forward relative to 26%. Our expectation on 26 is that you'd still continue to see that OI growth, but you're impacted by timing differences as well as different interest conditions and tax conditions. So that's kind of how I would have investors think about free cash flows. In terms of your operating income and kind of how we think about it long term, I actually think you teed it up beautifully, which is Look, we are going to be first and foremost about revenue growth, but we are also going to balance that with profitability. And our long-term guide, we gave sort of what I would call is a wide margin of possibility of things that we would do. And really what Eric and I have been centered on is giving clear and clean prioritized business priorities to investors so you know where we're investing in. And then really, look, we are going to invest when we see growth, but we're also going to be just pushing an ongoing frame of efficiency. And I think you really see that in our 26 guide. And I think, you know, you should expect to see similar.

Thanks very much.

Moving on to Arjun Bhatia with William Blair.

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

Yeah, so regarding the agentic capabilities, today, look at a Zoom AI company, it's already agentic, right? So essentially, for $1,000 to $2,000, we already embrace agentic framework, right? So we have a workplace agent and also have a business services agent. I mean, we're part of a contact center. We also can support a third-party agent as well. And meaning, this is kind of... More like a technology, natural evolution, right? From Gen-AI to agentic framework, right? Every company doing that, we are doing that as well. Because, you know, this is very important. And the new technology, new framework, and a lot of agents, right? It was built by us and a lot of the Zoom AI company studio. Customers also can build agent and develop. I do not think we need to have a special SQ, right? Because this is part of our, you know, the Zoom AI, you know, a company studio, right? And to offer customers and agentic capabilities.

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

Okay, perfect. Thank you. Thank you.

James Fish with Piper Sandler has the next question.

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

Yeah, I can start with that. Let's see, your first question was sort of around how to think about margins and business models and why we don't see compression. And what I would say is that, you know, what we expect to see is similar to what you saw in FY25, which is We're seeing obvious increase in costs from AI and that we have an ongoing methodical kind of efficiency list to offset. And we certainly expect that broadly to continue into FY26. So I think we feel good about our ability to kind of moderate that. Maybe other things I would talk about, Eric mentioned in his prepared remarks, but we really think the federated approach that we have to AI is an important element to being able to both give better quality of results, but also, you know, improved cost, meaning you know, being able to match the right model at the right cost to the right action that needs to be done for customer value. So that's really how we're thinking about, you know, managing things broadly. There's other things we do more holistically where we can offset stuff that's maybe not in AI in our margins, things like colos, et cetera, that we've talked about previously. And then your question around free cash flow, I sort of understood of why don't we see more of an increase similar in line with what we saw in 25? So let me answer that. First of all, in F-25, we had interest rates that were growing off of a large base, as well as we saw billions in positive operating income. As we go into 26, we're going to see different interest rate conditions, different tax conditions, as I mentioned, but still that same growth from operating income. So really, it's sort of the timing thing. The other thing that I might mention that we've not talked as explicitly about is Our broad guide, be it in revenue or operating income, continues to use a consistent methodology to what Zoom's used before, kind of that prudent consistent where we aspire to beat.

Thanks.

Thanks, James. We'll move on to Tom Blakey with Cantor Fitzgerald.

Great. Thank you for taking my questions. Maybe just seems like everybody else is doing too. I'll try to sneak to in Eric and Michelle. On the CCAS side, great successes here. I was wondering if you could talk a little bit more about that longer term plan to get CCAS up to 10% of revenue in line with the Zoom phone timeline. Maybe that's being pulled in a little bit here with the successes in the higher tiers, Eric. And then maybe on WorkVivo, Again, just solid numbers, great traction last year. Wondering with the meta workplace migration opportunity, if you wanted to just maybe double click on that. Maybe this is for Michelle. If you're maybe seeing there's still enough runway there that continue, that type of growth accelerant can continue in fiscal 26 and not become more of a headwind. That'd be helpful. Thank you so much.

Yeah, so Tom, regarding the contact center contribution to our top line, you know, growth for sure. There's always our aspiration, right? To contribute, to leverage the contact center, contribute more. I think the timing-wise is perfect, right? It's a lot of enterprise customers still deploy on-prem solution, right? You take this largest ARR, you know, win, right? So, you know, that, you know, Fortune 100 US tech companies, you know, they were using the on-prem solutions, right? And when they decided, you know, you know, to migrate to cloud based solution, for sure, they wanted to look at all the cloud vendors, they want to make sure the native to build a cloud of, you know, the solution is also the all the innovations, you know, AI is part of that. That's the reason why we are much better positioned, right? And also, you know, the product front, we have high confidence. On the go-to-market side, we also need to double down on the channel. A lot of things are doing very well, also reflected by, you know, more than 50% of top 10, you know, deals in Q4, also driven by the channel partners. As long as you focus on the innovation with AI, you know, all the features, right, you know, drive the velocity. And at the same time, you know, and listening to customers and double down go-to-market side, I think, you know, we are going to be in a much better position. And this is a growing, and the AI-driven and the content center market.

Yeah, and thanks. Maybe I'll hit your work, Vivo, and then some broad comments about the two products together. From a work, Vivo, like you said, we feel great. Record bookings, excuse me. 89% growth in customers, so all very durable things. Certainly meta, and we called that out in our prepared remarks, is driving a lot of that. But I'll remind you that we had non-meta growth before, and so we feel good about our ability to drive both, frankly. And then, you know, we're not gonna give guidance. You have our overall revenue guidance. You have kind of the color and context on the enterprise versus online split. But I would say that the elements, the kind of underlying durable elements of what drove 25, we expect to be present in 26.

Thank you very much.

Bank of America's Michael Funk has the next question.

Great, thank you. Thank you, Eric. Thank you, Michelle. You've left me proud of what you've achieved the last two years. I wanted to level set. the discussion around revenue growth, though, because the previous narrative was a march towards mid-single-digit revenue growth. You're still guiding below that for fiscal 26. So I wanted to better understand if the strategy maybe shifted to customer stickiness, meaning bundling and discounting, or if the other factors are at play here, maybe online churns may look higher, maybe macro has been more difficult, maybe you're waiting to have more monetizable AI solutions. But I want to better understand the kind of level set that revenue growth forecast for longer term, because previously it was discussed as a mid-single-digit target.

I'll maybe take that one, Merrick, and then feel free to jump in. But I would say I don't think there's been a change relative to that. Meaning if you go to the core of our business, like our guide and our performance reflect the same thing, which is we are seeing sequential improvements in downsell and enterprise. We're seeing record level churn, low churn, excuse me, in online performance. And then the elements that will drive 26 are the same move-up market, broadened channel from a go-to-market perspective, from a product perspective, growth in phone, growth in WorkVivo, growth in contact center. So I really don't see it as a shift in approach. And, you know, from a macro perspective, we've also assumed like macro conditions.

Okay. Okay. It may be a quick math question, Michelle. Maybe it's a rounding thing. But if you look at the revenue from over 100,000K customers year over year, simply taking the percentage of revenue and number of customers, it looks to be declining slightly. Is there a change or a shift in those over 100K customers? Is it a different product set that you're selling into them? Or is my basic math incorrect?

Our over 100,000 trillion 12-month customers grew 7%. Am I misunderstanding your question?

Yeah, but if I simply take the percentage of revenue from those customers and then divide it by the number of customers... I get to a lower amount of revenue per customer than a year ago. Maybe we can take it offline if that's a better venue.

I'm happy to take it in the next file if you're there.

Okay. Thank you very much.

Big picture, so people have the sentiment, you know, we feel good about our traction in that market.

Great. Thank you, Michelle. Thank you, Eric.

Moving on to Rishi Jaluria with RBC Capital Markets.

Oh, wonderful. Thanks so much for taking my question. I'll keep it to one, just given timing. Eric, I appreciate that you're talking about Zoom chat and highlighting that in your prepared remarks. Can you talk a little bit about where you're getting some of the traction and what's the impact that you're seeing in your customer base, whether it's, you know, better churn, whether it's better expansion rates, adoption of other adjacent products, any color there would be helpful. Thank you.

Thank you, Rich. You talk about our Zoom team chat, right? So... Yeah. So you look at, maybe use one of the deals I want to share with you, like the Q4, right? We won a big deal in the manufacturer, you know, the market, right? You know, like 30,000 seats, Zoom workplace seats. And also the 12,000 Zoom team chat users, right? Because the reason why, you know, customer, you know, when we talk to the customers, entire Zoom workplace suite, and they realized Zoom team chat is part of that. It's at no additional cost. I look at the functionality and, you know, a lot of features and innovations. Wow, why not? You know, this one has standardized, you know, Zoom, right? Essentially, you know, when customers realize the power of Zoom team chat, They are all very interested, right? You know, that's the reason why you look at some startup companies, right? They also look at, ah, they, you know, given that they do not have a lot of, you know, the capital, right? And when they offered to deploy Zoom, they also found, you know, our Zoom team chat. So again, from product perspective, it's a pretty cool product. service, because we already have that for a long time. Just from a marketing perspective, a lot of customers did not know that, right? So that's the reason why we need to figure out a way to fix that problem. Again, this is the power of the entire Zoom workplace suite. You know, TeamChatter is part of that. Many customers deployed the meetings and the phone, they did not realize that TeamChatter is already part of that. Why not use that, right? So, you know, and the shame on us, you know, we need to, you know, fix that in a marketing problem or maybe an adoption, you know, problem, right? Again, this is on our radar screen to address that.

Wonderful. Thank you.

Maybe I'd also highlight, Rishi, just a current example that just stuck with me, which is we saw a recent customer in a compete versus Microsoft to 12,000 users, you know, and they commented that the chat and the kind of inclusive value was integral to their decision. So we are, well, it's still early days and we're working on it. We're excited by what we see.

All right. Very helpful. Thanks, Eric. Thanks, Michelle. Thank you. By the way, Rishi, you also can use Zoom team chat as well. We can connect over Zoom team chat. So, yeah.

Let's do it.

I appreciate that. Yeah. Very easy to add an excellent contact. Yeah. Thank you, Rishi. Thanks.

Yeah. We have time for one additional question, which will come from C.T. Panagrahi with Mizuho. C.T., go ahead.

Hi. Thanks for squeezing me in. I'll go back to the contact center. Eric, if you wear your general manager hat for contact center, and if you look at phone, after two, three years, you saw that inflection point. Now contact center has been now almost like two, three years since we launched. Is this the year for contact center, or do you think there's some kind of, it's a demand side, customers still trying to pause and looking at the AI strategy, there's some kind of delay there, And also we see like Avaya now it's not going to support the AXP customer, less than 206 customers. So how do you see contact center opportunity in terms of inflection? When do you think it'll be like 206?

Yeah, first of all, we do see the momentum, right? And in Q3, you know, in terms of a number of sales largest deal, Q4 in terms of ARR for largest deal, you know, more and more customers realize, wow, Zoom content center, you know, that works so well. and look at all the innovations of scalability and integration with other core services, I think also plus the AI. I think we just need to focus on execution, market opportunities there. You know, we look at our top deals, top 10 deals, right? I think if I recall correctly, six or seven to replace the existing in a cloud of vendors, right? And then the key is really because given... Two years ago, we announced that. So given this short period of time, customers did not realize we have that. Again, this is a marketing problem. We've got to fix that. But we have high confidence on the product side. And I think we do see the momentum now. Hopefully this year, we can make even more progress compared to the Zoom phone growth trajectory. We want to beat that. So that's always our aspiration.

And then, C.D., just for your notes, it was 7 of 10, 7 coming from cloud, 3 coming from on-prem, and the 6 of 10 is the momentum in our channel. Yep.

Thanks, C.D. And again, everyone, that does conclude our Q&A session for today. Eric, Michelle, any concluding closing remarks?

Yeah, thank you all for your time. I really appreciate it. Thank you.

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

Thank you.