Zoom Communications, Inc.

Hello, and welcome to Zoom's Q2 FY26 earnings release webinar. As a reminder, today's webinar is being recorded. I will now hand things over to Charles Avislage, head of investor relations. Charles, over to you.

Thank you, Megan. Hello, everyone, and welcome to Zoom's earnings video webinar for the second quarter of fiscal year 2026. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.com. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings relief, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitution for financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts on a macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives, including future product and future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today's webinar. And with that, let me turn the discussion over to Eric, who, like last quarter, is giving his prepared remarks via Zoom custom avatar.

Eric? Thank you, Charles. We delivered strong results highlighted by revenue growing at its fastest rate in 11 quarters. We also achieved meaningful progress on our three key priorities, delivering world-class AI to enhance customer value, rapidly innovating Zoom workplace, and scaling high-growth departmental solutions. Zoom is strengthening its position as a leader in AI-powered collaboration, helping customers work smarter, operate more efficiently, and deliver greater value to their organizations. Reflecting this impact, AI Companion Monthly active users have grown over four times year-over-year, with millions using our AI to boost business value throughout the meeting lifecycle and beyond. AI adoption now extends well beyond meeting summaries with strong momentum in meeting prep and post-meeting task management. call summaries for Zoom Phone, and AI first meeting integration and content generation capabilities for Zoom Docs. This progress is just the beginning, and we look forward to sharing more AI innovations at Zoomtopia next month. Our broadening AI adoption is also translating into greater customer investment as organizations increasingly see our AI as critical to driving business outcomes. In Q2, a Fortune 200 U.S. tech company deployed Zoom Custom AI Companion, our paid AI add-on for Zoom Workplace, for nearly 60,000 employees to tap into company knowledge during meetings, generate action-ready memories that power agentic workflows, and integrate directly with their AI bot to streamline IT service operations. Customers are also benefiting from our AI supporting human agents in our Contact Center Elite offering, which is a critical component driving revenue growth in Zoom customer experience. One example is ATPI, a leading UK-based global travel and events management company known for its expertise in complex sectors, who in Q2 selected Zoom Contact Center Elite alongside Zoom Phone to transform their global customer engagement ATPI chose Zoom over the competition for our Better Together Voice and Contact Center offering and because of the measurable potential of our AI features across AI Expert Assist, Quality Management, and Workforce Management to significantly reduce hours spent by both agents and supervisors on repeatable tasks. Lastly, we are also excited about the Q2 launch of Virtual Agent 2.0, which advances from conversational to agentic AI designed to deliver measurable customer outcomes. In its first month, we saw deals including SecureOne, a private security company who replaced an expensive manual after-hours answering service with ZVA for voice. The solution integrated seamlessly with their existing Zoom phone deployment, reduced costs by tens of thousands of dollars annually, and enhanced sales prospecting through intelligent automation. This is just one example of how Zoom's agentic AI tools can help customers drive both meaningful cost savings and new revenue opportunities. Zoom continues to innovate with Zoom Workplace, delivering a seamless and integrated collaboration experience with Zoom meetings, phone, team chat, events, docs, whiteboard, and rooms. We have been honored with four UC Today Awards, recognizing our continued innovation and leadership, including Most Innovative Product for AI Companion, Best UC Platform for Zoom Workplace, Best UC AAS Provider Americas, and Best Contact Center Solution. Furthermore, in recognition of our customer focus and innovation, we are proud to be named a UCAS leader in the Forrester wave. Our continued momentum reflects not only strong customer demand for our modern collaboration solutions, but also the success of meeting buyers where they are through preferred channels like AWS Marketplace. In Q2, for example, HubSpot expanded to Zoom Workplace. including Zoom phone, rooms, sessions, whiteboard, translated captions and more. This will deliver the benefits of our modern, integrated and cohesive collaboration suite to help them enable hybrid work across their global workforce, reduce costs and simplify billing on AWS Marketplace. Our focus on customer value led many companies to boomerang to Zoom after trying other services. One such company is F5, a global technology leader in application delivery and security. F5 bounced back to Zoom with a seven-figure ARR deal due to the increased productivity and lower total cost of ownership of our modern, easy-to-use platform. And finally, Zoom Phone delivered another strong quarter, sustaining mid-teens ARR growth and gaining market share versus leading competitors, an impressive result given its already large scale as a UCAS leader. Our Better Together vision, unifying best-in-class voice collaboration and customer engagement solutions, drove a major five-year success. seven-figure ARR Zoom phone deal displacing Cisco, which also includes Workplace and Contact Center Elite. We also continue to drive amazing growth with our customer experience and employee experience solutions. As I mentioned earlier, AI adoption is increasing within our customer experience, offering and transforming how brands engage their customers and build loyalty with our set of modern, differentiated AI-first tools. You see this momentum in the number of Zoom contact center customers with over $100K ARR, which grew 94% year-over-year to 229%, highlighting our ability to win with large accounts in high-stakes deployments and migrate them into the high-end AI products. Our top 10 contact center deals were all displacements of leading competitors, and all but one were cloud displacements. Inland Real Estate Group, whose member companies employ more than 1,200 people, faced challenges for years managing disparate systems. In Q2, they chose the full Zoom platform, including workplace, phone, and contact center to unify their collaboration and customer experience and future-proof their business. We have also made progress in building additional routes to market. We are excited about our newly established collaboration with PwC, which expands our Zoom contact center and AI opportunity and ability to meet the needs of global enterprise customers. Together, we have already co-sold several large deals, including a Fortune 50 technology firm for which PwC will provide advisory and implementation services. In Q2, our employee experience offering continued to shine, with Workvivo reaching 168 customers with over $100K ARR, up 142% year-over-year. One of these large deals was Marubeni Corporation, a large diversified Japanese conglomerate that transitioned to Workvivo from Metta Workplace with more than 10,000 licenses to elevate how it informs, connects, and engages employees. Before I hand it to Michelle to take us through the financial results, let me close by saying that on September 17th, we look forward to bringing you Zoomtopia 2025 For the People, our biggest event of the year. You'll learn about exciting product reveals, inspiring stories, and much more. See you there.

Thank you, Eric, and hello, everybody. I'm excited to share Zoom's Q2 FY26 financial performance today. In Q2, total revenue grew 4.7% year-over-year to $1.217 billion, or 4.4% in constant currency. The result was $17 million above the high end of our guidance. Our enterprise business continues to be the key point of strength, with revenue growing 7% year-over-year and representing 60% of our total revenue of one point year-over-year. our online business continues to show signs of stabilizing. In Q2, average monthly churn was flat year-over-year, a continued lows of 2.9%. In our enterprise business, we saw approximately 9% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers make up 32% of our total revenue, up one point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 held steady at 98%. Pivoting to our growth internationally, our Americas revenue grew 5% year-over-year, EMEA grew 6%, and APAC grew 4%. Moving to our non-GAAP results, which, as a reminder, excludes stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated payroll tax effects. Non-GAAP gross margin in Q2 was 79.8%, up 128 basis points from Q2 of last year, primarily due to cost optimization efforts. We continue to reiterate our long-term goal of 80% non-GAAP gross margin and remain focused in the near term around balancing investments with AI with cost efficiencies. Non-GAAP income from operations grew 10.5% year-over-year to $503 million, exceeding the high end of our guidance by over $38 million. Non-GAAP operating margin for Q2 was 41.3%, up 216 basis points from Q2 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP's diluted net income per share in Q2 was $1.53 on approximately 308 million non-GAAP diluted weighted average shares outstanding. This result was 16 cents above the high end of our guidance and 14 cents higher than Q2 of FY25. The EPS growth reflects strong business performance, effective cost management, and less dilution, driven by our buyback program and disciplined stock compensation management. Turning to the balance sheet. Deferred revenue at the end of the period grew 5% year over year to $1.48 billion, slightly ahead of the high end of our previously provided range. We expect deferred revenue to be up 4 to 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased over 5% year-over-year to approximately $4 billion. We expect to recognize just under 61% of the total RPO as revenue over the next 12 months, slightly up from 60% in Q2 of FY25. Operating cash flow in Q2 grew 15% year over year to $516 million, representing an operating cash flow margin of 42.4%. Pre-cash flow in the quarter grew 39% year over year to $508 million, representing a pre-cash flow margin of 41.7%, up 10 points year over year. The year over year increase in pre-cash flow margin was driven by the timing of tax payments and the lapping of significant PP&E investments. We ended the quarter with approximately $7.8 billion in cash, cash equivalents, marketable securities, excluding restricted cash. In Q2, we again accelerated execution of our existing $2.7 billion share buyback plan, purchasing 6 million shares for $463 million an increase of approximately 389,000 shares quarter over quarter, underscoring our commitment to delivering value to our shareholders. Turning to guidance. In Q3, we expect revenue to be in the range of $1.21 to $1.215 billion. This represents approximately 3% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $465 to $470 million, representing an operating margin of 38.6% at the midpoint. Our outlook for non-GAAP earnings per share is $1.42 to $1.44, based on approximately 307 million shares outstanding. As a reminder, future share repurchases are not reflected in the share count and EPS guidance. For the full year of FY26, we're excited to raise both our revenue and our profitability guidance. We now expect revenue to be in the range of 4.825 to 4.835 billion dollars, which at the midpoint represents approximately 3.5% year-over-year growth. We expect our non-GAAP operating income to be in the range of 1.905 to 1.915 billion dollars. representing an operating margin of 39.5% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY26 is increasing to $5.81 to $5.84, based on approximately 308 million shares outstanding. With a strengthened free cash flow in the first half and increased outlook for operating income in FY26, we now expect free cash flow to be in the range of $1.74 to $1.78 billion for the full year. In closing, we've made progress improving top line growth. We've sustained best in class profitability and reduced dilution. We're executing on our three priorities with discipline and momentum, and we remain committed to building on this success to deliver lasting value for our shareholders. Thank you to the entire Zoom team. our customers, and our investors for your trust and support. With that, Megan, please cue the first question.

Thank you, Michelle. We will now begin the Q&A portion of the call. When I read your name, please turn on your video and unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Peter Levine with Evercore.

Great. Thank you very much for taking my question. And I'm going to start in a good quarter. Eric, you know, you're seeing kind of your AI solution kind of really take off. But maybe can you help us share with us, like, what's the ROI that your customers are seeing, right? In terms of, like, the 2.0, you referenced the customer, a pretty large customer that adopted 2.0. So we'd love to know, like, what's the use case that you're seeing, the ROI? And then second, just from a macro perspective, Anything you can share with us in terms of what you're hearing or seeing from your customers in terms of their appetite, IT budgets for, you know, for collaboration?

Yeah, great question. So, yeah, I'm using my iPhone to join this call. I think in Tremorto AI, you know, you are right. We launched the Zumo AI combined in 2.0, and hopefully we're also going to announce something exciting at Zumotopia, you know, next month as well. Because, you know, two years ago, right, you know, AI, right, the first step for us to leverage AI to improve, you know, our functionalities, right, like meeting summary, transcription, so on and so forth. That's already done very well. And the reason why, you know, we announced Zoom 2.0 is how to leverage, you know, the capabilities. And also not only do we support the meeting summary, but also look at the entire meeting lifecycle. from pre-meeting, how to schedule the meeting to leverage the AI, and in-meeting experience, and the post-meeting experience, and also how to leverage the AI to improve other product experience, like a phone and other, you know, the workplace, the point of product as well. So overall, the feedback is pretty positive, and look at the usage, right, compared to, you know, last year in terms of monthly active users, it's, you know, it's four times, you know, four times more, right, you know, this quarter compared to the quarter last year. I think overall, I think customers, they all look at how to leverage AI to improve the productivity and working effectively. And so many things for us to do, right? And in terms of IT budget, I think overall, I think you look at almost every customer, they all look at it. how they can, you know, leverage AI to make their product better, how to work together with, you know, their vendors to leverage AI. That's the reason why many of our customers either already enabled AI compiling or in the process to enable AI compiling. Not to mention our AI compiling is part of their offering. You know, we do not charge customers extra except for customized AI compiling.

Thank you very much. Appreciate it. Thank you.

Our next question comes from Nita Marshall with Morgan Stanley.

Great, thanks. Kind of noted the AI companion vertical specific win kind of with the Fortune 2000 or 200 tech company. And I guess just, you know, how are some of these wins that you're getting on these vertical specific AI companions kind of informing just what customer needs are, what they can do with AI kind of beyond what we traditionally think of as like summarization?

Yes, great question. So, instance, we introduced the AI companion. For sure, there were some early adopters, right, who adopted AI early, you know, already for a while. Now, they look beyond AI companion. Are there any other things we can achieve with our AI capabilities? That's the reason why, you know, they paid for customized AI company, where we connected with their index, their content, or with the customized meeting template for their summary, so on and so forth. I think, you know, for sure, some other customers are still in the process to adopt, you know, AI company, right? So, AI company, again, as I mentioned earlier, is part of a package. More and more customers are going to adopt that or already adopt that. At the same time, customers, for those customers who already adopted AI company, look at it beyond today's AI company. Are there any new things? That's the reason why we offer customized AI company. I think ultimately, and we also want to innovate more, right? It's not only, you know, do we have AI company 2.0, customer AI company. You know, that's why, you know, we're very excited, you know, for the new AI company announcement at Zoom Topia next month.

Great. Thanks. Appreciate it. Thank you.

Our next question comes from Tyler Radke with Citi. We might be having some technical difficulty. Tyler, are you there? All right. Moving on. Our next question comes from William Power with Baird.

Okay, great. This is for Will Power. Thanks for taking the question. A couple on the online segment. So, I know you folks instituted a price increase for the monthly pro skew earlier this summer, I think. So, first of all, you know, I think you mentioned last quarter that you were expecting that to add $10 to $15 million of incremental revenue this year, or at least, you know, as it compares to your initial forecast. And based on what you've seen so far, I'm wondering if any of your assumptions around that have changed. or if your expectations there are still consistent. And then also, just taking a step back, I was hoping you could comment on any feedback you've heard from customers so far, just in general. Looks like churn largely held stable. But I'd be curious if you have observed any other changes in customer behavior, maybe customers switching to annual plans to avoid that price increase, or any other dynamics that you might have noticed. Thanks.

Yeah, I can take that one. So, 1st, we're pleased with the growth of 1.4% and pleased with continued load term with that. I reiterate that the same range of guidance from 10 to 15 still. So I'm on track for that, and I continue to guide to a flat online number on the full year. We did see, to your question, some shifts to long-term, but nothing, I would say, extreme. And maybe a little bit more color in terms of the customer conversation is that we didn't see a lot of pushback, and I think that's really a statement of it's a relatively small price increase, but it has to do, I think, even more with the value that we've put in the workplace SKU, be it AI or so many more products in there, as well as with the particular price increase, we increased storage limits. So, you know, for us and what we heard, the value profit was still very much there.

Okay, thank you.

Our next question is from James Fish with Piper Sandler.

Hey, thanks for the question here. Two-parter, though. Eric, for you, WorkBeo continues to have another strong quarter, really, spike in usage from what we can tell. I guess, what are you seeing with that asset that we had into the back half of the year, both from that partnership angle with Meta and the overall market? And then just, Michelle, on the numbers here, you raised by 25 at the top line, beat by 20 on the quarter. Have FX in your favor?

walk us through why we're not getting more of a role for those kind of the top line upside here the just prudency or anything to think about for the back half year thanks michelle you want me to address the first one sure yeah so in terms of uh working with growth and for sure i you know my partnership certainly helped us a lot since last year for now our top priority makes sure for those customers speak to our work view platform they've got to you know help them you know, transition to our work with a platform, you know, very smoothly, right? Make sure every feature works, no regression, and that's still the top priority. At the same time, you know, a lot of the customers realized, you know, they needed to have customer, sorry, the employee engagement, you know, platform, and more and more opportunities in the pipeline. And also, at the same time, we are going to innovate more, right? And a lot of innovations upon our work with your platform, I think also the AI is also another way for us to innovate as well to further improve our work available platform experience. I think, you know, used to be we just focused on very, very large deals. I think a lot of, you know, the commercial, you know, the medium-sized customers also will benefit from deploying work available platform, and that's kind of our next growth opportunity for the work available platform.

Yeah. Maybe a couple of comments, James, in terms of the forecast. First, as you noted, we feel good about the consistent beat as well as the raise regardless of USC or constant currency. We feel good about the steady progress made towards the growth rate despite dynamic macro conditions. So raising, for example, from 2.7 at the beginning of the year to now 3.5. We feel good about the three areas of strategic focus and the progress that we see within those. Maybe the color that I give you is that, you know, we already talked about online and sort of the guidance being flat. relatively speaking, the H1 versus H2 revenue is relatively consistent. And it's really the growth rate from enterprise that is driving the H2 outlook. So, look, we've used a consistent forecast methodology, and we've assumed macro conditions that are strong in their demand and durable with respect to our drivers, but still a dynamic economic environment. Maybe then if I could insert a little bit, James, some comments on last quarter, you'll remember that I said we saw some scrutiny, no losses, but additional scrutiny in some geographies. And I'm pleased to say that we saw partial abatement to that in Q2. And as such, we sort of expected that H2 outlook will be in line with what we saw in Q2.

Great to hear. Thank you very much.

Samad Samana from Jefferies will take the next question.

Hey, everyone. This is Billy Fitzsimmons. I'm for Samad. Eric, maybe for you, there have been a couple questions on the AI Companion, but I want to dig deeper on the custom AI Companion add-on. It's still early. It's only been a few months now since launch, and I'm guessing we'll hear more at Zootopia. But can you share some anecdotes around what some of the initial customers who purchased the add-on are saying about it, some prominent use cases day to day? I know you have third-party integrations with a bunch of different vendors. And then just how from a product or sales standpoint, you're getting customers to move from the included AI companion to the paid add-on. And then if I could sneak in one more for Michelle, it just launched. It's still early. I imagine it'll be more of a fiscal 2027 tailwind. But can you just level set for us if there'll be any kind of benefit in the guide and in the back house this year? Thank you.

Yeah, I can address the AI companion question. First of all, please join our user conference Zoomatopia next month. Again, you know, a lot of exciting stuff around the Zoom AI Companion. You know, for those customers who deploy AI Companion for a while, they love AI Companion. However, at the same time, you know, they also ask about what they can do to leverage AI Companion, you know, to help them more, right? Because, you know, some companies, they deploy AI Companion, they also have other applications. you know, like ServiceNow, Salesforce, Workday, and a lot of other applications that are also knowledge-based as well, and how to connect with all those different data sources, right? Or some customers, they even use other, you know, data index, you know, like Amazon Q or Glean, right? You also need to connect with them as well. And we offer the basic, you know, meeting summary template. You know, customers, they want to have very flexible, customized template, and also connected with their, you know, you know, dictionary and a lot of, you know, the capabilities, you know, can be added into AI Companion to further improve the AI Companion for those customers. That's the reason why those customers talk with us, hey, we want to enable customer AI Companion. And also share a lot of feedback with us. And this is the reason why, you know, we want to announce more and more innovations, you know, upon our, you know, AI Companion, you know, the platform.

Yeah, with respect to kind of how to think about AI products and what's in and out of our forecast, I kind of break it into two pieces. First, we're already seeing notable progress from AI in our contact center business. We talked about broadly the contact center business growing high double-digit, and it continues to be. And certainly our lead skew, which is where you get the AI value, as well as VBA, are part of that. So I would sort of say that's in the 26 numbers. In terms of the other products that just GA'd, In the April timeframe, this is sort of first quarter, and we're pleased with the customer examples that we shared and the pipeline building. But really, we just continue to emphasize what I've said previously, which is those won't really come in until 27, given large numbers, building products, et cetera.

Thank you.

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

There we go. How you doing, guys? Very well. Yeah, good to see you all. Also on the AI products, can you provide any color on the size of the funnel and the growth of the funnel that you're seeing? Very strong growth, obviously, in 2Q. And then any commentary on the uplift in customer ARR from adding AI solution to be helpful?

Yeah, maybe I can address that. Some of your questions. I gave them so many AI questions. I wish our AI company can answer those questions on behalf of next time. So overall, I think look at AI company, not only for, you know, improve our, you know, meeting our workplace platform. actually air combining is a back-end you know it's our ai infrastructure platform and also our other products also benefit a lot from air combined i give one example take a zoom virtual agent 2.0 for example literally we just announced that you know recently and we offer the voice you know the and agent and it's very important and very helpful you know to our contact and customers But back in architecture, a lot of innovations are coming from AI company as well. So AI company is a platform, right? It's a phone, a contact center. Almost every service will benefit from our AI company. Look at the core workplace meeting services. AI company is part of that. We only monetize for customer AI company. But AI company is extremely important for us to empower our other services. That way for us to further monetize AI company.

Maybe I'll jump in as well. I took sort of this prior to your question of how do we really think about what we look at with respect to AI and measurement. You know, certainly.

And also, Michelle, also just in the context of, you know, revenue growth acceleration. Several years ago, management talked about accelerating revenue back to mid-small digits. You're well on your way there now, what, 4.4% constant current for this quarter. So, trying to think about contribution to future growth, you know, talking about funnel size and uplift ARR so we can contextualize the benefit.

Which one do you want? Do you want me to go AI usage or you want to go revenue?

Really the usage and then the benefit to annual recurring revenue, if you have any thoughts on that, how it's benefiting.

Okay, so look, in terms of the framework of how we think about AI and AI health, broadly, we originally started talking about enabled, then we went to, let's talk about now, Eric shared in his write-up that our now is up four times year over year, now in the millions. I would say we also look quite heavily at the depth of usage. Things like moving more into the productivity lifecycle, moving more into the meetings lifecycle with our customers using things like side panels much more, tasks much more, using AI integration in products like phone, for example, as well as using AI features that are agentic and go across our platform, like things with calendar management. So we look very closely at broad breadth and depth usage. Obviously, innovation and recognition and pace of that is important to Eric and I. And then obviously, you hit on the last piece, which is the monetization. And look, I just continue to reiterate the frame I gave earlier, which is You know, Contact Center, Elite, VBA, those are the more mature, or I should say Contact Center Elite is the more mature. Putting AI value in all of our paid SKUs and what that can do to turn and bringing in new customers, those are sort of the more immediate ones. And then certainly with Custom AI Companion, the 2.0 launch of VBA and some of our vertical SKUs, that offers a lot more going forth.

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

Alex Zukin with Wolf Research will ask the next question. Alex?

Hey, guys. Thanks for taking the time. Maybe two quick ones. Eric, the first one for you and then Michelle, a one for you as well. Eric, if I think about the way AI adoption is progressing inside of your customer base, both on the online portion as well as the enterprise portion, how is that changing your opinion around the timeline, the timing of monetization to the extent that can start to bend the growth curve, and the competitive framing environment, both, you know, against two hyperscalers with two very different opinions on pricing, one, you know, incrementally higher, and one, it's part of it for free. I love kind of your thought process on that going forward in a quick follow-up.

yeah alex great question so as i mentioned earlier room air combining is the platform you know air command it's empowering almost every product well we announced right all our customers that they used you know the reason why you look at our contact center for example why we're doing so well because we look at our top 10 views none of out of 10 it's straight from other cloud vendors. Because when they look at our product, take a Zoom virtual agent, for example, right? We built everything from the ground up. Why, you know, the innovation, the speed is very fast? Because we all can leverage the capabilities from AI compliance, right? We're not using Zoom virtual agent 2.0. Internally, we deploy that, you know, our support team very, very satisfied with the AI, you know, Azure virtual agent powered by AI company. So, when we look at AI company as a platform, you know, how to leverage, empower all other point of services, you know, either phone or contact center, whiteboard, and a lot of other things, we are going to win. That can help us win more deals. And at the same time, you know, we, you know, look at our core, the meeting product, right? It's a lot of features and the part of AI company, a lot of that as well. And again, you know, we are going to innovate faster. And, you know, that's the reason why I mentioned a few times. And please join our user conference next month. You know, one of the key themes on the Zoom topic this year, read about AI and the Zoom AI compliance.

Perfect. Michelle, maybe for you, leading indicators are always important. It sounds like some of the deal cycle elongation that you saw resolved. I assume some of those deals that may be pushed also closed. Is there anything we're not seeing that is maybe creating a headwind in terms of the CRPO metrics, in terms of billings, that maybe is not painting the same picture around those KPIs as the largest beat that you've had in years on a revenue basis maybe is? So there seems to be a little bit of a divergence. Anything that you can point us to to help us kind of marry those two data points?

Yeah. Maybe let me start, Alex, with just backing up on some broad comments on macro, and then talk a little bit about RPL. So, first, from a macro perspective, you know, what I said in Q1 last time was that we saw strong demand, broad, strong demand, and we think we have durable drivers in a dynamic macro environment. And certainly, I would say that is still true. It's still a dynamic environment, as we all know. But last time we talked, as you noted, around some scrutiny that we're seeing in some geos. Want to make clear that we've seen a partial abatement of that. And we've seen SMB demand continue to be very strong. And you see that reflected, I think, in the revenue results. And you see it reflected in churn, low churn on the online side, but also churn going down year over year consistently over multiple quarters on the enterprise side. So look, it's still dynamic, but we feel good about that. To your RPO question. RPO growth of 5% is strong. I would also point out that it's lacking a very high comparable and that our RPO bookings are sort of the highest in many years. From a current RPO, it's really just the strong comparable at play there. I guess that's what I call out. Maybe one thing we didn't touch on, but just in terms of thinking about the overall growth rate, if I sort of look, Alex, at the spirit of your question, we talked about the FX piece. We talked about the easier comparable might be another thing. We're lapping that trough that we talked about for a very long time, as well as to a much lesser degree, we had some professional services one-time recognition.

Thank you. Thank you, Alex.

Our next question is from Arjun Bhatia with William Blair.

Thank you. Eric, I want to touch on a point that you actually brought up proactively on the last question, but contact center. And I have a million questions on this, but I'll try to focus it on a couple questions. The fact that you're winning contact center deals against other cloud providers is very surprising. not for anything other than the fact that there are so many on-prem to cloud migrations that are happening. And I'm curious what's driving the cloud displacements. Are those failed implementations? And what are customers seeing, I guess, in Zoom? Is it the AI capabilities? Is it a cleaner tech stack? Is it easier to implement? What are the kind of key drivers that are creating success for Zoom Contact Center customers? especially against the other product providers?

Yeah, it's a great question. Well, it's not surprising to us. We know we are going to win. So, again, there's more, I think, more reasons, you know, number of reasons, you know, customers, you know, they were not happy to the existing, you know, collaborative contact center providers. If they're not very happy, no matter what you do, they say, I don't want to switch, right? So they are not happy. You know, sometimes you see the quality is not good, outage, or the too expensive, or very slow innovation, or architecture is wrong, AI adoption is so slow, and so on. All reasons are very different. However, for those customers, they really want to look at a modern contact center solution. When they test it in Zoom, they say, wow, I cannot believe that. You almost have every feature we need. Not to mention, you know, they trust us, they trust our, you know, the core meeting of some platform, and also, you know, and they know actually our company culture is really focused on deliver happiness. We do all we can deliver, delight, you know, our customers, right? Because of the capability, because of the culture, because of the innovation speed, those customers, I trust Zoom. I'll give one example. You know, look at a recent UC award. zoom went four awards one thing you might be you might feel surprising as well zoom is the best contact center solution right so you know if customers and partners analysts they know what we're doing that's reason why you know and you know given the we have a very solid foundation We're going to double down on that. As long as we innovate faster, focus on the product and customer experience, I think we're going to win more. So that's kind of the way I look at why we're winning.

Maybe let me just jump in and give a couple of stats that might give you a little dimension to some of our wins. We look at a lot of our top ten wins. So nine of ten are replacing the leading contact center provider. Seven of ten on AI. We're seeing triple-digit growth in our leads. And eight of ten come in from channels. So just, you know, another evidence point of us really building out more of a channel and what's resonating with customers.

Yeah. Another thing, you look at the product experience, you know, not like some other vendor. Then, you know, to acquire this company, that company, you know, you need to put everything together. The experience is not consistent. You know, we have our own virtual agent. We have our own quality management, workforce management, and a whole platform integration. It's a very consistent experience. That's another reason why, you know, customers really want to select Zoom as their, you know, content center solution provider. So, thank you.

All right. Well, congrats on the success. Thank you, guys.

Appreciate it. Thank you.

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

Wonderful. Thanks so much for taking my questions. Hey, Eric. Hey, Michelle. Really appreciate the time. Nice to see continued strength in the business in spite of everything going on there. Maybe two AI-related questions I'd like to ask. One for Eric, one for Michelle. From a financial perspective, you know, look, Eric, you've talked about your ambitions to become an AI-first company, and obviously you're seeing this great traction with your AI SKUs. As we think about, you know, the cost of inferencing and all these models, right, no matter how efficient you are, how do we square that away with, you know, the continued raise in cash flow guidance? And how should we be thinking about the long-term financial implications as, you know, the usage of AI among your customer base grows, as the use cases continue to expand, et cetera? And then maybe a little bit related to that, Obviously, you've been doing great things with AI so far. How do we think about your plan to really leverage all the vast troves of unstructured data that's going through the Zoom platform and maybe build out even newer use cases on that in ways that are harder for customers to do themselves and relies on your domain expertise, your engineering talent, et cetera? Thank you.

Yeah, this is a wonderful question. You are so right. You know, how to leverage, you know, the data, right? How to leverage the product, right, or AI to create something new, right? So AI first experience, I'll give one example. I used to schedule a meeting. I need to go to my calendar to schedule a meeting, right, or maybe my year to help me to schedule a meeting. It would take a lot of clicks, a lot of manual steps. Nowadays, the way for me to schedule a meeting, I just go to Zoom or a company. And I chat with a company. Please get a meeting with Michelle next week for 30 minutes. That is a compositional interface. It's a very, very smooth experience. I do not need to click so many things. I do not need to run any GUI, you know, interface. That's AI first experience. In terms of innovation, you are so right. You know, we announced 2.0 next month. We're going to announce 3.0. 3.0 really everything is about a generic framework, right? How to automate your work. How to leverage data? You know, like I said, today, you know, I can use Zoom air combining and write a Zoom doc. I can imagine, you know, create so many things, click here and it's there. You know, how to leverage air combining to have you write something very cool and very, you know, easy experience. I think it is also another thing, let's say, you know, in my, you know, day-to-day work. I need to manually do so many things, you know, call this application and then open another application, and workflow is becoming more and more important as well. I used to be look at a workflow, right? You need to manually, you know, and, you know, tell the workflow system what you want. But how to level AI? In this case, just the AI first, I just tell Zoom AI company what I want. Zoom AI company, more like a super agent, will talk to each of other systems or applications and get things done, make it fully automated. That's part of our vision. That's the reason why I want to invite you to join the Zoom Topia, you know, next month. You will see a lot of new capabilities we're going to introduce and to further develop our, you know, core capabilities of AI companies.

Maybe, Rishi, I'll hit the more what I took as a P&L question and come back if I didn't answer it. And we're proud of the fact that, like, we're still hitting 79.8% growth margin up over 100 basis points year over year. That's because we're offsetting AI investments and AI usage with cost optimization. There's a little bit of one-time benefit in the second quarter. But there's durable elements that we're actively working across this on the COG side. And then I'll drop and make some quick comments on the OPIC side. Migrating south to COLO, which still continues to be a lever for us on the COG side. We talked about the federated approach and making sure that we're applying the right model to the right task so that we can get both best quality and best price or best cost for our customers. And then obviously just making sure that we're constantly looking at AI cost first as we go through. You know, on the R&D side, we've made a lot of investments and we'll continue to invest in AI. And look, we're going to need to offset that with other efficiencies that we see in the business, of which AI is one for us. So we're going to you know, live the same reality that our customers are living there.

Yeah, very helpful. Awesome. Thanks, Eric. Thanks, Michelle. I really appreciate it. Thank you, Rishi. I appreciate it.

Tom Blakey with Cantor Fitzgerald will ask the next question.

Thank you. Thank you, Eric and Michelle, for the opportunity to ask a question here. I was wondering if you could maybe, maybe an extension from some of the questions that were asked prior, could you just maybe, talk about CCAS and some of the momentum on a sequential basis, that strong 94% callout. Eric, I remember asking you about a year or two ago about the monetization efforts here in CCAS, and you got awfully excited about it. So just, you know, as an extension for that, maybe for Michelle, what is kind of embedded in guidance there in terms of maybe continued momentum in CCAS. So, again, just the sequential growth color would be helpful. And if you want, maybe expand on seats versus price. That would be helpful. And, again, similarly, continued momentum in phone. We've been monitoring this for years. With this acceleration in CCAS and continued strong double-digit growth in phone, just maybe combined into one big question to talk about, what you're seeing in terms of going into the second half, maybe even further out into fiscal 27 where, you know, maybe some of the down cells or some of the other kind of structural things that are happening in the core could abate and we can see, you know, kind of like 100% plus kind of NRR going forward. Again, these strong numbers in CCAS and phone are just awesome. Thank you very much for this question.

Thank you. Michelle, do you want to address the question?

I mean, look, we don't give kind of forward-looking product items for contact center and Zoom phone. So I'd probably just comment on the nature of that and then broadly, you know, expectations for the future. So starting on contact center, another quarter of high double-digit, which we're very proud of. I think I covered earlier kind of the nature of the top deals, so I won't repeat it there. And then you mentioned the stat, of course, about us making progress upmarket, which is obviously, you know, a key consideration. That is all with a non-DBA 2.0 number, and so we look to the future and the reality that our customers are facing in growing labor costs and poor customer experience and see a durable driver and contact center going forward. From a Zoom phone perspective, continue to see mid-teens. We said that last time. We're saying it now. Maybe the things that haven't come out as much on this call that I mentioned for investors is really twofold. Just how much we're seeing phone be a gateway in our deals to other products, right? Starting with meetings, you often go to phone. But now much more of the... to contact centers, so sort of that better together story of being able to solve the customer problem, go back in the office, and have that seamless experience that Eric talked about. And we see that being a durable thing. Also some new announcements that we're very excited about with the connection of ZBA and Zoom Phone, as well as we're seeing connections of Zoom Phone to Zoom Revenue Accelerator. So a lot of real momentum. And then maybe the second thing that I would say on Zoom Phone that we would feel good about when we look to the future There's just the AI progress within it. So, sequentially, the mal quarter over quarter has gone up over 30%. So, we're proud to see that as well.

Great. Thank you, Michelle.

Our next question comes from Mark Murphy with JPMorgan.

Great. This is for Mark Murphy. Thank you for taking the question and congrats on the results. Eric, first I just wanted to hit on the recent launch of the AI-first auto dialer to streamline outbound sales. We'd love to hear how you're thinking about the long-term opportunity here and some of the feedback you're picking up since launch, and particularly how you see this opening up doors for incremental wallet share in some of your customers. And then I had a quick follow-up for Michelle. Any items to call out in terms of diverging demand patterns, whether by geo or vertical? I saw international growth slightly outpace that of the Americas. Is that much of that delta largely FX driven or something else to consider? Thank you.

Yeah, it's a great question. So regarding the contact center innovations, right, you know, recently in Q2, we had quite a few, you know, contact center innovations. You know, one thing is, as you mentioned, is agentless, you know, autobomb dialers, right? Essentially, we call that, internally, we call that a proactive outreach feature. Essentially, you know, the way it works is automatically place outbound calls and pre-recorded messages right you know something like appointment reminders and you know without requiring a live agent you know to do so many things manually right so this is one of the innovations the customer they told us they love that right so they get they share the feedback with us and we quickly delivered again this is just one of the innovations that's the reason why back to the content center wins why customers like us in the content center because when they share the feedback we can quickly deliver know it's the you know every quarter there's so many innovations and it's like a q2 right and we also deliver like you know you know another feedback like division features right Contact center, the customer use the contact center, sometimes use the support, you know, internal hyperdev to use Zoom in contact center. All the tech support team also use that, right? You know, that's the reason why we got to support a division as well. So, a lot of new innovations we introduced to the market every quarter. So, and outbound is one of those innovations, so.

Yeah, maybe I'd also just tag on to what Eric said and say that I'm excited, you know, just as a CFO, a lot of the AI innovations now bring us much more into that value conversation of helping the customer, you know, create a better experience for their customers, drive revenue increasingly in many instances. So I think it's an exciting direction in terms of the value. that we can provide customers. Real quick to your question, I wouldn't really call on any difference in broad demand, and then I'd say that FX was primarily an impact on the EMEA results.

Got it. Thank you so much.

Our final question comes from CT Panagrahi with Mizuho.

CT, are you there?

Cool. This is Samir. I'm calling EnterCity. One thing I do want to check, if you could double-click on the one-time margin benefit that you saw in the quarter. You mentioned it's because of professional services and some AI-related adjustments you're doing.

Yeah, different. What I talked about with the professional services was sort of a one-time small impact to the Q2 revenue growth rate. And then I think I separately mentioned on the gross margin that we did see some sort of one-time savings costs, but broadly what's going on on the revenue side are durable elements to revenue growth, all the things that we talked about, product diversification, moving up market, et cetera. And broadly what's going on on the gross margin is incremental AI investments and costs, and we're offsetting those with efficiencies.

Great. Thanks. And just another clarification is that for the second half outlook, the main driver is the enterprise side of things, and that's why the beat is not getting carried forward as much as it should be.

So, what I did in the guide was reiterate what I said previously, that we're going to capture the online price increase in the amount that we previously communicated. We're going to hold to online being flat, which is consistent to what I said last quarter. And the raise is really on the enterprise side. Thank you. Many broad things across enterprise that we talked about today.

Excellent. Thank you.

All right.

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

Yeah, I just wanted to close and to say that we look forward to hosting everyone for a virtual investor session, Q&A, and a little bit of a presentation after Zoomtopia on the 17th of September. We're going to have an exec panel with Eric and myself and other Zoom executives. We're going to give just a time to talk about insights into our business strategy, key initiatives, and the innovations that will be debuting. So we look forward to hosting everyone.

Thank you all.

Thank you.