Zoom Communications, Inc.

Hello, everyone, and welcome to Zoom's Q2 FY2027 earnings release webinar. I will now hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.

Thank you, Catherine. Hello, everyone, and welcome to Zoom's earnings webinar for the second quarter of fiscal year 2027. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Today, I'm giving my prepared remarks by Zoom custom avatar, and so will Eric and Michelle. After the scripted portion of the call, Eric and Michelle will be on camera live to answer your questions. 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 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 third quarter and full fiscal year 2027, 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, including our AI strategy and investments, and product initiatives, including future products and feature 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. Thank you, Charles.

FY27 continues to progress well. Total revenue grew 4.9% with enterprise revenue growing 7.8%, its strongest rate in three years. The enterprise acceleration was driven by our focused execution against our three priorities of elevating workplace with AI, scaling AI-first customer experience, and driving growth in new AI products. This progress reflects our success in bringing our AI first system of action vision to life, helping customers reduce costs and create greater business value. That vision is grounded in Zoom workplace, which we continue to enhance with AI. Across workplace and our broader communications platform, AI is becoming increasingly embedded in how users work throughout the communication and collaboration lifecycle. Licensed monthly active users of our AI features in Workplace grew 125% year over year. We are even more encouraged by the broadening engagement, which has expanded from reactive communication summaries into active querying and building workflows, turning insights into action and conversations into outcomes. Our wins in Q2 speak to our growing ability to win as a system of action for modern work. We saw one of the largest US tech companies renew Zoom Workplace in a deal that expanded its ARR by $1.9 million, driven by the deep employee appreciation for the Zoom meetings and rooms experience, our AI vision, and our ability to integrate and coexist with Google Workspace. With ARR growing in the teens, Zoom Phone continues to demonstrate its value both as a natural add-on to Zoom Workplace and increasingly as a driver to broader platform adoption. We saw both dynamics in Q2. A major U.S. wealth manager upgraded to Zoom workplace enterprise tremor, including a wall-to-wall rollout of Zoom Phone, replacing multiple vendors. Zoom Phone is also creating pull-through for our broader platform. For example, QXO, a large North American distributor and installer of building products, chose Zoom Phone company-wide for roughly 8,000 employees alongside Zoom Contact Center to unify their UCaaS and CCaaS systems, integrate with Microsoft Teams, and automatically drive CRM updates from live interactions. We were also very pleased with the progress of our employee experience offering within our system of action. In Q2, a leading US insurer and major Zoom workplace and phone user expanded into Workvivo, marking one of Workvivo's largest ever deals as it also surpassed $100 million in ARR. We are also priming Workvivo for the AI era by launching Workvivo HQ, an AI-native digital headquarters built on Zoom's AI technology, bringing communication, knowledge, and action together for every employee. On, a global luxury retail brand selected Workvivo HQ as their employee experience platform and will deploy Workvivo HQ agents to give thousands of frontline workers faster access to answers from their policies and databases. As you can see, customers are choosing Zoom as an AI-first, secure, integrated, multi-product system of action, sometimes displacing multiple vendors, other times coexisting with them. This progress exemplifies our ability to meet customers where they are, turn conversations into business value while driving durable platform expansion for Zoom. Customer experience is a clear example of our platform strategy translating into growth and direct AI monetization. In Q2, Zoom CXARR continued to grow at a high double-digit year-over-year rate, and we set a record for the number of seven-figure ARR deals. AI continues to drive this momentum, with paid AI in nine of the top ten Zoom CX deals, showing growing demand for a system of action that connects automation, human agents, and intelligence. We saw rapid adoption in Zoom Virtual Agent, both as a Zoom contact center attached and as a standalone offering, with its customer count growing more than 250% year-over-year. ZVA's voice and chat agents go beyond simply answering questions. They resolve issues, complete multi-step workflows, and escalate to human agents with full context when needed. This validates our vision of moving customers from chatbots to resolution agents, turning conversations into resolved outcomes at scale. Increasingly, customers are going all-in on Zoom CX, combining our virtual agent and agent-assisted AI solutions to enable seamless transitions from automated self-service to human support. For example, in Q2, one of the largest U.S. banks chose ZVA while expanding its existing ZCC Elite deployment to enable self-service alongside AI-assisted human support helping them scale to meet surging helpdesk volume. For others, the value is in breaking down the fragmentation between UCaaS and CCaaS solutions and bringing communications onto a unified platform. In Q2, a leading enterprise software company selected ZVA Voice as a natural extension to Zoom Phone as they look to modernize their customer experience. We also saw a major U.S. cybersecurity company select Zoom contact center to replace multiple vendors and securely unify their UCaaS and CCaaS solutions, building on their use of Zoom video in customer interactions and allowing agents to escalate voice calls to ZCC video sessions seamlessly and natively. It is not only customer recognition. Early this month, Zoom was named a leader in the IDC marketscape for agentic CCaaS. This progress demonstrates the momentum behind ZoomCX and validates our differentiated approach, a unified AI-first system of action that connects self-service, human support, and internal communications to deliver better customer outcomes at scale. Our progress in enhancing workplace and scaling customer experience gives us a natural foundation from which to deliver new AI value to our customers in horizontal and vertical scenarios. In Horizontal AI, we launched ZoomMate in June, bringing our system of action strategy to life for our workplace users through AI-first productivity tools, agentic search, and agentic workflows. We've already seen interest spanning our Zoom workplace base, from small businesses to the world's largest enterprises. By combining Zoom conversation data and proprietary intelligence with other enterprise systems, ZoomMate turns conversations into completed work and business value. In Q2, we were delighted to see the University of Newcastle in Australia, already a full-platform Zoom customer, add Zoomate to further enhance its collaboration and communication capabilities. As we expand this system of action across the enterprise, we are using Zoom's unique position in live communications to capture context and intent and apply that intelligence to vertical workflows. Sales is a strong example. Zoom Revenue Accelerator, our revenue orchestration solution, turns live sales conversations into intelligence that supports coaching and action to improve seller productivity and win rates. ZRA had another strong quarter with paid customers growing 41% year-over-year. Common Room extends this value upstream, creating a fuller end-to-end revenue intelligence and orchestration solution together with ZRA and the broader Zoom platform. We closed the acquisition in mid-July, adding buyer intelligence that unifies fragmented signals to identify in-market accounts, key buyers, and the right reasons to engage. In Q2, Okta expanded their common room contract as they look to further capture the value that AI-driven buyer intelligence delivers by consolidating customer insights across platforms and surfacing real-time buyer signals to convert deals into wins faster. Across our three priorities, the common thread is clear. Zoom is deepening its value to our customers as a system of action. We are embedding AI across our platform to turn conversational context into action and deliver what customers want. Real AI value that produces outcomes. We are encouraged by the momentum across our platform and proud of our progress expanding AI monetization to durable growth and, most importantly, deliver enduring value for our customers. Michelle, via Zoom Custom Avatar, will now take us through our Q2 financial results. Michelle?

Thank you, Eric, and hello, everyone. I'm excited to be with you today to share Zoom's Q2 FY2027 financial performance. In Q2, total revenue grew 4.9% year-over-year to $1.28 billion, or 4.7% in constant currency. This result was $7 million above the high end of our guidance. Our enterprise business drove the outperformance with revenue growing 7.8% year over year, representing 62% of our total revenue, up two points year over year. In our online business, Q2 average monthly churn was 2.9%, in line with Q2 of last year. Within our enterprise business, We saw 8% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 33% of our total revenue, up one point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 was 99%, up one point from the prior year period and in line with the prior quarter. Looking at our international growth, Our America's revenue grew 6% year-over-year, EMEA grew 2%, and APAC grew 4%. Moving to our non-GAAP results, which, as a reminder, exclude stock-based compensation expense and associated payroll taxes, net litigation settlements, acquisition-related expenses, net gains or losses on strategic investments, and all associated tax effects. Non-GAAP growth margin in Q2 was 79.1% compared to 79.8% in Q2 of last year. We continue to deliver strong growth margins as we broaden our AI product portfolio and optimize for scaling customer adoption. Non-GAAP income from operations grew 1% year-over-year to $510 million, in line with our guidance. Non-GAAP operating margin for Q2 was 40%, compared to 41.3% in Q2 of last year. We continue to deliver very strong operating margins while improving top-line growth as we further invest in our growing portfolio of AI products and drive future efficiencies in our AI infrastructure. Non-GAAP diluted net income per share in Q2 increased to $1.55 on approximately 300 million non-GAAP diluted weighted average shares outstanding. This result was $0.08 above the high end of our guidance and $0.02 higher than Q2 of last year. The EPS growth reflects strong top-line performance as well as anti-dilution, driven by our buyback program and disciplined stock compensation management. Turning to the balance sheet. Deferred revenue at the end of Q2 grew 6% year-over-year to $1.56 billion, above the high end of our previously provided range of 2-3%. For Q3, we expect deferred revenue to be up 3-4% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 14% year-over-year to approximately $4.5 billion, driven by non-current RPO growth of 25%. The strong growth in RPO reflects our continued success landing larger, longer-term, multi-product platform deals, demonstrating growing demand for our AI-first platform. In Q2, operating cash flow was $495 million, representing an operating cash flow margin of 38.7%. Free cash flow in the quarter was $472 million, representing a free cash flow margin of 37%. We ended the quarter with $7.2 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. In Q2, we repurchased 3.7 million shares for approximately $352 million. Across our $4.7 billion share repurchase plan, we've repurchased a total of 44.2 million shares for $3.4 billion. Turning to guidance Q3, we expect revenue to be in the range of $1.275 to $1.28 billion, representing 3.9% year-over-year growth at the midpoint. We expect non-GAAP operating income to be in the range of $510 to $515 million, representing an operating margin of 40.1% at the midpoint. Our outlook for non-GAAP earnings per share is $1.46 to $1.48 based on approximately 301 million shares outstanding. For the full year of FY27, we are excited to raise our revenue in EPS guidance. We now expect revenue to be in the range of $5.085 to $5.095 billion, which represents 4.5% year-over-year growth at the midpoint. Our increased revenue outlook assumes enterprise revenue growing faster than expected, partially offset by flat online growth. We continue to expect our non-GAAP operating income to be in the range of $2.065 to $2.075 billion, representing an operating margin of 40.7% at the midpoint. In addition, our outlook for non-GAAP earnings per share in fiscal year 27 is increasing to $6.08 to $6.12 based on approximately 301 million shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. We are also pleased to raise our free cash flow outlook for the full year, which we now expect to be in the range of $1.78 to $1.82 billion. This raise reflects the strength in free cash flow in the first half, as well as a downward revision in our capex spend for the year. In closing, Q2 was a good quarter with continued execution across our three priorities and growing adoption of Zoom as an AI-first system of action. We are pleased with our progress in AI monetization led by customer experience and early momentum across new AI revenue streams. We remain on track to surpass $5 billion in revenue this year while maintaining our focus on profitability, cash flow generation, and shareholder returns. Thank you to our customers, investors, and of course, the entire Zoom team for your trust and support. With that, Catherine, please queue up 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 Matt Bullock with Bank of America.

Hey, everyone. Good to see you, Michelle and Eric. It's nice to be working with you again. I was maybe hoping, Michelle and Eric, you could elaborate on what you're seeing in terms of phone demand and customer purchasing behavior in the second quarter, and then maybe help us think through the outlook for modeling the rest of the year. Thanks.

And your latter part of your question, Matthew, is on the entirety of the business or, you know, phone uniquely?

Phone specifically.

Yes. Eric, did you want to lead off? I'm happy to take this one.

Go ahead, please. Yes.

So we're really encouraged with our phone results. You saw it highlight a lot of the things that it continues to be in teen growth. Maybe give a little bit of context and color, Matthew, to other dimensions that we're seeing. I think we're seeing strong takeout motions. Ten of our top ten deals were takeouts. We're seeing continuing strength in verticals and international. We're seeing that continued UCAS and CCAS. And then maybe two new elements within phone before I flip to talking about the revenue guide that I would call it is I think increasingly it's going to be a great pathway to other AI monetization. Meaning we're seeing it set up a lot of ZRA deals, Zoom-made deals, Zoom virtual AI receptionist deals, so we're encouraged by that.

And we're also seeing strong momentum in our team's integration.

So with respect to our guide, look, it represents a constant currency beat and raise. We're pleased with the progress to the full year. It's a raise from where we came in at the beginning, which was at 4.1% growth. So now guiding at the mid is 4.5%. And that's up versus last year. And also I'll remind investors about that. Headwind did a white label deal that we had that had about a 40-bit impact to the top line. Look, the fundamental headline in our growth inflection is enterprise. You know, you saw from Eric the three-year highest growth rate. I'm sure we'll get to talking more about that. And then we tempered it slightly with results and online.

That's great. And maybe just one more to follow up if I could. It looks like the strongest RPO quarter in a few years. Really nice step up. And you mentioned a couple things, landing larger, longer duration contracts, but I was hoping you could expand maybe on some of the underlying drivers of what you think is driving the strength and the step up in bookings in the quarter.

Yeah. Look, I think it tells the story of our enterprise business at large. Look, if you look at that 7.8, the strongest in three years, with that white label turn headwind that I talk about that had about a 60-bps impact to enterprise. You see it in the NVE inflection. And look, it's really what we've been telling investors we would work on, product diversification, AI monetization, moving up market, expanding in new routes of market with channel while working our turns. and look, as we move into these different businesses and we move into that deeper relationship that Eric talked about with our customers, it will come with longer, larger AI-related deals.

Great, thanks.

Our next question comes from Sameek Chatterjee with JPMorgan.

Hi, Eric and Michelle, thanks for taking my question. Maybe if you can talk a bit more about the record, A quick follow-up for you, Michelle, on the gross margin side. Thank you. Thanks for taking my questions.

Yeah, let me start with the first one. Look, I think it's both, and it's all the elements that I just talked through with Matthew on sort of the enterprise business, so I won't repeat it. The stuff that I think you're referencing, however, was in Contact Center, so let me maybe make some comments about what we're seeing in Contact Center before I take growth margins. Look, we continue to see it in high double digit. We're clearly taking share. It's driven by AI. We're winning in that market. So we saw a record quarter of a million plus deals in contact center, as well as we saw strength in over 100,000 and a million in our all-out business. And look, it's the same dynamics that we've been highlighting quarter in and quarter out with investors. We're just placing big competitors. It's off the backs of AI. and we're encouraged by our investments in channel ruling being part of that. Look, when it comes to gross margins, look, I think the teams have done a beautiful job in holding gross margins best in class. They go and they can have some variability from any quarter one to the other, but we've been able to hold down as we shift to an enterprise business and AI usage goes up. We had a little bit of a growth in expenses this quarter. as we saw AI use to spike with some of our new products. And look, as does everyone, we will work to optimize that in the second half and we continue to reiterate our comments about holding to long-term margins. Maybe let me say, I'll give you kind of the quick version of what gives us confidence in working to those margins is our federated approach in AI. Being able to take the best model for the right time at the right cost and be able to fluidly direct traffic in between that while we work to bring high volumes onto the Zoom SLM. Additionally, we sort of create products once in our core, and then we take those core technologies and we infuse them throughout our products. That, together with additional kind of areas of improvement in our core, gives us confidence on the long-term 80%.

Thank you. Thanks for the question.

Up next, we have a question from James Fish with Piper Sandler.

Hey, good afternoon, guys. Thanks for the questions here. Maybe just on VBA, a lot of consumption models out there for paid AI, you know, interesting seeing attached across contact center and as a standalone. I guess, how are you guys balancing or looking at consumption or usage models rather than kind of perceived monetization, how that impacts the model? and then secondly, you guys increased online the price back in mid-March by mid-single digits. Still not seeing much turn activity really and you're even seeing that 16-month plus cohort move higher in terms of the growth rate. So I guess how much more price elasticity do you guys think you have? Understanding you guys don't typically increase price just for the sake of it. Thanks, guys.

Eric, do you want to take the consumption or do you want?

Yeah, you go ahead.

Look, you know, we benefit broadly from per user models. That's what's been the norm. But look, the market at large is shifting to more consumptive. And so you've seen us in DBA, which was sort of where the root of your question was. But we also employ full consumptive, outcome-based, and a combination of per user with a certain amount of consumptive. Look, I think there's benefits to customers on both sides of the fence, and there's learnings for everyone involved, but broadly our approach is to match what makes sense relative to market and competitive dynamics, and ultimately what's in the customer's best interest.

Your second question about

Progress and Online. Look, I'm not going to make any comments about future pricing in that other than to just reiterate what you were sort of noting. This is our second round of price increase. We did one to the monthly and then one annual, so you can kind of think about it as one all up of roughly 6% in our online business. And to your point, You know, we didn't really see a massive or really any change in our churn. It remained low, and to your point, those customers that have been with us for over 16 months just continues to influx up. So, look, we think that's a really good sign about the stability of our base. In our online business, we're going to work on sort of land and expand. And, look, we contemplate price increases as we think they make sense, and we work discounts down in the enterprise. and there's really nothing that I've heard to add to it about any future plans.

Thanks, Michelle.

Our next question comes from Peter Levine with Evercore.

Thank you for taking my question. I guess if you look at like phone ARR, it's still growing. and a lot of teams even, you know, size and scale. But I guess the question is, like, how much more runway do you see in, like, remains in phone, particularly within your existing kind of workplace, you know, install base? If you look at phones today, is it still acting as, like, an entry point for CX or is it still, like, an add-on to meetings? Just more curious, like, how much room do you have left in phone? And Michelle, similar question with Contact Center. Like, how much of those net new deals that you saw this quarter, which was impressive to see, were, like, net new customers to Zoom, or are these all just kind of, you know, renewals, upsells that you kind of saw just through execution? Thank you.

Yeah. Let me hit phone first, and then I'll get to Contact Center.

So, look, I think we've been growing in the teams for a while and clearly gaining share, aren't

And look, if you think about it from a market perspective, there's about, I think, 130 some odd cloud seats and about 150 million equivalent on-prem. And so we are winning in both and feel good about our ability to capture competitive share there. And this quarter was no different. Ten of our top ten deals involved takeouts. And I'll note, it can differ, Peter, from one quarter to the next, but this quarter, a large percent of the Look, to your question of kind of the UCAS, CCAS synergies, about five of our top ten phone deals had a contact center in them. So it gives you the sense that both, like, you're bringing in customers outside of them, and then clearly there's a UCAS, CCAS connection. And then, you know, when I go to contact center, I think we're clearly seeing a lot of new inroads. And what I say by that is some of them, of course, come from phone. So if you look at it, I think three of the top ten deals in contact center have phone on them. But then there's also a clear signal that some of them are just coming for contact center in and of themselves. And look, sometimes that comes, and I think you saw the customer examples in Eric's prepared remarks, some coming in through ZVA, some coming in through contact center. and some going all in with him from Dave Martin. So clearly there's an AI story in contact center. Clearly there's a competitive displacement across both. And I think these represent durable drivers for Zoom for the foreseeable future.

Thank you, Michelle.

Our next question comes from Elizabeth Porter with Morgan Stanley.

Great. Thank you so much. I wanted to follow up on the enterprise revenue acceleration. And you highlighted that it was the strongest growth in three years, while the trailing 12-month enterprise NDR remained about that 99%. So how should we think about the balance of acceleration between some of these new logos, larger initial lands where you highlighted some displacements, and expansion of the install base? And are there any products, whether it's phone, CS, or paid AI, that are more influential in moving that NDR sustainably above 100%? Thanks.

There's a lot in there, so keep me honest, Elizabeth, if I don't get to some of the nuances in your question. Let me start with NDE, and then I'll kind of work back to enterprise and kind of the fundamental drivers and broadly kind of the balance of new versus expansion, if I got sort of the frame of your question. From an NDE perspective, look, I think we've said, you know, for a long time that the goal is obviously to move that up and 100 and beyond. And you're seeing it go up to 99 now for the second quarter. I will remind investors we have that white label turn that will come in a touch more in the second half.

But look, Bronte, it tells the story of enterprise.

It tells the 7.8% growth in enterprise. It's 60 bps. increase even quarter over quarter. And then factor in, again, that white label turn headwind, and you can kind of get a sense of where the enterprise growth is. It's all product diversification. All these same factors play through net dollar expansion. We're diversifying our product sets. Big headlines there are obviously phone, contact center, but also the onset of a lot of AI monetization that the teams have been working very hard on. It's helpful. The way we think about it, the way we talk to investors, the way we run the company, allocate resources, are those three priorities that we frame in our prepared remarks are really the fundamental building blocks for our long-term growth. And we feel good about, there are different stages, but we feel good about those. So those are kind of durable things that you can continue to watch. Maybe the last thing that I'll say is we continue to make progress in churn and deal dynamics in the enterprise space. And certainly that, plus moving up markets, you know, we think are durable elements to continue. Maybe one last comment on sort of new versus expansion. It's clearly coming from both. I guess I'd go back to kind of I think it was Peter's question on contact center and phone. Clearly, we're benefiting from a Zoom base and our customers there, but increasingly with AI monetization, you know, new routes and new products being delivered, plus contact center, it's also helping us to bring in net new customers to Zoom, and that's supported by our investments in our channel.

By the way, to add on to what Michelle said, just look at the content center, for example. Customers not only look at the cloud-based content center, but also look at the agentic capability. Look at the latest report from IDC, MarketScape, for the agentic CCOS. Zoom was named a leader in a much better position than a lot of traditional cloud-based content center vendors, right? It does speak of the capability of Zoom Contact Center with agentic capability and a much better provision, I think.

Next up, we have a question from Samad Samana with Jefferies.

Hi, good evening, and thanks for taking my question. Maybe just on the common room acquisition, help us think through what the contribution there was to the guidance, and then from a strategic perspective, How should we see that maybe pairing with the revenue accelerator offering that you already have? And how does it fit into kind of this overall theme of adding more robust functionality, maybe borderline front office functionality, if I would put it that way?

Eric, do you want to maybe start with the thesis of why Common Room? And then I'll jump in with sort of the numbers component.

Absolutely. Okay. So in terms of strategic value, you look at our AI capabilities, we build a federated AI, and also not only do we add those capabilities to the horizontal product lines, but also we focus on the lines of the business, like a content center and a ZRE as well. ZRA, I think, has become more and more important because we add more and more capabilities to our ZRA. We build those products organically and also how to accelerate the ZRA portfolio, right? That's why we acquired Common Rooms. With Common Rooms, with ZRA, plus upcoming, you know, the engagement or the forecast, you know, a lot of new capabilities in the pipeline, you know, our ZV is also uniquely positioned to win in the sales space. We have an AI vertical product to target the sales department. I think that's a big opportunity, you know, for the future quarters. We're very excited about that, you know, synergy between the ZRE as well as the common rooms opportunity.

Yeah, and maybe just to give a little bit more in terms of the guidance. Obviously, our prior guidance included acquisitions like BrightHire. Common Room was folded in here. Look, these are early-stage companies. While Common Room was Zoom's largest acquisition to date at $250 million, these are early-stage companies. And so they're going to be de minimis to the impact of our revenue to a $5 billion base. But for all the things Eric said, we're excited about what they can mean to our future growth, to our system of action, vision. And I think the combination of ZRA together with Common Room is a perfect example of what we're talking about in System of Action, moving into a different layer of value, now helping our customers help drive their revenue. So we're really excited about the future potential. And then maybe just a comment. Of course, when you do acquisitions like this, they don't come with Zoom dusting class margins. And so maybe an element of why we kind of met margins and held them. on the full year is reality state folded. And we'll continue to work those as the businesses scale and abate that difference.

Yeah. A little bit more color about that integration because Common Room is based in Seattle. We have a large AI team over there. I think engineering integration, product integration, and the sales integration are doing very well in just a few weeks after closing the deal. So this is very promising.

Great. Thank you, Bust.

Thank you.

Our next question comes from Satip Hanegrahi with Mizzou.

Thank you. Thanks for taking my question. I just wanted to dig into the contact center. This is one area you see most of the AI driven in our innovations. I mean, in a few years also recently we saw open AI presence there. and even some of the CRM vendors trying to get into, you know, native voice and CX capabilities. So how are you seeing that this, you know, competitive landscape evolving and what's the Zoom's win rate, you know, against some of the other new entrants in the market?

That's a good question. You know, first of all, you know, so many, you know, players in that market, you know, it's good news, right? Because there's a market growing, a lot of opportunities, you know, ahead of us. At the same time, you look at our, you know, the VBA, right? I think you need to get a position because for those, you know, customers, like the deploy, like the meetings, the phone, the contact center, right? It's especially, they would like to consolidate into one vendor because you look at the AI, I think you have access to all the data, right? in a way, you know, are better than, you know, those other vendors, right? So they only focus on one piece, like U-Cost or C-Cost. Oh, it's just the ZBA. We have everything. You know, that's why. Two, you look at our technology, federated AI, our ASR technology, I think it's one of the best technologies in the world. Look at the latency, and also we built all those technologies by ourselves. We also can leverage the third party as well. I think the federated AI approach put us in a unique position. You look at the latency and the speech quality, ASR, TDDH, we keep improving those features. I think also better positioning. and also you know we already won the trust in particular for a lot of enterprise customers over the past many years and they deployed the meetings we tell them we are giving the phone you know doing very well we tell them build a content center also doing very well now you know we added a ZVA and they trust our brand as well so with the UCAT, CCAT, ZVA plus our AI technology we have a high confidence we can execute very well compared to any other vendors Thank you. Appreciate it. I'd like to watch you back on it, CD.

My next question is from Jackson Adder with KeyBank.

Great. Hey, guys. Good to see you. I actually had a question on that particular topic, Eric, on, like, the difference in contact centers. You guys talked about team strength in contact center and virtual agent and that sometimes it's combined and sometimes it would be Thank you for joining us. and that expansion rate you can share on the contact center piece. Is this a land and expand motion or is it just like big lands and not much expansion happening? Thank you both.

Yeah, so, yeah, speaking of ZVA, right, you know, and Q2, a leading enterprise software company, you know, they've deployed Zoom phone service before, you know, they've deployed a ZVA voice and, you know, natural extensions to Zoom phone. So many customers, you know, they've deployed meetings, might look at ZVA. They've deployed phone, also might be looking at ZVA as well. All for sure for contact center customers also look at ZVA. So essentially, we can bond ZVA and contact center together as one solution. And also we sell the ZVA separately as well. Even some customers, they do not use Zoom meeting or phone in contact center. They also look at ZVA as well because it's something new and it's a new market opportunity. So we focus on the two things, the product experience. and make sure, you know, and build something customers really like. The second thing, we own the technology. You know, the speed of innovation is always something customers really like. And that's why I think you look at ZVA, you know, opportunity, I think, you know, we're in a much better position. And even if, you know, we announce ZVA a little bit late compared to some startup vendors, but as we look at the speed of innovation, we have high confidence we're going to keep gaining market share.

And maybe just to layer on with part of maybe some stats in terms of thinking about kind of the typical motions that we see, the short answer is it's a variety of that. And that's why in our prepared remarks, we wanted to kind of paint a different picture of what we're seeing in our customers. But maybe just to give you a couple of stats. In our top 10 ZVA deals, six of 10 came with contact center. So I think it gives you a sense that it is both a sell with motion, meaning somebody when they want that full platform that Eric's talking about. And, you know, they want to go all in with them. And it also paints the picture that some of the customers are starting in DBA. And then, you know, it gives us an opportunity to land an exam from there. Similar sort of comments, I think, on the contact center side, you know, of our top 10 deals. Seven of 10 were at least, so that's an agent being assisted by ARI. and four of our top 10 were DVAs. So all of that away is sort of numerically saying there's many paths to the growth here and we think it's for that reason it gives us a lot to go on going forward.

Okay, thank you guys.

Thank you.

Our next question comes from Ryan McWilliams with Wells Fargo.

Hey, thanks for taking the question. Two-part question for me. For Michelle, just on the online segment, it seems like growth is slightly lower than last quarter. Anything to call out on SMBs more broadly, or is it due to generally lapping the price increase? And then for Eric, as we're seeing AI models improve and organizations build systems around their data and AI, how are your leading-edge AI customers building AI use cases off the data they gather over Zoom? And how do you think this data gravity helps Zoom and your stickiness in enterprises going forward?

Yeah, so let me comment about our online business. Look, I would characterize our Q2 results as low churn, and I think that low churn says, you know, and I think there was an earlier question on this, but, you know, we're having success at demonstrating customer value even amidst the backdrop of a price increase, and you saw the stability of the base go up even further. Look, we took an opportunity, and I'll emphasize it here, to sort of temper the out of prudence, our full year guidance, which had been slight increased to flat. And we're adjusting that really due to dynamics that we saw in Q2, the top of funnel across the industry where people are just discovering products in different ways. And we're aggressively working to address that, meaning they're going from search to more AI. We're active in addressing that. And the prudence is really just a near-term statement of expectations. The big picture is to continue to work to that business to return to growth that comes with components of work in turn, which we feel very good about. Product expansion, which we've never had such a broad portfolio of expansion products that we can open up to our online customers through our AI innovation. And then just continuing to work things like what does this look like in an AI world where we think our brand is also going to be very helpful to us. and working on, you know, conversion. We have a great TCO story that I might also end with from an SMB perspective that I feel like we're going to be able to do great with the audience.

Yeah, so right back to the second part of the question, I think data, as we all know, is extremely important for customers to have the AI. So we look at all of our services, we want to make sure we look at everything from customer perspectives, meaning, you know, like, you know, how to, you know, make sure our data accessible by customer, because we might use other, you know, lots of language models. And let's take my nose, for example, it exposes the context layer, right? So that is one. Two is customers say, yeah, we also can leverage Zoom AI service as well, like Zoom Meet, right? And Zoom Meet can search for all the customer in the content, not only Zoom data, but also the third-party content as well. Give a customer capability and to search, to create an agent, and apply workflow as well. Yeah, essentially, we look at both sides. You know, we... Thank you. Up next, we have a question from Alex Zukin with Wolf Research. Hey, guys. Thanks for taking the question and the time.

Maybe just two quick ones. Eric, can you talk a little bit about the contribution from your new pricing models, both the outcome-based pricing and the consumption-based pricing? When would you expect that to start actually showing up more meaningfully in the net retention rates and in revenue? And then Michelle, just Really, I think the strongest bookings growth, calculated bookings growth and billings growth in a long time. How much should we read into that from a forward-looking perspective around the potential for continuing to see accelerating enterprise growth over the coming quarters?

Yeah, Alex, you know, you know, so in terms of usage-based pricing, as well as the outcome-based pricing is more like for the new AI product. I do not think that works for meeting, right? So, so speaking of the opportunity, take a VBA, for example. You know, by and large, it's still usage-based. But we are embracing outcome-based pricing as well because some customers like that, some customers still like usage-based as well. So we support, you know, we have flexibility to support that. As we gain more and more market share, you know, for ZVA, I think we will see more and more The outcome-based pricing probably can contribute to our top-line growth. Again, this is something new, and the market is also a new product as well. But we have the confidence to support all kinds of monetization opportunities. Especially for internet customers, given the ARM token cost, I think more and more we will increase the outcome-based pricing.

And look on the RPO, I think it's a little bit of both. In our best of quarters, let me remind that we always tell investors that the best indicator of future performance is our revenue value, so you have that. At the same time, look, you're seeing the trend in RPO inflect all up, and it's coming off long-term RPO, and it's because of durable drivers. It's because we're moving our business forward. and so forth. So, from that standpoint, you know, those would be durable elements. Moving that market even further, those would be elements that would be durable. But in terms of doing calculus to get that back into revenue, we continue to point to our revenue drive.

So, by the way, Alex, you know, Speaking of Autocom-based pricing, we also look at other services as well, you know, like VRA and the Brighter High as well. And we look at all those vertical AI products, right? You know, whenever it makes sense, you know, for us to support the Autocom-based pricing model, we would like to do that because it's good for customers as well.

Maybe I'll sneak one in, Eric, on voice and anything that, you know, any exciting elements that we should think about as customers It seems like you have a meaningful opportunity to lean in on voice, again, maybe following from that consumption-based pricing opportunity as well.

Right, huh? API is great, you know, consumption-based, right? And also, like, we already have what I think is probably the best ASR model, right? based on our smaller model with post-training and doing very well. We published the API as well and also based on all the tests, ASR is a much better position. At the same time, to have full-featured speech API sets, we also need to support TTS as well. And the team is working hard on that. If you have both ASR and also TTS and also along with other services, We have a full, I think, speech AI opportunity ahead of us. We're very excited about that.

Our next question comes from Patrick Walravens with Citizens.

Oh, great. Thank you. My favorite part of your call was your custom avatars, Eric. And I think it's such a good... Real-time example of voice AI for us. So, Charles, yours, and you had to do the dreaded... Oh, Patrick, I think you're on mute. The same... Oh, really? It's okay. It's okay. So, Charles had fairly uniform pacing, few pauses, and his intonation consistently fell at the end of the phrase. Eric, yours was better. And Michelle, did you actually use your custom avatar?

I did.

Yours was fantastic.

Thank you.

Yours was really great. So just to help us understand what causes the difference and if a bank wants to use them or if we want our virtual agents to sound really human, what do we have to do to train them so they sound as much like Michelle as possible?

Well, I'll answer this, Eric, because I will admit when Eric kept nudging me to do this, I was laggard in the adoption curve. And it literally took me two minutes to set up. And there's some kind of tips, but I think, like, being as natural as you possibly can, but it literally takes, I think, under two minutes to basically get your avatar set up. And then, of course, we have human in the loop and making sure we review what the avatar says. But a really fun way, I think, to demonstrate our technology and super easy. And for me, Eric, you can give the tech version of this answer. But for me, it was just being as natural as you possibly can in the setup of the avatar because then it just sort of flows through.

So, Patrick, your observation about Michelle's voice is right, huh? The reason why, you know, this is the first time for Michelle to use a customized AI avatar, meaning she is using the latest version. The AI avatar I created is six months ago. So, meaning our technology is getting better and better, and maybe next quarter I'm going to create a new one, like our latest version. By the way, you know, and it's not only for AI avatar. Download AI. Thank you, Patrick. Our next question comes from Tyler Radke with Citi. Yeah, thanks for taking the question. So the enterprise

Bookings and raise on enterprise look pretty solid. I was wondering if you could help us understand just where we are in terms of contact center milestones. I think five quarters ago you talked about it hitting 100 million of ARR for Zoom CX. You've talked about high double-digit growth for multiple quarters. So will you update this at 200 million, 250 million? and is that kind of the biggest driver of the enterprise raise that you're seeing? And then just a quick follow-up question for Michelle. Can you just touch on what's driving the lower CapEx for the year as well?

Sure, sure. Look, I think in regards to milestone, look, we're going to give them periodically as it makes sense. That doesn't mean they come every 100th. and look, you have one that sort of crossed the 100 and then I think since then we've seen high double digits so you can sort of guesstimate from there. Look, the components to the enterprise inflection are the same things I've been highlighting. It's product diversification, of which CX is a piece of that. It's AI monetization, of which CX is part of that. It's moving up markets. CX is part of that, but the theme being it's building out a channel and CX is part of that, but it's certainly not just CX alone. The other thing that I will say on maybe the core enterprise standpoint, and I think this is one that investors frequently ask about, the year-over-year churn has gone down, and that's been a steady trend over the last year to two. And then, you know, people will ask on occasion about pricing elements and all of that, and that's been something that we've been working very hard on in finance together with sales to really make sure that we're getting discounts down and deal terms up and auto renewal. So, look, all of that a long way of saying that many components go into that enterprise growth, and certainly CX is part of that. On the CapEx, look, I would say I think when we went in the year, the guidance was $70 million of CapEx. And just to remind investors, FY26 was really a low year in CapEx, and so we were returning more to normal states. Look, we took a decision that benefited our pre-cash flow raised by about $40 million to simply extend in one of our data centers the useful life of the asset by two years. And so because CapEx was sort of a lumpy kind of story going into the free cash flow and more so because of the anomalous here in FY26, we just simply wanted to update to investors. We're also saying we're not a huge CapEx business and none of this is really AI. It's more just dynamics in our core.

Thank you.

Our next question comes from Alan Berkovsky with BTIG.

Hey there, thanks for taking the question. Michelle, I have a two-parter for you. One, can you share what trends you're seeing in enterprise workplace e-growth across larger versus smaller customers? And then the second part is, given the updated fiscal 27 constant currency total revenue guide implies roughly 30 million more enterprise revenue, can you talk through the main drivers of confidence in such a strong raise and Is it fair to assume, given the prior comments, that Common Room is contributing about $10 million or less than that to that updated guidance?

Yeah. Okay. A lot in there. Let me try and get some. So, look, from a workplace perspective, what we typically talk about with investors is an online churn rate. And, look, you've seen that continue to be low. I think at our lowest, we're $2.7, $2.9 is very much in the norm. And and to my earlier comments, we feel great about what that says about both the stability of our business with our customers over 16 months going up 75% as well as the incremental value that we've put in our platform and AI. On the enterprise side, what we talk to with investors is the dollars of the turn going down year over year and certainly Q2 continued in that. So we don't really get too much disclosure other than those two But I would broadly call the trends very much in line with what we've been seeing. On the constant currency and the enterprise, look, for the sake of re-repeating myself, it's all the same dynamics that I've been highlighting on our enterprise growth, product diversity, product diversification, excuse me, AI monetization, moving up market, building out a channel, and keeping that trend low. And then obviously we folded in our common room in this. We're not, you know, just because it's a small component of our revenue, we're not going to get into sort of quantifying this, but it certainly was folded into the revenue guide. And then, you know, I'll just reiterate my comment that these are very early stage companies that we're very encouraged with the growth and what they can mean to our system of action, to all the things Eric commented on earlier. But relative to 5 billion days, these are de minimis kind of impacts. Thanks.

Thank you, guys.

Our last question comes from William Power with Baird.

Okay, great. Thanks for sneaking me in here. Maybe, too, then, if I can, let me start on Work Vivo. That was a nice milestone update in the quarter. I'd love to understand the ongoing cross-sell opportunity. My suspicion is it's probably still early. But how do we think about that and what that kind of portends for the continuing growth in that product? And then, Michelle, just given the strength you're seeing in enterprise, RPO, I'm just trying to kind of square that with the full year revenue raise versus, you know, the beat in Q2. You know, it feels like some conservatism. Just anything to think about in the second half of the year on that front.

Eric, do you want to take word for us?

Sure, absolutely. I think it's speaking of Workavivo opportunity. We are very excited about it because, you know, look at the opportunities we've had over the past few quarters. Quite often, those customers are not Zoom customers at all. But, you know, they deployed the Workavivo. So, meaning, you know, for all of our, you know, a lot of enterprise customers in the database, you know, more opportunities for us to upsell Workavivo. And also, Workavivo launched Workavivo HQ. AI-driven product as well. Because in the AI era, data is becoming more and more important, right? And the employee engagement is also becoming more and more important, right? To drive the company culture. And with Workable HQ, I think Workable is in a better position than before with the new launch. So we're very excited about more and more opportunities in the enterprise space to win more deals.

And then, you know, maybe with the guide, let me just talk to kind of the full year and the dynamics that I think about. Look from a constant currency, it represents a beat of 7.5 and a raise of 9 on the full year. And we feel good about kind of the dynamics underlying that. And already guiding to the 4.5% growth halfway through the year. And considering, I'll just continue to remind investors about white-label churns. that has a 40 BIPs point. So you can kind of look at that relative to the growth rates of last year. Look, fundamentally, I think I've drained it in so many questions. What's behind that is our enterprise growth inflation. You saw it this quarter was one of the best growth rates, you know, we've had in three years. It's product diversification. It's AI moving that market, keeping churn going. Lowe, and delivering against those three priorities that we talk about, which are going to be the durable elements of our growth going forward. It is the only one that I would just – we talked about it earlier, but to your question of kind of how to reconcile it, we took the opportunity to kind of slightly temper the expectation online. We said previously slight growth. We adjusted down in this earnings to flat, really because of a dynamic that we saw in Q2 – This concludes the Q&A portion of today's call. I'll now turn it back over to Eric for closing remarks.

Thank you. So to all Zoom employees, customers, and partners, and also investors, we truly appreciate your support. We will continue innovating to build something we feel proud and also delight our customers. Thank you so much. See you next quarter.

Thank you. This concludes today's earnings call. Thank you for attending, and have a great rest of your day.