Zoom(ZM) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue grew approximately 4% YoY to $1.178 billion, exceeding guidance by$ 13 million [24] - Enterprise revenue grew 6% YoY, now representing 59% of total revenue, up 1 point YoY [24] - Average Monthly Churn decreased to 2.7%, down 30 basis points YoY, the lowest ever reported [25] - Non-GAAP gross margin was 78.9%, down from 79.7% YoY, primarily due to AI investments [27] - Non-GAAP operating income was $458 million, exceeding guidance, with a 38.9% operating margin [28] - Non-GAAP diluted EPS was$ 1.38, $0.07 above guidance and$ 0.09 higher than Q3 last year [29] - Deferred revenue grew 5% YoY to $1.38 billion, with RPO increasing 5% YoY to$ 3.74 billion [30] Business Line Performance - Zoom AI Companion Monthly Active Users grew 59% QoQ [23] - Workvivo customers grew 72% YoY, driven by the Meta partnership [23] - Zoom Contact Center customers surpassed 1,250, up 82% YoY [23] - Enterprise customers contributing over $100,000 in TTM revenue grew 7% YoY, now representing 31% of revenue [25] Market Performance - Americas revenue grew 4% YoY, EMEA grew 5%, and APAC was flat [26] - On a constant currency basis, EMEA grew 3% and APAC grew 2% YoY [26] Strategy and Industry Competition - The company unveiled its new vision as an AI-first Work Platform for Human Connection, extending its strengths in unified communication and collaboration [7] - AI Companion 2.0 was released, showcasing innovation and customer obsession, with features like Meeting Summary and Smart Compose [9] - Custom AI Companion add-ons for Healthcare and Education were announced, aiming to meet specific industry needs [13] - Zoom Workplace for Frontline was introduced, targeting industries like retail, healthcare, and manufacturing [14] - Contact Center and Workvivo are key pillars of the strategy, with significant traction in both areas [15] Management Commentary on Operating Environment and Future Outlook - The company expects Q4 revenue to be in the range of$ 1.175 billion to $1.18 billion, representing approximately 2.7% YoY growth [31] - Full-year FY25 revenue is expected to be in the range of$ 4.656 billion to $4.661 billion, representing approximately 2.9% YoY growth [32] - The company raised its top-line and profitability outlook for FY25, with non-GAAP operating income expected to be in the range of$ 1.813 billion to $1.818 billion [32] - The Board authorized an incremental$ 1.2 billion share repurchase, bringing total unexecuted buy-back to approximately $2 billion [33] Other Important Information - The company announced a new corporate name: Zoom Communications, Inc., reflecting its evolution into an AI-first work platform [21] - The company highlighted significant customer wins, including a 20,000-seat Contact Center deal with Spain's national revenue service [17] - Integration with ServiceNow's Now Assist was deepened to bolster Generative AI product offerings [18] Q&A Session Question: Customer interest in AI and roadmap - Customers are highly interested in AI, with over 4 million accounts already enabled with AI Companion [37] - Feedback on AI Companion 2.0 was extremely positive, with customers appreciating the innovation and no additional cost [37] Question: Budget allocation for AI and macroeconomic outlook - Companies are allocating budgets for AI differently, with some consolidating into existing vendors and others shifting budgets from other areas [43] - The macroeconomic environment is improving, but it is too early to tell the full impact on spending [46] Question: Factors driving the 20,000-seat Contact Center deal - The deal was driven by trust in Zoom's scalable architecture, feature set, and pace of innovation [51] - The company's ability to support large deployments from day one was a key differentiator [52] Question: CFO's perspective on the job and future outlook - The CFO is focused on accelerating top-line growth, managing margins, and capital allocation [61] - The company will provide FY26 guidance in the next earnings call [61] Question: AI investments and impact on gross margins - AI investments are focused on back-end infrastructure, Workplace platform, and Contact Center features [66] - The company expects to monetize AI through customized AI Companion and Contact Center offerings [67] Question: Monetization opportunities for AI - AI monetization is already happening through Contact Center and Revenue Accelerator, with more opportunities expected in the second half of next year [76] - Customized AI Companion and AI Companion Studio will be available in the first half of next year, offering monetization potential [77] Question: Growth drivers for next year - The foundation of Zoom's growth is the meetings platform, with emerging products like Contact Center and Workvivo driving future growth [84] - International growth, channel expansion, and up-market opportunities are additional growth vectors [86] Question: Deferred revenue growth and conservatism in guidance - Deferred revenue growth was driven by tightening discounting and lengthening billing terms, with similar dynamics expected in Q4 [90] - Revenue is considered a better measure of business performance than deferred revenue [93] Question: Market strategy and importance of price - The company's strategy is based on better product, better price, and better service, with a focus on building long-term trust [96] - The platform approach and AI at no additional cost are key differentiators [98] Question: Workvivo growth and Meta partnership - Workvivo growth is driven by the Meta partnership, with strong pipeline and momentum [105] - The company is focused on innovating and growing the Workvivo business [106] Question: Path to long-term operating margins - The company is investing in AI, emerging growth businesses, and the platform, with a disciplined approach to expenses [112] - Long-term margin guidance is lower than current levels due to these investments [113] Question: Customer interest in integrating data into AI Companion - Customers are showing strong interest in integrating internal data into AI Companion, driving monetization and product stickiness [120] - The company's open platform approach and competitive pricing are key differentiators [123]