ZM - NASDAQ

Okay. Hello, everyone, and welcome to

Thank you, David. Hello, everyone, and welcome to

Hey. Thank you, Tom. Thank you everyone for joining us today. In FY ‘24, we made a tremendous amount of progress towards our mission of one platform delivering limitless human connection. As Generative AI began to take the world by storm, we listened carefully to customers in order to deliver AI that can best serve their needs, with innovation that is responsible, empowering, and built from the ground up in a way that permeates and unifies our entire platform.

Thank you, Eric, and hello, everyone. Let me start with a few of the financial highlights for FY ‘24. We were pleased with our strong finish to the year with Enterprise Revenue growing 9%, and free cash flow up 24%. We also achieved a non-GAAP operating margin of 39.2%, up 326 basis points from 35.9% in FY ‘23. In Q4, we saw traction in our emerging products, including a nearly 3x increase in

Thank you, Kelly. As Kelly mentioned, we will now move into the Q&A session. When I call 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. And our first question comes from William Power with Baird.

Okay. Great. Thanks. I guess -- well, Kelly said to hold this for Tom, but Tom wanted to say thank you for your help over the years. Kelly, maybe to kick it off with you, as we look at guidance, maybe just talk about what's providing confidence of the year-over-year growth should trough in Q2 if I heard you right? How do we think about the key drivers then to perhaps accelerate year-over-year growth in the back-half of the year and perhaps into fiscal '26 and how do we think about that trajectory over the ensuing 18 months maybe as we get past that.

Yeah. So when you think about your coming down in Q2, but then accelerating in the back half. This is the culmination of what we've been talking about for a while, which is the growth being driven by

Okay. Thank you.

Thank you. Our next question comes from Meta Marshall with Morgan Stanley.

Hi, Meta.

Thanks. Just wanted to ask maybe just in terms of, on the deferred revenue in the past quarter, you mentioned that deferred revenue would kind of be down this quarter or we saw it come down. And just wondering, last quarter you talked about the terms that you were seeing, people extending their deals come in a little bit, just any trends that you're seeing just in terms of renewals. And what you're kind of seeing in terms of renewal there in terms of products that they're adding but just also maybe term compression, they might be seeing. Thanks.

So, we've continued to see strength in renewals are, huge thanks to our renewals team in Q4 actually did an amazing job of exceeding their target, which was great to see. And what we have seen is the continued trend of our customers wanting shorter payment terms, they're hanging on to their cash. Remember, we talked about this in Q3, but that's really what contributes to the decrease in deferred. And then the other thing is the timing of renewals. We are seeing customers not necessarily wait to their renewal period to start these discussions. For example, I renewed -- I reviewed a proposal today for a customer that's not going to renew for six months. So, customers are really thinking ahead about their contracts and being very thoughtful about this. And what that does, it creates some variability in both the RPO and the deferred, because it's very sensitive to the timing of these things.

Great. Thank you.

Thank you. Our next question comes from Ethan Bruck from Wolfe Research.

Hey, guys. Congrats on these results, and I'm asking a question on behalf of Alex here.

Hi, Ethan.

So. I guess my question would just be a little bit back on the guidance for fiscal '25, just if you can give some puts and takes, I know you said you're not factoring macro improvement. But how should we think about both the enterprise and online piece, I know you guys are rolling out some pricing increases. So maybe how to factor that going into numbers for next year. And just also the NRR piece, maybe roughly when you're expecting that to trough, Is there any color on that would be great?

Yeah. So in terms of the enterprise of the direct sales organization, we kind of touched on this in the prepared remarks, but they're off to a fast start this year, we're really excited about that. If you remember last year, we had not only the overall reduction in the company, but the sales reorganization, which took a lot of time for the organization to recover from frankly and so, seeing them well-positioned to start off this year strong is really exciting to see. And that's certainly going to contribute to the overall growth that we're expecting to see, especially in the back half of the year. And then from an online perspective, really pleased for example with the Q3 churn metric. I think considering that we typically see seasonally higher churn in Q2 and Q4, that churn rate falling from Q3 to Q4 at that lowest rate of 3.0 is really indicative of all the improvements that the team has made to the platform, the ongoing initiatives they put in place. And so all of those considerations is what gives us confidence around the FY '25 guide.

Got it. That makes sense. Just a quick follow-up is just around some of the AI, like you are successfully embedding it across the platform. I'm just curious, as we think about kind of the monetization angles over the next few years. I mean if you were to stack rank where you think the combination of moving users to higher SKUs matching price-value, you guys are obviously already doing or getting folks to adopt more products on the upsell side in the contact center, for example, curious how you guys are thinking about that right now.

I can take it. So -- and we're monetizing on many fronts. You look at our

Got it. Thank you, guys, and congrats on the results.

Appreciate it. Say hello to Alex.

Our next question comes from Tyler Radke with Citi.

Thank you for taking the question and apologies for the quality, I'm in transit at the moment. Wanted to ask you about the recently announced buyback $1.5 billion is impressive, 7% of your shares outstanding. But, I guess how did you kind of come up with that number, and does that signal anything about the size of potential M&A that you're hoping to do, anything that you can just share in terms of why now, and the decision process would be helpful. Thank you.

Yeah. So, we've talked about this many times in the past, every quarter we have this discussion about capital allocation with our Board, of course, with Eric, and with $7 billion sitting on our balance sheet today and the strength of our cash flow outlook for FY '25, we feel confident that having an authorization in place does not preclude us and still provides us plenty of flexibility to do M&A transactions that we might see as exciting in the future. And we continue to look for any opportunities that make sense to bring another organization to the

Okay. Our next question comes from Tom Blakey from KeyBanc.

Thanks everyone. Good to see you, Eric, and Kelly and congratulations on the, I'll say, early retirement, Tom. Just point of clarification first, Kelly, on I think Meta was asking about 2Q in the guide. And you mentioned something about being that, were you implying just point of clarification that fiscal 2Q would be down quarter-on-quarter from fiscal 1Q?

We're saying that the year-over-year growth rate in Q2 will decline as compared to the year-over-year growth rate in Q1. Yes, it will be positive. It won't be -- It's not going to go negative based on our current outlook, but it will be lower than the year-over-year growth rate in Q1.

Sorry for the handholding there.

No, it's okay.

My key question would be on CCaaS, it sounds like you're off to a great start. There's a lot of demand out there. Hearing from your peers. I'd love to just give you the opportunity to talk about pricing, uptake of some of the Virtual Agent, Agent Assist functionality and maybe any type of what you've baked into fiscal '25 in terms of visibility here as you come out very strong here in the fourth-quarter -- in the fiscal '25. Thank you.

Eric, do you want to talk about the Contact Center in general for a minute first?

Sure, absolutely. I think Tom you may not know actually, recently I got a new job here at

Based on your enthusiasm, Eric, I am going to raise your quota.

Yeah. I raise the quota to the system every day. So, there's no difference, so.

And Kelly, look what kind of outlook, are you baking in terms of the strength there and the visibility commentary about fiscal '25 and then is that -- this is just enterprise right now, right. This is that no self-service online here, right?

Correct.

Not yet, but -- yeah, you're right on. See, thank you for helping us to monetize Contact Center in other ways.

Yeah. So, Tom, we looked at the trends that we've been seeing the number of customers, the growth rate, the size of the deals, which have been expanding over the last several quarters. And just -- and of course, sales capacity and taking all of that in consideration, including the new pricing tiers. That's how we built our outlook for FY '25.

Thank you.

Yeah.

Okay. Thank you. Our next question comes from James Fish with Piper Sandler.

Hey, guys. Thanks for the question here. Tom, congrats on the announcement and Eric, good luck with the increased quota from Kelly now. Kelly, just going back to a couple of questions ago, on how to think about the quantitative approach here on past or future price increases on the guide for this year? And for Eric, what's causing customers to move over to the

Kelly, you want to take the first one.

No, You go ahead. You go ahead first.

Sure. So James one thing I think we did not do well, as I mentioned even before is, we did not do well on marketing front. A lot of customers, users, they do not know

Thank you, Eric. In terms of the price increases, James, so certainly be online price increases that we talked about last call, and they were implemented in Q4 are in all of our forward-looking guidance. And then the renewals team as they're talking to our customer about renewals where there are opportunities for price increases, we've seen those trends over the last few quarters have been doing that and that would also show up in the pipeline that the team has out there. So in that context, it's also been considered.

Yeah. By the way, James and all, all the analysts that are here. If you are logging with the

You can have one-on-one access to Eric, James. [Multiple Speakers]

Sounds good, Eric, don't worry. I won't annoy you too much.

Awesome. Thank you, James.

Thank you. Our next question comes from Matthew VanVliet with BTIG.

Hey, good afternoon, and thanks for taking my question. I guess one more on the Contact Center. Curious in terms of how the mix is maybe different with channel involvement and partners being involved in those deals over the last couple of months as you really invested in the channel program. And then secondarily, what is the mix of I guess, the contact center sales into existing customers especially existing

Yeah. So, Kelly, feel free to chime in. I think for the core meeting product, by and large is directly driven and

The only thing that I would add to that is, that we're very excited, we hired Chris Morrissey in November. He is a veteran in this space. So really excited to have his talents here at

Okay. Thank you.

Yeah. By the way, Chris reports to me directly, he came from NICE, inContact.

All right. Great. Thanks.

Thank you.

Thank you. Our next question comes from Siti Panigrahi with Mizuho.

Hi Siti.

Thanks for taking my [Technical Difficulty] So I wanted other growth driver you have, phone. From the phone side, so help us understand, like what's your penetration right now within the installed base on the phone side. And any update in terms of whether a number of states or revenue you have by end of this fiscal year.

Yeah. So we are really excited about the ongoing strength and growth in

Thank you.

Yeah. Okay. Thank you. Our next question comes from Arjun Bhatia with William Blair.

Eric, thank you. Maybe going back to the Contact Center piece and trying to loop in the AI Expert Assist side, when you're when you're seeing customers come in, are they adopting the premium tiers off the bat and do you have a sense of whether the usage of Expert Assist is picking up as a result or is this something that we should think of as a future upsell driver as customers kind of land maybe at the low-end, and then expand over time.

Yeah. That's a good question. The reason why we introduced the multi-tiers in Contact Center because if we really look at it from a cost perspective, each customer has reported a dip in the demands or requirements and sometimes they do not care about social media channel, right. And they just need core functionalities, right. Just a few 100 assist and then migrate from other cloud-based upon contact center solution really do not need a Workforce Management or Quality Management, right. That's the reason why we have three tiers now, right. And quite often follow the SMB customer. I think that

And just further to what Eric said, the packages are off to a really great start. We've had approximately 3,700 licenses sold in those upper tiers and the ASP for those is double what our existing ASP was before we introduced those additional tiers. So it really shows you how this is going to not only address the broader market, but also accelerate our revenue growth here.

Yeah. It used to be a little bit over 50 now it is 100, this is great result, so.

Great to hear. Awesome. Thank you.

Thank you.

Okay. Our next question comes from Imtiaz Koujalgi with Wedbush.

Hi, Imtiaz.

Hi. How are you? Thanks for taking my question. I've a question on the guide for next year. Kelly, how do we think about the breakdown between enterprise growth and online for next year, should we see online start growing year-over-year in '25?

Yeah. We aren't going to give specific guidance for the segments. But we're really focused on continuing to have stabilization in the online segment, what you saw happen again this quarter is actually both quarter -- both segments were slightly up in Q4, which was great to see and really focusing on the initiatives to drive basically stabilization is how I would think about for FY '25 and the online segment.

Got it. Thanks. And then one follow-up for Eric. Eric, you mentioned increasing deal sizes for Contact Center. Can you compare when a customer buys

I think it's good question. I think for sure I do not think and compare that with

Thank you.

Thank you.

Okay. Our next question comes from Matthew Bullock with Bank of America.

Hi, Eric, and Kelly. Thanks for the question. I'll be asking one -- we have a microphone today regarding

Yes. Great. So first of all, I want to tell you from architecture perspective, we are ready already for bigger, very, very big aligning with customers in terms of number of concrete agents, and we did a test, it works well. For now, but just focus on the future set. Again, we already have lots of features, most of the customers they can deploy

So, super helpful. Thank you.

Appreciate it. Thank you.

Okay. Our next question comes from Mark Murphy with J.P. Morgan. Mark, are you there? Okay, will move ahead, it's alright.

[Multiple Speakers] Excuse me, he just came off mute, there you go.

Hi, Mark.

Sorry about that. This is [indiscernible] on for Mark Murphy. Thanks for taking the question and congrats on all the milestones. You mentioned in your prepared remarks about how AI Companion is into your Contact Center suite of solutions. In our discussions with industry contacts, those sort of applications for gen AI have been pretty scaled -- pretty strong and a lot of customer interest. Are you guys seeing a similar pattern with the customers, is that an area where you're seeing kind of an outsized interest to utilization of AI tool? Thanks.

Yes. I think it's very similar. I mean, you look at a

Thank you very much.

Thank you.

Okay. Our next question comes from Matthew Harrigan with Benchmark.

I'm sorry, I actually wasn't -- I didn't have my hand up. But since you asked, do you have any thoughts on the relative macro strength you're seeing in different markets pacific rim, Japan obviously, Buffett was just extolling the virtues of Japan, it is an investment area right now, Europe, U.S., etc. Thank you.

Yeah. We agree, we see Japan as certainly a very important market for us and it is a core focus for FY '25 is reinvesting and reinvigorating our go-to-market teams in both EMEA and APAC. We have new leadership in some of those markets and are really excited again about the quick start the teams being in market and we're ready to go and look forward to great things from them this year.

I'm very facile of that mute button, since I was even expecting being called on, so I probably -- I should get brownie points for that.

Thank you.

Good job. Good to see you, Matthew. Thank you.

Thanks.

Thank you. Our next question comes from Peter Weed with Bernstein.

Thank you very much. I really appreciate all the detail and it's obviously pretty exciting news to see all the expansion opportunities going on with the enterprise customers, along with kind of maybe a fore coming in with the Online customer groups. I guess two follow-ups, got around the enterprise customers. I don't think you commented on how churn is evolving with those customers. And obviously, with continued tailing NRR. I'm trying to unpack what portion of that coming from churn versus what portion of that is coming from the kind of continued refresh cycle you have with like long-tenured customers that are still coming down on seats. And then the second part is kind of you look through on that NRR and you're talking about some acceleration going on later this year and I think that's starting to mixed in and customers that no longer those long tenure that has seats coming down and it's really being replaced by those that expansion is really in functionality is coming in. If you look at those customers that are kind of past their seat readjustment how expansive are those customers that we can maybe, look forward to out a year or so being a greater portion of the mix.

Yeah. So it's a really good point here. So we've talked about this a few times, but in FY '24, we know -- we saw that the majority of our customers had a renewal event. So they had the opportunity to work with us as they needed to potentially right size their seat count. Again, our renewals team has done an amazing job of taking the opportunity to talk to them about the opportunity to upgrade to

And the churn side of it. How much of the roll-off and NRR is because churn has gone up or is it continuing to be what it has always been on the enterprise side pretty stable?

It's been pretty stable. We did -- we've talked about, these customers that we're rightsizing. You saw -- given the reduction that we saw across our customer base and you saw generally in organizations last year there was some impact for that, but the churn rate themselves have been pretty stable. And you remember that our net RR number is a trailing 12-month metric. So you're likely going to see a little more decline in that metric before it starts to reaccelerate again along with our revenue that we're expecting to see at the back half of this year.

Thank you. I appreciate it.

Yeah.

Yeah. Okay. Thank you. Our next question comes from Shelby Seyrafi with FBN Securities.

Yeah. Thank you very much. So adjusted for the two fewer days in Q1, you're guiding for a 3.6% -- 4% growth in Q1 and for the year, you're guiding for about 1.5% growth. I know you are bottoming Q2 but it seems like with a reasonable projection still going to be like 2% growth roughly half the 4% growth in Q1 in the back half of the year, you're going to have these new products ramping, the Phone, the Contact Center, AI, etc. I'm trying to understand why you don't expect an adjusted revenue growth acceleration in the back half instead of the implied deceleration, I get in my model.

Yeah. We do -- we are guiding to 1.8% in Q1. So that's the outlook that we're giving. If you're backing into something different, but the guidance that we're giving is a reminder is 1.8% and then 1.6% for the full year, with the decline that we're expecting from a year-over-year growth perspective in Q2.

Let me be clear, but Q1 has a 1.8% hit from the two fewer days. So adjusted for that is 3.6% growth in Q1, right. So apples-to-apples 3.6 goes down something like 1 or 2 in the back half of the year and you have new products ramping in the back half of the year. So, I am trying to [Multiple Speakers] on that.

Yeah. So as I mentioned in the prepared remarks, we are not assuming any improvement in the overall macroeconomic outlook and/or changes significantly in terms of our international contribution. So all of that combined, we're taking what we believe to be an appropriately prudent outlook for the year.

Okay. Thanks.

Okay. Our next question comes from Catharine Trebnick with Rosenblatt Securities.

Hi. Thanks for taking my question. Much appreciate it.

Hi, Catharine.

So back to the Contact Center, to beat a dead horse, it seems like there is this -- a lot of the Information I gathered was there's a big push for light contact centers and it seems that

I think direction-wise, you're still right. And on the one hand for the real human agent they still need a modern contact center solution while working hard on that to replace legacy vendor solutions or other cloud-based solutions. On the other hand and if it is more and more demand I think on the customers, they are not going a human agent anymore, right. can have a virtual agent. I think that is the reason we also sell

All right. Thank you.

Thank you.

Okay. Our next question comes from Peter Levine with Evercore.

Well, great, thanks for squeezing me. And I'll just give you a quick. Kelly, your comments on M&A, can you share with us what you're thinking in terms of inorganic contributions, but what area would you consider is at CCaaS, is it like workflow optimization, you have got collaboration, but any sense on kind of where you're thinking or how you're thinking about adding to the portfolio. Thank you.

Yeah. We've been exploring opportunities actually across all of those areas, Peter, we look for opportunities to either accelerate what we already have, which would obviously be in the CCaaS space and a good example is, what we did in the past with Solvvy around our

Yeah. You're just right on, just either technology-driven or just expand on the cap[ph] or maybe double down on our existing services. Pretty much those three things. We're interested in all three.

Thank you.

Appreciate it. Thank you.

Okay. We only have time for one more question and that comes from George Iwanyc with Oppenheimer.

Thanks for taking me. Kelly, maybe expanding on your comments on the sales side and the reorg, how do you feel about your productivity in North America and internationally, and when you look at investing this year, where are you putting the most effort?

Yeah. So you saw in our results for Q3 and Q4 that we had reacceleration and sales productivity in the back half of FY '24, and again, off to a really fast start for FY '25. So excited about that. We are investing in both direct and channel on a global basis, as it's really important that we keep fueling the growth driver that we have here in North America, but also reinvesting and reinvigorating our international markets as well.

All right. Thank you.

Okay. Thank you, everyone. This concludes our Q&A and. I would now like to pass things back to Eric for closing comments.

Well, thank you all for your support and thank you all for your time. Really appreciate it. And see you next quarter. Thank you.