ZM - NASDAQ

Well, hello, everyone, and welcome to

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

Thank you, Charles. Thank you, everyone, for joining us today. In early October, we hosted

Thank you, Eric, and hello, everyone. It was great to meet many of you at

Thank you so much, Michelle. And as Michelle mentioned, we will now move into the Q&A session. So when I call your name, please turn on your video and unmute yourselves. And as a reminder, in an effort to hear from everyone, we please ask that you limit yourself to one question. Our first question will come from Meta Marshall with Morgan Stanley.

Great. Thanks so much. Congrats on the quarter. Maybe for you, Eric. I just wanted to get a sense coming out of

Yeah, Meta, those are great questions. The theme of

Great. Thanks.

Thank you. We will now hear from Kash Rangan with Goldman Sachs.

Hi. Thank you very much. I'll echo the congratulations, and congrats to you, Michelle, on your first earnings conference call with

Yeah, Kash, thank you. And it looks like you are driving. So, regarding AI costs, every company is thinking about where to allocate the budget. Should they get more money or funds to support AI? Every company is different. Some internal customers have a new budget, some consolidate into fewer vendors, and some save money from other areas and shift the budget towards embracing AI. Given our strengths in quality plus no additional cost,

Maybe if I can add in, Kash, maybe unasked but an important note is our forecast assumes macro conditions and spending conditions relative to what we saw in Q3.

Alright. We'll go ahead and move on to Arjun Bhatia with William Blair.

Perfect. Thank you. And congrats on the reacceleration here. Eric, maybe if we can switch gears a little bit to Contact Center. You have that 20,000-seat deal with the Spanish Revenue Service, I believe, this quarter. That's a very large deal, very impressive. Can you just maybe elaborate a little bit on what were some of the major factors that drove

Yeah, great question. Given that I still wear the hat of

Thank you.

Thank you.

Our next question is going to come from Patrick Walravens with JMP Securities.

Patrick, you are muted.

I'm unmuted now. Can you hear me?

Yes.

Okay, great. Congratulations. Michelle, I think I'm going to focus on you if that's alright. Can you just tell us again why you took this job? What you found so far? And then maybe you obviously haven't guided for next year yet, and you're early in your tenure, but maybe any points that you would share with us in terms of how to think about next year?

Yeah, great. Thank you for the question. Let me go back and just remind people I came to

Okay, great. Thank you.

James Fish with Piper Sandler has the next question.

Hey, guys. Thanks for the question. Maybe, Eric, for you, on the AI side, you guys are talking about AI investments obviously impacting the gross margins. You talked about that last quarter. But where do we think about the AI investments actually going into? Is it sort of the backend infrastructure or thinking about it more on the Companion side and more modules? How are you feeling about the AI portfolio for Contact Center generally? Then just, Michelle, for you, on the lengthening billing terms, we're starting to see a difference between RPO and billings for sure, but a big divergence really on the current and non-current RPO trends this quarter. Can you just walk us through what happened there despite the comment on the net billing terms? Thanks.

Yeah, James, great question. I can address your first one. Look at AI. We have to invest more in a few areas. One is our

And, James, maybe to answer your question on RPO and specifically why we see the current piece go up, we are seeing just to convert and lengthening billing terms, so we're encouraged by that as an indicator both in online and enterprise of our customers' dedication to

And we will now hear from Alex

Hey, guys. Congratulations on a solid quarter. Maybe just I'll say one and a half questions. On the monetization side, Eric, as you're starting to see AI Companion additions and interactions start to scale, as you think about the kind of ultimate monetization opportunity of AI in terms of the broader portfolio, how, when, where should we see it? Is it through selling Contact Center that's more AI-native into the overall base? Is it the verticalization of the AI Companion 2.0? Is it a better AI Companion expanding? Just give us a flavor for the how and the when. And, Michelle, if I look at forward KPIs, I see enterprise billings growing double digits again. I see CRPO growing double digits again. I see churn for the online business basically getting lower every quarter by 20 to 30 basis points. Why shouldn't we kind of extrapolate that as the online business stable flat, enterprise business accelerating from here?

Eric, do you want to go into monetization? I'm happy to tag in too on the KPIs.

Then I can address the first one later.

Yeah, so to answer your question, and, Alex, obviously, we're not going to guide to 2026 and tell everyone. But I would say we feel good about the beat to forecast. We feel good about the implied raise to Q4. And we feel good about the overall acceleration. If you look at our H2 growth, it's above H1. So net-net, in terms of what we've said and what we've guided, it's delivering on what we said. And then you kind of go to the underlying KPI and you look at it, and I think there's a lot of strong fundamentals. So look, I'm not going to confirm the numbers that you gave, but I think maybe one way to think about the models for revenue is we've given a Q4 revenue growth guide, I believe the midpoint of that growth rate probably represents a reasonable proxy for how to think about revenue growth into FY2026.

Yeah, Alex, by the way, we'll share more in detail in the Q4 earnings call. You will see the deadline by 2026. By the way, you mentioned online. Remember, two years ago, FY2023, when I look at the online business, it declined by 8%. A year ago, 4%. Now this year, flat. You see the trend is very positive. So back to the question of AI monetization, we already monetize AI today. But not for the Workplace product, for the upgrading services. Like Contact Center. Like

Perfect. Thank you, guys.

Thank you, Alex.

And then, oh, back to your question. In online, kind of the way that I would think about Q4 is sort of flat to slightly down. And then certainly, because I get this question a lot, the ambition for online is growth. Just want to make sure I answered your online question.

Thanks again, Alex. And we will move on to Siti Panigrahi with Mizuho.

Great. Thank you. Michelle, congrats on your first earnings call. You talked about your focus to reaccelerate top-line growth. Can you guys hear me?

Yes, we can hear you.

Okay, good. It's good to see the platform momentum, your NRR, and now you talk about multiple products like Phone, Contact Center, WorkVIVO, Customer AI Companion. A lot of different products you are talking about that will layer in growth. So as you look forward to next year, which products are you more excited about, and how do you rank these products when it comes to layering the growth to the core platform?

Yeah, it's such a great question. I guess I would start with just sort of the foundation of

Thank you. Thanks for that color.

Alan Varkovsky with Scotiabank has the next question.

Hey, guys. Thanks for taking the questions here, and I'll echo the congrats on a strong quarter. Michelle, it looks like the deferred revenue growth in the quarter came in right as you guys were expecting, which is a slight change of pace from the beats we've seen there. There are a number of large deals you highlighted in the quarter, like the Contact Center deal with over 20,000 seats. Can you just walk us through the puts and takes there in the quarter? Perhaps give us a refresh about the level of conservatism you're embedding in your Q4 guide of deferred revenue growth being 5 to 6%.

Yeah, so first of all, I would say, you know, we guided that it'll be 5 to 6%. We grew 5% in Q3, and we guided to 5 to 6%. So just to reorient everyone, the dynamics of what's driving that are tightening of discounting and lengthening of billing terms. We expect those to obviously continue into Q4. So, you know, in terms of what may be, you know, how to think about it in terms of our guidance philosophy, I would say it has very much the same. So I've continued a guidance philosophy similar to what has been had historically at

Okay, thanks, guys. Congrats. The other thing that I would mention, nothing different to what

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

Yeah, great. Thank you all for the time. One for you, Eric. So, you know, you really created the iconic brand with

Yeah, so that's a great question. I think, you know, our philosophy from day one has always been a better product, a better price, and a better service. First of all, our customers care about the product experience. We make sure they know the customer likes us. Look at the recent Gartner Peer Insights report.

Great. Thank you, Eric.

Thank you, Michael. Appreciate it.

We will now hear from Samad Samana with Jefferies.

Hi. Good evening, and I'll echo the congrats on the next quarter. Maybe on WorkVIVO, I know Meta announced that it would be sunsetting a Meta Workplace product, and it would be in stages over 2025 and 2026, and it's steering customers toward WorkVIVO. Can you guys help us think about how you're thinking about that ramp? You've had good momentum there. Customers grew 72% year over year. Can you quantify maybe how much of the growth is coming from Meta and how we should think about that momentum going forward?

Yeah, great question. So, Michelle, feel free to chime in. I think, you know, we acquired WorkVIVO, I think, two years ago, and because, you know, look at the employee engagement. That's very important as part of a

Maybe just to add in from my standpoint, yes, the Meta partnership is driving the growth. We're not going to quantify it or speak to it. But I think if you look at a lot of the underlying metrics that we said in our prepared remarks, they tell a more holistic story for WorkVIVO growth and a lot of the things that we've been focused on. You know, from geo expansion to partner dynamics to, you know, getting those large customers as well as breadth, and they build up a lot of the natural things that

Great. Thank you both so much for the time.

The next question will come from Tyler Radke with Citi.

Thank you. Hey, Eric. Hey, Michelle. I wanted to direct my question to Michelle. Congrats again on the first earnings call here as CFO of

Perfect. Great question, and thank you very much, Tyler. So I would say I think it's important just to reemphasize what we're investing in. We're investing in AI. We're investing in our emerging growth businesses, and we're investing in the platform. As I think it sort of sets up the frame that I'll have, I don't think it's that different than maybe the frame that Kelly and Eric had before. We're going to invest for top-line growth, and we're going to invest for our strategy going forward. So look, our guidance approach remains the same. I said that before. We gave, as you noted, long-term guidance that had that operating margin lower than where we are today because of those investments. I just want to emphasize that is a long-term margin scenario and so not something that you should take for FY2026. And again, we'll come back in February and give FY2026 guidance. But in terms of my philosophy, I think it's going to be, you know, a lot of where Eric and I are going to spend our time is how do we really make sure that every dollar that

Yeah, just to quickly add on to what Michelle said, I think you look at our track record. It's especially as the way for us to manage the cost is a very disciplined approach. Even one or two quarters, you see more investment on, let's say, on COGS side. I am very, very proud of our world-class DevOps team led by our President of Product, Bill Chappell. Here and this team, we always know how to automate further a lot of cost savings. That's one area I normally do not spend any time because I have high confidence that a team can always come up with some ways to further reduce the cost. Even for AI, they know where to optimize. I think I have very high confidence. Even one or two quarters more investment or something like that, I personally feel like a team can come up with some better ideas to further reduce the cost.

Thank you.

Michelle and Eric, we have time for one additional question. It's going to come from Mark Murphy with JPMorgan.

Thank you so much. Great to see you. Eric, I was wondering if you can perhaps speak to the customer interest that you're seeing to integrate data from their own internal repositories into AI Companion because I believe that triggers the $12 per user per month monetization, or it's one of the important triggers. I would think that that is also going to drive some real product stickiness and value that would ratchet higher. So I'm just curious how many customers are showing that interest, what kind of scenarios they can design, and therefore maybe how to think through the monetization potential at that price point.

Yeah, Mark, it's a great question. So that's the reason why we introduced the customized AI Companion or AI Companion Studio because a few quarters ago, we talked to many enterprise customers. They shared with us feedback. They like AI Companion, but they also want to make sure, hey, some customers already build their own AI large language model. How to federate that into our federated AI approach? Some customers have very large content, like a knowledge base. How to connect with that? Some customers have other backend systems, like ServiceNow, Atlassian, Workday, HubSpot, how to connect those data sources. Even from an employee perspective, they want to have a customized avatar in the Live With AI to act as a personal coach as well. So those customers have customized requirements. To support those customer requirements, we need to make sure we have AI infrastructure and technology ready. That's the reason why we introduced the AI Companion, a customized AI Companion. The goal is really to work together with enterprise customers to tailor for each enterprise customer. That's the reason why it's not free. I think the feedback from

And maybe, Mark, if I could add in. I think that

Excellent. Thank you so much.

So, Kelsey, is this the last question?

That was the last question, Eric. I'll turn it back to you for closing if you'd like.

I think, first of all, thank you all for your time. This is the first earnings call I've had, your first earnings call. I think it's very similar in the transition from Kelly to Michelle. And I feel, Michelle, this feels like it's not your first earnings call. It feels like you've already joined a