ZM - NASDAQ

Hello, and welcome to

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

Thank you, Charles. Thank you everyone for joining us. Today, I’m using our new Custom Avatars for

Thank you, Eric, and hello, everyone. I’m excited to be here with you today, let's dive into the financial results. In Q1, total revenue grew approximately 3% year-over-year to $1.175 billion. This result was $8 million above the high end of our guidance. As a reminder, Q1 of FY ‘26 had one fewer day than Q1 of FY ‘25. Our Enterprise revenue grew approximately 6% year-over-year, now represents 60% of our total revenue, up 2 points year-over-year. We continue to see encouraging signs of stability in our Online business. In Q1, average monthly churn was 2.8%, a 40 basis point improvement year-over-year, and our lowest ever churn rate for a first quarter. In 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 32% of our total revenue, up 2 points year-over-year. Our trailing twelve month net dollar expansion rate for Enterprise customers in Q1 held steady quarter-over-quarter at 98%. Pivoting to our growth internationally; our Americas revenue grew 4% year-over-year, EMEA grew 1%, and APAC grew 2%. Moving to our non-GAAP results, which as a reminder exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains or losses on strategic investments, and all associated tax effects. Non-GAAP gross margin in Q1 was 79.2%, slightly lower than Q1 of last year, as we continued to invest in AI. We remain focused on driving efficiencies and delivering AI capabilities in a scalable, cost effective way and continue to reiterate our goal of reaching an 80% non-GAAP gross margin over the long term. Non-GAAP income from operations grew 2% year-over-year to $467 million, exceeding the high end of our guidance by $22 million. Non-GAAP operating margin for Q1 was 39.8%, down 23 basis points from Q1 of last year. The margin decline was in line with expectations and due to changes in our bonus structure and investments in AI. Non-GAAP diluted net income per share in Q1 was $1.43, on approximately 313 million non-GAAP diluted weighted-average shares outstanding. This result was $0.12 above the high end of our guidance and $0.08 higher than Q1 of last year. The EPS performance was due to strong business results as well as a reduction in diluted weighted average shares outstanding, driven by our focus on addressing dilution through our buyback and stock compensation efforts. Turning to the balance sheet. Deferred revenue at the end of the period grew 5% year-over-year to $1.43 billion, in line with the high end of our previously provided range. The growth was driven by business performance, as well as continued refinement of our discounting strategy. In Q2, we expect deferred revenue to be up 4% to 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 6% year-over-year to approximately $3.9 billion. We expect to recognize 61% of the total RPO as revenue over the next 12 months, up from 59% in Q1 of last year. Operating cash flow in Q1 was $489 million, representing an operating cash flow margin of 41.6%. Free cash flow in the quarter was $463 million, representing a free cash flow margin of 39.4%. The declines on a year-over-year basis were due to the timing of tax payments. We ended the quarter with approximately $7.8 billion in cash, cash equivalents and marketable securities, excluding restricted cash. In Q1, we accelerated execution of our existing $2.7 billion share buyback plan, purchasing 5.6 million shares for $418 million, an increase of 1.3 million shares quarter-over-quarter. The increasing pace of our share repurchase plan over the course of our buyback authorization has reduced our common stock outstanding and underscores our ongoing commitment to delivering value to shareholders. As we pivot to the outlook, we are pleased to raise our full year revenue guidance by $15 million, or $5 million on a constant currency basis. We now expect revenue to be in the range of $4.8 billion to $4.81 billion, which represents approximately 3% year-over-year growth at the midpoint, or 3.2% year-over-year growth on a constant currency basis. This is the net result of increasing our Online outlook by $10 million to $15 million, due to a $1 price increase for monthly pro SKUs, reflecting increased product value to customers. This is offset by a more prudent outlook in our Enterprise business due to the more challenging and uncertain macroeconomic environment. We are pleased to raise our profitability outlook for the full year of FY ‘26 as well. We now expect our non-GAAP operating income to be in the range of $1.865 billion to $1.875 billion representing an operating margin of 38.9% at the midpoint. We are also pleased to raise our outlook for non-GAAP earnings per share for FY ‘26 to $5.56 to $5.59, based on approximately 312 million shares outstanding. We continue to expect free cash flow for FY ‘26 to be in the range of $1.68 billion to $1.72 billion. For Q2, we expect revenue to be in the range of $1.195 billion to $1.2 billion. This represents approximately 3% year-over-year growth at the midpoint, or 3.1% year-over-year growth on a constant currency basis. We expect non-GAAP operating income to be in the range of $460 million to $465 million, representing an operating margin of 38.6% at the midpoint. Our outlook for non-GAAP earnings per share is $1.36 to $1.37 based on approximately 310 million shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. In closing, as Eric highlighted, we are proud of our rapid pace of innovation towards our AI vision that is delivering real value to customers. At the same time, we remain focused on accelerating our growth while driving shareholder value through disciplined operations and responsible capital allocation. Thank you to our incredible

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. [Operator Instructions] Our first question will come from Siti Panigrahi with Mizuho.

Great. Thank you so much. And Eric, it's great to see your Avatar there. So, I want to ask about the

Yes. So Siti, thank you. First of all, I truly love my AI generator Avatar. I think, we are going to continue using that. I can tell you, I like that experience a lot. So back to your question about AI Companion. First of all, if you look at the number of active users, look at the Q4 and Q1. And these are five types more, right? And meaning it's pretty healthy and more and more customers they enable AI Companion realizing the value, one example, like, Raymond James, right. So the leverage

Okay. Great. Thank you.

Thank you.

Our next question will come from Meta Marshall with Morgan Stanley.

Great. Thank you, and congrats on the quarter. I appreciate the statistics about kind of the increased traction with kind of the higher priced SKUs on the AI portion of Contact Center. But just any statistics you can give on just kind of either how customers are starting with Contact Center with the higher price SKUs with the kind of virtual agents or just anything to add there? And then second, on your kind of more cautious outlook on Enterprise, is that just based on elongating deal cycles or is that based on just kind of more cautious outlook on seats? Thanks.

Yeah. Michelle, I would address the first one, and you address the second one. So, if you look at the

Maybe from my side, two quick comments on Contact Center customer experience, and then I'll move over to the question on the guide. Two things that I think we're seeing increasingly in terms of our customer buying behavior and customer experience is customers going straight to the Elite just because of all the AI value that is in that. And then maybe the other pattern that I think is clear in our deals is that this concept of better together that frequently customers are wanting a communication and collaboration platform, together with the customer experience platform and we see that as a real strong theme as to why

Great. Thanks.

Our next question comes from Arjun Bhatia with William Blair.

Perfect. Thank you. And I echo my congrats on this strong start for the year here, especially on the Contact Center side. Eric, one thing for you may be on a different topic. You mentioned the Team's integration with

Yeah. It's a great question. So look at the value of

All right. Perfect. Good to hear. Thank you.

The one I might just quickly add in is, we're seeing increasingly with the Team's integration. Many more customers come to us that way. So to your question about are we seeing that change in deal. We saw a lot of wins that we're proud of in Q1, there were Teams integration.

Perfect. Thank you so much.

Thank you.

Next up, we have Alex

Hey, guys. Thanks for taking my question. It's Evan (ph) here for Alex, obviously. Congrats on the solid quarter. And I want to ask another one on the

Sure, I can start. So Michelle feel free to chime in. I think if you look at the total number of Contact Center customers year-over-year. We do see that around the 65% growth. And look at the top 10 deals and none of the deals are replacing existing cloud-based vendors, cloud-based solutions. And also -- and you look at the top 10 deals, I think, if I recall correctly, six or seven are done by the channels. So many of the channels really help us and also replace other cloud-based vendors and because not only do we offer a lot of innovations and features but also seamlessly integrated with our Phone platform as well

I mean the only other thing, I think those are the metrics that we give for disclosure. The other one might just be a thread back in the dialogue earlier on the Elite SKU. So we are seeing great traction. I think it's a 10% mix shift year-over-year towards and licenses to our Elite SKU. So we're really proud and see a lot of momentum towards our AI-first solution.

Also at the same time, I want to share with you if you look at a lot of indirect customers. Their Contact Center as well still on prem. So a lot of opportunities for

Thank you, guys.

Thank you.

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

Hey, Eric. Hey, Michelle. This is Matt Bullock on for Mike Funk, clearly. Thanks for taking the question. I'd love some additional color on the early reception from customers to the online monthly pro pricing increase seems pretty modest, but would be interested in color on pricing sensitivity, any variance in customer churn for that cohort. And then assuming this pricing increase goes well, could we start to see pricing be more of a lever in the online business segment, considering all the positive trends with churn?

So maybe I can take that one, Eric.

Yes.

One thing that I think is really important just to know, and you said it is, we feel like it's a modest increase, but one that reflects really incremental value delivered to the customer. And that's sort of the bar that we hold ourselves whether you think about that as sort of the entirety of the platform, the AI, but I also want to call out that with our price increase, in particular, we doubled the storage limit. So look, it's a very different online business, I would say, than and one that we had maybe in the past. And the evidence points that I look at that under are, obviously, the record low churn that we continue to see quarter-after-quarter, the mix of our customers that have been with us over 16 months, the percentage that are buying with us annually. So we feel like we're just in a different place. We always take price increases very thoughtfully. And I would say, this isn't the first one we’ve done, but no plans to do others at this stage.

Got it. Thank you.

Next up, we'll hear from William Power with Baird.

Okay. Great. Thanks for taking the question. I actually want to circle back on online and kind of the earlier macro discussion. And I guess just trying to understand that the levels of conservatism built into the online segment. You're trying to build a little more conservatism it sounds like on the enterprise side, why wouldn't churn maybe start to increase a little bit on online relative to where you've been? And I guess maybe just probably what we are kind of the assumptions there? And then I have a second question.

Yeah. So our outlook really reflects, look at the more turbulent world than it was maybe the last time we got -- we talked to you. Yeah. Just to echo my earlier comments, we saw strong demand across our business. We do not see any impact of macro to online and as such, have not sort of reflected that in our outlook. And it was in those specific customer scenarios in the enterprise where we decided to take a prudent approach to how we thought about outlook and guide from there.

Okay. And then I want to ask a question on

So from a high level, in terms of opportunity, if you look at the total install of [indiscernible] the number of on-premise is still higher on cloud businesses, right? And I think it's around $150 million still on-premise seats, right? It's still a lot of opportunities. Those customers in the next few years, they still need to migrate to the modern cloud business solution. We are in much better positioned with our entire workplace platform, integration, open system. And that's the reason why our growth rate of phone higher the other cloud based phone service providers.

Okay.

And maybe just to add-on. There's opportunity for

Okay. Thank you.

Our next question is from Samad Samana with Jefferies.

All right. Great. Thank you for taking my questions. It's good to see everybody. Maybe first just on Workvivo, the customer growth there is really strong. Eric, you called out an acceleration in your prepared remarks. How should we think about maybe Meta migrations or that piece of that mix? And can you just remind us at what point you lap the Meta benefits and maybe how durable the growth there is? And then I have one follow-up for Michelle afterwards.

Michelle, do you want to take that?

Yeah. So look, I would say that we grow from both the Meta partnership as well as before that was consistent before the partnership was in place. Certainly, we're focused heavily on capitalizing against that amount of migration. And I think we said before that it's towards the second half of the year that, that sort of opportunity will normalize. What was the next question?

You look at a number.

Sorry, please go ahead.

Just to add on to what Michelle said. You look at the number of the costs and I mean the Workvivo cost year-over-year, it's more than 100% growth. Huge opportunities, not only driven by the Meta migrator customers, but also new opportunity as well.

Maybe just a punch to Eric's comments. 90% of our Workvivo customers again are new to

Understood. And then maybe, Michelle, just on the buyback acceleration, is that more of a reflection of opportunistic because of what happened with market conditions in F 1Q? Or is that -- should we take out of a signal that the buyback will be somewhat closer to these levels because that's the way that you guys are thinking about deploying the cash, at least for some for the short-term duration. Just help us understand how we should think about the magnitude given it was the biggest buyback activity that you've had?

Yeah. So look, I would say, you saw in our two announcements, the one I doubled down on when I started that look, this is going to be something that's important to

Great. Thank you, both for taking my questions. Appreciate it.

Thank you.

Our next question comes from Tyler Radke with Citi.

Hi. Good afternoon. Thanks for taking the questions. Wanted to go back on the billings outlook for the next quarter. And you talked about some of the dynamics on the enterprise side of the business. But I'm wondering if you could sort of help us understand when you started to see some of these macro impacts layer into the business, how performance has been throughout kind of the month of April as well as May. And then as you think about the online business, how are you thinking about the new customer addition motion? I know churn was ahead of expectations, which was good to see. But how sensitive is that new customer acquisition motion to the macro? And if you could comment on what you're seeing there.

Yeah. So first with the comment on when we saw the enterprise, I would say that we saw deals are pausing and elongation throughout the quarter, but certainly, the bulk of our volume in enterprise happens towards the tail end of the quarter and things more so than. To your online question of new customers, we had a strong quarter in terms of new customers as well as churn. And so that's why I start to say, no impact of macro or no signs of macro impacting.

Thank you.

All right. Next up, we'll hear from James Fish with Piper Sandler.

Hey, guys. Thanks for the question here. Just first, on the channel transformation, what were some of the changes put in place and what's been some of the early feedback with that?

Yeah. So I can answer that and then, Eric, feel free to jump in. Look, I would say, first and foremost, it's about expanding our partner ecosystem. It's about changing some of the channel incentives and really doubling down on those. And then in particular, one of the things that we have been talking about with our partner ecosystem was just the need to help them get from quote to cash faster. And so you may have seen that there was an article in the channel press about some efforts that we've made to really take that time from hours to minutes. So I would say broadly, our investments in the channel fall across those three things. And then I'd just say, look, the channel investments are very closely targeted towards our phone and Contact Center business where naturally they have both the ability to supplement what customers need as well as the ability to influence sales. And we're pleased with what we see in terms of the number of deals, the percentage of deals in both contact center and phone that are channel-led or heavily channel influenced.

Got it. And I could follow up actually on Samad’s prior question, it's nice to see the $100 million mark. It seems like most of the success you guys talked about, though, is coming from that

I'd say we don't, we don’t disclose that as a metric, James. But what I would say is, we see both bidirectional. My comments earlier is that we find that really to be a differentiator with customers where the integrations of being able to go out and talk to customers, come back in and resolve problems in-house, we find that to be a real big win for us customer-wise.

Thank you. Our next question comes from Allan Verkhovski with Scotiabank.

Hey, Thank you for taking the questions and congrats on all the product innovation. Michelle, I wanted to just double-click on the revised enterprise revenue outlook. You mentioned that there was some deal elongation that you saw in the quarter. Just to be clear, are you guiding for a wider range of outcomes such that if the macro trends were to remain consistent, then you could potentially see more upside through the rest of the year? And could you also just update us on your updated time line for when we could see NRR potentially get back to 100%.

Yeah. So let me start with the first one. Our outlook implies a consistent kind of macro environment relative to what we saw in Q1. So that's the way to think about the guide. In terms of net dollar expansion, I would say, we're pleased with the stability that we saw. It's been something that we've seen come in over the last four quarters. It’s certainly a foundation for us in terms of expansion and our numbers have been in line with guidance.

Great. Thank you.

Our next question comes from Catharine Trebinick with Rosenblatt Securities.

Thank you for taking my questions. Since Jim Fish took my channel question, I'll ask about your international. So can you update us on -- that was a big focus is to do internationally. My people have talked and said you staff quite a bit in the U.K. So can you give us any idea of some of the products or which key pieces of the business you're focusing on internationally? Thanks.

Yeah, I can take that. Let me say that our strategy is a global one Catharine, I think, the way that we go-to-market, the products that we are working on even our push and channel, our go-to-market and our product strategy are consistent globally. So maybe let me just say a little bit more of what we see really resonating in our EMEA business is really that better together and full buying into the platform of both that communication and collaboration experience, together with the customer experience, maybe the other one that I would throw in is, we're really seeing employee experience and quite well in EMEA. So we're encouraged about, again, the broad growth thesis resonating in Europe as well.

All right. Thank you.

Next up, we'll hear from Peter Weed with Bernstein.

Peter, are you there?

We can move ahead. Peter needs a minute. All right. We're going to move ahead here. Next up, we'll hear from Tom Blakey with Cantor Fitzgerald.

Great. Thanks for taking my questions. Curious, just maybe in terms of the elongation, Michelle, you can talk about maybe any trends in down sells in enterprise if you've seen that. In 1Q, just kind of counterbalancing the reported results with some very strong CCaaS and

Yeah. So to your first question, we continue to see year-over-year improvement in churn and enterprise, as well as continued low record churn rate in online. So I think in so many -- maybe the color I might give under that is that I think increasingly, when you look at sort of competitive themes, I think they're broadening out. It's, again, that holistic value, the vision of kind of better together across the collaboration as well as customer experience. In some, we see the boomerangs with the customer and customer love that Eric mentioned in some of ours. In others, it's the pace of innovation and the dedication

Thank you.

Our next question is from Patrick Walravens with Citizens.

Hi, there. This is Austin Cole on for Pat Walravens. Eric, it's really cool to see the AI Avatar. Maybe one day soon, more of us will be on this call using AI avatars. And that's actually what I wanted to ask you about is, what kind of high-level trends maybe you see taking place through conversations with customers right now that give you kind of confidence in AI's role both in communication and how they're getting work done. So kind of a broad question there, but maybe even specifically, like what are the use cases for these avatars, and how are you using this stuff internally to shape the work?

Yeah. Great question. Again, for the first time in history, right? So we let the AI generated avatar participate into the earnings call, right? It's again, I really love that experience. We are going to keep improving our Clips product. Back to your question about the AI and AI adoption. I mean, first of all, we look at every services, right, and we offer the customer how to lever AI to improve the product, like all the basic core features already done for a while, like a meeting summary, compose a chat message and so on and so forth. Now a customer really want to send what we can do, right, to integrate with their existing systems because they are building the agent and there are other vendors also be agent. We also build agent, right? How to make sure our agent, our AI Companion agentic framework, customized AI Companion studio to be other agent how to incorporate with other agents like recently we announced an integration with ServiceNow, it Jira as well. And also, essentially, we would like to transform our business from being collaboration a communication company to be a system of actions like after this meeting is over, right, we have -- not only have a summary, but also we have tasks items and AR agent will automatically less created a general ticket and to follow to track, right? It's kind of become an entire business workflow. Without AI agent, it's really hard. You need to manually drive this and integrate other systems it's not visible. For now, customers look at how to automate everything with agentic framework because all those agents can talk to each other, with the A2A protocol and also the MCP protocol, right? That's the reason why we feel very excited together with other vendors, we can become a part of our business workflow, that's -- on that front, we are very excited.

Okay. Thank you.

Thank you.

Our next question is from Peter Levine with Evercore.

Great. Thank you for squeezing me in here. Maybe just to Michelle, you guys are talking a lot more about frontline workers. Can you maybe just help us understand what that product is? Is it really going after like the Microsoft, like, F1 or F3 SKU, maybe just help us understand what the intentions there are for frontline. And then second, for AI Companion 2.0, there is the monetization for those that want to customize your own AI agents. Can you just -- is there revenue coming in this year from that product? It's probably more second half, but just can you just help us understand what you're expecting from that? Thank you.

Sure. So let me start with frontline worker. The way to think about that is I mean let me start with the market opportunity broadly. 80% of the workers in the world are frontline workers and yet only 1% of the SaaS spend is on them. And so what that tells us, what our customers tell us is, there's a lot of value that they need. And so this product was really born out of that. And so think about what the product does in sort of, I would call it, three buckets. It's on-ship communications. It's workforce management, and its AI assistant sort of the flow of frontline worker work. And so that's kind of how to think about it. It just came into market. We are pleased. We've already closed several weeks in post Giga closed deals. We're excited with the interest that we see, in particular, in industries like health care, retail and manufacturing, where

Great. Thank you very much.

Our final question will come from Matthew Harrigan with Benchmark.

Hello. Thank you. Now that you're very practiced in, creating SLMs, what are you seeing -- it feels like a lot of people are taking kind of a Russian army approach with just more and more buying from NVIDIA. But as you improve the algos and you get more clever on the math, I mean, how is that affecting your business even on the cost side as well as the opportunity side. Thanks.

Eric, do you want to take that?

Sure. So our AI approach is a federate AI approach, meaning we have our own large dynamic models. Some customers just want to standardize our own model. At the same time, we integrated seamlessly with [indiscernible] with OpenEye, Anthropic (ph) and it is a federal AI approach. We also, for sure, leverage the media and also leverage the cloud GPU and this is very standard, right, how to optimize our costs at the same time, offer the value. The reason why we can offer the free

Thanks, Eric. Nice avatar.

Thank you. Appreciate it. Next earnings call we will be much better.

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

Thank you all and really appreciate your time. Thank you for all those investors who trust us, and we are going to do all we can to truly deliver happiness to you all. Thank you. Appreciate it.

Thank you.