ZM - NASDAQ

Hello, and welcome to

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

Thank you, Charles. We delivered strong results highlighted by revenue growing at its fastest rate in 11 quarters. We also achieved meaningful progress on our 3 key priorities: delivering world-class AI to enhance customer value, rapidly innovating

Thank you, Eric, and hello, everybody. I'm excited to share

[Operator Instructions] Our first question will come from Peter Levine with Evercore.

Congrats on a good quarter. Maybe one for Eric, you're seeing kind of your AI solution kind of really take off. But maybe can you help us share with us like what's the ROI that your customers are seeing, right? In terms of like the 2.0, you referenced the customer, a pretty large customer that adopted 2.0. So I would love to know like what's the use case that you're seeing in the ROI? And then second, just from a macro perspective, anything you can share with us in terms of what you're hearing or seeing from your customers in terms of their appetite, IT budgets for collaboration.

Yes. Great question. So yes, I'm using my phone to join this earning call. I think in terms of AI, you are right. We launched the

Our next question comes from Meta Marshall with Morgan Stanley.

You noted the AI Companion vertical-specific win with the Fortune 2000 -- or 200 tech company. And I guess just how are some of these wins that you're getting on these vertical-specific AI Companions informing just what customer needs are, what they can do with AI beyond what we traditionally think of as like summarization.

Yes, good question. So since we introduced AI Companion, for sure, there were some early adopters, right, who adopted AI early already for a while. Now they look beyond AI Companion. Are there any other things they can achieve with our AI capabilities. That's the reason why they paid for Customized AI Companion where we connect with their index, their content, or with the customized meeting template for their summary, so on and so forth. I think for sure, some other customers are still in the process to adopt the AI Companion, right? So AI Companion, again, as I mentioned earlier, is part of a package, more and more customers are going to adopt that or already adopted that. At the same time, customers, for those customers who already adopted AI Companion look at beyond today's AI Companion. Are there any new things? That's the reason why we offer Customized AI Companion. I think ultimately -- and we also want to innovate more, right? It's not only do we have a AI Companion 2.0, Customized AI Companion. That's why we're very excited for the new AI Companion announcement at

Our next question comes from Tyler Radke with Citi. You might be having some technical difficulty. Tyler, are you there? All right. Our next question comes from William Power with Baird.

This is Yanni Samoilis on for Will Power. A couple on the online segment. So I know you folks instituted a price increase for the monthly pro SKU earlier this summer, I think. So first of all, I think you mentioned last quarter that you were expecting that to add $10 million to $15 million of incremental revenue this year or at least as it compares to your initial forecast. And based on what you've seen so far, I'm wondering if any of your assumptions around that have changed or if your expectations there are still consistent. And then also just taking a step back, I was hoping you could comment on any feedback you've heard from customers so far, just in general. It looks like churn largely held stable. But I'd be curious if you have observed any other changes in customer behavior, maybe customers switching to annual plans to avoid that price increase or any other dynamics that you might have noticed.

Yes, I can take that one. So first, we're pleased with the growth of 1.4% and pleased with continued low churn with that. I'd reiterate that same range of guidance from $10 million to $15 million still on track for that. And I continue to guide to a flat online number on the full year. We did see, to your question, some shift to long term, but nothing I would say extreme. And maybe a little bit more color in terms of the customer conversation is that we didn't see a lot of pushback, and I think that's really a statement of -- it's a relatively small price increase. But it has to do, I think, even more with the value that we've put in the Workplace SKU, be it AI or so many of the more products in there as well as with the particular price increase we increased storage limits. So for us and what we heard, the value prop was still very much there.

Our next question is from James Fish with Piper Sandler.

Two-parter though, Eric, for you, Workvivo continues to have another strong quarter really, spike in usage from what we can tell. I guess what are you seeing with that asset as we head into the back half of the year, both from that partnership angle with Meta and the overall market? And then just Michelle, on the numbers here, you raised by 25% to the top line, beat by 20% on the quarter, have FX in your favor. Walk us through why we're not getting more of a roll forward of kind of the top line upside here? Is it just prudency or anything to think about for the back half of the year?

Michelle, you want me to address the first one?

Sure.

Yes. So in terms of Workvivo growth, and for sure, a major partnership certainly helped us a lot since last year. For now, our top priority is, make sure for those customers switch to our Workvivo platform. We got to help them transition to our platform -- Workvivo platform very smoothly, right? Make sure every feature works, new regression and that is still the top priority. At the same time, a lot of the customers realized they needed to have a customer -- the employee engagement platform and more and more opportunities in the pipeline. And also at the same time, we are going to innovate more, right, and add a lot of innovations upon our Workvivo platform. I think also the AI is also another way for us to innovate as well to further improve our Workvivo, the platform experience. I think -- it used to be -- we just focus on very, very large deals. I think a lot of the commercial -- the medium- sized customers also will benefit from deploying Workvivo platform. And that's kind of our -- the next growth opportunity for the Workvivo platform.

Yes. Maybe a couple of comments, James, in terms of the forecast. First, as you noted, we feel good about the consistent beat as well as the raise regardless of U.S. constant currency. We feel good about the steady progress made towards the growth rate despite dynamic macro conditions. So raising, for example, from 2.7% at the beginning of the year to now 3.5%. We feel good about the three areas of strategic focus and the progress that we see within those. Maybe the color that I gave you is that we already talked about online and sort of the guidance being flat, relatively speaking, the H1 versus H2 dollars -- revenue is relatively consistent and it's really the growth rate from Enterprise that is driving the H2 outlook. So look, we've used a consistent forecast methodology, and we've assumed macro conditions that are strong in their demand and durable with respect to our drivers, but still a dynamic economic environment. Maybe then, if I could insert a little bit, James, some comments on last quarter, you'll remember that I said we saw some scrutiny -- no losses, but additional scrutiny in some geographies. And I'm pleased to say that we saw a partial abatement to that in Q2. And as such, we've sort of expected that H2 outlook will be in line with what we saw in Q2.

Samad Samana from Jefferies will take the next question.

This is Billy Fitzsimmons on for Samad. Eric, maybe for you. There have been a couple of questions on the AI Companion, but I want to dig deeper on the custom AI Companion add-on. It's still early. It's only been a few months now since launch. And I'm guessing we'll hear more at

Yes. I can address the AI Companion question. So first of all, please join at our user conference

Yes. With respect to kind of how to think about AI products and what's in and out of our forecast, I kind of break it into 2 pieces. First, we're already seeing notable progress from AI in our Contact Center business. We talked about broadly the Contact Center business growing high double digit, and it continues to be. And certainly, our Elite SKU, which is where you get the AI value as well as

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

Also on the AI products, can you provide any color on the size of the funnel and the growth in the funnel that you're seeing, very strong growth, obviously, in 2Q? And then any commentary on the uplift in customer ARR from adding AI solutions would be helpful.

Yes. Maybe I can address some of your questions. Michelle feel free to chime in. But given there's so many AI questions, I wish our AI Companion can answer to those questions on behalf of me next time. So overall, I think if you look at AI Companion, not only for improve our meeting, our Workplace platform. Actually, AI Companion is a back end. It's our AI infrastructure platform and also our other product also benefit a lot from AI Companion. I'll give one example. Take

Maybe I'll jump in as well. I took sort of the spirit of your question of how do we really think about and what we look at with respect to AI and measurement, certainly...

And also, Michelle, just a -- also just in the context of revenue growth acceleration several years ago, management talked about accelerating revenue back to mid-single digits. You're well on your way there now, at 4.4% constant currency this quarter. So trying to think about contribution to future growth, talking about funnel size and uplift ARR, so we can contextualize the benefit.

Which one do you want -- do you want me go AI usage or you want to go revenue?

Really the usage and then the benefit to annual recurring revenue, if you have any thoughts on that, how it's benefiting?

Okay. So look, in terms of the framework of how we think about AI and AI health, broadly, we originally started talking about enable, then we went to -- let's talk about MAU. Eric shared in his write-up that our MAU is up 4x year-over-year now in the millions. I would say we also look quite heavily at the depth of usage, right? Things like moving more into the productivity lifecycle, moving more into the meetings lifecycle with our customer is using things like side panel much more, tasks, much more, using AI integration in products like phone, for example, as well as using AI features that are agentic and go across our platform like things with calendar management. So we look very closely at broad, breadth and depth usage. Obviously, innovation and recognition and pace of that is important to Eric and I. And then obviously, you hit on the last piece, which is the monetization. And look, I just continue to reiterate the frame I gave earlier, which is Contact Center, Elite,

Alex

Maybe two quick ones. Eric. The first one for you and then Michelle, one for you as well. Eric, if I think about the way AI adoption is progressing inside of your customer base, both on the online portion as well as the Enterprise portion. How is that changing your opinion around the time line, the timing of monetization to the extent they can start to bend the growth curve and the competitive framing environment, both against two hyperscalers with two very different opinions on pricing. One, incrementally higher and one, it's part of it for free. I love kind of your thought process on that going forward and then a quick follow-up.

Yes. Alex, great question. So as I mentioned earlier,

Perfect. Michelle, maybe for you. Leading indicators are always important. It sounds like some of the deal cycle elongation that you saw resolved, I assume some of those deals that may be pushed also closed. Is there anything we're not seeing that is maybe creating a headwind in terms of the CRPO metrics in terms of billings that maybe is not painting the same picture around those KPIs as the largest beat that you've had in the years on a revenue basis, maybe is. So there seems to be a little bit of a divergence, anything that you can point us to, to help us kind of marry those two data points?

Yes. Maybe let me start, Alex, with just backing up on some broad comments on macro and then talk a little bit about RPO. So first, from a macro perspective, what I said in Q2 -- or in Q1 last time was that we saw strong demand -- broad strong demand, and we think we have durable drivers in a dynamic macro environment. And certainly, I would say that is still true. It's still a dynamic environment, as we all know. But last time we talked, as you noted, around some scrutiny that we're seeing in some geos, I want to make clear that we've seen a partial abatement of that. And we've seen SMB demand continue to be very strong. And you see that reflected, I think, in the revenue results, and you see it reflected in churn -- low churn on the online side, but also churn going down year-over-year consistently over multiple quarters on the Enterprise side. So look, it's still dynamic, but we feel good about that. To your RPO question, RPO growth of 5% is strong. I would also point out that it's lapping a very high comparable and that our RPO bookings are sort of the highest in many years. From a current RPO, it's really just the strong comparable at play there. I guess that's what I'd call out. Maybe one thing we didn't touch on, but just in terms of thinking about the overall growth rate, if I sort of look, Alex, at the spirit of your question, we talked about the FX piece. We talked about the easier comparable might be another thing. We're lapping that trough that we talked about for a very long time as well as to a much lesser degree, we had some professional services onetime recognition.

Our next question is from Arjun Bhatia with William Blair.

Eric, I want to touch on a point that you actually brought up proactively on the last question about Contact Center. And I have a million questions on this, but I'll try to focus in on a couple of questions. The fact that you're winning contact center deals against other cloud providers is very surprising, not for anything other than the fact that there are so many on-prem to cloud migrations that are happening. And I'm curious what's driving the cloud displacements. Are those failed implementations? And what are customers seeing, I guess, in

Yes. It's a great question. Well, it's not surprising to us at all. We know we are going to win. And again, there's more -- I think more reasons, number of reasons, customers, they were not happy to the existing cloud contact center providers. If they are very happy, no matter what you do, they say, I don't want to switch, right? So they are not happy. Sometimes this is either quality is not good, outage, or they too expensive, or [ worst ] innovation or architecture is wrong, AI adoption is slow and so on. All reasons are very different. However, for those customers, they really want to look at a modern contact center solutions. When they test the

Maybe let me just jump in and give a couple of stats that might give you a little dimension to some of our wins. We look at a lot of our top 10 wins. So 9 of 10 are replacing the leading contact center provider, 7 of 10 on AI. We're seeing triple-digit growth in our Elite and 8 of 10 coming from channels. So just another evidence point of us really building out more of a channel and what's resonating with customers.

Yes. Another thing, if you look at the product experience, not like some other vendors. They needed to acquire this company, that company. You need to put everything together, the experience is not consistent. We have our own virtual agent. We have our own quality management, workforce management and the core platform integration, [indiscernible] very consistent experience. That's another reason why customers really want to select

All right. Well, congrats on the success.

Our next question is from Rishi Jaluria with RBC Capital Markets.

Eric and Michelle, really appreciate the time. Nice to see continued strength in the business in spite of everything going on there. Maybe two, AI-related questions I'd like to ask, one for Eric, one for Michelle. From a financial perspective, look, Eric, you've talked about your ambitions to become an AI-first company. And obviously, you're seeing this is great traction with your AI SKUs. As we think about the cost of inferencing and all these models, right, no matter how efficient you are, how do we square that away with the continued raise in cash flow guidance? And how should we be thinking about the long-term financial implications as the usage of AI among your customer base grows, as the use cases continue to expand, et cetera? And then maybe a little bit related to that, obviously, you've been doing great things with AI so far. How do we think about your plan to really leverage all the vast troves of unstructured data that's going through the

Yes, Rishi. This is a wonderful question. You are so right, how to leverage the data, right, how to leverage the product, right, all AI to create something new, right? So AI first experience, I give one example. I used to schedule a meeting. I need to go to my calendar to schedule a meeting, right, or maybe my [indiscernible] to help me to schedule a meeting. It will take a lot of clicks, a lot of manual steps. Now there is a way for me to schedule a meeting, I just go to

Maybe, Rishi, I'll hit the more -- what I took as a P&L question and come back if I didn't answer it. But we're proud of the fact that like we're still hitting 79.8% gross margin, up over 100 basis points year-over-year. That's because we're offsetting AI investments and AI usage with cost optimization. There was a little bit of onetime benefit in the second quarter, but there's durable elements that we're actively working across this on the COGS side, and then I'll drop and make some quick comments on the OpEx side. Of migrating cloud to colo, which still continues to be a lever for us on the COGS side. We talked about the federated approach and making sure that we're applying the right model to the right tasks so that we can get both best quality and best cost for our customers. And then obviously, just making sure that we're constantly looking at AI costs purse as we go through. On the R&D side, we've made a lot of investments, and we'll continue to invest in AI. And look, we're going to need to offset that with other efficiencies that we see in the business, of which AI is one for us. So we're going to live the same reality that our customers are living there. So...

Tom Blakey with Cantor Fitzgerald will ask the next question.

Wondering if you could maybe -- it maybe an extension from some of the questions that were asked prior. Could you just maybe talk about CCaaS and some of the momentum on a sequential basis, that strong 94% call out, Eric, I remember asking you about a year or 2 ago about the monetization efforts here in CCaaS and you got awfully excited about it. So just -- and it is an extension for that, maybe for Michelle, what is kind of embedded in guidance there in terms of maybe continued momentum in CCaaS. So again, just the sequential growth color would be helpful. And if you want, maybe expand on seats versus price, that would be helpful. And again, similarly, continued momentum in Phone, we've been monitoring this for years. With this acceleration in CCaaS and continued strong double-digit growth in Phone, could you just maybe combine into one big question, talk about what you're seeing in terms of going into the second half, maybe even further out into fiscal '27, where maybe some of the down sells or some of the other kind of structural things that are happening in the core could abate and we can see kind of like 100% plus kind of NRR going forward. This -- again, these strong numbers in CCaaS and Phone are just awesome, Eric.

Michelle, do you want to address that question?

I mean, look, we don't give kind of forward-looking product guidance for Contact Center and

Our next question comes from Mark Murphy with JPMorgan.

This is Sonak Kolar on for Mark Murphy. Congrats on the results. Eric, first, I just wanted to hit on the recent launch of the AI first Auto Dialer to streamline outbound sales. Would love to hear how you're thinking about the long-term opportunity here and some of the feedback you're picking up since launch. And particularly, how you see this opening up doors for incremental wallet share in some of your customers? And then I had a quick follow-up for Michelle. Any items to call out in terms of diverging demand patterns, whether by geo or vertical, I saw international growth slightly outpaced that of the Americas. Is that -- much of that delta largely FX driven or something else to consider?

Yes, great questions. So regarding the Contact Center innovations, right, recently in Q2, we had quite a few Contact Center innovations. One thing is, as you mentioned, is agentless outbound dialers, right? Essentially, we call that -- internally, we call that proactive AutoReach feature. Essentially, the way it works is, it automatically place outbound calls and prerecorded messages, right, something like appointment reminders and without requiring a live agent to do so many things manually, right? So this is one of the innovations the customer, they told us, they love that, right? So they shared a feedback with us, we quickly deliver. Again, this is just one of the innovation. That's the reason why back to the Contact Center wins, why customers like a

Yes. Maybe I'd also just tag on to what Eric said and say that I am excited just as the CFO, a lot of the AI innovations now bring us much more into that value conversation of helping the customer create a better experience for their customers, drive revenue increasingly in many instances. So I think it's an exciting direction in terms of the value that we can provide customers. Real quick to your question. I wouldn't really call out any difference in broad demand. And then I'd say that FX was primarily an impact on the EMEA results.

Our final question comes from Siti Panigrahi with Mizuho.

This is Sameer. I'm calling in for Siti. One thing I do want to check if you could double-click on the onetime margin benefit that you saw in the quarter. You mentioned it's because of professional services and some AI-related adjustments you are doing, if you could clarify that for me.

Yes, different. What I talked about with the professional services was sort of a onetime small impact to the Q2 revenue growth rate. And then I think I separately mentioned on the gross margin that we did see some sort of onetime savings cost. But broadly what's going on the revenue side are durable elements to revenue growth, all the things that we talk about, product diversification, moving up market, et cetera. And broadly, what we -- what's going on, on the gross margin is incremental AI investments and costs, and we're offsetting those with efficiencies.

Great. And just another clarification is for the second half outlook, the main driver is the Enterprise side of things, and that's why the beat is not getting carried forward as much as it should be...

So what I did in the guide was reiterate what I'd said previously that we're going to capture the online price increase in the amount that we previously communicated. We're going to hold to online being flat, which is consistent to what I said last quarter and the raise is really on the Enterprise side, combination of many broad things across Enterprise that we talked about today.

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

Yes. I just wanted to close to say that we look forward to hosting everyone for a virtual investor session, Q&A and a little bit of a presentation after

Thank you. Thank you all.