Zoom (ZM.US) Q2 Conference Call: AI Monetization Enters Fast Track, Enterprise Business Growth Hits Three-Year High

The Zhitong Finance App learned that the video communication platform Zoom (ZM.US) gave slightly bland revenue guidance for the third quarter, which disappointed investors who had hoped that the company's expanding product portfolio would boost growth even more.

According to financial reports, Zoom's second-quarter revenue increased 4.9% year over year to US$1,277 million, slightly higher than analysts' average forecast of US$1.27 billion; adjusted net profit was US$464 million, down 1.5% from US$471 million in the same period last year; and adjusted earnings per share were US$1.55, better than analysts' average expectation of US$1.48.

Despite better-than-expected results for the second quarter, guidance for the third quarter was disappointing. Zoom expects third-quarter revenue of US$1,275 million to US$1,280 million, with a median forecast range of US$1,277.5 billion, which is lower than the average analysts' estimate of US$1.28 billion; adjusted earnings per share for the third quarter are US$1.46 to US$1.48, with a median forecast range of US$1.47, which is lower than the analysts' average expectation of US$1.28 billion.

In addition, Zoom expects full-year revenue for the 2027 fiscal year to be US$5,085 billion, with a median forecast range of US$5,090 billion, in line with analysts' average expectations; it expects full-year adjusted earnings per share of US$6.08 to US$6.12, and the median forecast range of US$6.10, which is higher than the analysts' average expectation of US$6.05.

Here are the minutes of Zoom's FY2027 second quarter results call:

Executive speeches

Eric Yuan

Founder, President, CEO and Chairman

The 2027 fiscal year continued to maintain good momentum. Total revenue increased 4.9%, with Enterprise (Enterprise) revenue growing 7.8%, the highest growth rate in three years. The accelerated growth of our business has benefited from our focused implementation around three priorities: improving the workspace experience through AI, scaling up AI-first customer experiences, and driving the growth of new AI products. This progress reflects our success in turning our AI-first vision of a “system of action (system of action)” into reality, helping customers reduce costs and create greater commercial value.

This vision is based on Zoom Workplace, and we continue to enhance it through AI. In Workplace and our broader communications platforms, AI is increasingly embedded into how users work throughout the communication and collaboration lifecycle. The number of authorized monthly active users of our AI features in Workplace increased 125% year over year.

What is even more encouraging to us is that user engagement is expanding, from passive communication summaries to active queries and building workflows, turning insights into action and conversations into results. Our second-quarter wins are proof of our growing ability to win as an “action system” for modern work.

We saw one of America's largest tech companies renew Zoom Workplace, a deal that increased its annual recurring revenue (ARR) by $1.9 million, stemming from strong employee acceptance of the Zoom Meetings (Zoom Meetings) and Zoom Rooms (Zoom Rooms) experience, our AI vision, and our ability to integrate and coexist with Google Workspace. As ARR maintains mid-double-digit growth, Zoom Phone continues to demonstrate its value, both as a natural add-on to Zoom Workplace and increasingly as a driver for wider platform adoption. We saw both of these developments in the second quarter.

A major US wealth management company upgraded to Zoom Workplace Enterprise Premier, including the full rollout of Zoom Phone to replace multiple vendors. Zoom Phone is also driving adoption of our wider platform. For example, QXO, a major North American distributor and installer of construction products, chose Zoom Phone company-wide for the company's approximately 8,000 employees, and also used Zoom Contact Center to unify its unified communications as a service (UCaaS) and contact center as a service (CCaaS) systems, integrate with Microsoft Teams, and automatically update customer relationship management (CRM) systems based on real-time interactions.

We are also very satisfied with the progress of employee experience products in the “Action System.” In the second quarter, a leading US insurance company, which is also a major user of Zoom Workplace and Zoom Phone, expanded the use of Workvivo. This is one of Workvivo's biggest deals to date, and its ARR also surpassed $100 million. We also launched Workvivo HQ, an AI-native digital headquarters built on Zoom's AI technology to integrate communication, knowledge, and actions for every employee to prepare for the AI era.

Global luxury retail brand On chose Workvivo HQ as its employee experience platform and will deploy Workvivo HQ Agent to enable thousands of frontline employees to get answers from their policies and databases faster. As you can see, customers are choosing Zoom as an AI-first, secure, integrated, multi-product mobile system, sometimes replacing multiple vendors, and sometimes coexisting with them.

This development is a testament to our ability to meet current customer needs, turn conversations into business value, and drive lasting platform expansion for Zoom. The customer experience is a clear example of the transformation of our platform strategy into growth and direct AI monetization. Zoom CX (Customer Experience) ARR continued to grow at a high double-digit year-over-year rate in the second quarter, and we set a new record for million-dollar ARR transactions.

AI continues to drive this trend. Nine of the top ten Zoom CX deals include paid AI features, showing the growing market demand for “action systems” that connect automation, human customer service, and intelligence. We're seeing rapid adoption of the Zoom Virtual Agent (ZVA), both as an add-on to Zoom Contact Center and as a standalone product, and its number of customers grew by more than 250% year over year.

ZVA's voice and chatbots don't just answer questions; they solve problems, complete multi-step workflows, and transfer full context to human customer service when needed. This validates our vision of moving customers from chatbots to resolution agents, turning conversations into resolved results on a large scale.

More and more customers are fully adopting Zoom CX, combining our virtual agents and human-assisted AI solutions to enable a seamless transition from automated self-service to human support. For example, in the second quarter, one of the largest banks in the US chose ZVA while expanding its existing ZCC Elite deployment to enable self-service and AI-assisted human support to help them scale up to cope with the surge in help desk business volume.

For other customers, the value is to break the fragmentation between UCaaS and CCaaS solutions and consolidate communications onto a unified platform. In the second quarter, a leading enterprise software company chose ZVA Voice as a natural extension to Zoom Phone to modernize its customer experience.

We've also seen a major US cybersecurity company choose Zoom Contact Center to replace multiple vendors and securely unify their UCaaS and CCaaS solutions, based on their use of Zoom Video in customer interactions, and allow customer service staff to seamlessly upgrade voice calls to ZCC video sessions.

This was not only recognized by customers; earlier this month, Zoom was named a “leader” in the smart CCaaS field by IDC Marketscape. This development demonstrates the momentum behind Zoom CX and validates our differentiated approach: a unified, AI-first operational system that connects self-service, human support, and internal communication to deliver better customer outcomes at scale.

Our progress in improving workspaces and expanding the customer experience has laid a natural foundation for us to provide new AI value to our customers in both horizontal and vertical scenarios. In terms of horizontal AI, we launched ZoomMate in June to implement an action system strategy for our Workplace users through AI-first productivity tools, agent search, and agent workflows.

We've seen interest from the Zoom Workplace user base, from small businesses to the world's largest businesses. By combining Zoom conversation data and proprietary intelligence with other enterprise systems, ZoomMate transforms conversations into completed work and commercial value. In the second quarter, we're excited to see the University of Newcastle, Australia — already an all-platform Zoom customer — add ZoomMates to further enhance their collaboration and communication capabilities.

As we extend this system of action across the enterprise, we use Zoom's unique position in real-time communications to capture context and intent, and apply this intelligence to vertical workflows. Sales is a great example. Zoom Revenue Accelerator (ZRA) is our revenue orchestration solution that transforms real-time sales conversations into intelligence, enabling coaching and action to increase sales force productivity and win rates.

ZRA once again performed strongly this quarter, with paying customers growing 41% year over year. Common Room extends this value upward, creating a more complete end-to-end revenue intelligence and orchestration solution with ZRA and the broader Zoom platform. We completed this acquisition in mid-July, adding intelligent, unified and fragmented signals to identify interested customer accounts, key buyers, and appropriate reasons for engagement.

In the second quarter, Okta expanded their Common Room contract as they wanted to further reap the value of AI-driven buyer intelligence by integrating customer insights and presenting real-time buyer signals across platforms to facilitate transactions faster.

Among our three priorities, there is a clear commonality: Zoom is deepening value to customers as a system of action.

We're embedding AI into our platform, turning conversation context into action, and delivering what customers want—real AI value that produces real results. We're encouraged by the platform's growing momentum, proud of the progress we've made in scaling up AI monetization to achieve lasting growth, and most importantly, create lasting value for our customers.

Michelle will customize her virtual image via Zoom to introduce the financial results for the second quarter. Michelle?

Michelle Chang

chief financial officer

Thanks Eric and hello everyone. I'm excited to be with you today to share Zoom's financial results for the second quarter of fiscal year 2027. In the second quarter, total revenue increased 4.9% year-on-year to US$1.28 billion, or 4.7% at a fixed exchange rate. This result is $7 million above the upper limit of our guideline range. Our corporate business performed well. Revenue increased 7.8% year on year, accounting for 62% of total revenue, up 2 percentage points year on year. In our online business (Online business), the average monthly customer churn rate for the second quarter was 2.9%, the same as the same period last year.

Within the corporate business, the number of customers contributing more than $100,000 in revenue over the past 12 months increased 8% year over year. These customers now account for 33% of total revenue, an increase of 1 percentage point over the previous year. In the second quarter, the net dollar expansion rate for corporate customers over the past 12 months was 99%, up 1 percentage point from the same period last year, and the same as the previous quarter. Looking at international growth, revenue in the Americas increased 6% year over year, Europe, Middle East and Africa (EMEA) grew 2%, and Asia Pacific (APAC) increased 4%.

Next, let's take a look at our non-GAAP results and remind you that they don't include: equity incentives and related payroll taxes, net litigation settlements, acquisition-related expenses, net gains or losses from strategic investments, and any associated tax implications. Non-GAAP gross margin for the second quarter was 79.1%, compared to 79.8% in the second quarter of last year. As we expand our AI product portfolio and optimize to drive customer adoption, we continue to deliver strong gross margins.

Non-GAAP operating profit for the second quarter increased 1% year over year to reach $510 million, in line with our guidelines. The non-GAAP operating margin for the second quarter was 40.0% compared to 41.3% in the second quarter of last year. As we further invest in our growing AI product portfolio and drive the efficiency of future AI infrastructure, we continue to deliver very strong operating margins while improving top-line growth.

Second-quarter non-GAAP diluted earnings per share (EPS) increased to $1.55, based on approximately 300 million non-GAAP diluted weighted average tradable shares. This result was $0.08 above the upper limit of the guideline and 2 cents higher than in the second quarter of last year. The increase in earnings per share reflects strong top-line performance and anti-dilution effects driven by our share repurchase program and strict stock compensation management.

Move to the balance sheet. Deferred revenue at the end of the second quarter was $1.56 billion, up 6% year over year, above our 2% to 3% limit previously offered. In the third quarter, we expect deferred revenue to grow 3% to 4% year over year. Looking at invoiced and uninvoiced contracts, our remaining performance obligation (RPO) increased 14% year over year to about $4.5 billion, mainly driven by a 25% increase in non-current RPO.

The strong growth in RPO reflects our continued success in winning larger, longer-term, multi-product platform deals, and shows the growing demand for our AI-focused platforms. In the second quarter, cash flow from operating activities was US$495 million, and the profit margin on cash flow from operating activities was 38.7%. Free cash flow for the quarter was $472 million, and the free cash flow margin was 37.0%.

We held $7.2 billion in cash, cash equivalents, and marketable securities (excluding restricted cash) at the end of the quarter. In the second quarter, we bought back 3.7 million shares at a cost of approximately $352 million. In our $4.7 billion share repurchase program, we have repurchased a total of 44.2 million shares at a cost of $3.4 billion.

Next, let's look at the performance guidelines. For the third quarter, we expect revenue to be between $1,275 million and $1.28 billion, up 3.9% year over year at midpoint. We expect non-GAAP operating profit to be between $510 million and $515 million, with an operating margin of 40.1% at midpoint. Based on approximately 301 million outstanding shares, our non-GAAP earnings per share guide is $1.46 to $1.48.

We are pleased to increase our revenue and earnings per share guidance for the full 2027 fiscal year. We now expect revenue to be between US$5.085 billion and US$5,095 billion, up 4.5% year over year in midpoint terms. Our increase in revenue expectations is based on the company's revenue growing faster than expected, partly offset by the steady growth in online business. We continue to expect non-GAAP operating profit to be between $2,065 billion and $2,075 million, with an operating margin of 40.7% at midpoint.

Furthermore, based on approximately 301 million tradable shares, the FY2027 non-GAAP earnings per share guidance was raised to $6.08 to $6.12. As a reminder, future share buybacks are not reflected in the number of shares outstanding and earnings per share guidelines. We are also pleased to raise our free cash flow forecast for the full year, which is currently estimated to be between $1.78 billion and $1.82 billion. This increase reflects strong free cash flow performance in the first half of the year, as well as a reduction in the current year's capital expenditure budget.

Finally, the second quarter was a good quarter. We continued to implement our three priorities, and customers are increasingly adopting Zoom as an AI-first action system. We are pleased with the progress of AI monetization led by customer experience and the early momentum of new AI revenue streams. We are on track to surpass the $5 billion revenue mark this year while maintaining our focus on profitability, cash flow generation, and shareholder returns.

Q & A session

Matthew Bullock

Bank of America Securities, Research Division

I hope management can explain in detail what the company observed in the second quarter in terms of phone (phone) demand and customer purchasing behavior, and then maybe help us sort out our modeling expectations for the rest of the year.

Michelle Chang

chief financial officer

OK. We are very encouraged by the performance of our phone products. As you can see, we've highlighted a number of situations, and its growth continues to be in the middle of the double digits. Matthew, let me provide a little bit of context and detail in conjunction with the other dimensions we've seen. I think we're seeing a strong trend of replacement. Ten of our top ten deals are replacement deals. We are seeing continued strength in the vertical sector and in international markets. We are also seeing the continued convergence of unified communications as a service (UCaaS) and contact center as a service (CCaaS).

Before moving on to revenue guidance, I'd like to point out two new elements in Zoom Phone: First, I think it's increasingly becoming an excellent way for other AI to monetize. This means we've seen it facilitate a number of ZRA (Zoom Revenue Accelerator), ZoomMate, and Zoom Virtual AI Receptionist deals. So we are encouraged by this.

Additionally, we are seeing strong momentum in the integration with Teams. Regarding our guide, it represents a “beat and raise” (beat and raise) calculated at a fixed exchange rate. We are pleased with the progress made throughout the year. This is up from our 4.1% growth forecast at the beginning of the year. So now the midpoint guide is 4.5%. This is an improvement over last year.

Additionally, I would like to remind investors that the loss of a white label (white label) transaction caused resistance of about 40 basis points. Sorry, this was an impact on top-line revenue. The fundamental driver of our inflection point of growth is corporate business. You've heard from Eric that this is the highest growth rate in three years. I'm sure we'll discuss this more later. Then the performance of online businesses (Online) made us a little wary.

Matthew Bullock

Bank of America Securities, Research Division

Very nice. If I can, maybe I'll ask another question. This appears to be the strongest RPO (Residual Performance Obligations) quarter in a few years. The increase is very impressive. You mentioned a few aspects, such as winning larger, longer-term contracts, but I'd like you to elaborate further on what potential drivers you think are driving the strong growth and jump in bookings (bookings) this quarter.

Michelle Chang

chief financial officer

OK. I think this reflects the overall state of our business. If you look at the 7.8% growth rate, this is the strongest performance in three years, even if it includes the impact of about 60 basis points due to the loss of white labels I mentioned. You can also see this from the inflection point of the net dollar expansion rate (NDE).

This is indeed the direction we have been telling investors we are working towards: diversifying products, monetizing AI, entering the high-end market (upmarket), and reducing churn rates while expanding new channels. As we dive deeper into these diverse businesses and build deeper relationships with customers like Eric mentioned, this will be accompanied by larger, longer-term AI-related deals.

Samic Chatterjee

J.P. Morgan Chase, Research Division

Perhaps you could talk more about the record million-dollar deals highlighted this quarter. With the conclusion of these record deals, how has the composition of these deals changed? Is this more driven by contact center seats? Are you guys seeing more AI add-ons that are starting to make these deals bigger?

I'm curious if certain products are driving the size of the deal to grow over time and how should we look at this? Also, Michelle, a quick question about gross profit margin, what do you think of continuing to deal with rising computational costs, especially considering the slight decline in gross margin this quarter? How should we continue to manage these costs?

Michelle Chang

chief financial officer

OK, let me start with the first question. I think it has both, and it includes all the elements I just talked about with Matthew about corporate business, so I won't repeat it. However, I think the data you mentioned is from contact centers (Contact Centers), so before I talk about gross margins, let me comment on what we are seeing in contact centers. We continue to see it achieve high double-digit growth.

We are clearly seizing market share. This is AI-driven. We are winning in the high-end market. We have seen a record quarter of transactions above the million-dollar level in the contact center, while transactions over $100,000 and $1 million were also strong in the overall business. It's a dynamic we've always emphasized to investors: we're replacing big competitors. Behind this is the support of AI.

We are also encouraged by the fact that our investment in channels is part of it. Regarding gross margin, I think the team did an excellent job of maintaining industry-leading gross margins. They may fluctuate, and there may be some changes between any quarter. But we've been able to maintain this level as we transition to an enterprise business and AI usage has increased.

Our expenses increased slightly this quarter as we saw a surge in AI usage for some of our new products. Like everyone else, we'll work to optimize this in the second half of the year, and we continue to reiterate our comments about maintaining long-term profit margins. Perhaps I'll put it simply, what gives us confidence in achieving these profit margins is our federated (federated) approach to AI.

We can adopt the best model at the right time and at the right cost, and guide traffic smoothly while we strive to introduce high traffic into Zoom's self-developed small language model (SLM). Additionally, we create functionality once in our core products and then inject these core technologies into all of our products. Coupled with other areas of improvement in our core business, this gave us the confidence to achieve long-term 80% gross margin.

James Fish

Piper Sandler & Co. , Research Division

Perhaps with regard to ZVA (Zoom Virtual Agent), there are many consumption (consumption) models for paid AI, and it is interesting to see its additional rate (attach) in contact centers and its status as a standalone product. I'm wondering how do you balance or view consumption/usage patterns rather than that kind of perceptual monetization, and how does this affect the pattern?

Second, you raised online business (Online) prices by mid-single digits (mid-single digits) in mid-March. We haven't seen much lost activity yet, and we've even seen a rise in the customer base growth rate for over 16 months. So, I'd like to ask, on the premise that you don't usually raise prices in order to raise prices, how much room do you think there is still room for price flexibility?

Michelle Chang

chief financial officer

We benefit extensively from the per-user (per-user) model. This has always been the norm. However, the entire market is shifting to more consumption models, so you see we're using this model in ZVA, which is the root of your problem, but we're also using a complete consumption model, a results-based model, and a hybrid model that combines a certain amount of consumption per user. I think it's beneficial to both customers, and all participants are learning from it.

But overall, our approach is to match meaningful ways relative to market and competitive dynamics, and ultimately in the best interests of our customers. Your second question is about the progress of online businesses. Other than to restate what you just mentioned, I won't comment on future pricing. This is our second round of price increases.

We've increased our monthly subscription by one time and then our annual subscription by one, so you can roughly think of our overall increase in our online business by about 6%. As you said, we haven't seen any drastic or real substantial change in attrition rates. The attrition rate remains low, and as you said, those customers who have worked with us for over 16 months have continued to grow.

So we think this is a very good sign of the stability of our customer base. In our online business, we are committed to “land and expand” (land and expand). We believe in reasonable circumstances we will consider increasing prices and gradually reducing discounts in the corporate business. I really have nothing to add about any future plans.

Peter Levine

Evercore ISI Institutional Stock, Research Division

I think if you look at the phone's ARR, even at its current size and volume, it's still growing in the middle of double digits. But the question is, how much room do you think phone products have to grow, particularly in your existing Workplace installation base? If you look at today's phone products, is it still acting as an entry point for customer experience (CX), or is it still like an add-on for conferencing?

What I'm more curious about is how much room is left for phone products? Michelle, I have a similar question about contact centers. For example, how many of these impressive new deals you've seen this quarter are new Zoom customers, or are these just renewals and additional purchases you've seen through execution?

Michelle Chang

chief financial officer

OK. Let me talk about the phone first and then the contact center. I think we've been growing in the middle of double digits for a long time and are clearly seizing the share. If you think about it from a market perspective, there are about 130 million cloud seats and about 150 million equivalent on-premise deployment seats. So we won in both, and are optimistic about our ability to capture our share of the competition.

This quarter was no exception, with ten of our top ten deals involving replacements. Peter, I'll point out that this may vary from quarter to quarter, but it accounted for a significant portion of the online business this quarter. Regarding the question about the synergy between UCaaS and CCaaS you mentioned, about 5 of our top ten phone deals included contact centers, so this made you feel that on the one hand, you are attracting external customers, and on the other hand, there is clearly a connection between UCaaS and CCaaS.

Then when I talk about contact centers, I think we're clearly seeing a lot of new developments. I say this because, of course, some of it came from phone calls. So if you look at it, I think 3 of the top 10 contact center deals included phones. But there's also a clear sign that some customers are coming for the contact center itself.

Sometimes this comes from, and I think you've seen examples of customers in Eric's prepared presentation; some have entered through ZVA, some have been through contact centers, and some have fully adopted Zoom since day one. Clearly, contact centers have an AI story. Obviously, there are competitive alternatives to both. I think these represent Zoom's enduring driving force for the foreseeable future.

Elizabeth Elliott

Morgan Stanley, Research Division

I would like to follow up on the accelerated growth in corporate revenue. You emphasized that this is the strongest increase in three years, and the corporate net dollar retention rate (NDR) for the past 12 months has remained around 99%. So how should we view the accelerated balance between some new logos and a larger initial launch (where you emphasized some replacements and expansion of the installation base)? Are there any products, whether phones, CX, or paid AI, that are more influential in continuing to push NDR above 100%?

Michelle Chang

chief financial officer

There's a lot of content here, so Elizabeth, if I haven't covered some of the minor differences in your question, please alert me. Let me start with the NDE (net dollar expansion), then go back to the corporate business and its fundamental drivers, and the overall balance between new customers and expansion, if I had a general understanding of the framework of your question. From an NDE perspective, I think we've been saying for a long time that the goal is clearly to raise it above 100%. You're now seeing it rise to 99% for the second straight quarter.

I'll remind investors that the second half of the year will also have some impact of losing white labels. But overall, it tells the story of the enterprise's business. It represents a 7.8% increase in corporate business; it was an increase of 60 basis points even from month to month. Then add the resistance of losing white labels, and you can get an overview of how the company's business is growing. This is due to product diversification. All of these same factors played a role in the net dollar expansion. We're diversifying our product portfolio.

The big headlines are clearly phone calls, contact centers, and the beginning of many of the AI monetization efforts the team has been working on. The way it helps us think, the way we communicate with investors, the way we run our company and allocate resources — the three priorities we have framed in our prepared speeches — is indeed a fundamental building block for our long-term growth. We're feeling good, they're in different stages, but we're confident in them.

So these are the persistent factors you can keep watching. Perhaps my last point is that we continue to make progress in terms of exodus and transaction dynamics in the corporate sector. Of course, along with entering the high-end market, we think this is an element of sustainability. Maybe one last word about new customers and expansion. This clearly comes from both.

I think I'll go back and I think it was Peter's question about the contact center and phone. Clearly, we're benefiting from the Zoom base and our customers. But with AI monetization, the launch of new paths and products, and the contact center, it has also helped us bring net new customers to Zoom, which is supported by our channel investments.

Eric Yuan

Founder, President, CEO and Chairman

Yes. Incidentally, to add what Michelle said, let's take the contact center. Customers are not only concerned about cloud-based contact centers, but also about agentic capabilities. Check out IDC MarketScape's latest report on smart CCaaS. Zoom was named a leader and is in a far better position than many traditional cloud contact center vendors. This really shows the strength of the Zoom Contact Center with intelligent capabilities, and in my opinion, its better position.

Samad Samana

Jefferies LLC, Research Division

Perhaps with regard to the acquisition of Common Room, help us think about how much it contributed to the guidance. From a strategic perspective, how should we view it as a match with your existing Revenue Accelerator products, and how does it fit into the overall theme of adding more powerful functionality, which is a bit like a front-end office function, if I were to say that?

Michelle Chang

Eric Yuan

Founder, President, CEO and Chairman

Of course. Judging from the strategic value, look at our AI capabilities. We have built federated AI (federated AI), and we are not only adding these capabilities to the horizontal product line, we are also focusing on the business line, right? Examples include contact centers and ZRA. ZRA is becoming more important as we add more and more features to it, right? We organically built these products.

At the same time, how can the ZRA product portfolio be accelerated, right? That's why we bought Common Room. With Common Room, plus ZRA, and upcoming interactions or predictions, many new features are in the works. Our ZVA is also in a unique winning position in the sales field. Essentially, we have AI vertical products for sales departments. I think this is a huge opportunity for the next few quarters. We're very excited about the synergy between ZRA and Common Room.

Michelle Chang

chief financial officer

OK, maybe a little more about the guidelines. Obviously, our previous guidance included acquisitions like BrightHire. Common Room was included. These are early stage companies. While Common Room is Zoom's biggest acquisition to date at $250 million, these are early stage companies, so their impact on our $5 billion revenue base will be insignificant.

But for all the reasons Eric mentioned, we're excited about what they mean for our future growth and our vision of the system of action. I think the combination of ZRA and Common Room is a perfect example of what we're talking about in terms of action systems, that is, entering different value tiers and now helping our customers drive their revenue. So we're really excited about what the future has to offer.

Of course, it may also be said that when you make such acquisitions, they don't have Zoom's first-class profit margins. So maybe one of the reasons we met our profit margin expectations and maintained them throughout the year was that we clearly took them into account, and we will continue to work to reduce this difference as the scale of our business grows.

Eric Yuan

Founder, President, CEO and Chairman

By the way, there are more details about the integration, since Common Room is headquartered in Seattle. We have a large AI team there. I think we did a great job with engineering integration, product integration, and even sales integration within a few weeks after the deal was completed. So this is very promising.

Sitikantha Panigrahi

Mizuho Securities America LLC, Research Division

I'd like to take a closer look at contact centers. This is one area where you'll see most AI-driven innovations emerge in the next few years. Recently, we've also seen OpenAI enter the field, and even some CRM vendors are trying to get native voice and CX capabilities. So what do you think of the evolution of this competitive landscape and how is Zoom's win rate compared to some of the other new entrants in the market?

Eric Yuan

Founder, President, CEO and Chairman

Yes, that's a good question. First, there are so many players in the market. That's great news, right? Because it shows that the market is growing, we have plenty of opportunities ahead of us. Also, take a look at our ZVA, which I think is a unique location because for customers who deploy meetings, calls, and contact centers, they essentially want to integrate into one vendor, and because you look at AI, I think you can access all the data in a better way than other vendors, right? They only focus on one section, like UCaaS or CCaaS, or just ZVA. We have it all. This is one of them.

Second, look at our technology, or even further, AI, our automatic speech recognition (ASR) technology. I think this is one of the best technologies in the world, right? Look at the delays, and we've developed all of these technologies in-house. We can also use technology from third parties. I think the federal AI approach puts us in a unique position. Take a look at latency and voice quality, ASR, and text-to-speech (TTS); we're constantly improving these features. I think this also led to better positioning.

We've earned the trust of many enterprise customers over the years, and they've deployed meetings. We told them the advantages of using the phone and they did a very good job. We told them about the advantages of contact centers, and they also did a great job. Now we've added ZVA, and they trust our brand. So with UCaaS, CCaaS, ZVA, and our AI technology, we believe we can perform very well compared to any other vendor.

Jackson Adder

KeyBanc Capital Markets, Inc., Research Division

I actually have a question about that particular topic, Eric, about the difference in contact centers. You've talked about seeing strong momentum in contact centers and virtual agents (virtual agents); sometimes they're combined, and sometimes virtual agents are sold separately as standalone products. I'm curious; we've talked a lot about bundling and a lot about integrating into a single platform.

So I'm curious how common it is for virtual agents to be sold as standalone products, and what are the benefits of doing so. Then Michelle, quickly asked, is there any net expansion rate to share about the contact center section? Is this a “take first, then expand” model, or is it just a big hit without much effort to expand?

Eric Yuan

Founder, President, CEO and Chairman

Yes. Speaking of ZVA, in the second quarter, a leading enterprise software company previously deployed the Zoom Phone service. They deployed ZVA Voice as a natural extension to Zoom Phone. This means that customers, assuming they have deployed meetings, may consider ZVA. They have deployed phones and may also consider ZVA, or contact center customers will definitely consider ZVA as well.

Essentially, we can bundle ZVA and contact center as a solution, and we also sell ZVA separately, right? Even some customers, who don't use Zoom meetings, phone calls, or contact centers, will consider ZVA because it's a new thing and a new market opportunity. So we're focusing on two things: the product experience, and ensuring and building something that customers really love. Second, we have this technology.

The speed of innovation is always what customers really love. That's why I think, looking at ZVA's opportunities, we're much better positioned. Even though we announced ZVA a little later than some startup vendors, looking at the speed of our innovation, we are convinced that we will continue to gain market share.

Michelle Chang

chief financial officer

Maybe just some additional data to help think about the typical dynamics we're seeing. The short answer is a combination of both, which is why in our prepared presentation, we wanted to paint a different picture of what we see in our customers. Maybe just to give you some data. Of our top ten ZVA deals, 6 out of 10 were accompanied by a contact center.

So I think it makes you feel like this is both a “sell-with” (sell-with) dynamic, meaning when they want the entire platform Eric talked about and want to fully adopt Zoom; it also depicts a picture where some customers started with ZVA, and then this gave us an opportunity to “take first and then expand” from there.

Similar comments, I think the same goes for contact centers. Of our top ten deals, 7 out of 10 were Elite (Elite Edition), or AI-assisted customer service staff, while 4 of the top 10 deals were ZVA. So all of this is shown numerically, there are multiple paths to growth here, and we think that as a result, this gives us a lot of room to use in the future.

Ryan McWilliams

Wells Fargo Securities, Research Division

I have a two-part question. For Michelle, when it comes to the online business segment, growth appears to be slightly lower than the previous quarter. Is there anything that needs to be pointed out about the broader situation of SMEs, or is it due to the impact of price increases in the same period last year? And for Eric, as we see AI models improve and organizations build systems around their data and AI, how are your cutting-edge AI customers building AI use cases based on the data they collect on Zoom? How do you think this data gravity (data gravity) will help Zoom and your future stickiness in the business?

Michelle Chang

chief financial officer

OK. Let me talk about our online business. I would describe our second quarter results as solid. We've seen a low churn rate. I think this low churn rate shows that I've mentioned an issue before, but even in the context of price increases, we have been successful in showing customer value. And you're seeing a further increase in the stability of the customer base. We have seized an opportunity, and I emphasize here that, out of prudence, we adjusted our full-year guidance from the previous slight increase to a flat rate.

Our adjustments are actually due to the industry's top of funnel (top of funnel) dynamics we saw in the second quarter, and the way people discovered products was changing. We're actively working to solve this problem, which means they're moving away from search to more AI. We are actively responding. This prudence is really just a statement of what to expect in the near future.

The big picture is continuing efforts to get the business back to growth, which includes efforts to reduce churn rates (which we feel very good about) and product expansion (we've never had such a broad product portfolio open to our online customers thanks to our AI innovations).

The next step is to continue to study what this would look like in the AI world. We think our brand will also be very helpful and work to improve conversion rates. From a small business perspective, we have a great total cost of ownership (TCO) story, and I think we'll be able to do well with this audience.

Eric Yuan

Founder, President, CEO and Chairman

Yes. Well Ryan, back to the second part of your question. I think we all know that data is extremely important for customers to use AI. So we review all of our services. We want to make sure everything is considered from the customer's perspective, which means how to ensure that our data is accessible to customers because they may use other big language models. Using “My Notes” (My Notes) as an example, we've opened up the context layer, right? So this is one of them.

Second, the customer said, “Yes, we can also use Zoom AI services, such as ZoomMate, right? ZoomMate can search all customer content, not only Zoom data, but also third-party content. Give customers the ability to search, create agents, and drive workflows. Yes, essentially we have both. We have opened up a data API through MCP (Model Context Protocol), and customers can also use our AI services. Essentially, both of these are extremely important for us to use AI because data is the key.

Aleksandr Zukin

Wolfe Research, LLC

Maybe just two quick questions. Eric, can you talk about your contributions to the new pricing model (including outcome-based pricing and consumption-based pricing)? When do you expect them to begin to be reflected more meaningfully in net retention and revenue?

And then, Michelle, really, I think this is the strongest booking growth, calculated booking growth, and billing (billings) growth in a long time. From a forward-looking perspective, how much should we interpret from this, and the potential to continue to see an acceleration in business growth over the next few quarters?

Eric Yuan

Founder, President, CEO and Chairman

Yes, Alex. Regarding usage-based pricing and outcome-based pricing, it's more about new AI products. I don't think this applies to meetings or phone calls, right? Speaking of opportunities, take ZVA as an example. Overall, it's still usage-based, but we're also embracing outcome-based pricing because some customers like that and others still prefer usage-based pricing. So we support it, and we have the flexibility to support this.

As we gain more and more market share on ZVA, I think we'll see outcome-based pricing increasingly contributing to our top-line growth. Once again, this is something new, and the ZVA market is also a new product. However, we are confident to support all kinds of monetization opportunities, especially for enterprise customers. Considering the cost of AI tokens, I think more and more people will embrace outcome-based pricing.

Michelle Chang

chief financial officer

Regarding RPO, I think both have a point. In our best performing quarter, let me remind you that we always tell investors that the best indicator of future performance is our revenue guide, so you have this. At the same time, you see the inflection point trend of RPO rising across the board. It comes from long-term RPO, which is due to a long-lasting driving force. This is because we are driving our business to diversify our products through larger deals and longer-term deals. Seen from this point of view, these are going to be long-lasting factors. Further expansion into the high-end market will be a lasting factor. But in terms of calculating it back to revenue, we continue to point to our revenue guidelines.

Eric Yuan

Founder, President, CEO and Chairman

By the way, Alex, when it comes to outcome-based pricing, we also look at other services, such as ZRA and Brighthire, and we look at all those vertical AI products, right? As long as it makes sense for us to support an outcome-based pricing model, we're willing to do it because it benefits our customers too.

Aleksandr Zukin

Wolfe Research, LLC

Maybe I'll plug in another question, Eric, about voice. Are there any exciting elements we should consider? It seems like you have an important opportunity to rely on voice and maybe follow consumption-based pricing opportunities again.

Eric Yuan

Founder, President, CEO and Chairman

Right. The API is great, consumption-based, right? Also, we already have it, and I think it's probably the best ASR model, right? After training based on our small model, it performed very well. We've released an API, and based on all the testing, ASR is in a better position. At the same time, in order to have a fully functional set of voice APIs, we also need to support TTS. The team is working hard. If you have both ASR and TTS, plus other services, I think we have a complete voice AI opportunity in front of us. We're very excited about it.

Patrick Valravens

Citizens JMP Securities, LLC, Research Division

Eric, my favorite part of your conference call was your custom avatars (custom avatars). I think this is a really good real-time example of voice AI for us. If we want to use them, or if we want our virtual agents to sound very much like humans, what do we need to do to train them to look as much as Michelle as possible?

Michelle Chang

chief financial officer

OK, let me answer this, Eric, because I admit that when Eric kept pushing me to do this, I was a laggard in the adoption curve. It really only took me 2 minutes to set it up. There are a few tips, I think, like being as natural as possible, but it basically takes less than 2 minutes to set up your avatar.

Of course, we have human participation to make sure we review what the avatar says. But it's a really fun way, I think, to show off our technology, and it's super easy. For me — Eric, you can answer this from a technical perspective, but for me, it's just as natural as possible when setting up the avatar because it comes out naturally afterwards.

Eric Yuan

Founder, President, CEO and Chairman

So Patrick, you're right in observing Michelle's voice. The reason is that this is Michelle's first time using a custom AI avatar, meaning she's using the latest version. The AI avatar I created was 6 months ago. So our technology is getting better, and maybe next quarter I'll create a new one with our latest version. Incidentally, this doesn't just apply to AI avatars. In the future, I hope one day my virtual image will also answer any questions. That way I can sit here and just listen to phone calls. That's our dream.

Tyler Radke

Citigroup, Research Division

Corporate bookings and corporate increases seem pretty solid. I was wondering if you could help us understand how our contact center milestones are progressing. I think five quarters ago you mentioned that its ARR reached Zoom CX's $100 million.

You've mentioned that high double-digit growth has continued for several quarters. So will you renew at $200 million or $250 million? Is this the biggest driving force for corporate increases you've seen? Michelle then asked a brief question. Can you talk about what led to this year's reduction in capital expenditure (CapEx)?

Michelle Chang

chief financial officer

Milestones will be announced regularly when appropriate. That doesn't mean it's being announced for every $100 million. You have one that has already crossed $100 million, and since then we've seen high double-digit growth, so you can roughly guess from there. The components of a corporate inflection point are the same ones I've been emphasizing. This is product diversification, of which CX is a part.

This is AI monetization, of which CX is a part. This is a move into the high-end market. CX is part of that. But the theme is, channels are being built, and CX is part of it, but it's definitely not just CX. Another thing I want to say about core enterprises. I think this is something investors often ask. The year-on-year turnover rate has declined. This is a steady trend over the past one to two years.

Then, people occasionally ask about pricing factors, etc., which has always been something our finance department and sales department have been working very hard to ensure we lower discounts, increase transaction terms, and automatic renewals. All this long story short, business growth is made up of many components, and of course CX is a part of it. Regarding capital expenditure, I would like to say that I think when we enter this year, the guideline is capital expenditure of 70 million dollars.

As a reminder to investors, fiscal year 2026 was actually a very low capital expenditure year, so we're returning to a more normal state of affairs. We made a decision to extend the life of one of our data center assets by 2 years, which raised our free cash flow by approximately $40 million. Because capital expenditure is a slightly uneven story in terms of free cash flow, not to mention that fiscal year 2026 was an abnormal year, we just wanted to simply update investors. It's also worth mentioning that we're not a capital expenditure intensive company, and none of these are really AI-related. More is just a dynamic in our core business.

Alan M Verkhovsky

BTIG, LLC, Research Division

Michelle, I have two questions for you. First, can you share the trends you're seeing growing workplace (workplace) seats among large and small customers? Second, given that the updated FY2027 gross revenue guidance at a fixed exchange rate meant an increase of approximately $30 million in corporate revenue, could you talk about the main drivers of confidence in such a drastic increase? Given previous comments, would it be reasonable to assume that Common Room contributed around $10 million or less to the updated guidelines?

Michelle Chang

chief financial officer

OK. Lots of content. Let me try to answer them. From a Workplace perspective, what we usually talk to investors about is the online churn rate. You see it continues to stay low. I think our minimum is 2.7%, 2.9% is quite normal. Based on my previous review, we're very happy with it because it shows both the stability of our customer base over 16 months (75% increase) and the incremental value we've invested in the platform and AI.

On the corporate side, we're talking to investors about a year-on-year decline in lost amounts; of course, this trend continued in the second quarter. So we haven't revealed much other than these two metrics. But overall, I think the trend is very much in line with what we've been seeing.

Regarding fixed exchange rates and corporate business, in order to avoid repetition, this is the same corporate growth dynamic I've always emphasized: diversifying products, monetizing AI, entering high-end markets, establishing channels, and maintaining a low churn rate. Then apparently we included Common Room.

We won't — just because it's a small portion of our revenue, we won't quantify it. But it's definitely included in the revenue guidelines. Then I'll just restate my comment that these are early-stage companies, and we're very encouraged by their growth and what they mean to our systems of action and everything Eric mentioned before. But compared to the $5 billion base, these effects are insignificant.

William Ball

Robert W. Baird & Co. Incorporated, Research Division

If so, maybe two questions. Let me start with Workvivo. This is a great milestone update for this quarter. I'd love to hear about ongoing cross-sell (cross-sell) opportunities. I'm guessing this may still be early days, but what do we think about this and what this indicates for continued product growth.

Then Michelle, given the strong momentum you've seen in terms of business and RPO, I'm just trying to reconcile it with the increase in revenue for the whole year and the higher-than-expected performance in the second quarter. It feels a bit conservative. Is there anything to consider about this aspect of the situation in the second half of the year?

Eric Yuan

Founder, President, CEO and Chairman

I wanted to talk about Workvivo's opportunities, and we're excited to see the opportunities we've won over the past few quarters. Many times those customers aren't Zoom customers at all, but they've deployed Workvivo. This means we have more opportunities to increase Workvivo's installation base for all of our large enterprise customers.

Also, Workvivo launched Workvivo HQ, which is also an AI-driven product because in the AI era, data is becoming more and more important, right? And customer-employee engagement is becoming more and more important, right? To drive the company culture, with Workvivo HQ, I think — Workvivo is in a better position than ever with the new release. So we're excited about the opportunity to win more deals in the corporate sector.

Michelle Chang

chief financial officer

Then, with regard to guidance, let me talk about the dynamics of the year and my thoughts. At a fixed exchange rate, this represents an increase of 7.5% over expectations and an increase of 9% for the whole year. We have a good sense of the dynamics behind it and have already guided 4.5% growth in the middle of the year. With that in mind, I'll continue to remind investors that loss of white label has 40 basis points of impact.

So you can look at this based on last year's growth rate. Basically, I think I've answered a lot of questions. Behind this is an inflection point in the growth of our corporate business. You saw one of the best growth rates in three years this quarter.

This is product diversification, AI, entering the high-end market, maintaining a low churn rate, and achieving results on the three priorities we mentioned. These will be enduring factors for our future growth. Perhaps the only one, we've talked about before, but in response to your question about how to coordinate, we took the opportunity to slightly lower our expectations for online businesses.

What we were talking about before was a slight increase. We adjusted to remain flat in this financial report, which is really entirely due to a dynamic we saw in the second quarter. Continue to see low churn rates, as described in all previous conversations. But I've seen some changes, and I think along with the rest of the industry, we're actively adjusting these in terms of how our customers discover us and the top-level funnel, just trying to be cautious about recent guidance.