On Thursday, Zoom Communications (NASDAQ:ZM) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

The full earnings call is available at https://investor.zoom.us/webinar/register/WN_2mpv3nnAQOS2evAUrcU11w?_ics=1777541918243&irclickid=~72RWOWRHFAvBCINGIJAHyopxrxpqxpumiahde67541ZPOFzuqnkb&_gl=1h4sg13_gcl_au*ODI3MDQ5Njk1LjE3Nzc1NDE5MTg.#/registration

Summary

Revenue for Q1 FY27 grew by 5.5% year over year to $1.24 billion, exceeding guidance, with enterprise revenue growing 7.2%.

Strategic AI initiatives, such as AI Companion 3.0, saw significant adoption, with paid MAUs increasing by 184% year over year, and new AI revenue streams are being developed.

The company announced a new $1 billion share repurchase program, reflecting confidence in long-term growth and shareholder value.

Operational highlights include significant customer wins, such as a major government contractor and Baptist Health adopting Zoom Phone, showcasing the integration of AI in workflows.

Future guidance for Q2 projects revenue between $1.265 to $1.27 billion, and the company raised its full-year revenue and profitability outlook.

Full Transcript

OPERATOR

Hello and welcome to Zoom Communications Inc's Q1 FY2027 earnings release webinar. I will now hand things over to Charles Evislage, Head of Investor Relations. Charles, over to you.

Charles Evislage (Head of Investor Relations)

Thank you Katherine. Hello, everyone and welcome to Zoom's earnings webinar for the first quarter of fiscal year 2027. I'm joined today by Zoom's founder and CEO Eric Yuan and Zoom CFO Michelle Chang. Our earnings release was issued today and after the market closed and may be downloaded from the Investor Relations page at investors.zoom.com. Also on this page you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. During this call we will make forward looking statements, including statements regarding our financial outlook for the second quarter and full fiscal year 2027, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program opportunities go to market initiatives, growth strategy and business aspirations and product initiatives, including future product and feature releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today and actual results may differ materially. These forward looking statements are subject to risks and other factors that could affect our performance and our financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward looking statements we may make today on today's webinar. And with that let me turn the discussion over to Eric who is giving his prepared remarks via Zoom's Custom Avatar.

Eric Yuan (Founder and CEO)

Thank you Charles. FY2027 is off to a good start, continuing the momentum from FY26Q1. Revenue grew 5.5%, exceeding the high end of our guidance and among our best growth rates in recent years. This progress underscores the increasing value of our System of Action for modern work. To help accelerate that vision, we appointed Russell Dicker as Chief Product Officer. Russell brings more than 25 years of product leadership experience across Microsoft, Google and Amazon, including leading Microsoft Teams, product and data science teams. He will help drive our AI-first roadmap as we connect conversations, workflows and outcomes through our System of Action. The foundation of our System of Action is Zoom Workplace where context is created across the full meetings and work lifecycle with AI companion. That context becomes actionable, helping customers drive productivity, automate follow through and turn everyday collaboration into measurable business value. In Q1, AI companion usage continued to scale with paid MAUs growing 184% year over year. Driven by strong early adoption of AI Companion 3.0 capabilities, my notes has quickly emerged as a breakout product, surpassing 1.5 million monthly active users, excluding trial users, just four months after launch. It gives users a personal AI note taker that captures context across Zoom in person and third party meetings, helping them stay present while turning conversations into organized takeaways, action items and follow through. Altogether. AI Companion 3.0 brings agentic retrieval across Zoom and connected work sources, extending AI Companion beyond meeting summaries into a broader workflow layer that turns conversations into action. This AI momentum is also reinforcing the strength of our core business. In Q1, 15 of our top 20 wins included Zoom Workplace or Zoom Phone as customers increasingly choose Zoom for secure AI-first communications that improve productivity, reduce complexity and turn conversations into action. Zoom Workplace continues to win on product quality, platform breadth and security. In Q1, a major government contractor came back to Zoom for the full suite of Zoom Workplace phone events and webinars in a seven figure Annual Recurring Revenue (ARR) deal. Displacing teams and Cisco Calling the customer chose Zoom to meet stringent government security requirements and unlock insights from live communications data to support its broader AI workflows. Zoom Phone continued to grow Annual Recurring Revenue (ARR) in the mid teens taking share as customers modernize voice on our reliable flexible platform that integrates with their existing workflows and extends AI into everyday communications. A great example of this is Baptist health in Jacksonville, Florida who in Q1 chose Zoom phone to support 16,000 workers across more than 200 points of care in a seven figure Annual Recurring Revenue (ARR) deal. Baptist Health selected Zoom Phone because of its reliability, hybrid flexibility and industry specific integrations. Taken together, these wins show a consistent pattern. Customers are choosing Zoom as a secure, integrated multi product platform, often displacing multiple vendors and expanding over time as AI becomes embedded in their workflows. This reinforces our confidence in Zoom's ability to turn conversations into action and drive durable platform expansion. Our progress elevating Workplace with AI sets the foundation for our second priority driving growth in new AI revenue streams as customers experience the value of AI Companion in Zoom Workplace. Custom AI Companion is the natural next step that takes them from conversation to action by unlocking agentic search, customization and agentic workflows. Raymond James is a strong example of this expansion motion. After adopting AI Companion for meeting summaries, they expanded in Q1 to custom AI Companion across approximately 10,000 seats, giving wealth advisors more tailored AI workflows and customized summaries. With the security, compliance and centralized oversight required in financial services, Custom AI Companion also wins on its ability to support agentic workflows in Q1. As part of MongoDB's upgrade to Zoom Workplace Enterprise plus Zoom Contact center and Zoom Virtual Agent (ZVA), they chose custom AI Companion to translate live conversations into completed actions across their IT ticketing, customer relationship management and other third party systems. Just as Custom AI Companion creates an AI monetization path within Zoom Workplace, Zoom Virtual Agent (ZVA) Receptionist represents an important new monetization layer for Zoom Phone. Zoom Virtual Agent (ZVA) Receptionist turns Zoom Phone into an AI powered front door for the business, helping customers qualify callers, capture context, answer common questions, and route requests to the right person OR team. In Q1, we saw it deliver real business value across a variety of customers, including an industry association improving lead capture and lowering costs, an insurance firm automating after hours and overflow calls, and a law firm managing high call volume by filtering unsupported requests so staff can focus on actionable cases. We also added AI innovation to employee experience with the launch of Seer by workvivo, expanding from employee communications into AI powered people intelligence and creating another path for AI monetization. SEER helps leaders listen to employee feedback, measure engagement, understand sentiment with AI, act through built in communication tools and track progress in real time. Beyond these application level AI monetization layers, Zoom AI Services opens our core AI technologies to customers and developers. Launched in March, Zoom AI Services extends our speech recognition advantage, honed across countless daily meetings and ranked among the top models on the hugging face. OpenASR leaderboard. Its scribe API gives customers and developers high quality flexible speech to text across platforms with early adoption from BPOs like inflection Customer Experience (CX) valid, validating the real world value of our ASR technology, we are also extending AI into high value vertical workflows. Brighthire, which brings conversational AI to recruiting and hiring, had a strong quarter with continued momentum in tech and other sectors. In Q1, Brighthire landed Figma on its core product to help support consistent, objective and calibrated hiring decisions and expanded with HubSpot from its core interview intelligence product into BrightHire screen, its AI interviewer to support go to market hiring. Taken together, these examples show how we are extending Zoom AI beyond core collaboration into a broader monetization engine across workplace AI services and vertical workflows. The same combination of AI context and workflow orchestration is also driving our third priority, scaling AI First Customer Experience the same AI-first platform that powers Zoom Workplace and phone also extends to customer engagement. This is a true point of differentiation. Zoom is one of the few scaled companies with a native platform that bridges Unified Communications (UC) and cx. By connecting collaboration, voice, Contact Center, Virtual agents, Expert Assist and more. We help customers carry context across teams, channels and systems, moving from reactive service to faster, more intelligent resolution and measurable business value. To further bolster the suite, in March we introduced Customer Experience (CX) Insights, a new SKU within ZCustomer Experience (CX) that gives business and Customer Experience (CX) leaders a natural language way to analyze Customer Experience (CX) data across Contact Center, Workforce Management, Quality management and Virtual Agent. We also announced AI Expert Assist 3.0, Customer Workflow Orchestration, Advanced Quality management for Virtual Agent and new workforce management capabilities to help organizations deliver better outcomes with greater efficiency. Zoom Customer experience continued to accelerate in Q1 with high double digit growth driven by paid AI in nine of the top 10 ZCustomer Experience (CX) deals, showing that customers are increasingly turning to Zoom to automate service, empower agents and improve resolution. Zoom Customer Experience is emerging as a key growth driver and represents the strategic expansion of our platform into mission critical customer operations. We are increasingly winning competitive displacements and larger deals as customers look to consolidate Contact center and Unified Communications (UC) systems with a unified AI workflow and analytics platform that works across all channels. Let me bring this to life with a couple of customer wins. Showcasing the strength of our full system of action, we landed Chelsea FC one of the world's most recognized football clubs. They selected Zoom Phone, ZCC Elite and Zoom Virtual Agent (ZVA) Chat to modernize fan engagement across touchpoints. Zoom will help the club deliver faster, more personalized experiences while creating a connected data foundation to improve insight, efficiency and long term growth. Also in Q1 caliber collision, a leading automobile repair provider chose to deploy Zoom Phone with ZCC Elite in order to streamline their customer experience across more than 1,800 repair centers and their central contact center, eliminate the cold call experience for customers and provide unified Customer Experience (CX) analytics for end to end visibility. We also saw a strong full Customer Experience (CX) platform win in Japan with Rensa who selected Zoom Virtual Agent, Agentless Dialer and ZCC Elite to modernize high volume customer interactions. They chose Zoom for the flexibility and automation capabilities of the platform and are using Zoom Virtual Agent in a differentiated way for outbound engagement including pre confirmation calls tied to electricity and gas connections which helps free teams for higher value sales activity. Taken together, our progress across our three priorities gives us confidence in the opportunity ahead as customers increasingly adopt Zoom as an AI powered system of action we are excited to turn that momentum into durable growth and long term value. Michelle will now take us through our Q1 financial results.

Michelle Chang (CFO)

Michelle thank you Eric and hello everyone. I'm excited to be here with you today to share Zoom's Q1 FY27 performance in Q1 total revenue grew 5.5% year over year to $1.24 billion or 4.6% in constant currency. This result was $14 million above the high end of our guidance. Our enterprise business continues to be strong with revenue growing 7.2% year over year representing 61% 1% of our total revenue up 1 point year over year. In our online business, Q1 average monthly term was 3% compared to 2.8% in Q1 of FY26. Within our enterprise business, we asw 8% year over year growth in the number of customers contributing more than $100,000 in trailing twelve month revenue. These customers now make up 33% of our total revenue, up 1 point year over year. Our trailing twelve month net dollar expansion rate for Enterprise customers in Q1 improved to 99%. Looking at our international growth, our Americas revenue and EMEA revenue both grew 5% year over year while APEC grew 6%. The EMEA growth rate was predominantly driven by year over year changes in foreign exchange rates, moving to our non-GAAP results which as a reminder exclude stock based compenastion expenses 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 79.9%, up 70 basis points from Q1 of last year primarily due to our continued cost optimization efforts aligned with our long term target of 80%. Our non-GAAP income from operations grew 9% year over year to $509 million, exceeding the high end of our guidance by $17 million. Non GAAP operating margin for Q1 was 41.1%, up 130 basis points from Q1 of last year. The operating margin improvement was primarily driven by the accounting amortization change we discussed last quarter and our gross margin improvements. This was partially offset by the second year of our shift from SBC to cash bonus compenastion. Non GAAP diluted net income per share in Q1 increased to $1.55 on approximately 300 million Non GAAP diluted weighted average shares outstanding. This result was $0.13 above the high end of our guidance and $0.12 higher than Q1 of last year. The EPS growth reflects strong business performance, effective cost management as well as anti dilution efforts across our buyback program and stock compenastion management. Turning to the balance sheet, deferred revenue at the end of Q1 grew 5% year over year to $1.49 billion above the high end of our previously provided range of 1 to 2%. For Q2 we expect deferred revenue to be up 2 to 3% year over year. As we discussed last quarter, larger and longer duration competitive takeouts in phone and contact center can include grace periods that affect deferred revenue. Timing in Q1, fewer contracts than expected required such terms. We continue to expect some quarter to quarter variability based on the timing and the structure of larger deals. Looking at both our billed and unbilled contracts, Our RPO increased 11% year over year to approximately $4.3 billion driven by non current RPO growth of 19%. The strong growth in non current RPL reflects our continued success landing larger longer term multiproduct platform deals. In Q1, operating cash flow grew 7% year over year to $522 million representing an operating cash flow margin of 42.1% of 50 basis points year over year. Free cash flow in the quarter grew 8% year over year to $500 million representing a free cash flow margin of 40.4% up 100 basis points year over year. We ended the quarter with $7.7 billion in cash cash equivalents marketable securities excluding restricted cash. In Q1 we repurchased 4.2 million shares for $362 million across the pre existing 3 $3.7 billion share repurchase plan. We've repurchased a total of 40.4 million shares for $3.1 billion. Turning to the guidance for Q2 we expect revenue to be in the range of 1.265 to $1.27 billion representing 4.1% year over year growth. At the midpoint we expect non DAP operating income to be in the range of 508 to $513 million representing an operating margin of 40.3%. At the midpoint, our outlook for non-GAAP earnings per share is $1.45 to $1.47 based on approximately 304 million shares outstanding for the full year. For FY27, we're pleased to raise both our revenue and profitability guidance. We now expect revenue to be in the range of 5.08 to $5.09 billion, which at the midpoint represents 4.4% year over year growth. We expect our non-GAAP operating income to be in the range of 2.065 to $2.075 billion, representing an operating margin of 40.7% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY27 is increasing to $5.96 to $6 based on approximately 304 million shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. We continue to expect free cash flows for FY27 to be in the range of 1.7 to $1.74 billion, as indicated in our press release. Today, we are excited to announce our board has authorized an incremental $1 billion share repurchase. This reinforces our board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder value. In closing, Q1 was a strong start to FY27 with continued execution across our three priorities and growing adoption of Zoom as an AI first system of action. We are encouraged by progress, scaling customer experience and the early momentum across new AI revenue streams. We remain on track to surpass $5 billion in revenue this year while maintaining our focus on profitability, cash flow generation and shareholder returns. Thank you to our customers, investors and of course the entire ZIM team for your trust and support. With that Catherine, please queue up the first question. Thank you Michelle. We will now begin the Q and A portion of the call. When I read your name, please turn on your video and unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Alex Zukin with Wolf Research.

Alex Zukin

Hey guys, thanks for taking the time and taking the question and congrats on a really solid quarter. I guess maybe Eric, first one for you. When you think about the execution that you're seeing, particularly both on the AI products and particularly on ZCX, which sounds like it didn't need as much discounting or flexibility in terms of billings terms before. Maybe what are you seeing in the pull through from some of your AI solutions and how much incremental expansion of your wallet within customers is that driving? And Michelle, I've got a quick follow up for you.

Eric Yuan (Founder and CEO)

Yeah, so Alex, as a great question. And so you know speaking of ZCX, right you look at now out of a top 10 deals paid AI was involved, right? And meaning AI is really helpful about ZCX. And also look at the top 10 ZCX deals, four of them also includes ZVA as well. Right? So as we further improve our ZCX product specifically doubling down on AI. Our pricing model is getting more and more flexible for now. You take ZCX for example is you know, usage based. You know very soon we are going to introduce Outcome based. Right. Some customers like Outcome based, some customers like a prepaid usage based. Right. So we are very flexible. Right. We co-innovative with the customer in terms of product innovation, AI features and also the business model as well. That's why we have high confidence. Even just one example zra all those vertical AI product we are taking the same approach.

Alex Zukin

Excellent. And then Michelle, kind of maybe just a two parter for you, really strong execution on billings. I think some of your best outperformance that we've seen for you guys in a while maybe what drove that you referenced I think some of it in the script but maybe just how much of it was better execution and demand environment versus maybe some other stuff. And then online maybe a little higher churn than we've seen in some time. So kind of maybe a little bit of a Tale of Two Cities. And curious if you can just unpack both of those dynamics.

Michelle Chang (CFO)

And your question is in part you know, sort of what changed on the deferred revenue as well as just broadly what we're seeing kind of in enterprise billings. Okay, so look in enterprise billings Alex, it's. It's exactly what we've been talking to investors that we're diversifying our product set. We're working on churn Churn year over year continued its trend of going down and we're working on AI monetization. And look, I think you can see that across the three part that we talk about, right? So much progress from now going up 184% and additional customer references and even new products coming in. AI. And then certainly Eric covered a lot of the contact center. Maybe I'll add in my favorites of high double digits that now for the second quarter in a row has even increased on top of that. So look broadly the answer is durable revenue from the enterprise that's driving it. With respect to the sort of deferred revenue. Maybe I'll add a mechanical element. Look, I think because I think for investors we may see more variability in this. We saw 5% growth versus the sort of 1 to 2 that we guided at because we just didn't see the need with the nature of the customer contracts to kind of leverage those early grace periods that I mentioned in February. And look, those grace periods are great. Presume they come with less discount longer term deals. They ease our customers into Large competitive wins. And look, if we don't need them in a quarter, we won't take them. Second question on churn. Look, I would say we saw a nominal uptick in Churn and online. I really don't read too much into it. It's, it's been a long term load churn for us. I think we're making progress as investors can see we said we would stabilize our business in online and we've done that both in terms of revenue as well as just in the nature of our online business. Is is far more stable. And look, it's a nominal uptick in Churn and online. Thank you guys.

OPERATOR

Our next question comes from Citi Panigrahi from Mizuh.

Citi Panigrahi

All right, thanks for taking my question. Just continue the Alex question. Your revenue accelerated five and a half percent this quarter. I think that's one of the best growth rate we have seen in recent years. And you talked about some of this AI monetization paid SKU in my notes. So how much of that acceleration is attributable to this AI monetization versus broader enterprise deal activity that you saw? And how should we think about the durability of that pace in the back half of fiscal 27 given your guidance implies some kind of deceleration in the second half.

Michelle Chang (CFO)

Yeah, perfect. I'll go ahead and take that one. So look, 5.5% growth. We're super pleased your comment. It's among our highest and a beat of high guide. Look, it's important to note that some of that was foreign exchange (FX) driven. So in terms of like modeling and thinking about future going forward and so then maybe let me break it down by enterprise and online. From an enterprise perspective what we're seeing is very durable growth and the drivers, many of which I touched on in the, in the Alex answer but let me add a few here. We saw 7.2% revenue growth in enterprise and up from 7.1% in Q4. But that's with a 60basis points impact of that white label churn. Right. So clearly product diversification, AI monetization moving up market, moving into new channels, all the things that we've said and working on Churn as well, all the things that we said would be sort of durable elements with investors, we're seeing the fruits of from an online perspective, you know that we saw a little bit. So mechanically for investors modeling, you do see a little bit more of the foreign exchange (FX) impact and online just because it's a little bit more international based and we faced an easier comparable with no price increase in the prior Q1, but we'll have it here. So you will see we're still projecting online to be a slight growth on the full year, but you will see some deceleration in the in the growth rate in Q through 4.

Citi Panigrahi

Okay, great. Thank you.

OPERATOR

All right, our next question comes from Josh Baer with Morgan Stanley.

Josh Baer

Excellent. Thanks for the question. I wanted to ask about custom AI companion a little bit more about the path to conversion. What are some of the features or the use cases in custom that are really key to that conversion? Then also wondering what can be done from an in product perspective or from a sales perspective to help to drive that conversion.

Eric Yuan (Founder and CEO)

Yeah, so Josh, this is a great question. So it comes with customized AI company. We have a few key features like Enterprise agentic retrieval and also the workflow builder and also the agentic builder as well. Customers, some customers like workflow or agent or enterprise search. All three are part of the key features of customer AI company. And speaking of how to leverage customer AI company driver product usage or maybe when the customer use the product to discover the Custom AI Companion, I give one example. Today when you schedule a Zoom call you can attach a meeting with a workflow. So meaning during the meeting generally my notes after meeting is over workflow will automatically take over to get something done for you. Customers really like that vision focus on the conversation to completion. Without a customer AI company, we really cannot transform our business from conversation centric business to completion centric. That's why customer AI company is a great part of that vision.

Josh Baer

Excellent. Thanks Eric. And maybe a quick one for Michelle. I mean low 40s operating margins and free cash flow margins are obviously excellent. And I'm just wondering from here what.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.