Hello everyone, welcome to Zoom's first quarter fiscal year 2022 earnings release. I'd like to remind everyone that this call is being recorded. At this time, I'd like to turn it over to Tom McCallum, Head of Investor Relations. Thank you, Matt. Hello everyone, and welcome to Zoom's earnings video webinar for the first quarter of fiscal 2022. Joining me today will be Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Kelly Steckelberg. Our earnings press release was issued today 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 press release, include a reconciliation of GAAP to non-GAAP financial results. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the second quarter and the full fiscal year 2022, Zoom's growth strategy, business aspirations to lead the evolution to hybrid work, and the continued impact of the COVID-19 pandemic on our business. 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 financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K, as well as the current report on Form 8-K we file with the SEC today. Zoom assumes no obligation to update any forward-looking statements that we may make on today's webinar. With that, let me turn it over to Eric. Hey, thank you, Tom, and welcome everyone joining us on today's webinar. I want to start by thanking our customers for their commitment to and trust in Zoom, which drove a strong start to our fiscal year with revenue growing 191% year-over-year, as well as strong profitability and free cash flow. I also want to recognize our more than 5,000 employees. Their dedication to our customers' happiness is an incredible advantage and creates a positive feedback loop that keeps our customers coming back and our employees eager to meet their diverse needs. Our ability to help our customers by increasing their productivity, promoting their employees' happiness and connections to each other, and reducing their travel-related carbon footprint gives our work a greater meaning and makes Zoom a greater place to work. Our company culture is strong, and we are more motivated than ever. Let me also thank all of you, our investors, for your trust and support. We are very grateful to our employees, our customers, partners, and our investors. Thank you. As parts of the world reopen, a few things are clear. First, many customers I talk to are looking to create hybrid solutions as they seek to cautiously reopen some offices. Second, each industry, company, and individual varies in their optimal working model. Zoom is here to help each customer calibrate their future work model in their own way. Many companies are redesigning the workplace to enhance the hybrid work experience. To meet this need, we announced Zoom Rooms features such as Smart Gallery, which puts in-room and remote participants in equal footing, virtual receptionist, participant counting, and environmental sensors. We have begun to deliver on our platform strategy. In February, we launched our video SDK. In April, we announced our $100 million Zoom Apps fund to further build our app ecosystem. Zoom Apps is designed to enable users to bring their favorite apps directly into the Zoom experience in a way that inspires collaboration, boosts efficiency, creates healthier habits, and generates much more fun. We will also launch Zoom Events, our events platform, which will be focused on our enterprise customers and support an array of virtual event use cases. In a recent survey we conducted, 80% of U.S. respondents agreed that all interactions will continue to have a virtual element post the pandemic, and that figure was even higher in many of the other markets we surveyed. The hybrid model is here to stay, Zoom Events will be an excellent solution for our customers who are looking to create and host their company events with a versatile and powerful solution. We are very happy to announce that we closed our largest deal ever in terms of ARR with a leading global financial services firm that has selected Zoom Meetings to deploy for over 90,000 hosts. That is one of the large deals we closed this quarter. Let me recognize three more industry-leading companies that have increased their commitment to Zoom. First, I want to thank Kimberly-Clark whose trusted brands are an indispensable part of life for people in more than 175 countries for expanding the relationship with Zoom by adding approximately 25,000 Zoom Phone licenses. As an existing Zoom Meetings and Zoom Video Webinars customer, Kimberly-Clark saw the same reliability, value, and innovation in Zoom Phone. I also wanted to recognize our partner, British Telecom, for advocating for Zoom in the decision-making process at Kimberly-Clark. Next. Thank you, Target Corporation, which serves guests at more than 1,900 stores and online at target.com, with a mission to help families discover the joy of everyday life for their commitment to Zoom. We are very excited to help Target take their communications initiatives to the next level by expanding their Zoom platform solution, while unifying their internal and external communications on our technology. As a longstanding Zoom Meetings customer, we truly appreciate their trust and faith in Zoom as a platform and partner. Finally, I want to thank Denso, Japan's largest, and the world's second-largest automotive parts company, and a leading company in the Toyota Group. They first joined the Zoom family last year, last quarter they decided to significantly expand their usage of Zoom Meetings and Zoom Video Webinars for internal and external communications. Zoom now connects 47,000 employees across offices, factories, and homes. Denso said, "The introduction of Zoom has contributed greatly to our ability to create a work environment that drives faster decision making." Kimberly-Clark, Target, and Denso, thank you. Love you. We're off to a great start in fiscal 2022. I look forward to updating you on our hybrid workspace and platform evolution throughout the year, and at Zoomtopia, which will be held on September 13th and 14th in a virtual format. Before handing it over to Kelly, I want to share a quick update. As you know, demand for Zoom Phone has been amazing, and I'm very excited to announce our new device category, the Zoom Phone Appliance. I've invited Graeme to tell you more. Thank you. Thanks, Eric. Hi, everyone. I'm Graeme Geddes. I'm the head of Zoom Phone and Zoom Rooms, and I'm excited to be joining the call today from, you guessed it, my Zoom Phone Appliance. Our new Zoom Phone Appliances allow our customers to take advantage of the powerful audio and video capabilities of Zoom, and they're a great solution for touchdown spaces, huddle rooms, and executive offices alike. We also can't wait to see some of the vertical applications that our customers come up with for this new category as well. While I'm here, I've got some exciting news to share. I think I'll use the whiteboarding feature of this device. At the end of December, we announced reaching 1 million seats of Zoom Phone sold. Well, that momentum continues, and I'm excited to announce that we have now surpassed 1.5 million seats of Zoom Phone sold as of the end of September. It's been absolutely amazing to see the growth continue to accelerate. Thank you for allowing me to join you today, and now I'll turn it over to Kelly. Thank you, Graeme Geddes, and thanks to you and your team for your hard work and for that amazing accomplishment. Hello, everybody. Our impressive growth story continued in Q1. As you can see, we continued to win awards and third-party recognition for our strong security focus, empowering company culture, and lasting impact on society. Thank you to all of our amazing customers and employees who made these accolades possible. In Q1, the year-over-year growth of total revenue remained strong at 191%, reaching $956 million. This top-line result exceeded the high end of our guidance of $905 million due to strong sales and marketing execution led by our direct and channel businesses, as well as lower than expected churn. Demand was widespread across products, industry verticals, geographies, new logos, and customer cohorts. It's also worth noting that our fiscal 2021 results have shifted our renewal seasonality, which is now more weighted towards the beginning of the year. To illustrate, we saw approximately four times more deals up for renewal in Q1 of FY 2022 as compared to Q1 of last year. Our renewals, sales, and online marketing teams really outperformed in securing renewals, and the success is a testament to their hard work and our product's strong and lasting value proposition. The year-over-year growth in revenue for the quarter was driven by a healthy mix between new and existing customers, where new customers accounted for approximately 57% of the incremental revenue, and existing customers accounted for 43% of the incremental revenue. This trend towards existing customers was expected considering the tremendous growth in our base last year. Let's take a look at the key customer metrics for the quarter. We saw growth in the upmarket at the end of the quarter with 1,999 customers generating more than $100,000 in trailing 12 months revenue. We exited the quarter with approximately 497,000 customers with more than 10 employees, adding approximately 30,000 customers during the quarter. In Q1, customers with more than 10 employees represented approximately 63% of revenue. We also continue to benefit from solid growth in our segment of customers with 10 or fewer employees. In Q1, customers with 10 or fewer employees represented approximately 37% of revenue, up from 30% in Q1 last year and stable quarter-over-quarter. Our net dollar expansion rate for customers with more than 10 employees exceeded 130% for the 12th consecutive quarter, as customers acquired more Zoom Meetings, Rooms, Webinars, and Phone products. For this customer subset, we expect the net dollar expansion rate to remain above 130% for the next few quarters. For customers with 10 or fewer employees, which are not included in this net dollar expansion metric, we expect that cohort to be lower than FY 2021 and more volatile as economies continue to reopen. Both domestic and international markets had strong growth during the quarter. Our Americas revenue grew 159% year-over-year. Our combined APAC and EMEA revenue grew 288% year-over-year to be approximately 34% of revenue up from 25% a year ago. In recent quarters, we made significant investments in our international teams, which have already begun to pay dividends. The global opportunity remains large, and we'll continue to empower our team to capitalize on it. Now, turning to profitability. The increase in demand and strong execution drove net income profitability from both GAAP and non-GAAP perspectives. I will focus on our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, charitable donation of common stock, acquisition-related expenses, and net litigation expenses. Non-GAAP gross margin in the first quarter was 73.9% compared to 69.4% in Q1 last year and 71.3% in Q4. The sequential improvement in gross margin is mainly due to optimization of public cloud resources. We expect gross margin to remain relatively stable in the low 70s as long as we continue to support free K-12 education. Research and development expense grew by 97% year-over-year to approximately $41 million. As a percentage of total revenue, R&D expense was approximately 4.3%, which is lower than in Q1 of last year, mainly due to the strong top-line growth. However, on a quarter-over-quarter basis, expenses grew by 33%, demonstrating our commitment to building out our engineering teams globally and maintaining best-in-class product and innovation. Sales and marketing expense grew by 84% year-over-year to $191 million. This reflects an additional $87 million over last year, primarily due to investments in hiring to drive future growth. Sales and marketing expense was approximately 20% of total revenue, a decrease from Q1 of last year, mainly due to strong top-line growth. We plan to continue to invest in adding global sales capacity and brand and product marketing programs in order to capitalize on our growing leadership position and growth initiatives. G&A expense in the quarter grew by 51% to $73 million as we continue to scale these functions and invest in systems, automation, and compliance to meet our new scale. D&A expense was approximately 7.7% of total revenue, a decrease from Q1 of last year. Revenue upside in the quarter carried through to the bottom line with non-GAAP operating income of $401 million exceeding our guidance. This translates to a 41.9% non-GAAP operating margin for Q1, a large improvement from 16.6% in Q1 last year, and a slight improvement from 40.9% in Q4. Non-GAAP diluted earnings per share in Q1 was $1.32 on approximately 305 million non-GAAP weighted average shares outstanding. This result is $0.35 above the high end of our guidance and $1.12 above Q1 of last year. Turning to the balance sheet. Deferred revenue at the end of the period was $1.1 billion, up 98% year-over-year from $552 million. Looking at both our billed and unbilled contracts, our RPO total approximately $2.1 billion, up 94% year-over-year from $1.1 billion. We expect to recognize approximately 72% of the total RPO as revenue over the next 12 months, consistent with the level of this metric last year. It's important to remember that deferred revenue and RPO trends are not reliable predictors of future revenue growth due to the large% of monthly billings in our customer base. In addition, the timing of our renewals has increasingly shifted to the beginning of the fiscal year, with Q1 now representing our largest renewal quarter. We expect sequential increases in deferred revenue and RPO in each of the remaining quarters to be lower as our available population of annual renewals is smaller. We ended the quarter with approximately $4.7 billion in cash equivalents, and marketable securities, excluding restricted cash. We had exceptional operating cash flow in the quarter of $533 million, up from $259 million in Q1 of last year. Free cash flow was $454 million, up from $252 million in Q1 of last year. The increase is primarily attributable to strong sales execution and collections. Looking at the rest of the fiscal year, we expect to increase our capital expenditures related to ongoing data center expansion to support our growth outlook. We also expect a legal settlement, which will be disclosed in our 10-Q, to be a cash outflow in late FY 2022. Now, turning to guidance. We are pleased to raise our outlook for Q2 FY 2022 and the full fiscal year. Please note that the impact and extent of the global pandemic still remain largely unknown. Our outlook is based on our current assessment of the business environment, as well as our own research and conversations with customers. For the second quarter of FY 2022, we expect revenue to be in the range of $985 million-$990 million. We expect non-GAAP operating income to be in the range of $355 million-$360 million. Our outlook for non-GAAP earnings per share is $1.14-$1.15, based on approximately 311 million shares outstanding. For the full year of FY 2022, we expect revenue to be in the range of $3.975 billion-$3.99 billion, which would represent approximately 50% year-over-year growth. We expect non-GAAP operating income to be in the range of approximately $1.425 billion-$1.44 billion, which would represent approximately 45%-46% year-over-year growth. Our outlook for the non-GAAP earnings per share is $4.56-$4.61, based on approximately 311 million shares outstanding. Before concluding, I am happy to highlight that we recently launched our ESG website, which can be found on our investor relations and corporate websites. We also recently published our social impact report, which can be found on our Zoom Cares website. Giving back to the community has always been a key tenet of what we do at Zoom. We look forward to updating our investors as we continue along our ESG journey. As always, Zoom is grateful to be a driving force enabling connection and collaboration worldwide with our high-quality, frictionless, and secure communications platform. Thank you to the entire team, our customers, our community, and our investors. If you have not yet enabled your video, please do so now for the interactive portion of this meeting. Matt, please queue up our first question. Our first question is from Ittai Kidron with Oppenheimer. Ittai, so sorry. Okay. Milestone today, announced 1.5 million. I'm trying to think of the past. I think you launched phones in early 2019, it took, I guess, a couple of years to get to 1 million, and then five months to add another 0.5 million. Although at the beginning, you didn't have the global availability as you had, and plus you weren't pushing as hard, at least at the beginning from a sales standpoint. Help me think about what is the pace of addition, Kelly, or should we peg this to about 100,000 per month addition? Is that sounds like the more recent kind of track record here. Maybe also you can talk about the success of Zoom United, your ability to kind of bundle meetings, phone, and chat together. How much of your renewal activity comes in United right now versus maybe a quarter or two ago? How successful are you in that effort? We're really excited about the momentum of Zoom Phone, and it was great to have Graeme as a guest star today on our call. What I think you're seeing and what you're gathering, Ittai, is that there's definitely increased momentum happening there. It took us seven quarters to get to that million seats level. Then, yes, that was in December, it's taken us about five months to add an additional 500,000 seats to that number. It doesn't happen exactly equally in each of those months, right? As you can imagine, there are trends at the end of the quarter, but we absolutely are seeing an acceleration in the momentum there. I'm very excited about it. With respect to the Zoom United plans, how much of your renewal activity comes in this type of a bundle form? Yeah. Absolutely, our salespeople take the opportunity when there's renewal to talk about cross-selling and upselling. In terms of the specific packages themselves. We aren't going to disclose the actual breakout of that, but a lot of what you saw disclosed in revenue coming from new customers is the opportunity they saw to upsell either Zoom Phone or webinars or Rooms as people are thinking about going back into the office space again. That's great. Thanks, guys. Good luck. Just quickly to add on to what Kelly said, when it comes to Zoom Phone growth, what's fascinating is that it's about our product innovation, reliability, security, availability, all the very cool features. There are so many customers, no matter which solution they deployed before, either on-prem or other cloud-based phone solutions, they all like the Zoom solution. Right. Very good. Thanks. Thank you. Our next question is from Daniel Bartus with Bank of America. There we go. Hey, guys. Hi, Dan. Great to see you. Thanks for taking the question. Kelly, you had modeled heightened churn in the first half of this year related to renewals coming up. Based on what you're seeing, what's the reality? Do up-market renewals really mean heightened churn or is it showing more of an enhanced expansion opportunity versus what you expected? Maybe just continuing with the churn theme on the other side of the business, the 1- 10 employee base. I'm just curious, what's the latest of what you're seeing in the second half of this year? Any reason to be more optimistic than when you started this year? Thanks. We were really pleased, and as I said, great thanks to all of our renewals and sales and online marketing teams for their great work done in Q1 as we had a better than expected result in terms of not only retaining customers but also upselling them during Q1, especially in that cohort of customers with greater than 10 employees. That's really exciting to see as we expect that momentum to continue as we carry through the year as we have significant renewals also coming up in Q2 as well. In terms of the customer segment with fewer than 10 employees, as we mentioned in the prepared remarks, we're still expecting that to be more volatile, as that's the segment that we've seen over the last 15 months has reacted more quickly to the openings and potential closings of markets around the globe. All right, great. Thanks, guys. Thank you, Dan. Our next question is from Alex Zukin with Wolfe Research. Hey, guys. Thanks for taking the question and congrats on another great report. I guess first for Kelly, and then I've got a quick one for you, Eric. Kelly, the unending debate on the stock, I believe, is what does growth look like in 2022? I know that you're not going to guide there now, and we understand that churn is an unknown factor, but can you help us better understand the trend that you do have control over today? Specifically, how much have you increased your quota carrying capacity relative to pre-pandemic levels? What are you seeing on the productivity of the sales organization relative to pre-pandemic, and what's driving that productivity today? First of all, we continue to see tremendous opportunity. We were thrilled with the performance in the upmarket in Q1. As Eric just talked about, we had our largest deal to date, and we had some amazing customer wins. We are continuing to invest in our direct and our channel sales organizations especially, and we've seen pretty consistent sales productivity. It's going back to levels that are more reflective of pre-pandemic, but at an elevated level from there, given the benefit we have of the global brand awareness, our expanded portfolio of products, and so we're really excited about the future, especially in that upmarket and international as well. As you heard, they are 34% of revenue, and then, of course, we look to Zoom Phone and the continuing momentum that we're seeing there. Eric, the return to office is on everyone's mind. Looking at some recent articles, I think it's on your mind as well. With that, it would be logical to think about Zoom Rooms as really starting to become a material growth driver in this new and developing hybrid world. Can you talk about what you're seeing from that product today? How do you think about the opportunity in terms of just the sheer number of conference rooms that are out there, and what are your most forward-thinking clients doing today, and how's that impacting the spend relative to that you're seeing? Alex, that's a great question. First of all, I want to say I'm a fan of you because of your weekly updated sometimes data update about what's going on in the stock market. Very well done, Alex. Thank you. I think when it comes to Zoom Rooms, that's a huge opportunity in particular for every business when they are reopening their office. The way to set up Zoom Rooms or the conference rooms are very different. They like, as I mentioned earlier, we have a Smart Gallery view, which puts Zoom participant and the remote participant on equal footing. That kind of experience I did not see requested before. In the future, more and more like that, a lot of innovation on Zoom Rooms. I would say this is probably the third revenue driver in terms of usage and a lot of new use cases. What's more important is that when it comes to the conference room or Zoom Room setup, customers, they like a consistent experience, meaning when they're back in the home, because the future is about hybrid, when they are working from home, they also want to have a consistent experience. That's another reason why a customer, not only do they deploy the desktop Zoom Meetings or Zoom Webinars or Zoom Phone, but also they like the conference room experience as well. That's another driver for our customers to standardize on Zoom platform for meetings, for Zoom Webinars, or the Zoom Phone. Again, a lot of innovation in the pipeline for the Zoom Rooms. Thank you, guys. I appreciate the comments. Thank you, Alex. Our next question is from Patrick Walravens with JMP Securities. He's joining through audio only. Hi, Pat. Hey, Patrick, are you there? You can press star six to unmute yourself. Hi, sorry. In the car. You don't want to see that. Eric, if there's three strategic imperatives that you have for this year, I'd love to hear what you think they are. Patrick, drive safely. We like. I drive very safely. Thank you. I want to share with you my personal priority. I want to share with the company key initiatives. I share with our team when we started the year, for me, I think three top priorities for me as a CEO. Number one is really make sure focus on our company culture, to maintain the company culture, to evolve our company culture, because you have so many new employees coming on board remotely. Number two is double down my time on the platform. It's not only a killer video conference app company, not only a killer video phone business, but also the overall platform. Last but not least, but some of the very big, large, and strategic deals. That's more like my personal priority. If you look at Zoom from a strategic perspective, first of all, I think how to make sure support all those businesses reopen and reenter the offices. That's very important. That's why you see a lot of innovations are around that angle. Either the conference room or the phone or even building chat or meetings, that's number one initiatives. Number two is really about the international market expansion. That's a huge opportunity. From 25% to more than 30%, I think we do see a lot of opportunities from other EMEA, APAC, Japan, a lot of opportunities. We got to invest more. That's the second thing. Last but not least is overall how to make sure our platform strategy works. How to double down our platform driven by our Zoom Events, Zoom Apps, and UC platform, and also our SDK business. I think that essentially that will set us up for the future growth if we can invest more to our platform. That's super helpful. Thank you so much. Thank you, Patrick. Next we have Sterling Auty with JP Morgan. Yeah, thanks. Hi guys. Great to see you. I love the Zoom Pride logo. First, just wanted to start out with, you added about $74 million in revenue quarter-over-quarter this quarter and about 30,000 customers. If I look at that same addition last quarter, it actually mathematically points to the average new customer being smaller this quarter than what we saw last quarter. Is that what you're seeing in the business or is there something else going on underneath those metrics? I think that it actually depends on when it is in the quarter in terms of the renewals. Think about especially Q1 has this very weird timing from last year where all of those, the real dramatic change in the business happened on March 15th, literally halfway through the business. We don't have the full benefit of all of those renewals yet in this quarter. You're going to see it come in the next quarter, and unfortunately, Q1 is always going to have that kind of funny phenomenon because most people co-term with their original date, which was sometime after March 15th in last year. Got you. Also, Sterling, I'd like to add a little bit more. If you look at Q1 or Q2 last fiscal year, in terms of revenue growth driven by a lot of online buyers, like prosumer, consumer, SMB business. Starting Q1, we do see driven by large customers, enterprise customers. Also the Zoom Phone as well. We closed our largest ever deal. This is a very good sign. I think that's a future trend. Driven by our business customers. That makes sense. Maybe one quick follow-up. Can you give us an update on your plans and where you are to monetize on Zoom and Zoom Events? Yeah. OnZoom has two parts. One is about the corporate events, another one is about consumer or prosumer events. I think our plan is to launch our corporate event first. Essentially, we have so many webinar customers. They are looking for a lot of new innovations. Essentially, they can run their annual user conference, everything online. That's why we doubled down our events platform. I think we are going to focus on the corporate event first, and then later this year, we also want probably to GA our consumer events. Essentially, you have a time, you have a Zoom Meetings host account, you can sell tickets, you can teach anything online. That's more like the opportunity for the second half of this year. Makes sense. Thank you. Thank you, Sterling. Thanks, Sterling. Next question is from Meta Marshall with Morgan Stanley. Great, thanks. Kelly, you noted the gross margin pickup was largely due to gains in efficiency, was there any contribution from students maybe returning to in person and just less usage from students that's worth calling out? Maybe second question, you also noted that international is continuing to see traction from a lot of those channel investments you made at the time of the IPO. Where are you on channel development in the U.S. versus international, and just how do you see that developing? Thanks. In terms of the gross margin, it really was more around continuing to optimize with our public cloud partners. As we scale up, we've had the opportunity to work with them on better pricing packages, and that's really what that contributes to rather than seeing a dramatic shift yet in students going back to school. As we talked about before, there is a pretty significant impact on the gross margin due to the free paid as well. What we expect is that is going to do what you say, though, it's going to come in over time. If all of a sudden we were to go back to school, you would see a pretty dramatic step function improvement in the gross margin. I expect that you're going to see that probably happen starting in the fall as more and more students are able to safely go back to school. In terms of international expansion, specifically around the channel, this is a really great question. We had a discussion about that in the last couple of weeks. The team has done a really good job in focusing on our U.S. channel strategy, especially around Zoom Phone and building out our master agent program. We are now working on building that out internationally. It's probably guessing, but we're probably where we were in the U.S. a year ago or so it's probably about a year behind in terms of our international channel strategy. It's great that there's opportunity ahead, and Laura Padilla and her team are working on that now. Great. Thanks, Fran. The next question is from James Fish with Piper Sandler. Hey, Kelly and Eric. Thanks for the questions. Kelly, actually happy early birthday tomorrow. Happy early birthday to you, too, James. Thank you. It's your birthday. Yeah. Eric, you guys noted a win with Kimberly-Clark for Zoom Phone, yet one of your competitors really cites BT as one of their key partners. Are you penetrating those tech incumbents that have, in theory, really opened up their install base more? Now I'm specifically talking like an Avaya, for example, more than you were last year. As well as what are you hearing with carriers about partnership opportunities? I think first of all, I think as Kelly mentioned earlier, not only driven by our direct sales team, when it comes to Zoom Phone, by and large, a lot of our customers, they already build a great relationship with those carriers or partners or master agent. We are already doubling down on that, right? This is essentially become more and more important to our Zoom Phone growth. That's our strategy. Inside of that, every time we work together with our channel partners or carriers, pick up British Telecom, for example. When they work together with our potential prospect, after they evaluate our Zoom service, not only they realize this service works so well, but also look at we share the roadmap with them. They say, "Wow, that's amazing." because compared to any other solutions, I mean, in other cloud-based phone solutions, they really like our roadmap. They really like the usability and integration with video meetings, webinars, and also the reliability plus security. That's the reason why we won, BT Group, they advocate for Zoom at Kimberly-Clark. This is huge, the deployment. I think overall, we see more and more deals like that. In particular when customers test our solutions, we have high confidence Zoom Phone is much more innovative than any other solutions for them. That's helpful. If I can sneak in one more. Obviously, some exciting announcements with Zoom Phone Appliance and other things the last few quarters. I guess how are you think about chat functionality really outside of the video experience app as well as kind of the broader customer experience and collaboration markets longer term for Zoom's growth opportunity? Yeah. It's a great question. When it comes to Zoom and chat, we already had a built-in chat for many, many years. Some customer even standardized on Zoom video, Zoom Phone, and Zoom chat. However, our approach is always look at everything from an end user, from a console perspective, right? They already deployed Slack, it's wonderful, and the two best-in-breed service, we work together very well. Some customer, they wanted to standardize everything for Microsoft, it's okay. We also incorporated with Microsoft Teams. Some customer, they might be using other chat or standardize everything on our platform. Overall, I think that I do not think the customer, they would like just to deploy one chat solution for everything. That's why I think the integration with our Meetings and Phone for sure can help drive up the usage for our customers. We are taking a very open-minded approach. No matter which solution, chat solution they are using, we want to make sure have much better integration experience. Thanks. Thank you. Next question is from Siti Panigrahi with Mizuho. Hey, Eric and Kelly. Good to see you. Thanks for taking my question. I want to dig into that 100K customer paying 100K, that segment. This was a big renewal quarter for you guys. I just want to understand what sort of changes you have done to drive such success there, and what have you learned so that you can apply in the Q2? A little bit color on what sort of growth in terms of is that more users or cross-selling products, what you saw in that segment? First of all, take the last part first. It was really a combination of both. As we talked about some of the customers we mentioned in the prepared remarks, we saw expansion in terms of users, some transition from active hosts to enterprise licenses, as well as additional products being deployed. What we did, I think we talked about this last quarter, We made sure that especially our upmarket reps were aligned with the goal of renewing as many customers as possible this quarter. We had a special bonus program in place for them to help them focus on renewals, it really worked. That program is in place also for Q2, we're looking forward to a strong renewal performance in Q2 as well. Okay. Quick follow-up on that. It's very impressive to see that 90,000 plus user customer. When you think of your addressable market, and many in the enterprise and businesses now looking to reopen, so how many such large customer you could potentially close? I think the way that we look at it is there is a huge market opportunity already. While we're super excited about deals like this, when you look at, for example, the Global 2000 or the Fortune 100, there's still a relatively small penetration in terms of customers that are paying us more than $100,000. I think that in the Global 2000, we're still under 15% that are paying us more than $100,000 annually. That to me just represents opportunity that is ahead, and our sales team is doing a great job of focusing on all of those opportunities. We have regular check-ins with them, and so the potential is still massive. Thank you. Thank you, Will. Thank you, Siti. Our next question is from William Power with Baird. Great. Thanks for taking the question. Eric, earlier on for the previous question, you spoke to some of the areas of strategic focus for you and the team this year, and I think right at the top of that or near the top, was the focus on turning Zoom into a broader platform, looking at those opportunities. As you look out over the next three years and putting Zoom Phone aside, which is already having tremendous success, and Zoom Rooms, as you look at the SDK/API opportunity, which is rolling out, you look at Zoom Events, what gets you most excited in terms of the bigger growth opportunity? I guess within that, what are you thinking about today in terms of contact center? We hear all the UCaaS providers talk about the importance of contact center, and you probably get this every quarter. Where does that fit into the equation there too? Yeah, Will, that's a wonderful question. I think there's so many things I'm very excited every day, when it comes to top priority, and I'm will be excited for next four or five years, I would say number one thing is about Zoom Apps. Essentially, you look at Zoom, right? When you build Zoom, it's more like a business communication tools, right? During the pandemic crisis, a lot of consumers are using Zoom, again, still for the business communication or maybe consumer communication, right? You look at a Zoom interface, it's not going to give you a lot of context. How to bring those context to this Zoom people-centric interface, down the road, Will, before the meeting is over, you and I can play games together. You can approve my expense report. We have great integration with Jobox, with SurveyMonkey, with all others. Essentially, Zoom is becoming an operating system to focus on a people-centric interface. The Zoom Apps has a huge opportunity. It's part of our overall marketplace strategy including Zoom SDK and other integrations. That's the most exciting opportunity. When it comes to contact center, this is part of our UC platform, right? That's the reason why I mentioned Zoomtopia and scheduled September 13th and 14th. Stay tuned, you will see something. Hopefully, we can do something around the contact center. Again, that's also the bigger market. Today, we do integrate very well with our great partner, Five9, and also the Talkdesk, the Prio, and inContact, and hopefully we are giving you more. Again, some of the new things, stay tuned at Zoomtopia. Look forward to that. Thanks. Thank you, Will. Our next question is from Matthew Niknam with Deutsche. Hey, guys. Thanks so much for taking the question. First, just on Zoom Phone, if I could just go back, congrats on the success. Can you give any more color in terms of where you're seeing some of the accelerating growth, both in terms of customer cohorts and upmarket versus small business, and then talk about some of the geographic mix where you're adding subs? Just to go back to churn, particularly for the less than 10 employee base. Maybe Kelly, can you talk about how that trended in the quarter relative to expectations, and then talk about what's embedded in your forecast for the second half of the year? Thanks. In terms of Zoom Phone, we continue to see success across all segments of our business. As we said from the beginning, we were really excited about continued expansion into the upmarket, and we currently have 21 customers with more than 10,000 seats of Zoom Phone. I think that shows that we really are seeing momentum in that upmarket and enterprise customer base, and so that's really exciting. International was the fastest-growing segment in terms of geographical locations for Zoom Phone last quarter. Seeing really widespread momentum across that. In terms of the 1 through 10 cohort, we've talked about it consistently being the most volatile cohort. We've seen significant growth as it's a little over a year ago, it was 20% of revenue growing to the mid-30s currently. That has certainly been a segment that has been a lot more volatile than in the upmarket due to the fact that first of all, most of them buy or majority of them buy on monthly plans. That's the flexibility that we give them, and we want people to stay with Zoom because they need it, but we have seen volatility in that segment, and when we came into the year, we modeled accelerated churn in that segment. That's how we're continuing to think about it as we look for the rest of the year. Just to quickly add a little bit of color to what Kelly said. You look at it as a phone deployment. Today, I don't think any customer, no matter big enterprise, SMB customer, they do not have a phone deployment. They already have something, either on-prem or cloud. That's the reason why you can look at our growth. That means our solution is better, because if we are replacing any other solutions, it's not a brand new market, right? That replacement really helps us to drive up our growth. No matter big enterprise on-prem deployment or SMB customers or even enterprise customer who deploy other cloud-based phone solution, they like our solution. Got it. Thank you both for the color, and congrats. Thank you. Our next question is from Karl Keirstead with UBS. Thanks, everybody. Kelly, I'm going to ask you a fairly prosaic question about cash flow. Thanks. Congrats, by the way. $533 million in operating cash flow, great performance. Kelly, I think we and a number of investors make some assumption about the gap between operating margins and operating cash flow margins. Given that Zoom, you obviously raised your full year operating margin guidance by a decent amount, you might see people apply that gap and raise their operating cash flow margin guidance or estimates as well. I just wanted to ask you, as everybody is tempted to do that, whether there's anything happening in 2Q, 4Q that you would encourage us to keep in mind as we adjust our cash flow estimates. Thank you. Yes. Thank you for asking that, Karl. First of all, Q1, due to the high level of renewals and it being our biggest bookings quarter last year, right? A big renewal quarter also means the largest billings quarter for the year. That leads to also the opportunity for exceptional collections in the quarter. Bear that in mind. This will be the largest billings and renewal quarter of the year, as I mentioned in the prepared remarks. Then as we continue to go through the year, you should go back to see how the relationship between free cash flow and operating margin existed pre-pandemic. If you go all the way back to the more normal operating periods, that's what you should start to see as we move through the year. The only kind of exceptional consideration for the rest of the year is we do have ESPP purchases in Q2 and in Q4. Remember that cash builds up as we go through Q1 and into Q2, and then there's the purchase and the same in Q3 and Q4. Okay. Kelly, maybe as a follow-up, this dynamic of renewals being front-end loaded this fiscal year, you cautioned us to be careful about our RPO and DR sequentials. Is there anything else that that kind of renewal front-end loading distorts or changes in terms of the seasonality in any other metric that you'd encourage us to keep in mind? Well, the one we just talked about, which is billings and collections. Got it. Thanks. That's really the impact. Okay. Terrific. Thank you very much. Yeah. Thank you. The next question is from Shebly Seyrafi with FBN Securities. Yes. Thank you very much. As kids go back to school, what kind of gross margin uplift are you thinking about is possible in the second half of the year? For example, you just hit 74%. Are you thinking about a couple points of uplift in the second half? Following that, you have a long-term target of 80% for the gross margin. Talk about your expected timetable to get there. Currently, in the guidance that we just gave, we have not modeled any impact or benefit from return to school, as we are committed to supporting the needs of those schools as long as we're in a situation where it isn't safe for students to return. If they were to all of a sudden go back, which I don't think is how it would happen, you would see certainly a couple of points improvement in the gross margin. I think what will happen likely is it'll be more measured than that, and little by little, you'll start to see the gross margin starting to creep up again. In terms of the timeline around that long-term margin target of 80%, we haven't set a timeline as it remains still unknown how long that service is going to be needed by the schools. Okay. Thank you. Our next question is from Tyler Radke with Citi. Hey, thanks a lot for taking the question, and I loved seeing the demo. I'm glad we didn't have to write our questions using that whiteboard. That might have been a struggle. Hey, that's a great idea for next time. Maybe we'll get you all. As long as I don't go first. Kelly, I wanted to ask you, obviously really strong revenue growth this quarter, but I think most investors couldn't help but notice the magnitude of upside relative to your guidance was smaller than we've seen in the last four quarters. You obviously called out better than expected churn and customer adds look good relative to the Street. Just wanted to understand, was there anything unusual that maybe held back more robust revenue upside relative to your guide, or is this just kind of the new normal that we should expect given you're starting to lap some tough comps? Yeah, I think we talked about this also in last quarter's call as well, as we really started to round the year on some very difficult comps. Also, we're approaching almost $4 billion in revenue this year. We're becoming a very large company. I think are still very pleased with our guidance of 50% year-over-year growth. Yes, this is going to be more the new normal, which is what I would expect with a company at this scale, that these are more normalized growth rates that you should expect. Great. Thank you. Next question is from Matt Stotler with William Blair. Hey, guys. Good to see you. Thanks for taking the question. I'll just ask one. Hopped on a little bit late. Again, we have our conference going on. I'm sorry if somebody asked this already. Obviously the Zoom Events platform was great to see. It's something we've been thinking about for a while. We kind of saw the OnZoom release that that would be a part of this going forward. Love to just double click on how meaningful the opportunity with Zoom Events could be. Obviously, it makes a lot of fundamental sense. A lot of companies have been hosting their events on Zoom. As you think about what that broader opportunity could look like, whether there's numbers around that or just qualitative, that would be helpful. Thank you. Eric, do you want to talk about the vision? Sure, absolutely. Matt, the reason why we built Zoom Events is, first of all, we really received a lot of feedback from the customer side. We already hosted a lot of Zoom Webinars. We wanted to do more, especially the pre-events and post-events, and how to run everything virtually online, right? Like take a Zoomtopia, for example. From the day when you're planning the Zoomtopia and all the way till you finish everything, make sure everything you can count on one platform, that's the opportunity coming from. Right? I think given the last pandemic crisis, you feel like a little bit more pressure for us, how to quickly satisfy the customer need. We do already have a large installed base for Zoom Video Webinar. I think it's more like a natural migration to the Zoom Events platform. As brand new opportunities, not only doing from corporate events, but also later this year for the consumer pursuing events, right? As I mentioned earlier, you really can host very meaningful events, and you can sell tickets to your participant. We have a tight integration with the payment provider as well. That's the reason why this could be another revenue driver on both corporate side and also on consumer side. Thank you. Thank you, Matt. Next question is from Matt VanVliet with BTIG. Hey, everyone. Thanks for taking the question. Appreciate it. I guess, thinking about the channel question a little bit differently, curious how much of an opportunity is that for the video only side, or at least the landing spot for the video side? Is that primarily Zoom Phone right now driving most of the channel business? Early on, we saw great success as selling meetings through direct, and we've continued to expand our channel relationships across both meetings and Zoom Phone. It depends on where the customer is themselves, right? We really want to meet them and provide them the opportunity to have access to our sales organization in whatever manner works for them best. We do obviously sell both meetings and Zoom Phone. A larger percentage of our Zoom Phone business comes through the channel. I think that's just based on historically how organizations have typically bought. Again, it's really up to the customer. We want to meet them wherever they feel most comfortable. Great. Thank you. Thank you, Matt. Our next question is from Taz Koujalgi with Guggenheim. Hey, guys. Thanks for taking my question. I have a question on Zoom Phone. You've been selling through channel partners and direct as well. I had a question about the impact of margins when you sell through the channel versus selling directly, because I've heard that there's a lot of spiffs and residuals you pay to the channel partners when you sell through them. Can you talk about the hit to margins for Zoom Phone when you sell a deal directly versus selling through a channel partner? Yeah. We certainly have a channel program that we think is attractive and competitive in the market. I will say we thought a very long time about setting those rates and where they are and aligning them to having a differentiated product. The way that we see it is, while there is some impact to the overall margin when there's a channel partner involved, it's really about the broader opportunity to continue to take market share and grow as quickly as possible. Again, back to the last question, we really want our customers to be able to buy in the way that feels the most comfortable to them. While there is some impact to margin overall, we think that for the long term, it's absolutely sustainable, and it's really the best approach as we continue to focus on growing top line. Just one more housekeeping question. I don't know if you gave us a number of Zoom Phone customers this quarter. I think last quarter was 11,000. Maybe I missed it, can you comment on the number of Zoom Phone customers this quarter? Yeah, we did not disclose that. That's one of the things that we're going to do on a milestone basis, and the next milestone where we are likely to disclose it will be Analyst Day at Zoomtopia in September. Thanks, guys. Thank you very much. Thank you. Our next question is from Jonathan Kees with Summit Insights Group. Great. Hey, thanks for taking my question, and congrats on the quarter. I just wanted to double click on, Eric, your comments earlier about phones and that you're winning more and more, it sounds like from other cloud providers. I guess, is that becoming a bigger part of the wins for phone? Do you see that as indeed a stronger growth trajectory versus replacing the legacy premise phones business? As well as if you can provide any details in terms of any pay-offs between you and the other phones providers, that'd be great. Be hesitant, but more detail, the better. Thank you. Sure. I think, first of all, you look at only the two years, right, since we launched the Zoom Phone, right? Last quarter is $1 million paid seats. As Graeme shared on his white board session, it's already 1.5 million, right? It does tell us something, right? It works. Today, you look at a lot of enterprise customers, very likely they deployed on-prem solution. That's a huge opportunity for every cloud-based phone service provider, including Zoom. Zoom, I think the cloud-based phone business is big. That market itself can accommodate two or three winners, right? I think we're a part of that. Also, you look at other businesses who already deployed cloud-based phone solutions. Our growth's coming from replacing those solutions. We did see a lot of deals, right? No matter which vendor, we do see the customer, their job, the other cloud-based phone solution switching to us. There are multiple reasons. First of all, we already built trust. Look at our solution, it's a modern interface, much better integration with video, because ultimately we think voice and video are the same thing. Those two will converge into one experience. You deploy a separate solution for phone, separate solution for video. From end user perspective, it's not consistent, that no work. Zoom is much better positioned than any other vendors on that front. Also, you look at our other functionalities, Zoom Events, Zoom Apps, and also the Zoom Webinars, Zoom Rooms, a lot of other things. Overall, customer like our experience, right? That's the reason why we look at an opportunity. It could have come from large enterprise, on-prem deployment, or the cloud-based opportunities from other phone service providers. We do see growth coming from almost everywhere. Again, it's too early to tell. It's only two years. Maybe next two years, I can share more with some detailed numbers. Look forward to it. Thank you, Eric. Thank you. Our next question is from Chaim Siegel with Elazar Advisors. Thank you. We can hear you, Chaim. Oh. No, I said my question was asked. Thank you. Oh, okay. Thank you. Thank you. Bye. Thank you. My answer is very straightforward. Thank you. I really appreciate it. Thank you. We have our next question is from Rishi Jaluria with RBC. Hey, Eric, Kelly, Tom, thanks so much for taking my questions. Nice to see continued momentum in the business. I wanted to ask a little bit of a philosophical question, which is around hybrid work, right? I think it's consensus at this point that the workplace of the future is going to be hybrid. You had this really enlightening survey a couple months ago of 1,500 Zoomers of what that means, and everyone's very sharply divided on what hybrid work is, whether that's home as the primary or the office as the primary, something in between. A simple question, what does hybrid work mean when you think about that, and is there a particular model- Yeah, so. Of hybrid work that you think Zoom Sorry, Rishi, your voice a little bit broken. To answer your questions, I happened to read an article today from Bloomberg. In May, they did a survey of 1,000 U.S. adults. 39% of the respondents, they mentioned they need flexibility. If you look at the millennials or the Generation Z, the number increases to the 49%. Meaning we need to give the flexibility to those employees. Otherwise, we are going to lose the talents. When it comes to hybrid, first of all, that will become mainstream. However, different businesses, they might have a different way to manage the hybrid work. Like two days in the office or three days in the office, it's different. They might one week in office, another week at home, also could be different. Overall, the definition of a hybrid work is about flexibility, to give employee flexibility. All right. Thank you, Rishi. Okay, we have time for one more question, and that last question is from Tom Roderick with Stifel. Okay, great. Thanks, Matt, for the question. Hi, Eric. Hi, Kelly. Great to see you. I was thinking back to a year ago on your first quarter call last year, and with all the great success, you still spent a fair bit of time on that call walking us all through the big plans on how to beef up security and solve for a lot of the emerging concerns that were coming with all of this jump in activity. I think it's pretty telling to your success on that front that we haven't uttered the word security once on this call, I think. I also recognize the threat vectors aren't going away here. Can you just give us an update, Eric, to your thoughts on what you need to do to stay ahead of the security plan? You've reached end-to-end encryption. Your 90-day plan was a success. What's next? How do you stay ahead of it? Yes, this is a great question. Before I talk about next, maybe I take a step back to share what had happened, right? Zoom was built to serve for enterprise customer. We never thought about K-12 schools or prosumers, consumers who are going to use Zoom. We never thought about that prior to pandemic crisis. That's by and large, most of our challenge coming from that. However, I think we really take that seriously, right? We doubled, more than doubled, I think, the size of a company. The reason why is we want to allocate more resources on privacy and security. I can tell you, we have almost 200 people working for the privacy and security now at Zoom. We're really doubling down on that. That's one. The two is, we are so grateful to our customers. The reason why is, we earn the trust back. They understand what had happened. That's why a lot of people joined our weekly webinar last May and April, the 90 days, and I'm still running the monthly security webinar. We share everything open, transparent. Now, that's the second thing. Third thing, I think security and privacy is not only a feature, it's in our core DNA now. In terms of process and the functionality, features, roadmap, innovation, everything. This is our, I think, new approach. Also, we share everything with our customers. In terms of specific features or enhancement, a lot of smaller things. Like recently, we added new notifications. In particular, we added a lot of Zoom Apps. Zoom Apps might want to understand your meeting, the content without telling customers what's going on. That's not as good from a security perspective, right? A lot of smaller innovations on that front. Again, I say we do spend a lot of time and resource on that. That is still a part of our overall innovation for supporting privacy and security. It's extremely important for our future growth. Great update. Thank you, Eric. By the way, Tom, recently I looked at the RSA security conference. They are using Zoom as well. We have a lot of security companies who standardize on Zoom platform. It does tell we take security very serious. Great. Thank you. Thank you. That was the last question we have time for today. Thank you, everyone, and thank you for joining us. Thank you all. I really appreciate it. Thank you. Bye, everybody. Thank you