Everybody. I'm gonna read some disclosures first to get started. For important disclosures, see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. We are pleased today to have Kelly Steckelberg, CFO of Zoom. For those of you who don't know me, I'm Meta Marshall. I cover the communication software space here at Morgan Stanley. Before we dive into fiscal 2024, I just kinda wanna keep the conversation a little bit high level to start. You know, given customer satisfaction and the presence with Zoom in the market, you know, Zoom, to me, seems like a product that we should be using more during the day versus just when you have a Zoom Meeting. What are the opportunities do you see to kind of build out that throughout the day Zoom platform? First of all, thank you. We agree. You should be using all Zoom all the time. There is absolutely the opportunity for that. Eric really talks about it in terms of becoming the operating system where you spend your day. Yes, everybody knows Meetings and spends a lot of time there. If you talk about sort of some key components of the platform, of course, there's Zoom Phone and there's Zoom Contact Center. If you think about productivity, there are also some amazing products like Zoom Whiteboard. Some of you might be using other third party, but the value of having that integrated into where you're spending your day is really immeasurable, right? Cause it starts to be, you can come into this client and really spend your day there and be very efficient and productive. There's also Zoom Chat. We use this extensively internally at Zoom. We barely use email. In fact, it's really reduced the amount, the volume of email at Zoom. For me, it's also my filing system. It's where everything comes to me, like the prep for your questions today are all in my Zoom chat from Charles. That is also what it does, of course, is to your point, it starts to increase the retention rate of the products because it's really where you spend your day. Of course, we announced in November the Beta of email and calendar, and it's along that same vein. We're not trying to replace enterprise email and calendar solutions, but to bring them into this client. Again, it's all as efficient as possible, and it really reduces that sort of tax of, you know, clicking around to different applications. Over time, this is absolutely what we strive to be, is where you spend your day. Got it. You know, clearly Phone has been a hit. You know, you've added something like 1.5 million seats in just under a year, becoming a market leader. You know, where are those seats coming from? Are they coming from legacy systems? Are they coming from other cloud vendors? Just as we think about kind of the opportunity for Phone, where are you seeing the most traction? Yeah. We are thrilled with the momentum of Zoom Phone. On the Q4 call, we announced we've crossed over the 5.5 million seat mark, and that is coming, depending on the size of the customer, for larger customers, it's absolutely coming from the legacy on-prem providers, likely Cisco and Avaya. In the SMB or commercial space, there's some of that as well, but largely coming from other cloud-based providers. We continue, we're still at very low penetration rates. Even internally, when we look at our meetings customer base, it's, you know, in like the 15%-ish range, so lots and lots of opportunity there still. Got it. I mean, people know about the success of Phone and the early success of Contact Center. Kind of to your point of there's a lot of kind of this land and expand still to do, you know, where are we on giving either multi-product customer stat or a penetration stat, like, as the platform expands? For Zoom Phone, we have said that we will certainly disclose it when it hits that 10% of revenue, which it hasn't done yet. It's very, very close. We're, you know, we'll obviously disclose that then. Then as we've done for other products, with Phone, right, we said we would disclose milestone metrics, and that's what we've done. Right. We've done seats. We will do the same for Contact Center. As a reminder, Contact Center hasn't even had its first birthday yet, so it's still early in its life cycle. We did announce on the call, though, we had our largest deal to date, which was a 2,000-seat deal in international deal, so really excited. Also excited cause that's just phase one of this project. There's the opportunity for that to even grow. We'll continue to come up with milestone metrics that make sense as those products progress. Got it. Okay. I mean, on Contact Center, you mentioned you're kind of at phase I of what you hope to accomplish there, but it's becoming a populated landscape, even if just from, like, a press relations standpoint. Where can you differentiate and what further kind of milestones or investments are needed there? Yeah. I think the real differentiator for Zoom Contact Center, it is the most modern cloud-based built, natively built cloud-based contact center out there today. The native integration that exists today between voice, video, and SMS, it really sets it up to have the opportunity to win deals like I just disclosed. There are a few things that are on the roadmap for the first half of this year that are also really important for those truly enterprise great wins, including integration with email as well as some API integration. Those of you that are familiar with Contact Center know well that when you look at a desktop agent, there are typically integrations with four to five external systems. That includes a CRM, of course, where all the customer data is. There's the knowledge base, which has the answers to all the questions that the customer rep is trying to answer. There's workforce management. We today have integrations with a three, third-party system, ServiceNow, Salesforce and Zendesk. Highly concentrated still on CRM, and we really need to build those out cause obviously Enterprises don't wanna do a wholesale implementation of all of those systems at one time if they're just focusing on the desktop agent. That's rapidly coming in the first half of this year. All right. Let's see how much echo there is here. You know, I think one of the most impressive answers that Eric had on the call was just all the ways that you guys have already used AI. You know, you guys are not new to incorporate some of these things. Where can you continue to use AI as a differentiator? You know, how can you use your in-house tools to kind of give you a head start or to kind of continue that head start versus where will you utilize some of those third-party products that are coming out? Yeah. As you say, AI is not new to Zoom. It is embedded in some of the core applications and benefits you can get starting with Meetings. With the Meetings product, for example, we have a transcription service, which if you record a meeting, then you can download a transcription, and that has continued to improve over time. That's a really valuable tool that I use rather than if you don't wanna take notes of a meeting, you just go back, refer back to the transcription. We also have something called Smart Recording, which takes a meeting and breaks it up into chapters so that you can very quickly go back, and if you haven't attended the meeting, for example, if you're watching a recording, go back and find the part that is most applicable to you, depending on what you need. That was built in conjunction with a partnership with ChatGPT. It leverages both our, you know, own internal machine learning, but also ChatGPT. We've already been partnering with OpenAI. If you jump to Contact Center, in Q4 we announced Zoom Virtual Agent, which is our conversational AI chatbot, and this was accelerated by our acquisition of Solvvy, which we completed last year. We already have customers, for example, that are using this chatbot for use cases, simple use cases especially, like resetting your password without ever having to talk to an individual. You know, Contact Center is an area that lends itself very well to AI, and you should expect to see more there. We also have a whole product which I almost failed to mention, which is Zoom IQ for Sales, which leverages AI extensively as well. This is our tool that sits on top of Zoom Meetings and, like, we use it internally, for example, to go back and evaluate our sales team's calls. Leveraging AI does things like how many times did they talk about Zoom Contact Center? Did they listen enough? Did they ask enough questions? Did they use a lot of filler words? You should expect that there are going to be use cases for that beyond just sales. We've already had customers requesting, can they use it in their contact center? It pairs very nicely for training up contact center agents. I think you should expect there's gonna continue to be AI application across all products in the platform. Got it. Another question that we get kind of when we think about where the platform goes is just the apps ecosystem and, you know, where you're seeing traction there, where it informs product roadmap. You know, I mean, obviously you just talked a lot about AI, where are you seeing that kind of apps ecosystem have the most traction? There's a lot of traction right now in the online segment of our business around apps. Essential Apps is a bundle of the most requested apps that is now coming for free in a first year of a subscriber's life on, through the online segment. There's three main areas we've seen this really start to emerge. There is around productivity, of course. Makes sense. There's around team interaction, so fun things to do. Then there's also on the sales go-to-market side, and this really helps us. Again, it's back to retention. As customers find new ways to spend more time on the platform through these Essential Apps, it improves the retention and, of course, the value that our customers are getting from it. Got it. Maybe just stepping into quarterly results from last week, you know, you are seeing kind of an impact from macro. You know, where are you seeing the most sensitivity with customers? Is it certain verticals? Is it certain customer sizes? Just any kind of detail? Yeah. We can get on that. Yeah. We're certainly seeing headwinds internationally. While our largest deal in general and our largest contact center deal both came internationally and we see opportunities, you know, currency rates continue to be a challenge for us, EMEA in general is certainly having challenges. I would say in the enterprise segment, the theme from Q4 was pretty consistent with the theme we saw in Q3, which is elongated sales cycles, more deal scrutiny and, you know, linearity that is back-end loaded in the quarter. We, as we were, you know, doing FY 2024 outlook, we don't expect significant change in that, as I think there's still concern. My peers, when I talk to them, think we're all thinking about the same things, which in some aspects though really sets up Zoom well, which we can talk about, which is platform consolidation, right? There's lots of I think everybody's looking for how do you be as efficient as possible. That's looking to your existing vendors. Where is there room for platform consolidation? Are there opportunities to reduce costs, which again, Zoom Phone and Zoom Contact Center especially are very well positioned from a price perspective. With all that said, we don't expect a significant change from the themes that we saw in Q4 through FY 2024. Got it. I mean, I think, you know, as we head into this fiscal Q1 quarter, which is obviously a lot of the COVID annual renewals, we're just trying to get a sense of, you know, is that macro sensitivity really elongation of sales cycles? Is there seat rationalization? You know, you guys have a large number of high-tech customers who have obviously gone through some rationalization. Yep. Just- Yep. Like, how are you parsing that out as you look at the year? Yeah. There's a couple of things about Q1. First of all, as a quick reminder, it has three fewer days than any other quarter. There's 89 versus 92 days, which when you're on a daily rev rec starts to have an impact. From a currency exposure, if you think back to last year, the dollar really started accelerating towards the back half of this fiscal quarter. There are renewals that were not impacted last year, and if you just think about it on a year-over-year comparable basis, you know, the currencies, the major currencies that we do business in are down 5%-10% year-over-year. There is impact there. In terms of retention, both in the enterprise, we've seen retention rates actually in the online segment improve over the last year. They were at 3.1% in Q3 and 3.4% in Q4. We expect them to stay in that range, which is, you know, all the way back to the levels they were pre-pandemic. On the Enterprise side, it's been consistent that we've seen. We certainly have seen customers that are impacted by their own reductions, we've seen reduction in some seat counts. We have not seen, the ability to maintain them, so we're not seeing logo churn, which is great, cause that still gives us the opportunity, of course, to work with them, as I was saying before, try to bring them greater value by upselling, potentially using Zoom Phone and/or Zoom Contact Center, which is likely more gonna have a better total cost of ownership than what they're using today. Got it. You know, the online business has been a business that we're waiting to see some stabilization. You've clearly been able to, as you just spoke to, get the churn levels to pre-pandemic levels. Where are we in just kind of some of the initiatives to improve new ads? Yeah. We are currently forecasting that we're gonna see dollar stabilization in the online segment of the business from Q2 to Q3. As you say, we now know how the base behaves. As we've seen the stabilization of churn rates and retention rates, we know how to model that. Thinking about, okay, how do you continue to add to the top of the funnel? Our GM, Wendy, has spent a lot of time thinking about new initiatives. She ran a lot of those in FY 2023, there's a lot on the roadmap for FY 2024. If you think about it, what it really comes down to fundamentally is expanding the market that's available, she's done this through many ways. We've really expanded the number of currencies in which we sell on a global basis. We have expanded the type of payment types that we take. We've also really looked at pricing and packaging. Historically, the way we had done this is we've taken $14.99, converted it to a local currency, and that was the price in market. That doesn't really work well, especially in cost-sensitive locations. Now we have localized pricing and packaging in many markets that we're testing or have been implemented. It's great because we've seen a step-up in the revenue there, even though you're reducing the price in most of these markets overall due to the take rate, it's an improved retention. I mean, it's an improved revenue rate for the market. The other thing we've been focusing on is selling additional products online. That is, it's mostly Meetings today, but Zoom Phone is available. One of the things that we realized with Zoom Phone was not only did we need to make sure we could sell it, but also onboard those customers, as most of these customers don't have an IT organization. We spent a lot of time, especially on the last six months, improving that onboarding. This is really important because we know that customers with more than one product are much more retentive. This starts to create opportunities to maybe even improve that retention rate further. All of those combined are the things that we're working on. I mean, you noted that obviously currency is a headwind now, but international is still kind of pointed to as one of the greatest growth opportunities. Yeah. Particularly just for net new ads. Yeah. You know, just, you've noted kind of some trialing, like where can we gauge the success of some of these international efforts? I think, you know, we do disclose the percentage of revenue from the international market, you'll see as it's directly having impact. I think it is in the online segment of the business is more impacted by international currency rates and the success there. As you see the split of revenue as well as the retention rates, those are all going to be indicators of the success that we're having. Got it. You made some changes last year to improve free-to-paid conversion, and, you know, you noted a lot of usage is still this kind of free- usage. Is there still a lot of runway there? Yeah. The, the big change we made last year was applying the 40-minute limit to even one-on-one meetings, and that had a step function impact on conversion. We are testing other things now, though, like forced breaks between meetings, because we know there are still individuals that are having one-to-one meetings and just having them back to back to back to back to back. What we want is to of course, have everyone get value from the platform. If you're driving, i f you're running a business on the platform, then we want you to be a subscriber, and that's what that would indicate. Trying things like force break, and you're going to continue to see more of a divergence between the difference between the free and the paid platform. Really bringing more value to our paid customers and hoping that those free customers see the incentive to upgrade. Got it. You know, you've made some tough decisions around staffing earlier this year. You know, where are those kind of, maybe on the earnings call, you kind of talked about them being more broad kind of across the organization? Yeah. Where should we think of more directly those savings being focused and, you know, areas where you've maybe reallocated some of those savings? It was a very difficult decision, as these always are, cause you're impacting people's lives. However, we are focused on investing for top-line growth, and that means, again, always prioritizing around innovation, so R&D, as well as our go-to-market teams. In addition to the reduction, we are also doing a restructuring in the go-to-market teams. What it's really, what we're really focused on getting to is allocating resources towards the higher end of our market, so the enterprise and majors teams, and helping our commercial and SMB teams be as efficient as possible. As we see, there's still significant opportunity in the globe around these up-market customers. We have taken our Zoom Phone overlay team, which you know, these are the Zoom Phone experts that have been there for the last four years supporting our AEs. They are now carrying full quotas. As of March first, they've dropped into the sales org and are carrying full quotas. What this does is immediately gives us more sales capacity from seasoned sellers at Zoom, which we're excited about. We're looking at the SMB aspect of our business, and historically, we have encouraged customers with 10 or fewer customers to self-serve online. We're now gonna move that up to customers with 50 employees. As the platform has improved, and sometimes customers would prefer to self-serve, they don't necessarily wanna talk to a sales rep. What that does, again, is it makes us more efficient in that segment of the business and allows us to allocate more resources upmarket. I would say, outside of go-to-market across the business, we are always focused on being as efficient as possible in both COGS and G&A functions, and reinvesting where we can in other aspects of the business. What the reduction does is it, you know, got our margin structure more in line with what we want it to be for the long term, but also giving us a little bit of room to reinvest as we see opportunities. Got it. I mean, you just noted that SMB is kind of an area where you're making some adjustments to kind of the self-service org limits. Just do you, as you think about the year, do you think about just less new ads here? Do you think about more churn here as, like, a way to model that impact? I think, I mean, there's still a lot of opportunity in SMB. This doesn't indicate that this is a less strategic area for us, just an opportunity that doesn't necessarily have to be touched with an account rep in the same way that, I mean, what's interesting about SMB, right? This is the heart and soul of where Zoom started, yet I don't think we have evolved over time in a way that keeps up with honestly supporting the needs of our customer in the best and most efficient way possible. Got it. Cash flow has been difficult to model, personally. Sorry. You know, part of that is you moving to a full taxpayer, part of that is some of the SBC changes or just exercise rate changes. Just other than the top line, you know, what are some of the unknowns that form kind of this $250 million range on the $1 billion-$1.25 billion guide? FY 2023, we know, was particularly difficult as we transitioned to being a full taxpayer. There was the unknown around Section 174, which, you know, didn't get repealed as we were predicting that it would. We look towards FY 2024 and beyond, what we're aspiring to get to is a more normalized relationship between operating margins and free cash flows. What we had, if you go all the way back to the pre-pandemic, three or four years ago, and that's what we're aspiring to get to. While we think there's still some transitions this year, that's why we gave probably a wider range than you would have expected, but really hoping that, as we're modeling for you and giving you color, that you start to see a more normalized relationship. Got it. The last question that I get constantly is, you have a very healthy balance sheet. Yeah. You generate a lot of cash. You've completed a share repurchase or you know, exercised your full share repurchase. Just how do you think about capital structure, particularly when you seem to indicate that tuck-ins is kind of? Yeah. The M&A strategy would most likely pursue? This is a discussion that we have with our board every single quarter about what is the optimal strategy we should be using to deploy the healthy balance sheet that we have. Again, back to everything aligning this year to how do we, you know, accelerate the growth rate that I don't think anybody is happy with what we've guided to, but, you know, how do we accelerate that? Certainly M&A is an opportunity for that. Why we have historically done tuck-ins is cause we have a very high bar. It starts with technology, it includes culture, and then it includes valuation. We haven't found anything. You know, we tried before, and then the valuation component just got beyond what we thought made sense. Thinking about longer term, the valuations certainly have become more attractive over the last six months, and we just want to maintain the flexibility in case we see either a tuck-in or potentially something larger that is attractive and aligns across all three of those lenses. That's where we're sitting today. Got it. I know the answer to this will be short, but Obviously, you terminated your president last week. Just any commentary there as well as just any p lans to replace? You know, it is a personal matter that I can't really comment on other than to say, as I just said, as we look forward to FY 2024, nobody was happy with the growth, and we decided to make some changes. Eric really wanting to be closer to the go-to-market teams, and so all those directs, including our CRO, our CMO, Wendy, who's the GM of the online, will be reporting directly to Eric. I think that gives him a great opportunity to dig in. Again, your CEO should always be your number one salesperson in the company, and this gives Eric the opportunity to see that and really help us inform any potential investments for FY 2024. Got it. With that, I'll open it up to the audience and see if there's any questions. Sure, yeah. Do we? Hi, Kelly. Stock Comp three years ago used to be roughly $275 million. This year it was over $1.2 billion. Yep. Can you just give us a sense of where that's going and when you expect to be GAAP EPS profitable again? Yeah. Stock Comp really became elevated over the last year due to the supplemental grant program that we had in place. Some of you are probably very familiar with this. If not, I can provide more questions, you know, more color on it afterwards. We sunset that program effective February first, you shouldn't see the same additions to stock-based comp going forward. The underlying grants that were associated with that, though, do vest over two to three years, you're gonna continue to see it at the same level for the next couple of years. In Q4, as a result of the sunsetting of that program, there was a $200 million acceleration of expense into Q4. It did not have dilutive impacts because those grant, they were like promises for grants that were just never given. You do see it in the Stock-based Comp. It's gonna take a few years. What you should start to see is Stock-based Comp coming down as those underlying grants are vesting. You shouldn't see the same additions this year as we're hiring many fewer employees, and we aren't giving those, you know, supplemental grants any longer. Kelly, good to see you again. Good to see that Eric is back, very focused on the go-to-market. What you haven't addressed today, I feel, is like the core Zoom product. When you think about your components of growth over 20, you know, calendar 2023 and calendar 2024, you've got Zoom Contact Center, you've got Zoom Rooms, all that's doing really well. The core Zoom business in a world of consolidation, you do have very big competitors competing there. How are you gonna focus on growth from a core Zoom perspective? Yeah, it's a really good point. I mean, Zoom Meetings certainly is core to everything that we do and is still, I mean, the biggest deal that we had in Q4 was a brand-new logo to the company, which includes a significant portion of meetings. Especially internationally, we continue to see an opportunity there. I think it's back to the discussion we were having earlier about how do you keep evolving the meetings experience. You know, Eric's goal has always been to make a Zoom Meeting better than an in-person meeting, and I think AI plays a huge function in that. If you think about the leave behinds in terms of the summary, the action items, the rescheduling of the next meeting, those are all the things that we're continuing to work on. Great. Kelly, thank you so much for being here with us today. Thank you. Great to see everyone.