We'll get started here, in a minute. Once again, Michael Funk, SMidCap Software Analyst, Bank of America. Really happy to have Zoom here with us again this year. New speaker, actually, this year, Sanjay, the Head of Corporate Development at Zoom, been there about two years now. Yep. I believe. Yep. We have Charles, Investor Relations Manager, I believe is the. Yep. Correct title. Is that right? Did I get that? Sure. Did I get that right? Yeah. Thank you all again for being here. Gonna get started, 30-minute session. Once again, I'll try and leave a few minutes at the end for any Q&A from the audience, if you have it. You know, wanted to kick off by, I think, probably a role-specific or appropriate question for you, given your previous background in investment banking at JP Morgan, and now in your current role, and bringing all that experience, you know, from the investment banking side. One thing that's been topical is M&A. Yep. For investors, right? I mean, clearly, you know, large cash position, I think still close to $5 billion. Yep. Cash position. Management's talked publicly about, you know, growth organically and inorganically, targeted acquisitions. We've talked about, and, you know, I think you've announced a number of deals, you know, Workvivo, most recent. The question is, and really twofold. You know, first, I'd like to hear about the, you know, Workvivo, and how that fits into the product portfolio, you know, integration plans there. The second piece, to give it to you now, is, you know, putting that banker hat, you know, back on, you know, kind of what are the top factors that you think about and care about when evaluating targets? Yep. You know, do you have a litmus test where, you know, there's one factor or maybe multiple factors that just takes an acquisition off the table? Great. Well, first and foremost, thank you for having us here. I'll try to remember. I know. In my brain. It's a multipart question. Definitely appreciate it, and it's nice to, see everyone, so thanks for coming. On the first piece, so you want me to start with Workvivo? Maybe the Workvivo first. Yeah. The integration and the opportunity there. Driving the corporate development and venture part of our business, we have the unique benefit of seeing a lot of adjacencies to Zoom, and things that are core to Zoom, and trafficking in these markets and companies every single day. Workvivo was one that we had our eye on for quite some time, and we were very fortunate to be able to put something together earlier this year with it. Just kind of stepping back, so Zoom's platform has evolved pretty meaningfully from what most people know us for, which is our meetings product, which is our core video solution, to a much broader communications collaboration platform. One of those elements that most people don't know about is our team chat product, which is a Slack alternative that we've had great penetration with. It's an exceptionally good product. We use it internally every day, as do a lot of customers. What happens is, companies spend a lot of time updating their employee bases on what's going on, new customer wins, what events are going on in a company, all on team chat, and then you get a plethora of these messages. It's very hard to really track what's going on day to day in a lot of companies, and Workvivo had developed a very nice corporate intranet, corporate Facebook-type solution, where you could post pictures of what you're doing, have a central calendar, do things like polls for customers or employees, poll surveys, reviews, things like that. We had been tracking the company for quite some time, and in this market, they had been contemplating potentially raising money, and we were able to really get in and make them an attractive offer and have the team join us. It's based in Cork, Ireland. It's about 50% North America, 50% outside of North America. Something that complements our asynchronous team chat product really well, where we can eventually bring this into the Zoom platform and have a really nice home landing page for customers to go to over time. From an integration strategy point, one thing that we have to be delicate with a lot of acquisitions is, you know, companies like Workvivo were doing tremendously well on their own. Think of it as like a hyper-growth company, small company in Ireland that was winning against big, entrenched competitors day in, day out. You know, 90%, 95% win rate, exceptionally strong value proposition. As we bring those into Zoom, we need to be very delicate that we don't disrupt that existing momentum the company has. With us, as we think about our integration strategy, about 50% of Workvivo was upmarket, so enterprise strategic accounts, your typical, you know, bread and butter enterprise strategic account you would think of, and about 50% was lower market. We can see tremendous value potential with that business of leveraging our installed base and accelerating that upmarket part of the business, especially, and we'll look to do that. The integration's still pretty early of it, but the initial feedback from the customer ecosystem has been super positive on that transaction, for what it's worth. Sorry, Mike, I forgot your other question. No, no, that's why. So many. That's why, I write it down, too. Yeah, I know. I forgot my notepad, so. So. Charles will give me feedback after this. I asked if you have kind of a top three factors. Yeah, yeah. You kind of look are meaningful as you go through the checklist. Yeah. Of M&A, and then if you have a litmus test, where if a company fails one factor, it's just off the table. Yeah, for us, so every core part of our platform, as well as things that are adjacent to us, we've mapped in terms of a build partner and partner invest, buy framework. You know, one thing that's unique about Zoom is Eric, our Founder, is a hyper-engineering-focused founder and product-focused founder, and Eric can build any product, I think, faster than anyone I've ever seen, and the quality of it is just exceptionally good. Oftentimes, I find myself competing with him to see if I can buy something faster than he can build it, and he continues to outperform relative to my expectations. I think for us, first and foremost, it's when we look at our roadmap and how quickly we can develop things. Can an acquisition accelerate our time to market in those fields or not? Zoom is great, because so many of our customers tell us what they want us to buy. For example, another acquisition we did about a year ago was a company called Solvvy, which does conversational AI, which sits in front of our cloud contact center solution we've gone to market with. We started really investing in this time based on feedback from customers. When we went through the build, invest, partner, buy framework, it was clear to us that it would be faster to actually acquire Solvvy, turn it into Zoom Virtual Agent, which we're in market with now, versus really building it from the ground up. One of the benefits you get with some of these is the teams that you can bring in through acquiring these companies have spent a bunch of time. They come all from, you know, the Carnegie Mellons of the world, where they have these big AI think tanks. They can really accelerate our roadmap. I think for us, it's mostly like, does it fill a key hole and accelerate our roadmap more than anything? If it's at the early end of the spectrum, we look for companies that are really in this hyper-growth phase, where there's definitely product market fit, the team cultural fit's good, it fills a key hole. Most importantly, the acceleration they have, we believe we can meaningfully move that, just given our install base and leveraging that to the benefit of the company that we're bringing in. That's, I'd say, the first thing. I'd say where things, acquisitions we look at, they don't get done, it's as we dig in, you know, Zoom, we have the benefit of a tremendous base of engineering, go-to-market, product development talent. With any acquisition, as you dig in, it's really just making sure that you uncover everything you possibly can during these diligence phases to find where the skeletons in the closet might be buried. You know, sometimes we dig, and we find things, and we realize that if we were to proceed with them, just the value proposition of doing it is just gonna not be as high, and the risk-adjusted value proposition's not strong enough for our investor base in really moving the company forward and reaccelerating our enterprise business. That's usually where we see things, you know, fall through. Is that more often on the technology integration side, where you see potential issues, or is it. It can be for a variety of things. I mean, technology, architecture. Okay. Customer feedback. You know, oftentimes, like a lot of the companies that we monitor from our side, our customers are also monitoring them. We talk to our customer advisory councils. We understand what they like, what they don't like, and it could be for any variety of reasons. We wanna have strong confidence that when we buy something, we can accelerate that business from where it is, that it's a good cultural fit, and that it accelerates our roadmap and delivers a better value proposition to our customers and shareholders. Makes a ton of sense. You know, a related topic would be contact center. Yep. Right? You know, you just mentioned Solvvy as one acquisition that, you know, was additive to that product. It's something you started to build out organically a year or so ago, if I have heard you correctly the last few quarters, I think you made tremendous progress. Yep. Right? Just in terms of moving from primarily, you know, internal contact center to now more external contact center capabilities, some of the larger deals that you highlighted, I think last quarter. Winning larger upmarket. Yep. Upmarket deals. Is contact center an area now that's think about more being organically built, given the positioning and capabilities, or are there areas in contact center where you're like: You know what? Here's a must-have to take that next step, and we can do it best through acquisition versus. Yep. The sitting down and, you know. Yeah. Coding yourselves? The core guts of the CCaaS we've built, you're right, over the past about year and a half. We've been in market since last February in GA with our contact center. We compete with the other CCaaS vendors. On its base, it's a super attractive market, because you have a lot of that market that's still on-prem, and there's a lot of that base to go after, as well as leveraging our own installed base. Sitting around the contact center, there's, you know, 80-100 companies that you either have to partner with or find a way to maybe invest in or potentially could be acquisition targets. Solvvy was an example of that in terms of conversational AI. Another category that we've recently announced something is on the workforce management, quality management side, where that's a space where there's a set number of companies that we partner with. You could easily acquire them. Sometimes it's actually faster and easier for us to build those ourselves, in that case, we went with the build part of the framework in terms of building our own workforce management solution, which, with contact centers and live agents, one of the complexities is, how do you schedule people to be there at the right time? If you're around a holiday, and you have a bunch of people having customer support issues or needing to return things, you need to have your contact center appropriately staffed. Once they're actually in the contact center, responding to customer support inquiries, you need to make sure that you can monitor how they're performing. We have our quality management solution that we've come to market with. We have Zoom IQ, which leverages a bunch of AI capabilities, where you can monitor how agents are actually doing in a call. If they're doing things, if there are things they can do to perform better and resolve the customer support inquiries faster, we can provide those suggestions to those agents in real time. There's a lot of these innovations where we've built the core guts of it. We acquired Solvvy versus partnering and just solely partnering with companies. We'll still partner with other companies on conversational AI side, as well as the workforce management side. You know, there's definitely a combination that you could see play out of internally develop things and doing more things like a Solvvy to really accelerate our roadmap on that side. I think the, in the contact center, you need to partner with everyone, and customers might best agree different components. As we get deeper in market, it might validate more things that we should be buying there, based on customer feedback, to accelerate our efforts there. Yeah. We're very excited about that product, too, by the way. That makes a lot of sense. Charles, do you want to add something? Yeah, I was just gonna add on the contact center, two things that we found really interesting that we weren't really anticipating when we first launched the product. Number one is that even in a macro market that's kind of, where there's a lot of uncertainty, we've seen a lot of customers kind of flock to this product as a way to save costs, because we're very price disruptive in this market. Number two, you know, we usually use our meetings product as, like, a beachhead to get in with other products. With contact center, we've seen a lot of these greenfield deals, where we've actually been able to start with contact center and then expand into Meetings, Zoom One, Zoom IQ for Sales, and Zoom Virtual Agent. That's been a pleasant surprise for us. Yeah, it's a great, it's a great point. Actually, you mentioned, being price disruptive. Mm-hmm. In context, and you know, pursue the same strategy. In phone, there's something I always wonder about, because you could argue that, you know, Zoom, the brand, is a premium product in video, right? You know, easiest to use, most reliable, I mean, widely viewed as probably the premier product in video. Then you came on phone and, you know, deeply discounted relative to peers to gain market share. Come out again with contact center, your price, I believe, are about a third of where some of the higher-end companies are positioned. How do you think about it internally with positioning the company with pricing and within that kind of, you know, premium relative to discount product? Is the pricing strategy today in phone and contact center simply to gain a beachhead, and is there opportunity to normalize pricing then over time? Our Meetings product, we think, is the best, as do we for our phone and our contact center product, too. Mm-hmm. Eric's fundamental philosophy in the company is to develop the best product and be most price disruptive that we can be for everything. I think a founding philosophy of the company. I do think with us, it gives us tremendous advantage in a market like this, because contact centers can be very tricky in a complicated macroeconomic backdrop. We've been able to take down, you know, 1,000-seat, 2,000-seat contact center deployments. Mm. Which normally would've taken a lot longer than a lot of us had expected. That being said, the price disruption element is part of it, but also, like, customers won't deploy it unless there's, like, real technological advantage for our contact center stack versus what they already have deployed in a lot of cases. I think with us, our fundamental philosophy will continue to be deliver the best product at the most competitive price and do what's right by our customer, versus, like, trying to get in there and then try to drive up pricing over time, you know, with some of these solutions. We also, like, contact center, so we have different ways to monetize it, too. We have the pure CCaaS part, where we charge dollar per seat per month, where we're hypercompetitive. As you mentioned, we have ZVA. Yep. Virtual Agent, which is more of, like, a consumption-based pricing model. Mm-hmm. In terms of usage of the Virtual Agent. There's different ways to monetize. Zoom IQ, w e charge on a per-seat, per-month basis, and, you know, pretty attractive price there. The value what we're getting is how I think we'll drive the expansion and growth of the company versus, you know, trying to double the price of our contact center solution, which I don't think we envision right now. How do you envision, you know, TAM growth or progression over time, and in context? Yep. The seat component and usage base, it all ties back into AI once again. Yep. In your view, does the TAM grow? Do seats shrink? Yeah. Does the usage-based component turn to something akin to wireless plans today, where it's this great big buckets, and carriers keep giving more and more minutes or. Yeah. Data usage for the same price? How does that evolve, and how. Yeah. Does the TAM move over time? I think the great thing with having both the CCaaS and then ZVA is it's, you know, if you have some seat count contraction, ZVA is probably picking up that slack. Mm-hmm. Oftentimes, we think we can actually get good monetization of the ZVA product in terms of offloading some of that seat-based license onto the virtual agent. I think the TAM, conversational AI TAM, I think, has been a little bit understated historically, especially with a lot of the AI innovation that's going on now. I do think the market will take a little more time to form, we think there's a lot of interesting things we can do from a growth perspective with coupling those two together. With our Zoom IQ product, and optimizing the performance of agents that are actually using that seat-based license and making them more productive. Okay. Makes sense. Yeah. I mean, where do you think we have to go in, you know, AI being able to kind of address or remedy contact center before, pardon me, before you start to actually see, seat counts decline? Yeah. With the stats I've heard, is that, like, I mean, you know, 80%, 90% of, pardon me, most calls actually end up going to a human agent. Yep. To get resolved, right? I think in different, t here's a variety of AI solutions. I've had the misfortune of using two contact center solutions over the past week, 'cause I had my own customer support issues, and AI wasn't able to resolve either of them. Fortunately, neither of them was our product, but a good opportunity for sales. I think with us, if you take ZVA, we're using it right now on our website at Zoom. Our online business, which is about 43% of revenue, is self-serve, so customer support issues come right to our website, and they use ZVA to remediate those. We're seeing about 90%+ of the customer issues being resolved just through ZVA. That's pretty high, I think, relative to where the broad conversational AI bucket is right now in terms of remediation and containment of issues. You know, I would hope with the, with most of that market, it probably gets, like, 60%, 70%, 75% remediation through, like, an AI chatbot. That doesn't necessarily mean that you're losing all of that seat count, too, because those, that remaining 30%, 25% of things that need a human agent to resolve are usually highly complicated, multifaceted issues where you need, you know, multiple specialists in a lot of cases to help resolve those. I do think it will take time to get there, but conversational AI has been around for a while. You've still seen a lot of, like, the existing customer support requests struggle to, like, get them resolved without having that interaction. There's great potential, but I think it will take time for this to really catch up and see significant dislocation in that seat count. It's a process, like, it's not gonna be a step function overnight. Yeah. Where you get to that point, and. Yeah. I'm still looking forward to the day where I can have a customer support, my own personal ones, resolved by AI chatbot, but, you know, we'll get there one day, I guess, as ZVA gets deeper in market. Hopefully so. You know, I asked about pricing a little bit earlier. Yeah. Different angle. I think you actually increased some of your pricing. Yep. For online. Yep. Earlier this year, I wanna say it was March, Charles, was that correct? Yeah, it was beginning of February, I believe. No, March is when it went in effect. We announced it. When it went into effect? Yes. Mm-hmm. When it went into effect in March. In March, yeah. Okay, is there capacity opportunity to increase pricing more and not just across online cohort, or have you already done everything you believe is prudent in the short term? We look at it every day, you know, for right now, our stated MO is deliver the best product at a very price-disruptive point. Yeah. That formula has worked really well for Zoom historically. If you look at Meetings, Phone, what we're seeing in Contact Center, Zoom IQ, different parts of our portfolio. We'll continue to hold that for the time being, but, you know, we look at it very closely to see if there's a different pricing packaging that we can offer customers. The online part on the monthly contract, we increased by $1 per month if you're on a monthly contract. If you're on a full-year contract, the price is effectively the same. Another thing we've done is, like, localization of pricing for our online business in foreign markets, where you couldn't necessarily take the U.S. dollar and translate it to local currency and think that was right strategically. We've actually localized pricing in different currencies to make it easier for international customers to access our platform. I'd say outside of that, broadly across the platform, we routinely look at it and where the market collectively is as a whole. Really feel that our approach of delivering the best quality, best value product, at most competitive prices is the right strategy for the time being. Yeah, I would just add that a lot of the reason why we increased that price is because we also increased the value that we've delivered to customers since. Mm-hmm. We originally launched at that lower price point. Now they have Zoom Essential Apps, all available within the online platform, and they have cloud storage, and they have Whiteboard. The strategy is not just to raise prices 'cause we can, the strategy is to raise prices because we're delivering more value. It makes sense. The question is really kind of more also more aimed at, you know, how much, you know, elasticity of demand there really is in your core online segment. I know there's been some fluctuation in churn, I think probably largely just due to the pandemic and the effects from that, maybe not natural users, you know, churning off. I think the more direct way to ask it is, you know, can you quantify the price sensitivity or elasticity of demand amongst your online cohort? Did you see any material uptick in churn after increasing pricing? You know, interestingly, the churn has come down in that business. We suspected it would be pretty retentive through the price increase when we went through that process, and the churn actually came down. We've seen more conversion, actually, to the annual contract from the monthly. Mm-hmm. Which was, you know, one of the goals of getting that business a little bit longer-term duration nature. It's actually been pretty retentive through the price increase. Okay. It was only a $1 increase per month. If you were to switch to the annual plan, it would've been the exact same economic proposition, so we saw a lot of customers do that. Okay. We've got about eight minutes left. I'll probably open up to the audience, and there are three or four. I do wanna get to a bit longer-term focusing questions and just the growth trajectory. Yeah. You know, your guidance implies, you know, some deceleration in growth. I think, you know, you had renewal, you know, kind of peaking or higher levels in 1 Q, some of the same online pressure, but you've talked about accelerating top-line growth, exiting 2023. Yep. I believe that's how you talked about it. What are the factors that have to line up to, you know, to hit that objective? What kind of levers are you able to pull? Yes, I'd say a couple things. One is having the product platform able to be sold. We've evolved our platform exceptionally meaningfully over the past couple of years. For example, we have 1,500 feature innovations over the past year we've put in our platform. We've expanded from, you know, very few products to multiple products, where we can touch multiple buying centers of a customer. The second thing that comes along with that is the go-to-market side, where we've gone through some changes on our go-to-market team, and we've recently appointed Graeme Geddes as our Chief Sales Officer. Graeme was previously in charge of platform acceleration for Zoom. Think of, like, newer products like Phone. That was one of his babies that, you know, became one of 10% of revenue in our last quarter. We're trying to replicate that success across other parts of the Zoom platform as a whole. We have the product platform. Now, the go-to-market side, we've done some restructuring that you've probably heard about over the past quarter. We had a RIF in the company. We had 15% of the company reduced as part of a program we put in place in February. On the back of that, now we have Graeme, we have a new leader, in APAC, a new leader, and EMEA on the go-to-market side. The layers below Graeme, we have the right people in the seats there to really drive the enterprise acceleration of this company going forward. Whereas I think, you know, before trying to find that right person with the right DNA and who can really get the go-to-market org to really get excited behind them, sometimes it takes a little bit of time to find the right person. We're very fortunate to actually have Graeme in that seat right now, and he's super charged to get the enterprise business re-accelerated. That's from Eric's side. Eric's top three priorities, I always joke, are, accelerate enterprise growth, accelerate enterprise growth, accelerate enterprise growth. I know one of the pressure points last quarter was also EMEA, I think in part related to the reps. Yep. Cause their local laws, they create some delay in notification. Yeah. Demoralize people. Yeah. Have you seen improving trends, though? Yes. Since then in productivity? Yeah. Part of the challenge is, you know, different regions have different regulatory frameworks when you do a restructuring. In EMEA, for example, you have to go to a population base and say, "There's gonna be a restructuring, but we can't tell you if you're impacted." On the back of that, you cause some turbulence with people that don't know if they're gonna be part of that or not, and the good thing is it's behind us now. Actually, we've seen pretty good momentum with parts of our business, like mid-market, which is a shorter sales cycle than the big enterprise part of our business, now that it's behind us. Yeah, I think going forward, we have a ll the pain's been taken and the medicine was taken in Q1. Going forward, it looks a lot more stable and productive going forward. That's great. Can we get the microphone out if there any questions in the audience? Just raise your hand. I have one more while we wait here. I just wanted to circle back to my last one, going back once again to your prior job. Yeah. And thinking about M&A and valuations specifically. Yeah. I've heard a lot from management teams the last two years about like, "We'd love to do deals, but. Yeah. Private market valuations aren't reflecting reality. Yeah. And haven't come in. Yeah. From your seat, are you seeing those valuations come in? Yeah. I guess if they have or if they haven't, what do you think makes them correct even further? Yeah. Come lower? Yeah, especially in the private market, we've seen much more openness to valuation exploration than six, nine, 12 months ago. You know, we, just to give you a context, we probably get inbound by 300 to 400 companies a quarter, and a lot of these start off with, oh, there's a stalking horse bid or very fast process, and then three months later, it never gets done, and then three months later, it's like an acqui-hire discussion, then three months later, it's like, "Can you just take our team?" I think we're getting closer to the bottom of those, because a lot of the private companies that we've trafficked in, they've done inside rounds, they've done extensions of prior rounds, they've done venture debt, multiple of these things, and a lot of that gas in the tank's been exhausted. We're waiting, Mike, for you to take all these companies public. Given you're not taking them public, it just makes them more attractive from a valuation perspective for us. Yeah. It depends on if the IPO market comes back, so there's different views on when that might come back. If it's later this year, that might open an avenue for some of these companies. The hyperinflated ARR, multiples of ARR, we've seen come in pretty meaningfully. I think for us, it's really on the M&A side, you know, can we build it faster and build something better? Is the short-term, long-term dynamic of those acquisitions better for us as a company and our shareholders, versus just building it ourselves or just not doing anything in some cases, too? Like, maybe it's an adjacency we don't need to get into. Most of our M&A, like, we've actually sourced internally, filtering through a lot of the inbound traffic. I think the best ideas we get are from our customers, from internal product teams and sales teams when they've realized there's, like, different parts of our portfolio where we can accelerate meaningfully by having something that we might be missing in an RFP or something like that, so. Yeah, the relative last one for me is how to think about firepower. Yeah. For M&A. Yeah. I mean, I'm sure you talked to Kelly and the Board and everyone. Yep. They probably tell you know, "here's what your firepower is," whether it's, you know, an allocation, that $5 billion cash war chest. Yeah. Or, you know, using equity is okay or even debt. You know, how much firepower do you have? Yeah. You know, where are you looking to allocate capital elsewhere outside of M&A that might be taking some of that capacity away from you? Yeah. With us, I mean, we have a $5.6 billion of cash on our balance sheet. You've said five. I apologize. I'm sure I'm changing you. No. We have ample firepower to use that cash balance for M&A. I think you also have to be very disciplined of just spending that cash balance for the sake of doing M&A versus doing something that's gonna really drive long-term value creation in the company. It provides us a ton of flexibility in this market that we're in. Our priority is accelerating that enterprise growth, both organically, and we can supplement from M&A. We've looked at things very, very small all the way up to, you know, very, very large transformational things. It's finding those things that really help to enhance the long-term value creation of this company. There's a lot where short term, you get an optimization, then long term, you'll get bogged down and restructuring, your competitors will come in and, you know, take your market share, which no one wants to happen here. We're very thoughtful around it, and, you know, as we get deeper into these new markets too, we validate a lot of categories that we're tracking for my team in terms of, does it make sense to do this, or is this something that might not make sense, and let's focus on some other categories. We're really excited about that, having that flexibility, especially in this market. It's more of a function of, like, when do we find the bottom in this market? I feel like a lot of the other corporate development teams are doing the same thing, but where is it, you know, at the bottom or close enough where you can make some of the returns work where you want them to, and really get the enterprise part of our business accelerated faster than we're gonna do organically ourselves. Is equity a currency you'd want to use in the current valuation? Yeah, I think we're open to it. I mean, obviously, we have to do what's in the best interest of our company and shareholders. We pay attention to things like dilution and so on and so forth. Mm-hmm. We don't like where our stock price is. We like your price target much better than where our stock's trading today. You know, we do pay attention to all those vehicles and, you know, trying to figure out what the right consideration mix is for something that we do. That makes a ton of sense. Thank you, guys, again, for coming out today. Yeah. Thank you all for coming to the meeting. Yeah. Thank you, guys.