Well, hello everyone, and welcome to Zoom's Q2 FY 23 earnings release webinar. As a reminder, today's webinar is being recorded, and now I will hand things over to Tom McCallum, Head of Investor Relations. Tom, over to you. Thank you, Kelsey, and hello everyone. Welcome to Zoom's earnings webinar for the second quarter of FY 23. I'm joined today by Zoom's founder and CEO, Eric Yuan, Zoom CFO, Kelly Steckelberg, and we are also pleased to have our new president, Greg Tomb, join us for today's call. 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 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 third quarter and full FY 23. Our takes regarding financial and business trends, impacts from macroeconomic developments, the Russia-Ukraine war, our market position, opportunities, growth strategy, and business aspirations, and product initiatives and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to the 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 and our quarterly reports on Form 10-Q. Zoom assumes no obligation to update any of these forward-looking statements we may make on today's webinar. With that, let me turn things over to Eric. Thank you, Tom, and thank you everyone for joining us today. I'm on the road now, and my internet access is limited. I will hand my remarks to Kelly and Greg, and join you all for the Q&A portion. Thank you. Thank you, Eric, and thank you everyone for joining us today. Let me start with what's on everyone's mind, the macro environment. Zoom is not immune to the global downturn, but the situation is more complex than meets the eye. Our enterprise business continued to post strong growth, which we believe is because cloud migration and digital transformation continue to be a priority even when, and perhaps especially when, the economy slows. The headwinds we saw mainly relate to the strengthening dollar, new online subscriptions, and to a lesser extent, bookings linearity. We have implemented initiatives focused on driving new online subscriptions, which have shown early promise, but were not enough to overcome the macro dynamics in the quarter. We believe Zoom remains well positioned in this environment as customers look to increase productivity and collaboration while moving away from expensive legacy vendors. Our products are designed to drive efficiency and cost savings within organizations, and are loved by both their employees and their customers. In addition, we have strong margins and cash flows, as well as a large cash balance. Even still, we are taking a prudent and cautious approach in this environment, with focused investments and hiring to drive innovation and customer happiness. Our platform strategy is playing out very well, and Zoom Rooms and Zoom Phone are critical components of that strategy. In fact, Zoom Phone was a real star in Q2, hitting several milestones. The number of customers with 10,000 or more paid seats increased 112% year-over-year. In addition, we broke our record for the largest Zoom Phone deal twice in the quarter. First with a global retailer, and then with a global bank, both with more than 125,000 seats. Deals like these led Zoom Phone to post a record quarter and surpass 4 million seats in August. We are also seeing early traction for Zoom Contact Center and Zoom IQ for Sales. Zoom Contact Center is six months old, but has already had deal sizes reach seats that we did not expect until its second year. Customers value the user-friendly interface, efficiency gains, and savings they see in shifting to our modern, cloud-based, AI-driven contact center solution. We are proud of the team that drove these results, and I'm thrilled to have Greg with us today. Greg joined last quarter as our new president, leading our go-to-market teams and the office of the global CIO. He brings a wealth of leadership experience scaling bellwether internet and enterprise companies. Greg, welcome to our call today. Well, thank you, Kelly, and I'm very happy to join today. We'd love to have you introduce some customer wins for the quarter. Oh, absolutely, Kelly. Well, hello everyone. Very nice to meet all of you. I wish it was in person. We actually did have an exceptional sales quarter in the enterprise market, and I'll let Kelly give you more details in a minute. We had a number of great new wins, including one of the largest U.S. healthcare providers out there. I can't give you their name yet, we will in the future, but they did choose Zoom Meetings and Zoom Phone to provide telehealth services to their broad number of caregivers and patients. I mean, they were just really impressed with Zoom's strong integration between video and voice to support 40,000+ employees and their external community, for a wide variety of telehealth needs. I also want to thank UCLA. You may know this or may not, but they were recognized by U.S. News & World Report as the number one public university in the U.S. I want to thank them because they expanded their relationship with Zoom by adding 15,000 Zoom Phone licenses. This large investment will accelerate their journey to the cloud, and it will offer them the benefits of truly having a unified communications platform. The next company I want to thank is Warner Bros. Discovery, a premier global media and entertainment company. I want to thank them for partnering with Zoom on its global communications needs. Our partnership actually began before the merger with Discovery and really kicked into gear once these two iconic brands merged. They have chosen to expand their meetings and phone deployment, and we're really excited to deliver for them a full integrated suite of communication services. Next, I'd like to thank Ancestry, and you probably know Ancestry as the global leader when it comes to family history. I want to thank them for also expanding their relationship with Zoom. The strong customer relationship that we built during the original Zoom meetings deployment, and they also had a successful partnership with Solvvy. It allowed us to expand this to a complete platform. We included Zoom Phone. We have a scalable now conversational AI-based chat system in place, and self-service capabilities from Solvvy. Last, let me also thank Optiv, the cyber advisory and solutions leader. Today, they deliver strategic and technical expertise to nearly 6,000 companies across every major industry. Optiv started as a Zoom Meetings customer back in 2016. They expanded to Zoom Phone last year, and they really appreciated how reliable and simple our integrated solutions were. This last quarter in Q2, they decided to replace their legacy contact center with Zoom Contact Center. It's more than 275 agents supporting roughly 90 workflows. They were so impressed with our rapid product iteration, our roadmap for integrations with other SaaS tools, as well as the ability to greatly reduce costs. Again, I mean, thank you, UCLA. Thank you, Warner Bros. Thank you, Ancestry. Thank you, Optiv. To all those customers that did business with us in Q2, we greatly appreciate it. With that, Kelly, I'll pass it back to you. Thank you, Greg. Now let me turn to the quarter's results and guidance. In Q2, total revenue grew 8% year-over-year to $1.099 billion, approximately $16 million below the low end of our quarterly guidance. A stronger U.S. dollar, which had an impact of approximately $8 million, weaker new online sales, and to a lesser extent, back-end linearity in the quarter were the biggest factors contributing to the miss. We recognize that the revenue results are disappointing and below our expectations as we navigate the current environment. It should be noted that while our online business saw lower new subscriptions, renewals and online continued to improve. As we just discussed, we have launched a number of initiatives to drive new online subscriptions around local pricing, packaging, and free-to-pay conversion. The growth in revenue was primarily driven by strength in our enterprise business. Revenue from enterprise customers grew 27% year-over-year and represented 54% of total revenue, up from 46% a year ago. We expect revenue from enterprise customers to become an increasingly higher percentage of total revenue over time. From a product perspective, we had strong growth in Zoom Meetings and Zoom Phone, coupled with contributions from Zoom Rooms and other products. The number of enterprise customers grew 18% year-over-year to approximately 204,100. Our trailing 12-month net dollar expansion rate for enterprise customers in Q2 came in at a healthy 120%. We saw 37% year-over-year growth in the upmarket as we ended the quarter with 3,116 customers contributing more than $100,000 in trailing 12 months revenue. These customers represented 26% of revenue, up from 20% in Q2 of FY 22. As the majority of our revenue has shifted back to the enterprise and we have moved beyond the pandemic buying patterns, we are returning to more normalized enterprise sales cycles with linearity weighted towards the back end of the quarter. This contributed to higher than expected deferred revenue in Q2, and as we believe this customer behavior will persist, we have factored it into our outlook. Our Americas and APAC revenue grew 12% and 10% year-over-year respectively. EMEA continues to be impacted by the Russia-Ukraine war, the strengthening dollar, and online performance, which led to an 8% year-over-year revenue decline. Now turning to profitability. I will focus on our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net litigation settlements, net gains or losses on strategic investments, undistributed earnings attributable to participating securities, and all tax effects resulting from non-GAAP adjustments. Non-GAAP gross margin in Q2 was 78.9%, an improvement from 76.2% in Q2 of last year and 78.6% last quarter. The sequential improvement was mainly due to optimizing usage across the public cloud and our increasing number of co-located data centers. Given the improvements we are seeing so far this year, we expect gross margins to be approximately 78% for the remainder of the year, which is higher than our previous view. Research and development expense grew by 81% year-over-year to approximately $98 million, driven by our focus on innovation. As a percentage of total revenue, R&D expense increased to 8.9% from 5.3% in Q2 of last year. Our expanding product portfolio reflects our ongoing investments in building out Zoom's platform and delivering on our customers' evolving needs. We plan to further invest in R&D to reach our long-term target of 10%-12% of total revenue. Sales and marketing expense grew by 35% year-over-year to $286 million. This represented approximately 26% of total revenue, up from 20.7% in Q2 of last year. We are committed to investing in growth areas, including sales capacity, channel partner enablement, and product marketing. G&A expense grew by 2% to $90 million, or approximately 8.2% of total revenue. non-GAAP operating income expanded to $394 million, exceeding the high end of our guidance of $365 million as we continue to thoughtfully prioritize investments. This translates to a 35.8% non-GAAP operating margin for Q2, compared with 41.6% a year ago and 37.2% last quarter. non-GAAP diluted earnings per share in Q2 was $1.05 on approximately 307 million weighted average shares outstanding. This result was 13 cents above the high end of our guidance. Turning to the balance sheet. Deferred revenue at the end of the period was $1.4 billion, up 19% year over year from $1.2 billion. This result was meaningfully higher than what we previously forecasted due to the strong enterprise bookings, which were back-end weighted in the quarter. Looking at both our billed and unbilled contracts, our RPO totaled approximately $3.2 billion, up 37% year over year from $2.3 billion. We expect to recognize approximately 61% of the total RPO as revenue over the next twelve months, as compared to 69% in Q2 of last year, reflecting a shift towards longer-term plans. As a reminder, our seasonality of renewals is front-end loaded and moderates over the rest of the year, reflecting a sequentially smaller renewal base. We expect Q3 deferred revenue to grow at approximately 13%-14% year-over-year. We ended the quarter with approximately $5.5 billion in cash equivalents, and marketable securities, excluding restricted cash. We have purchased $426 million of stock, representing 4.1 million shares over the last two quarters as part of our billion-dollar repurchase program. We had operating cash flow in the quarter of $257 million as compared to $468 million in Q2 of last year. Adjusted free cash flow was $222 million as compared to $455 million in Q2 of last year. Our margins for operating cash flow and adjusted free cash flow were 23.4% and 20.2% respectively. As previously discussed, these metrics include a large cash outflow from an increase in cash taxes starting in Q2. As we update our full- year outlook for the P&L and take into account the lower tax deductions for stock-based compensation caused by the lower stock price, we would expect adjusted free cash flow to be between $1 billion and $1.15 billion. Now, turning to guidance. This outlook is consistent with what we are observing in the market today. Specifically, it assumes that our enterprise business will grow in the low- to mid-20s, while our online business will decline 7%-8% for the year as compared to the previously provided flat outlook. For the third quarter of FY 23, we expect revenue to be in the range of $1.095 billion-$1.1 billion. We expect non-GAAP operating income to be in the range of $325 million-$330 million. Our outlook for non-GAAP earnings per share is $0.82-$0.83 based on approximately 306 million shares outstanding. For the full- year of FY 23, we now expect revenue to be in the range of $4.385 billion-$4.395 billion, which would represent approximately 7% year-over-year growth. At the midpoint, this represents a decrease of approximately $150 million as compared to our previous full- year guidance. Of this decrease, approximately $35 million is due to the stronger dollar, and $115 million is attributable to the broader macroeconomic environment. We now expect our non-GAAP operating income to be in the range of approximately $1.44 billion-$1.45 billion. We are still targeting a non-GAAP operating margin of approximately 33% as we have adjusted spending in the second half to focus on high ROI areas and have seen a modest benefit to expenses from FX. Our tax rate is expected to approximate the blended U.S. federal and state rate. Our outlook for non-GAAP earnings per share is $3.66-$3.69 based on approximately 307 million shares outstanding. Before opening up for Q&A, we are excited to share our Zoomtopia event with you. It is our premier user conference and will be run on Zoom Events. We look forward to sharing our platform strategy, new innovations, and customer testimonials. Please join us at Zoomtopia and our Investor Day on November eighth. Zoom remains focused on building out our platform, leading in the hybrid work world, enhancing the customer experience, and expanding into more and more business workflows. We will continue to make strategic moves to drive future growth as we navigate the current environment. Thank you to the Zoom team, which has grown to 8,000 strong, our customers, our community, and our investors. Kelsey, please queue up our first question. Will do. Thank you so much, Kelly. Again, everyone, we're gonna go ahead and move on to taking your questions. As a reminder, to best hear from everyone, we do ask that you please limit yourself to one question, and our first question is going to come from Kash Rangan with Goldman Sachs. Kash, would you mind turning on your camera, please? Kash, would you like to ask a question today? You can go ahead and unmute yourself as well. All right, well, hearing nothing from Kash, we'll go ahead, and we will move on. William, I'm sorry, I'm putting you on the spot here. I didn't let you know that you're next, but William Power with Baird, if you'll go ahead and unmute and turn your camera on for us. Great. Okay, thanks for taking the question. Let me maybe start, Kelly, you noted, I think, $115 million of, you know, macro impacts now in full- year guidance. Maybe just help us unpack that a bit. You know, how much of that relates to the online pressure versus any changes you're seeing on the enterprise side, whether it pertained to longer sales cycles, any changes in seat counts, seat count pushback, any other commentary you can provide there? Yeah. The majority of that is really coming from online, William. When you look at the difference in the guidance, previously we had expected online to be approximately flat for the year, and now we're saying it's gonna be in the range of 7%-8% down, that's really where the majority of that's coming from. You know, on a base of about $2 billion, that's where we're seeing it. We continue to see strength in the enterprise, which you can see as the increase in deferred. We are moving more towards back in linearity, which had some impact on the revenue, but we continue to see, you know, great work done by our enterprise team in getting those deals in just a little bit later in the quarter. Okay. No, that's helpful. Maybe if I can sneak one more in. I mean, just really strong phone results. Mm. 225,000 customers. Maybe just any color on kinda sales cycles for a deal of that size. When do we expect the revenue to start to flow through? Just any commentary maybe just on the pipeline of, you know, larger deals, whether that size or, you know, bigger deals generally. Yeah. Greg, do you wanna talk about- Yeah, I can comment on that. I mean Yeah Yes, I mean, Q2 was a pretty amazing quarter around Zoom Phone. Extremely high win rates, you know, and I think we exceeded the, I think you mentioned this, Kelly, the 4 million user mark, right? To do that in three years is just incredible. You know, we see a large number of our enterprise customers today looking for ways to consolidate and have a more modern communication experience, and the fact that it's fully integrated with video makes it a natural place to go. I think you're gonna continue to see this really big uptick in our enterprises taking advantage of both video and phone together, and our pipeline is showing that now. Thank you. Yep. Moving on to Meta Marshall with Morgan Stanley. Hi, Meta. Great. Hey, thanks. Maybe Kelly, just starting with some of the initiatives that you mentioned kind of taking on the SMB business, and the actions that they're taking and, you know, just how that informs the 7%-8% down during the year. You know, what would they be without some of those initiatives? Just what's kind of informing that? Maybe, just if you could kind of speak to, you know, as you were making some of these OPEX decisions on what is kind of high priority or high ROI, just kind of what is going into that decision-making process. Thanks. I think we touched on this. I'm gonna start with your second question first. We touched on this in the Q1 call as well. We will continue, as a company, to focus on the areas that drive innovation, so that really means R&D as well as driving growth, so that's sales ops. We have taken the tack for a while now of trying to be as efficient as we can around cost of goods sold and of course G&A to the extent that, of course, we always want to ensure the product and the platform is reliable and we're supporting our customers' needs, but trying to do that as efficiently as we can. In fact, we indicated in the prepared remarks, we expect gross margins to come in a little bit higher than where we had previously at 78% for the rest of the year. In terms of online, Wendy and her team have just done an amazing job of really thinking about how do we continue to improve the conversion rate of free to paid. You know, they've done that through different initiatives, especially including pricing and packaging on a global basis, and we've seen retention rates continue to improve as well as conversion rates. We just, the sort of challenge that we're seeing overall in the online business is new customer additions. As they continue to focus on the initiatives, I'm sure that will improve over time as well. Great. Thanks. AllianceBernstein's Peter Weed has the next question. Thank you. You know, I think in the past you've given us some guidance to help us understand on the net retention number in enterprise, you know, where some of that's coming from. You know, certainly I think, you know, just a quick estimate suggests that, you know, you're seeing a continued tailing there. You know, in the past, I think you've been seeing better support on the larger customers relative to some of the smaller customers. How should we be looking at that right now? Is that continuing to be the trend where your larger established customers are expanding their use across the platform? Are you seeing additional strength in the smaller customers that are coming up? By the way, as a second part to this question, I think the implication that I see out of the numbers that you've posted is actually a bit of a re-acceleration on new customers on the enterprise side, and I'd love to hear a little bit about how you're seeing that. You know, I know that you said, "Hey, there's some linearity creating some challenges at the back end of the quarter," but to also kind of outperform on new customers there with some of those challenges is pretty nice. I'm just trying to understand, you know, how much momentum you see in that going forward in the face of some of these linearity issues. Thank you. Sure. So let me talk about net dollar expansion, then I'll let Greg Tomb or Eric Yuan talk about new customers. We have said for a while, when you remember that the strategy for selling Zoom Phone and Zoom Rooms, Zoom Contact Center, et cetera, is to sell into our existing install base, it's exactly as you said. We continue to see some of our largest customers continue to expand. Some of those Zoom Phone wins, you know, moved our customers. When you go back and look at the customer counts of how many the growth rates that we saw in greater than 100K trailing 12 months, like, it's really significant growth, which supports exactly what you're saying. As a reminder, the net dollar expansion number now is focused on just the enterprise portion of our business. It doesn't include the online segment of the business. Greg or Eric, would you either of you like to just touch on new customers for the quarter? Yeah. Sure, sure. Just quickly. Peter, you look at it at Q2, right? You know, our enterprise business doing very well. You know, just a very, very big healthcare organization. You know, they deploy Zoom not only for phone but also for telemedicine as well, and we do see a lot of new opportunity like that. You know, just so it's yeah doing extremely well on the enterprise front. Yeah. I would add to what Eric and Kelly said is that I think we'll continue to see that solid customer base in the enterprise expanding with us. I do think when you take a look at online, you know, it is a little mixed because we've got a lot of individual consumers that are down there that we're looking for ways to get them to move from free to paid, and what we're doing right now seems to be working, but we've gotta, you know, keep at it and continue to run additional actions. I think we've got a really great story that's coming together on the enterprise. From a sales perspective, you know, we're trying to focus more and more on the enterprise on, you know, how we're going to market, how we're marketing to these companies, and the value proposition, again, around the whole platform. You know, we really have a great platform story today that allows companies to have, you know, more of an integrated end-to-end communication, a modern communication platform, and they can get rid of a lot of point solutions that are, they bought 20 years ago that are causing them a lot of pain and costing a lot of money. I think we'll see this trend continue. Thank you. By the way, on the net retention piece, you talk about FX. How much of the drag on net retention, because you're not providing a constant currency basis of it, was due to the FX effect versus just being truly, you know, slower growth? Yeah. You know, we're not gonna break out FX down to that level of detail, but what I will say, if you step all the way back, and we talked about this on the Q1 call as well, if you look at the impact that FX and the war in Europe is having on the year-over-year growth, it's 200 basis points. So you can think about there's 2 full percentage points of impact coming from things that are kind of out of our control from both FX and the war on the total year-over-year growth rate. Thank you. Yeah. Just as a reminder to everyone to allow everyone to get a chance to ask a question, we do ask that you please limit yourself to one, and we'll move on to Matt Stotler with William Blair. Yeah. Hey, everybody. Thank you for taking the question. Maybe I'll just ask one, you know, kind of doubling down on the, you know, macro question and conversation. I mean, Kelly, you noted that if you look at updated guidance and back out the impact from, you know, the online business, back out the incremental FX impact versus prior guidance, it actually implies that you're expecting improvement in the enterprise segment of the business on a like-for-like basis. It would just be interesting to kind of get some deeper color on what you're seeing in terms of buying behavior in that segment of the market, right? I mean, like you said, you know, no one's immune from a slowdown in the macro, so are you seeing any sort of change in, on the enterprise side in customer behavior, spending patterns, anything like that that you can point to? You know, we definitely had a strong Q2 in terms of enterprise sales. That's you can see reflected in the deferred. It just came later in the quarter, which is why it didn't really have impact on revenue within the quarter. We continue to, as all the things we've talked about, right? Zoom Phone having incredible strength and performance in the quarter. Really already seeing momentum in Contact Center this early. Six months in, we have some remarkable names that have signed up for Contact Center that we'll be excited to share with you at some point in the future. Already these seat sizes that we're seeing for Contact Center, I think we would not have expected them to come from in their 18-24 months yet. I think all of that shows that the platform transition is, you know, really working very, very well, and that customers continue to love and see the efficiency they get from Zoom, and especially as they're thinking about. Yeah, maybe Greg, you can talk about this. Sort of what I've heard from the sales team is these transition of deals moving from the CIO to the CFO and customers really being thoughtful about the cost there. You know, Zoom competes very well when it's competitively priced. Yeah. I mean, I would say I don't think it'd be surprising to anybody to think that any of these large transactions that are going through approval aren't getting that extra set of eyes, you know, from a finance perspective. What's interesting is that, you know, we're in a world where hybrid work is not going away, right? It actually complicates things. You know, having a platform that supports that is really important, even at the CEO level, right? 'Cause it helps them with attrition issues, it helps them hire the best people, it helps them have faster decisions, inclusive decisions. You know, having the right communication platform, no different than, you know, having the right decision around security or supply chain. These are just the top three or four that are sitting at the board and the CEO level, and so they do get approved, right? I mean, other than having a couple sets of eyes and maybe coming after us for a little bigger discount here or there, which delayed it a week or two, I don't think we had anything major that slipped from quarter to quarter 'cause people weren't gonna spend the money. Mm. I mean, I've been here now for two months, and I was personally really amazed by, you know, how strong the execution was by our sales team and how the deals, you know, that were committed flowed through the process. The other thing that I would just highlight is we also continue to see strength in movement from monthly to annual contracts. Mm-hmm in both our online as well as our enterprise business. As you know, that really helps from a retention perspective and also continues to build the deferred. Got it. Thanks, guys. That's That's a good one. The next question will come from Matt VanVliet with BTIG. Yeah. Hi, good afternoon. Thanks for taking the question. Maybe Kelly, I wonder if you could expand on the last part, or maybe for Greg. In terms of the sales and marketing investments, just maybe some of the areas that you're adding the most headcount, if you can talk to maybe the two or three areas that you're seeing the most headcount growth. Then from a sales efficiency standpoint, for Greg, you know, just what kind of processes are you bringing to the table, bringing in, maybe just some different mindsets around driving that sales efficiency, you know, as we look forward and become more enterprise-focused? Thanks. Yeah. Please, Greg, go ahead. Okay. The first part of your question, repeat it again. I heard the sales efficiency. What was the first part? Just headcount. What areas are seeing the most growth? Oh, what areas, yeah. in terms of headcount. I mean, yeah, no, that's a really good question, right? One is we are increasing our focus up to the larger enterprise side of the house, what we call majors in enterprise, right? 'Cause there's a lot of money there that we're just missing. We just don't have the coverage. You'll see a lot of our investment in marketing going there, right? You'll get a flavor for that at Zoomtopia as well, when you take a look at the value propositions and you know how we're bringing our products to market. We've got a handful of new products that are just moving faster than we thought. You saw Zoom Phone. Kelly talked about contact center. We've got another one, IQ for sales, right? They're all gonna get extra attention. The other area is international, right? International, I mean, we are, we've got a lot of opportunity there, and it's untapped, and so that's getting a bigger attention from us as well. The last one I'd mention is around our ecosystem, right? I mean, I know we don't publish much around our ecosystem, but we've got a potential to grow our ecosystem, add partners, and get that force multiplier effect out of our ecosystem, so. Well, the other one was on efficiency, right? Mm-hmm. Is that what you said? Yeah. Yes. When you take a look at efficiency, I think, you know, we're a little too nice in how we sell our product from a discounting perspective, right? Mm-hmm. I think we've got the ability to be a little smarter about how we price and discount our products. It's making sure we're deploying our sales resources in the right place, right? You know, we don't need to be stuck in certain boundaries 'cause that's how we set up, you know, coming into the year, our structure and how we manage the sales organization. We can be much smarter now on how we deploy those resources to get the biggest return on those resources, which we are looking at right now. Great. Thank you. Yeah. Yeah. I don't know, Eric, do you wanna add to that at all? No, that's good. Okay. That's good. Thank you. All right, moving on to Rishi Jaluria with RBC. All right. Well, wonderful. Thank you everyone for taking my question. I just wanted to dial a little bit more into some of the wins that you've seen on the contact center side. Can you give us a little bit more color in terms of what types of customers these are? Was it, you know, a competitive process? I imagine you are unseating one of the legacy players, but were there other CCaaS vendors in that discussion as well? Just any color you can give would be helpful. Thank you. You wanna take that, Eric, on that last piece? Yeah, sure. Absolutely. Yeah. Thank you, Rishi. Kelly mentioned earlier, right, we're still probably early stage of the product development phase, but actually is more than what we expected because as Kelly mentioned earlier, some of the customers, we thought probably they are gonna deploy later on, but they did deploy and are very successful. Also, we also found some new use cases, you know, like, internal IT support, right, you know, the IT desk, right? Plus some other, you know, the customers who deploy the Zoom Meetings and Zoom Phone, they look at our platform solution, "Hey, you already have a contact center." After they did a test, interestingly enough, they said, "Wow, it works so well." It's also why now they also deploy Zoom Contact Center as well with a seamless experience. The same back in architecture. Also we are going to be very aggressive and double down on that from sales perspective, because product is ready. It take Zoom, you know, for our own support team, for example, we successfully managed to replace all the contact center solution with our own solution. The feedback is extremely positive. That's why give us team, you know, more confidence, right? You know, further, you know, boosted the team confidence, right, to sell more in the second half, and then also next fiscal year. Okay. Yeah, I would add, I would say, you know, on, in almost every one of them we are replacing, you know, an older legacy solution, right? One that is costly and complex, and in most of them they can't change them and they don't have the flexibility to enhance them, right? You know, we bring a more flexible, innovative solution that can be implemented very fast, right? It is integrated with our other solutions. It is lower cost in many cases. People have been very, you know, positively impressed with the solution. Like Kelly said, the deals are bigger than we thought they were gonna be. Yeah, it's been a great, you know, two quarters now of bringing this new product to market, so we've got some pretty high hopes. Wonderful. Thank you. Thanks, Rishi. Our next question will come from James Fish with Piper Sandler. Hey, guys. Thanks for the question. You know, it's fairly new, but you guys talked about the consolidation impact. What are you guys seeing with traction, specifically with Zoom One and pricing overall, especially relative to the early days of Zoom United? Kelly, secondly on guide, given you talked about the issue being more on the new subscription side for online, are you still assuming monthly churn for online actually gets better in the second half of the year like you were before? Let's talk about that one first. In terms of online, we continue to see stability in the retention rates at that 16-month plus, and we'll show you that chart again when we get to Analyst Day in November. We're at about 70% of our online business now has crossed over that 16-month mark. It's bringing a lot of stability. What we had talked about previously was we expected to see an inflection point for online in Q4, and given the reduction in the guide, it's more likely that's gonna come in the first half of next year. Then in terms of the traction of Zoom One, it's just one quarter in, but we have seen some great progress there. You know, it's serving the purpose that it needs. I mean, Greg, you can certainly comment on that. It's really meant to, you know, ease the buying process for our largest enterprise customers and package up the platform in a way for them that really makes sense to meet their needs. Yeah. I think it also, just from an awareness perspective, helps this extremely large customer base that we have understand that, look, we're way more than meetings. It gives them a way to step in if they wanna try Phone, for example, or to take advantage of our incredible chat functionality. I mean, we have an incredible chat functionality that probably, you know, Eric, you can correct me if I'm wrong, probably 70% of our customers don't even know we have. Then when they start using it gets very pervasive. It just gives us a way to show our customers that there's a lot more to this platform they can get value out of, and that's what we're seeing. It gives us from a, you know, salesperson and a contractual standpoint, the ability to walk in and say, "What does a better contractual relationship look like with Zoom that can be stickier and longer term?" I don't know if you want to add to that, Eric. Oh, it's great. Thank you, Greg. Yeah. Yep. Thank you. We'll now hear from Matthew Niknam with Deutsche Bank. Matthew, go ahead. Hi. Thanks for taking the question. I have one about the industry. One of the bigger incumbents in the UC and CC space seems to be hitting some elevated financial difficulty. I'm just wondering what sort of opportunity that presents for you, whether it's organic or inorganic. Just one follow-up on linearity. I think you'd referenced maybe some back-end loaded sales in the quarter. Any more color you can give in terms of what drove this, maybe relative to some of your initial expectations a couple months ago? Thanks. I'll talk about the linearity first. I think that it's just as we said in the prepared remarks, there's two things happening, right? More and more of our deals are now coming from the enterprise, and the majority of our revenue is coming there, and we have definitely now moved beyond the pandemic buying patterns. Our linearity had been much more moderated, I would say, over the last two and a half years, as the online business itself is more balanced within the quarter just by its nature. The enterprise business even itself, during the pandemic buying periods, it didn't follow the sort of normal deal cycles that we had seen. There were less proof of concepts, there were less review, honestly. Now that has really all shifted back. It's just taken us, I think, a little bit of time to understand exactly where we were in that cycle, and we really saw it, that we're back to, you know, pre-pandemic linearity, which is very normal, right, for a SaaS business. It just hasn't been normal for us for the last few years. Yeah. I can address that organic growth or maybe the M&A opportunity. I think, Matthew, look at the UC and CC. The customer experience is extremely important, right? You look at how we build our phone business, right? In less than three years, you know, 4 million paid seats, right? That's the reason why you know, we know actually our team, you know, we can build a better product. You know, why not? You know, keep doubling down on that, right? Take some time, but it's organic growth, it can help us build a better product. Ultimately, it can make our customers, you know, happier. I think we should continue that. Occasionally, for sure, you know, some technology or some other areas, you know, we also like to explore. Like, recently we acquired a Solvvy team. This is a great asset to us. It will further help us, you know, the contact center business, and also we'll keep an eye on that as well, right? Ultimately, direction-wise, I think we have high confidence about our product teams', you know, execution. You know, we think we can build a much better, you know, service. Great. Thank you both. Thank you, Matthew. Thank you. I will now hear from Alex Zukin with Wolfe Research. Hi, Alex. Hi, this is Strecker on for Alex. Thanks for taking Oh, hi. My question. Kelly, I'd like to unpack the enterprise segment a little bit more. So just to be clear, is the growth coming more from ramping reps or selling back into the base with IQ and phone and contact center? Then, given you maintained the 20%+ growth target, is it fair for us to assume that you have not contemplated any lengthening of sales cycles or a worsening macro into this line? Lastly, can you just frame how we should think about the sustainability of this growth, beyond this year? Because the guidance does imply some deceleration while on easier comps in the back half. Thank you. Yeah. So as I said in the prepared remarks, we have assumed that the linearity that we saw occurring in Q2 is consistent for the rest of the year. So any of the back-end loaded, right, it'll contribute less revenue to this year and in each of the individual quarters. So we've assumed that's a similar trend for the rest of the year. In terms of future growth, we're not prepared to comment on that. We'll do that when we give full- year guidance later this year. The growth is honestly, it's coming from both, as you heard earlier, continuing to expand into our customers. You know, expansion with Zoom Phone, Zoom IQ, Zoom Contact Center especially, also Zoom Rooms had a fairly strong quarter as people are still, you know, thinking about the future of hybrid work and what does that mean for them. We are continuing to see at least I think in Q2, the percentage of ramped reps was higher than ramping reps, and that always is a positive contribution. Thanks. Just a quick follow-up. What have you seen in 3Q so far in terms of SMB and enterprise bookings linearity? Yeah. It's so early in the quarter that we wouldn't comment on that yet. Thank you. Yep. Catharine Trebnick with MKM has the next question. Thank you for taking my question. You've talked quite a bit on Zoom Phone Contact Center. Could you give us a little bit more detail around the Zoom Rooms? It seems like in this hybrid environment, that would probably be getting more traction. Can you provide more color around the sales motion if you ran any specials and who you typically displace? Thank you. I'll let you have that one, Eric. Yeah. Yeah. I think, Catharine, you are so right. I think especially when it comes to hybrid office and hybrid work and Zoom Rooms is becoming more and more important, right? You look at our Zoom's functionality feature set innovation. I think I actually a little better than any other solutions out there. But however, earlier this year, right, and more, a lot of businesses, when they, you know, started exploring going back, you know, they tried to look at their conference room setup. They really want to make sure they have a new solution. That's the reason why, you know, they picked up Zoom Rooms. But also, you know, over the past several months, and also we do see, and just some companies, they won't be conservative in what's happening on the economic front, right? You know, they have a big office, they have a campus. Most employees probably still working remotely. I would say it's kind of, you know, sometimes, wow, it's a lot of the new Zoom Rooms, and sometimes we see the slowdown. Overall, direction-wise, a lot of companies, they would like to deploy the very innovative solution like Zoom Rooms and to truly improve their hybrid work experience. All right. Thank you. Thank you. Thank you, Catharine. Moving on to Siti Panigrahi with Mizuho. Hey, guys. Thank you. Thanks for taking my question. Hey, Kelly, just wanted to unpack a little bit on the online segment. What sort of trend you are seeing on the churn on the online segment? On the new customer acquisition, you made some changes on that one-on-one meetings now limiting to 40 minutes. It's been now more than a month. Yeah. What sort of trends are you seeing that paid free to paid conversion? Has it, you know, fell below your expectation? Or what sort of trends you're seeing? Yeah. In terms of churn, we have certainly seen that continue to improve and stabilize. As we said, touched on this a little bit in the prepared remarks, it was a little bit better than expected. Where we saw the impact you're seeing in the forward-looking guidance is the acquisition of new customers. Again, Wendy and her team are doing an amazing job on initiatives to improve that. They just, you know, haven't had enough impact yet to offset what we're seeing in the quarter. For example, what you're talking about, the 40-minute limit really did help in the free to paid conversion, and that is considered as you look forward in the rest of our full- year guidance and as well as many of the other initiatives they're working on. When you look at the, especially in Europe, the impact we saw there, as well as combined with FX and the, you know, that is more concentrated, having a more concentrated impact on online than enterprise, that's what is driving the reduction in the year-over-year guidance. Great. Thank you. Yep. Tyler Radke with Citi, please go ahead with your question. Hey, thanks for taking the question. Maybe a couple for Greg. First of all, welcome aboard. I wanted to just kinda get your perspective on, you know, the sales organization and particularly, in the enterprise, just kinda how you see, the pricing dynamic. Obviously it's a competitive market, but, you know, on one hand you are driving a lot of value for enterprise customers. Do you think there's an opportunity for maybe higher priced SKUs or, you know, an upsell motion? Then secondly, if you could just comment on the enterprise customer net additions, which I think were down quite a bit sequentially and year-over-year, if there was a size mix shift driver there, just any color would be helpful. Thank you. Okay. I mean, I'll take the first one. I'll give Kelly, I'll give you the second one on the details. I mean, our number of customers did go up in the high end, so, but I'll let you cover that. You know, from a value perspective, I don't see us bringing out higher level SKUs. What I do see us doing though is doing a much better job of describing and articulating the value proposition we bring to the customer and building business cases for the large enterprises so they can make a bigger purchase with us so we don't have to discount as much. Okay? I think we've got, we're doing really great in the enterprise, but I don't think we're doing really great at really selling high at that, you know, that board level, CEO level, and being really smart about how we construct our business cases and value, and that's something that we're gonna work to improve on, which I think will have a really big impact. We've got some work to do with our sales force and from a training perspective, but we just did a really big, you know, training exercise about two weeks ago and already started some of this, and it was received extremely well with our sales force. I mean, what we don't wanna do is be like our competition and, you know, just try to win on giving big discounts and, you know, giving away free stuff. That's not what we're about. Yeah, in terms of the growth of the enterprise customer base, so as a reminder, the selling strategy for Zoom Phone, for Zoom Contact Center, for Zoom IQ for Sales, is to sell into the existing installed base. Going forward, especially as you continue to see great progress in those products, you're gonna see growth continuing to come from our existing installed base with layering on of new customers on top of that. You should not be surprised to see that customer count declining even while our revenue is growing. Thank you. Yeah. Karl Keirstead with UBS has the next question. Okay, great. Kelly, this one for you. We, and I think a lot of investors on this call, anchor our valuation models for Zoom shares in your free cash flow numbers. Yeah. Free cash flow for 2Q obviously came in a little bit light, and your guidance for the full- year is $several hundred million below, I think, the Street consensus. It'd be good to understand that a little bit more. I guess I wanted to ask you, if you could just pinpoint the factors maybe weighing on cash flow, and then as everybody models out into next year, are there any key things to keep in mind? Are there any sort of one-time weights that might be alleviated next year? Thank you. Yes. Thank you for asking. Just as a quick reminder, we have actually never sort of officially guided towards free cash flow, but we understand this is very difficult to model, so we're trying to give more insights to it. I think the biggest change that we're trying to help everyone understand is that we have now fully utilized all of our NOLs, and we are a full cash taxpayer. That is having a large impact. In fact, in Q2, the way it normally falls, right, is we actually paid two quarters worth of taxes in one quarter, 'cause you pay like the Q1 estimated provision, you pay that in April. We had double the impact. It's, you know, $200 million-$250 million worth of cash taxes that are now reflected in that. The other thing to consider is there's one other impact that is driving up our cash tax rate, which is as our stock price has declined, we typically get a tax deduction for things called disqualifying disposition, which is when employees sell their stock. As the stock price has declined, you can imagine employees are holding on until they see potentially greater value in their stock. Our disqualifying dispositions have dropped. At the same time, we've used up our NOLs, which means our tax rate has gone up and our cash taxes have gone up a little bit. We expect that to moderate as we regain value in the stock price over time. Okay. Kelly, just, in terms of next year, anything one time about everything you just said, or, you know, should we assume somewhat similar free cash flow margins next year? I don't wanna corner you into guidance, maybe just, talk through variables. Yeah. Well, I think I mean, we are going to be a cash taxpayer from now on, right? That is done. I think that the question is what happens with the disqualifying dispositions, which is a variable deduction, which will largely correlate likely with a potential increase in our stock price over time and how much employees are selling their stock. Got it. Thank you. All right. Thank you, Karl. Rejoining us again is Kash Rangan with Goldman Sachs. Kash, please go ahead. Hi, Kash Hey, hello Kelly, Eric, and Greg. Hey. Thank you for hosting this Q&A. If you look at the business, if you look at the core work minus the Phone Contact Center, and the IQ for Sales, how is that part of the business trending? I mean, are you at a point where, inclusive of the online channel, things seem to be stabilizing? How do we look at the mix of business, incoming business, over the intermediate term or maybe in the near term as the year unfolds between the core versus the phone product and non-video products? Thank you so much. Yeah, I mean, the Zoom Phone was certainly the star, if you will, of Q2, but we continue to see strength in our core meetings platform. It had really strong growth in the period as well. The majority of our business in online is still core meetings as well. The majority of that business is coming from core meetings, and all the work that that team is doing to continue to, you know, improve the free to paid conversion will continue to drive more strength in the meetings business as well. Is there a way to delineate what the core is doing minus the phones? Because the phones is a separate, you have separate revenue pricing. Yeah. You know. Right Kash, we don't break it out that way. What we've always said is from a revenue perspective, we'll start to break out these products when they hit their 10% of revenue. Got it. You could imagine, we're getting very close on Zoom Phone, so I think in the next Mm-hmm Couple of quarters, you'll likely start to see that, which will give you some insight. Great. Thank you so much. Yeah. Thank you, Kash. Mm-hmm. Moving on to Matthew Harrigan with Benchmark. Thank you. Could you be a little more expansive on the regions? You had a very strong dollar, all the APAC up 10%, even with the free fall in the yen and some other Asian currencies being weak. Do you have a reasonable buffer if Putin decides to turn off, toggle off, Nord Stream 1, when we get to winter? Lastly, I think you alluded a little, touched on this a little bit earlier, but can you talk about any variation in the online versus enterprise activity by geography? Is it fairly different in Asia and Europe from the Americas? Thank you. Let me take the last one first. In terms of online, you know, online certainly has been the most impacted in EMEA. That's where, you know, when we talk about the guidance and some of the impacts it's having there between FX in general and the Russia-Ukraine war, it's having much more of an impact on online than it is in our enterprise business. Then, I'm sorry, I didn't quite catch the first part of your question. On APAC, you were up 10% in US dollars in that region, even though currency similar to the euro and Oh Japanese yen. Yeah. Yeah. Yeah. Looks like you had a very strong organic APAC result in certain markets. Yeah, I mean, Greg, feel free to join in, but yes, we did see strength, especially in Japan. We had a very strong Q2 there. Great. Thank you. Yeah. Moving on to Ryan Koontz with Needham. Hi, thanks for the question. Just to follow up on that last one about Europe, and the kinda online headwinds you're seeing there, any geographic variance within Europe you can comment on? Is it, you know, continent-wide? Is it more Eastern Europe weighted? Any kind of color you can give us there would be helpful. Thank you. Yeah. It's pretty pervasive, unfortunately, across the continent that we've seen it, as you can tell based on the magnitude of the impact. Yeah. All right. Thanks, Kelly. Yeah. Yeah. Our next question will come from Peter Levine with Evercore. Great. Thank you for squeezing me in here. Maybe Eric or Kelly, just to tack on another question with contact center, you know, can you kind of explain to us where we are with the product today in terms of standing up against, you know, the Five9, the Genesys, the NICE of the world? Then second, you know, if you look out over the next 12, 24 months, like, what's going to differentiate Zoom Contact Center to kind of get customers to take a second look? I know I'm squeezing a third here, but Kelly, in your prior, one of your prior questions, you mentioned the seat count was higher for contact center. Just curious, can you give us an average seat count for contact center today, if you're willing to do that? Thank you. Eric, you wanna take the first couple? Sure. Absolutely. Yeah, Peter, you look at our contact center, right? As I mentioned earlier, right? Customer experience is extremely important, right? We built this new solution, not like any other solutions, no matter on-prem or the cloud-based solution. Those solutions were built many years ago, right? This is a modern interface, and we already solicited customer feedback. We know what they really wanted to have. Also a much better integration with our core UC product as well, you know, like Zoom Phone. Quite often when we talk with our Zoom Phone customer, they prefer, "Hey, you already have a contact center. Why not?" Right? That's more, you know, the one aspect of the innovation. Also look at some functionality feature set, right? You know, you can turn on the video. also more and more AI features as well, and also the AI and video and the modern interface. I think, you know, plus, you know, I think ultimately we already, you know, when the customer trusts, they know, and we listen to the customer feedback very carefully. Whenever they have some new feature requests or anything, we can innovate much faster. That's the reason why I think customers, they would, they are willing to try Zoom Contact Center, also they are going to deploy Zoom Contact Center. Great. Kelly, anything on the seat count? Yeah, what I would say is, I think I'm just looking at a list of deals right here on the screen, and I think that we probably moved into at least the average seat size being in the triple digits. We have our largest deal approaching four digits, I would say, and then probably on average is in that, you know, triple digit size right now. Great. Thank you very much. Yeah. Yeah. I mean, the one thing I would add, and it's probably not a lot of commentary now, but we'll be showcasing a lot of these customers at Zoomtopia, right? So we'll get. You'll have a lot if you attend any of that or have anybody attend that or you hear what's coming out of it, you'll get a lot of contact center details. Thanks, Peter. Now we'll move on to our next question, which will come from Michael Turrin with Wells Fargo Securities. Hey, thanks. Nice to see everyone. Appreciate you sneaking me on given we're rolling into the next hour of the earnings call. Kelly, it had some helpful quantifications on the major segments of the business and the drivers. On the enterprise side, the comments around more backend weighted linearity, it sounds pretty clear you're assuming a similar shape hold. In terms of quarterly versus rest of year, I know 4Q purchasing decision cycles and enterprise are often significant. Maybe you can just add more around the visibility you have into the enterprise segment, the renewal base there. I think investors would just greatly appreciate any commentary around the degrees of precision you have with enterprise versus online. Sure. Thank you. As a reminder, our upmarket teams, both majors and enterprise that Greg talked about earlier, are on six-month quotas. Again, now that we're sort of beyond pandemic buying periods, and we've returned to a more normalized seasonality, which sees peaks in bookings in Q2 and in Q4. Everybody should expect, for example, we had this discussion in Q1 as well. You know, if you remember, our last record quarter for Zoom Phone was in Q4, and then, you know, we talked about it, the seat count was actually acquired during Q1 was down, and now we're having another record in Q2. Everybody should expect that that's kind of the seasonality we're gonna see as we have these reps all running to achieve their accelerators in Q2 and in Q4. Again, that's a sort of just a typical enterprise seasonality that we're gonna see based on the way our comp plans are structured. Thank you. Yep. All right. We have time for one additional question. Ryan MacWilliams with Barclays, please go ahead. Ryan and Eric, I just wanted to say I saw the Solvvy acquisition at your new contact center. Looks really interesting, looking to see more there. Kelly, two for you. Just on enterprise additions for the rest of this year, should we think that the bulk of that is coming from Zoom Phone net seat adds? Just as we think about maturing base of your existing meetings customers, right, is that additive to growth at this point? Like, do you have a sense of where the zip code for that net expansion rate is? Yeah. I think enterprise additions for the second half will not be just Zoom Phone. I mean, Zoom Phone is certainly very strong momentum that we are seeing, but we expect, you know, continued contribution from Zoom Rooms will certainly be strong. Contact center, we expect to continue growing, as well as Zoom IQ. That all of those will continue to add to the overall growth in the enterprise along with we continue to see additions in meetings as well. With maturity base, the enterprise meetings, especially internationally, continues to grow. Like, don't underestimate or don't assume that sort of the maturity level of video adoption that we see here in the U.S. is at the same level on an international basis, and there are still significant opportunity outside of the U.S. to continue to grow our core meetings platform. Appreciate the color. Thanks. Yep. All right. Thank you. Well, thank you to everyone who stayed on with us a little late today. Again, that does conclude our Q&A session for today. Kelly, I'll go ahead and turn it back to you for closing or additional remarks. Thank you. Thank you so much, everyone, for joining us today. We really appreciate all the support that you give us every day. Thank you so much, Kelly. Again, everyone, that does conclude today's earnings release. We always thank you all so much for your participation. Enjoy the rest of your day. We'll see you next quarter. Thank you, Kelsey. You're welcome.