Zoom Video Communications, Inc. (ZM) Zoomtopia Investor Q&A – (Transcript)

Zoom Video Communications, Inc. (NASDAQ:ZM) Zoomtopia Investor Q&A Call October 3, 2023 3:00 PM ET

Company Participants

Tom McCallum – Head of Investor Relations

Wendy Bergh – General Manager, Online Business

Mahesh Ram – Head of AI Applications

Kelly Steckelberg – Chief Financial Officer

Conference Call Participants

Siti Panigrahi – Mizuho Securities

Michael Turrin – Wells Fargo

Matthew VanVliet – BTIG

Will Power – Baird

Peter Levine – Evercore

Ryan Koontz – Needham

Pete Newton – Barclays

Pat Walravens – JMP Securities

George Iwanyc – Oppenheimer

Arjun Bhatia – William Blair

Meta Marshall – Morgan Stanley

Tom McCallum

Hello, everyone. Welcome to our Zoomtopia Investor Q&A. I want to welcome everybody in the room here today as well as everyone who’s joined us on the webinar. This is a virtual event as well a hybrid event, which I will tell you last year when we did this, we had 10 times more people joining us virtually. I appreciate everybody coming, but I also appreciate everybody coming virtually as well.

So Zoomtopia is going on just down the street. We’re here in the San Jose headquarters. And just before we start, I want to go through a couple of quick housekeeping items. First is the old Safe Harbor or new Safe Harbor, I should say. I just want to make sure that everybody familiarizes themselves with it. Next slide please. And as well as just keep in mind that there are risks and other factors that can affect our business that are in our 10-Qs and our 10-K filed with the SEC.

Next slide please. And here is our agenda. I have Kelly, Wendy and Mahesh here. I’m going to have them introduce themselves in a minute, but we’re going to do this for about one hour. We have, unfortunately, a hard stop because people have other engagements they need to get to.

Besides picking a lunch today, we’re going to make you make one more decision. We have — the reason we’re having it here on the corporate headquarters, we’re going to do an executive briefing center tour from 1 to 2. Charles will lead that. I’m going to go back to Zoomtopia. I have a session at 3. So if anybody wants to come back with me, I’ll walk you on over, just up the street, as you all know.

And then tonight, we’re having a cocktail reception that starts at 4:30. Just so there’s no confusion, there are two cocktail receptions. You will have to get your own cocktail reception. It’s going to be at the patio at the Hilton. It’s right behind the restaurant there. And it will be — our executive team will be there and you’ll have a chance to catch up with the folks as well.

So let me just start by introducing Wendy and Mahesh and just ask them to introduce themselves actually, what their responsibilities are, and then tell us something you’re really, really excited about either from Zoomtopia or some initiative that you’re doing today, just to kind of kick us off. Thank you. And I’m going to go around the, I’m sorry, I’m going to go around the room with a mic in a minute.

Wendy Bergh

Hello, everyone. I’m Wendy Bergh. I’m the GM of the Online Business. The Online business at Zoom is our self-service ecosystem that focuses on selling to consumers and small businesses around the globe. And I am most excited about the fact that we are adding so much value to our existing packages and additional add-ons to our customers, things like notes, stocks, AI companion that is going into our existing packages as well as these add-ons like scheduler and translations that are allowing us to continue to provide new options and opportunities for customers to expand with us.

Mahesh Ram

So Mahesh Ram, I Head up AI product strategy here at Zoom as well as oversee our Zoom Revenue Accelerator product line, which is in the sales revenue acceleration. Prior to this, I was the founding CEO of Solvvy, the conversational AI company that Zoom acquired last year.

And what I’m most excited about is actually how — two things. I think one is how I’m hearing from customers the platform’s story actually coming to life and how they’re able to see value across the platform, I think, in ways that even a year ago, perhaps they were — they could see the concept but now it’s turning into reality.

And I’m even more excited because I think generative AI and AI has the opportunity to actually be a binding force, as you might have seen in the keynotes. And so we can talk more about how I see that happening or how we see that happening. But that’s what gets me excited is reinforcing the idea that platform is very powerful.

Kelly Steckelberg

Okay, great. So thank you both for being here today. We’re going to open it up to Q&A so we are going to ask you to take the mic. So we’ll start right here with CT, please.

Tom McCallum

Yes, just really fast. A couple of quick rules. Please try to keep it to one question. We want to get everybody’s questions in the room. We also have enabled the Q&A function on the webinar so if you want to send one in on the webinar, please do it, but we are going to start with questions in the room. And if we have enough time, we will get to the remote questions. Thank you very much and the first question goes to you, sir?

Kelly Steckelberg

Yes. And if you could introduce yourself, especially for the benefit of Wendy and Mahesh please.

Question-and-Answer Session

Q – Siti Panigrahi

Thank you. Siti Panigrahi from Mizuho. Thanks for inviting us. It’s a great opportunity to see products in action. So one question with multiple-part okay or not? Just kidding. So I want to ask you, it’s very impressive to see the number of products you guys adding to the platform. Last year, we saw so many and this year as well. I wanted to understand which product you think are going to bring some incremental revenue. Basically, I wanted to hear your monetization strategy, given that you have such a large installed base, if you could walk us through which product we should think about at least to add some of the incremental revenue?

Kelly Steckelberg

Yes. I mean, for the rest of this year and for FY’25, the primary growth drivers will still be coming from Zoom Phone and Contact Center. And then AI is — we’re going to have Mahesh talk about all the amazing features we saw this morning but will be contributing to that. I think the new features that you saw this morning, they’re going to take some time, right? Docs, which we’re all super excited about will be released sometime next year. And we’ll be — we’ll have more to share around the monetization strategy of that as it gets closer to being GA.

Siti Panigrahi

This was the free part of the Zoom launch, all these products?

Kelly Steckelberg

The AI products are all free, the ones that we’ve talked about today. The Zoom Docs, we have not yet announced what the monetization strategy around that is. Yes, that’s yet to come.

Tom McCallum

We’re going to start in the front of the room. Rewarded for being up the front.

Michael Turrin

It’s great. It’s Michael Turrin with Wells Fargo. Thanks also for hosting, Kelly and team. Much appreciated. I wanted to spend some time on the Contact Center strategy. There was a lot of presentation on virtual agent capabilities today. And we hear kind of varying opinions on in-person agent versus virtual agent and monetization of those over time. So maybe you can just articulate some of the lessons you’ve learned from the Contact Center strategy so far, your key points of differentiation. And then there’s a house view on virtual agent versus in-person and your ability to monetize either side of that. I think that’s all useful.

Mahesh Ram

So I think when you see the evolution of the suite, I think Contact Center alone, 600 new features in the last 18 months, the introduction of virtual agent, obviously, post the acquisition of Solvvy, the recent introduction of quality management, workforce management, what you see is the solution forming around the needs of the customer, which I think is obviously always Zoom’s forte. But if you think about from a customer perspective, which is how we think about it, they’re not looking for a virtual agent to replace human agents all the time. They’re not looking for human agents to do things that AI could do well. And so what we’re starting, we’re really understanding is how do we create a seamless customer experience journey, right? And I think when we start with that mentality, then when you have virtual agent, you can make sure that you cover a wide swath of issues that customers don’t need. We ourselves use our own virtual agent for our own support. And we — I think we self-serve over 85% of our own issues, and we get millions. So we’re living proof of drinking our own champagne, so to speak. But then there are moments when all of us as consumers want to get to a live agent. And so I think the power that we’re seeing is it’s not always about self-service. It’s about capturing the right information, getting the intent right, determining whether I can self-serve you and getting out of the way and getting to the agent in the most appropriate way, when possible. And I think when you orchestrate that well, we’ll monetize all of them. And then post the Contact Center experience, they might have an escalation to video in the Contact Center, they might have chat. They might come at us from Facebook and Messenger. You heard that today. Then after the fact, there’s the coaching, the scheduling, the forecasting are necessary for the supervisors and the people running the businesses. So I think we’ve come a long way from having a solution that did one thing, which is agent-facing Contact Center to now having the full spectrum of the customer experience, the supervisor experience and the agent experience and AI across all of it. And AI Companion now because it’s included with all paid licenses, you can think about all the use cases it can drive across that spectrum. Does that help answer your question? Okay.

Kelly Steckelberg

And as a reminder, so we monetize Contact Center on a seat basis, and then Zoom Virtual Agent is based on queries. So we’re happy to have either one of those. They’re priced according to bring the value to the customer, so we’re happy to support on both sides of that.

Matthew VanVliet

Thanks. Matt VanVliet from BTIG. I guess on the Zoom One strategy, as you continue to sort of bundle more in, curious what the overall monetization effort is there, adding more of these features and how you’re going to maybe upsell and cross-sell existing customers versus using it as a retention and sort of expansion tool of usage. Just trying to get a balance on how much upside is in the model versus a customer retention issue.

Kelly Steckelberg

Well, first of all, I would say as a reminder, if you step back and think about the attach rates of just Zoom Phone to our existing installed base, it’s still like in the low double-digits, very low. So when you think about Zoom One having a bundle of all of that, there is significant opportunity. And so there’s definitely revenue upside and potential there. But retention is also a very important factor as we’ve talked about this and we shared at last Analyst Day with you how we see our retention metrics improve every time a customer adds a new product. So it’s really a twofold strategy and there’s lots of opportunity. The team is doing an amazing job right now working, especially as renewals come up, to talk to them about the possibility of upselling into Zoom One and the overall bundle and that will continue to be a growth strategy going forwards absolutely.

Will Power

Right. Hi. Will Power with Baird. A question for Wendy. The Online segment, as I’m sure you know, has been a source of a lot of investor questions. And I think folks are really just trying to get to the bottom of whether that business has started to stabilize or not or if there’s further downside. So as you look at it from your lens, how do we get comfortable? How do you get comfortable with both the top of funnel and churn? So it’s kind of two related questions, which are both critical, right, to driving stabilization. So what are you seeing on that front? How do we get comfortable that business can stabilize here?

Wendy Bergh

Yes. So we’re really pleased with the progress we’ve made on churn. I think at the last earnings, we said it was down 40 basis points year-over-year to 3.2%. And we continue to focus on that area as well as other areas where we’re looking to drive growth. So there’s still a lot of opportunity out there. I can share some examples of initiatives that we’ve been focused on. We really think a lot about free versus pay differentiation because we want to make sure we’re driving those free upgrades into the paid products. So some of the things that we’ve done recently, we did the Zoom One Pro price increase for monthly at the beginning of this year, and that worked really well based on the fact that we were able to say how much value we had put into those core products. And we saw a lot less churn than we expected. We also have been doing something for free users, what we call kind of these forced breaks. So we see a lot of users doing sequential meetings. And what we will sometimes put in a forced break of about 10 minutes between meetings, and that is encouraging for users to upgrade, and that’s been really going well for us. In addition, launching new offerings has been really a great way for us to also make customers aware that they can expand on the platform. So we’ve recently launched Scheduler, which was something that small businesses asked for and we’re just starting to ramp those campaigns and really starting to see some engagement from customers on that front.

Peter Levine

Thank you. Peter Levine with Evercore. Thanks for putting this on. So maybe just two quick ones. One is on the pricing for AI Companion. I know there’s a GPU cost to that. So maybe talk about how you’re offsetting the cost with margins, if everyone is getting that for free. And then second on Contact Center. Impressive to see what you guys are doing. Maybe just help us understand the gap to get to those multi-thousand seat customers on the enterprise. Thanks.

Kelly Steckelberg

So in terms of the impact from GPUs, we did say on the call that you should expect gross margins to come down to 79.5%. And that’s based on the compute power that we are continuing to acquire and that our gross margins may stay in that range for the foreseeable future is what you should think about. And the team in the meantime, our DevOps team is amazing, and they’re doing as much as they can to continue to improve the overall scalability of our data centers and drive as much of that compute into the data centers as they can. So that’s really how we’re working — thinking about that. And then, I’m sorry, Contact Center. what did you ask me? I’m sorry. Oh, the features, yes. Do you want to talk about Contact Center?

Mahesh Ram

Yes. Also just make a point about, Eric was on stage today talking about the federated approach. And part of what the federated approach is really yielding benefit from us is to be able to optimize the best model for the best function or the best need, and we can take cost into account as well. And so when we have our own models, we have the ability to deliver things at scale. But obviously, the focus, number one focus is quality because customers only want the best quality that federated approach has, I think, helped us greatly in terms of thinking about how we optimize for cost in addition to the hosting possibilities. In terms of Contact Center, I didn’t quite get.

Kelly Steckelberg

What are the features are we working towards to get to really sort of large enterprise?

Mahesh Ram

Got it. So I think maybe I’ll do an AI touch on Contact Center, too, because one of the things I mentioned on stage that hopefully you heard was that in addition to AI Companion, which is included in the Contact Center paid license, we’re also introducing later this year, Expert Assist, AI Expert Assist for the Contact Center with the agent side, which is going to provide agents with real-time guidance, ability to look up information and knowledge automatically with AI, be able to make suggestions and so on. We haven’t announced the monetization or pricing for that, but that is unique to Contact Center and not and on top of what they get with AI Companion. So I think Kelly can comment more on that. In terms of the range of capabilities we’ve done in Contact Center, I think if we just look at the releases, look at workforce management, look at — which is the forecasting. You look at workforce engagement management, which we released, you look at Quality Management, which is — which interestingly is a derivative of what we were doing on the sales side with our ZRA product, Zoom Revenue Accelerator, but focused on the Contact Center, with the improvements we’re making with gen AI and Virtual Agent, that represents a whole slew of capabilities. But we’re also doing things like Outbound Dialer and the social and the messaging channels and a host of other things, I think 600 features in the last 18 months. So I couldn’t name them all what’s coming in the next quarter or two. But those are some big ones. I think we’re very — we feel very confident that we can compete for significant pieces of business. I think you’ve heard the MLB story. They’re not — it’s not exactly a trivial use case. It’s complicated and complex and I think we’ve delivered in a good way. I think more to come.

Kelly Steckelberg

Thanks.

Tom McCallum

Next question.

Unidentified Analyst

Hi. This is Kylie. I’m here for Tyler Radke at Citi. And I was just wondering how you guys are thinking about the adoption curve for AI Companion and maybe the ability to transition free to paid users there. And as you mentioned, too, is this maybe another feature that we can think about driving that free to paid? Thanks.

Wendy Bergh

Yes, absolutely. We are seeing — we’re pleased with the adoption we’re seeing so far with the online customer, both — we have campaigns right now running both to free users, helping them understand that if they upgrade, they can get AI Companion and all the value of that. And then we’re also explaining to our paid users the value that’s now in their existing packages and driving awareness around that. And we’re actually taking a multipronged approach where we’re getting notifications out to them through e-mail, in-product and even push marketing now. So really excited about that. And we’re continuing to learn and see as we go because it’s all still relatively new. But, yes, been very pleased so far.

Mahesh Ram

No, other than to say that we’re putting AI Companion, we’re creating AI Companion capabilities across the entire platform. So you see it in Whiteboard, you see it in Meetings. You see it in team chat. So I think the incentive for someone to convert is naturally higher. And I think what you saw in the video or the demo we showed, the ability to have that cross your day, cross your Workday experience from the Zoom client, never having to leave, prepare me for the meeting, have the meeting, get me post meeting and then be able to share the information with my team post the meeting, I think that’s very attractive to the kind of customers who are online because they don’t have huge staff necessarily. And so AI can do a lot of the productivity work for them.

Kelly Steckelberg

You want to talk about the number of accounts that have turned AI on?

Mahesh Ram

Yes. So we have been live, September 5th, we went live GA. Today, we have over 20,000. That’s not — it’s 20, 25?

Kelly Steckelberg

I’ll give you credit, almost 30,000.

Mahesh Ram

Almost 30,000. Okay. I was being the conservative one, but, yes, almost 30,000. Almost 30,000 companies have enabled AI Companion and are using it and the feedback has been very, very positive. Of course, we also get constructive improvement areas and we’re iterating very rapidly on it. Obviously, Meetings, Chat and Whiteboard have led the way in the first phase. But we think two things I want to just mention about that. One is when we made the very clear pronouncement about data use, it unlocked a bunch of opportunities. Companies that like what are you going to do with our data, all the questions all went away. They just said, okay, you made it clear. You made a definitive statement and that was one. And then I think the other thing is that they are able to — it’s just like Zoom. It just works. You just press a button, it works. You don’t have to think about some fancy back-end thing enable. It’s just click a button and it works. I hope all of you try it.

Kelly Steckelberg

So I’ve gotten questions from investors in the past about, okay, so now how are your model’s going to be any good? You’re not using customer data and so how are your models getting trained? So maybe you can talk a little bit about that for us.

Mahesh Ram

Yes. I think spending a lot of time in the research side of this, what I think most of you probably know and what’s happening is that the value of data relative to getting these models to performant value is actually decreasing. The models the built-out-of-the-box models are getting better out of the box. They just have so much data to begin with. And the other thing is the amount of training data that you need to tune it up is relatively small. You can synthesize data. Many, many companies use, do something like Open AI or another model to create the data to train the model and improve it. So you can actually give it data. Of course, you can purchase data if needed, but for a use case. So I think that we feel very confident that we don’t need customer data to train them on and we’ve seen it. The improvements in our meeting summary if you’ve used it over the last three months, you probably have noticed a pretty dramatic improvement. But I would also say that, that doesn’t mean that we don’t use the customers’ inputs to provide a better output to them. We’re not going to train our model. But if I know that the five of us are in a meeting, I know who’s attending the meeting so I can get better at speaker identification. If we have five meetings this week that all of us are included that we can give a summary to the people of all five meetings. So we have a lot of data at our use that we can actually deliver value to the customer without going back and training our model over the third-party. And I think that’s something that people tend to not — they worry about training the model, but that’s actually about delivering the better output, personalized or good output to the user. So hopefully that helps. It’s great.

Ryan Koontz

Hi. Ryan Koontz with Needham. Wanted to ask, Kelly, do you have any updated metrics you can share about moving up market and enterprise or any just general updated view of your perspective on that market, considering it’s more stable now and Microsoft is well entrenched obviously? Any thoughts would be helpful. Thank you.

Kelly Steckelberg

Yes. I mean, we are continuing to see new logos get added every day. I think I get this question often about how could you keep adding logos. Doesn’t everybody have the platform that they need? But that is certainly not the case, especially when you see all of the amazing value that we are continuing to bring and to drive ongoing differentiation. And of course, there’s always the love for our platform that is a key differentiator as well. And so we’re excited about the momentum that we’re seeing. As I mentioned, the key growth drivers for this year and into FY’25 are going to continue to really be Phone and Contact Center and then, again, supported by all of the amazing AI capabilities that you saw this morning. And then, of course, the future will come from some of the new product announcements that you saw this morning as well.

Ryan Koontz

Thanks.

Mahesh Ram

I also want to just say that all the conversations we have with customers, the employee experience part of what we added with Workvivo is resonating really well. I think all companies are struggling with this return to hybrid. And how do you keep people motivated, engaged? And how do you do it in a modern collaborative way? And so we’re excited about having Workvivo now available through the Zoom client soon, which will make it easy for companies to do that. So I think we’re — I think that’s a really interesting area. From a customer feedback perspective they really want that.

Tom McCallum

Great. Next question. Go ahead.

Unidentified Analyst

Hi. [indiscernible] here on behalf of Mark Murphy from JPMorgan. Mahesh, just double-clicking on the AI discussion. Could you maybe contextualize the decision to offer AI Companion at no additional cost relative to competitors who might be offering this at a premium pricing, given some of the ROI that you’ve heard in this initial cohort of customers? And then a quick follow-up would be the opportunity around Zoom Docs, why that felt like a good product extension and how you’re thinking about that opportunity longer term? Thank you.

Mahesh Ram

So I’ll take the first one and I may ask Kelly to comment on Team Chat. Eric said it so well, I think, on stage. When we talk to customers and this is a Zoom tradition, right? When you listen to the customers intently, you hear what they’re saying. And I think what we were hearing from customers was, if you make AI a premium offering, then I have to choose between the haves and the have-nots. And we see generative AI as being something that’s just part and parcel of everyday work and collaboration. And you see — if you have 20,000, 50,000 employee workforce company and you’re having to think about $30 a month, you’re making decisions that are probably not in the best interest of your business. And so I think from our perspective, we said we want to make Zoom the platform of choice. We want to make it as valuable to every employee as possible in every business. And I think when I first heard that Eric said that to me, I was like, what? And now is my initial reaction, but as you start talking to customers, there’s a collective sigh of relief. They don’t have to make — and the other thing I would just say is we haven’t said this before, but vendor consolidation, we have an opportunity to drive some of this. A lot of these companies are getting pitched with vendors, 20, 25 vendors who do point solutions, and there’s a lot of overhead and a lot of cost. And I think we have an opportunity to go in and say, hey, we can cover more of your needs across the business. So I think that’s the rationale and I think that it really is helping with customer adoption as well.

Kelly Steckelberg

And then I would say in terms of Zoom Docs, why, why are we going there now? It’s the continuation of listening to our customers and building on this vision of having Zoom be the platform where you spend your day. And if you all saw the demo this morning, like being able to go in there and not even have to screen share anymore, right? Like you’re in a meeting and you’re collaborating together, it really starts to not only build on that vision of bringing the platform together, but think about the true power of hybrid work. No matter where you are like how we used to be going up to an old-school whiteboard and writing on it or putting sticky notes like doing that in your meeting and having that be the way that you continue to collaborate with your team is going to be really, really powerful.

Pete Newton

This is Pete Newton from Barclays. Thank you guys for your time today. Just one like a sales strategy here. How do you plan to engage different buyer personas when selling those products like Contact Center and Docs who in the personas might be different than your general meetings or video customers?

Mahesh Ram

I think for Contact Center specifically, we’ll talk about — I think there is UCaaS and CCaaS convergence happening. I think the two buyers do talk to one another, and there is a lot of common infrastructure that powers both and there’s a need to have — you don’t want to have two systems that then you have to have — there’s a security overhead. There’s a management overhead, there’s procurement overhead. So I think there is a natural gravity to UCaaS and CCaaS coming together in Zoom platform. The other thing is something that’s very apparent is that when Contact Center customers think about Zoom in the Contact Center, they start with the presumption that people will not have trouble learning it. The agents are used to it. You heard that in the MLB story. And so I think there’s a natural affinity that gives Zoom an advantage because it’s easy to use and it lends itself to high-quality video communication audio et cetera. So I think from a persona perspective, they aren’t exactly the same buyer but they’re very closely aligned. They do talk to one another. They do speak to one another frequently. And I think employee experience is in that same boat. It’s very aligned to the thing. So it’s in line. It’s not a — it may not be the exact same person, but it all comes up to a similar buyer.

Kelly Steckelberg

Wendy, do you want to talk about that persona is online?

Wendy Bergh

For Online because we’re serving small businesses, small businesses often have very different needs than maybe an enterprise does. And so one of the things we’re starting to get more sophisticated on is how we really speak to those customers and really optimizing the end-to-end journey, that shopping funnel online for them. And so we’ve recently launched like dedicated landing pages for Phone that really speak to the small business user. We now have navigation on the homepage where a customer can come in and select what is their persona and one of them is small businesses. And they can go through and get that and we’ll continue to build that out. But it’s really exciting to see the engagement we’re getting and we also are going to be able to share small business examples and really show these customers how do you Zoom in a way that resonates with them.

Unidentified Analyst

Platform is much bigger today than it was a couple of years ago, just in terms of the amount of different applications you guys were rolling out today. So just everything on that road map could take you guys years. I mean, that could fill your road map for years just advancing those products. But you guys continually talk about M&A being a part of the strategy. You have Mahesh here as a part of that. So just how are you guys balancing how much you can do organically versus inorganically?

Kelly Steckelberg

Yes. This was the topic that Mahesh and I just had at lunch, actually. So obviously, M&A has been very helpful for us in the past. We have Solvvy. I’m going to be hosting a panel tomorrow with John Goulding, the Founder and CEO of Workvivo. So if you haven’t had a chance to hear from him, come and here from him tomorrow about the strategy around employee engagement and how Workvivo is central to that. But this is the discussion that Sanjay is here. We have all the time. And looking at both smaller trends — smaller tech tuck-ins that we’ve done, which have worked very, very well that have really accelerated our development into these areas as well as continuing to look at larger potentially transformative type M&A. And we think we’ve learned now, we kind of cut our teeth on some of these smaller ones and Mahesh can tell us but I think it’s gone pretty well so far. And so really looking at, okay, we could speed that up a little bit. We could do a few more of those as well as considering something larger. So just as a reminder, there’s three lens that we always look through. We look first for technology, wanting to make sure our customers really get something great from it. We look at culture as a really key indicator of the potential success of an integration of a company like that. And then we look at the valuation, and certainly, valuations have gotten a lot more attractive over the last year. And so we just continue to look and keep trying to find the right matches that are out there.

Pat Walravens

Hello. Great. Thanks. Pat Walravens from JMP. Hi, guys. Hi, Kelly. So two words, Kelly, how’s business?

Kelly Steckelberg

I should maybe let Wendy answer that question first.

Wendy Bergh

Well, I think, yes, you put me on the spot because I think we’re in a quiet period so we’re not really allowed to elaborate too much on how is business. So I can —

Kelly Steckelberg

Maybe say what you’re excited about.

Wendy Bergh

Okay. So I can talk a little bit about what I’m excited about. She did put me on the spot there. So I mentioned a few things earlier, but I’ll expand on that. We are spending a lot of time going through and optimizing and modernizing the shopping experience for the online customer. And if you go through that experience, you’ll see that the core areas like the pricing page, the billing portal and the checkout experience have all been fully revamped based on customer feedback, input. And that’s allowing us to drive higher conversions and ultimately more engagement with the customers. So we’re really excited about that. Some of the other areas that I’m excited about where we’re starting to evolve is just like on customer acquisition. We’re starting to do some new promotions and partnerships. We recently ran a promotion with Logitech, where a customer could come to Zoom, and if they bought an annual plan, they could get $100 back on the Logitech site, which is a really great value offer. And we know a lot of our customers need those types of products from Logitech. And we have recently started to partner with Walmart as part of their Walmart Business Plus offering. So if you’re a Walmart Business Plus customer, you can now get Zoom at a discount. And that’s a great offering for us because Walmart obviously has a lot of small business customers that are looking on how to grow their businesses. So these are areas where we’re driving new ways of acquisition in the Online business.

Kelly Steckelberg

Sorry, I didn’t mean to put you on the spot. I would say some of the themes in the direct segments, our continued expansion in Zoom Phone. I heard some great stories this morning about Contact Center expansion into Workforce Management as well as Quality Management, so those continue to be key themes, and lots and lots of excitement around AI Companion as you heard close to 30,000 companies that have adopted it so far. So just excited about the ongoing momentum in those areas.

Tom McCallum

Great. Anyone else have any questions? George Iwanyc.

George Iwanyc

George Iwanyc with Oppenheimer. Mahesh, maybe can you give us some perspective on, I think you talked about 2,500 plus integrations. What type of system ecosystem building are you putting in place to drive enterprise adoption and leverage the partnerships that you have?

Mahesh Ram

So I think you all probably heard Brendan talking about the partner ecosystem. I think we’re taking steps to make it easier for, I think, first of all, customer centric, right? The customers have a lot of things from Zoom and they like our platform and they want to extend and utilize more of that. They also have things that with trusted partnerships that — where they want to bring third-party things in. And we have, I think, taken some steps to make it easier for them to have that control. I think it’s the command and control of being able to say, okay, from my enterprise, I want to bless these applications and I want to make them available broadly to everybody. So from an ecosystem perspective, I think, we’re expanding our value to customers by giving them greater control about what they offer, both native and third-party. We’re also taking the extra steps of doing more to invest with the third parties to make it easier to interoperate with us within, but staying within the construct of what our governance and the privacy and security we do. And I think you saw that in the AI Companion. We’re very excited about the idea of companies have already made decisions about they may have a ticketing system or they may have some other systems that they use. We want to take AI Companion and say, you can call those third parties without leaving the Zoom client, without leaving AI Companion. You can ask it to summarize meetings and phone calls and other things, but you might have a search engine that you love and you might want to use that in the context of AI Companion. So I think that’s where we’re working hard to make that a reality. It’s not there today but it’s obviously something we talked about this morning as forthcoming. And I think when we start to embrace those things will make it easy for companies to make the choices they want to make. I think we move up the value chain for the companies. That’s the way and that’s what we’re hearing from them is they want to centralize around Zoom, but they’re not going to abandon other things that they like or that we don’t do well or that we don’t not do well, but that we don’t focus on, right? The area.

Kelly Steckelberg

Do you want to talk about Essential Apps?

Wendy Bergh

So earlier this year, we launched Essential Apps for the Online customers as part of our Zoom One Pro Biz and Biz Plus offerings. Essential Apps are 10 apps that ultimately help small businesses and prosumers grow their businesses and have better experiences overall. Some of the Essential Apps we have in there are Warmly, which does like virtual name cards. We have Kahoot and Funtivity, which are about interactive games that build team bonding. And we have Sesh, which gives virtual agendas and helps manage the meeting. So all of these apps are essentially free to the online customers for the first year. And so they’re basically getting what would normally be the paid offering for free for the first year, and then they can decide at the end of the first year whether they want to upgrade or not. And we’ve seen a lot of engagement with our Essential Apps and we’re excited to see that because it helps customers get better value and ultimately have better meetings and experiences through the platform.

Will Power

Will Power with Baird. I’ll try one more. Major League Baseball, it seems like an exciting opportunity. Obviously, been a key customer. And it sounds like it’s a perfect example of the ecosystem strength, whether phone, video, Zoom events, et cetera. I guess on the Contact Center side, where are you in that journey? I mean, have you fully displaced whoever they were using before? Are you part of their Contact Center stack? What else do you need to do there — so if you probably Kelly or Mahesh, if you know the answer to that. And how do you replicate that elsewhere, right, I mean, once you’ve demonstrated that capability?

Kelly Steckelberg

So my understanding and we should probably confirm this, but there is no other contact center solution being used in MLB today. And they actually use the Contact Center technology for the replays. What you saw what they were demoing up there today, that’s actually the Contact Center technology. And in terms of how to replicate that, first of all, it’s just great having it as a case study, then you heard him talk about it today, how excited they are. And then just continuing to expand on those features as well as the products around Workforce Management those are — the integrations around Contact Center are really a key part of the solution future as well future road map.

Mahesh Ram

The only other thing I’d say is that we’re also supporting integrations in a robust way. So if customers already have a Quality Management or a Workforce Management solution they like, I think, we’re getting better and better at partnering and meeting the customer where they are and that’s helping as well. I think that’s a necessary even if we might have a capability that’s fairly new but somebody may have already invested in something else, we can cooperate. An example of that would be Zoom Virtual Agent, where the customer doesn’t want to buy Zoom Contact Center, they may have another Contact Center. They can actually have Zoom Virtual Agent interoperate with any CRM or any — with all the major CRMs and all the major Contact Center players. So that’s an example.

Siti Panigrahi

Siti Panigrahi from Mizuho. I have a quick follow-up to your comments and a question for Kelly. So on the 30,000, you say, AI customer Companion, what kind of is this mostly on the small side, small, mid-market enterprise? Can you also give us like, are you seeing more repeat customer or trying any kind of experience that you had that would be great.

Mahesh Ram

I don’t think we’re breaking down the numbers specifically here, but I can tell you there’s a lot of very large customers that are adopting, that are turning it on. And I think we’ve made it easy for them to do that by removing the data concerns of any sort and the pricing they paid included. So we’re seeing adoption across the board. And I don’t think it’s specific to SMB or small customers. It is large companies. In fact I think we’re meeting with several of the customers here at the executive business meetings we have. And many of them have said, it’s amazing to watch how far you’ve come in the last four or five months of them using it and testing it. So we’re going to turn it on for everybody next week or next month and that’s a good thing to hear.

Siti Panigrahi

And Kelly, a macro question. What are you seeing within your customer base? Are you seeing them investing more? Do they have appetite for all these new products coming in? Any kind of color would be helpful.

Kelly Steckelberg

Yes. I would say customers are still being very thoughtful about their investments in the ROI around them. We’re still seeing the key themes you’ve heard for the last couple of quarters, elongated sales cycles. Certainly, there has been a very positive response to AI Companion and people are really, really excited about that. And that comes up, I think, really front and center, especially in renewal discussions and thinking about the future of the platform and the key role that it’s going to play in these organizations and how AI Companion really contributes to that.

Michael Turrin

Thanks for taking an additional question. Mahesh, you mentioned earlier consolidation and that kind of ties into the ROI and this careful decision-making. And so I’m wondering if you can give any examples or anecdotes around areas where we’re obviously all very well versed in the meetings capabilities, but where the ROI, the natural adjacencies are and if there are kind of examples to tease out there.

Kelly Steckelberg

In terms of could be like vendor consolidation?

Michael Turrin

Yes, yes, exactly.

Mahesh Ram

I mentioned the UCaaS, CCaaS one. I think that’s an interesting one. I think many of the customers who are happy Zoom customers on the collaboration side naturally bring us over in a very warm way to the Contact Center side, and we start — sometimes the use cases are smaller. They’re the internal use cases, but then you quickly get the right to win the larger business. And I think that’s a natural one. There’s also a number of areas. I’ll give you the example of a product that I oversee, Zoom Revenue Accelerator, which is a conversational intelligence for sales, right? And so that’s a market that’s been around for the last seven, 10 years has grown. But all — most of the players have been third-party — third parties who sit in on Zoom meetings. And if you think about salespeople, they’re probably the most happy Zoom customers. They won’t even use other things. And so we have the opportunity with Zoom Revenue Accelerator and say, hey, you have our native meetings platform. Why don’t you have our native revenue conversation intelligence product with it? Why would you spend money? The data is in two places, two vendors, AIs and two different AI models doesn’t make sense. So I think that — those are two examples is that among many.

Tom McCallum

Anyone else?

Peter Levine

Maybe just a follow-up to Will’s question is, Kelly, can you share with us the largest Contact Center customer you have in terms of seats? And then maybe what the average is? And then to Will’s question was how many of those 500 customers, I think you last disclosed, are purely using Zoom Contact Center and not a competitor, meaning they’re running you, not alongside someone else?

Kelly Steckelberg

So the largest customer that we have to date is the one that we talked about, I think, two calls ago that purchased 2,000 seats out of the gate. They have now expanded and almost doubled in the process of getting up to 4,000 seats. So that’s the largest deployment that’s sitting out there today. And then in terms of where we are on sort of the — supporting every aspect, I think we’re — it’s a process, right? Contact Center implementations take a little bit longer. And these customers are in various stages of internal versus external. So I actually don’t know exactly off the top of my head how many of them are, but I would say it’s going to be varied depending on the customer and what the application is and how they’re rolling it out.

Peter Levine

And then on the AI side for Contact Center, your competitors are charged, called like a three to four times ARPU. Are you changing your pricing model for Virtual Agents for Contact Center?

Kelly Steckelberg

No, no. So neither our seat — I get this question a lot about Contact Center like is this the starter price, if you will, and then it’s going to go up as we continue to add features functionality? And that has never been our approach across you look at any of our products. That’s not how we’ve done it. And so no, there’s no direct current plans to change the price on Contact Center or in Virtual Agent.

Matthew VanVliet

Great. Thanks. I guess when you’re rolling out, whether it’s Workforce Management or Quality Management, are you typically going in and replacing something that’s already in place whether that’s a Verint or NICE whomever? Or is this oftentimes the first foray and for a customer getting a little more mature and sort of what are you bringing to the table that maybe is differentiated from those other existing platforms?

Mahesh Ram

Sure. I think for Workforce Management, we’re talking about a very established market space and many of the leading players are good partners of ours and they work at the enterprise level and they’re trusted by the customer and they’re happy with it, and they want our Zoom Contact Center to interoperate with that. And I think we’re very much being strong partners to the likes of Verint. At the same time, I think there is a segment of the market that perhaps that much complexity, if you will, is not necessary right now. And so we do see an entry point with a customer base. But we iterate very fast here at Zoom, as you know. And so I think we’re able to handle more and more complex cases. But I think we’re not necessarily competing with our partners directly. We’re giving customers choice but sometimes they want something that Verint will give them that we are not doing today.

Arjun Bhatia

Hey Arjun Batia from William Blair. If we’re going back to Docs for a little bit, I know it’s not GA at this point. But when you think about the rollout, where do you anticipate some of the greatest attach to be early on? Is there an enterprise SMB play? And then is there an opportunity for that in the Contact Center as well with something like maybe a lightweight knowledge base or something along those lines?

Kelly Steckelberg

Yes. So I think this is a product suite that will very nicely fit across all aspects, I think starting on Online all the way up to the largest enterprises. It’s something that will — every individual worker that’s using Zoom will have an opportunity to have a need for this. So I think looking forward to, I mean, we’re obviously very early since it’s not even GA, but I think it will see the attach rate across all aspects of our customer base.

Mahesh Ram

And I think Contact Center, I think there are many use cases where that can be of great value. I think when you think about the example we showed in the demo of being able to use AI to compose the Doc, I just want to make a point. This is — we had the opportunity to build a truly AI-first document with Docs, right, Document capability or wiki collaboration capability. And I think we have a lot of opportunities with that alongside our AI Companion. I think they’re very complementary. So in the Contact Center, absolutely, there are use cases just as there are in sales and just as there are in regular knowledge worker applications.

Meta Marshall

Meta Marshall from Morgan Stanley. I mean, you talked about Contact Center implementations taking longer. Typically, a channel partner will do that. I guess as we look forward to Contact Center gaining adoption, is the long pull of the tent building out the channel? Or is it some of these feature parity kind of, not feature parity, but kind of advancing some of the scalable

Mahesh Ram

I mean, we are really committing to doing well with the channel. And I think we’re spending a lot of time educating them, informing them, helping them be successful and we’re starting to see the benefits of that. As you know, with channel partners, there is time — it takes time to get them up to speed and to do everything to tell the story and to understand the products. But I think they’re feeling very good about it. I think there was a set of briefings that we did for our partners in Contact Center in the last quarter in different locations and the feedback was very, very positive. So it is an area of focus and it is an area that we know we have to be quite good at.

Kelly Steckelberg

Yes. Partner Connect is running also here, so if you are mingling around over at Zoomtopia, please take the opportunity to meet some of our partners. You can ask them directly.

Tom McCallum

Great. Any other questions in the room here?

Kelly Steckelberg

Do we have any online?

Tom McCallum

Yes. We do have one online. I think we’ve answered a part of it and various — so this is an opportunity, I think, to kind of summarize. The question was that our AI strategy versus Microsoft’s. And it came in a little bit more like a speeds and feeds kind of question. But clearly, we have a different strategy, a different pricing. So maybe just sort of talk about at a high level just to kind of summarize why we feel our AI solution is better than the competitors.

Mahesh Ram

I think, ultimately, customers make the decision about what’s best. I think our focus is. And honestly, this is not just lip service like we really, really listen to what customers are telling us and we’re iterating so fast on it. What customers tell us and what they’re happy and almost 30,000 have implemented. So we have a lot of — we have a pretty good test — group feedback group is they really like the fact that it’s easy to use that there’s — it’s included with the paid license. The data concerns go away. They don’t have to get their legal team involved for extensive conversations because they know they’ve taken that out. But I think what — and that’s all great. That’s the reason for us to be there. But the real reason they keep it is quality. And I think when you look at — we had people to tell us this week that I missed a meeting and the meeting summary was so good that I felt like I was in the meeting. Or I joined the meeting late and I asked the question, what did Kelly say about that and gave me the right answer, so I could catch up. I think we focus on how do we make that the highest quality, number one. So I gave you point solutions there, right, in the meeting, in the thing. Now take that forward and say, summarize the last three meetings that Kelly and I have had and give me a suggested agenda for the next one, put it in chat and share it with Wendy and ask her for feedback. You start to think about that as a connective tissue across, I think, we can do that in a way that is Zoom — that’s what Zoom does well. It just works. It’s easy. It’s easy to implement, it’s easy to use. And I think as long as we stay focused on that, the quality is high. the ease of use is very good. And we’re listening constantly and improving. I think to me, that’s the best way we can compete and win is focusing on those three things. But we do benchmark. We benchmark everything and we’re always testing every feature, everything, every day.

Tom McCallum

Any final remarks?

Kelly Steckelberg

Okay. Well, first of all, thank you all so much for coming today. I would encourage you, if you haven’t already, go walk around the expo hall, go talk to some customers, go talk to some partners. It’s a great opportunity. We’re all here together. And so for you to learn as much as you can around all the new products and features and what our customers are saying. So thank you all for coming.

Tom McCallum

And thank you, Wendy and Mahesh for coming as well. We don’t normally roll folks out, but we did today and I think it was really helpful for all of you. And thank you, everybody, for coming. I know you have other things to do, you’re busy people, and we really appreciate your time. Thanks.