Zoom ZM Q1 2022 Earnings Call Transcript

Matt: (00:00) Hello, everyone, and welcome to Zoom's First Quarter of Fiscal Year 2022 Earnings Release. I'd like to remind everyone that this call is being recorded. At this time, I'd like to turn it over to Tom McCallum, Head of Investor Relations. Tom McCallum: (00:12) Thank you, Matt. Hello, everyone, and welcome to Zoom's earnings video webinar for the First Quarter of Fiscal 2022. Joining me today will be Zoom's Founder and CEO, Eric Yuan, and Zoom CFO Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be download it from the Investor Relations page at investors.zoom.com. Also, on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that along with our earnings press release include a reconciliation of gap to non-gap financial results. During this call, we will make four looking statements, including statements regarding our financial outlook for the second quarter and the full fiscal year of 2022. It assumes growth strategy, business aspirations to lead the evolution to hybrid work, and the continued impact of the COVID-19 pandemic on our business. Tom McCallum: (01:06) These statements are only predictions that are based on what we believe today and actual results may differ materially. These four looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10K as well as the current report on Form 8K we file with the SEC today. Zoom assumes no obligation to update any forward looking statements that we may make on today's webinar. And with that, let me turn it over to Eric. Eric Yuan: (01:39) Thank you, Tom. And welcome everyone joining us on today's webinar. I want to start by thanking our customers for their commitment and trust in Zoom, which drew a strong start to our fiscal year with revenue growing 191% year over year as well as strong profitability and a free cashflow. I also wanted to recognize our more than 5,000 employees. Their dedication to our customers' happiness is an incredible advantage and creates a positive feedback loop that keeps our customers coming back and our employees eager to meet the world's needs. Our ability to help our customers by increasing their productivity, promoting their employee happiness, and their connections to each other and reducing their travel related carbon footprint gives our work a greater meaning and makes Zoom a greater place for work. Our company culture is strong and we are more motivated than ever. Eric Yuan: (02:57) Let me also thank all of our investors for your trust and support. We're very grateful to our employees, our customers, partners, and our investors. Thank you. As parts of the world reopen, a few things are clear. First, many customers I talk to are looking to create hybrid solutions [inaudible 00:03:24] cautiously reopen some offices. And second, each industry, company, and individual varies in their optimal working model. Zoom is here to help each customer calibrate their future work model in their own way. Many companies are redesigning the workplace to enhance the hybrid work experience. So to meet this need, we announced Zoom Rooms features such as Smarter Gallery, which puts Zoom and [inaudible 00:04:05] participant accounting and environmental sensors. We have begun to deliver our platform strategy. In February, we launched our video SDK. In April, we announced our $100 million Zoom Apps Fund to further build our app ecosystem. Zoom apps is designed to enable users to bring their favorite of the apps directly into the Zoom experience in a way that inspires collaboration, boosts the efficiency, creates healthier habits, and generates much more fun. Eric Yuan: (04:44) We will also launch Zoom Events, our events platform, which will be focused on our enterprise customers and [inaudible 00:04:54] use cases. In a recent survey we conducted, 80% of U.S. respondents agreed that all interactions will continue to have a virtual element post the pandemic. And of that figure was even higher in many of the other markets we surveyed. The hybrid model is here to stay and Zoom Events will be an excellent solution for our customers who are looking to create and host the company events with a versatile and powerful solution. We are very happy to announce that we've closed our largest deal ever in terms of ARR, with a leading global financial services [inaudible 00:05:39] Zoom meetings to deploy for over 90,000 hosts. That is only one of the larger deals we closed that this quarter. Let me recognize three more industry leading companies that have increased their commitment to Zoom. Eric Yuan: (05:58) First, I want to thank Kimberly Clark, who's [inaudible 00:06:04] are an indispensable part of life for people in more than 175 countries for expanding their relationship with Zoom by adding approximately 25,000 Zoom licenses. As an existing Zoom Meetings and video webinar customer, Kimberly Clark saw that same reliability, value, and the innovation in Zoom Phone. I also wanted to recognize our partner British Telecom for advocating for Zoom in the decision making process at Kimberly Clark. Next, thank you Target Corporation, which the survey says [inaudible 00:06:47] at more than 1,900 stores and online at target.com with a mission to help families discover the joy of everyday life for their commitment to Zoom. We're very excited to have Target take their communications initiatives to the next level by expanding their Zoom platform solutions while unifying their internal and external communications on our technology. Eric Yuan: (07:17) As a long standing Zoom Meetings customer, we truly appreciate their trust and picking Zoom as a platform and partner. And finally, I want to thank Datsun, Japan's largest and the world's second largest automotive parts company and a leading company in the [Tuta 00:07:40] group. They first joined the Zoom family last year when last quarter they decided to significantly expanded their usage of Zoom Meetings and Zoom video webinars for internal and external communications. Zoom now connects 47,000 employees across offices, factories, and homes. [inaudible 00:08:07] the introduction of Zoom has contributed greatly to our ability to create a work environment that drives faster is in the making. Kimberly Clark, Target, and Datsun, thank you. I love you. Eric Yuan: (08:26) We are off to a great start in fiscal 2022. I look forward to updating you on our hybrid workspace on a platform evolution throughout the year at Zoom Topia, which will be held on September 13th and 14th in a virtual format. Before handing it over to Kelly, I want to share a quick opposite. As you know, demand for Zoom Phone has been amazing and I'm very excited to announce of a new device category, the Zoom Phone Appliance. I've invited Graham to tell you more. Thank you. Graham Geddes: (09:09) Hi, everyone. I'm Graham Geddes. I'm the Head of Zoom Phone and Zoom Rooms and I'm excited to be joining the call today from, you guessed it, my Zoom Phone Appliance. Our new Zoom Phone Appliances allow our customers to take advantage of the powerful audio and video capabilities of Zoom and they're a great solution for touchdown spaces, huddle rooms, and executive offices alike. We also can't wait to see some of the vertical applications that our customers come up with for this new category as well. And while I'm here, I've got some exciting news to share. I think I'll use the white boarding feature of this device. So at the end of December, we announced reaching one million seats of Zoom Phone sold. Well, that momentum continues, and I'm excited to announce that we have now surpassed 1.5 million seats of Zoom Phones sold as of the end of September. It's been absolutely amazing to see the growth continue to accelerate. Thank you for allowing me to join you today, and now I'll turn it over to Kelly. Kelly Steckelberg: (10:16) Thank you, Graham, and thanks to you and your team for your hard work and for that amazing accomplishment. Hello, everybody. Our impressive growth story continued in Q1. As you can see, we continue to win awards and third party recognition for our strong security focus, empowering company culture, and lasting impact on society. Thank you to all of our amazing customers and employees who made these accolades possible. In Q1, the year over year growth of total revenue remain strong at 191%, reaching $956 million. This top line result exceeded the high end of our guidance of $905 million due to strong sales and marketing execution led by our direct and channel businesses, as well as lower than expected churn. Demand was widespread across products, industry verticals, geographies, new logos, and customer cohorts. Kelly Steckelberg: (11:23) It's also worth noting that our fiscal 2020 results have shifted our renewal seasonality, which is now more weighted for at the beginning of the year. To illustrate, we saw approximately four times more deals up for renewal in Q1 of FY22 as compared to Q1 of last year. Our renewals, sales, and online marketing team really outperformed in securing renewal and the success is a testament to their hard work and our product's strong and lasting value proposition. The year over year growth in revenue for the quarter was driven by a healthy mix between new and existing customers where new customers accounted for approximately 57% of the incremental revenue and existing customers accounted for 43% of the incremental revenue. This trend towards existing customers was expected considering the tremendous growth in our base last year. Let's take a look at the key customer metrics for the quarter. We saw growth in the upmarket as we ended the quarter with 1,999 customers generating more than $ 100,000 in trailing 12 months revenue. Kelly Steckelberg: (12:37) We exited the quarter with approximately 497,000 customers with more than 10 employees, adding approximately 30,000 customers during the quarter. In Q1, customers with more than 10 employees represented approximately 63% of revenue. We also continue to benefit from solid growth in our segment of customers with 10 or fewer employees. In Q1, customers with 10 or fewer employees represented approximately 37% of revenue up from 30% in Q1 last year and stable quarter over quarter. Our net dollar expansion rate for customers with more than 10 employees exceeded 130% for the 12th consecutive quarter as customers acquired more Zoom Meeting, Rooms, webinars, and phone products. For this customer subset, we expect the net dollar expansion rate to remain above 130% for the next week quarters. For customers with 10 or fewer employees, which are not included in this net dollar expansion metric, we expect that cohort to be lower than FY21 and more volatile as economies continue to reopen. Kelly Steckelberg: (13:52) Both domestic and international markets had strong growth during the quarter. Our America's revenue grew 159% year over year. Our combined APEC and [AMIA revenue 00:14:02] grew 288% year over year to be approximately 34% of revenue, up from 25% a year ago. In recent quarters, we've made significant investments in our international teams, which have already begun to pay dividends. The global opportunity remains large and we'll continue to empower our team to capitalize on it. Now turning to profitability, the increase in demand and strong execution drove net income profitability from both gap and non-gap perspectives. I will focus on our non-gap results, which exclude stock-based compensation expense and associated payroll taxes, charitable donation of common stock, acquisition related expenses, and net litigation expenses. The non-gap gross margin in the first quarter was 73.9% compared to 69.4% in Q1 last year and 71.3% in Q4. Kelly Steckelberg: (15:04) The sequential improvement in gross margin is mainly due to optimization of public cloud resources. We expect gross margin to remain relatively stable in the low 70s as long as we continue to support free K through 12 education. Research and development expense grew by 97% year over year to approximately $41 million. As a percentage of total revenue, R&D expense was approximately 4.3%, which is lower than in Q1 of last year mainly due to the strong top line growth. However, on a quarter over quarter basis, expenses grew by 33%, demonstrating our commitment to building out our engineering teams globally and maintaining best in class product and innovation. Sales and marketing expense grew by 84% year over year to $191 million. This reflects an additional $87 million over last year, primarily due to investments in hiring to drive future growth. Sales and marketing expense was approximately 20% of total revenue, a decrease from Q1 of last year, mainly due to strong top line growth. Kelly Steckelberg: (16:18) We plan to continue to invest in adding global sales capacity and brand and product marketing programs in order to capitalize on our growing leadership position and growth initiatives. D&A expense in the quarter grew by 51% to $73 million as we continued to scale these functions and invest in systems, automation, and compliance to meet our new scale. D&A expense was approximately 7.7% of total revenue, a decrease from Q1 of last year. Revenue upside in the quarter carried through to the bottom line with non-gap operating income of $401 million, exceeding our guidance. This translates to a 41.9% non-gap operating margin for Q1, a large improvement from 16.6% in Q1 last year, and a slight improvement from 40.9% in Q4. Non-gap diluted earnings per share in Q1 was $1.32 on approximately 305 million non-gap weighted average shares outstanding. This result is 35 cents above the high end of our guidance and $1.12 about Q1 of last year. Kelly Steckelberg: (17:39) Turning to the balance sheet. Deferred revenue at the end of the period was $1.1 billion, up 98% year over year from $552 million. Looking at both, our billed and unbilled contracts, our RPO, total approximately $2.1 billion, up 94% year over year from $1.1 billion. We expect to recognize approximately- Kelly Steckelberg: (18:03) ... $0.1 billion. We expect to recognize approximately 72% of the total RPO as revenue over the next 12 months, consistent with the level of this metric last year. Kelly Steckelberg: (18:13) It's important to remember that deferred revenue and RPO trends are not reliable predictors of future revenue growth due to the large percent of monthly billings in our customer base. In addition, the timing of our renewals has increasingly shifted to the beginning of the fiscal year, with Q1 now representing our largest renewal quarter. We expect sequential increases in deferred revenue and RPO in each of the remaining quarters to be lower, as our available population of annual renewals is smaller. Kelly Steckelberg: (18:45) We ended the quarter with approximately $4.7 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. We had exceptional operating cashflow in the quarter of $533 million, up from $259 million in Q1 of last year. Free cashflow was $454 million, up from $252 million in Q1 of last year. The increase is primarily attributable to strong sales execution and collections. Kelly Steckelberg: (19:18) Looking at the rest of the fiscal year, we expect to increase our capital expenditures related to ongoing data center expansion to support our growth outlook. We also expect a legal settlement, which will be disclosed in our 10Q, to be a cash outflow in late FY22. Kelly Steckelberg: (19:37) Now, turning to guidance. We are pleased to raise our outlook for Q2 FY22 and the full fiscal year. Please note that the impact and extent of the global pandemic still remain largely unknown. Our outlook is based on our current assessment of the business environment, as well as our own research and conversations with customers. For the second quarter of FYI 22, we expect revenue to be in the range of $985 to $990 million. We expect non-GAAP operating income to be in the range of $355 to $360 million. Our outlook for non-GAAP earnings per share is $1.14 To $1.15, based on approximately 311 million shares outstanding. Kelly Steckelberg: (20:29) For the full year of FY22, we expect revenue to be in the range of $3.975 to $3.99 billion, which would represent approximately 50% year-over-year growth. We expect non-GAAP operating income to be in the range of approximately $1.425 to $1.44 billion, which would represent approximately 45% to 46% year over year growth. Our outlook for the non-GAAP earnings per share is $4.56 to $4.61, based on approximately 311 million shares outstanding. Kelly Steckelberg: (21:06) Before concluding, I am happy to highlight that we recently launched our ESG website, which can be found on our investor relations and corporate websites. We also recently published our social impact report, which can be found on our ZoomCare's website. Giving back to the community has always been a key tenant of what we do at Zoom. We look forward to updating our investors as we continue along our ESG journey. As always, Zoom is grateful to be a driving force, enabling connection and collaboration worldwide with our high quality, frictionless, and secure communications platform. Kelly Steckelberg: (21:44) Thank you to the entire team, our customers, our community, and our investors. If you have not yet enabled your video, please do so now for the interactive portion of this meeting. Matt, please queue up our first question. Matt: (21:59) Our first question is from Ittai Kidron with Oppenheimer. Eric Yuan: (22:12) Ittai, so sorry [crosstalk 00:22:14] Ittai Kidron: (22:14) Okay. Milestone today announced one and a half million. I'm trying to think of the past, I think you launched phone's in early 2019, so it took, I guess, a couple of years to get to a million and then five months to add another half a million. Although at the beginning you didn't have the global availability as you had, and plus you weren't pushing as hard, at least at the beginning from a sales standpoint. Ittai Kidron: (22:40) So help me think about what is the pace of addition, Kelly, should we peg this to about a hundred thousand per month edition? Is that ... Sounds like the more recent track record here, and maybe also you can talk about the success of Zoom United, your ability to bundle meetings, phone, and chat, together. How much of your renewal activity comes in United right now, versus maybe a quarter or two ago? How successful are you in that effort? Kelly Steckelberg: (23:10) So we're really excited about the momentum of Zoom Phone and it was great to have Graham as a guest star today on our call. And what I think you're seeing and what you're gathering, Ittai, is that there's definitely increased momentum happening there. So it took us seven quarters to get to that million dollar ... I mean that million seats level. And then yes, that was in December. So it's taken us about five months to add an additional 500,000 seats to that number. So it doesn't happen exactly equally each of those months. As you can imagine, there are trends at the end of the quarter. But we absolutely are seeing an acceleration in the momentum there and I'm very excited about it. Ittai Kidron: (23:56) And with respect to the United pans, how much of your renewal activity comes into this type of a bundle form? Kelly Steckelberg: (24:04) Yeah. So absolutely, our salespeople take the opportunity, when there's renewal, to talk about cross-selling and upselling. In terms of the specific packages themselves, we aren't going to disclose the actual breakout of that. But a lot of what you saw disclosed in the revenue coming from new customers is the opportunity that they saw to upsell either Zoom Phone or webinars or rooms as people are thinking about going back into the office spaces again. Ittai Kidron: (24:29) That's great. Thanks guys. Good luck. Eric Yuan: (24:32) Just to quickly add on to what did Kelly say, when it comes to Zoom phone calls, what's fascinating is that it's about our product innovation, reliability, security, availability, all the very cool features, there are so many customers, no matter which solution they deployed, before in the on-prem or other cloud-based [inaudible 00:24:52] solutions, they all like Zoom solutions. Matt: (24:56) Right. Very good. Thanks. Eric Yuan: (24:57) Thank you. Matt: (24:59) Our next question is from Dan Bartus with Bank of America. Dan Bartus: (25:10) There we go. Hi guys. Kelly Steckelberg: (25:12) Hi Dan. Dan Bartus: (25:13) Great to see you. Thanks for taking my question. So Kelly, you had modeled heightened churn in the first half of this year related to renewals coming up. Based on what you're seeing, what's the reality? Do upmarket renewals really mean heightened churn or is it showing more of an enhanced expansion opportunity versus what you expected? And maybe just continuing with the churn theme on the other side of the business, the 1 to 10 employee base, I'm just curious, what's the latest of what you're seeing in the second half of this year? Any reason to be more optimistic than when you started this year? Thanks. Kelly Steckelberg: (25:49) So we were really pleased, and as I said, great thanks to all of our renewals and sales and online marketing teams for their great work done in Q1, as we had a better-than-expected result in terms of not only retaining customers, but also upselling them during Q1, especially in that cohort of customers with greater than 10 employees. So that's really exciting to see as ... We expect that momentum to continue as we carry through the year, as we significant renewables also coming up in Q2, as well. Kelly Steckelberg: (26:23) In terms of the customer segment with fewer than 10 employees, as we mentioned in the prepared remarks, we're still expecting that to be more volatile as that's a segment that we've seen over the last 15 months has reacted more quickly to the openings and potential closings of markets around the globe. Dan Bartus: (26:45) Great. Thanks guys. Eric Yuan: (26:48) Thank you Dan. Matt: (26:52) Our next question is from Alex Zukin with Wolfe Research. Alex Zukin: (26:57) Hey guys. Thanks for taking my question and congrats on another great report. I guess my first, for Kelly, and then I've got a quick one for you, Eric. Kelly, the unending debate on the stock, I believe, is that what does growth look like in 2022? And I know that you're not going to guide there now, and we understand that term is an unknown factor. But can you help us better understand the trend that you do have control over today? Specifically, how much are you increased your quote-carrying capacity relative to pre-pandemic levels? What are you seeing out of the productivity of the sales organization relative to pre-pandemic, and what's driving that productivity today? Kelly Steckelberg: (27:33) Yeah. So first of all, continue to see tremendous opportunity. We were thrilled with the performance in the up market in Q1. As Eric just talked about, we had our largest deal today and we had some amazing customer wins. And so we are continuing to invest in our direct and our channel sales organizations, especially. And we've seen pretty consistent sales productivity. It's going back to levels that are more reflective of pre-pandemic, but at an elevated level from there, given the benefit we have of the global brand awareness, our expanded portfolio of products. And so we're really excited about the future, especially in that upmarket and international, as well. As you've heard, they are 34% of revenue. And then of course we look to Zoom Phone and the continuing momentum that we're seeing there. Alex Zukin: (28:30) And then Eric, the return to office is on everyone's mind. Looking at some recent articles, I think it's on your mind as well. With that, it will be logical to think about Zoom Rooms as really starting to become a material growth driver in this new and developing hybrid world. Can you talk about what you're seeing from that product today? How do you think about the opportunity in terms of just the sheer number of conference rooms that are out there and what are your most forward-thinking clients doing today and how's that impacting the spend relative to ... That you're seeing? Eric Yuan: (29:02) Yeah. Alex, that's a great question. First of all, I want to say I'm a fan of you because of your weekly update, [inaudible 00:29:09] and daily update about what's going on on SAS market. Very well done, Alex. Thank you. Eric Yuan: (29:14) I think when it comes to Zoom Rooms, that's a huge opportunity, in particular for every business when they are reopening their office. Because the way to set up a Zoom Rooms, or the electronic rooms, are very different. They like admission early, we have a smaller gallery view, which includes in Zoom or distant, and remote participant on equal footing. That kind of experience, I didn't not see requested before. But in the future, more and more like that. A lot of innovation on a Zoom Rooms. I would say this probably the third revenue driver in terms of usage and lots of new use cases. Eric Yuan: (29:51) Also, what's more important is that when it comes through the account room of Zoom Room set up, the customer would like a consistent experience. Maybe when they back at home, because the future is about a hybrid, when they are working from home, they also want to have a consistent experience. That's another reason why customer not only do they deploy the desk of a Zoom meeting or webinar or phone, but also they like account room experience as well. But so that's another driver for our customers to spend less on Zoom, via phone, for meetings, for webinars, or the phone. Again, a lot of innovation in the pipeline for the Zoom Rooms. Alex Zukin: (30:29) Thank you guys. I appreciate the compliments. Eric Yuan: (30:32) Thanks Alex. Kelly Steckelberg: (30:32) Thanks Alex. Matt: (30:34) Our next question is from Patrick Walravens with JMP Securities. Kelly Steckelberg: (30:39) Hi Pat. Matt: (30:39) He's joining through audio only. Patrick, are you there? You can press star six to unmute yourself. Patrick Walravens: (30:51) Hi. Sorry. In the car, you don't want to see that. Eric, I would love to hear what your ... if there's three strategic imperatives that you have for this year, I'd love to hear what you think they are. Eric Yuan: (31:05) Yeah. So Patrick, yeah. Drive safely. Yeah, we like [crosstalk 00:31:09]. Patrick Walravens: (31:09) I'm driving very safely. Eric Yuan: (31:09) Thank you. I think I want to share with you my personal priority, I will share with the company in the [inaudible 00:31:19]. So I share with our team, when we started the year, for me, I think three top priorities for me as the CEO. Number one is really make sure focus on our company culture, maintain the company culture, evolve the company culture, because you have so many employees coming on board remotely. Eric Yuan: (31:38) Number two is double down my time on the platform, on the platform, platform. It's not only a killer video conference that every company, not only a killer video-phone business, but also the overall platform. Lots is on the list of some of the very big, large, and strategic deals. That's more like on my personal part. If you look at it, Zoom from a [inaudible 00:32:00] perspective, first of all, I think how to make sure support all those businesses reopen and reenter the offices. That's very, very important. That's why you see a lot of innovations around that angle. Either the conference room, or the phone, in building and chat, or meetings, that's number one in the initiatives. Eric Yuan: (32:21) Number two is really about the international market expansion. That's a huge opportunity from 25% to more than 30%, as in we do see a lot opportunities from other EMEA, APAC, Japan, a lot of opportunities. We're going to invest more. That's the second seat thing. Eric Yuan: (32:40) Last but not least is overall how to make sure our platform strategy works. How do double down on a platform to invite our Zoom events, Zoom apps, and user platform, and also our SPK business, I assume that you know, essentially that will set us up for the future goals if we can invest more to our platform. Patrick Walravens: (33:04) That's super helpful. Thank you so much. Eric Yuan: (33:07) Thank you, Patrick. Matt: (33:10) Next. We have Sterling Auty with JP Morgan. Sterling Auty: (33:15) Yeah. Thanks. Hi guys. Great to see you. I love the Zoom Pride logo. So first just wanted to start out with you added about 74 million in revenue quarter over quarter this quarter, and about 30,000 customers. If I look at that same addition last quarter, it actually mathematically points to the average new customer being smaller this quarter than what we saw last quarter. Is that what you're seeing in the business or is there something else going on underneath those metrics? Kelly Steckelberg: (33:50) I think that it actually depends on when it is in the order in terms of the renewals. So think about, especially Q1 has this very weird timing from last year, where all of those ... The real dramatic change in the business happened on March 15th, so literally halfway through the business. So we don't have the full benefit of all of those renewals yet in this quarter. You're going to see it coming in next quarter. And unfortunately, Q1 is always going to have that funny phenomenon because most people co-term with their original date, which was sometime after March 15th, in last year. Sterling Auty: (34:32) Gotcha. Kelly Steckelberg: (34:34) [crosstalk 00:34:34] Eric Yuan: (34:34) Also, so I'd like to add a little bit more. If you look at Q1 or Q2 last fiscal year, in terms of revenue growth, driven by a lot of online buyers, I presume a consumer SMB business. Starting Q1, we do see, driven by large customers, enterprise customers, also with Zoom Phone as well. We closed our largest ever deal. This is a very good sign. I think that's a future trend, driven by our business customers. Sterling Auty: (35:02) That makes sense. And then maybe one quick follow-up, can you give us an update on your plans and where you are to monetize OnZoom and Zoom events? Eric Yuan: (35:13) Yeah. So OnZoom has two parts. One is about the corporate events, another one is about consumer or prosumer events. I think our plan is to launch our corporate event first. Essentially, we have so many webinar customers. They are looking for a lot of new innovations. Essentially, they can run their annual user conference, everything online. That's why we adopt it on all of our events platform. I think we're going to focus on the corporate event first. And then later this year, we also want probably to be [inaudible 00:35:44] our consumer events. Essentially, you have a time, you have a Zoom meeting, a host account, you can sell tickets, you can teach anything online. That's more like the opportunity for the second half of this year. Sterling Auty: (35:57) Makes sense. Thank you. Eric Yuan: (35:58) Thank you, Sterling. Kelly Steckelberg: (35:58) Thanks Sterling. Matt: (36:00) Next question is from [Mita 00:36:02] Marshall with Morgan Stanley. Speaker 1: (36:03) Next question is from Meta Marshall with Morgan Stanley. Meta Marshall: (36:05) Great, thanks. Kelly, you noted the growth margin pickup was largely due to gains in efficiency, but was there any contribution from students maybe returning to in-person and less usage from students that's worth the calling out? And then, maybe second question, you also noted that international is continuing to see traction from a lot of those channel investments you made at the time of the IPO. Where are you on channel development in the US versus international, and how do you see that developing? Thanks. Kelly Steckelberg: (36:41) Yep. So, in terms of the gross margin, it really was more around continuing to optimize with our public cloud partners. As we've scaled up, we've had the opportunity to work with them on better pricing packages, and that's really what that's attributed to, rather than seeing a dramatic shift yet in students going back to school. Kelly Steckelberg: (37:05) As we've talked about before, there is a pretty significant impact on the gross margin due to the Pre-K through 12. What we expect is that is going to do what you say, though: it's going to come in over time. If, all of a sudden, they were to go back to school, you would see a pretty dramatic step function improvement in the gross margin, but I expect that you're going to see that probably happen starting in the fall as more and more students are able to safely go back to school. Kelly Steckelberg: (37:29) And then, in terms of international expansion specifically around the channel, this is a really great question. We had a discussion about that in the last couple of weeks. So the team has done a really good job in focusing on our US channel strategy, especially around Zoom Phone and building out our Master Agent Program. We are now working on building that out internationally. This is guessing, but we're probably where we were in the US a year ago or so, so it's probably about a year behind in terms of our international channel strategy. So it's great that there's opportunity ahead, and Laura Padilla and her team are working on that now. Meta Marshall: (38:11) Great. Thanks, guys. Speaker 1: (38:14) Next question is from James Fish with Piper Sandler. James Fish: (38:18) Hey, Kelly and Eric. Thanks for the questions. Kelly, actually, happy early birthday tomorrow. Kelly Steckelberg: (38:24) Happy early birthday to you too, James! James Fish: (38:26) Thank you. Kelly Steckelberg: (38:27) We share a birthday. James Fish: (38:31) Yeah. Eric, you guys noted a win with Kimberly Clark for Zoom Phone, yet one of your competitors really sites BT as one of their key partners. Are you penetrating those tech incumbents that have, in theory, really opened up their install bases more, and I'm specifically talking an Avaya, for example, more than you were last year? As well as what are you hearing with carriers about partnership opportunities? Eric Yuan: (38:59) I think, first of all, as Kelly mentioned earlier, not only to empower directly Sue's team, [inaudible 00:39:07] by and large, a lot of our customers, they already build a great relationship with those carriers or partners or master agent. We are already doubling down on that, right? This is essentially become more and more important at Zoom for growth. That's our strategy. Eric Yuan: (39:21) Inside of that, every time we were working together with our channel partners or carriers, take a British Telecom, for example. When they working together with our potential prospect, after they evaluated our Zoom service, not only do they realize, "This is service is working so well," but also, we share the roadmap with them. They say, "Wow, that's amazing," because, compared with any other solutions, any other cloud-based phone solutions, they really like our roadmap. They really like our usability and integration with video meetings, webinars, and also the reliability as a security. That's the reason why we're winning, right? British Telecom, they advocated for Zoom at Kimberly Clark. It's a huge deployment. I think, overall, we see more and more deals like that. In particular, in customers that test our solutions, we have high confidence Zoom Phone is much more innovative than any other solutions out there. James Fish: (40:23) That's helpful. If I can sneak in one more, obviously some exciting announcements with Zoom Phone Appliance and other things the last few quarters. But how are you thinking about chat functionality really outside of the video experience app, as well as the broader customer experience in collaboration markets longer-term for Zoom's growth opportunity? Eric Yuan: (40:40) Yeah, great question. When it comes to Zoom Chat, we already had a built-in chat for many, many years. Some customer even [inaudible 00:40:48] on Zoom Video, Zoom Phone, and Zoom Chat. [inaudible 00:40:53], our approach is always look at everything from an end-user, from a customer perspective, right? They already deployed Slack, which is wonderful, and as the two best of breed and service, we working together very well. Eric Yuan: (41:03) Some customer, they want it to [inaudible 00:41:06] Maxim. It's okay. We also incorporated with [inaudible 00:41:08] teams. Some customer, they might be using other chat or standardize everything on our platform. Overall, I do not think the customer, they would like just to deploy one chat as solution for everything. That's why I think the integration with our Meeting and Phone, for a start, can help drive up the usage for our customers. Again, we are taking a very open-minded approach. No matter which chat solution they are using, we want to make sure have much better integration experience. James Fish: (41:40) Thanks. Eric Yuan: (41:41) Thank you. Speaker 1: (41:43) Next question is from C.T. [inaudible 00:41:45] with Mizuho. C.T.: (41:49) Hey, Eric and Kelly. Good to see you. Thanks for taking the question. I want to dig into that 100 to 1,000 customer, customer paying 100 to 1,000, that segment. This was a big renewal quarter for you guys, so just want to understand what changes you have done to drive success there, and what have you learned so that you can apply in the Q2? Then a little bit color on what sort of growth in terms of is that more users or cross-selling products, what you saw in that segment? Kelly Steckelberg: (42:24) Yeah. First of all, take the last part first. It was really a combination of both. As we talked about some of the customers we mentioned in the prepared remarks, we saw expansion in terms of users, some transition from active host to enterprise licenses, as well as additional products being deployed. And what we did, I think we talked about this last quarter, we made sure that especially our upmarket reps were aligned with the goal of renewing as many customers as possible this quarter. So we had a special bonus program in place for them to help them focus on renewals, and it really worked. That program is in place also for Q2, so we're looking forward to a strong renewal performance [inaudible 00:43:14] as well. C.T.: (43:17) Okay. Then quick follow-up on that, it's very impressive to see that 90,000+ user customer. So, when you think of your addressable market, and mainly in the enterprise and businesses now looking to reopen, how many [inaudible 00:43:33] large customer you could potentially close? Kelly Steckelberg: (43:38) Well, I think the way that we look at it is there is a huge market opportunity already. As well, we're super excited about deals like this. When you look at, for example, the Global 2000 or the Fortune 100, there's still a relatively small penetration in terms of customers that are paying us more than $100,000. I think that, in the Global 2000, we're still under 15% that are paying us more than $100,000 annually. That, to me, just represents opportunity that is ahead. Our sales team is doing a great job of focusing on all of those opportunities. We have regular check-ins with them, and so the potential is still massive. C.T.: (44:27) Thank you. Thank you, both. Eric Yuan: (44:27) Thank you, C.T. Speaker 1: (44:29) Our next question is from Will Power with Baird. Will Power: (44:33) Right, thanks for taking the question. Eric, earlier on, for a previous question, you spoke to some of the areas of strategic focus for you and the team this year. I think right at the top of that, or near the top, was the focus on turning Zoom into a broader platform and looking at those opportunities. So, as you look out over the next three years, and putting Zoom Phone aside, which is already having tremendous success, and Zoom Rooms, as you look at the SDK/ API opportunity, which is rolling out, you look at Zoom Events, what gets you most excited in terms of the bigger growth opportunity? And within that, what are you thinking about today in terms of contact center? You hear all the EUCAST providers talk about the importance of contact center. You probably get this every quarter. Where does that fit into the equation there too? Eric Yuan: (45:22) Yeah, Will, that's a wonderful question. I think there's so many things I'm very excited every day, but when it comes to top, top priority I will be excited for next four or five years, I would say number one thing is for the Zoom Apps. Essentially, you look at Zoom, [inaudible 00:45:40] Zoom is more like a business mitigation tool, right? During the pandemic crisis, a lot of consumers are using Zoom. Again, it's still for the business communication, or maybe consumer communication, right? You look at Zoom integrates, it's not [inaudible 00:45:57] a lot of contacts. How to bring in those contacts to this Zoom, people-centric [inaudible 00:46:05]. Standard [inaudible 00:46:06] before the meeting is over, you and I can play games together, you can approve my [inaudible 00:46:10] report, but have great integration with [inaudible 00:46:13] with all others. Essentially, Zoom will become a brilliant system to hook on a people-centric interface. For the Zoom Apps, that's a huge opportunity. It's part of our overall marketplace strategy, including the Zoom SDK and other integrations. That's the most exciting opportunity. What [inaudible 00:46:31] accomplished with contact center, this is part of our UC platform, right? That's the reason why I mentioned the Zoomtopia. It's scheduled September 13th or 14th. Stay tuned. You will see something. Hopefully, we can do something around the context center, again, that's also the big market. Today, we do integrate very well with our great partner, Five9, and also the TargetX, [inaudible 00:46:56], inContact, and a whole [inaudible 00:46:59]. Again, some of the new things, stay tuned at Zoomtopia. Will Power: (47:02) Looking forward to that. Thanks. Eric Yuan: (47:06) Thank you, Will. Speaker 1: (47:06) Our next question is from Matthew Niknam with Deutsche. Matthew Niknam: (47:14) Hey, guys. Thanks so much for taking the question. First, just on Zoom Phone, if I could just go back, congrats on the success. Can you give any more color in terms of where you're seeing some of the accelerating growth, both in terms of customer cohorts, upmarket versus small business, and then talk about some of the geographic mix where you're adding subs? And then, just to go back to churn, particularly for the less than 10 employee base, maybe Kelly, can you talk about how that trended in the quarter relative to expectations, and then talk about what's embedded in your forecast for the second half of the year? Thanks. Kelly Steckelberg: (47:52) In terms of Zoom Phone, we continue to see success across all segments of our business. As we've said from the beginning, we were really excited about continued expansion into the upmarket, and we currently have 21 customers with more than 10,000 seats of Zoom Phone. So I think that shows that we really are seeing momentum in that upmarket and enterprise customer base. And so, that's really exciting. Then international was the fastest growing segment, in terms of geographical locations, for Zoom Phone last quarter, so seeing really widespread momentum across that. Kelly Steckelberg: (48:35) And then, in terms of the one-through-10 cohort, we've talked about it consistently being the most volatile cohort. We've seen significant growth. A little over a year ago, it was 20% of our revenue, growing to the mid-30s, currently. That has certainly been a segment that has been a lot more volatile than in the upmarket, due to the fact that, first of all, most of them or a majority of them buy on monthly plans. That's the flexibility that we give them. We want people to stay with Zoom because they need it, but we have seen volatility in that segment. When we came into the year, we modeled, accelerated churn in that segment. That's how we're continuing to think about it as we look for the rest of the year. Eric Yuan: (49:26) [crosstalk 00:49:26]. Just to quickly add a little bit of color to what Kelly said, you look at it from deployment, today, I do not think any customer, no matter big enterprise, [inaudible 00:49:35], they do not have a phone deployment. They already have something, either on-prem or cloud. That's the reason why you can [inaudible 00:49:41]. That means our solution is better because people are replacing any other solutions. It's not a brand-new market, right? So that's a replacement. Really helps us to drive up our growth. [inaudible 00:49:55] a big enterprise on-prem deployment or SMB customers, or even enterprise customer who deployed other cloud-based [inaudible 00:50:02] solution, they like our solution. Matthew Niknam: (50:06) Got it. Thank you both for the color, and congrats. Eric Yuan: (50:09) Thank you. Speaker 1: (50:12) Our next question is from Karl Keirstead with UBS. Karl Keirstead: (50:16) Thanks, everybody. Kelly. I'm going to ask you a fairly prosaic question about cashflow. Congrats, by the way. 533 million in operating cash flow; great performance. So Kelly, I think we and a number of investors make some assumption about the gap between operating margins and operating cashflow margins. So, given that Zoom, you obviously raised your full year operating margin guidance by a decent amount, you might see people apply that gap and raise their operating cashflow margin guidance or estimates as well. But I just wanted to ask you, as everybody is tempted to do that, whether there's anything happening 2Q, 4Q that you would encourage us to keep in mind as we adjust our cashflow estimates. Thank you. Kelly Steckelberg: (51:02) No, thank you for asking that, Karl. First of all, Q1, due to the high level of renewals, and this was out our biggest bookings quarter last year, right? And so, big renewals quarter also means the largest billings quarter for the year. So that leads to also the opportunity for exceptional collections in the quarter, so bear that in mind. This will be the largest billings and renewal quarter of the year, as I mentioned in the prepared remarks. And then, as we continue to go through the year, you should go back to see how the relationship between free cashflow and operating margin existed pre-pandemic. If you go all the way back to those more normal operating periods, that's what you should start to see as we move through the year. The only exceptional considerations for the rest of the year is we do have ESPP purchases in Q2 and in Q4. So remember, that cash builds up as we go through Q1 and into Q2, and then there's the purchase, and the same in Q3 and into Q4. Karl Keirstead: (52:08) Okay. And then, Kelly, maybe as a follow-up, this dynamic of renewals being frontend-loaded this fiscal year, you cautioned us to be careful about our RPO and DR sequentials. Is there anything else that that renewal frontend loading distorts or changes in terms of the seasonality, and any other metric that you'd encourage us to keep in mind? Kelly Steckelberg: (52:31) Well, the one we just talked about, which is billings and collections. Karl Keirstead: (52:34) Got it. Kelly Steckelberg: (52:35) That's really the impact. Karl Keirstead: (52:37) Okay, terrific. Thank you very much. Kelly Steckelberg: (52:39) Yep, thank you. Speaker 1: (52:41) Next question is from Shebly Seyrafi with FBN Securities. Shebly Seyrafi: (52:45) Yes, thank you very much. So, as kids go back to school, what kind of gross margin uplift are you thinking about is possible in the second half of the year? For example, you just hit 74%. Are you thinking about a couple of points of uplift in the second half? And following that, you have a long-term target of 80% for the gross margin. Talk about your expected timetable to get there. Kelly Steckelberg: (53:11) Yeah. Currently, in the guidance that we just gave, we have not modeled any impact or benefit from return to school, as we are committed to supporting the needs of those schools, as long as we're in a situation where it isn't safe for students to return. If they were to all of a sudden go back, which I don't think is how it would happen, you would see certainly a couple of points improvement in the growth margin. I think what'll happen, likely, is it'll be more major than that, and little by little, we'll start to see the growth margin starting to creep up. But, in terms of the timeline around that long-term margin target of 80%, we haven't set a timeline as it remains still unknown how long that service is going to be needed by the school. Shebly Seyrafi: (53:59) Okay. Thank you. Speaker 2: (54:00) Thank you. Matt: (54:06) Our next question is from Tyler Radke with Citi. Tyler Radke: (54:11) Hey. Thanks a lot for taking the question and I loved seeing the demo. I'm glad we didn't have to write our question using that whiteboard. That might've been a bit of a struggle. Kelly Steckelberg: (54:20) Hey, that's a great idea for next time. Maybe we'll get you all. Tyler Radke: (54:23) As long as I don't go first. So, Kelly, I wanted to ask you, obviously really strong revenue growth this quarter, but I think most investors couldn't help but notice the magnitude of upside relative to your guidance was smaller than we've seen in the last four quarters. You obviously called out better than expected churn, and customer adds look good relative to the Street. But I just wanted to understand, was there anything unusual that may be held back more robust revenue upside relative to your guide, or is this just kind of the new normal that we should expect given you're starting to lapse some tough comps? Kelly Steckelberg: (55:05) Yeah. I think we've talked about this also in last quarter's call as well as we've really started to round the year on some very difficult comps, and also, we're approaching almost $4 billion in revenue this year. We're becoming a very large company and I think are still very pleased with our guidance of 50% year-over-year growth. But yes, this is going to be more the new normal, which is what I would expect of a company at this scale that these are more normalized growth rates, you should think of that. Tyler Radke: (55:41) Great. Thank you. Matt: (55:45) Our next question is from Matt Stotler with William Blair. Matt Stotler: (55:49) Hey, guys. Good to see you and thanks for taking the question. I'll just ask one, and hopped on a little bit late given we have our conference going on, so I'm not sure actually if it was asked already. But obviously, the Zoom Events platform was great to see. It's something we've been thinking about for a while, and we kind of saw the OnZoom released that is going to be a part of this going forward. Let me just double-click on how meaningful the opportunity with Zoom Events could be. Obviously, it makes a lot of fundamental sense, and a lot of companies have been hosting their events on Zoom, but as you think about what that broad opportunity could look like, whether there's numbers around that or just qualitative, that would be helpful. Kelly Steckelberg: (56:26) Eric, do you want to talk about the vision? Eric Yuan: (56:28) Sure. Absolutely. So, Matt, so the reason why we built Zoom Events is, first of all, we really received a lot of feedback from the customer side. We already hosted lots of Zoom webinars. Now we want to do more, especially the pre-events and post-events and how to run everything virtually online, like take Zoomtopia, for example, from the see the new plan in the Zoomtopia and all the way until you finish everything, make sure everything you can count on one platform, that's the opportunity coming from, right? Eric Yuan: (57:04) However, I think given the last pandemic crisis, you feel like a little bit more pressure for us how to quickly satisfy the customer needs, but we do already have a lot of installed base for Zoom video webinar. I think it's more like a natural migration, right, to the Zoom Events platform. Also, as new revenue opportunities, not only driven from corporate events but also later this year for the consumer prosumer events, right? As I mentioned earlier, right, you really can host very meaningful events, and you can sell tickets to your participant. We have a tight integration with the payment and provider as well. That's the reason why it could be another revenue driver on both corporate side and also on consumer side. Matt Stotler: (57:51) Thank you. Eric Yuan: (57:52) Thank you, Matt. Matt: (57:53) Our next question is from Matt VanVliet Matt with BTIG. Matt VanVliet: (58:00) Hey, everyone. Thanks for taking the question. Appreciate it. I guess thinking about the channel question a little bit differently, curious how much of an opportunity is that for the video-only side or at least the landing spot for the video side, or is that primarily Zoom Phone right now driving most of the channel business? Kelly Steckelberg: (58:24) No. Early on, we saw great success as selling meetings through direct, and we've continued to expand our channel relationships across both Meetings and Phone, but it depends on where the customer is themselves, right? We really want to meet them and provide them the opportunity to have access to our sales organization in whatever manner works for them best, so we do, obviously, sell both Meetings and Phone. A larger percentage of our Zoom Phone business comes through the channel. I think that's just based on historically how organizations have typically bought, but again, it's really up to the customer. We want to meet them wherever they go most comfortably. Matt VanVliet: (59:07) Great. Thank you. Eric Yuan: (59:10) Thank you, Matt. Matt: (59:13) Our next question is from Taz Koujalgi with Guggenheim. Taz Koujalgi: (59:18) Hey, guys. Thanks for taking my question. I have question on Zoom Phone. You've been selling through channel partners and direct as well. I had a question about the impact of margins when you sell through the channel versus selling directly because I've heard that there's a lot of space and residuals you had to pay to the channel partners when you sell through them. So can you talk about the head to margins for Zoom Phone when you sell a deal directly versus selling through a channel partner? Kelly Steckelberg: (59:41) Yeah. I mean, we certainly have a channel program that we think is attractive and competitive in the market, but I will say we thought a very long time about setting those rates and where they are and allowing them to having a differentiated product. So the way that we see it is, while there is some impact to the overall margin when there's a channel partner involved, it's really about the broader opportunity to continue to take market share and grow as quickly as possible. And again, back to the last question, we really want our customers to be able to buy in the way that feels the most comfortable to them. So while there is some impact to margin, overall, we think that for the long term, it's absolutely sustainable, and it's really the best approach as we continue to focus on growing top line. Taz Koujalgi: (01:00:33) And just one more housekeeping question. I don't know if you gave us a number of Zoom Phone customers this quarter. I think last quarter was 11,000. Maybe I missed it, but can you comment on the number of Zoom Phone customers this quarter? Kelly Steckelberg: (01:00:45) Yeah. We did not disclose that. That's one of the things that we're going to do on a milestone basis, and the next milestone where we are likely to disclose it will be Analyst Day at Zoomtopia in September. Taz Koujalgi: (01:00:56) Thanks, guys. Thank you very much. Eric Yuan: (01:00:58) Thank you. Matt: (01:01:00) Our next question is from Jonathan Kees with Summit Insights Group. Jonathan Kees: (01:01:05) Great. Hey, thanks for taking my question, and congrats on the quarter. I just wanted to double-click on, Eric, your comments earlier about phones and that you're winning more and more, it sounds like, from other cloud providers. I guess is that becoming a bigger part of the wins for Phone? Do you see that as, indeed, the stronger growth trajectory versus replacing the legacy premise phones business? And as well as if you can provide any details in terms of like any bake-offs between you and the other phones providers, that would be great. I know you may be hesitant, but more detail, the better. Thank you. Eric Yuan: (01:01:47) Sure. I think, first of all, you look at only the two years, right, since we launched Zoom Phone, last quarter, it's one million paid seats. As Graeme shared, on his whiteboard session it's already 1.5 million, right? It does tell us something, right? It works, right? So today, you look at a lot of enterprise customers very rapidly deploying on-prem solutions, that's a huge opportunity for the cloud business service provider, including Zoom. And Zoom, I think the card business, the phone business is big. That market itself can accommodate the first three winners, right? I think we are a part of that. Also, look at other businesses who already deployed cloud-based phone solutions. Our growth is coming from replacing those solutions with this year a lot of deals, right? And no matter which wins, we do see the customer, the other cloud-based phone solutions switching to us. There are multiple reasons. Eric Yuan: (01:02:51) First of all, we already built trust. Certainly, if they look at our solution, there's modern interface, much better integration in the video because, ultimately, we think voice and video are same thing. Those two we converge into one experience. Otherwise, you deploy several solutions for phones, several solutions for video, but any of the perspective is not consistent, they don't work. Zoom is much better positioned than any other winner on that front. And also, you look at our other functionalities, Zoom Events, Apps, I noted webinars, Rooms, a lot of other things, overall customer like our experience, right? That's the reason why we look at an opportunity, could it come from large enterprise, on-prem deployment, or the cloud-based opportunities from other Zoom service products. We do see growth coming from almost everywhere. But again, it's too early to tell. It's only two years. Maybe next two years, I can share more with some detailed numbers. Jonathan Kees: (01:03:51) Look forward to it. Thank you, Eric. Eric Yuan: (01:03:53) Thank you. Matt: (01:03:55) Our next question is from Chaim Siegel with Elazar Advisors. Chaim Siegel: (01:04:04) Thank you. Eric Yuan: (01:04:07) We can hear you, Chaim. Chaim Siegel: (01:04:09) No, I said my question was asked. Thank you. Kelly Steckelberg: (01:04:12) Oh, okay. Thank you. Eric Yuan: (01:04:18) My answer was very straightforward. Thank you. I really appreciate it. Chaim Siegel: (01:04:21) Thank you. Matt: (01:04:22) And we have our next question is from Rishi Jaluria with RBC. Rishi Jaluria: (01:04:28) Hey, Eric, Kelly, Tom. Thanks so much for taking my questions. It's nice to see continued momentum in the business. I wanted to ask a little bit of a philosophical question, which is around hybrid work, right? I mean, I think it's consensus at this point that the workplace of the future is going to be hybrid, but you had this really enlightening survey a couple of months ago of 1,500 Zoomers of what that means, and everyone is very sharply divided on what hybrid work is, whether that's home as the primary or the office as the primary, something in between. So a simple kind of question, what does hybrid work mean when you think about that, and is there a particular model [inaudible 01:05:06] of hybrid work that you think Zoom ... Eric Yuan: (01:05:15) Yeah. Sorry, Rishi, voice is a little bit broken. But anyway, so to answer to your questions, so I happen to read an article today from Bloomberg, right? In May, right, I think they did a survey, right, so 1,000 U.S. adults, right, and 39% of the respondents, they mentioned they need flexibility. If you look at the Millennials or the Generation Z, the number increases to 49%, right, so meaning we need to give the flexibility to those employees, otherwise, you are going to lose their talents. So when it comes to hybrid, first of all, that will become mainstream. However, different businesses, they might have a different way to manage a hybrid work. Two days in the office or three days in the office, it's different, right? And also, they might do one week in office, another week at home also could be different. But overall, the definition of a hybrid work is about flexibility, to give employees flexibility. Matt: (01:06:16) All right. Thank you, Rishi. Okay. We have time for one more question, and that last question is from Tom Roderick with Stifel. C.T.: (01:06:37) Okay, great. Thanks, Matt, for the question. Hi, Eric. Hi, Kelly. Great to see you. Thinking back to a year ago on your first-quarter call last year and with all the great success, you still spent a fair bit of time on that call kind of walking us all through the big plans on how to beef up security and solve for a lot of the emerging concerns that were coming with all of this jump in activity. I think it's pretty telling to your success on that front that we haven't uttered the word security once on this call, I think, but I also recognize the threat vectors aren't going away here. Can you just give us an update, Eric, to your thoughts on what you need to do to stay ahead of the security plan? You've reached end-to-end encryption, your 90-day plan was a success, but what's next? How do you stay ahead of it? Eric Yuan: (01:07:23) Yes. This is a great question. Before I talk about next, maybe I'll take a step back to share what had happened, right? Because Zoom was built for enterprise customers, we never thought about the K-12 schools or consumers, consumers who are going to use Zoom. We never thought about that pandemic crisis. By and large, most of the challenge is coming from that. However, I think we've really taken that seriously, right? We more than doubled the size of the company. The reason why we want to add more resource on privacy, security, I can tell you, we have almost 200 people working for the privacy and security now at Zoom, right, we are really doubling down on that. That's one. Eric Yuan: (01:08:06) Two is we are so grateful to our customers. The reason why we earn their trust back, we understand what are to happen. That's why a lot of people joined our weekly webinar last May and April, 90 days, and I'm still running the monthly secured Viber, right? We share everything open and transparent. Now that's a second thing. Third thing, I think security and privacy is not only a feature. This is our core DNA now, in terms of process and the functionality, features, road map, innovation, everything. This is our, I think, new approach. And also, we share everything with our customers. So in terms of specific features or enhancement, a lot of smaller things, right. Recently, we added notifications. Eric Yuan: (01:08:58) In particular, we added a lot of Zoom Apps. In the Zoom Apps, you might want to understand your meeting, the content, without telling customers was going on, that's not as good from a security perspective. A lot of smaller innovations on that front. So again, actually we do spend a lot of time and resource on that. That is still a part of our overall innovation for supporting the privacy and security. It's extremely important for our future growth. C.T.: (01:09:26) That's great update. Thank you, Eric. Eric Yuan: (01:09:30) Yeah. By the way, Tom, we recently look at our, say, security conference, they are using Zoom as well, right? We have a lot of security companies who standardize on Zoom platform. It does help. We take security very, very seriously. C.T.: (01:09:43) That's great. Thank you. Eric Yuan: (01:09:47) Thank you. Matt: (01:09:49) And that was the last question we have time for today. Speaker 3: (01:09:55) Thank you, everyone, and thank you for joining us. Eric Yuan: (01:09:57) Thank you, all.