Zoom Communications, Inc. Q2 FY2026 earnings call

Eric Yuan mentioned Zoom delivered strong results with revenue growth at fastest rate in 11 quarters. Achieved progress on 3 key priorities: AI to enhance customer value, innovating Zoom Workplace, scaling high-growth departmental solutions. AI Companion monthly active users grew over 4x year-over-year. Fortune 200 U.S. tech company deployed Zoom Custom AI Companion. ATPI selected Zoom Contact Center Elite. Virtual Agent 2.0 launched. Zoom Workplace innovated with seamless collaboration experience. Won four UC Today Awards. F5 bounced back to Zoom. Zoom Phone had strong quarter. Customer experience and employee experience solutions growing. Workvivo reached 168 customers with over $100,000 ARR. Collaboration with PwC established.

Total revenue grew 4.7% year-over-year to $1.217 billion, or 4.4% in constant currency. Enterprise business revenue grew 7% year-over-year, representing 60% of total revenue, up 1 point year-over-year. Online business average monthly churn was flat year-over-year at 2.9%. Americas revenue grew 5% year-over-year, EMEA grew 6%, and APAC grew 4%. Non-GAAP gross margin in Q2 was 79.8%, up 128 basis points. Non-GAAP income from operations grew 10.5% year-over-year to $503 million. Non-GAAP operating margin for Q2 was 41.3%, up 216 basis points. Deferred revenue at end of period grew 5% year-over-year to $1.48 billion. RPO increased over 5% year-over-year to approximately $4 billion. Operating cash flow in Q2 grew 15% year-over-year to $516 million. Free cash flow in quarter grew 39% year-over-year to $508 million.

Q3 revenue expected in range of $1.21 billion to $1.215 billion, ~3% year-over-year growth at midpoint. Non-GAAP operating income expected in range of $465 million to $470 million, operating margin 38.6% at midpoint. Non-GAAP EPS outlook $1.42 to $1.44. Full year FY '26 revenue expected in range of $4.825 billion to $4.835 billion, ~3.5% year-over-year growth at midpoint. Non-GAAP operating income expected in range of $1.905 billion to $1.915 billion, operating margin 39.5% at midpoint. Non-GAAP EPS outlook $5.81 to $5.84. Full year free cash flow expected in range of $1.74 billion to $1.78 billion.

Q: Congrats on a good quarter. Maybe one for Eric, you're seeing kind of your AI solution kind of really take off. But maybe can you help us share with us like what's the ROI that your customers are seeing, right? In terms of like the 2.0, you referenced the customer, a pretty large customer that adopted 2.0. So I would love to know like what's the use case that you're seeing in the ROI? And then second, just from a macro perspective, anything you can share with us in terms of what you're hearing or seeing from your customers in terms of their appetite, IT budgets for collaboration.

A: Yes. Great question. So yes, I'm using my phone to join this earning call. I think in terms of AI, you are right. We launched the Zoom AI Companion 2.0 and hopefully, we're also going to announce something exciting at Zoomtopia next month as well. Because 2 years ago, right, everyone talked about AI, right, the first step for us to leverage AI to improve our functionalities, like meeting summary, transcription, so on and so forth. That's already done very well. And the reason why we announced Zoom 2.0 is how to leverage agentic capabilities and also not only do we support the meeting summary, but also look at the entire meeting lifecycle from premeeting, how to schedule a meeting to leverage AI and premeeting experience and post-meeting experience and also how to leverage AI to improve our other product experience like a Phone and other -- the Workplace, the point of product as well. So overall, the feedback is pretty positive and look at the usage, right, compared to last year, in terms of monthly active users, it's 4x more, right, this quarter compared to the quarter last year. I think overall, I think customers, they all look at how to leverage AI to improve the productivity and work effectiveness and so many things for us to do, right? And in terms of the IT budget, I think the overall -- I think if you look at almost every customer, they all look at how they can leverage the AI to make their product better, how to work together with their vendors to leverage AI. That's the reason why many of our customers either already enabled AI Companion or in the process to enable AI Companion, not to mention our AI Companion is part of their offering. We do not charge customer extra except for customized AI Companion.

Q: You noted the AI Companion vertical-specific win with the Fortune 2000 -- or 200 tech company. And I guess just how are some of these wins that you're getting on these vertical-specific AI Companions informing just what customer needs are, what they can do with AI beyond what we traditionally think of as like summarization.

A: Yes, good question. So since we introduced AI Companion, for sure, there were some early adopters, right, who adopted AI early already for a while. Now they look beyond AI Companion. Are there any other things they can achieve with our AI capabilities. That's the reason why they paid for Customized AI Companion where we connect with their index, their content, or with the customized meeting template for their summary, so on and so forth. I think for sure, some other customers are still in the process to adopt the AI Companion, right? So AI Companion, again, as I mentioned earlier, is part of a package, more and more customers are going to adopt that or already adopted that. At the same time, customers, for those customers who already adopted AI Companion look at beyond today's AI Companion. Are there any new things? That's the reason why we offer Customized AI Companion. I think ultimately -- and we also want to innovate more, right? It's not only do we have a AI Companion 2.0, Customized AI Companion. That's why we're very excited for the new AI Companion announcement at Zoomtopia next month.

Q: I know you folks instituted a price increase for the monthly pro SKU earlier this summer, I think. So first of all, I think you mentioned last quarter that you were expecting that to add $10 million to $15 million of incremental revenue this year or at least as it compares to your initial forecast. And based on what you've seen so far, I'm wondering if any of your assumptions around that have changed or if your expectations there are still consistent. And then also just taking a step back, I was hoping you could comment on any feedback you've heard from customers so far, just in general. It looks like churn largely held stable. But I'd be curious if you have observed any other changes in customer behavior, maybe customers switching to annual plans to avoid that price increase or any other dynamics that you might have noticed.

A: Yes, I can take that one. So first, we're pleased with the growth of 1.4% and pleased with continued low churn with that. I'd reiterate that same range of guidance from $10 million to $15 million still on track for that. And I continue to guide to a flat online number on the full year. We did see, to your question, some shift to long term, but nothing I would say extreme. And maybe a little bit more color in terms of the customer conversation is that we didn't see a lot of pushback, and I think that's really a statement of -- it's a relatively small price increase. But it has to do, I think, even more with the value that we've put in the Workplace SKU, be it AI or so many of the more products in there as well as with the particular price increase we increased storage limits. So for us and what we heard, the value prop was still very much there.

Q: Two-parter though, Eric, for you, Workvivo continues to have another strong quarter really, spike in usage from what we can tell. I guess what are you seeing with that asset as we head into the back half of the year, both from that partnership angle with Meta and the overall market? And then just Michelle, on the numbers here, you raised by 25% to the top line, beat by 20% on the quarter, have FX in your favor. Walk us through why we're not getting more of a roll forward of kind of the top line upside here? Is it just prudency or anything to think about for the back half of the year?

A: Eric S. Yuan: Michelle, you want me to address the first one? Michelle Chang: Sure. Eric S. Yuan: Yes. So in terms of Workvivo growth, and for sure, a major partnership certainly helped us a lot since last year. For now, our top priority is, make sure for those customers switch to our Workvivo platform. We got to help them transition to our platform -- Workvivo platform very smoothly, right? Make sure every feature works, new regression and that is still the top priority. At the same time, a lot of the customers realized they needed to have a customer -- the employee engagement platform and more and more opportunities in the pipeline. And also at the same time, we are going to innovate more, right, and add a lot of innovations upon our Workvivo platform. I think also the AI is also another way for us to innovate as well to further improve our Workvivo, the platform experience. I think -- it used to be -- we just focus on very, very large deals. I think a lot of the commercial -- the medium- sized customers also will benefit from deploying Workvivo platform. And that's kind of our -- the next growth opportunity for the Workvivo platform. Michelle Chang: Yes. Maybe a couple of comments, James, in terms of the forecast. First, as you noted, we feel good about the consistent beat as well as the raise regardless of U.S. constant currency. We feel good about the steady progress made towards the growth rate despite dynamic macro conditions. So raising, for example, from 2.7% at the beginning of the year to now 3.5%. We feel good about the three areas of strategic focus and the progress that we see within those. Maybe the color that I gave you is that we already talked about online and sort of the guidance being flat, relatively speaking, the H1 versus H2 dollars -- revenue is relatively consistent and it's really the growth rate from Enterprise that is driving the H2 outlook. So look, we've used a consistent forecast methodology, and we've assumed macro conditions that are strong in their demand and durable with respect to our drivers, but still a dynamic economic environment. Maybe then, if I could insert a little bit, James, some comments on last quarter, you'll remember that I said we saw some scrutiny -- no losses, but additional scrutiny in some geographies. And I'm pleased to say that we saw a partial abatement to that in Q2. And as such, we've sort of expected that H2 outlook will be in line with what we saw in Q2.

Q: The first one for you and then Michelle, one for you as well. Eric, if I think about the way AI adoption is progressing inside of your customer base, both on the online portion as well as the Enterprise portion. How is that changing your opinion around the time line, the timing of monetization to the extent they can start to bend the growth curve and the competitive framing environment, both against two hyperscalers with two very different opinions on pricing. One, incrementally higher and one, it's part of it for free. I love kind of your thought process on that going forward and then a quick follow-up.

A: Eric S. Yuan: Yes. Alex, great question. So as I mentioned earlier, Zoom AI Companion is a platform. AI Companion is empowering almost every product, we announced, right, or the customer that used. That's the reason why if you look at our Contact Center, for example, why we are doing so well? Because if you look at our top 10 deals, 9 out of 10 switched from other cloud vendors because when they look at our product, take Zoom Virtual Agent, for example, right? We build everything from the ground up. Why the innovation, the speed is very fast because we can leverage the capabilities from AI Companion, right? We announced Zoom Virtual Agent 2.0. Internally, we deploy that, our support team very, very satisfied with the Zoom Virtual Agent powered by AI Companion. So when we look at AI Companion as a platform, how to leverage, empower all other point of services, either Phone or Contact Center, Whiteboard and a lot of other things, we are going to win. That can help us win more deals. At the same time, if you look at our core, the meeting product, right? It's a lot of features and it's a part of AI Companion, customers love that as well. And again, we are going to innovate faster. And that's the reason why I mentioned a few times, and please join our user conference next month. One of the key themes around Zoomtopia this year, really about AI and Zoom AI Companion. Aleksandr J. Zukin: Perfect. Michelle, maybe for you. Leading indicators are always important. It sounds like some of the deal cycle elongation that you saw resolved, I assume some of those deals that may be pushed also closed. Is there anything we're not seeing that is maybe creating a headwind in terms of the CRPO metrics in terms of billings that maybe is not painting the same picture around those KPIs as the largest beat that you've had in the years on a revenue basis, maybe is. So there seems to be a little bit of a divergence, anything that you can point us to, to help us kind of marry those two data points?

A: Michelle Chang: Yes. Maybe let me start, Alex, with just backing up on some broad comments on macro and then talk a little bit about RPO. So first, from a macro perspective, what I said in Q2 -- or in Q1 last time was that we saw strong demand -- broad strong demand, and we think we have durable drivers in a dynamic macro environment. And certainly, I would say that is still true. It's still a dynamic environment, as we all know. But last time we talked, as you noted, around some scrutiny that we're seeing in some geos, I want to make clear that we've seen a partial abatement of that. And we've seen SMB demand continue to be very strong. And you see that reflected, I think, in the revenue results, and you see it reflected in churn -- low churn on the online side, but also churn going down year-over-year consistently over multiple quarters on the Enterprise side. So look, it's still dynamic, but we feel good about that. To your RPO question, RPO growth of 5% is strong. I would also point out that it's lapping a very high comparable and that our RPO bookings are sort of the highest in many years. From a current RPO, it's really just the strong comparable at play there. I guess that's what I'd call out. Maybe one thing we didn't touch on, but just in terms of thinking about the overall growth rate, if I sort of look, Alex, at the spirit of your question, we talked about the FX piece. We talked about the easier comparable might be another thing. We're lapping that trough that we talked about for a very long time as well as to a much lesser degree, we had some professional services onetime recognition.

Q: I want to touch on a point that you actually brought up proactively on the last question about Contact Center. And I have a million questions on this, but I'll try to focus in on a couple of questions. The fact that you're winning contact center deals against other cloud providers is very surprising, not for anything other than the fact that there are so many on-prem to cloud migrations that are happening. And I'm curious what's driving the cloud displacements. Are those failed implementations? And what are customers seeing, I guess, in Zoom? Is it the AI capabilities? Is it a cleaner tech stack? Is it easier to implement? What are the kind of key drivers that are creating success for Zoom Contact Center, especially against the other cloud providers.

A: Eric S. Yuan: Yes. It's a great question. Well, it's not surprising to us at all. We know we are going to win. And again, there's more -- I think more reasons, number of reasons, customers, they were not happy to the existing cloud contact center providers. If they are very happy, no matter what you do, they say, I don't want to switch, right? So they are not happy. Sometimes this is either quality is not good, outage, or they too expensive, or [ worst ] innovation or architecture is wrong, AI adoption is slow and so on. All reasons are very different. However, for those customers, they really want to look at a modern contact center solutions. When they test the Zoom, say,