Q1 2025 Zoom Video Communications Inc Earnings Call

Participants

Charles Eveslage

Eric S. Yuan; Founder, President, CEO & Chairman; Zoom Video Communications, Inc.

Kelly Steckelberg; CFO & Treasurer; Zoom Video Communications, Inc.

Wes Liu

Aleksandr J. Zukin; MD & Head of the Software Group; Wolfe Research, LLC

Catharine Anne Trebnick; Senior Research Analyst; Rosenblatt Securities Inc., Research Division

James Edward Fish; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Matthew David VanVliet; Director & Application Software Analyst; BTIG, LLC, Research Division

Meta A. Marshall; VP; Morgan Stanley, Research Division

Michael J. Funk; VP in Equity Research; BofA Securities, Research Division

Michael James Turrin; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division

Rishi Nitya Jaluria; Analyst; RBC Capital Markets, Research Division

Ryan Boyer Koontz; MD & Senior Analyst; Needham & Company, LLC, Research Division

Ryan Patrick MacWilliams; Research Analyst; Barclays Bank PLC, Research Division

Samad Saleem Samana; Equity Analyst; Jefferies LLC, Research Division

Sitikantha Panigrahi; MD; Mizuho Securities USA LLC, Research Division

Tyler Maverick Radke; VP & Senior Analyst; Citigroup Inc., Research Division

William Verity Power; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

I will hand things over to Charles Eveslage, incoming Head of Investor Relations. Charles, over to you.

Charles Eveslage

Thank you, Kelcey.
Hello, everyone, and welcome to Zoom's earnings video webinar for the first quarter of fiscal year 2025. I'm joined today by Zoom's Founder and CEO, Eric Yuan; and Zoom's CFO, Kelly Steckelberg.
Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.us. 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 press release, include a reconciliation of GAAP to non-GAAP financial results.
During this call, we will make forward-looking statements, including statements regarding our financial outlook for the second quarter and full fiscal year 2025; our expectations regarding financial and business trends; impacts from the macroeconomic environment, our market position, opportunities, go-to-market initiatives, growth strategy and business aspirations; and product initiatives and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today's webinar.
And with that, let me turn the discussion over to Eric.

Eric S. Yuan

Thank you, Charles. Thank you, everyone, for joining us today.
Our rapid innovation over the years has taken us far beyond video conferencing. Every step of the way has been guided by our mission to solve customer problems and enable greater productivity. In the process, we have very deliberately created a communication and collaboration powerhouse with AI infused natively across the platform.
Time and time again, we are recognized as a leader by Gartner, G2, TrustRadius and many others. And we are so pleased that in March, Fast Company added Zoom to their prestigious list of the World's Most Innovative Companies of 2024, further validating our dedication and providing our customers with a high-quality, open collaboration platform powered by AI that just works.
In March, we announced the Zoom Workplace, our AI-powered collaboration platform designed to help our customers streamline communications, improve productivity, increase employee engagement and optimize in-person time.
Within the launch of Zoom Workplace are new enhancements and capabilities like multi-speaker view, document collaboration, AI-powered portrait lighting, along with upcoming features and products like Ask AI Companion, which will work across the platform to help employees make the most of their time. The Workplace launch also boosts Zoom Phone, Team Chat, Events and Whiteboard with many more AI Companion capabilities to help make our customers more productive.
One of the core pillars of Zoom Workplace is optimizing in-person time and embracing flexible work. Our Spaces portfolio has expanded from Zoom Rooms into integrated adjacencies like Workplace Reservation, Visitor Management and Digital Signage. As of the end of Q1, the cumulative number of Zoom Rooms licenses purchased was over 2 million. And in the last 12 months, we provisioned over 100,000 desks in Workspace Reservations to support in-office work.
Leading financial services and legal firms such as Capital One and Cooley use Zoom Rooms to support their globally dispersed hybrid workforce, and others like Flex and BAYADA Home Health Care have expanded from Zoom Rooms to Workspace Reservation in order to optimize in-office time.
Zoom Workplace is also designed to increase employee engagement through the integration of Workvivo into our platform. In Q1, we landed a major telco customer on Workvivo, who bought approximately 100,000 seats, and Workvivo was named Meta's only preferred migration partner for its customers as it retires Workplace from Meta. Our success in employee experience represents an important beachhead for us in upselling customers on the full suite.
Zoom Workplace exists alongside and is designed to seamlessly integrate with our business services, including Zoom Events, Revenue Accelerator, Contact Center, Virtual Agent and others.
Zoom Contact Center, launched only 2 years ago, is ready for prime time. We now support PCI Compliance, opening the door for customers that have payment processing in their workflows. We also received FedRAMP Moderate authorization for our Essentials and Premium SKUs, allowing U.S. government agencies and entities doing business with them to leverage Zoom Contact Center.
We have launched all key social channels, including Facebook Messenger, WhatsApp and Gmail; and have enabled direct transfers between contact center agents and other departments via Zoom Phone, helping to further bridge the employee and customer experiences.
As a result of how far the product has come, we have seen strong growth in a number of deals where we have beat or displaced a Gartner Top 4 CCaaS player. We have also strengthened our Channel partnerships, leading to a significant increase in our Channel wins and ability to compete for larger deals. ASPs are heading north buoyed by the popularity of our higher tier packages that allow agents and managers to lean further into AI with AI Expert Assist, Workforce Management, Quality Management, and more.
Now let me recognize some of our amazing customers. First, let me thank Expedia, who needs no introduction, for becoming a Lighthouse Zoom Revenue Accelerator customer in the quarter, leaning heavily into our AI products to drive revenue. A power user of Zoom Phone for years, they wanted to better automate workflows, coach sellers and drive efficiencies. We partner with them on an initial quadruple-digit seat Zoom Revenue Accelerator deal, which includes working directly with their team to improve and tailor the product based on their business model and industry-specific use case. We're so excited about this AI-centric partnership to drive value for Expedia and continuously improve our platform based on customer feedback.
Let me also set Major League Baseball. A year ago, MLB made a highly strategic decision to adopt the Zoom Contact Center. In Q1, it chose to expand our successful partnership by integrating Zoom Quality Management into the Zoom Contact Center deployment. This enhancement further strengthens their fan engagement strategy and streamline business operations. MLB was particularly impressed by the interactive features, enhanced accessibility, and the ability of Zoom Quality Management to support a virtual fan engagement.
Let me also thank Centerstone, a nonprofit health system specializing in mental health and substance use disorder treatments for individuals, families, and veterans, for doubling down on zoom. Seeing strong value from their existing Zoom Meetings, Zoom Phone and Rooms deployed, in Q1, they expanded Zoom Phone and added Zoom Contact Center in order to leverage AI to provide better care, and Zoom Team Chat in order to streamline communications in all from a single platform.
I'm also very excited to share that we greatly expanded our footprint with a leading global financial services firm, who doubled their Zoom Phone seats to over 100,000.
We're so pleased to see more customers adopting our Zoom Workplace and Business Services product in order to reap the benefits of our modern, natively integrated, AI-powered technologies.
And with that, I'll pass it over to Kelly. Thank you.

Kelly Steckelberg

Thank you, Eric, and hello, everyone. Let's start with some exciting milestones for our emerging products in Q1.
We saw additional traction in Zoom Contact Center as we reached 90 customers with over $100,000 in ARR, representing a 246% year-over-year growth. This was driven by our recently launched higher pricing tiers as well as our success in larger deals.
Zoom Phone saw continued expansion upmarket. With the addition of the marquee financial services customer Eric just mentioned, we now have 5 customers with 100,000 or more Zoom Phone seats.
Zoom AI companion has grown significantly in just 8 months with over 700,000 customer accounts enabled as of today. These customers range all the way from solopreneurs up to enterprises with over 100,000 users.
Embedding AI across all aspects of Zoom Workplace and Business Services is a key priority as we continue to drive productivity and engagement for our customers.
Now let's dive into the financial results. In Q1, total revenue came in at $1.141 billion, up 3% year-over-year. This result was approximately $16 million above the high end of our guidance.
Our Enterprise revenue grew 5% year-over-year and represented 58% of total revenue, up from 57% a year ago.
Online average monthly churn came in at 3.2% as compared to 3.1% in Q1 of FY '24. The slight uptick in churn was related to tightening up the grace period for unmade payments, which pulled some churn forward. Absent this change, online average monthly churn would remain consistent with the last 2 quarters at 3.0%, the lowest we had ever reported.
We saw 8% year-over-year growth in the upmarket as we ended the quarter with 3,883 customers contributing more than $100,000 in trailing 12 months revenue. These customers represented 30% of revenue, up from 29% in Q1 of FY '24.
As a reminder, our classification of Enterprise versus Online is determined by how we engage the customer, with Enterprise referring to customers who are supported by our direct sales team, resellers, or strategic partners, and Online referring to customers who self-serve. During Q1, as part of an effort to improve the customer experience and drive greater efficiency in our operations, we transitioned 26,800 Enterprise customers with low ARR to Online.
The number of Enterprise customers at the end of Q1, after accounting for the transition, was approximately 191,000. It is important to note that while the customer transition had a noticeable impact on our number of Enterprise customers in Q1, the associated revenue was de minimis, representing an approximately $4 million shift from Enterprise to Online. Additionally, our trailing 12-month net dollar expansion rate for Enterprise customers in Q1 came in at 99%, which was not affected by this transition.
Our Americas revenue grew 4% year-over-year, while EMEA increased by 2% and APAC declined by 2%. The APAC performance was due to the FX headwinds in Japan and Australia.
Moving now to our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, and all associated tax effects.
Non-GAAP gross margin in Q1 was 79.3%, which was slightly lower than 80.5% in Q1 of last year, mainly due to our investments in AI innovation. In Q2, we will incur onetime investments to upgrade our data center backbone and expect gross margins to dip to 78% for the quarter. For the full year of FY '25, we continue to expect our gross margin to be approximately 79%.
Non-GAAP income from operations grew by 8% year-over-year to $457 million, exceeding the high end of our guidance of $415 million. This translates to a 40% non-GAAP operating margin for Q1, an improvement from 38.2% in Q1 of last year.
Non-GAAP diluted net income per share in Q1 was $1.35 on approximately 315 million non-GAAP diluted weighted average shares outstanding. This result was $0.15 above the high end of our guidance and $0.19 higher than Q1 of last year.
Turning to the balance sheet. Deferred revenue at the end of the period was $1.35 billion, down approximately 1% from Q1 of last year. This was roughly 3 percentage points higher than the range we provided last quarter, partially due to tightening up our discounting practices last year. For Q2, we expect deferred revenue to be up approximately 1% year-over-year.
Looking at both our billed and unbilled contracts, our RPO increased 5% year-over-year to approximately $3.67 billion. We expect to recognize approximately 59% of the total RPO as revenue over the next 12 months, consistent with Q1 of last year.
Operating cash flow in the quarter grew 41% year-over-year to $588 million. Free cash flow grew 44% year-over-year to $570 million. Our operating cash flow and free cash flow margins expanded to 51.5% and 49.9%, respectively. The sharp increase in our cash flow metrics was due to stronger collections, targeted expense management and higher interest income.
We ended the quarter with approximately $7.4 billion in cash, cash equivalents and marketable securities, excluding restricted cash.
Last quarter, we announced the authorization of a $1.5 billion share buyback plan. As of the end of Q1, we have repurchased $150 million of stock, representing 2.4 million shares.
Now turning to guidance. For Q2, we expect revenue to be in the range of $1.145 billion to $1.15 billion, representing approximately 1% year-over-year growth. We expect non-GAAP operating income to be in the range of $415 million to $420 million. Our outlook for non-GAAP earnings per share is $1.20 on to $1.21 based on approximately 316 million shares outstanding.
We are pleased to raise our top line and profitability outlook for the full year of FY '25. We now expect revenue to be in the range of $4.61 billion to $4.62 billion, which represents approximately 2% year-over-year growth. We still believe that Q2 will be the low point from a year-over-year growth perspective and for it to improve from there. We forecast our non-GAAP operating income to be in the range of $1.74 billion to $1.75 billion, representing an operating margin of 37.8% at the midpoint. Our outlook for non-GAAP earnings per share for FY '25 is $4.99 to $5.02 based on approximately 319 million shares outstanding.
Moving on to free cash flow. Please remember that due to the timing of U.S. federal and state tax payments, we pay 2 quarters worth in Q2 and minimal amounts in Q1. Primarily due to this seasonality and AI-related CapEx, we expect free cash flow in Q2 to decrease by approximately 50% to 60% quarter-over-quarter before normalizing in Q3 and Q4. With the strength in free cash flow in Q1 and increased outlook for operating income in FY '25, we now expect free cash flow to be towards the high end of our range of $1.44 billion to $1.48 billion for the full year.
Thank you to the entire Zoom team, our customers, our community and our investors for your trust and support.
Kelcey, please queue up the first question.

Question and Answer Session

Operator

(Operator Instructions) Our first question will come from Meta Marshall with Morgan Stanley.

Meta A. Marshall

Congrats on the quarter. A couple of questions, maybe just to start with, you could just give a sense of what you're seeing kind of on the SMB side of the environment just given kind of commentary from others throughout the quarter.
And then second, just maybe on DBNE, you noted last quarter that you expected fiscal Q2 to kind of be the down point of the year, if that still kind of holds as you look throughout the year.

Kelly Steckelberg

Meta, as we're looking at the outlook for the rest of the year, as we mentioned, we do still expect Q2 to be the low point from a year-over-year growth perspective and that the net dollar expansion rate will follow similarly behind that. If you look at the in-quarter net dollar expansion, you'll see that it actually was consistent quarter-over-quarter. So we're starting to see that stabilization, and we think that's a really good indicator that the net dollar expansion rate on trailing 12 months will similarly follow.
And then in terms of SMB, we saw, I think, similar performance across all of our different segments of our Enterprise business. And you heard about some of the amazing customer wins that we had in the upmarket, but also some really nice ones in SMB as well.

Operator

We'll now move on to Samad Samana with Jefferies.

Samad Saleem Samana

So Eric, I wanted to dig into the CCaaS side. As you mentioned, the product is ready for prime time, and we took investors to see it at Enterprise Connect as well a couple of months ago. So I was wondering if maybe you could just help us understand, I understand the payment side, but when you think about prime time, how would you define that? Is the uptime gotten better and you're clearly seeing larger logos? So how should we think about what prime time means, right? Should we see an inflection in larger customers going forward?

Eric S. Yuan

Yes, it's a great question. First of all, just over 2 years ago, right, we launched the Zoom Contact Center. You look at our quarterly progress, every quarter, we added so many customers, right? Because that's one thing, they trust our Contact Center, the product.
In terms of prime time, when you look at just the recent quarter, right, like I'll give you two examples, right? So like one of the Silicon Valley-based cloud software companies, they deployed our competitor solution, which is one of the Top 3 in cloud business CCaaS, the provider. And guess what? They switched to our Contact Center platform because they really liked our feature set, seamless integration and greater uptime and also a lot of AI features built in, right? That's one example. Another example, we're competing against also one of the Top 3 CCaaS vendors, right, for the largest deal in Q1. Guess what? We won. And this is not a small deal. It's not like a few, in the hundreds, that's more than 1,000 seats. That's another big deal, right? And those are just two examples.
Also, if you look at our total installed base, just look at the ARR, more than $100,000, right, for those customers, right? And you look at the end of Q1, we have around 90 new deals like that, right? If you look at it compared to last year, an almost 250% year-over-year growth. I think with all those factors in, I would say, yes, this is prime time. The most important thing is the customers trust our brand. They know and we listen to customers and we innovate. That's the reason why our Contact Center, where we're making very good progress is the prime time.

Operator

Our next question will come from Michael Funk with Bank of America.

Michael J. Funk

Eric, you touched on it briefly with the last question, but would love to hear about the competitive environment today, maybe to contrast it with 12 or 24 months ago. And specifically pricing, how pricing is changing, whether it's more competitive, less competitive? And then I guess, related to that, if you're seeing more competition from Microsoft on the video side.

Eric S. Yuan

Yes. Sorry, you're talking about pricing on Contact Center or overall?

Michael J. Funk

Really, the entire platform now that more competitors are likely bundling solutions, just the general pricing trends.

Eric S. Yuan

Yes. Overall, I think we only have one competitor. They bundled their solutions together, which is Microsoft, right? So over the past few years, right, for sure, there is some impact. You already saw the number over the past several years because of their bundling strategy. However, if you look at our installed base, like a year ago, when we increased the Online price, and we do see a very positive feedback and customers really appreciated our service and also looked at our installed base and a lot of customers really liked our service.
The reason why is that our customers' employees like Zoom. They truly enjoy using Zoom, right? When they use other competitors' products, guess what, they do not like it, right, even if it's bundled, the price is sort of free. However, when customers deep dive, they look at the total cost of ownership in terms of support cost and AI cost. Guess what? I think we are much better positioned now. That's the reason why I think every time when we talk to customers, convince customers, always they're telling us, hey, your price, or all those kind of things, customers really appreciate. They want to deploy the best breed of service. That's the reason why we do not see the big price pressure at least in the last quarter. And I think we're maintaining all of the strategy very well.

Michael J. Funk

Okay. And just very quickly to your last comment there, you didn't really see price pressure last quarter. Should I take that to mean that pricing is stabilizing relative to where it was, pricing is getting better?

Eric S. Yuan

I think so because you look at the overall online churn, right, it's kind of in historical low, right, as Kelly mentioned earlier, right? And also look at our enterprise customers as well because we have a lot of other services, upsell the entire product suite. And I think it's in a much better position now.

Operator

We will now hear from Rishi Jaluria with RBC Capital Markets.

Rishi Nitya Jaluria

I just wanted to ask, following up on the CCaaS side, Eric, you made the comment that you have either displaced or beaten each of the Top 4 CCaaS vendors, as ranked by Gartner. Can you provide a little more color on those wins? And what vector did you tend to win those on? Was it on pricing? Was it on certain features and capabilities? Do you have what they don't have? Maybe help us understand and provide more color. That would be helpful.

Eric S. Yuan

Yes. So just to give you two examples. So I have a lot of other examples. If you look at it just the two examples, I do not think it's just one factor that let the customer make that decision. You look at, first of all, do they trust this vendor now, right? And they look at the product road map, look at existing feature set, look at the integration, look at AI features. They also look at the pricing, all those factors. Some customers they trusted Zoom years ago, right? Many years ago, they deployed Zoom Phone, they said, "Yes, this is a great story. We are going to replicate that story." That's the reason why customers say yes. But interestingly enough, some of the logos we won in Q1, they are not even Zoom customers, but they trust our brand. They know we are very innovative. If you look at all other CCaaS vendors, guess what, their solutions were not built recently. It was a long time ago, from on-prem to cloud, and it's really sort of a clunky interface, and that's the reason why we have high confidence we're going to win more deals.

Wes Liu

Our next question will come from Siti Panigrahi with Mizuho.

Sitikantha Panigrahi

I saw the demo of your Zoom Workspace, very impressive in terms of like AI feature, like Ask AI Companion that you added, Eric. So I have a couple of questions. Firstly, like how do you see the Zoom Workspace? What's your strategy in terms of branding or go-to-market, push this product? And do you see more traction more on the low end, like small business segment or more on the enterprise side? And if you combine this Workspace with AI, should we expect this to drive more free-to-paid migration? And if so, when should we start seeing that effect?

Eric S. Yuan

Yes, it's a great question. It's great to know you like Zoom Workplace. I think it's not only driving the revenue growth and adoption of SMB enterprise customers. Overall, if you take a step back, right, if you look at the Zoom Workplace, look at the first 10 years, right, in Zoom's journey, it's essentially more like our slogan is Meet Happy, right? For now, we have a collaboration platform and customers can live within the platform to get all their work done, right? It does not mean they should use everything from Zoom, but we do have a collaboration platform. We also can coexist with other vendors very well, like Microsoft, Google, ServiceNow, Salesforce or Atlassian, all those SaaS leaders.
And at the same time, you look at the customer requirements, right? And when they use the Zoom Meetings, Zoom Phone or Team Chat, Whiteboard and Contact Center, a lot of things together, that's a full collaboration platform. It used to be from Meet Happy now to Work Happy, right? That's sort of our slogan evolution, right?
And also AI is a part of that. When you look at our Workplace customers, guess what, AI is not only a part of that but also at no additional cost, right? So that is our vision. And essentially, from many, many years ago, from one application service provider into a full collaboration suite, and the SMB customer, for sure, they like that. Enterprise customers, they want to deploy the best-of-breed of service, they also like that, too. Plus, it's the open platform. That's the reason why we are doubling down on our Workplace platform to become a Work Happy platform.

Wes Liu

Moving on to Catharine Trebnick with Rosenblatt Securities.

Catharine Anne Trebnick

Can you update us on the partner program? What I'm really trying to dig into is really how you are position yourself competitively against Ring and the traditional partners.

Eric S. Yuan

Kelly?

Kelly Steckelberg

Eric, you want me to take that?

Eric S. Yuan

Go ahead.

Kelly Steckelberg

Okay. Yes, so we continue with our partners and with our direct sales organization. We continue to win, I think, not only against other providers in the phone cloud, but also, as Eric just mentioned, on the contact center side as hitting several vectors, right? It's around pricing and total cost of ownership, it's around the momentum because of the ease of use of deploying and selling this product. We believe that our partners should be able to see that value in not only the end user but also in their deals as well. And so if you're asking about compensation to the partners, we continue to ensure that our partner programs are competitive but also appropriate. We are always thinking about the impact to them as well as to our internal margins. And as you heard us talk about last quarter and also this quarter, we have some additional partnerships that we've been named as the preferred partner migration for not only Meta but, if you remember, also Twilio as well.

Eric S. Yuan

Yes, just quickly to add on to what Kelly said, those partnerships, most of time, the reason why we have all those good partners because customers, they ask for that, right? Because they say, yes, they really want to build more businesses with Zoom. And that's the reason why we have so many partners, recently like Avaya or Meta, right? This is a great example.

Operator

And Ryan MacWilliams with Barclays.

Ryan Patrick MacWilliams

Appreciate it. Kelly and Eric, you beat me to it as usual. I was going to ask about the Meta and Avaya partnership. So great to see that they chose Workvivo as the migration partner for their workplace solution. I guess, to double click on that, do you have any sense of the timing on how these customers could move over and how do you frame the opportunity for this partnership? And then just on the Avaya partnership, love to just hear, like kind of what exactly that partnership is trying to get at, how that can open the door for more customer relationships between you guys?

Eric S. Yuan

It looks like I know your question now. Thank you for asking those two questions. In terms of Meta partnership, right, I think Meta is such a great company, works on a lot of AI, Llama 3, and it's great and open source. That's the reason why they wanted to retire their Workplace for Meta product. For sure, they talked to their customers and understand we have a Zoom Workvivo platform. It's a very preferred solution. And as I mentioned earlier, right, we just won a very large telco deal. It's not a small deal, 100,000 seats, right? So it's a very mature platform. There's a lot of innovations. That's the reason why Zoom became the preferred partner. We're going to work together, right, to make sure all those Workplace for Meta customers have a smooth transition, right? I think in the next 12 to 18 months, we will work together with Meta, with customers, make sure the entire transition period is very, very seamless. So we have high confidence. They're a great partner, not only a customer but also a great partner, I mean Meta. And again, we are very excited about that partnership and about that transition.
In terms of Avaya deal, right, so Avaya, they have lots of very, very big, large enterprise customers who deploy both UCaaS and CCaaS solutions. Those large enterprise customers, they are not fully ready to migrate everything to cloud. You look at integrations, many, many years of effort they put, it's almost impossible to migrate to cloud overnight. However, they also want to leverage a lot of the features, like AI features, a lot of innovations, right? So that's the reason why the customer, they shared with both of use Online from Avaya. And when they are not ready to move to the cloud, they're also doing on-premise solution. Guess what? This is a hybrid architecture, how to leverage a Zoom Workplace client to talk with Avaya on-prem feature servers, right? And on the one hand, the Zoom Workplace client has a lot of rich features they can leverage. On the other hand, they also kind of seamlessly integrated with Avaya on-prem feature servers. I think that's a win-win partnership, right? It benefits us, benefits Avaya, benefits the customers, in particular for all those very, very big, very complicated enterprise customers. That's the reason why I think this hybrid architecture will help customers a lot.

Operator

Baird's William Power has the next question.

William Verity Power

Hopefully, you can hear me okay. I'm calling from mobile. I guess, Kelly, for you, can you talk about the Enterprise growth outlook from here? Should we expect that to trough in Q2 as well and then accelerate? And I guess tied to that, maybe just help us understand your level of confidence in raising the full year guidance to reflect the Q1 beat given we're still pretty early in the year here?

Kelly Steckelberg

Yes. So Will, yes, we expect that enterprise growth will follow the similar trend that we've discussed for the entire company, with Q2 being the low point for FY '25 from a year-over-year growth perspective and then seeing reacceleration in the back half from there. And in terms of our confidence for the year, we applied a similar approach that we always do to setting guidance, which is talking to our sales organization, of course, looking at the pipeline that we're seeing, also the trends that we're seeing with Online and what's on deck in terms of initiatives, what's the performance we're seeing for churn. And then looking at all of that, putting it together and coming up with our outlook.

Operator

We will move on to Tyler Radke with Citi.

Tyler Maverick Radke

Kelly, to start off, just on the Enterprise customers, I appreciate the explanation on the movement of some of those customers moving into Online. I think if I back that out, it's still declining sequentially. So I was wondering if you could unpack kind of the drivers of that Enterprise customer number and then how you're thinking about growth for that long term.
And then second of all, just as we think about the billings outlook, I think that came in a little bit stronger for the second quarter despite revenue being a little bit below consensus. I guess what are the puts and takes on that, that would be kind of driving the divergence, any change in billings terms we should be thinking about?

Kelly Steckelberg

Yes. So first of all, on the Enterprise number, it didn't decline quarter-over-quarter, I just want to be clear, even if you back out those numbers. So it should be up. We have discussed this in the past that as our strategy, especially on selling Zoom Phone and Contact Center is selling into our existing installed base, and that as more of our revenue growth is coming from these emerging products and selling into our existing installed base, that you should expect those customer adds to not grow at the same rate that they did historically, but it did grow quarter-over-quarter. So I just want to be clear about that.
And then we've said this before, too, and I know it's not always what you want to hear, but in terms of billings and RPO, really, the best indicator that I can give you of the future is our revenue guidance itself. I would just say it this way, we continue to see strength in movement from monthly to annual to multiyear billing terms, so that's really positive as well as we see expansion and growth into those longer tenured customers in Online, which typically also means they've expanded into longer billing terms. And we've also seen some benefit, as we mentioned, as we've really been more thoughtful about our discounting practices, which includes fewer free periods in the Enterprise. And so all of that is leading to the growth that you're seeing from billings and the deferred revenue side of things.

Operator

We will now hear from Alex Zukin with Wolfe Research.

Aleksandr J. Zukin

First, I just want to acknowledge, we saw something from you guys this quarter we haven't seen in a long time: accelerating enterprise revenue growth, accelerating enterprise billings growth and declining OpEx. So just maybe stack rank for us, like if you look at all the things you called out, whether it's Contact Center, Phone, Workvivo, even the Sales Product and the Quality Management product you referenced in the prepared remarks, Eric, stack rank where those kind of landed in terms of the driving factors or the driving force behind that acceleration? And then I've got a quick follow-up.

Eric S. Yuan

Kelly, do you want to take it?

Kelly Steckelberg

Yes, sure. Let me talk about revenue and you can talk about sort of the business momentum in general. Zoom Phone continues to be a very strong growth driver. Very pleased with the growing momentum we are seeing from Contact Center and then Workvivo also gaining in its own right. In terms of relative overall dollars, Workvivo is still a smaller component of the business but is growing very, very quickly, so certainly, contributing some really exciting customers that are coming to Zoom as a result of both Contact Center and Workvivo. And also, we had won a new customer coming from Revenue Accelerator as well this quarter. So that's really exciting to see, these emerging products that are bringing new customers and new logos to the company. So I think in terms of momentum, we're excited across all of those, but kind of in that order.
Eric, anything else you want to add?

Eric S. Yuan

Alex, that's a great observation. I think to echo what Kelly said, that momentum boils down to our product strategy. It's actually the two key pillars. The first one is the Zoom Workplace. The second one is Business Services. If you look at the Zoom Workplace, right, for those customer deployments, Meetings, and they have a Zoom Workplace client; and then they try to consolidate, right, some other solutions like Zoom Team Chat, it's good, flexible, a very scalable chat solution, it's part of that at no additional cost. When they need to put other whiteboard solutions, Zoom has a Whiteboard, Zoom has a meeting for scheduler functionality as well, right, a lot of features as part of the Zoom Workplace.
But what's more important than that, they take the Zoom Meeting Summary feature, for example, that's our AI feature. When they tested the feature, their feedback is not only positive when they say, "Wow, I cannot believe that. It worked so well, plus at no additional cost," they also trust, like our AI vision as well. This is kind of Workplace. Plus, the reason why Meta, which is a great company I truly admire, why they picked up Zoom Workvivo because they also look at it from their customer perspective. They want to pick out the best partner who can deploy a greater solution, right? AI is part of that. Workvivo is also part of our Workplace platform.
If you look at Business Services, Contact Center for support team, Revenue Accelerator for sales team, Event Sessions for marketing team and all those new services, right, also will help us a lot. Again, back to the Contact Center story, a lot of opportunities, a lot of Enterprise customers, by and large, are still on on-premise solution. They are thinking about which cloud contact center solution they can trust, they can count in the next 5 to 10 years. Zoom is a much better platform. That's the reason why I think that's kind where the momentum is coming, really focus on the Enterprise side.

Aleksandr J. Zukin

And Eric, maybe just on pricing. You got asked this question a couple of times. You're talking about it being stable. You also raised price and you didn't see a real change in churn. I know you don't like raising price too many times. But if you think about just the strategy of continuing to add a tremendous amount of value, whether it's through consolidation or incremental functionality like sales or quality management, if you look at the ACV uplift in those 2 accounts that you called out for Expedia and MLB, and you look at that across your pipeline for adding those types of features, assuming some kind of attach rate, what's that opportunity look like for you guys?

Eric S. Yuan

Yes, I can talk to the business side. Kelly, feel free if you want to chime in on the revenue side. I think Expedia is a great example, right? And they deployed Revenue Accelerator, right? Again, those are Business Services, right? It's kind of, I would say, a very compelling service, right? We are not, compared to the competitors, dramatically lowering the price. That's not our case because there's a huge value. AI is part of that, not like Workplace, AI at no additional cost, right? However, here, AI is playing a very big role for all of Business Services, right? And also most of them are Enterprise customers, right?
And the reason why I think we are doubling down on Business Services pricing is kind of like when we offer a Meeting service many years ago, right, it's the better pricing, better product, better service. However, here is a very different story. We compete against any other competitors. Also, the price, the customer like that as well because they do not want to use Zoom, "Oh, it's just a low price." That's not the case for Business Services because of the huge value.

Kelly Steckelberg

Yes. In terms of the revenue upside, Alex, it kind of varies by product because certain products have much higher ASPs, for example, like Zoom Contact Center than Meetings. But of course, the attach rate in terms of number of seats isn't 1:1, right? There's a lesser ratio there. Zoom Phone, we saw an attach rate of generally 1:1 or we do see a attach rate, I should say, of 1:1 for Meetings to Phone, sometimes even greater when we look at customers that we've talked about here before that have a bigger attach rate because they have phones in retail locations, for example. So it just varies.
The thing that I will say is generally a lot of these emerging products also had better gross margins, which is helpful when you look at something like Contact Center because of the ASP. Especially, with the rollout of the pricing tiers, we saw the ASPs for those products almost doubled from quarter to quarter with the rollout of the new pricing tiers. And I think that will continue as the features and functionality, especially in those upper tiers, continues to expand.

Aleksandr J. Zukin

Perfect. Congrats, guys.

Kelly Steckelberg

Thanks.

Eric S. Yuan

Thank you, Alex.

Operator

Matthew VanVliet with BTIG.

Matthew David VanVliet

I guess on the last point, as you include more AI Companion in the mix, how do you feel like that's actually monetizing maybe more seats, a larger opportunity at those individual customers, than maybe limited by only Phone or only Meetings? How is the Workspace sort of bringing all this together, helping drive deal sizes higher?

Eric S. Yuan

I think AI Companion not only help our Meetings, Phone, or Team Chat, it's across the entire Zoom Workplace platform plus all the Business Services, right? Our approach, if you look at our Workplace, the deployment, right, for the entire collaboration platform not only makes all those services better but also customers appreciate it, right, without charging the customers more, right? We do add more value to customers at no additional cost, right? That's kind of the power part of the Zoom company. At the same time, in terms of monetization, as I mentioned earlier, if you look at our Business Services, AI is a key differentiation, right, AI and we charge a premium price as well, and that's the value.
At the same time, we also are going to leverage AI Companion to build a lot of new things, new services like Ask AI that will be introduced later this year and also some other new services that we're working on as well. But overall, I think the AI for the existing collaboration customers add more value for new services, right? And also we can charge a premium price, plus also can leverage AI Companion to build new services given the edge AI is coming, and there's a lot of new opportunities.

Operator

We will now hear from Ryan Koontz with Needham.

Ryan Boyer Koontz

First, Kelly, a quick housekeeping one. The reclassification of customers, is that expected to change any of your KPIs, can you point me in the right direction?

Kelly Steckelberg

I mean no significant. As we mentioned, although the number was pretty significant, the revenue shift from Enterprise to Online was only $4 million. And as we indicated, because it was so de minimis, the impact on net dollar expansion calculation, for example, it didn't move it at all.

Ryan Boyer Koontz

Got it. Helpful. And Eric, maybe a quick strategic question on Events. Any update there in terms of how the ecosystem is building out? I know that's a complex market to penetrate, any update you have for us there?

Eric S. Yuan

Yes, great question. I do not think I gave a few examples about that. But I can tell you, Zoom Events is doing extremely well, if you look at its every quarter contribution to our revenue growth. We had a webinar a long, long time ago, right, and Zoom introduced Zoom Sessions. Events, it's a very trustable brand. It offered the most flexible events service. And I think that service is going to help us more and more because, if you look at any other competitors, right, most important competitor, think of the very large one, they even do not have something similar. And probably, there isn't a product on par with our Webinar. Now we have Events and Sessions, right? We offer the best events and sessions for our customers. That's the reason why for almost every Enterprise customer, you look at the very large events, Zoom is the best platform. Our competitors even do not have that.
By the way, I forgot to mention, actually, it's not only for Events itself. Essentially, a lot of customers use Zoom to improve their working, their marketing efficiency, right, how to drive the lead generation and our workflow, right, integrated very well with our Events And Sessions.

Operator

We will now hear from James Fish with Piper Sandler.

James Edward Fish

Maybe just bridging the Phone and Contact Center opportunity, it's kind of hard to probably parse this out in the entire installed base, but as we think about those greater than 90 Contact Center accounts over $100,000, maybe could you go over the overlap of adoption between following Contact Center, how that packaging of the two is going together and if you guys are starting to see that pipeline or backlog increase for cloud conversions across those spaces relative to the last year.

Eric S. Yuan

Yes, sure. So yes, Kelly, feel free to chime in. When we started, you look at the quarterly, the Contact Center, the deals we won, we thought probably most of the customers will be the existing customer, right, either Meeting customers, the Phone customers. However, that's not right. And quite often, some customers, they're not Meeting customers, not Phone customers. But they became the first customer to deploy the Zoom Contact Center. So that means we have a lot of opportunities for existing installed base. So we're going to double down on that because the product already works very well. And plus, buyers are different. That's the reason why we invested more to our channel partnership as well. I think more and more existing installed base, right, after they heard about our Contact Center success story, I think we are going to see acceleration of Contact Center business growth.

Operator

We have one additional question, which will come from Michael Turrin with Wells Fargo.

Michael James Turrin

Kelly, you had a few comments on tightening discounts, tightening grace periods, just things for us to be mindful of in terms of the model. I'm wondering if that's somewhat standard operating procedure for Zoom or if that's coming from more confidence that the business is now stabilizing. And if you're just able to help us with visibility you have from here into Q2, marking the low point in terms of growth, and any additional details on drivers that is useful.

Kelly Steckelberg

Yes. I think the discounting, we started working on being more thoughtful and disciplined about that last year. We've talked about that several times before. And you're starting to see the impact and the benefit of that rolling through the results this year, which makes sense as customers are coming up for renewal, especially some of those ones that are on annual accounts.
And then in terms of tightening up the dunning period, I think that it's just as we continue to mature as an organization and really be thoughtful about not only what's good for our business but what's good for our customers as well. And seeing that, it was just the right time. And we continuously go through and look at our financial and accounting policies and make sure that those align with what's, again, right for the business and right for our customers as well. I think it's more about that and less about sort of anything else that's happening in the business other than just being thoughtful and maturing into some of those policies.

Operator

That is all the time we have for questions today. That concludes our questions. So I'll turn it back to Eric for any closing comments you might have.

Eric S. Yuan

Yes. Thank you all for joining us today. I really appreciate it. And we are working as hard as we can to truly deliver happiness to our customers and partners. And also, I'd like to leverage this opportunity to thank every Zoomies for their hard work and really appreciate it. Thank you all for your time. See you next quarter.

Operator

Thank you so much, Eric and Kelly. And again, everyone. This concludes today's earnings release. We thank you all for your participation. Enjoy your summer, and we will see you next quarter.