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Zoom CFO talks earnings, AI, and becoming an ‘indispensable platform’ post-pandemic

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Zoom CFO Kelly Steckelberg joins Yahoo Finance Live to discuss earnings results, the growth of the enterprise business, and where the company is headed post-pandemic.

Video transcript

JULIE HYMAN: Zoom shares are rising a bit today, although their earlier gains are sort of being eroded to some extent. This after the company came out with revenue and earnings that beat estimates.

Joining us to talk about the company's past quarter and the outlook is Zoom chief financial Officer Kelly Steckelberg. Kelly, it's great to see you. It looks like a strong quarter, especially in what has been a tough environment, most certainly, for tech stocks and for pandemic strength stocks.

I want to talk to you about the product mix a little bit or the customer mix, I should say. I know you guys saw good strength and growth on the enterprise side. Talk to me about that mix and what you are also seeing on the online or more retail side.

KELLY STECKELBERG: Yes, so we absolutely saw strength in our enterprise business growing 30% year over year and now contributing the majority of our revenue at 52%. So we saw strength in new [? logos ?] as well as renewals in that segment of our business.

In the online segment, as you alluded to, we did see some headwinds. This was largely due to performance in India where we see macroeconomic impact from the war that's happening there as well as some impact from the strengthening of the dollar. So the FX going against us. And all in all, when we talked about our outlook for the full year, we expect that as having an impact of approximately 1% of revenue overall.

JARED BLIKRE: And can you tell me about the importance of free cash flow to your business? I'm reading a comment by Piper Sandler here. "As Zoom doesn't expect to see a trough in lead metrics until the fourth quarter, this along with declining free cash flow will continue to hold back the stock." But what's your plan for the turnaround there given the fact that you're ramping up enterprise, et cetera?

KELLY STECKELBERG: So we had very strong free cash flow in the quarter with over 46% and operating margins of 37%, so highly profitable and generating-- we've generated over $500 million of free cash flow in the quarter.

In terms of the outlook for the year, we did indicate that that could come down a little bit as we're seeing a transition in terms of cash taxes. So we've been highly profitable historically, and so that is-- and utilize all of our NOL. So there's a little bit of transition here as we're moving to being a cash taxpayer, and that's what you're going to see in the outlook is decrease, some contracting of our free cash flow. But we are committed to maintaining our profitability while at the same time investing in R&D for innovation as well as building sales capacity and our international channel programs on a global basis.

JULIE HYMAN: Kelly, when you look at growth for the company, I mean, obviously you had to slow down just given the changing world that we are in and the enormous growth that you guys saw during the pandemic. What is the long-term growth look like for Zoom?

KELLY STECKELBERG: We've given outlook for this year for FY23, which is what we're in, and we indicated our guidance of 11% year-over-year growth. And when you look at the two segments of our business, that equates to 20% plus growth in our enterprise and flattish for our online segment of our business.

And we're really thrilled about the outlook. What we've indicated, as you just mentioned, is that there's going to be a transition period or an inflection point in Q4 of this year where we start to see acceleration of growth again. And this is coming from contribution from our international sales capacity as well as all these new products that we have that we're thrilled about, including Zoom Phone, which had very strong performance in the quarter; Zoom Rooms as we look forward to a world of continued hybrid work; and then, of course, Zoom Contact Center, which we just released. We had some great names, including FranklinCovey, become a customer of our contact center. And so all of that is going to contribute to the accelerating growth that we expect to see as we exit FY23.

JULIE HYMAN: Yeah, and, Kelly, I guess what I'm trying to get at is what happens beyond that, right? What is-- sort of given that in Zoom's life there hasn't really been a, quote, unquote, normal period, what does normal growth look like for Zoom beyond 2023?

KELLY STECKELBERG: Well, we are in this transition period of moving from being this killer app to being an indispensable platform and a platform where our customers do all aspects of their work.

So what does that look like? It means that it looks like we are embedded in their lives of both our enterprise customers as well as those in the online business. But most of the growth from Zoom will be driven from our enterprise segment. That's what we expect for the future.

And as I said, we saw 30% plus growth year over year in that segment of our business in Q1. So we haven't given long-term guidance, but you can take all of those factors and think about there's a very healthy, sustainable growth rate ahead for Zoom.

JARED BLIKRE: Well, what I find really interesting that ties to your previous comments about wanting to be an indispensable app, Kites, fascinating purchase for me. I love artificial intelligence and the goings on there. Talk about real-time translation into other languages. The future is here. So I'm wondering how that's working out for you and what other AI projects you might be thinking of, acquisitions, just your mindset toward AI.

KELLY STECKELBERG: Yeah. So we are thrilled about AI and sales. Zoom IQ for Sales, which is one of our new products we've also recently released, is leveraging AI for things like real-time transcription and analysis. As you talked about, we also do real-time translation.

And then we also just announced one of our more significant acquisitions as well including Solvvy which will bring conversational AI into our contact center. So we are excited about the future of AI and the many ways that we can bring productivity and, you know, more analytics into our platform.

JARED BLIKRE: Sounds like a bright future to me. Thank you so much for stopping by. Kelly Steckelberg, Zoom CFO.

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