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Zoom Video Communications Reports Financial Results for the Second Quarter of Fiscal Year 2025

Globe Newswire 21-Aug-2024 4:05 PM

  • Second quarter total revenue of $1,162.5 million, up 2.1% year over year as reported and 2.4% in constant currency
  • Second quarter Enterprise revenue of $682.8 million, up 3.5% year over year
  • Second quarter GAAP operating margin of 17.4% and non-GAAP operating margin of 39.2%
  • Second quarter operating cash flow of $449.3 million, up 33.7% year over year
  • Repurchased approximately 4.8 million shares of common stock in Q2

SAN JOSE, Calif., Aug. 21, 2024 (GLOBE NEWSWIRE) -- Zoom Video Communications, Inc. (NASDAQ:ZM), today announced financial results for the second fiscal quarter ended July 31, 2024.

"In Q2, we outperformed our guidance across the board and grew operating cash flow and free cash flow by 33.7% and 26.2% year over year, respectively, demonstrating our continued commitment to efficient growth. We also saw strength in large accounts, with customers contributing more than $100,000 in trailing 12 months revenue increasing by 7.1% year over year, and resilience in our Online business, with Online average monthly churn reaching its lowest ever rate," said Eric S. Yuan, Zoom founder, and CEO. "Zoom Contact Center racked up several marquee customers, including its largest single order deal to-date, highlighting our ability to win competitive deals for full scale, customer-facing deployments with our higher-end packages that utilize advanced AI features to enhance agent performance."

Second Quarter Fiscal Year 2025 Financial Highlights:

  • Revenue: Total revenue for the second quarter was $1,162.5 million, up 2.1% year over year. Adjusting for foreign currency impact, revenue in constant currency was $1,166.1 million, up 2.4% year over year. Enterprise revenue was $682.8 million, up 3.5% year over year, and Online revenue was $479.7 million, flat year over year.
  • Income from Operations and Operating Margin: GAAP income from operations for the second quarter was $202.4 million, compared to GAAP income from operations of $177.6 million in the second quarter of fiscal year 2024. After adjusting for stock-based compensation expense and related payroll taxes, acquisition-related expenses, restructuring expenses, and litigation settlements, net, non-GAAP income from operations for the second quarter was $455.5 million, compared to non-GAAP income from operations of $461.7 million in the second quarter of fiscal year 2024. For the second quarter, GAAP operating margin was 17.4% and non-GAAP operating margin was 39.2%.
  • Net Income and Diluted Net Income Per Share: GAAP net income for the second quarter was $219.0 million, or $0.70 per share, compared to GAAP net income of $182.0 million, or $0.59 per share, in the second quarter of fiscal year 2024.

    Non-GAAP net income for the second quarter was $436.4 million, after adjusting for stock-based compensation expense and related payroll taxes, gains on strategic investments, net, acquisition-related expenses, restructuring expenses, litigation settlements, net, and the tax effects on non-GAAP adjustments. Non-GAAP net income per share was $1.39. In the second quarter of fiscal year 2024, non-GAAP net income was $409.6 million, or $1.34 per share.
  • Cash and Marketable Securities: Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of July 31, 2024 was $7.5 billion.
  • Cash Flow: Net cash provided by operating activities was $449.3 million for the second quarter, compared to $336.0 million in the second quarter of fiscal year 2024, up 33.7% year over year. Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $365.1 million, compared to $289.4 million in the second quarter of fiscal year 2024, up 26.2% year over year.

Customer Metrics: Drivers of total revenue included acquiring new customers. At the end of the second quarter of fiscal year 2025, Zoom had:

  • 3,933 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 7.1% from the same quarter last fiscal year.
  • Approximately 191,600 Enterprise customers.
  • A trailing 12-month net dollar expansion rate for Enterprise customers of 98%.
  • Online average monthly churn of 2.9% for the second quarter, down 30 bps from the second quarter fiscal year 2024.
  • The percentage of total Online MRR from Online customers with a continual term of service of at least 16 months was 74.4%, up 160 bps year over year.

Financial Outlook: Zoom is providing the following guidance for its third quarter of fiscal year 2025 and its full fiscal year 2025.

  • Third Quarter Fiscal Year 2025: Total revenue is expected to be between $1.160 billion and $1.165 billion and revenue in constant currency is expected to be between $1.162 billion and $1.167 billion. Non-GAAP income from operations is expected to be between $438.0 million and $443.0 million. Non-GAAP diluted EPS is expected to be between $1.29 and $1.31 with approximately 314 million weighted average shares outstanding.
  • Full Fiscal Year 2025: Total revenue is expected to be between $4.630 billion and $4.640 billion and revenue in constant currency is expected to be between $4.641 billion and $4.651 billion. Full fiscal year non-GAAP income from operations is expected to be between $1.790 billion and $1.800 billion. Full fiscal year non-GAAP diluted EPS is expected to be between $5.29 and $5.32 with approximately 316 million weighted average shares outstanding. Full fiscal year free cash flow is expected to be between $1.580 billion and $1.620 billion.

The EPS and share count figures do not include the impact from $1.062 billion of authorized share repurchase remaining as of July 31, 2024.

Additional information on Zoom's reported results, including a reconciliation of the non-GAAP results to their most comparable GAAP measures, is included in the financial tables below. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future, although it is important to note that these factors could be material to Zoom's results computed in accordance with GAAP.

A supplemental financial presentation and other information can be accessed through Zoom's investor relations website at investors.zoom.us.

Zoom Video Earnings Call

Zoom will host a Zoom Video Webinar for investors on August 21, 2024 at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss the company's financial results, business highlights and financial outlook. Investors are invited to join the Zoom Video Webinar by visiting: https://investors.zoom.us/

About Zoom

Zoom's mission is to provide one platform that delivers limitless human connection. Reimagine teamwork with Zoom Workplace — Zoom's open collaboration platform with AI Companion empowers teams to be more productive. Together with Zoom Workplace, Zoom's Business Services for sales, marketing, and customer care teams, including Zoom Contact Center, strengthen customer relationships throughout the customer lifecycle. Founded in 2011, Zoom is publicly traded (NASDAQ:ZM) and headquartered in San Jose, California. Get more information at zoom.com.

Forward-Looking Statements

This press release contains express and implied "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Zoom's financial outlook for the third quarter of fiscal year 2025 and full fiscal year 2025, Zoom's market position, opportunities, and growth strategy, product initiatives, go-to-market motions and the expected benefits resulting from the same, market trends, and Zoom's stock repurchase program. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "estimate," "expect," "intend," "may," "might," "plan," "project," "will," "would," "should," "could," "can," "predict," "potential," "target," "explore," "continue," or the negative of these terms, and similar expressions intended to identify forward-looking statements. By their nature, these statements are subject to numerous uncertainties and risks, including factors beyond our control, that could cause actual results, performance or achievement to differ materially and adversely from those anticipated or implied in the statements, including: declines in new customers, renewals or upgrades, or decline in demand for our platform, difficulties in evaluating our prospects and future results of operations given our limited operating history, competition from other providers of communications platforms, the effect of macroeconomic conditions on our business, including inflation and market volatility, lengthened sales cycles with large organizations, delays or outages in services from our co-located data centers, failures in internet infrastructure or interference with broadband access, compromised security measures, including ours and those of the third parties upon which we rely, and global security concerns and their potential impact on regional and global economies and supply chains. Additional risks and uncertainties that could cause actual outcomes and results to differ materially from those contemplated by the forward-looking statements are included under the caption "Risk Factors" and elsewhere in our most recent filings with the Securities and Exchange Commission (the "SEC"), including our quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2024. Forward-looking statements speak only as of the date the statements are made and are based on information available to Zoom at the time those statements are made and/or management's good faith belief as of that time with respect to future events. Zoom assumes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by law.

Non-GAAP Financial Measures

Zoom has provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Zoom uses these non-GAAP financial measures internally in analyzing its financial results and believes that use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing Zoom's financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with Zoom's condensed consolidated financial statements prepared in accordance with GAAP. A reconciliation of Zoom's historical non-GAAP financial measures to the most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

Non-GAAP Income from Operations and Non-GAAP Operating Margin. Zoom defines non-GAAP income from operations as income from operations excluding stock-based compensation expense and related payroll taxes, acquisition-related expenses, restructuring expenses, and litigation settlements, net. Zoom excludes stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding Zoom's operational performance and allows investors the ability to make more meaningful comparisons between Zoom's operating results and those of other companies. Zoom excludes the amount of employer payroll taxes related to employee stock plans, which is a cash expense, in order for investors to see the full effect that excluding stock-based compensation expense had on Zoom's operating results. In particular, this expense is dependent on the price of our common stock and other factors that are beyond our control and do not correlate to the operation of the business. Zoom views acquisition-related expenses when applicable, such as amortization of acquired intangible assets, transaction costs, and acquisition-related retention payments that are directly related to business combinations as events that are not necessarily reflective of operational performance during a period. Restructuring expenses are expenses associated with a formal restructuring plan and may include employee notice period costs, severance payments, and other related expenses. Zoom excludes these restructuring expenses because they are distinct from ongoing operational costs and Zoom does not believe they are reflective of current and expected future business performance and operating results. Zoom excludes significant litigation settlements, net of amounts covered by insurance, that we deem not to be in the ordinary course of our business. In fact, Zoom believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods that may or may not include such expenses and assist in the comparison with the results of other companies in the industry.

Non-GAAP Net Income and Non-GAAP Net Income Per Share, Basic and Diluted. Zoom defines non-GAAP net income and non-GAAP net income per share, basic and diluted, as GAAP net income and GAAP net income per share, basic and diluted, respectively, adjusted to exclude stock-based compensation expense and related payroll taxes, acquisition-related expenses, restructuring expenses, gains/losses on strategic investments, net, litigation settlements, net, and the tax effects of all non-GAAP adjustments. Zoom excludes these items because they are considered by management to be outside of Zoom's core operating results. These adjustments are intended to provide investors and management with greater visibility to the underlying performance of Zoom's business operations, facilitate comparison of its results with other periods, and may also facilitate comparison with the results of other companies in the industry.

Free Cash Flow and Free Cash Flow Margin. Zoom defines free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment. Zoom considers free cash flow to be a liquidity measure that provides useful information to management and investors regarding net cash provided by operating activities and cash used for investments in property and equipment required to maintain and grow the business.

Revenue in Constant Currency. Zoom defines revenue in constant currency as GAAP revenue adjusted for revenue reported in currencies other than United States dollars as if they were converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. Zoom provides revenue in constant currency information as a framework for assessing how Zoom's underlying businesses performed period to period, excluding the effects of foreign currency fluctuations.

Customer Metrics

Zoom defines a customer as a separate and distinct buying entity, which can be a single paid user or an organization of any size (including a distinct unit of an organization) that has multiple users. Zoom defines Enterprise customers as distinct business units that have been engaged by either our direct sales team, resellers, or strategic partners. All other customers that subscribe to our services directly through our website are referred to as Online customers.

Zoom calculates net dollar expansion rate as of a period end by starting with the annual recurring revenue ("ARR") from Enterprise customers as of 12 months prior ("Prior Period ARR"). Zoom defines ARR as the annualized revenue run rate of subscription agreements from all customers at a point in time. Zoom calculates ARR by taking the monthly recurring revenue ("MRR") and multiplying it by 12. MRR is defined as the recurring revenue run-rate of subscription agreements from all Enterprise customers for the last month of the period, including revenue from monthly subscribers who have not provided any indication that they intend to cancel their subscriptions. Zoom then calculates the ARR from these Enterprise customers as of the current period end ("Current Period ARR"), which includes any upsells, contraction, and attrition. Zoom divides the Current Period ARR by the Prior Period ARR to arrive at the net dollar expansion rate. For the trailing 12 months calculation, Zoom takes an average of the net dollar expansion rate over the trailing 12 months.

Zoom calculates online average monthly churn by starting with the Online customer MRR as of the beginning of the applicable quarter ("Entry MRR"). Zoom defines Entry MRR as the recurring revenue run-rate of subscription agreements from all Online customers except for subscriptions that Zoom recorded as churn in a previous quarter based on the customers' earlier indication to us of their intention to cancel that subscription. Zoom then determines the MRR related to customers who canceled or downgraded their subscription or notified us of that intention during the applicable quarter ("Applicable Quarter MRR Churn") and divides the Applicable Quarter MRR Churn by the applicable quarter Entry MRR to arrive at the MRR churn rate for Online Customers for the applicable quarter. Zoom then divides that amount by three to calculate the online average monthly churn.

Public Relations

Colleen Rodriguez
Head of Global Public Relations
press@zoom.us

Investor Relations

Charles Eveslage
Head of Investor Relations
investors@zoom.us

Zoom Video Communications, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
 
 As of
 July 31,
2024
 January 31,
2024
Assets(unaudited)  
Current assets:   
Cash and cash equivalents$1,539,457  $1,558,252 
Marketable securities 5,980,575   5,404,233 
Accounts receivable, net 528,237   536,078 
Deferred contract acquisition costs, current 197,502   208,474 
Prepaid expenses and other current assets 149,374   219,182 
Total current assets 8,395,145   7,926,219 
Deferred contract acquisition costs, noncurrent 120,603   138,724 
Property and equipment, net 347,714   293,704 
Operating lease right-of-use assets 53,045   58,975 
Strategic investments 438,529   409,222 
Goodwill 307,295   307,295 
Deferred tax assets 718,066   662,177 
Other assets, noncurrent 126,795   133,477 
Total assets$10,507,192  $9,929,793 
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$10,611  $10,175 
Accrued expenses and other current liabilities 439,459   500,164 
Deferred revenue, current 1,391,278   1,251,848 
Total current liabilities 1,841,348   1,762,187 
Deferred revenue, noncurrent 15,416   18,514 
Operating lease liabilities, noncurrent 36,052   48,308 
Other liabilities, noncurrent 89,129   81,378 
Total liabilities 1,981,945   1,910,387 
    
Stockholders' equity:   
Common stock 308   307 
Additional paid-in capital 5,298,145   5,228,756 
Accumulated other comprehensive (loss) income 2,191   1,063 
Retained earnings 3,224,603   2,789,280 
Total stockholders' equity 8,525,247   8,019,406 
Total liabilities and stockholders' equity$10,507,192  $9,929,793 
        

Note: The amount of unbilled accounts receivable included within accounts receivable, net on the condensed consolidated balance sheets was $119.9 million and $124.8 million as of July 31, 2024 and January 31, 2024, respectively.

Zoom Video Communications, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share amounts)
 
 Three Months Ended July 31,  Six Months Ended July 31,
  2024   2023   2024   2023 
Revenue$1,162,520  $1,138,676  $2,303,754  $2,244,040 
Cost of revenue 285,089   266,559   558,391   530,506 
Gross profit 877,431   872,117   1,745,363   1,713,534 
Operating expenses:       
Research and development 206,756   191,802   412,314   401,073 
Sales and marketing 358,770   373,373   706,778   795,877 
General and administrative 109,535   129,324   220,879   329,224 
Total operating expenses 675,061   694,499   1,339,971   1,526,174 
Income from operations 202,370   177,618   405,392   187,360 
Gains on strategic investments, net 3,107   31,670   20,461   33,945 
Other income, net 87,412   41,085   159,000   72,298 
Income before provision for income taxes 292,889   250,373   584,853   293,603 
Provision for income taxes 73,874   68,399   149,530   96,185 
Net income 219,015   181,974   435,323   197,418 
        
Net income per share:       
Basic$0.71  $0.61  $1.41  $0.66 
Diluted$0.70  $0.59  $1.38  $0.65 
Weighted-average shares used in computing net income per share:       
Basic 309,137,807   299,093,452   308,921,610   297,281,846 
Diluted 314,027,192   305,932,596   314,696,351   305,054,771 
                


Zoom Video Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
 Three Months Ended July 31,  Six Months Ended July 31,
  2024   2023   2024   2023 
Cash flows from operating activities:       
Net income$219,015  $181,974  $435,323  $197,418 
Adjustments to reconcile net income to net cash provided by operating activities:       
Stock-based compensation expense 237,950   261,509   467,375   543,854 
Amortization of deferred contract acquisition costs 71,688   65,514   139,813   138,744 
Depreciation and amortization 29,084   26,126   55,751   50,202 
Deferred income taxes (49,914)  (7,536)  (57,866)  13,975 
Gains on strategic investments, net (3,107)  (31,670)  (20,461)  (33,945)
Provision for accounts receivable allowances 5,736   6,771   12,518   22,204 
Unrealized foreign exchange (gains) losses (8)  1,367   7,229   4,683 
Non-cash operating lease cost 6,589   5,276   11,957   10,657 
Amortization of discount/premium on marketable securities (18,172)  (11,249)  (35,840)  (18,014)
Other (1,323)  2,056   (1,225)  (3,415)
Changes in operating assets and liabilities:       
Accounts receivable (4,623)  42,732   7,637   13,631 
Prepaid expenses and other assets 25,196   (77,229)  61,035   (83,888)
Deferred contract acquisition costs (70,591)  (46,589)  (110,719)  (92,927)
Accounts payable (7,009)  3,118   267   4,999 
Accrued expenses and other liabilities (39,025)  (83,591)  (53,967)  (58,951)
Deferred revenue 55,665   2,992   133,629   56,332 
Operating lease liabilities, net (7,817)  (5,600)  (14,931)  (11,101)
Net cash provided by operating activities 449,334   335,971   1,037,525   754,458 
Cash flows from investing activities:       
Purchases of marketable securities (1,313,404)  (1,057,936)  (2,181,315)  (1,826,166)
Maturities of marketable securities 867,228   983,434   1,644,169   1,543,120 
Purchases of property and equipment (84,234)  (46,600)  (102,742)  (68,426)
Purchases of strategic investments (10,500)     (13,500)  (51,000)
Proceeds from strategic investments    107,244   4,654   107,244 
Cash paid for acquisition, net of cash acquired    (5,502)     (204,918)
Net cash used in investing activities (540,910)  (19,360)  (648,734)  (500,146)
Cash flows from financing activities:       
Proceeds from exercise of stock options 839   3,418   1,855   7,686 
Proceeds from issuance of common stock for employee stock purchase plan 34,263   32,513   34,263   32,513 
Proceeds from employee equity transactions (remitted) to be remitted to employees and tax authorities, net (3,722)  (1,492)  2,859   1,259 
Cash paid for repurchases of common stock (287,645)     (437,693)   
Net cash (used in) provided by financing activities (256,265)  34,439   (398,716)  41,458 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 706   (1,228)  (6,146)  (3,781)
Net (decrease) increase in cash, cash equivalents, and restricted cash (347,135)  349,822   (16,071)  291,989 
Cash, cash equivalents, and restricted cash – beginning of period 1,896,444   1,042,410   1,565,380   1,100,243 
Cash, cash equivalents, and restricted cash – end of period$1,549,309  $1,392,232  $1,549,309  $1,392,232 
                


Zoom Video Communications, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited, in thousands, except share and per share amounts)
 
 Three Months Ended July 31,  Six Months Ended July 31,
  2024   2023   2024   2023 
GAAP income from operations$202,370  $177,618  $405,392  $187,360 
Add:       
Stock-based compensation expense and related payroll taxes 244,111   269,320   486,985   547,368 
Litigation settlements, net (1,750)     (1,750)  52,500 
Acquisition-related expenses 10,811   14,928   21,512   23,779 
Restructuring expenses    (187)     72,993 
Non-GAAP income from operations$455,542  $461,679  $912,139  $884,000 
GAAP operating margin 17.4%  15.6%  17.6%  8.3%
Non-GAAP operating margin 39.2%  40.5%  39.6%  39.4%
        
GAAP net income$219,015  $181,974  $435,323  $197,418 
Add:       
Stock-based compensation expense and related payroll taxes 244,111   269,320   486,985   547,368 
Litigation settlements, net (1,750)     (1,750)  52,500 
Gains on strategic investments, net (3,107)  (31,670)  (20,461)  (33,945)
Acquisition-related expenses 10,811   14,928   21,512   23,779 
Restructuring expenses    (187)     72,993 
Tax effects on non-GAAP adjustments (32,659)  (24,800)  (58,870)  (97,297)
Non-GAAP net income$436,421  $409,565  $862,739  $762,816 
        
Net income per share - basic and diluted:       
GAAP net income per share - basic$0.71  $0.61  $1.41  $0.66 
Non-GAAP net income per share - basic$1.41  $1.37  $2.79  $2.57 
GAAP net income per share - diluted$0.70  $0.59  $1.38  $0.65 
Non-GAAP net income per share - diluted$1.39  $1.34  $2.74  $2.50 
        
GAAP and non-GAAP weighted-average shares used to compute net income per share - basic 309,137,807   299,093,452   308,921,610   297,281,846 
GAAP and non-GAAP weighted-average shares used to compute net income per share - diluted 314,027,192   305,932,596   314,696,351   305,054,771 
        
Net cash provided by operating activities$449,334  $335,971  $1,037,525  $754,458 
Less: Purchases of property and equipment (84,234)  (46,600)  (102,742)  (68,426)
Free cash flow (non-GAAP)$365,100  $289,371  $934,783  $686,032 
Net cash used in investing activities$(540,910) $(19,360) $(648,734) $(500,146)
Net cash (used in) provided by financing activities$(256,265) $34,439  $(398,716) $41,458 
Operating cash flow margin (GAAP) 38.7%  29.5%  45.0%  33.6%
Free cash flow margin (non-GAAP) 31.4%  25.4%  40.6%  30.6%
        
 Three Months Ended July 31,  Six Months Ended July 31,
  2024   2024 
 Revenue YoY Revenue Growth (%) Revenue YoY Revenue Growth (%)
GAAP revenue$1,162,520   2.1% $2,303,754   2.7%
Add: Constant currency impact 3,573   0.3%  5,923   0.2%
Revenue in constant currency (non-GAAP) 1,166,093   2.4%  2,309,677   2.9%
                
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