Everyone, and welcome to Zoom's earnings webinar for the Q2 of fiscal 2020. Joining me today will be Zoom's Founder and CEO, Eric Yuan and Zoom's CFO, Kelly Sekelberg. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page on the zoom.com website. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that along with our earnings press release include a reconciliation of GAAP to non GAAP financial results. During this call, we will make forward looking statements about our future financial performance and other future events or trends, including guidance.
These statements are own predictions that are based on what we believe today and actual results may differ materially. These forward looking statements are subject to the risks and other factors that could affect our performance and financial results and which we discuss in detail in our filings with the SEC, including today's earnings press release and our latest 10 Q. Zoom assumes no obligation to update any forward looking statement that we may make on today's call. And with that, let me turn the discussion over to Eric.
Thank you, Tom. Hey, thank you all and welcome to everyone joining us on today's Zoom webinar. I'm very pleased to report that we had a remarkable second quarter and it continued to deliver a unique combination of high growth with increased profitability and free cash flow. As Kelly will discuss in a moment, the first half momentum in our business has enabled us to meaningfully raise our revenue and profitability outlook for the rest of the year. Our strong second quarter results are evidence that organizations are continuing to Zoom as a strategic technology partner to help them improve their communication and collaboration.
While we continue to attract the customers of all sizes and across several industry segments, let's discuss one of our largest wins of the quarter. I'm proud to welcome HSBC to the Zoom family. HSBC is one of the largest financial services organizations in the world with over 3,900 offices in 67 countries. HSBC will stand alone on Zoom platform by deploying to 290,000 hosts and to 5,500 conference rooms. HSBC will consolidate onto Zoom's video first unified communication platform for both internal and external meetings.
By standardizing on Zoom, HSBC will consolidate hosts and create an enhanced frictionless experience for end users. This enterprise wide deployment represents one of the largest customer commitments to Zoom in our history and reflects our growing momentum with global customers. AJDC, I love you. Now you know my wife suited to HSBC credit card. Now let me discuss 2 more business highlights from Q2.
First, we announced a new partnership with Verizon Business Group to offer Zoom to its global customers. Zoom's platform is available as a cloud service enabling Verizon's business customers to enjoy reliable and innovative video communications. This agreement with Verizon is a great example of our strategy to partner with top global service providers to extend the reach of Zoom around the world. The new service is available on Verizon's network and their sales team are already trained and enabled to sell Zoom. And second, Ren Eisels joined Zoom as our Chief Revenue Officer.
Ryan has nearly 20 years of selling experience and sales leadership in the communication industry. He spent the past 9 years at RingCentral where he was most recently the Executive Vice President of Sales and Services. Ren was instrumental in building the company's field sales and channel organizations from the ground up. Prior to RingCentral, Ran was a sales leader at Cisco Webex for over 9 years. I've had the pleasure of working with Ran previously and he has an incredible acumen for building and leading world class revenue organizations.
Including, I'd like to thank the 2,200 Zoom employees around the globe for their commitment to customer happiness, which sets the foundation for delivering the type of a strong financial results that we are sharing for our Q2 and the first half of fiscal twenty twenty. We will continue to stay focused across the company on the happiness of customers and building trust with them. By helping our customers to succeed with the frictionless communication platform, we are very well positioned to increase our market share and deliver remarkable results. With that, let me turn things over
to Kelly. Thank you, Eric, and welcome to everyone joining us today. Let me start by first reviewing financial results for Q2 and then I will discuss our outlook for Q3 and the full fiscal year. Total revenue grew 96% year over year in the second quarter to $146,000,000 This top line result exceeded the high end of our guidance range and had a positive impact on our profitability and free cash flow. Similar to last quarter, we executed very well in a strong demand environment for the Zoom platform.
This execution was represented broadly across our major geographies and offerings. Key drivers of our revenue performance included both our acquisition of new customers and expansion of Zoom's footprint within existing customers. Specifically, new customers accounted for approximately 61 percent of our year over year growth in subscription revenue, while the remaining 39% was due to additional purchases from existing customers. Here are some key customer metrics from Q2. We exited the quarter with over 66,300 customers with more than 10 employees, up 78% year over year.
This is a record number of new customer additions in a quarter. One of our key verticals is the financial services sector. I am pleased to share with you that we are experiencing strong success in this segment with firms like HSBC, Moody's and Morgan Stanley becoming Zoom customers in Q2. The combination of our land and expand strategy along with our continued upmarket focus resulted in Q2 ending with 4.66 customers with more than $100,000 in revenue over the last 12 months. This is up 104% year over year.
This also led to a net dollar expansion rate that was over 130% for the 5th consecutive quarter as customers are deploying more Zoom products and adding more licenses within their organization. One example was a significant expansion with a large luxury brand. This customer began their relationship with Zoom last year and quickly deployed Zoom meetings to approximately 3,800 users to replace their legacy video conferencing provider. Because of their trust in Zoom, they then invited us to provide a modern solution for the phone service in their corporate offices and stores. After a comprehensive evaluation, they selected Zoom Phone in Q2.
They cited call quality, ease of use, cost savings and the unified Zoom platform of meetings, chat and phone as important benefits to their organization. They have already begun the rollout of 4,700 Zoom Phone licenses within their organization. The customer also plans to roll out Zoom Phone to their 750 domestic retail stores starting in early 2020 and the rest of the world soon thereafter. This is an exciting win for us and it demonstrates the potential to upsell technologies when you make existing customers happy and build trust. Geographic expansion is another driver of our revenue growth as we continue to deliver strong growth internationally.
In Q2, our APAC and EMEA revenue combined grew 115% year over year and represented approximately 20% of revenue. Revenue from the Americas was up 91% year over year and represented approximately 80% of revenue. This high revenue growth and strategic customer wins are evidence that our investments to expand our global footprint are succeeding. Now turning to profitability. Here you can see we were profitable from both a GAAP and non GAAP perspective, but I will focus on our non GAAP results, which excludes stock based compensation expense and related share based equity taxes.
Non GAAP gross margin in the 2nd quarter was 82.2% compared to 82.8% in Q2 of last year and 80.9% last quarter. For the full year, we expect non GAAP gross margin to be in the range of our long term target of 80% to 82% as we continue to scale our infrastructure to support our growth. R and D expense in Q2 was approximately $13,000,000 up 83% on a year over year basis. We expect to continue to invest in innovating our platform and see R and D returning to the range of 10% to 12% of revenue, which is consistent with our long term view. Sales and marketing expense for Q2 was $69,000,000 This reflects an increase of 70% or $28,000,000 over last year with investments and initiatives to drive further growth.
As a percent of total revenue, sales and marketing was 47%, lower than Q2 last year as we have seen some efficiency gains in marketing. Looking forward, we expect to continue to invest in this area especially to drive revenue. This result represents our continued investments to support our status as a publicly traded company. Non GAAP operating income was $21,000,000 translating to a 14.2% non GAAP operating margin for the 2nd quarter. This was an improvement of 8 12 basis points as compared to Q2 of last year.
Non GAAP earnings per share in Q2 was $0.08 on approximately $292,000,000 of non GAAP weighted average shares outstanding and adjusting for undistributed earnings. This result is $0.06 higher than the high end of our guidance and $0.06 higher than Q2 of last year due to the outperformance in the quarter. Now turning to the balance sheet. We ended Q2 with approximately $755,000,000 in cash, cash equivalents and marketable securities. Deferred revenue at the end of the quarter was $181,000,000 up 102% year over year.
Looking at both our billed and unbilled contracts, our remaining performance obligations or RPO totaled approximately $458,000,000 up 117% from $210,000,000 last year. We expect to recognize approximately 62 percent or $285,000,000 of the total RPO as revenue over the next 12 months as compared to 68 percent or $143,000,000 in Q2 of last year. This shift to a larger percentage being in non current RPO represents longer contract links as we succeed with upmarket customers. Operating cash flow was $31,000,000 in Q2, up from $14,000,000 in the same period a year ago. Free cash flow was $17,000,000 in Q2, up from $8,000,000 in the same period a year ago.
Both of these results are due to our higher profitability, the growth in deferred revenue and strong collections. In addition, we also had a benefit of approximately $7,000,000 to operating cash flow related to employee contributions to our employee stock purchase plan. We would expect these contributions to scale with headcount and our first ESPP purchase will be made in Q4. Going forward, we expect to see benefits from contributions in Q1 and Q3 and net outflows for purchases in Q2 and Q4. Now turning to guidance.
We are pleased to be increasing our outlook for Q3 and the full year based on our view of the current economic environment, our ability to gain further market share and the momentum we achieved in the first half of FY twenty twenty. For the Q3, we expect revenue to be in the range of 155 dollars to $156,000,000 We expect non GAAP operating income to be in the range of $6,000,000 to $7,000,000 This forecast includes the impact of our premier user event Zoomtopia, which will take place in Q3. Our outlook for non GAAP earnings per share is $0.03 based on approximately 294,000,000 shares outstanding. For the full fiscal year 2020, we now expect revenue to be in the range of $587,000,000 to $590,000,000 up from our prior guidance of $535,000,000 to $540,000,000 We expect to generate positive non GAAP operating income in all 4 quarters of the fiscal year. For the full year, non GAAP operating income is dollars We expect to deliver non GAAP earnings per share in the range of $0.18 to 0 $0.19 for the full year fiscal 2020 based on approximately 293,000,000 shares outstanding.
This reflects the meaningful profitability seen in Q2 combined with the fact that we remain focused on investing aggressively in the business. We believe we have the opportunity to expand our market share and continue delivering happiness to more customers. We are confident that our long term business model will drive growth and profitability, which is further evidenced by our Q2 results. In closing, our focus on customers led to rapid top line growth and increased profitability and positive free cash flow for the quarter and for the first half of FY twenty twenty. I would like to thank the entire Zoom team for their hard work as Q2 was another quarter of strong execution and positions us well for the full fiscal year.
With that, let's open it up for questions. If you have not yet enabled your video, please do so now for the interactive portion of this meeting. Matt, please queue up our first question.
Our first question is from Sterling Auty from JPMorgan. Sterling, you're unmuted.
All right. Thanks. Hi, guys. And I like the background. I think it's better than last quarter.
To get us started, can you just comment in terms of what are you experiencing in terms of initial sizes? What's the trend that you're seeing over the last couple of quarters?
So we remain really focused on the strategy of land and expand. So even though we're seeing stronger growth in the upmarket customer base, you saw that grew more quickly than our total customer base. We are still focusing on smaller deal sizes to start and then continue expansion, which you see in the debt dollar expansion rate continuously strong at that 130%. So we haven't really seen a dramatic change in our initial deal size.
All right. Makes sense. And then one follow-up in terms of Zoom Phone. What kind of attach rates are you seeing in the initial deals on Zoom Phone? Or is it still too early?
Because I think a couple of examples you gave was really kind of
upsell Zoom Phone into existing customers. Yes, Sterling, that's a great question. So we launched a Zoom Phone service earlier this year. Our current strategy is to upsell to our existing installed base. I think it's still too early to tell, but we do see a very good sign.
Our customers really want to understand what's the differentiation from a Zoom phone side, like a unified collaborating experience. As Katy shared, one of our largest customers and deployed Zoom Phone in Q2 really like ease of use, I think we can replicate that success in the future quarters. That makes sense. Thank you.
Thank you, Sterling. Thanks, Sterling.
Next question please, Matt. Next question is from Matt Stottler from William Blair. Matt, you're unmuted.
Hey, great quarter and thanks for taking my questions. So first, on the Verizon partnership, obviously, you announced that back in June with Verizon using Zoom as a solution for I think small and medium businesses and maybe still reselling WebEx enterprise level. Any feedback just on the initial traction that you're seeing with that partnership and thoughts about establishing similar partnerships, whether Verizon or others to resell Zoom in the upmarket as well?
Yes. So Verizon partnership, you're right. We signed a Verizon partnership recently. I think we already gained momentum. So they are one of the top channel partners and our team really enjoyed working together with the Verizon team.
We see the great result already. I think down the road, I think Verizon partnership can help us more and this is a great partner.
Great, great. Okay. And then just one more for me on the gross margin front. As you spoke in the prepared remarks, gross margin was strong in the quarter, a little above the high end of your long term model. Can you just refresh us on what drove strong performance in the quarter and what you expect to bring that number down a little
bit as we look forward? Thank you.
Yes. So the increase in the quarter over quarter gross margin was really driven by the increased revenue, the outperformance on the top line. Going forward, we continue to add more data centers as well as building capacity for all of our customer bases around the globe. And as we continue to invest in this infrastructure, we expect it to continue to be in the range of 80% to 82%. Great.
Thank you very much.
Thanks, Matt. And Matt, another question please.
Our next question is from Heather Bellini from Goldman Sachs. Heather, your line is unmuted.
Great. Thank you so much for taking the question. I just had 2. I was wondering, Zoom Phone, I know it's a new launch, but I'm wondering how you would benchmark the ARR that you've generated to date versus your expectations at the time you launched it? And also kind of where your wins or kind of who you're seeing your wins coming from, if you could share with us that?
And then also just this other question would be related to the cadence of the expansions you're seeing. Given the value that customers start to see pretty quickly from the adoption of your solution, are you actually starting to see the expansions of those deals starting to happen at a faster pace? Thank you.
Yes. So thanks Heather. We certainly are given that we're selling Zoom Phone into our existing customer base, they already are on the Zoom platform and so that has accelerated the rollout of Zoom Phone. We've seen that in Q1, we talked about Ciena and they've already continued to roll out to over 5,000 Zoom Phone users around the globe. So that's super exciting.
And as you saw, the customer that's signing Q2 has already started to roll out their Zoom Phone licenses as well. And interesting to note, they bought more Zoom Phone licenses than they have a meeting, which we think is a trend we'll expect to see as well. And then,
sorry, I was
just Just benchmarking the ARR that you've generated to generated to date from it. How is it doing versus your initial expectations? Yes,
it's doing well. We've seen traction in Zoom Phone across all segments
of the business, which we
think is really exciting. And approximately 50% of Zoom Phone is coming from customers with ARR greater than 100 ks or more. So
to add on to what the credit side, look at today's enterprise market, most of the enterprise customers are still using the on prem phone system. Over the past several years, SMB customers might have moved to the cloud based solution. We do see the huge opportunity for the large enterprise segment to go to the cloud based PDX system. We want to have unified solutions. Heather, by the way, we missed you on video.
Yes, I know. I'm sorry about that. Next
Thank you. Thank you. Next question please, Matt.
Our next question is from Brad Zelnick from Credit Suisse. Brad, you're unmuted. Hi, Brad.
Hey, Brad.
Hi, Brad. Great. Hi. Hi, Eric. Hi, Kelly.
Hey, Tom. Nice to see everybody. Congratulations on another great quarter and congrats on adding Ryan as your new Chief Revenue Officer. It's good to hear the long standing relationship that you have with him. What might we expect his priorities might be?
And what else can he do to help even drive more happiness for Zoom employees and Zoom customers? And I've got a follow-up as well.
Yes, that's a good question. By the way, is that a real background or which background? It's so nice, it's better than us now. So, thank you. So, a long story short, Ryan and I have known each other for many, many years, even before Ryan left to join RingCentral.
We already talked about that, hey, in the future REN, let's work it together. I've been talking about that many, many years before, right? It's right time. I think as we further expand into the lot of enterprise international and also get into the unified collaboration market as Rens' experience can really help us. He's a very hands on leader and really understand the communication and collaboration industry and we have high confidence with the rents joining Zoom and we can keep the momentum, right?
Not only do we win in the domestic market, but also international market as well.
That makes a lot of sense. And if I could just ask, the scale of the success and happiness you're delivering to customers besides the HSBC is nothing short of unbelievable. How should we think about the pricing differential at the very high end of the market? And perhaps, Kelly, if you can just on a like for like basis give us any kind of color commentary on what you're seeing pricing wise perhaps versus a year ago? Thank you.
Yes. We haven't seen a dramatic shift in our pricing or in the need from a competitive standpoint from a year ago. Certainly, as you scale up to a customer's size of HSBC, because of the volume and the long term nature of the contract, we do price that accordingly as you can imagine. And remember, we also really like the opportunity to do buyouts with our customers, which we often do if they're interested. That's one way that we get them to come in early and especially if they're with a competitor, but they love Zoom, we want them to have Zoom as quickly as possible.
Excellent. Thank you so much. Congrats again.
Thank you. Thank you, Brad. Next
question is from Kash Rangan from Bank of America Merrill Lynch. Kash, you're unmuted.
I got to hand it to Brad. I don't know how he managed his mind so beautifully when he was asking his questions. So I'm going to have to try the same thing, how to sound nice, look nice and Looking at your operating and sales and marketing relative to the revenue growth rate, clearly, is this a sign that you have reached that step function evolution in your business model where the revenue is at a scale where you're starting to see underlying productivity improvements in different line items of the expenses, you can sustain this level of operating margin. Are there or were there kind of one time things that did not appear in your expenses that maybe will reappear in the future? Maybe you deferred some expenses or maybe the timing of expenses didn't fall the way you would expect because although it's terrific to see massive operating leverage in the company, it was also unusual to see sequentially this level of operating margin expansion.
So I'm curious what drove this, how much of this is permanent versus timing of expenses? Congratulations on a spectacular quarter. Thank you.
Thank you, Kash. Sure. And it's a great question. So just a quick reminder, our philosophy here is that we're investing for growth with discipline and thought. So we are very careful about ensuring that every dollar we spend has an appropriate ROI.
With that said, there were a few one time benefits that we saw in Q2 that led to the higher operating margin. So we had a higher rate of capitalized software that reduced our R and D expenses as a percentage of revenue as compared to the previous quarter. You can see the dollars were about the same, but the percentage came down. We also had a slight benefit in G and A as well as we are now starting to not only collect telco taxes, if you remember, we talked about telco taxes in the past, we have now started collecting in certain jurisdictions and passing that through, which is reducing our need to accrue for it. And we've got to some agreements with some jurisdictions that helped us understand that we could reverse a little bit of our accrual that we had in there for things like penalties and interest.
So there were a few one time items that we don't expect to see going forward and we will really continue to invest in sales and marketing. So we did see we are seeing some efficiencies in marketing as we discussed in the prepared remarks, But as we see opportunities, we will continue to invest in that area.
Congrats. Thank you so much.
Thank you, Kash.
By the way, Kash, you are using the phone to join this Zoom video webinar. We can see that you have a little bit of network connectivity. It's just our technology quickly adapted to your network We still can
hear you well. Great. Awesome.
Thank you, Kash. Thank you. Next question please, Matt.
Our next question is from Alex Zukin from RBC. Alex, you're unmuted now.
Hey, Alex. Congratulations.
Thank you. Thank you. You guys congratulations on another great quarter as well. I've got 2 quick ones. One maybe first, Eric on the federal government and the federal vertical.
You guys have achieved FedRAMP certification. I'm just curious how you see that playing out for you Yes.
So to
Yes. So to have a federal representative is very important for us to expand into the public sector. Prior to that, we even don't have a team, right, because we do not have that certificate. Given that we already have that now, I think it's too early to tell because we just established a public sector team for targeted public sectors. We do have many state level customers.
I think in next several quarters probably we'll see some contribution from our public sectors.
Perfect. And then, Kelly, if I do the rough math on kind of current RPO bookings, I get to around 81%, 82%. I'm curious, is that the right kind of forward looking indicator given some of the different methods you guys have from a sales and contracting perspective? Is that an important metric for you guys or is billings the better one right now?
So billings is really not a good metric for us due to the split of our customers that pay monthly versus annually. Remember the core base of the company, while it is shifting, it's still really based on SMB customers that pay monthly on a credit card. So buildings is really not a good metric for an indicator. I would certainly say that RPO is a much better metric to use.
Great. Thank you. Yes. Thank you, Alex. Matt, next question please.
Our next question is from Phil Winslow from Wells Fargo. Phil, you're unmuted.
I see the Wells Fargo.
I know, I love your marketing, Phil.
Thank you, you like that. Yes. Your telemarket will like it too. But yes, my question is actually just going to be on just what you're seeing in terms of the customers in terms of replacement versus net new expansion. In other words, what percentage of the seats that you're seeing are just replacing an existing solution versus actually a big fat customer, are they coming to you net new or actually expanding the number of seats versus the prior provider?
Thanks.
Yes. So, if you talk about when we're going into our new base of customers, when we're going into the market, there is certainly always an incumbent that we are replacing there and it's all the traditional providers that you would know. In SMB, it often can either be Greenfield or maybe 3 that we are competing with or some of the more mass market vendors that you're also very familiar with. As I said earlier, our net retention expansion rate though remains really strong at 130% as we continue to start with small seeded land and expand and then growing up from there.
Great. And then just a follow-up in terms of the sense that land and expand. So Eric's point about Zoom being super easy to use and so is it more user to actually using? What are you seeing in terms of the sort of that Zoom expansion, particularly when it was replacing an existing solution with yours?
Well, in terms of seat expansion, you're saying in general or across specific customers?
I just said the larger customers.
Yes. I mean, I think customers are buying in 2 different ways. Obviously, we saw with HSBC, one of the largest customer deal is the largest customer single deal we've ever had. And yet now our second our previously largest customer had another add on in this quarter, which was over $1,000,000 in ARR. So even in our large customers, we continue to see expansion as they add on new products like Zoom Phone.
And I think very few of our
their team. Great. Thanks a lot. Thanks, Bill.
Matt, next question please.
Next question is from Pat Walravens from JMP. Pat, you are unmuted.
Hi, Pat. Oh, great. Hi, guys.
Hi, Pat. Thank you. And I like the 5:30 start time by
the way. It makes sense.
Is this better for you guys?
Yes. Yes, yes. Especially on a busy day like today. Yes, we did it.
I think this is for both Kelly and Eric.
Look, what's going to be the biggest challenge in continuing to scale at this rate? And I realize your guidance is not at this rate, but to continue to scale like we are here, what's going to be the biggest challenge?
I think for sure for us to further scale our business, there are many challenges. I would say the most important challenge is to maintain our current quarter. We already have almost 2,300 employees As we further expanded into the international market, doubled our sales and R and D team, we are going to hire more and more people, right, top of the tenants. However, how to maintain our delivering happiness culture, make sure all of us always look at everything from a customer perspective, right, respond to customer issues in a timely manner. That's a challenge.
How to train the new employees makes them very humble, stay paranoid to care about the customer, that's a never end challenge. Other challenges are very manageable, like a product, maybe the sales efficiency, the cost is not the biggest challenge. All right.
And then I'm going to ask one more if I can, which is as
I was driving up the 101 today, I saw a billboard which said, Zoom and Slack, see what together can do. So Eric, what can together do? I have a
similar question to you. Maybe you can tell us what to do. But anyway, so I'm a huge fan of Slack, right, and a huge fan of Stu. I think many of our customers, they told us, they like a better video service. They deploy both Zoom and Slack.
They can hire talent all over the world like a company envision. They stand the line on Zoom and Slack platform. Guess what? They don't have a single physical office, right? I think the best of the beauty service can truly deliver happiness to our customers.
That's why we like this partnership. We want to move with Slack together. We wanted to make sure customer happy. Happy.
Our next question is from Alex Kurtz from KeyBanc. Alex, you are unmuted.
So just on the net expansion rate in the quarter, how much is that being driven by new seats versus the phone? Then I had to clarify on margin.
Yes. It's being driven primarily by new seats as while you were excited about the momentum we're seeing in phone, it's still a very, very small contributor to revenue. Just a reminder, we launched it only in January. It did go GA in both Australia and the UK in Q2, but it's really having a very small impact at this point. And just on your margin assumptions in the back half
of the year around the adoption of phone, is there anything that we should be thinking about as far as the variables around that and any impact there?
No. The only impact for on margins in the second half of the year are around expanding data center, planning to add 2 to 3 more, but that is not necessarily having to do with Zoom Phone. It's just adding capacity in general for our users around the globe.
Okay. By the way, from an architecture perspective, our video conferencing and Zoom Phone, we share the same platform. As Ken mentioned, we just need to expand our capacity. That's pretty much.
Okay. Thank you. Thank you.
Thanks, Alex. And Matt, next question please.
Our next question is from Meta Marshall from Morgan Stanley. Meta, you are unmuted. Hi, Meta.
Congrats on the quarter. So I just wanted to ask a couple of questions. Maybe first and get your response to that. As you approach customers with Zoom phone, has it changed your perspective on kind of cadence of additional features you'll need to add over time? Or has it really kind of met expectations to date and the cadence you were planning will work?
Yes. So today our strategy is
to focus on upsell, right? We already build our trust. Customer really like our video conferencing experience in terms of video quality and voice quality. We truly believe video is a new voice. Essentially, the way for customers to use their phone is more like another way to use our video conferencing service, right?
Customer, even if they brought a solution on device, they feel like very familiar with our service. Just the same experience, same unified client, I think it's the customer really like that experience. We do not need to tell customers to train customers. They feel like this is a part of the overall collaboration platform. This is a very natural experience.
Got it. And then maybe on kind of the hiring of Ryan, traditionally you guys have not had a large channel presence and so he obviously has a lot of experience there. Does it change your perspective on how you think of the channel as a method of go to market or just how does the hiring of Ryan kind of change the go to market approach?
Yes. Well, that's a good question. In terms of channel strategy, we just announced the Verizon partnership and the channel always play a very big role for our revenue growth. And even if we look at the total revenue probably driven by our direct team, as we further expand into the international market with Rents' greater background, I would say the channel contribution will play in a bigger role in the future. Like Verizon partnership, I just started and we are going to more and more channel partners to help us expand into the international market.
Great. Thanks. Congrats, guys. Thank you, Dan.
Thank you, Dan.
Matt, next question please.
Our next question is from Tom Roderick from Stifel. Tom, you are unmuted.
Matt, are you
Congratulations on another fantastic quarter. Well done.
Eric, I want to ask my first question to you and I want to put
a finer point on the question Pat just asked about maintaining culture. You're getting to a scale that's pretty remarkable here and I think you're up to about 2,200 employees. Can you talk a little bit about what you're doing to drive that hiring plan in place, how you're building out HR, capturing that incremental employee at a great company like Zoom is always a good problem to have, but you're getting to a scale that makes it challenging. Can you talk a little bit about just hiring and the challenge of that at scale? As well, in terms of hiring, so on the one hand, we want to
do a high as quickly as possible, right, because we have great opportunities. On the other hand, I also want to be very careful, right? We want to make sure hire the right employees who can fit very well to our company culture with a self motivation, self learning personality. And having a side of that, I think we have a very aggressive hiring goal. But to be honest with you, every quarter we didn't miss that, right?
So the reason why we want to focus on company culture. And this is not a it's just a one person company, our management team company. All of us at Zoom, we refer employees to join us. We do all we can help the new employees to make sure they are familiar with our business process product. We help each other, care for each other.
I think to do that right, we don't want to be too aggressive, right? That's the challenge because sometimes I say, yes, let's hire another 100 people and suddenly realize that might have broken our company culture.
That's why we have to balance every day. Tom, earlier this year, we hired Lynn as our People Officer and just last week, we hired a new Head of Talent Acquisition as well. And I think both of them are really focused on doing exactly what Eric said, which is hiring the right people, hiring quickly, but not lowering the bar. So it's been a great 2 great additions to the team, yes.
Excellent. And then Kelly, just one follow-up for you on the RPO commentary. Following that current RPO number that is declining as you see more and more customers at the enterprise level signing up for multiyear deal. Should we expect that trend to continue where the current number will the percentage will shrink just as a function of more enterprise multiyear deals out there?
Yes. I think certainly we are continuing to see more and more of our revenue base come from upmarket customers as that's really one of our key strategic focus areas. How quickly that grows, I don't know, but absolutely it's one of the key focuses that we have for growing the company this
year. Got it. Understood. Thank you, guys.
Thank you. Great.
Thank you, Tom. Matt, next question please.
Our next question is from Ittai Kidron from Oppenheimer. Ittai, you're unmuted. We'll give Itay another moment. Next question is going to be from Zane Crain from Bernstein. Zane, you
Great. Hey, Zane.
Hi, Zane.
Congratulations on a great quarter.
Thank you.
Thank you. Solid results. So So I was just wondering if you could dig into the architecture and the technology a little bit, Eric. One of the pushback I hear from skeptics is that a good programmer could replicate something like Zoom or over the weekend and it's not really differentiated to point solution. That's not what I've heard from enterprise customers that
have adopted Zoom. So I
was just wondering if you could dig into what is the secret sauce that really makes your technology and architecture unique and difficult to replicate?
Thank you.
Well, so in terms of a lot of enterprise customers, for sure, when we started it, we were focusing on SMB customers, right? Over the past several years, we started expanding into a lot of enterprise customers. The reason why we do see the almost every enterprise customers, we do see a lot of users. Even for the large enterprise customers already standardized on other platform, we see the 1 user, 2 user, 1 department, 2 department. They all use their own budget to deploy Zoom.
The reason why they are not happy about any other services in terms of ease of use, the quality, like this virtual background feature and consistently express across the desktop, mobile and conference room systems, right? I think the combination of technology ease of use, security will win the customer trust, right? You look at all other solution order today, all of them architecture is very old, right? Not a design for modern video cloud, video first architecture. That's why we are ahead of any of our competitors for several years.
Otherwise, I would go back to work all the weekend.
Yes, that's really interesting.
One of the things I think is really fascinating is the extensibility and the APIs connecting other platforms. It seems like there's a lot of greenfield opportunity there for maybe tying in with vendors like Salesforce or HubSpot or other cloud providers. Could you talk about what your vision is for those partnerships and kind of technology integration to build that ecosystem?
That's a good question. Today, you talk with many customers. On the one hand, they all like best and breed services. On the other hand, quite often, you need to switch back and forth in terms of a context, say like from Dropbox, Box to Zoom or Salesforce to Zoom, Adalasen to Zoom, right? The customer like to stay within the same context, right?
Say like I'm using the Jira Adalasen system, right? Within that Jira system, I can launch a Zoom call, join a Zoom meeting, a shared meeting. I think that what the customer told us. That's why how to seamlessly embed a Zoom into any other business workflow applications, that's the direction we go. That's the reason why we announced the Zoom Marketplace, right, give customer a very flexible API.
Customer even they do not know that they don't have a Zoom call. They feel like they are going to stay within the workday, the user interface or service not user interface. I think that's the direction.
Sounds great. Well, thanks a lot and congratulations on a great quarter.
Thank you, Daine. Thank you, Daine. Matt, next question please. Our next question
is from Ryan Kountze from Rosenblatt. Ryan, you are unmuted.
Great. Thanks guys. Congrats on a great quarter. Given your early success in the
enterprise space, wonder if you could give
us some color on the market verticals you're seeing the lowest hanging fruit for competitive displacements out there?
Yes. So when we started, we were focusing on high-tech market and later on we expanded into the high ed as well as healthcare market. Over the positive 2 to 3 years, we also doubled down on financial sectors and we are going to focus on public sector as well. Over the past 2 quarters, we do see a very good momentum on financial sectors. I think we are going to see more and more the big enterprise customers from financial sector.
Helpful. Thank you.
Thank you. Thanks, Ryan.
Thank you. Matt, next question please. Next question is from Jonathan Kees from Summit Insights Group. Jonathan, you are unmuted.
Great. I want to add my congratulations for the quarter. Great results. I want to ask a couple of topics. 1, in regards to how I'm thinking about it, this is you beat your guidance, you beat estimates.
When you gave guidance for this quarter you just reported, it's about a month and a few days after the quarter ended. So I guess the way I'm thinking about it is a lot of the revenue, a lot of the deals were more back end loaded. Was there anything specific that caused that? Did you have any promotions or were there deals like the HSBC deal that were in the previous quarter that came over into this before the quarter? Just curious in terms of how that upside trended in terms of revenues and also, yes, what caused that?
Yes. Hi, Jonathan. We did not see a tremendous shift in our linearity for the quarter. As we move into the more enterprise customers, some of them do buy towards the back part of the quarter. But due to the we have customers of all sizes, so they tend to buy consistently pretty consistently throughout the period.
So I think part of the over performance against our guidance was again us giving guidance that we want to ensure that we can achieve as a public company.
Make a task to reach out to customers who have left and
try to understand why they are left or are leaving. And I think that personal touch is wonderful. Just curious if you share with us any gems, anything that you've learned in terms of why these customers have left or thinking about leaving?
Yes. So several years ago, I did spend a lot of time talking to those customers who left. But over the positive 2 to 3 years, I did not spend too much time on that because a lot of those users who will cancel the service are very low and when per users. Actually, they really do not leave the Zoom. See that they are going to take the family vacation over the summer timeframe and if they cancel the service after summer, they are going to resubscribe, right?
So we did not see any very big a lot in the way of customers. That's why I spend less and less time on that. So and yes, so really do not focus on that anymore.
Jonathan, did you get the camera we sent you? Yes. Wonderful. I hope can you see No, we can't.
So we'll help you out in the
next one. I'll follow-up and we'll make sure we get you on there.
I'm using it right now.
I guess, you can hear the mic.
Yes. Yes.
Okay. Yes, I am using it
right now. So sorry about that. I thought it was on camera.
I just want to make sure you got it. Thank you. Matt, how many more
do we have? We have one more question.
Okay. The next
question and last question is from Ryan McWilliams from Stephens. Ryan, you are unmuted now.
Thank you, Ryan. Hi, Ryan.
So, in a recent interview, Eric, you mentioned that 95% of your engineers were working on voice video, but you know
that your focus is always on what customers are asking for. Are there any current features or capabilities customers are asking for aside from phone?
I think, 1st of all, we already have a roadmap, right? At the same time, we wanted to talk to the customers to make sure our roadmap fits very well to customer need. Having started that, we have so many a lot of investment customers. Quite often, if they tell us feature or solution, it's really hard for us to prioritize that. That's why every time we our product managers, our sales engineers always try to understand what's the pinpoint from a customer side.
Quite often they have a same pinpoint. And because of that, I think you look at our Fishers that roadmap is not that very complex, right? It's kind of we understand the pinpoint and want to make sure our solution can fit very well to customer needs. Beside of that, I think we do not have the challenges to manage the feature request from a lot of enterprise customers. The roadmap is we always share the roadmap with our lot of investment customers.
They all buy that.
Thanks. And one last question on acquisitions. Last quarter, you mentioned that you're keeping your options open. But to this point, do you currently believe you have the infrastructure in place to handle a large acquisition?
I think, well, in terms of acquisition, I think we're working very hard on day to day execution and a huge opportunity ahead of us. And we do not see any great opportunity, right? If you know of any opportunity, please let us know. Otherwise, we just laser focus on our execution, make sure our customer happy.
20 best bankers are now calling you, Eric.
Yes. I do have money, money from the credit
side. Great.
Seth. Thank you. Congratulations on your position too. Sorry, could you
have any closing remarks? So I think Itay also in the call, right?
Oh, yes. Matt, is Itay still there? Let's see if we can get him back. We tried him earlier. So Itay, you are unmuted again.
Itay, are you on the call?
Joining in his place?
He did have somebody join earlier and we did confirm with him earlier they were on the phone. I'm not sure if they're listening at the moment.
Okay. Thanks, Matt.
Thank you, Matt.
Yes. Thank you all for joining us and we look forward to seeing many of you at Zoomtopia. Thank you. Thank you.
Bye, everybody.