Zoom Video Communications Reports Financial Results for the Second Quarter of Fiscal Year 2023

Rhea-AI Summary

Zoom Video Communications (ZM) reported Q2 revenue of $1,099.5 million, an 8% increase year-over-year. The GAAP operating margin is 11.1%, with a non-GAAP margin of 35.8%. While the number of customers contributing over $100,000 in revenue rose 37% annually, the company faced challenges from a strong U.S. dollar and backend sales weighted performance. Zoom expects FY23 revenue between $4.385 billion and $4.395 billion, with non-GAAP EPS projected at $3.66 to $3.69.

Positive

• Revenue growth of 8% year-over-year.
• GAAP operating margin at 11.1%, non-GAAP at 35.8%.
• Customer base with over $100,000 in revenue grew 37%.
• Enterprise customers increased by 18% year-over-year.

Negative

• GAAP net income decreased to $45.7 million from $316.9 million YoY.
• Non-GAAP income from operations fell to $393.7 million from $424.7 million YoY.
• Net cash provided by operating activities dropped to $257.2 million from $468 million YoY.

• Second quarter total revenue of $1,099.5 million, up 8% year over year
• Second quarter GAAP operating margin of 11.1% and non-GAAP operating margin of 35.8%
• Number of customers contributing more than $100,000 in trailing 12 months revenue up 37% year over year
  

SAN JOSE, Calif., Aug. 22, 2022 (GLOBE NEWSWIRE) -- Zoom Video Communications, Inc. (NASDAQ: ZM), today announced financial results for the second fiscal quarter ended July 31, 2022.

“In Q2, we continued to gain traction as the platform of choice for enterprises looking to deliver flexible, productive solutions for collaboration and customer engagement,” said Zoom founder and CEO, Eric S. Yuan. “Businesses are drawn to the Zoom platform because of our innovation and modern architecture. Our recently launched Zoom Contact Center and Zoom IQ for Sales products saw some great early wins while Zoom Phone delivered milestone results, hitting a record number of licenses sold in the quarter and reaching nearly 4 million seats, up more than 100% year over year.”

“In Q2, we delivered our fifth straight quarter with revenue of over one billion dollars. While we saw continued momentum with our Enterprise customers and our non-GAAP operating income came in meaningfully higher than our outlook, our revenue was impacted by the strengthening of the U.S. dollar, performance of the online business, and to a lesser extent sales weighted to the backend of the quarter,” said Zoom CFO, Kelly Steckelberg. “Consequently, we are now expecting to deliver FY23 revenue in the range of $4.385 billion to $4.395 billion. We remain focused on operational discipline, and continue to expect non-GAAP operating margin of approximately 33%.”

Second Quarter Fiscal Year 2023 Financial Highlights:

• Revenue: Total revenue for the second quarter was $1,099.5 million, up 8% year over year.
• Income from Operations and Operating Margin: GAAP income from operations for the second quarter was $121.7 million, compared to GAAP income from operations of $294.6 million in the second quarter of fiscal year 2022. After adjusting for stock-based compensation expense and related payroll taxes, and acquisition-related expenses, non-GAAP income from operations for the second quarter was $393.7 million, compared to non-GAAP income from operations of $424.7 million in the second quarter of fiscal year 2022. For the second quarter, GAAP operating margin was 11.1% and non-GAAP operating margin was 35.8%.
• Net Income and Diluted Net Income Per Share: GAAP net income attributable to common stockholders for the second quarter was $45.7 million, or $0.15 per share, compared to GAAP net income attributable to common stockholders of $316.9 million, or $1.04 per share in the second quarter of fiscal year 2022.
  Non-GAAP net income for the second quarter was $323.5 million, after adjusting for stock-based compensation expense and related payroll taxes, losses (gains) on strategic investments, net, acquisition-related expenses, undistributed earnings attributable to participating securities, and the tax effects on non-GAAP adjustments. Non-GAAP net income per share was $1.05. In the second quarter of fiscal year 2022, non-GAAP net income was $415.1 million, or $1.36 per share.
• Cash and Marketable Securities: Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of July 31, 2022 was $5.5 billion.
• Cash Flow: Net cash provided by operating activities was $257.2 million for the second quarter, compared to $468.0 million in the second quarter of fiscal year 2022. Adjusted free cash flow, which is net cash provided by operating activities less purchases of property and equipment, plus litigation settlement payments, net, was $222.1 million, compared to $455.0 million in the second quarter of fiscal year 2022.

Customer Metrics: Drivers of total revenue included acquiring new customers and expanding across existing customers. At the end of the second quarter of fiscal year 2023, Zoom had:

• Approximately 204,100 Enterprise customers, up 18% from the same quarter last fiscal year.
• A trailing 12-month net dollar expansion rate for Enterprise customers of 120%.
• 3,116 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 37% from the same quarter last fiscal year.
  

Financial Outlook: Zoom is providing the following guidance for its third quarter fiscal year 2023 and its full fiscal year 2023.

• Third Quarter Fiscal Year 2023: Total revenue is expected to be between $1.095 billion and $1.100 billion and non-GAAP income from operations is expected to be between $325.0 million and $330.0 million. Non-GAAP diluted EPS is expected to be between $0.82 and $0.83 with approximately 306 million weighted average shares outstanding.
• Full Fiscal Year 2023: Total revenue is expected to be between $4.385 billion and $4.395 billion. Full fiscal year non-GAAP income from operations is expected to be between $1.440 billion and $1.450 billion. Full fiscal year non-GAAP diluted EPS is expected to be between $3.66 and $3.69 with approximately 307 million weighted average shares outstanding.

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 22, 2022 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 is for you. Zoom is a space where you can connect to others, share ideas, make plans, and build toward a future limited only by your imagination. Our frictionless communications platform is the only one that started with video as its foundation, and we have set the standard for innovation ever since. That is why we are an intuitive, scalable, and secure choice for large enterprises, small businesses, and individuals alike. Founded in 2011, Zoom is publicly traded (NASDAQ:ZM) and headquartered in San Jose, California. Visit zoom.com and follow @zoom.

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 2023 and full fiscal year 2023, Zoom’s market position, opportunities, and growth strategy, product initiatives and go-to market motions and the expected benefits resulting from the same, and market trends. 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 and hosts, renewals or upgrades, difficulties in evaluating our prospects and future results of operations given our limited operating history, competition from other providers of communications platforms, continued uncertainty regarding the extent and duration of the impact of COVID-19 and the responses of government and private industry thereto, including the potential effect on our user growth rate as the impact of the COVID-19 pandemic tapers, particularly as users return to work or school or are otherwise no longer subject to limitations on in-person meetings, as well as the impact of COVID-19 and other macroeconomic conditions, including inflation, on the overall economic environment, any or all of which will have an impact on demand for remote work solutions for businesses as well as overall distributed, face-to-face interactions and collaboration using Zoom, delays or outages in services from our co-located data centers, failures in internet infrastructure or interference with broadband access which could cause current or potential users to believe that our systems are unreliable, market volatility, 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, 2022. 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, 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. 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 particular, Zoom believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which 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 attributable to common stockholders and GAAP net income per share attributable to common stockholders, basic and diluted, respectively, adjusted to exclude stock-based compensation expense and related payroll taxes, acquisition-related expenses, gains/losses on strategic investments, net, litigation settlements, net, and undistributed earnings attributable to participating securities, including the tax effects of all non-GAAP adjustments. Zoom excludes gains on strategic investments, net because given the size and volatility in the ongoing adjustments to the valuation of our strategic investments, we believe that excluding these gains or losses facilitates a more meaningful evaluation of our operational performance. Zoom excludes undistributed earnings attributable to participating securities because they are considered by management to be outside of Zoom’s core operating results, and excluding them provides investors and management with greater visibility to the underlying performance of Zoom’s business operations, facilitates comparison of its results with other periods and may also facilitate comparison with the results of other companies in the industry.

Free Cash Flow, Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin. Zoom defines free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment. Zoom defines adjusted free cash flow as free cash flow plus litigation settlement payments, net. Zoom adds back litigation settlement payments, net because they are not part of Zoom's ongoing operating activities, and the consideration of measures that exclude such payments can assist in the comparison of cash generated from operations in different periods which may or may not include such payments and assist in the comparison with the results of other companies in the industry. Zoom considers free cash flow and adjusted free cash flow to be liquidity measures that provide 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.

Customer Metrics

Zoom defines a customer as a separate and distinct buying entity, which can be a single paid host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts. Zoom defines Enterprise customers as distinct business units who have been engaged by either Zoom’s direct sales team, channel partners or independent software vendor partners. All other customers 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 Contacts

Public Relations

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

Investor Relations

Tom McCallum
Head of Investor Relations
investors@zoom.us

Zoom Video Communications, Inc. Condensed Consolidated Balance Sheets (In thousands)
		As of
		July 31, 2022				January 31, 2022
Assets		(unaudited)
Current assets:
Cash and cash equivalents		$	937,443			$	1,062,820
Marketable securities			4,582,708				4,356,446
Accounts receivable, net			509,543				419,673
Deferred contract acquisition costs, current			225,221				199,266
Prepaid expenses and other current assets			159,486				145,602
Total current assets			6,414,401				6,183,807
Deferred contract acquisition costs, noncurrent			176,263				164,714
Property and equipment, net			239,102				222,354
Operating lease right-of-use assets			88,473				95,965
Strategic investments			358,248				367,814
Goodwill			122,556				27,607
Deferred tax assets			494,257				382,296
Other assets, noncurrent			154,298				106,761
Total assets		$	8,047,598			$	7,551,318
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	22,994			$	7,841
Accrued expenses and other current liabilities			498,258				430,415
Deferred revenue, current			1,345,636				1,141,435
Total current liabilities			1,866,888				1,579,691
Deferred revenue, noncurrent			55,513				38,481
Operating lease liabilities, noncurrent			75,954				85,018
Other liabilities, noncurrent			58,846				68,110
Total liabilities			2,057,201				1,771,300
Stockholders’ equity:
Preferred stock			—				—
Common stock			298				299
Additional paid-in capital			3,830,745				3,749,514
Accumulated other comprehensive loss			(48,161	)			(17,902	)
Retained earnings			2,207,515				2,048,107
Total stockholders’ equity			5,990,397				5,780,018
Total liabilities and stockholders’ equity		$	8,047,598			$	7,551,318
Note: The amount of unbilled accounts receivable included within accounts receivable, net on the condensed consolidated balance sheets was $70.6 million and $59.7 million as of July 31, 2022 and January 31, 2022, 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,
			2022				2021				2022				2021
Revenue		$	1,099,458			$	1,021,495			$	2,173,258			$	1,977,732
Cost of revenue			273,611				261,256				535,432				526,250
Gross profit			825,847				760,239				1,637,826				1,451,482
Operating expenses:
Research and development			172,564				82,311				316,855				147,486
Sales and marketing			400,474				271,179				763,257				516,846
General and administrative			131,066				112,146				248,906				266,235
Total operating expenses			704,104				465,636				1,329,018				930,567
Income from operations			121,743				294,603				308,808				520,915
(Losses) gains on strategic investments, net			(34,712	)			32,076				(71,116	)			32,076
Other income (expense), net			3,368				(2,795	)			(3,621	)			(176	)
Income before provision for income taxes			90,399				323,884				234,071				552,815
Provision for income taxes			44,649				6,800				74,663				8,200
Net income			45,750				317,084				159,408				544,615
Undistributed earnings attributable to participating securities			(4	)			(154	)			(19	)			(309	)
Net income attributable to common stockholders		$	45,746			$	316,930			$	159,389			$	544,306
Net income per share attributable to common stockholders:
Basic		$	0.15			$	1.07			$	0.53			$	1.85
Diluted		$	0.15			$	1.04			$	0.52			$	1.78
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic			298,553,379				295,712,675				298,865,676				294,769,619
Diluted			307,160,840				305,861,051				306,902,964				305,652,628

Zoom Video Communications, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands)
		Three Months Ended July 31,								Six Months Ended July 31,
			2022				2021				2022				2021
Cash flows from operating activities:
Net income		$	45,750			$	317,084			$	159,408			$	544,615
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense			255,515				102,142				464,878				201,111
Amortization of deferred contract acquisition costs			62,722				41,626				119,502				79,392
Losses (gains) on strategic investments, net			34,712				(32,076	)			71,116				(32,076	)
Depreciation and amortization			20,875				12,028				36,155				22,691
Provision for accounts receivable allowances			13,630				10,537				26,727				14,592
Non-cash operating lease cost			5,616				4,359				11,067				8,633
Amortization on marketable securities			1,217				7,041				4,821				12,637
Other			6,575				(6	)			19,305				264
Changes in operating assets and liabilities:
Accounts receivable			(42,293	)			(41,594	)			(125,898	)			(117,259	)
Prepaid expenses and other assets			(109,384	)			(27,395	)			(136,619	)			(57,370	)
Deferred contract acquisition costs			(91,315	)			(54,784	)			(157,005	)			(102,597	)
Accounts payable			5,288				42,368				16,441				43,960
Accrued expenses and other liabilities			(13,974	)			5,153				64,262				93,809
Deferred revenue			67,576				85,740				220,550				296,636
Operating lease liabilities, net			(5,301	)			(4,211	)			(11,350	)			(7,724	)
Net cash provided by operating activities			257,209				468,012				783,360				1,001,314
Cash flows from investing activities:
Purchases of marketable securities			(965,191	)			(669,136	)			(1,576,853	)			(2,094,587	)
Maturities of marketable securities			697,349				500,859				1,306,676				791,906
Sales of marketable securities			—				119,569				—				119,569
Purchases of property and equipment			(27,832	)			(12,975	)			(52,870	)			(92,049	)
Purchases of strategic investments			(49,800	)			(80,400	)			(61,550	)			(86,900	)
Cash paid for acquisition, net of cash acquired			(120,553	)			(2,121	)			(120,553	)			(2,121	)
Purchases of intangible assets			—				—				(3,211	)			—
Net cash used in investing activities			(466,027	)			(144,204	)			(508,361	)			(1,364,182	)
Cash flows from financing activities:
Cash paid for repurchases of common stock			(293,534	)			—				(425,946	)			—
Proceeds from issuance of common stock for employee stock purchase plan			34,605				37,846				34,605				37,846
Proceeds from employee equity transactions (remitted) to be remitted to employees and tax authorities, net			1,541				28,884				(2,545	)			18,900
Proceeds from exercise of stock options			1,810				4,653				5,065				8,021
Other			—				—				—				337
Net cash used in financing activities			(255,578	)			71,383				(388,821	)			65,104
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(6,686	)			—				(16,111	)			—
Net (decrease) increase in cash, cash equivalents, and restricted cash			(471,082	)			395,191				(129,933	)			(297,764	)
Cash, cash equivalents, and restricted cash – beginning of period			1,414,502				1,600,161				1,073,353				2,293,116
Cash, cash equivalents, and restricted cash – end of period		$	943,420			$	1,995,352			$	943,420			$	1,995,352

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,
			2022				2021				2022				2021
GAAP income from operations		$	121,743			$	294,603			$	308,808			$	520,915
Add:
Stock-based compensation expense and related payroll taxes			262,592				116,742				475,454				221,117
Litigation settlements, net			—				—				(4,226	)			66,916
Acquisition-related expenses			9,397				13,320				13,331				16,604
Non-GAAP income from operations		$	393,732			$	424,665			$	793,367			$	825,552
GAAP operating margin			11.1	%			28.8	%			14.2	%			26.3	%
Non-GAAP operating margin			35.8	%			41.6	%			36.5	%			41.7	%
GAAP net income attributable to common stockholders		$	45,746			$	316,930			$	159,389			$	544,306
Add:
Stock-based compensation expense and related payroll taxes			262,592				116,742				475,454				221,117
Litigation settlements, net			—				—				(4,226	)			66,916
Losses (gains) on strategic investments, net			34,712				(32,076	)			71,116				(32,076	)
Acquisition-related expenses			9,397				13,320				13,331				16,604
Undistributed earnings attributable to participating securities			4				154				19				309
Tax effects on non-GAAP adjustments			(28,966	)			—				(75,812	)			—
Non-GAAP net income		$	323,485			$	415,070			$	639,271			$	817,176
Net income per share - basic and diluted:
GAAP net income per share - basic		$	0.15			$	1.07			$	0.53			$	1.85
Non-GAAP net income per share - basic		$	1.08			$	1.40			$	2.14			$	2.77
GAAP net income per share - diluted		$	0.15			$	1.04			$	0.52			$	1.78
Non-GAAP net income per share - diluted		$	1.05			$	1.36			$	2.08			$	2.67
GAAP and non-GAAP weighted-average shares used to compute net income per share - basic			298,553,379				295,712,675				298,865,676				294,769,619
GAAP and non-GAAP weighted-average shares used to compute net income per share - diluted			307,160,840				305,861,051				306,902,964				305,652,628
Net cash provided by operating activities		$	257,209			$	468,012			$	783,360			$	1,001,314
Less: Purchases of property and equipment			(27,832	)			(12,975	)			(52,870	)			(92,049	)
Free cash flow (non-GAAP)		$	229,377			$	455,037			$	730,490			$	909,265
Add: Litigation settlement payments, net			(7,310	)			—				(7,310	)			—
Adjusted free cash flow (non-GAAP)		$	222,067			$	455,037			$	723,180			$	909,265
Net cash used in investing activities		$	(466,027	)		$	(144,204	)		$	(508,361	)		$	(1,364,182	)
Net cash (used in) provided by financing activities		$	(255,578	)		$	71,383			$	(388,821	)		$	65,104
Operating cash flow margin (GAAP)			23.4	%			45.8	%			36.0	%			50.6	%
Adjusted free cash flow margin (non-GAAP)			20.2	%			44.5	%			33.3	%			46.0	%

FAQ

What were Zoom's Q2 earnings for fiscal year 2023?

Zoom reported Q2 revenue of $1,099.5 million, up 8% year-over-year.

What are Zoom's guidance expectations for FY23 revenue?

Zoom expects FY23 revenue to be between $4.385 billion and $4.395 billion.

What is Zoom's non-GAAP diluted EPS forecast for Q3 fiscal 2023?

The non-GAAP diluted EPS is expected to be between $0.82 and $0.83 for Q3.

How did Zoom's customer metrics change in Q2 fiscal year 2023?

Zoom saw a 37% increase in customers contributing over $100,000 in revenue year-over-year.