Zoom Video Communications (ZM) Q1 2021 Earnings Call Transcript

Matt: (00:01) Hello everyone, and welcome to Zoom's first quarter of fiscal year 2021 earnings release. As a reminder, this call is being recorded. At this time. I'd like to turn the floor over to Tom McCallum, head of investor relations. Tom McCallum: (00:14) Thank you, Matt. And then hello everyone. Welcome to Zoom's earnings video webinar for the first quarter of fiscal 2021. Joining me today will be Zoom's founder and CEO, Eric Yuan, and Zoom's CFO Kelly Steckelberg. Our earnings press release was issued today after the market closed, and may be downloaded from the investor relations page on the zoom.com website. Also on this page, you'll be able to find a copy of today's prepared remarks and the slide deck with financial highlights, that along with our earnings release include a reconciliation of gap to non-gap financial results. During this call, we will make forward looking statements about our market size, growth strategy, our estimated and projected costs, margins, revenue, expenditures, investments, and growth rates, our future financial performance and other future events or trends, including the guidance for the second quarter of 2021 and full fiscal year guidance for 2021, our plans and objectives for future operations, growth, initiatives or strategies, and the impact of Zoom's business from the COVID-19 pandemic. Tom McCallum: (01:25) These statements are only predictions that are based on what we believe today, and actual results may differ materially. These four 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 10Q. Zoom assumes no obligation to update any forward looking statements we may make on today's webinar. And with that, let me turn it over to Eric. I think Eric's ... There he goes. Eric Yuan: (02:11) That's good. Thank you, Tom. Tom McCallum: (02:12) Yes. Eric Yuan: (02:13) First of all, thank you all for your time today. I still remember the first time when we had an earnings call last year. It was around less than 1000 participants. Today, we have over 3000 participants. Thank you all for your time. And I hope you all are doing as well as is possible in this unique moment around the globe. To the frontline workers, we thank you for your courage, and your tremendous sacrifices you are making to keep us healthy and our community running in this pandemic. Everyone at a Zoom appreciates all your incredible work. Eric Yuan: (02:57) COVID has brought a pain for many in particular vulnerable communities. The black community in the United States has also recently experienced shocking and a senseless loss. To our communities and customers, especially of those in the black community, Zoom is a standing with you. Not only today, but also into the future. Eric Yuan: (03:29) Nearly 10 years ago, we created Zoom to build a better, simpler and more efficient video communications platform. Today, I am proud to see that our platform is a serving a critical role beyond our original vision, enabling communication and collaboration for businesses, schools, consumers, and in the global community, to stay connected and operational during the COVID-19 pandemic. Navigating this process has been a humbling learning experience, giving us a new found appreciation for what it means to be a video communications technology provider in times of need. And working from home and social distance initiatives have meaningfully accelerated the adoption and traffic on the Zoom video communications platform. Eric Yuan: (04:42) We have seen many use cases, not only from enterprises to maintain worker productivity as a part of a business continuity plans, but also from first time consumer users, for personal and social use, to connect you with friends and families when physical gathering is not a possible. Let me share some metrics that illustrate the demand we experienced in this past quarter. Customers with more than paying employees grew 354% year over year. As we've deployed millions of licenses for new customers in the quarter. When new banking customer deployed approximately 175,000 new Zoom in the private licenses in the quarter. Uses by customers in a group of 2000 grew over 200% [inaudible 00:05:51]. We peaked at over 300 million daily meeting, participant, free and paid, joining Zoom meetings in April, 2020, up from 10 million in December, 2019. Currently we continue to see elevated levels of participant, even as governments around the globe have began to [inaudible 00:06:19] stay in place restrictions. Eric Yuan: (06:23) We had an approximately 20 fold increase in our metric of annualized meeting minutes [inaudible 00:06:32], which jumped from 100 billion at the end of January, 2020 to over two trillion meeting minutes, based on April 2020's run rate. So giving capacity to meet this incredible increase in traffic and use cases, while providing uninterrupted, reliable and high quality services for our customers have been a tremendous undertaking for our team. And we could not have done without relying on our partners. When the pandemic crisis started, our own data centers could not scale fast enough to handle the unprecedented traffic. Fortunately, some of the top public [inaudible 00:07:27] providers were there to help. Immediately during the crisis, our long time partner AWS, and it's the CEO [inaudible 00:07:40] enabled us to meet this rapidly increasing demand. As our demand increased and we had limited visibility into the [inaudible 00:07:53], AWS was able to respond quickly by provisioning the majority of the new service we needed. So sometimes adding several thousand a day or several days, in a row. Eric Yuan: (08:08) In April, our customer Oracle also showed a great support to help us. Not only did Larry Ellison record a [inaudible 00:08:19] video to encourage our team to do the right things for the world, but also offered Oracle cloud support. We also provisioned a number of servers in the Oracle cloud, as the demand for Zoom continued to increase. We are so grateful for their partnership and their responsibilities to provide a capacity during this time. While the COVID-19 pandemic has expanded our market opportunities, it also brought us many challenges. Prior to the pandemic, Zoom was primarily built for and used by large enterprises and institutions. During the crisis, with good intentions, we opened our platform to unprecedented numbers of first time users without fully considering the challenges it would bring to those who would not have full IT support or established protocols for security and privacy like our enterprise customers. Eric Yuan: (09:36) As a result, we have experienced negative trends related to meeting disruption, security and privacy issues. Since these issues emerged, we have transparently and quickly addressed specific security and privacy issues, including enacted a 90 day plan initiative on security and privacy with a weekly webinar for customers to ask me anything. Acquired Keybase team to add engineering expertise, to build an end to end encrypted [inaudible 00:10:18] mode. Also released Zoom five with our old clients, with the new security features and enhancements to give costumers unparalleled control over their meetings and the data. The new release also included the support for AES256 bit [inaudible 00:10:39] encryption, and ability to report [inaudible 00:10:43] misuse of Zoom's trust and [inaudible 00:10:47]. Eric Yuan: (10:49) During this period of unprecedented usage growth and the negative PR, as the CEO of Zoom, I was also facing tremendous pressure and I reached out to the high tech community and received the greatest support from fellow CEOs. And many of them are my mentors, and I can't thank them enough for their advice. I'm also deeply grateful to see the strong support from our valued enterprise customers, such as the CEOs from [inaudible 00:11:33] Survey Monkey and many others, both through public sediments and video testimonials. With that, our users trust us to deliver the best and most secure video [inaudible 00:11:52] communications platform. I believe our resolve will continue to make us a stronger company for our customers and in the global community. Now let me discuss a few of our happy customers. Eric Yuan: (12:12) We are thrilled to welcome Arm Technology to the Zoom family. Arm Technology is at the heart of a computing and data revolution that is transforming the way people live and businesses operates. In Q1, Arm chose to deploy approximately 8,000 Zoom meeting license, 800 Zoom rooms and 9,000 Zoom phones, to deliver a one touch experience to their employees globally. We're also very happy to welcome Baker McKenzie. [inaudible 00:12:56] distinguished strength is their use of cutting edge technologies to help their clients overcome the challenges of competing in today's economic world. We feel privileged to be the video communication platform of choice for the number one law firm brand in the world. Thank you, Arm and Baker McKenzie. On a final note, we welcome Lieutenant General HR McMaster to serve as an independent director on Zoom's board of directors, while Chairman [inaudible 00:13:37] as the president of engineering and product, and [inaudible 00:13:43] Campbell as chief diversity officer. Bringing their expertise to Zoom will be instrumental as we navigate rapid growth, transformation and [inaudible 00:13:56]. I wanted to commend and thank our 2,854 employees for what we have accomplished together, and for working tirelessly over the past quarter to support millions of participants around the globe. With that, let me turn things over to Kelly. Oh, by the way, I forgot to mention, today is also our CFO Kelly's birthday. So happy birthday, Kelly. Kelly Steckleberg: (14:35) Thank you, Eric. And this is the best birthday present I could ever have. So hello, everybody. Q1 was an exceptional and pivotal quarter for Zoom. We are grateful for the incredible increase in demand as millions of doctors and patients, teachers and students, businesses and consumers chose Zoom to deliver critical communication and connection in a time of need. It speaks greatly of their trust in the quality and ease of use of our technology platform. Kelly Steckleberg: (15:06) We are also proud of our efforts to support our customers, employees, and the global community during the COVID-19 pandemic. In addition to opening up our platform to deliver free services to over 100,000 K through 12 schools in 25 countries, and millions of people around the world, especially those in areas highly impacted by the crisis, we have also donated $1. 4 million to COVID-19 focused charities and funded another million dollars of stock to launch our charitable fund, Zoom Cares. The key longterm focus Zoom Cares includes education, social equity and climate change. Internally, we provided a onetime bonus equivalent to two weeks of pay for all Zoom's non-commissioned employees to offset costs associated with any disruption caused by the crisis. Kelly Steckleberg: (15:59) Not only has the world changed since we last reported results in early March, but so has Zoom's market opportunities and growth trajectory. Let me start by reviewing our financial results for Q1, then discussing our outlook for Q2 and the full year of FY'21 that has been recalibrated to adjust for the new trends and scale of our business. Kelly Steckleberg: (16:20) Total revenue grew 169% year over year to $328 million in Q1. This top line results significantly exceeded the high end of our guidance range of $201 million, due to the increase in demand and strong sales execution in this quarter. For the quarter, the growth in revenue was primarily due to subscriptions provided to new customers, which accounted for approximately 71% of the increase, while subscriptions provided to existing customers accounted for approximately 29% of the increase. This demand was broad-based across industry verticals, geographies, and customer cohorts. For the ... Sorry, let's take a look at the key customer metrics for Q1. We continue to see expansion in the [inaudible 00:17:09] market as we ended Q1 at 769 customers with greater than $100,000 in trailing 12 months revenue, up 90% year over year. This is an increase of 128 customers over Q4, a record number of adds in a quarter Kelly Steckleberg: (17:28) Further demonstrating the strength in the upmarket was the addition of over 500 customers with greater than $100,000 in annual recurring revenue in Q1. This is a onetime metric that we are sharing to provide more insight to our Q1 results Kelly Steckleberg: (17:45) For customers with more than 10 employees, we added over 183,000 in Q1, exiting with a total of approximately 265,000 customers in this segment. Year over year, we added over 206,000 new customers, growing 354%. While this is remarkable growth, our customer segment with 10 or fewer employees also expanded during the quarter as individuals adopted Zoom for many personal and social uses. As a result, we have experienced a mixed shift of customer cohorts, where customers with 10 or fewer employees represented 30% of revenue in Q1, up significantly from 20% in Q4. In addition, the increase in customers with 10 or fewer employees also shifted our billing mix, as these customers generally pay monthly rather than annually like most enterprise customers. Kelly Steckleberg: (18:42) Our net dollar expansion was over 130% for the eighth consecutive quarter, as existing customers continue to support and trust Zoom to be their video communications platform of choice. Both domestic and international markets had strong growth during the quarter. America's grew at a rate of 150% year over year. Kelly Steckleberg: (19:02) ... Americas grew at a rate of 150% year over year. However, our combined APAC and EMEA revenue grew even faster, at 246% year over year, and represented approximately 25% of revenue. International expansion is a key growth initiative for Zoom. Our global brand awareness has spread more quickly and we have expanded into more countries than we had originally planned for FY21. Kelly Steckleberg: (19:27) Now, turning to profitability. The increase in demand and execution drove net income profitability from both GAAP and non-GAAP perspective. For my following comments, I will focus on our non-GAAP results, which exclude the charitable donation of common stock, stock-based compensation expense, and related share-based equity taxes. Non-GAAP gross margin for the first quarter was 69.4%, compared to 80.9% in Q1, and 84.2% last quarter. Although in early March, we originally guided lower based on an increase in usage of our platform, our gross margin was further impacted by the elevated demand, especially higher levels of free meeting minutes, including those from K to 12 schools in March and April. Higher incremental costs also resulted from leveraging the public cloud providers, which was critical to our ability to meet the sudden exponential growth in usage as the crisis spread and governments instituted stay-in-place policies around the world. Moving forward, as we build additional capacity in our own data centers, we expect to gain some efficiencies, bringing growth margins back to the mid-70s in the next several quarters ahead. Kelly Steckleberg: (20:45) R&D expense in Q1 was approximately $21 million, at 66% year over year. As a percentage of total revenue, R&D was 6%, which was lower than Q1 last year, mainly due to the strong top line growth. In FY21, we plan to continue investing in R&D to drive innovation and security functionality, including leveraging the expertise and resources from top security firms. Also, we recently announced the addition of two engineering centers of excellence, where we expect to add up to 500 software engineers in the next few years. The new R&D centers in greater Phoenix, Arizona and Pittsburgh, Pennsylvania will both be located in near top engineering universities. Sales and marketing expense for Q1 was $104 million. This reflects an increase of 69%, or $42 million, over last year, with investments to drive future growth. As a percentage of total revenue, sales and marketing was 32%, a decrease from Q1 last year, mainly due to strong top line growth. Overall, the increase in expense is attributable to record sales hiring and higher sales commissions due to strong execution while we saw efficiencies in marketing. We are expanding our hiring plans for the rest of the year to meet the opportunity presented in this new environment. Kelly Steckleberg: (22:09) G&A expense in Q1 was $49 million, up a 196% on a year over year basis. It represented 15% of total revenue, up from Q1 last year, due to higher accrual for telco taxes from higher billing, a one-time license payment, and external professional services. Non-GAAP operating income was $55 million, translating to a 16.6 non-GAAP operating margin for the first quarter. This compared to Q1 last year's result of $8 million and 6.7% margin. Again, the higher revenue plus strong execution across all areas were the main drivers of this additional profit. Non-GAAP earnings per share in Q1 were 20 cents on approximately 295 million of non-GAAP weighted average shares outstanding, and adjusting for undistributed earnings. This result is 10 cents higher than our guidance, and 17 cents higher than Q1 of last year. Kelly Steckleberg: (23:12) Turning to the balance sheet. Deferred revenue at the end of the quarter was $552 million, up 270% year over year. Looking at both our billed and unbilled contracts, our RPO totaled approximately $1.1 billion, up 184% from $377 million year over year. The increase in RPO is consistent with the increase in demand and strong execution in the quarter. We expect to recognize approximately 72%, or $772 million, of the total RPO as revenue over the next 12 months, as compared to 64%, or $240 million, in Q1 of last year. Kelly Steckleberg: (23:59) We ended Q1 with approximately $1.1 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. In Q1, we had exceptional operating cash flow of $259 million, up from $22 million year over year. Free cash flow... sorry, can you go back? Thanks. Free cash flow was $252 million, up from $15 million year over year. The increase is attributable to strong collections from top line growth, higher percentage of monthly contracts, as well as billing started early in the quarter. Looking ahead, we expect to increase capital expenditures for additional data center infrastructure. And as a reminder, we will see the semi-annual cadence of net cash outflows from ESPP purchases to occur in Q2. Kelly Steckleberg: (24:51) Now turning to guidance. As I had mentioned earlier, the current environment has expanded these market opportunities and outlook as an increase in demand propelled us to a higher growth trajectory than originally planned for this year. This requires us to recalibrate our original FY21 plan for the new scale of our business. The COVID-19 pandemic adds an unprecedented new variable to our business model, where historical knowledge may no longer apply. Today, as we present our current best estimate of future quarters based on new assumptions of the dramatic shift in our business, we caution that the impact and extent of the crisis and its associated economic concerns remain largely unknown. Significant variations from our assumptions could cause us to modify our guidance. Kelly Steckleberg: (25:40) With that, we provide a higher outlook for FY21 based on our view of the current business environment. For the second quarter, we expect revenue to be in the range of $495 to $500 million. We expect non-GAAP operating income to be in the range of $130 to $135 million. Our outlook for non-GAAP earnings per share is 44 cents to 46 cents, based on approximately 299 million shares outstanding. For the full year of FY21, we expect revenues to be in the range of $1.775 to $1.8 billion, which would be approximately 185% to 189% year over year growth. Kelly Steckleberg: (26:28) Let me help provide a bit more context on the assumptions behind our guidance. As I discussed earlier, we have a far higher portion of revenue attributable to new customers with 10 or fewer employees who opted for monthly contracts. Historically, monthly subscribers have a higher churn rate compared to our annual or multi-year subscribers. In addition, as governments start to ease shelter-in-place restrictions, we may see a moderation of demand for our services. Given our assumptions on higher churn rate, as well as economic uncertainty, we are projecting Q3 and Q4 revenue to be relatively consistent with Q2. Kelly Steckleberg: (27:08) For the full year of FY21, non-GAAP operating income is expected to be in the range of $355 to $380 million. We expect to deliver non-GAAP earnings for share of $1.21 to a $1.29 for the full year FY21, based on approximately 300 million shares outstanding. Kelly Steckleberg: (27:28) In closing, we executed well in Q1, and are proud of how our team dedicated themselves to support our customers and global community. Thank you to the entire new Zoom team, and everyone, please stay healthy and safe. Kelly Steckleberg: (27:42) 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. Matt: (27:53) Before our first question actually, Eric has asked me to open the mic for him. Hey Eric, you are unmuted. Eric Yuan: (28:12) Yeah, already unmuted. Already unmuted. Matt: (28:18) Okay. Eric Yuan: (28:18) Hear me okay? Matt: (28:18) Yep. Kelly Steckleberg: (28:19) Yep. Matt: (28:20) Our first question is from Alex Zukin with RBC. Alex Zukin: (28:26) Hey Eric, thanks for taking my question, and thanks for everything you do. You just delivered one of, if not the, greatest all-time quarter in enterprise software history. I think you've been given an amazing opportunity with Zoom becoming not just a verb, but really the poster child for enabling remote work. But with that opportunity also comes a question, which is, where does Zoom go from here? How do we think about the percentage of your TAM that's been penetrated in the current environment? What are the most exciting incremental growth drivers? And do you have an update for us in terms of the long-term vision of your company? Because it seems like the prior long-term vision, we're there. And then I've got a quick followup. Eric Yuan: (29:14) Great question. And if we have time, probably should spend more time also want to get your [inaudible 00:10:21], what's the future. But anyway, I truly believe video is a new voice. It's going to change everything about the communication. The way for us to work, live, and play is completely changed. From that perspective, a huge opportunity. There's a lot of opportunities ahead of us. However, for now, our top priority is how to make sure we always keep our servers up, because there's so many people are counting on Zoom to stay connected. Our top priority is to make sure, keep service up, double down, triple down on the privacy, security issues. And also, down the road, we are going to figure out where we are going to double down on the new growth areas. Eric Yuan: (30:06) But for now, I think the one thing we know for sure is the TAM is bigger than we thought before, right? And as to how to capture [inaudible 00:30:15] the new TAM, I think that's something very important. Also, a lot of other new opportunities. Our team, we are going to work together, right, to get there step by step. For now, number one thing is focus on the current product and user experience. Make sure during this pandemic crisis, hopefully it can end very soon, they can leverage Zoom to stay connected. Speaker 1: (30:41) Next question please, Matt. Matt: (30:46) Our next question is from Sterling Auty with J.P. Morgan. Sterling Auty: (30:52) Yeah. Thanks. Hi, guys. So Eric, maybe a technology question for you. You did your 90-day program, and end-to-end encryption really became a big focal point of discussion around security and privacy. You made the acquisition. Can you update us on when you plan to deploy end-to--end encryption? How will it be deployed, and is there actually an opportunity to monetize it, perhaps, as an upsell? Eric Yuan: (31:19) Yes, Sterling, that's a good question. Before I answer to that question, I'd like to take a step back to share with you what's the industry standard for now, like Zoom or other competitors, because in this real time collaboration industry for a long, long time. I think that for now, I think most of the vendors, we all use AES 256 bit, either TCM or CBC. That's the standard. The reason why, if you enable end-to-end encryption, guess what? You cannot use a phone to dial in. You cannot support a traditional, old... you know, the legacy hardware, H. 323 and SIP devices. And plus, the cloud recording also is not available with some limitations. That's why for now, most of the industry conferencing vendors do not support this feature. Eric Yuan: (32:12) However, we believe we, no matter what, we needed to support that as one advanced feature, to give a customer [inaudible 00:13:21], your meeting is extremely sensitive. You don't want to Zoom know the session key. Yet, you can enable this feature with limited functionality. You cannot let the phone to dial in. Aside of that, we think this feature should be a part of our offerings. We do not normally charge, based on the feature, we charge the customer more. That's not like that. So we want to give to, at least the enterprise customer or business customer. Free, that's for sure, we don't want to give that, right? Because we also want to work together, see, with FBI, with local law enforcement, in case some people they use Zoom for a bad purpose, right? Eric Yuan: (33:01) I think we also published a whitepaper, I think, a week ago. Published it in GitHub. We got a lot of feedback, and our team, for now we're working on execution now. So we are... I think Zoom, we are going to know [inaudible 00:33:16]. For now, we are still in the... reveal our whitepaper. So we have confidence this would be a very good feature for our enterprise customers. Sterling Auty: (33:25) Thank you. Eric Yuan: (33:26) Thank you, Sterling. Yeah, you can join us as a beta tester. Sterling Auty: (33:31) Sounds good. Speaker 1: (33:32) Great. Next question please, Matt. Eric Yuan: (33:34) The next question is from Nikolay Beliov with Bank of America Merrill Lynch. Nikolay Beliov: (33:39) Hi, can you guys hear me? Eric Yuan: (33:46) Yep. Nikolay Beliov: (33:47) Hi, [inaudible 00:14:49], and look forward to chatting with you on at our conference. My question is, I would like for you guys to provide us with a little bit more context on the guidance. I was wondering what trends you saw in the business during the month of May, and what gives you confidence that those pro-sumers increasing the mix from 20% to 30% are going to stay for the rest of the year. I'm just trying to get more color around the confidence in the guidance. Kelly Steckleberg: (34:15) So in the guidance, what we have considered, especially around those pro-sumers as you call them, the monthly users, we assume that there is an escalated... that the churn will be escalated in terms of historical. So we've assumed multiples of what the historical churn rates have been. And also, we have taken a conservative approach in terms of thinking about that, in terms of potential uncertainty around the economic environment. Kelly Steckleberg: (34:42) With that said, I want to make sure you understand that while we did see an increased growth of monthlies, it's about half of our sales in the quarter came from monthly subscribers. When you look at the sales from our direct sales organization, the percentage of monthly subscribers was consistent with historical. So we didn't see an increase in monthly subscribers in the upmarket. We saw the same percentage as we have historically. And those typically, the churn in that segment when they're annual or multi-year, is a fraction of what the monthly subscribers are. Nikolay Beliov: (35:16) And Kelly, in this context, if I may ask a followup, billings grew 350% and CRPO grow around 220%. Why the discrepancy here? And what does it mean to revenues, and how revenues flow through from CRPO and then billings? Kelly Steckleberg: (35:33) So thank you about the question about billings and RPO. You know we don't provide specific guidance around billings or RPO, given the fact that it's actually been exacerbated with the growth in monthly subscribers, they are just very difficult for metrics. They don't apply because of the high rate of monthly billings and subscribers. They're just not good metrics for us. Nikolay Beliov: (35:55) Got it, thank you. Speaker 1: (35:59) Next question please, Matt. Matt: (36:02) Our next question is from Alex Kurtz with KeyBanc. Alex Kurtz: (36:05) Yeah, thanks. Zukin's earlier question about growth opportunities, kind of a once in a lifetime opportunity to reimagine investments in new products, new sales coverage. And I mean, just look at your operating income this quarter, next quarter, right? You couldn't have imagined that at the time of the IPO. So as the team and the board look at the next 12 months, is there something that you guys are really laser focused on, that you could take all this extra cashflow and reinvest back into the business? Eric Yuan: (36:42) Yeah, Alex, again, that's a great question. So even before this pandemic crisis, not only do we offer the video conferencing service, but also we have Zoom phone system. And don't forget about that. It's also huge opportunity. In particular, we believe video and [inaudible 00:37:00], those two are going to be key words to providing service. That's a huge opportunity. This pandemic crisis, I would say on the one hand, accelerated the video adoption. On the other hand, brand recognition for us, a lot of pro-sumers, right, a lot of new use cases, like online education, telemedicine, telehealth. For sure, we would like to double down on that. Eric Yuan: (37:24) But in terms of specific opportunity on what new service, we are going to work on that in the next several months. And as I mentioned earlier, for now, we need to make sure still keep having people stay connected. Eric Yuan: (37:37) Another thing also we know for sure is the way for us to work in the future is totally different. And how to make sure focus on the home [inaudible 00:37:46] experience, right? So make sure that you have very consistent experience when you work in the office and work in the home. A lot of inhibitions will be upon that, as well. I truly believe a lot of opportunities, but we got to be very careful. You are so right, where we should double down, where we- Eric Yuan: (38:02) Careful you're so right. Where we should double down, where we know to leave it to the partners to develop those applications or leverage those opportunities upon our platform. Alex Zukin: (38:12) Thanks. A quick question for Kelly. In the areas where they've been lifting the quarantine, the shelter in places, have you seen any kind of change in turn in those regions, whether it's in US, Europe, or Asia? Kelly Steckleberg: (38:27) It's really too early to tell, Alex. We've taken, again, a conservative approach to that, but it's to really tell as most places, even where they're starting to ease shelter in place, people are taking their time to go back to work. Alex Zukin: (38:43) Makes sense. Thank you. Speaker 2: (38:51) Next question please, Matt? Matt: (38:54) Yes. My next question is from Phil Winslow with Wells Fargo. Phil Winslow: (38:58) Thanks for taking my question. Two questions, first for Kelly, then one for Eric. Kelly, when you think about retention, that's something that's come up a lot on this call, what programs do you have in place to make sure that all these users that you've added stick to the platform. Wondering if you would talk to us about the programs you have in place. Also, Eric, when you think about Zoom Phone in particular, not just retention, but also upsells Zoom Phone, similar thing, what is going to be the messaging to get to customers, how you think about the potential, a year from now, six months from now, et cetera, attaching a full unified communications suite to that video customer. Kelly Steckleberg: (39:35) In terms of retention, first of all, for all of our customers, new and existing, we have a great customer success team that is focused on ensuring training, usage adoption, happen in all of our customers, as well as we are looking for opportunities with our monthly subscribers to put forward offers to them, to see if they would like to upgrade to an annual contract, helping them evaluate [inaudible 00:39:59] as well. Eric Yuan: (40:06) Back to your second question, as I mentioned earlier, we believe a video and a voice, those two are going to be converged into one service. Our team, we share our vision, to our existing installer base. Take a QM, for example, one of the very large global pharmaceutical companies, they were our happiest Zoom Video conferencing customer. In Q1, they deployed the Zoom Phone and which is our largest phone deal, around 18,000 phone licenses. We like the one consistent experience, more and more opportunity like that. I call your phone number, one more click and I'm able to go to video. I have the same experience. I think there's huge opportunity, not to mention, a lot of the enterprise customers, for now, they're still deployed on prime and the PBX version. I think this, the pandemic crisis says we help them, to get settled, their migration from on prime to enterprise will further boost the cloud based PBX adoption. We're seeing that as a huge opportunity ahead of us. Kelly Steckleberg: (41:13) Great. Thanks, guys. I do appreciate you enabling my kids to still go to school. Eric Yuan: (41:18) Thank you. By the way, I like you, what your background, it's pretty nice. Kelly Steckleberg: (41:22) Thank you. Branding, marketing. Eric Yuan: (41:24) Yeah. Love it. Alex Zukin: (41:27) Great. Next question please. Matt. Matt: (41:29) The next question is from Pat Walravens with JMP. Pat Walravens: (41:35) Great. Thank you. Happy birthday, Kelly. Matt: (41:41) Thank you, Pat. Pat Walravens: (41:42) Eric, you started as an enterprise company, but now so many individuals are using Zoom to connect with their friends and their families and their classmates. When I go to say goodnight to my daughter at night, I get a lot of, "daddy, I'm talking to my friends, come back later," how is that changing your strategy going forward? What's your consumer strategy? Eric Yuan: (42:04) I think that a good question. My kids also use Zoom as well for their online classes. I believe, back to the voice, no matter where you are using a voice, like a phone call, my kids or myself are in the office, on the way, in a home, that's the same experience. Used to be, we build Zoom only enable [inaudible 00:42:32] workers for business communication and collaboration, but now given that, as you know, video conferencing is going to become a mainstream service. The boundary between the consumers or enterprise customers is not that clear anymore. We've got to maintain a very consistent experience. That's why a lot of pictures with beautiful enterprise customers can be easily, seamlessly used to buy consumers. What we got to do to, make sure for enterprise customers, we already have all those security features built in. Eric Yuan: (43:04) How do we easily let consumers to enable that this is, this is a challenge we are facing. In terms of opportunity. I do not think that we needed to have a specific consumer strategy. Our strategy is all for one service, no matter where you are, no matter what you do, no matter which device, you're just happy to stay connected. It's more like a infrastructure of service now, more like an internet service part. You cannot say, "Hey, you are using inter for what? For business collaboration or for consumer?" It's the same thing now. That's a huge opportunity. Pat Walravens: (43:38) If I can ask Kelly a quick question and thank you, Eric. I know sometimes when you are replacing a competitor and they have an existing contract, you can sign up the customer, but then you let them have however many months are left on the competitor's contract for free. Kelly Steckleberg: (43:54) Yep. Pat Walravens: (43:54) When you do that, how do you account for that? Does that count as one of your new customers, and does that have any impact on billings or RPO? Kelly Steckleberg: (44:04) We do count them to the new customer and under the new revenue standard for 606, the entire revenue gets amortized over the full period, including the free period. Pat Walravens: (44:15) Okay. That would go into billings too then? Kelly Steckleberg: (44:23) Yes, we do build them up front. Pat Walravens: (44:26) You bill them up front, thank you very much. Kelly Steckleberg: (44:29) It depends on what their period is, but yes, a part of it. Pat Walravens: (44:34) Thank you. Alex Zukin: (44:35) Next question, please, Matt. Speaker 3: (44:41) Great. Thanks. Just wanted to ask a question on, as you go forward with hiring salespeople, with the influx of new customers, do you change from looking for more gatherers versus hunters and as you look to layer on Zoom Phone, is a channel strategy is still as important, or is an overlay sales team more important going forward. Thanks. Eric Yuan: (45:06) On the one hand, for sure, we already targeted down our serious hiring by studying late last year. I think that we made very good progress in Q1, not only hunters, BPISDR, account executive, this was a quarter carrying reps, but also for the phone. It used to be, look at our video conferencing service, primarily driven by our direct sales team. For the phone business, it's very different. That's why we really shift our focus, not only for the direct sales, but also we embrace our partner program, like a master agent, and really helped us a lot during the Q1. I think we're going to do more on partner deals, on channel sales program, on our phone business. I think that the team is working very hard on that. Speaker 3: (45:55) Okay. Thanks. And congratulations. Eric Yuan: (45:57) Thank you. Alex Zukin: (45:58) Thank you. Matt, next question, please. Matt: (46:01) Our next question is from Heather Bellini with Goldman Sachs. Heather Bellini: (46:12) Great. Sorry about that. I just wanted to say, first of all, thank you for the company and with your steering acting the way it did over the last few months, which has been such a trial time for so many, but not only, obviously, did you enable all of us to stay in touch and working, but being able to still connect with family and friends. Thank you, I think, on behalf of everybody. My question has to do with your view, you've been asked a little bit about the Zoom Phone cross sell opportunity here. I know you've touched on it a little bit already, but I'm interested in, again, a little bit about your vision on how you can expand your offerings, given how much broader your customer base is now. I guess the two parts are, what are you seeing in terms of uptake of Zoom Phone? Heather Bellini: (47:01) Is there anything you could share with us about penetration rates, or the seat count that you're at now, or how you might've seen adoption and flex in the quarter? Anything around that, just so we can see how that's starting to take off given how many more new customers you've added, but also, when you look at this evolving collaboration market, what's next for you all, because you have phone, you obviously have video, should we expect a chat service at some point, just so we can close the loop on the entire messaging experience? Any thoughts you have there, thank you so much. Eric Yuan: (47:38) Thank you, Heather. Maybe Kelly, you can address to the phone questions. I have an answer to the second part of the question. Kelly Steckleberg: (47:46) The primary demand and focus of our new customers and expanding customers in Q1 was really ensuring business continuity. They were focusing mostly on the video communications platform, but our focus for Zoom Phone is to sell into our existing install base. It now creates a huge opportunity for more sales in Q2 and the rest of this year. We're really looking forward to that team, having an expanded customer base to sell to. Eric Yuan: (48:15) To answer to your second question, you look at the video collaboration business and the mission here, add up the phone. Together, I think it's also huge to market, not a commission, we also have online business. Online business, used to be a small portion of our total net MR gross. Now given the popularity of the video conferencing, a lot of our consumers, they all use Zoom for online in the hyper hour, online learning, teaching class. The use cases is much more broad. For sure, we can monetize that. One thing for sure, we know we are not, again, to support an advertisement model. We are not going to support that. We never want to sell customer data. That's something that we know for sure we will not do it. Eric Yuan: (49:07) However, in terms about how to embrace all kinds of presumed to the use cases. I think there's a lot of ways to monetize. It's called honest subscription. You ought to see the number as they keep of the service up, keep the innovation. I think we are getting more and more online buyers as well. Regarding the new services, I think the video/voice, that's our company DNA. In terms of a chat and message, we also have ability to chat, but also we really look at everything from customer perspective. They brought us Slack, this is great. We have a wonderful integration with Slack. It is a great a service. A customer deployed Maxima Teams, we are also integrated with Maxima Teams very well. Some customers, they want to spend the night on Zoom platform, okay too. Video works to have a chat if you need. From that perspective, we're taking a very open, flexible approach, and look at everything from a customer perspective, but overall, we are going to laser focus on video and voice, enterprise, agreements, and consumer as well. Thank you Heather. Alex Zukin: (50:19) Thank you, Heather. Next question please. Eric Yuan: (50:20) Our question is from Walter Prichard with Citi. Walter Prichard: (50:27) Thanks. Question for Kelly. I'm wondering if you could... You can hear me? Okay. I'm wondering if you could help us understand on the churn side, obviously unprecedented demand for those under 10 employee, monthly type customers. Any order of magnitude you can put around this churn versus what has been historically that you're thinking about in the forecast. And then I had one follow up. Kelly Steckleberg: (50:52) All I would say is that we're taking a very conservative approach, assuming that the historic norms don't necessarily apply to this new cohort, both from the magnitude as well as the potential around economic uncertainty. The way we're forecasting it is using multiples of the historic churn rates. Walter Prichard: (51:15) Maybe as you get into, obviously next quarter is going to be just more of what you have this quarter in terms of a full quarter of all the business, but as you think about the quarters beyond that, how do you think about a sustainable level of new customer adds? Do you feel like what's happened here has pulled forward multiple years of demand, or do you think it has opened up awareness so much to what you do that you could actually see higher levels of new customer adds as we get past this big bump up that we've seen with COVID? Kelly Steckleberg: (51:45) We certainly have seen a lot of pipeline creation in the quarter, in both Q1 and in early Q2. That's been positive to see. Remember that our selling strategy around Zoom Phone, as well as Zoom Room is to sell into our existing customer base. This creates a whole new opportunity around those future products and selling those products in the future, as well. Walter Prichard: (52:13) Okay. Thank you. Speaker 2: (52:15) Thank you, Walter. Next question, please, Matt. Matt: (52:18) Next question is from Zane Crane with Bernstein. Zane Crane: (52:21) Hi, thank you guys. Eric, Tom, Kelly, and everybody at the Zoom team, I just want to say thank you for your corporate leadership and the role of corporate citizenship that we all needed during this time, especially in the things you guys done in the educational space. I'm wondering, how do you think about balancing the data security and privacy concerns versus ease of use? It seems like that's always a balancing act, where if you lean too far one way or the other, you're going to upset one type of customer, and that becomes even more complex, now that you're heavily moving into the space. How do you balance that from a technological and user interface perspective, and then I have one follow up to that. Eric Yuan: (53:00) Yeah. Thank you. This is a great question. Our service was built for serving enterprise customers, and we have all kinds of security features built in. Normally we work together with enterprise IT teams. We evaluate our service from a security perspective and they are going to enable or disable those security features, and you have official onboarding process. We really understand how that process works. However, during this pandemic crisis, we have lots of first time users. As a CEO, I think I should have done a better job. The reason why not only do we offer our service, but also we should have played a role of IT for those first time users. In term of enabling pass work, and meeting room, this was [inaudible 00:53:50] lot of features. This is a mistake I made. We learn a hard lesson. Eric Yuan: (53:56) That's why I said, when we look at enterprise customers and the consumers, this little bit different in the, I would say, philosophy. For enterprise customer, just to keep any of the security features. However, for consumers, it's different. Sometimes you're still right. Whenever there's a shred of a conflict, that's why we doubled our security team. We wanted to leverage this opportunity, completely transform our business to be the most secure solution. However, if there's a conflict between privacy and security versus usability, I think privacy and security is more important than usability. Three clicks, yes, customer may not like it, they want two clicks, but if there's a privacy issue, we still want to have a three clicks. Eric Yuan: (54:40) We do have a team. We'll review every use case. In the future we wanted to make sure to focus on the privacy security, at the same time, do all we can, don't lose the ease of use. That's also critical. That's why we hired a lot of security researchers, engineers to make sure on the one hand we are very secure, safe to use. On the other hand, also how to balance. This is ongoing effort. We are committed. Zane Crane: (55:10) Very helpful. A quick followup to what Heather was asking us. She mentioned chat. I've been thinking, is there an opportunity for embedding more cloud based storage, or file sharing, to enable more real time collaboration and file sharing, or editing while on a Zoom call? Is that something you guys have considered? I know you have a partnership with Dropbox. Is this something that would maybe make sense to build out yourself, or even acquire some capability along those lines? Eric Yuan: (55:34) Yes. Good question. We already announced a partnership with Dropbox before. Recently we also partnership with the box as well, with a seamless integration. We also support Microsoft Drive, and Google drive, as well. Essentially within the meeting interface, you want to share the files from these cloud providers. I think overall we focused on the customer experience. As I mentioned earlier, video and voice is still very critical cloud business in the future. For now, we just want to integrate and cooperate with other best of breed service providers. Zane Crane: (56:08) Excellent. Thank you guys. Congrats. Eric Yuan: (56:10) Thank you. Alex Zukin: (56:10) Thanks, Zane. Next question please, Matt. Matt: (56:13) Our next question is from Bhavan Siri with William Blair. Bhavan Siri: (56:17) Hey guys. Thanks for hearing my question. I just have one. It's really around competition. In last few months, given your success, and given COVID, we've seen BlueJeans being acquired, [inaudible 00:56:32] IPO, ring central announced their own video solution. I'd love to understand, none of these actually imply anything immediately material in the competitive environment, but obviously the investments are playing out in that environment. I loved to think about, how do you think about navigating through this and differentiating. Obviously the scale you have is a differentiator, but how do you think about the competitive technology differentiation in the space? I'd love to get your thoughts around that. Thank you. Eric Yuan: (57:02) Yes. Sorry- Speaker 5: (57:03) Eric, get your thoughts around that. Thank you. Eric Yuan: (57:03) Yes. So sorry. I lost it for several seconds. I pressed the wrong button after the meeting. Sorry. Speaker 4: (57:09) I know maybe I did too, but can you hear it? It's a rather competitive environment around RingCentral introducing video. It's around [inaudible 00:00:21]. How do you think about the competitive environment? Has it changed in how you navigate it? Eric Yuan: (57:24) Yeah, so you look at a competitive landscape, I think this pandemic crisis has not achieved anything and we still lead folks on video and also we have a phone service. For sure the market opportunity is much bigger than before now, right? You figure RingCentral for example and they were focusing on the phone service; we were focused on video. We added a cloud and DBX; they added video conferencing. [inaudible 00:57:48] for now the market is bigger. I would say any competition is always good for consumers, right? If there's no competitors, that's not good for any users. So we are okay. So we do everything from an end user perspective. Speaker 5: (58:08) Great. Thank you. Speaker 4: (58:09) Fair enough, thank you. Eric Yuan: (58:11) Thank you. Matt: (58:11) Our next question is from Ryan McWilliams with Stevens. Ryan: (58:20) Thanks for taking the questions. So I attended a Zoom wedding last month and it went great, and my own wedding in September might be over Zoom. So I just want to say thank you for providing a backup plan there. Really a standout quarter and congrats on execution. For Kelly, for the second quarter, would you expect new recurring revenue added in the second quarter to be above the recurring revenue added in the fourth quarter of last year? I just have that one follow up. Kelly Steckleberg: (58:51) New recurring revenue in Q2 to be greater than Q4? Yeah. Based on the outlook I think that it is an increase of over what it would be as compared to before. Yeah. Ryan: (59:11) Perfect. I can't really compare it to the last quarter. Then Eric, just on drafting off of Vaughn's last question, you mentioned in your comments that enterprise communications continue to be a fragmented market, low overall cloud penetration rate, but with both competitors and customers now trending towards one platform for cloud video and voice over the next few years, do you see this market consolidating around maybe one to two competitors for enterprise communications? Eric Yuan: (59:42) Yes, it's too early to tell, but overall I truly believe the best breed of service provider will survive and thrive because customers, when it comes to the video and voice, you've got to make it work anytime everywhere, right? Any device, it's not that easy. The reason why during this pandemic crisis customers trust Zoom to use Zoom is because it just works, and the quality and they have a lot of innovations. That's why I think video and voice, it's not that easy. You can compute a service with all the basic features okay, but to make it work 24/7 with no outages and also focused on innovation, it's not that straight forward. That's why I think as long as we keep working harder, really listening to our customers to be the first vendor and extend their pinpoint and extend their use case, to be the first vendor to come up with a solution, even if we have so many competitors, I think we're okay. Again, it's a huge market opportunity, right? So we may not serve every customer, but as long as we keep listening to our customers, keep the innovation, I think we should be okay. Ryan: (01:01:01) Thanks. Eric Yuan: (01:01:02) Thank you. Speaker 5: (01:01:02) Great. Thank you, Ryan. Congratulations. Can we have the next question please Matt? Matt: (01:01:07) Our next question is from James Fish with Piper. James: (01:01:12) Hey, thanks for the question. Kelly, happy birthday. I'd agree that June 2nd is the best day of the year in my humblest of opinions. You guys talk about churn in the second half of the year. I think you can look at sort of some verticals like education or some of the consumer additions that you guys have had in the quarter that tends to be not sustainable in terms of that 300 million users. How should we think about that 300 million user number in terms of what was added in education for example? Kelly Steckleberg: (01:01:52) Sorry, could you just repeat the last part? The how should we think about the 300 million user number in what? James: (01:01:58) Just curious where you think that 300 million user count is actually, what number is actually sustainable within the current customer base? Kelly Steckleberg: (01:02:07) So I just want to clarify the 300 million is daily participants, both free and paid. So that was the peak that we saw in April. It has come down a little bit in May on average, but we still continue to see a high level of usage of both free and paid users. So I think certainly over the longterm, we expect it to grow beyond that 300 million number. Eric Yuan: (01:02:40) Those 300 million participants, that number is not unique. If you're joining five times in a day, that would be a count of five, right? In the form of free users or petty users. James: (01:02:54) Yeah, totally understand. Then just a quick followup, it's the eighth quarter in a row of 1230% net renewal rate, but could we get more color there as to how much stronger this quarter was from an upsell rate compared to the past few quarters? Kelly Steckleberg: (01:03:11) Yeah. We've committed to providing the metric of being greater than 130 just because it tends to bounce around for each period, and we don't want you to read too much into that. So that's the guidance that we're going to provide today. James: (01:03:25) Got it. Thanks and congrats again. Kelly Steckleberg: (01:03:27) Thank you. Speaker 5: (01:03:28) Thank you. Matt, next question please. Matt: (01:03:30) The next question is from [inaudible 01:03:33] with Oppenheimer. Speaker 6: (01:03:36) Hello. Great quarter and happy birthday Kelly. Fantastic. I had a couple of questions. First on Global 2000, you talked about how we grew 200% quarter over quarter. Those are generally very sophisticated organizations with a lot of IT dollars and they move very quickly. I guess my question is, is the penetration rate with meetings at this point pretty much at 80% to 90% with that customer base? Have we fully explored with the ones that have purchased with you, are they already where they need to be given how fast they can usually move? Speaker 6: (01:04:16) Then the second question relates to the phones. Kelly, you mentioned that regarding a previous question on phones that a lot of the focus has been on video right now, but we see that there's an upcoming expansion opportunity going forward. I guess the question is considering the environment, is the environment helpful in accelerating phone adoption or perhaps the other way around? We find your organizations are looking to cut and expand. You already have an established phone system and everybody's using their cell phones from home I guess at this point. Is phones something that can get a boost from COVID as well given that it's not walking into a vacuum? Every company has a phone system, whereas very few had very broad adoption of video. Kelly Steckleberg: (01:05:10) Okay. So in terms of your first question around annotation of a global 2K, that isn't a metric that we specifically disclose, but the good news is is that it's not as high as you threw out there. So we still have lots of opportunity to grow in that segment today, even with the significant growth that we saw quarter over quarter. Then in terms of the phone, I think that given the land and expand strategy and the significant increase we saw in new customers this quarter, we think that there is a lot of opportunity ahead, and phones, we talked about this probably before, but phone seems to really be the last area of IT that has been taken to the cloud. As people have adopted more of Zoom and they come to trust and rely on ease of use and the reliability of the platform, phone is just the next natural step for them to take. So we're really excited about that opportunity and don't believe that the COVID pandemic should be an inhibitor to that. Eric Yuan: (01:06:16) So Kelly right now... To add onto what Kelly said, if you look at it as a separate service to survive, especially during this dynamic, I have a cell phone number, why do I need to deploy another service, it doesn't make any sense. However, if you think the phone is a part of a video, and a phone and a video are the same thing, the same service, you would know that the [inaudible 01:06:42] we will follow as well. This is the [inaudible 01:06:48]. We think of phone's without voice, it's the same thing. It's the same product, the same service, the same backing, the same experience. That's why we see the huge opportunity. If you want to sell a phone service as a separate service, as not a part of video conference service, you are so right. There's no reason for us to deploy a separate service, just the same phone number. What's the point, right? That's why I think we have a huge opportunity because of architecture, because of the phone and it's a video with the same service. So that's a very different thing. Speaker 6: (01:07:18) Very good. Good luck guys. Eric Yuan: (01:07:20) Thank you. Speaker 5: (01:07:21) Thanks. Matt, next question please. Matt: (01:07:23) The next question comes from Will Power with Baird. Will: (01:07:30) Great. Thanks for taking the question. I wondered if we could drill down a bit into the education segment, either in terms of revenue or paid users, something to give us some context and how you're thinking about the education in the second half of the year as we get back to school, obviously still a lot of uncertainties around that. I guess the other part to that is, are there any learnings from some of these countries where they've gone back to school in terms of usage, whether South Korea or elsewhere. Kelly Steckleberg: (01:08:01) So we don't break out with specific revenue by vertical, but what I can tell you is that from a growth perspective, education was the [inaudible 01:08:12] vertical with growth on a quarter over quarter basis. So we saw very strong execution and demand there and looking forward as a reminder, many universities and schools have announced that they are potentially hosting all of their classes in the fall remotely. So we expect that demand to be strong, even if we see certain cities easing their restrictions of shelter in place. Eric Yuan: (01:08:39) By the way, we offer a free service to more than 100,000 K-12 schools around the globe. I think you are so right. After the summer, are they going to keep using Zoom for online classes or what should we do? I think we are going to work on that. For now it's just good to have those K-12 schools, because primarily we focused on the higher ed before, and now we have more and more K-12 schools. That's a very different game. Speaker 5: (01:09:12) Great. Thank you Will. Hey Matt, we have time for probably one more question, please. Matt: (01:09:16) All right. Well our final question then will be from Tom Roderick with [DFUL 01:09:26] . Tom: (01:09:25) Yep, there we go. We'll get the mute off. Hi everybody. Thanks for taking my question, I appreciate it. So I guess the question, a lot of other questions have been asked on the top line, but you had to scale up massively in a way that 90 days ago we couldn't possibly have expected this. You started to see a little bit of this in China and perhaps even at the time of the last call in Europe. So you had some awareness, but Kelly, even at that time, you were talking about gross margins in the 80% range. Can you just talk a little bit more about what you did, how you managed to scale that business up so quickly, and then would love to hear just about the elasticity of that going forward to the extent that some of the monthly users do churn. Do you have the ability and this may actually interact with the Oracle partnership that was in apps in late April. I would love to just hear a little bit more about that, the ability to scale up and scale down and how quickly you can do that. Kelly Steckleberg: (01:10:28) Yeah. So first of all I think huge thanks and credit to the entire employee base of Zoom. Many of them worked extended hours and lots of weekends to support our customers and this increased demand. Also huge thanks, as Eric mentioned, to many of our partners as well who helped us scale up as we saw this unprecedented, and it was difficult to forecast the expansion in our capacity that was needed. In terms of the ability to scale up, what we're focused on of course is we were in gross margins focusing on adding in the public cloud, and over time we'll start to add more capacity in our [inaudible 01:11:10] to start to moderate that gross margin impacts a little bit. As well as in other areas of the business, we scaled up with third party resources to help us, and over time we'll look to backfill those with direct employees, which is more cost effective, but help us get through this unprecedented increase in demand. Eric Yuan: (01:11:31) Also Tom, during this pandemic crisis, our top part is to show our corporate social responsibility. Essentially we do all we can to have people stay connected at no cost. We even went to look at, hey, if you had several thousand servers, what's it cost? No, don't worry about that. This is a time to help people stay connected, but after the pandemic crisis, it's sort of early to assume, I think for sure we are going to go back to the gross margin focus. Tom: (01:12:04) Thank you all. It's been a unique 90 days, so looking forward to the next 90. I appreciate it. Eric Yuan: (01:12:08) Anytime. Speaker 5: (01:12:10) Eric, do you have any final closing remarks before we turn off the webinar? Eric Yuan: (01:12:15) Yeah. I want to say this, thank you all. Thank you every Zoom employee. Thank you all the users, customers, thank you for your trust. Thank you for our shareholders, and we will do all we can to truly deliver happiness to you. We will not let you down. Thank you for your support and I truly appreciate it.