Hess Midstream LP
NYSE:HESM
Hess Midstream LP
Hess Midstream LP operates as a critical artery in the energy infrastructure, channeling both vitality and value through its comprehensive network. Established as an integral player within the midstream sector, the company primarily facilitates the efficient transport, processing, and storage of natural gas and crude oil. Its strategic assets are concentrated around the prolific Bakken Formation in North Dakota, a region rich in hydrocarbon resources. This allows Hess Midstream to offer crucial services such as gathering raw production from wells, processing it to meet pipeline specifications, and ultimately delivering it to downstream markets. The company's infrastructure is meticulously designed to ensure reliability and flexibility, accommodating a diverse range of customer requirements while optimizing throughput.
Revenue generation for Hess Midstream hinges on long-term, fee-based contracts that are strategically established with a focus on volume commitments. This business model provides a level of economic insulation, reducing sensitivity to volatile commodity prices and ensuring a steady income stream. By maintaining strong relationships with its customers, notably Hess Corporation, which is also its primary sponsor and customer, Hess Midstream secures a consistent flow of business, thus fortifying its financial foundation. The company leverages its operational expertise and robust infrastructure to capture growth opportunities, expand its footprint, and enhance service offerings. Through these strategic maneuvers, Hess Midstream continues to effectively support the energy sector's evolving needs while driving shareholder value.
Earnings Calls
In Q4 FY25, Zoom's total revenue reached $1.184 billion, reflecting a 3% year-over-year growth and surpassing guidance. Enterprise revenue grew 6%, now accounting for 60% of total revenue. The company achieved its lowest churn rate at 2.8%. Forward-looking, FY26 revenue is projected between $4.785 billion and $4.795 billion, suggesting 2.7% growth. Non-GAAP operating income is expected to be $1.85 billion to $1.86 billion, with margins stabilizing around 39%. As Zoom advances its AI capabilities, it anticipates further growth in its Contact Center and Workvivo segments, supported by significant partnerships like that with Amazon.
You don't have any saved screeners yet
Hello, everyone, and welcome to Zoom's Q4 FY '25 Earnings Release Webinar. As a reminder, this webinar is being recorded. And now I will hand things over to Charles Eveslage, Head of Investor Relations. Charles, over to you.
Thank you, Kelcey. Hello everyone, and welcome to Zoom's earnings video webinar for the fourth quarter and full fiscal year 2025. I’m joined today by Zoom’s Founder and CEO, Eric Yuan; and Zoom's CFO, Michelle Chang.
Our earnings release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.us. Also on this page, you'll be able to find a copy of today's prepared remarks in the slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2026. Our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, pro strategy and business aspirations and product initiatives, including future product and feature releases and the expected benefits of such initiatives.
These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obviously to update any forward-looking statements we may make on today's webinar.
With that, let me turn the discussion over to Eric.
Thank you, Charles. Thank you, everyone, for joining us today. FY '25 was an incredible year, marked by a major advancement in AI, the evolution of Zoom into an AI-first work platform, spanning Phone, Teams Chat, Events, Docs and more, and a strong momentum in Contact Center and Workvivo. A key highlight has been the rapid adoption of our AI capabilities, growth in monthly active users of Zoom AI Companion has accelerated to 68% quarter-over-quarter, demonstrating the real value AI is providing customers.
Zoom AI Companion has emerged as a driving force behind our transformation into an AI-first company, enabling our customers to discover enhanced productivity opportunities. We are always looking ahead, moving forward and reimagining what possible be frictionless work. And now we look forward to helping our customers fully realize the benefits of agentic AI and discover what's possible with AI agents.
As part of AI Companion 2.0, we added advanced agentic capabilities, including memory, reasoning, orchestration and a seamless integration with Microsoft and Google services. In April, we're launching the custom AI Companion add-on to automate workplace [ hubs ] through custom agents. This will personalize AI to feed the customer needs connected with our existing data and work seamlessly with their third-party tools. We are also enhancing Zoom workplace for clinicians with an upgraded AI Companion that will enable clinical note-taking capabilities and specialized medical features for healthcare providers starting in March. Additionally, we are upgrading our business services by introducing more agentic capabilities. Zoom Virtual Agent will soon expand reasoning abilities to handle complex [ tasks ] while maintaining conversation or context for more natural and helpful outcomes.
We are uniquely positioned to succeed in agentic AI for several reasons. Zoom is a system of engagement for our users with the recent information in ongoing conversations. This exceptional context along with user engagement allows us to drive greater value for customers. Our federated AI approach lets us combine the best models for each task, we can use specialized small language models where appropriate while leveraging large models for more complex reasoning, driving both quality and cost efficiency. Zoom is known for making complex technologies simple for users. We manage the complexity of AI models while keeping the experience intuitive, powerful and connected with popular third-party apps.
We believe our strategic approach positions us favorably to help bring value to the customer. We are focused on delivering practical value while building towards an ambitious vision of AI that truly amplifies human potential for the customer. Our AI-first work platform continues to gain momentum, driven by our core strengths in Meetings and expanding portfolio of integrated solutions such as Phone, Team Chat, Events and Zoom Docs, Whiteboard and Zoom Rooms. We see this in the results, Zoom Workplace had a big win with Amazon in Q4. With this Zoom Workplace, Zoom Phone continues to see strong traction with both new customers and expansions. We built upon our strength in retail, health care and education which delivered 7 of our top Zoom Phone deals this quarter.
The recent Mitel [ project ] opens up access to Mitel's 70 million global end users and demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models and choice. Zoom Team Chat continues to serve as a collaboration hub across our platform. The recent redesign of the side bar has enhanced navigation and productivity, while our new workflow automation capabilities are driving deeper platform engagement. Beyond Zoom Team Chat, we are seeing encouraging adoption across our broader portfolio. Zoom Docs usage more than doubled quarter-over-quarter. Together with Whiteboard, which was a Customer's Choice Recipient in the 2024 Gartner Peer Insights Voice of the Customer report for Visual Collaboration Applications. Zoom Team Chat and Zoom Docs are critical components of our AI-first platform vision that expands our system of engagement and allow customers to do more with AI.
Both Contact Center and Workvivo delivered exceptional results this quarter. In Contact Center, we achieved our largest [ VRR ] deal in history with a Fortune 100 U.S. tech company, for over 15,000 agents, demonstrating our ability to win and deliver for the most demanding enterprise customers. The number of Contact Center customers with over $100,000 in ARR grew over 100% year-over-year, with wins both displacing on-prem and leading CCAR vendors. Our AI-first approach is resonating strongly. The majority of our deals are now in the higher tier elite or premium packages, validating the power and customer appeal of our comprehensive AI and workforce engagement capabilities.
Workvivo also had a record quarter driven by strength across all regions. The total number of Workvivo customers grew 89% year-over-year, accelerating from 79% in Q3. We signed three deals over $1 million in ARR, each with major global brands. Our strategic partnership as a preferred migration partner for Meta Workplace has been a strong contributed to this momentum. These solutions are critical components of our AI-first work platform vision. Contact Center extends our platform from employee engagement to customer engagement while Workvivo broadens our employee collaboration for internal engagement and culture. Together, they exemplify our strategy of thoughtful expansion into high-growth areas where we can deliver the [ appreciated ] value through our platform roots, AI leadership and a rapid innovation for the customer.
As we look ahead to FY '26, we are focused on our key strategic priorities: Expanding our AI capabilities to drive customer value; rapidly innovating within Zoom Workplace; and building upon momentum in new products such as Contact Center and Workvivo. Despite ongoing macro challenges and uncertainties, we are encouraged that our value position and the total cost of ownership are gaining traction in the market. Our innovation engine is fired on all cylinders, our platform strategy is working, and we have significant opportunities and growth vectors to execute upon.
Now on top of the record setting Contact Center win I just highlighted, let me share some more amazing wins in Q4. We are excited to offer Zoom to Amazon employees and further strengthen our long-standing relationship with AWS as our preferred cloud provider. This builds on the success we've achieved helping customers easily procure and deploy Zoom through AWS marketplace. Let me also thank Delta Air Lines who this year is the first U.S. airline to celebrate its Centennial for choosing Workvivo as their employee communications and engagement platform. Upon the sunsetting of Meta Workplace, Delta strategically chose to migrate to Workvivo.
As part of a multiyear deal, Workvivo will serve Delta's entire global workforce, reinforcing their strong company culture with omnichannel reach and key features like live streaming, employee recognition and comprehensive engagement analytics. Let me also thank Cloud Software Group, a global mission-critical enterprise software leader as one of our newest CX clients to the Zoom family. Recognizing the simplicity and ease-of-use of our unified platform, they opted for the Zoom Contact Center and Zoom Virtual Agent to modernize the way they communicate and collaborate with their customers.
These incredible wins across workplace and business services validate our strategy of delivering a full platform of modern integrated AI-powered solutions to drive meaningful business value and all the time for customers. Now let me hand over to Michelle to take us through the financial results. Thank you.
Thank you, Eric, and hello, everyone. I'm excited to be with you again and share that we beat our top line and profitability guidance. In Q4, total revenue grew approximately 3% year-over-year to $1.184 billion, $4 million above the high end of our guidance. Total revenue adjusted for constant currency grew approximately 4% to $1.188 billion. above the high end of our constant currency guidance range. Our enterprise revenue grew approximately 6% year-over-year and now makes up 60% of our total revenue, up 2 points year-over-year. We are continuing to see signs of stability in our online business.
In Q4, average monthly churn was 2.8%, a 20 basis point improvement year-over-year and our lowest ever churn rate in the fourth quarter. In our enterprise business, we saw a 7% year-over-year growth in the number of customers contributing more than $100,000 in trailing 12-month revenue. These customers now make up 31% of our total revenue, up 1 point year-over-year. Our trailing 12-month net dollar expansion rate for enterprise customers in Q4 remained flat year-over-year at 98%. The total number of enterprise customers at the end of Q4 was approximately 192,600. As we said previously, enterprise customer count is more reflective of our go-to-market motion rather than a direct measure of our enterprise business performance.
We will continue to do migrations between our two go-to-market motions in order to best serve our customers as we did last year. And as such, going forward into the next fiscal year, we will no longer include this metric in our prepared remarks or SEC filings. To provide ongoing transparency, we will include it in the earnings deck appendix throughout FY '26. We still believe that enterprise revenue growth and KPIs such as net dollar expansion are better reflections of the future business and expect future migrations to have minimal impact on these metrics.
Now back to the financial results. Pivoting to our growth internationally, our Americas revenue grew 4% year-over-year. EMEA grew 2% and APAC grew 3%. On a constant currency basis, EMEA grew 2% and APAC grew 5% year-over-year. Moving to our non-GAAP results, which, as a reminder, excludes stock-based compensation and associated payroll taxes, acquisition-related expenses, net gains on strategic investments and all associated tax effects. Non-GAAP gross margin in Q4 was 78.8%, slightly lower than Q4 of last year, primarily due to strategic investments in AI, partially offset by efficiency gains efficient.
The results in Q4 were in line with our prior commentary, and we continue to reiterate our goal of reaching 80% gross margin over the long term. Non-GAAP income from operations grew 5% year-over-year to $468 million, exceeding the high end of our guidance in dollars. Non-GAAP operating margin for Q4 improved to 39.5%, up 81 basis points from Q4 of last year, even amongst continued investment in AI, our platform and our emerging growth businesses. Non-GAAP diluted net income per share in Q4 was $1.41 on approximately $317 million non-GAAP diluted weighted average shares outstanding. This result was $0.11 above the high end of our guidance and $0.01 lower than Q4 of last year, primarily due to higher income tax and unrealized foreign exchange losses.
Turning to the balance sheet. Deferred revenue at the end of the period grew 7% year-over-year to $1.35 billion, outperforming the 5% to 6% we estimated last quarter. The growth was driven by continued refinement of discounting practices as well as ongoing business growth. For Q1, we expect deferred revenue to be up 4% to 5% year-over-year. Looking at both our billed and unbilled contracts, our RPO increased 6% year-over-year to approximately $3.8 billion. We expect to recognize 59% of total RPO as revenue over the next 12 months. That is up from 58% in Q4 of last year.
Operating cash flow in the quarter increased 21% year-over-year to $425 million. Free cash flow grew 25% year-over-year to $416 million. Operating cash flow and free cash flow margins in the quarter expanded to 35.9% and 35.2%, respectively. We ended the quarter with approximately $7.8 billion in cash, cash equivalents and marketable securities excluding restricted cash. Under our $2.7 billion share buyback authorization. In Q4, we purchased 4.3 million shares for $355 million, increasing our repurchases quarter-over-quarter by $53 million and contributing to the reduction of common share outstanding in Q4.
Pivoting from Q4, I wanted to share a few of our full year FY '25 highlights. Total revenue grew 3%, and total enterprise revenue grew 5% year-over-year, both of which accelerated in the second half. Our free cash flow grew 23% year-over-year to $1.8 billion. We also achieved a non-GAAP operating margin of 39.4%, a 20 basis improvement from FY '24. And finally, significant progress on stock-based compensation, down to 20% of revenue, representing a 3-point reduction year-over-year and slightly ahead of the pace of reduction that we discussed at Zoomtopia. And we repurchased 15.9 million shares for $1.1 billion, contributing to the reduction of common stock outstanding in FY '25.
Now turning to guidance. In Q1, we expect revenue to be in the range of $1.162 billion to $1.167 billion. This represents approximately 2% year-over-year growth at the midpoint or 2.6% year-over-year growth on a constant currency basis. As a reminder, Q1 of FY '26 has one fewer day than the prior year. We expect non-GAAP operating income to be in the range of $440 million to $445 million, representing an operating margin of 38% at the midpoint. Our outlook for non-GAAP earnings per share is $1.29 to $1.31 based on approximately 316 million shares outstanding. And as a reminder, future share repurchases are not reflected in the share count and EPS guidance.
For the full year of FY '26 we expect revenue to be in the range of $4.785 billion to $4.795 billion, which represents approximately 2.7% year-over-year growth at the midpoint or 3.1% year-over-year growth on a constant currency basis. We expect our non-GAAP operating income to be in the range of $1.85 billion to $1.86 billion, representing an operating margin of approximately 39% at the midpoint. Our outlook for non-GAAP earnings per share for FY '26 is $5.34 to $5.37 based on approximately 318 million shares outstanding. For FY '26, we expect free cash flow to be in the range of $1.68 billion to $1.72 billion.
We're proud of our progress in FY '25 and we're excited about our differentiated agentic AI vision and the value that it provides to our customers. We're going to continue to invest thoughtfully in our priorities that we've outlined while maintaining our focus on profitability and cash flow generation. We're excited and incredibly grateful for the trust and support of the entire Zoom team, our customers and our investors.
Kelcey, please queue the first question.
[Operator Instructions]. Our first question is going to come from Kash Rangan with Goldman Sachs.
Congrats on finishing up the fiscal year. Eric, a question for you. You've certainly made a lot of pivotal advances, positioning the company to be very AI-first. It shows up in the quarter-to-quarter usage of Zoom Companion, the Amazon deal that you've won, congratulations. As you look ahead, do you think the AI capabilities could -- where do you think the AI capabilities could become a tailwind for your business in that it starts to drive, accelerate maybe the underlying platform and the AI features are additive to the revenue growth rate? We're still stable, but could this set the stage up for better than stable?
Kash, that's a great question. That's to double down on AI investment, it's always our [ total products ] right for a while, right? I think it's happening already, meaning if you look at our low SMB customer online buyers, AI Companion is part of that at no additional cost, made our service very sticky and also the customers give a very basic example, like meeting summary, right? It works so well, more and more customers follow the value. Actually, for sure, they are going to enjoy using our service more, right? That's for low end.
For high end, for sure, and we understand that today's AI Companion and additional cost we cannot monetize. However, in April, we are going to announce the customized Companion for interested customers. We can monetize. But the most important thing is for business services. You take a Contact Center, for example, why we are winning? Because a lot of AI features like AI Expert Assist. AI, a lot of features built into our quality management and so on and so forth. But all those business services, that's another great way for us to monetize AI. For Workplace and for enterprise customer AI Companion low end and also really make sure it's sticky and improve the value, it's actually customer realize we add more and more services, more and more value, guess what? They are going to stick with Zoom plus usage also will be higher. That's our strategy to leverage AI.
We'll move on to Samad Samana with Jefferies.
And I'll echo Kash's kind words as well. It's good to see all the progress that Zoom is making. I guess on the AI side, I want to follow up on that. Eric, when you think about there's new AI-based products, but how is AI impacting the decision by larger customers, in particular, to adopt maybe the existing components of the platform and thinking about expanding, leveraging Zoom in advance of the AI features that are being released? And maybe just a dovetail into [ achieve that 2 in 1 ]. Michelle, are what are you assuming around AI investments? And are those kind of fully embedded into guidance for the year? So those are my two questions.
Yes. So I can address the first part of your AI question. So you look customer or even partner perspective, right? So almost the winner -- almost every vendor, right, and they try to pitch their AI story. A customer is smart, our customers want to understand what's the value? The AI added [ note ] to their [ buildings ], right? So they would like to take kind of to test the area services. We especially look at the value and the cost, right? And I look at our AI Companion, all those AI Companion core features today at no additional cost, right? And customer really like it because of the quality, they're getting better and better every quarter and very useful, right? Not like some other competitors, right? They talk about their AI strategy and when customers realize that, wow, it's very expensive. And the total cost of ownership is not getting better because cost of the value is not [ great ], but also it's not [ free ] and they always try to increase price.
That's the reason why for us to leverage our AI technology, to build this constant relationship with the customer. And I think that we are going to win in the long run because you don't want to tell a customer, hey, well we're here [ finish ] now. You need to pay more, right? You need to do this, do that. That's not right. That's the reason why -- we shared our AI strategy, road map features, pricing, everything with our customers transparently, reflected by their combined usage, we are winning more and more customer trust. Zoom has a very good AI functionalities and also they trust Zoom. We are not going to charge the customer a crazy price, right? I think that's the way for us to be the long-term winning.
And then maybe just to add on with how to think about AI and what's in our guide. I would say from a top line perspective, the trends that we're seeing in stemming churn as well as the Contact Center Elite revenue that Eric talked about, those are in our plans. We certainly have revenue in our plans for the more H2 focused SKUs like Custom AI Companion, but those will still obviously be ramping and not a dominant thing. And then in terms of the investment, we said last time that this would be one of our three investments, and it's baked into the guidance.
Ryan MacWilliams with Barclays has the next question.
Good to see you. Greetings from Switzerland. This is a new one for me, out of here asking the question on earnings call. Michelle, two for you. Lots of growth opportunities for Zoom. How would you rank the top 3 drivers for Zoom's net new revenue in fiscal 2026 between like Contact Center, AI, Zoom Phone, et cetera? And then as you've built up the full year guide, how should we think about what it implies from contributions from the enterprise customer segment and the online grocery?
So let me maybe answer the first one and then I'll round back to the other one, Ryan, and I hope you're well in Switzerland. But our -- I would say when you look at the full year guide that we gave of 2.7%, when you factor sort of FX and leap year gets much more in 3.3% range. So just as context. Within that, I would say that we have assumed that Online to slightly down and that enterprise will really be the dominant growth driver. So in terms of how to think about the top 3, I think I would answer it like this. Look, certainly -- I mean go to the core, Ryan, where like our core business -- and when I talk about core, it will sort of be inclusive of [ tone ], we are pleased with what we're seeing in terms of record churn.
And also, I would say we're seeing the same in our enterprise business. So [ we're down ] sort of peaked in the start of '25. We're now seeing sequential improvement every single quarter, which is great. And so we certainly have an expectation and those are big [ dollars ]. Then I would go to sort of our adjacent fast-flowing TAM, like Contact Center and Workvivo and both are certainly important to us, where we'll be working to continue to grow kind of customer and the successes that we've seen both upmarket and extend those down through channel. And in particular, you sort of asked an AI question for me. Let me leave that one in, which is just the connection again, that our Contact Center revenue is really being driven by that elite SKU, which is our top 140 SKU which includes not only inbound and outbound, but AI as well.
We'll move on to Meta Marshall with Morgan Stanley.
Great. Maybe just a quick question on just what kind of go-to-market investments you guys are making kind of as you drive the portfolio. And as you kind of see what has more traction with customers, particularly when it comes to Contact Center? And maybe just asking on the big deal that was won, just kind of what was the go-to-market motion with winning kind of that large customer?
I was going to answer broad things and maybe you can layer in from a deal perspective. Does that sound good? All right. It's nice to see you again as well. What I would say in terms of our priorities per our go-to-market, maybe the first one that I would call out is just to continue to move upmarket that we've been seeing. We have releasing progress in Contact Center and Workvivo in that space, but also in Phone and other, so first priority, go-to-market-wise would certainly be to move our enterprise -- continue to move our enterprise business upmarket. Second thing really important to us. We've talked about it before, it's integral to Phone and Contact Center, but also moving further down in our customer breadth, which is really accelerating the channel. And then I would say probably third to that is returning our online business to growth. While I've sort of said the guide of swaps down, the ambition, of course, is to return it to growth. So that's how I think about our top 3 priorities. Eric, do you want to comment on that ?
Yes. So yes, maybe I add on what is Michelle's side in terms of doubling down on our channel, the business and look at our Contact Center -- in top 10 deals in the Contact Center, 6 out of those 10 deals are driven by the channel partners. And we are going to -- and kind of investing more to make sure that the channel partner can contribute more to our Contact Center growth.
and the next question comes from Alex Zukin with Wolfe Research.
Congrats on a great quarter. Maybe just two-parter, right? So first, to the extent Eric, that you can talk about the demand environment post election, the difference between the 2 segments in Online and enterprise? And maybe talk about what you're seeing in SMB, what you're seeing -- I've gotten questions about federal exposure and all of the DOGE headlines. So just talk about -- you mentioned in the script that it's still choppy. It's still uncertain. So maybe put a finer point on that. And then what kind of got you over the line with Amazon in terms of winning that deal? And you're now at a point where kind of 2 of the [ MAG ] 7 are deeply partnered and entrenched with Zoom, where, to some extent, they were effectively competing with one or two of your products beforehand. So what is kind of happening? And how do you kind of see the opportunity to turn those into almost also distribution channels. You mentioned the Delta example with Workvivo, Amazon I imagine have a number of Chime customers that now maybe are opportunities.
So Michelle, how about I address the second one, you address the first one?
Okay. Look, I would say -- I would characterize what we're seeing in the macro environment as mixed but stable to the positive. On the enterprise side, we're seeing a lot of upmarket momentum, and you can see it in our results. I mentioned earlier, so I won't repeat it again, but a sequential improvement in the downsells on the enterprise side. Also on the Online, we're seeing record low churn rates in both Q3 and Q4. So those you can look at it and say positive. But certainly, you open the headlines and you see elements of layoffs. Ambitions are -- sort of volatile times, if you will, in the news. And so I would say that's sort of behind our sentiment that things are still mixed.
Yes. So regarding the Amazon deal, as you all know, Amazon was using Chime, which was acquisition done many years ago. And you look at the video conferencing and becoming more and more important. Again, Zoom [ not a winner ] just for the conference and the full workplace platform, a lot of other services in [ Rooms assistant ], right? So no, they are evaluating all those services. They want to find the best the product to serve their employee needs. so called Amazon, great company does care about the employee experience, right, by looking into all the services, right? So for sure, Zoom is the best choice, right?
So they would like to deploy the Zoom, right, to improve their communication, collaboration, the needs. I just kind of -- for all those companies, right, really care about employee experience. I think they all will select Zoom as a vendor. So speaking of distribution, we already started working together with Amazon, I think it's a huge opportunity ahead of us in how to [ leverage ] the Amazon marketplace to drive our top line growth. We already see some early signs of success. We are going to work together with the Amazon team more and more. To drive -- again, that's -- this is part of a channel partnership, right? It's Amazon workplace is doing very well for other companies, right? So we also want to be a part of that as well. So that's a win-win, I think. Yes.
And Evercore's Peter Levine has the next question.
Two. So in April, when the AI customization, the AI Companion becomes available, I think it's $11 or $12 a seat. Can you maybe help us understand how you're thinking about like what's the real use case? And then in terms of adoption, like what are you envisioning in terms of how many employees within an organization would actually need this type of application?
And then second for you, Eric, did you see the headlines around even in our world in banking where a lot of people are forcing back 5 day a week? Maybe just help us understand like how are you thinking about that? Does that at all prohibit your customers from maybe thinking about expanding? But just would love to know kind of your thoughts on if this back to office five days a week becomes more of a reality.
Yes. I think 5 days in the working week is for financial institutions. I think I fully understand, right? Because it's very important, kind of in-person and the meetings for sure, it's a lot of benefit. I fully understand. But also at the same time, and like for every large -- the financial institutions, you always have employees across the country and also a lot of international branch offices as well, and you talk to the customers, partner [indiscernible] use Zoom, right? I think internal usage, right, like we kind of up and down. But overall, and then the tools like Zoom is still very important is collaboration tools, right?
I do not have any concern. I truly respect every company decision is fully remote or five days in office or hybrid. And we sort of provided the theme for each company, right? So we just want to help our customers to enable, no matter which way they go and make sure they have the best collaboration and communication tools, right, to help them improve their productivity. Michelle, you want to address the first one?
Yes. Maybe I ought to probably let you talk about the use cases. But Peter, in regards to your question about what are sort of the assumptions or what's the targeting in our [ head ] with the $12 Custom AI Companion SKU. I would say, starting with enterprise customers, obviously, the easiest place to sort of pounce on them is our own customer base and talk about that, but certainly not just limited to that. But we'll be probably giving a lot more, I would say, at Enterprise Connect, which you can see on the thing there. But I would say we've assumed some degree of monetization in FY '26, I think you'll see more of it in '27. And we think that the $12 price point is going to be a really compelling TCO story for our customers, it's differentiated from what others in the market are pricing now.
Yes. So regarding the Custom AI Combined on use cases, high levels, we give a customer ability to customize their needs. I'll give a few examples. One feature like we have a Zoom Service Call video clip, and we are going to support the standard template, right? How to support every customer? They have a customized template for each of the users, and this is a part of combining AI Studio, right? And also all kinds of third-party integration, right? And they like they prefer, right, some of those kind of sort of third-party application integration. With their data, with the knowledge, whether the [ big scenery ], a lot of things, right? Each company is different, they would not customized, so we can leverage our combining studio to work together with the customer to support their needs and also at same time commodities.
We'll now hear from Mark Murphy with JPMorgan.
Thank you. I will echo Kash's congrats on finishing the fiscal year. Eric, I wanted to try to get your thoughts, your perspective on DeepSeek and any potential you see for lower inferencing costs in AI models if DeepSeek is something that you're testing out. And Michelle, looking at how strong the cash flow production is, can you speak to the cost or margin profile for the AI products? And what type of gross margin profile you see -- you maybe are thinking would be coming in for the AI companion as well?
Yes. So Mark, yes, I can address your first question regarding DeepSeek. I think a few weeks ago, right? I did publish a LinkedIn post about my thoughts about the DeepSeek [ topic ] of the earnings call, I will forward you that LinkedIn post. But high level, I think given this is open source, we like it because it's open source, right? You look at it from vendors like us, can we build [ an additional layer ] and the AI technology, we also do our own large language model. A lot of the techniques, right? A lot of optimization and so on, we all can learn from, right? This is good for [ all ] the application and the vendors like
us. And you can follow large language models, also like {indiscernible] for example, right, you also can look at the DeepSeek and also, by the way, look at it even for hardware vendors like media [ Broadcom IMD ] also good about them as well. The reason why there's a lot of demand for [ GPs ], right? And normally, [ they know this server ] these very large cloud vendors first, [indiscernible]. Like even for Zoom, right, probably we are not on the top priority, maybe the second priority, right? And a lot of other companies behind us with large cloud vendors, they may not all buy in [ more forever ] the huge demand, we're going to buy more. And obviously a lot of other companies also want to buy more.
Overall, I think it's good for everyone. And also the cost for like from a hardware side, a large language model, the application and reference, everything. As you look at that, we will drive the cost down. Now that's why overall, that's good for industry because it open source, right? And so -- and that's my take on that.
And Mark, maybe your question about kind of how to think about the margins. We're not going to obviously give any guidance or probably going forward any AI-specific margins. But I would say that we look at those very closely and our margins for every active user are coming down in line with what our expectations would be, if not more. What I would say maybe more broadly to maybe address where I think you may be going with the question is that we're very pleased with our margin finish in FY '25. And while we don't guide to the margin in '26, I would say we feel good that our increased usage in AI and our spend there is going to be offset by efficiencies, such that we should be able to see in FY '26, some acceleration of margin in line with sort of -- not up to the 80%, but holding very true, I guess, Mark, to the principles that we set in our long-term margins.
And Michelle, just to clarify. I think you said margin for active users are coming down. Did you mean the cost profile is coming [ down ]?
Yes.
Our next question will come from Michael Turrin with Wells Fargo.
I was intending to continue on the margin question, so there's a little bit of a follow-on here. But Michelle, first from a full-year guide, can you just speak to the delta between implied operating and free cash flow margin, what's driving that for the upcoming year? And maybe just going back to margin trajectory, Zoom has had prior targets that suggest margins may come down as investments go up. You're guiding for just slight compression on the operating margin side. So maybe just how you're thinking about the trade-offs if that still holds? Or what could shift that at all, if you don't mind?
Perfect. So let me maybe start with what I think is more tactical. But Michael, by all means correct me if I'm misunderstanding your question. On the free cash flow for '25, we're certainly seeing quite the strong growth. There's obviously timing elements of that, there's some pull forward relative to '26. Our expectation on '26 is that you'd still continue to see that OI growth, but you're impacted by timing differences as well as different interest conditions and tax conditions. So that's kind of how I would have investors think about free cash flows.
In terms of your operating income and kind of how we think about it long term, I actually think you [ treated this ] beautifully, which is, look, we are going to be first and foremost about revenue growth, but we are also going to balance that with profitability. And our long-term guide, we gave sort of what I would call is a wide margin of possibility of things that we would do. And really, what Eric and I have been centered on is giving clear and clean prioritized business priority to investors, so you know where we're investing in. And then really, look, we are going to invest when we see growth. But we're also going to be just pushing an ongoing frame of efficiency. And I think you really see that in our '26 guide, and I think you should expect to see similar.
Moving on to Arjun Bhatia with William Blair.
Perfect. Eric, I have one for you and Michelle one for you. Eric, you mentioned agentic AI. As you're moving more towards agentic and you're adding agents to your platform, how do you think about just evolving your pricing model? Does that fall under the broader AI Companion? Or do you anticipate having a different pricing approach for Agenda capabilities?
And then Michelle, it seems like you're just having a lot of traction with enterprise. It seems like that part of the business is going well. When do you think we should see ARR start to inflect? And maybe what are the puts and takes there going into FY '26?
Yes. So regarding the Agentic capabilities today, look at Zoom AI combined with [indiscernible], it's already agentic, right? So you essentially look for [indiscernible], we've already embraced agentic framework, right? So like we have workplace agent and also have [indiscernible] services agent, I mean, like a part of a Contact Center. We also can support third-party agent as well. And meaning this is in more like a technology, natural evolution from Gen AI to agentic framework like every company is doing that. We are doing that as well because this is very important and the new technology, new framework and a lot of agents that were built by us and the Zoom AI Companion studio, customers also can build [ an agent ]. I do not think we need to have a special SKU, right? Because this is part of our Zoom AI Companion studio, right, and to offer customers and agentic capabilities.
And then maybe on your comments on the guide. I just continue to reiterate that, that full year guide has some headwinds of foreign exchange and leap year sort of without 2.7 when you factor them in 3.3. I'll reiterate my comments on Online, sort of the expectation is that it's flat to a slight decline. And then really enterprise is what will -- what we expect to carry the growth. And in terms of the elements of what we expect to carry the growth and they would be an acceleration, but it's the same things we've been talking about and frankly seen throughout FY '25, pushing up market, gaining channel traction, and seeing that churn and downsell moderate and then certainly growing into our land and expand motions even further with Workvivo and Contact Center.
James Fish with Piper Sandler has the next question.
Building off of a bunch of the prior ones. But as we think about a shift more towards AI contribution, aren't we shifting more towards a consumption model rather than a seat model over time, why wouldn't we see margin compression longer term? Or how are you guys kind of thinking about balancing seat-based pricing and consumption-based pricing? And also working off of Turrin's prior question, you are guiding for a free cash flow conversion rate that is beneath what you guys just did and you mentioned, Michelle, some pull forward. So how should we think about what sort of got pulled forward in the cash flow that wouldn't be repeating or why we wouldn't be closer to a sort of 100% free cash flow conversion at [ time ]?
Yes. I can start with that. Let's say, your first question was sort of around how to think about margins and business models and why we don't see compression. And what I would say is that -- what we expect to see is similar to what you saw in FY '25, which is we're seeing obvious increase in cost from AI. And that we have an ongoing methodical kind of efficiency list to offset, and we certainly expect that broadly to continue into FY '26. So I think we feel good about our ability to kind of moderate that.
Maybe other things I would talk about, Eric mentioned in his prepared remarks, but we really think the federated approach that we have to AI is an important to being able to both give better quality of results, but also improved cost, meaning being able to match the right model at the right cost to the right action that needs to be done for customer value. So that's really how we're thinking about managing things broadly. There's other things we do more holistically where we can offset stuff that's maybe not in AI in our margins, things like [ colos ], et cetera, that we've talked about previously.
And then your question around free cash flow, I sort of understood why don't we see more of an increase similar in line with what we saw in '25. So let me answer that. First of all, in FY '25, we had interest rates that we're growing off of a large base as well as we saw billings and positive operating income. As we go into '26, we're going to see different interest rate conditions, different tax conditions, as I mentioned, but still that same growth from operating income. So really, it's sort of a timing thing. The other thing that I might mention that we've not talked as explicitly about is our broad guide, be it in revenue, our operating income continues to use a consistent methodology to what Zoom has used before, kind of that prudent consistent where we aspire to beat.
We'll move on to Tom Blakey with Cantor Fitzgerald.
Great. Maybe just seems like everybody else is doing two, I'll try to sneak two in, Eric and Michelle. On the CCaaS side, great successes here. I was wondering if you could talk a little bit more about that longer term plan to get CCaaS up to 10% of revenue in line with the Zoom Phone time line? Maybe that's being pulled in a little bit here with the successes in the higher tiers, Eric. And then maybe on Workvivo, again, just solid numbers, great traction last year. Wondering with the Meta Workplace migration opportunity, if you wanted to just maybe double-click on that. Maybe this is for Michelle, if you may be seeing there's still enough runway there that, that continues. [ That type of a ] growth accelerant can continue in fiscal '26 and not become more of a headwind, that would be helpful.
Yes. So Tom, regarding the Contact Center contribution to our top line growth, for sure, is always our aspiration, right, to contribute to leverage the Contact Center contribute more. I think timing-wise, is perfect, right? There's a lot of invest customers still deploy on brand solution, right? You take this largest ARR win, right? So that Fortune 100 U.S. tech company that they were using on-prem solutions, right? And when they decided to migrate to cloud distribution, for sure, they wanted to look at all the cloud vendors. They want to make sure the native to build the cloud, the solution with also all the innovations, the AI is part of that. That's the reason why we're much better positioned, right?
And also the product form we have high confidence. On the go-to-market side, we also needed to double down on the channel. A lot of those things are think doing very well, also reflected by more than 50% of top 10 deals in Q4, also driven by the channel partners. As long as a focus on the innovation with AI and all the features, right, drive the velocity and at the same time -- and listen to customers and double down go to market side, I think we are going to be much better positioned, and this is accruing, and the AI-driven and the Contact Center market.
And maybe I'll hit your Workvivo and then I'll have some broad comments about the two products together. From a Workvivo, like you said, we feel great, record bookings, excuse me, 89% growth in customers, so all very durable things. Certainly, Meta and we called down out in our prepared remarks is driving a lot of that. But I'll remind you that we had non-Meta growth before. And so we feel good about our ability to drive both, frankly. And then we're not going to give guidance. You have our overall revenue guidance. You have kind of the color and context on enterprise versus Online split. But I would say that the elements, the kind of underlying durable elements of what drove '25, we expect to be present in '26.
Bank of America's Michael Funk has the next question.
Great. You ought to be proud of what you've achieved in the last 2 years. I wanted to level set that discussion around run revenue growth, though. Because the previous narrative was a march towards mid-single-digit revenue growth. You're still guiding below that for fiscal '26. So one of the better receivables maybe shifted to customer stickiness, meaning [ on win and ] discounting or if the other factors are at play here, maybe online churns remain a little bit higher, maybe macro has been more difficult.
Maybe you're waiting to have [indiscernible] and AI solutions. But I want to better understand of how level set that revenue growth forecast for longer term because previously it was discussed as a mid-single-digit target.
I'll maybe just take that one, Eric. And then feel free to jump in. But I would say I don't think there's been a change relative to that, meaning if you go to the core of our business, like our guide and our performance reflect the same thing, which is we have seen sequential improvements in downsell and enterprise. We're seeing record level churn -- low churn, excuse me, in Online. And then the elements that will drive '26 are the same move-up market, broadened channel from a go-to-market perspective, from a product perspective, growth in Phone, growth in Workvivo, growth in Contact Center. So I really don't see it as a shift in the approach. And from a macro perspective, we've also assumed like macro conditions.
Okay. A quick math question, Michelle, maybe it's a rounding thing. But if I look at the revenue from over 100,000 customers year-over-year, simply taking a percentage of revenue and number of customers. It looks to be declining slightly. Is there a change or a shift in the over 100,000 customers? Is it different product set that you're selling into them? Or is my basic math incorrect?
Our over 100,000 trailing 12-month customers grew 7%. Am I misunderstanding your question.
Yes, but if I simply take the percentage of revenue from those customers and then divide it by the number of customers, I get to a lower amount of revenue per customer than a year ago. Maybe we can take it offline if that's a better venue.
Yes. I'm happy to take it in the next [ color there ]. The big picture, so people have the sentiment. We feel good about our traction in that market.
Moving on to Rishi Jaluria with RBC Capital Markets.
Wonderful. I'll keep it to one. I mean, Eric, I appreciate that you're talking about Zoom Chat in a [ high hanging ] in your prepared remarks. Can you talk a little bit about where you're getting some of the traction? And what's the impact that you're seeing in your customer base, whether it's better churn, whether it's better extension rates, adoption of other adjacent products? Any color there would be helpful.
Thank you, Rishi. You talked about our Zoom Team Chat, right? Yes. So if you look at -- maybe use one of the deals I want to share with you, like Q4, right? We won a big deal in the manufacturer, the market, right, like 30,000 Zoom Workplace users and also the 12,000 Zoom Team Chat users, right? Because the reason why customers -- when we talk to the customers the entire Zoom Workplace suite and realized Zoom Team Chat is part of that. It is at no additional cost and look at the functionality and a lot of features and innovations, well, why not? This one is standardized Zoom, essentially, when customers realize the power of Zoom Team Chat they are all very interested, right?
That's the reason why you look at some [ software ] companies, right? They also look at [indiscernible] given they do not have a lot of the capital, right? When after they deploy Zoom, they also found our Zoom Team Chat. So again, from a product perspective, it's a pretty cool product service because we already have that for a long time. Just from a marketing perspective, a lot of the customers did not know that, right? So that's the reason why we need to figure out a way to fix that problem. Again, this is the power of the entire Zoom Workplace suite. Team Chat is part of that. Meta customers deployed the meetings and the phone. They do not realize at Team Chat [ or a part of that ] why not use that, right? So [indiscernible] we need to fix that in the marketing problem or maybe an adoption problem, right? Again, this is on our radar screen to address that.
Maybe I'd also highlight, Rishi, is just a current example that stuck with me which says, we saw a recent customer in a compute versus Microsoft to 12,000 users. And they commented that the chat and that kind of includes the value was integral to their decision. So we are -- while it's still early days and we're working on it, we're excited about what we see.
Thank you. By the way, you also can use Zoom Team Chat as well. We can connect to over Zoom Team Chat.
We have time for one additional question, which will come from Siti Panigrahi with Mizuho. Go ahead.
I'll go back to the Contact Center, Eric, if you wear your General Manager hat for Contact Center. And if you look at Phone after 2, 3 years, you saw the inflection point. Now Contact Center has been now almost like 2, 3 years since you launched. Is this a year for Contact Center? Or do you think there's some kind of, it's a demand side, customers trying to pause and looking at the AI strategy, there's some kind of delay there? And also, we see like Avaya now it's not going to support the AXP customer, less than 200 customers. So how do you see Contact Center opportunity in terms of inflection? When do you think it will be like all?
Yes. First of all, we do see the momentum, right? And in Q3, in terms of number of seats, the largest deal, Q4 in terms of AR so large deal, more and more customer realized well, Zoom Contact Center, that works so well. And look at all the innovation and scalability and integration with other core services, I think it also processes AI. I think we just need to focus on execution, market opportunities there. You look at our top 10 deals, right? I think if I recall correctly, 6 or 7 to replace the existing in the cloud vendors, right? And the key is really because given 2 years ago, we announced that, right? So given the shorter period of time, customer, they did not realize we have that. Again, this is a marketing problem. We've got to fix that, but we have high confidence on the product side and I think we do see the momentum now. Hopefully, this year, we're going to make even more progress compared to like the Zoom growth trajectory. We want to build that, right? So that's always our aspiration.
And Siti, just for your notes. It was 7 of 10, 7 coming from cloud, 3 coming from on-prem. And the 6 of 10 is the momentum in our channel.
And again, everyone, that does conclude our Q&A session for today. Eric, Michelle, any concluding closing remarks?
Yes. Thank you all for your time. I really appreciate it.
Thank you.
Thanks, everyone. And again, this does conclude today's earnings webinar. We thank you all for joining us, and we look forward to seeing you next quarter. Take care.