Zoom Video Communications, Inc. (ZM) Management presents at Deutsche Bank 2022 Technology Conference (Transcript) | Panda Anku

Zoom Video Communications, Inc. (NASDAQ:ZM)

Deutsche Bank 2022 Technology Conference

August 31, 2022 3:00 PM ET

Company Participants

Kelly Steckelberg – Chief Financial Officer

Conference Call Participants

Matt Niknam – Deutsche Bank

Presentation

Matt Niknam

All right, if everybody can please go ahead and take their seats. We’re going to go ahead and get started shortly with our lunch keynote with Zoom. We’re very pleased to be joined by Zoom CFO, Kelly Steckelberg. Welcome.

Kelly Steckelberg

Thank you. Thrilled to be here.

Question-and-Answer Session

Operator

[Operator Instructions]

Matt Niknam

So maybe just from a high level to start, can you talk about your top priorities? What you’re most focused on right now as we head into the second half of Zoom’s fiscal year?

Kelly Steckelberg

Yes, so, hi, everybody, nice to see you all. We are really in the midst of this transformation, of moving from being the meetings company that everybody grew to know and love during the pandemic, to a true unified communications platform. And the platform very broadly includes a whole suite of products. Of course, we can talk more about all of these in detail, but Zoom Meetings, Zoom Chat, which is a product that has been included with meetings for a long time. But I would say it’s probably been a bit — a little bit under loved. And this is our persistent chat product. And we’re spending a lot more time and attention. And it’s becoming much more strategic for us. Of course, Zoom Phone, which had an amazing Q2, Zoom Context Center, which is showing a lot of promise very early in its life. It’s only six months old, but very pleased about how that product is progressing already.

And then Zoom IQ for sales, as well as Zoom Events and Whiteboards. So we have this whole suite of products. And so the platform is front and center. And the platform then goes on to serve, sorry, I failed to mention Zoom Rooms, which goes on to serve two other key areas of focus for us, which include hybrid work. So ensuring that as organizations are thinking about the future, and I think we’re just having this discussion, right, like, it’s probably never going back to the way that it was before. What does that look like? What do organizations need to keep their employees engaged and productive? And part of that is, of course, Zoom Meetings and Chat, but also Zoom Rooms and the proper technology there. And we can talk about that, like things like Smart Gallery, we now have workplace reservations in the office. So it’s really integrating those experiences. And then last, but not least, the third pillar for us is workflows. So as you start to think about how you spend your day, so at Zoom, I spend my day in Zoom, I spend it in chat and meetings.

But then there’s also this other aspect of what if you’re working on a project and you’re working on sauna, rather than going outside of your Zoom client to go over here and to launch it, you can now watch it through Zoom apps. And that becomes really important. And so thinking about how Zoom continues to extend into, like areas of productivity, and workflows. Right now we’re doing that through Zoom apps. So those are the high level company initiatives that we’re focused on of course, that distills down into very focusing for Q2 — or for the second half, I should say, which includes continuing to focus on our Enterprise and Zoom Phone and then for those of you that listen to the prepared remarks last week, online was a disappointment for us as compared to our previous guidance. So there are a lot of initiatives there in terms of improving free to pay conversion, as well as international expansion and really improving that new subscriber acquisition, which is where we saw the weakness as compared to our previous guy.

Matt Niknam

Yes. And I want to sort of double click on that. So obviously, you’ve updated annual guidance to reflect some broader macro headwinds so long side effects. Can you talk a little bit about these headwinds, what’s changed and maybe the impacts they’re having across the online and maybe even on the enterprise side of the business?

Kelly Steckelberg

Yes, so first of all, at the highest level for the company, when you look at FX, as well as revenue directly impacted by the war, meaning revenue in the Ukraine and Russia, it is having a 200 basis point impact on year-over-year growth. So straight off the top things that are out of our control. And that is disproportionately concentrated in online because of online has more international business concentration than enterprise does. And the online contracts themselves are shorter term. So they’re being brought to these current FX rates versus a lot of the enterprise contracts that were booked six months ago, a year ago, or are sitting on the balance sheet or deferred at the rates that were current at that time. So that’s what’s happening sort of at the highest level. Then the other thing that we saw in online that the challenges we saw was really about adding in new subscribers, the retention was strong, as with as it was in line with what we were expecting, if not slightly better. And what we’re seeing is, again, on a more macro basis impact in Europe, so aside from directly Ukraine and Russia revenue, also more in the continent, either people being impacted by the potential of a recession. And I think that’s more likely potentially even there than here, as well as people are just moving around the world again, and especially individuals that previously, were doing happy hours on Zoom. They’re traveling now with their families, they’re seeing their friends. And so that’s pushing down some of that new subscriber acquisition.

Matt Niknam

Go it. So if we, in fact, head into a recessionary environment over here in the US, what gives you more comfort around the durability of Zoom’s revenue streams and profitability?

Kelly Steckelberg

Yes. So the great thing about Zoom is, we bring a lot of value to our customers. First of all, they love us. But secondly, we bring a lot of value to them. And as we continue on this platform approach, if you look at our list prices, first of all, any of those products that I just mentioned, we are very competitively priced on a list basis. And often customers come to us and see savings, especially if they’re moving a phone system or a contact center system off via their, if they have an on-premise solution that they’re now going to move to the cloud with us, they will see savings and we saw that actually cited to some of the reasons for the contact center wins that we had in Q2. So as organizations are looking forward and thinking about how to manage expenses moving forward, consolidating on vendors is important to them? And thinking about phones, if you can get people to use a $75 headset for a soft phone rather than $1,000 handset that’s sitting on the desk, like there are real opportunities for savings across the board. And that’s what we hear from our customers.

Matt Niknam

Got it. Let’s dig in a little bit to enterprise and up market. So you actually increase your outlook for enterprise growth last week, now you’re expecting I think, low to mid 20% growth for the year there. Within that, can you help us think about what’s driving that strength, whether it’s additional products or meetings licenses? And I guess really, maybe I have a part two, which is how durable is that double digit growth opportunity in enterprise.

Kelly Steckelberg

Yes. So we had a strong Q2, and stronger than we anticipated coming into the quarter in the enterprise. And as a reminder for everybody, we see the seasonal trends now of Q2 and Q4 being our highest bookings period, because our up market reps in enterprise, and majors have six month quarters. So we expect to see those trends. And that’s what we saw, we had a phenomenal quarter for Zoom Phone. So Zoom Phone, it was in August within this month, but crossed over that 4 million seat mark and broke records twice for our largest deals with two deals having over 125,000 seats. So really thrilled with the momentum we’re seeing there. Zoom Rooms was also a strong contributor during the quarter as again, everybody’s still thinking about what is the future of work look like and making sure they have the right technology in their conference rooms. And then meetings continues to be kind of combined with some of those newer products continues to be a driver as well. We see, of course, as you can probably imagine more saturation in the US. But internationally, there’s still a lot of opportunity for meeting seats.

Matt Niknam

Yes. One question we got a lot last week in light of results was around new enterprise customer additions.

Kelly Steckelberg

Yes.

Matt Niknam

That’s moderate in recent quarters, I think you read about, yes, a little over 5,000 last quarter. Is it a slower pace of gross additions, is churn a factor maybe if you can help us on back that.

Matt Niknam

Yes. So our selling strategy for all of our digital products, Zoom Phone, Contact Center Rooms, et cetera, is to sell into the existing install base. And that has been our strategy from the very beginning. And it often stems from these customers have seen how we have transformed their meetings experience. And now they want to extend that to the platform. So in that case, as more of our growth is coming from new products, Phone and Contact Center, by definition, that means more of the growth is coming from expanding existing customers. So this is a trend that you should continue to see for a while. We have been talking about this for a few quarters. So it’s not a surprise to us, and hopefully shouldn’t be a surprise to you that we are still focused on new logos, we have absolutely have teams that are focused on acquiring new logos. But as our expansion is driven, more and more by extension of existing, sorry of new products, that means extension of existing customers, and you should expect to see that number continue to moderate a bit.

Matt Niknam

Okay. Make sense. Just one more in terms of just thinking about go-to-market as we think about channel strategy. Do you sense the company maybe needs a little bit more in the way of reliance on channel partners relative to direct sales as you attempt to scale the business?

Kelly Steckelberg

I think that channel is — not I think I know, channel is a very important part of our growth strategy. So to take you all back when we were a meetings company, we were 90% plus direct led meetings, just is a product that was lend itself very well to being sold by our direct sales organization. As we moved into phone, we realize the importance of the channel, largely thanks to Ryan Azus, our Chief Revenue Officer who helped educate all of us. And now we have a new President. Some of you may know Greg Tomb, who has taken over all the go-to-market teams. And we have a new head of channel, Todd Surdey. And they both are big advocates of the importance of the channel. I think we’ve done a relatively decent job of building up the channel in the US and Canada, about 30% of our Q2, Zoom Phone deals were touched by a channel partner. But that is not the case internationally, we have a lot of opportunity there. And that will continue also with contact center where the channel will play an important role. So you should expect that that is an area we have been focused on expanding growing over the last couple of quarters. And that will continue.

Matt Niknam

Go it. Let’s just to online, maybe we can talk a little bit about the latest you’re seeing in the business, you alluded maybe to some more headwinds in terms of new subscriptions, relative to churn. But obviously, it’s still important as we think about the business still being about 46% of rep. So maybe help us think through what you’re seeing in terms of new revenue relative to churn there.

Kelly Steckelberg

Yes. So and just to highlight for everybody online is a very important part of our long-term strategy. Historically, online served really as a funnel to our enterprise business. That’s really what it was. And when we saw this tremendous growth, during the pandemic, we realized that there was a lot of opportunity going forward, we now have a GM assigned to this business, Wendy Berg, and she is amazing. She reports directly to Greg, our new President. And it she has a whole team that is treating this like its own business. And so there are a lot of initiatives there that are really important to return this business to first being stabilized and then growing, which we absolutely expect it to continue to do in the future. And one of the huge area of opportunity for online is reducing the friction that an online especially international buyer sees, so lots of opportunities around adding currencies, adding payment types. So if you’re sitting outside the US, and you come to the website, and you see a USD price that makes you do math in your head, and then you’re like, wait a minute, that’s not a payment type that I’m used to, because I don’t always use my credit card. All of those great opportunities, as well as pricing and packaging, meaning looking, especially in cost sensitive markets, largely in Asia.

I think Netflix, for example, did a really good job of this where they have mobile only packages outside the US that are at a very differentiated price point. Those are the types of examples of things that Wendy and her team are testing. So we’re very thoughtful about how we do this, we do a lot of AV testing. And I think you’re going to, I know this from my previous company did, getting that friction out of the way of the buyer can have a huge impact on your conversion rates. The other thing that we’ve done recently, if you remember, at the end of Q1, our one-on-one meetings used to be virtually unlimited. And we added in that 40 minute limit to the one-on-one meetings that previously existed for the one to many, but one-to-one was almost unlimited. And that had a very positive impact on conversion. Now, we still see people that we know are basically running their business for free because we’re having these back to back to back to back to back 40-minute meetings, so looking at additional ways to incent them to convert. So those are the sort of the areas or the focuses that Wendy and her team have and just going to take a little bit of time to get those all in flight, but they can have a really big impact on that business.

Matt Niknam

Okay, so these seem like if we think about improving gross trends churn seems like it’s still on track. You got a greater percentage of your base now hitting that 15-16 months tenure?

Kelly Steckelberg

Yes.

Matt Niknam

So for the year, I think you’ve talked about a 7% to 8% revenue decline for online, you’ve got the benefit of maybe FX being less of a headwind next year, you’re lapping the Russia Ukraine impact. Any color or expectation in terms of when trends here may be flattening or return to growth?

Kelly Steckelberg

Yes, I mean, previous to this previous, this last quarter’s guidance, we had expected that to occur in Q4 of this year given the change in the guidance and the outlook now I expect that is more likely to occur in the first half. So the earliest kind of Q2 of next year.

Matt Niknam

Got it. Okay. Great. I have a question about just broader growth potential tam. I think a lot of investors want to know that there has been this great debate of was growth meaningfully pulled forward during COVID. What’s the long-term growth potential? How do you envision Zoom’s opportunity and share potential if I just think about it, I think at the last Analyst Day you put out I think, was about a $90 billion tam that it was inclusive of contact center, you’ve got your own product now that you’re launching. You’ve obviously got a ways to go relative to that $90 billion, so maybe if you can help us frame the longer-term growth opportunity for you.

Kelly Steckelberg

Yes. So we’re, of course, I’m not giving long-term guidance, we will give outlook on the Q4 call. But when you think about all the potential that is sitting out there, first of all, there’s a tam, there are all of these new products that we have brought to market, as well as we are continuing to hire very thoughtfully in areas that can drive growth, including innovation. So our R&D teams have been heavily under invested over the last couple of years. And then our sales and marketing team focusing on sales capacity, especially internationally channel, and then very specifically, opportunities around product marketing. Historically, we’ve done a lot of brand awareness building that exploded during the pandemic, but there are a lot of people that, again know Zoom Meetings that don’t know, Zoom Phone, Contact Center, et cetera. So those are all the areas of investment opportunity. And we’re building a company for the long term. And we absolutely right now we’ve set our sights of the company on being $10 billion. And when do we get there? So I mean, even I am saying is, we don’t see limitations to our growth, it’s on our execution. And we are in some areas catching up, in some areas still building and innovating or continuing to innovate and build. And we’re excited about the future of Zoom. I think that’s what I can say at this point.

Matt Niknam

Got it. Just one follow up there. So there was an interesting comment last week, Greg made, he said on the last call, I think it was around pricing. He said, we potentially maybe looked at discount less and maybe highlight more of the value proposition Zoom brings. So can you talk about the opportunity you have with pricing? And I guess what I’m really wondering is how is this possible in such a competitive market?

Kelly Steckelberg

Yes. Well, so our strategy, and those of you that I’ve met with before have probably heard me say, is, has always been we win based on products, and we don’t lose based on price. And that has been our mantra always at Zoom. We also, internally, if you understand sort of how Zoom operates, How Simple Wins is one of the books that we require new hires to read. So we, internally have reduced friction with our sales organization, which means we’ve given them a lot of latitude. I think what Greg was responding to, and also, we have a new head of North America sales, David Rosario, who had the very same response coming from bigger companies that have a little more structure, and maybe a little more GOAs grants of authority around their sales organizations was, wow, by giving our sales organizations this much latitude have they potentially gone to the path of least resistance, which maybe means they’re over discounting, potentially in situations. So that’s what they’re reacting to. And I think just wanting to reframe for our sales organizations, like, okay, maybe you can stand your ground at that last moment, and not give into an additional 1% to 2% of discounting. That’s what it’s about. And so we, I certainly welcome it, to have a partnership like that in the sales organization with looking at it. And it’s always a fine balance, we want our customers to see a lot of value in Zoom. We think that they do. And so maybe it’s just training our sales org, so that you can hold your ground a little bit, even at the end of the negotiations, and derive a little more value out of that deal for the company. And so that’s where — that’s what we’re thinking about as an organization.

Matt Niknam

Got it. So if we think about the different puts and takes here, we’ve talked about enterprise growing a little bit better. We’ve talked about online, maybe lagging a bit, obviously, both have different profitability profiles. So as you scale up market, you’re investing in new growth opportunities. And obviously, we have that mix shift going on. How should investors think about the path for operating margins, relative to that sort of upper 30% range you’ve posted in recent quarters?

Kelly Steckelberg

Yes. So if you all remember, during the pandemic, we had this amazing expansion of our operating margins, right, as the revenue was growing so rapidly, we could not keep up from an hiring and investment perspective. And that was amazing and phenomenal. However, as I said, earlier, we have been woefully under invested. For example, in R&D, our long term target for R&D is 10% to 12%, we were under 7% of revenue last year and under 4% of revenue the year before that. So we have been as quickly as possible without disrupting the organization, the culture et cetera, trying to hire and get back towards that 10% to 12%. We were a little bit under 9% in Q2. So we’re getting there, we are we are gaining ground. I think what I understand investors, we owe all of you and we will update in November, our long-term target operating margin, and what does that look like? The last one we put out there with 25% plus, I think it’s higher than that, but I’m sure if you’re sitting there and looking at 33%, which has come down from whatever 41%. And the backstop I’ve given you is 25%, you’re like, well, there’s a lot of range in there still right. And I don’t think the long-term target is 25%. Again, we’ll update this in November. But I promise you all we’re not going to let margins just continue to drift. We are doing this in a very measured thoughtful way, and focusing on the areas that we think are the most important for the future. And that means we are as conservatives, we can be around COGS and G&A. And we invest in sales and marketing in those areas, I think I talked about in R&D.

Matt Niknam

Got it. Okay. One other thing that’s been very topical, obviously, stock-based comp has been top of mind for a lot of investors in the current environment. That line item, I don’t know if it was brought up on the call, but I’ll bring it up now. And it ticked up fairly meaningfully last quarter. Any color you get here, what’s driving it? And then maybe broadly you mentioned investing in R&D, and sales and marketing, what you may be doing to attract and retain talent with some of the stock volatility.

Kelly Steckelberg

Yes. So we certainly have seen an elevation in that level of stock-based comp and it’s temporary, but it’s not temporary for the rest, I mean, you should expect to see those elevated levels, at least for the rest of this year. As what’s driving that is retention measures we have in place. So the way that we grant equity at Zoom is dollar based RSU value that employees getting their offer letter. And you can imagine that and then that converts into RSU amount based on like a 60 day look back period. So employees that joined us a year and a half ago, when the stock was $300 and $400, the number of RSU they got when they rolled into their one year anniversary, and they take the new stock value times that number are huge. It’s less than what they got in their offer letter. And we don’t want them to be worried about that. And so we have a program right now, that for employees on their one year, and their two year anniversary, if the value of their RSUs is not equal at that anniversary date is not equal to what was in their offer letter, we are giving them top up grants at that point in time. So what you’re seeing right now these elevated levels are being driven by top up grants, and we certainly expect that to decline at a certain point as the stock stabilizes or these grants are being made at these lower levels right, then this is a good time for employees to be getting grants. Let me say it that way, right? Because there’s potentially a lot more opportunity in the stock at this level. And we don’t expect these top up grants to continue for a long period of time.

Matt Niknam

Okay. I want to talk a little bit about capital allocation. So the business still generates fairly healthy free cash flow, I think you’ve generated almost $1.5 billion over the last 12 months. You have north of $5 billion worth in cash and short-term investments. How do you prioritize capital allocation and uses of excess cash?

Kelly Steckelberg

Yes, so we do currently have a buyback program in place. We’re about halfway through a $1 billion dollar buyback program that was authorized by the board. And I think that made sense this time, I think looking forward, what we really want to prioritize is M&A that strategic opportunities that accelerate technology and talent in the company, is really the focus. So we’ve done a few smaller ones. Solvvy was the most recent one. And that’s a perfect example of a nice technology tuck-in that brought us great employees, it brought us a little bit of revenue. But more importantly, it brought us conversational AI functionality that we now added into our Contact Center with a team of people that really are experts in this space. And that is a really in the sweet spot of acquisitions for us. Contact Center especially lends itself very well because there’s a grid of functionality around Contact Center that we think is super important that we want to build ourselves is that seamless integration is really important. But then there’s other functionalities that are needed for big enterprises, like the easiest way for me to understand and probably explain is workforce management, for example, which means there’s a whole queue of agents and calls that have to be managed, and how does that happen in a large contact center. And that’s probably not something that we necessarily need to build ourselves, it would lend itself well to an acquisition that can be layered on top. So those are the types of acquisitions that we will continue to look at. And again not necessarily core functionality of that company. But areas we can accelerate expansion around it.

Matt Niknam

Got it. And in terms of number of opportunities, private market valuations, any changes you’ve seen are softening.

Kelly Steckelberg

What I will say is the number of inbounds that we get is has increased dramatically. So some of you may know Sanjay Rao. He’s our head of Corp Dev and M&A. And that team is very, very, very, very busy. And yes, I would say more attractive valuations as private companies are realizing potentially, they’re not going to get another round in the private markets in the near term. And thinking about what does that mean, even companies that we may have wanted to acquire in the past that were not excited about being acquired because they really had set their sights on going public. I think there’s some potential opportunities that people are shifting and looking at, okay, maybe Zoom could be a potential a good landing spot for them.

Matt Niknam

Got it. Let’s dig in a little bit more into Contact Center, you’ve seen some pretty strong early momentum. I think one of the comments towards the tail end of last week’s call was the average deal size is now triple digits in terms of seats. And I think you may have talked about seeing some –

Kelly Steckelberg

We like that were top one. It wasn’t four digit. I was like it’s approaching four digit. So I must have not said that very clearly. So we have — not had a four digit deal yet. Let me be very clear, but approaching that it’s in that upper quadrant. Let me say it that way.

Matt Niknam

You said it correctly, because I have the word approaching in my question. And I pulled it straight from the transcript, my apologies. Where are you seeing the early wins? And maybe are there specific verticals or customer segments that are more early adopters here?

Kelly Steckelberg

Yes. So what’s great, and we, I don’t know why I’m surprised because we saw this in Zoom Phone. But we see 50% of the wins for Contact Center in Q2, were in majors and enterprise. So the upper end of our upmarket enterprise customer base, which I think is really exciting. And across the verticals, they’re everywhere. I mean, there were, I think it was retail, there was something around sports in there, like, it’s really interesting to see where they’re buying. So that’s been exciting. And I think the common denominator is many of them are buying, either buying Zoom Phone at the same time, or already were Zoom Phone customers.

Matt Niknam

Okay, that was going to be my next question was, as you sort of move up market, are the decisions between UC and CC, being made at the same time by a similar buyer or these typically maybe different sales processes.

Kelly Steckelberg

So there are different buyers. And you’ve probably heard us talk about this even in the last year when we were considering the other acquisition. But what I think happens is that, especially in these times, when customers are thinking about consolidating vendors, it makes sense. And then they’re combined with the fact that there has been an impetus to get Phone and Contact Center are kind of the last two areas that are remaining on-prem, commonly still on-prem. And there is a very strong push right now to get those to the cloud. And so when we see, I just asked this morning, like, who are we winning as a contractor, and we are winning against Cisco, and Avaya, who are the exact same people we’re winning against for Zoom Phone. So it just makes sense, right, that these are sort of all happening at the same time. But I do also want to highlight that you also called out we are — we have won against other cloud based providers as well. So we are not just winning against on-prem, we’re also going against other cloud based contact center providers.

Matt Niknam

Got it. What’s — as we think about the timeline to see contact centers scale, is there a timeline? Is it a smaller ramp in Zoom Phone? And I’m just wondering, in terms of as we think about the opportunity, obviously, it’s a $24 billion, $25 billion tam, very early days, how does that ramp compared to maybe some of your other products?

Kelly Steckelberg

Yes. So remember, that Zoom Phone is three and a half years old right now. And Contact Center is six months. So there’s a big difference there. When I asked — when I heard about the percentage of deals that are in the upper end of the enterprise, I was like, where are we though, from being able to do these really big enterprise deals? And they’re like, oh we’re, the features and functionality are still six to nine months, probably away. So we need some integrations, there’s still some work to be done. So I think you should think about will continue in probably these range of deals. And then maybe, I don’t know, a year from now start to see some of those bigger enterprises where we’ve really proven out that top tier, I mean, remember, we have Fortune 10 companies using Zoom Phone today. It’s going to take a while before I think from a Contact Center perspective, if we get there.

Matt Niknam

I’m going to pause if anybody has any questions, just raise your hand. Somebody with a mic should be walking around the room. Okay. We talked about Zoom Phone, obviously, very, very strong momentum. It surpassed 4 million seats in August, big customer wins last quarter. How significant and maybe I should wait till November. But any idea of how meaningful or significant the businesses right now relative to the broader Zoom portfolio?

Kelly Steckelberg

Yes, I know, of course. What we’ve said for all of you is we’ll break it out when we get to 10% of revenue. And t’s not there yet, obviously, or you would see it but it’s very rapidly approaching that.

Matt Niknam

Okay. How does the sales motion and we’re hearing a lot about customers, particularly larger customers taking their time evaluating maybe it needs more of scrutiny. How the sales motion does for Phone in general compared to Meetings? I’m just wondering are customers making the purchases jointly. Does phone migration away from on-prem take longer? How does that happen?

Kelly Steckelberg

Yes, so Zoom Phone is definitely a more technical sales than Zoom Meetings sand do meetings and Contact Center is the same. The other thing I would highlight is we talked about the channel. Customers or prospects often turn to experts in the field for feedback or advice on picking a Phone and a Contact Centers. And that’s where the channel plays a very important role. And industry analysts too. We had our industry analysts’ event last week, and they play an important role in these decisions that customers are making. So while we also talked a little bit of the call, and I hear from our sales team, all deals right now, in addition to CIO, the CFO is often getting involved as people are making very thoughtful economic decisions. So while we did see linearity sort of bump up to the back end of the quarter in Q2 for sure, which had an impact in terms of revenue, recognized the quarter. The good news is we didn’t see deals pushing out. So we felt good about deals not losing or not pushing into Q3. They’re just customers are taking their time and being very thoughtful about these decisions.

Matt Niknam

Understood. And then last question, maybe to tie this all together, can you talk about what you think the market may be missing? And where the opportunity resides for either new or existing shareholders?

Kelly Steckelberg

Yes, I think we are in a transition. And I think that the potential of what the platform that Zoom has to offer and how much our customers love Zoom and the consolidation opportunity is huge. And it’s I mean, it’s incumbent upon us to execute and improve that. But that’s what I think is, while we’re in this transition, while we have an enterprise organization or enterprise, I should say segment that grew 27% year-over-year, like if you imagine if we were a 27% year grower with 30% margins, everybody would be thrilled, right? Like, but it’s kind of a little bit convoluted right now with the online business. And as that stabilizes and starts to grow again, I think everybody will then probably have a sigh of relief, and that we’ve stabilized the business and then the potential from there I think is significant.

End of Q&A

Matt Niknam

Great. It’s a great place to end that. Appreciate it. Thank you, Kelly.

Kelly Steckelberg

Thank you, everybody.

Matt Niknam

Take care.

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