01—Abstract
Summary
Summary of the 10-Q filed August 23, 2023. Cited figures are marked; the original filing is the authoritative source.
Zoom Video Communications, Inc. (now Zoom Communications, Inc.) reported revenue of $1,138.7 milliona for the three months ended July 31, 2023, up 3.6% from $1,099.5 million a year earlier, and net income of $182.0 million versus $45.8 million.
For the six months, revenue was $2,244.0 millionb (up 3.3%) and net income was $197.4 million versus $159.4 million. Income from operations for the quarter rose to $177.6 million from $121.7 million, and gross margin improved to 76.6% from 75.1%. Operating cash flow for the six months declined to $754.5 million from $783.4 million, and free cash flow was $686.0 million versus $730.5 million.
Cash, cash equivalents, and marketable securities totaled $6.0 billionc. Growth indicators were mixed. Enterprise customers reached approximately 218,100 versus 204,100, and customers contributing more than $100,000 of trailing 12-month revenue rose to 3,672 from 3,116.
However, the trailing 12-month net dollar expansion rate for Enterprise customers fell to 109% from 120%, and the company cited elongated sales cycles, reduced corporate spending, and a $10.2 milliond quarterly revenue headwind from a stronger U.S. dollar. Online revenue declined 4.3% in the quarter. The company completed a February 2023 restructuring that reduced its workforce by approximately 15%, recording $73.0 million of restructuring costs for the six months.
Legal and regulatory matters were significant. The company agreed to a $150.0 million settlement of a securities class action, with $60.0 million in net payments made in the quarter.
The Department of Justice and SEC investigations into data privacy, security, and China-related matters remain ongoing, and the company stated it cannot predict their outcome. The company also acquired Workvivo for $221.8 million in April 2023 and made no share repurchases in the six months ended July 31, 2023.
02—Key points
Key Highlights
- Revenue of $1,138.7 million for Q2 FY2024, up 3.6% year over year; six-month revenue of $2,244.0 million, up 3.3%.
- Net income of $182.0 million for the quarter versus $45.8 million, with income from operations of $177.6 million versus $121.7 million.
- Gross margin rose to 76.6% from 75.1%, attributed to efficiencies from expanded internal data center capacity.
- Operating cash flow of $754.5 million for the six months (versus $783.4 million) and free cash flow of $686.0 million (versus $730.5 million); cash and marketable securities totaled $6.0 billion.
- Enterprise net dollar expansion rate (trailing 12 months) declined to 109% from 120%; online monthly churn improved to 3.2% from 3.6%.
- Remaining performance obligations were $3,504.4 million, with 59% expected to be recognized as revenue over the next 12 months.
- A $150.0 million securities class action settlement and ongoing DOJ and SEC investigations continue to create potential financial and reputational exposure.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Zoom Communications kept $0.16.
- Revenue$1.14B100.0%
- Cost of revenue−$266.6M23.4%
- Gross profit$872.1M76.6%
- Operating costs−$694.5M61.0%
- Operating income$177.6M15.6%
- Interest, other & tax$4.4M0.4%
- Net income$182.0M16.0%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 23, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.14B$1.10B | +3.6% |
| Cost of Revenue | $266.56M$273.61M | −2.6% |
| Gross Profit | $872.12M$825.85M | +5.6% |
| R&D Expenses | $191.80M$172.56M | +11.1% |
| Operating Expenses | $694.50M$704.10M | −1.4% |
| Operating Income | $177.62M$121.74M | +45.9% |
| Net Income | $181.97M$45.75M | +297.8% |
| EPS (Basic) | $0.61$0.15 | +306.7% |
| EPS (Diluted) | $0.59$0.15 | +293.3% |
| Shares Outstanding (Basic) | 299.09M298.55M | +0.2% |
| Shares Outstanding (Diluted) | 305.93M307.16M | −0.4% |
05—Questions
Frequently Asked Questions
How did Zoom's revenue and profitability perform in the quarter ended July 31, 2023?
Revenue was $1,138.7 million, up 3.6% from $1,099.5 million. Net income was $182.0 million versus $45.8 million, supported by higher other income, which was $41.1 million versus $3.4 million, and gains on strategic investments of $31.7 million versus a loss of $34.7 million.
What is driving the change in the Enterprise and Online customer segments?
Revenue from subscription services to Enterprise customers increased 10.2% in the quarter, partially offset by a 4.3% decline in revenue from Online customers. The trailing 12-month net dollar expansion rate for Enterprise customers was 109%, down from 120%.
What legal and regulatory risks does the filing disclose?
The company agreed to pay or cause insurers to pay a total of $150.0 million to settle a securities class action, subject to court approval, with $60.0 million in net payments made in the quarter. Department of Justice and SEC investigations into privacy, security, and China-related matters are ongoing, and the company stated it cannot predict their outcome or the potential for substantial fines or penalties.
How much did the company spend on restructuring and acquisitions?
The company recorded net restructuring costs of $73.0 million for the six months ended July 31, 2023, following a February 2023 plan that reduced its workforce by approximately 15%. It also acquired Workvivo Limited on April 21, 2023, for an all-cash purchase consideration of $221.8 million, of which $184.7 million was allocated to goodwill.
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