Thank you Kelcey. Hello, everyone, and welcome to Zoom's Earnings Video Webinar for the fourth-quarter and full-year of FY23. I'm joined today by zoom's Founder and CEO Eric Yuan and Zoom's CFO Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.zoom.us. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights, that along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results.

During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first-quarter and full-fiscal year 2024, our expectations regarding financial and business trends, impacts from the macro environment, our market position, opportunities, go-to-market initiatives, growth strategies and business aspirations and product initiatives 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 the 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 obligation to update any forward-looking statements we may make on today's webinar. And with that, let me show you a quick video, highlighting our exciting technologies before turning the discussion over to Eric. Kelcey, please queue up the video.

[Video Presentation]. Hello. Eric, how may I help you.

Eric Yuan - Founder and Chief Executive Officer

Well. That's amazing. Thank you, Tom, and thank you everyone for joining us today. So FY23 was truly a pivotal period in our evolution into a full collaboration platform. As you saw in the video, we launched multiple innovations to help transform the world and expanded our product portfolio, opening new markets. Since Zoom Contact Center released early last year, we have worked hard to expand its features, functionality and integrations. In Q4, we landed a 2,000 seat Contact Center deal, our largest to date. It has truly demonstrated the rapid progress we have made towards becoming a full-fledged Contact Center Solution.

And the success of our Zoom One bundle, which we launched last June, contributed to the strong performance of Zoom Phone, which in Q4, exceeded 5.5 million seats, making us a clear leader in the space. We closed out the fiscal year with the release of Zoom Virtual Agent, an intelligent conversational AI and a chatbot solution that we believe will transform the way businesses assist their customers and employees. As per the industry, it was not without its challenges. We experienced headwinds in terms of currency impact, online contraction and deal scrutiny, which continued into Q4. And a few weeks ago, we made it a very tough but a necessary decision to reduce our team by 15% and saying goodbye to around 1,300 hard-working, talented Zoom colleagues.

I want to extend to them my heartfelt appreciation and deepest gratitude for their crucial contribution to Zoom. This painful exercise has been a tremendous learning experience for us, and it allows us to look inward to reset ourselves so we can weather the economic environment with greater focus and agility, deliver for our customers and achieve Zoom's long-term vision.

Now let me discuss our strategic focuses in FY '24 and beyond. First, we will help redefine teamwork through offering new immersive experiences that improve employee engagement and modern collaboration tools for ideation across locations and modalities. And, we will give teams everything they need through a single pane of glass.

Second, the age of AI and large language models has arrived, and we want to empower smarter experiences and the workflows that truly enable our customers to benefit from these transformational tools. By inventing AI into more workflows, we can provide our customers with richer, more actionable insights that empower them to work smarter and serve their customers better. Zoom IQ, Zoom Virtual Agent, as well as our transition, captioning and meeting summary tools are just at the beginning. We will lead more AI technologies into our products to truly help our customers maximize their ROI on our platform and thrive in this new area of computing.

Third, we will offer more and more departments [Technical Issues] solutions to meet their nuanced digital transformation needs. We constantly solicit feedback not only from CIOs but also heads of sales, customer experience leads and many other leaders across various industries.

Zoom IQ for Sales was built in this collaborative fashion and has already added tremendous value to many SKUs [Phonetic]. You can expect additional industry-specific and department-specific applications developed both by us and our third-party partners. All of this - all of this comes together as a collaboration platform that units people to unlock their potential, enables more dynamic and intelligent experiences and allow us to reimagine productivity and work.

As we navigate this period of technological and economic volatility, our job as a trusted partner providing best-in-class unified communication services, has never been more crucial. Again, this is a tremendous opportunity in front of us, and we are very confident that our strong foundation, ambitious vision and customer-centric culture will enable us to seize this opportunity and continue to lead the way in the unified communications and collaboration space.

Now moving on to some of our customer wins. I want to thank Aramco, one of the world's leading integrated energy and chemical companies for establishing a strategic partnership with Zoom. This is a landmark multiyear partnership where we will provide a full suite of collaboration services, including Zoom Meetings, team chat, phone, events and Zoom Rooms. In addition, we will work together to build a data center in the region and explore the joint development of innovative technology solutions. We are so grateful that Aramco has chosen to partner with Zoom on their digitization strategy.

I'd also like to thank NASDAQ, my favorite company, who has been a Zoom customer for several years. Recognizing Zoom's strong reliability, security and ease of use, they expanded to Zoom One, our all in one unified communications and collaborations bundle. As part of this expansion, NASDAQ will be deploying Zoom phone and also adding capabilities like a translation and advanced whiteboard for their Zoom meetings.

I want also to thank Raymond James, a leading financial services company for expanding their relationship with us by integrating Zoom Phone to their Zoom Meetings implementation for a more complete communications package. We are excited to work with Raymond James to provide a highly reliable and secure system, enabling their employees to communicate, collaborate and ultimately thrive in a hybrid work world.

I want to also thank Barracuda Networks, which builds cloud-first enterprise-grade security solutions for expanding with Zoom. A long-standing Zoom Meetings counselor, Barracuda saw the value of having a single platform for all their communication needs and operate a [Technical Issues] Zoom One Enterprise Plus in Q4. In addition, Barracuda also chose Zoom IQ for SKUs to enhance sales engagement and Zoom Contact Center to elevate the customer experience. Again, thank you, Aramco, NASA, Raymond James, Barracuda Networks and all of our customers worldwide.

And before closing, let me express my warm welcome to Cindy Hoots, for joining our Board of Directors. Cindy brings a wealth of experience and currently is a Chief Digital Officer and Chief Information Officer at AstraZeneca. We're so excited to work with her. I also want to welcome our new Chief Product Officer, Smita Asim, who joins us from a seasoned executive career at Microsoft and Google. We are also super excited to work with her.

And with that, I'll pass over to Kelly. Thank you.

Kelly Steckelberg - Chief Financial Officer

Thank you, Eric, and hello, everyone.

Let me start with a few of the financial highlights of FY '23 and the results for Q4 and then provide our outlook for Q1 and FY '24.

We delivered solid results in FY '23. Here were some of the highlights. Our Enterprise business grew 24%. Our non-GAAP operating margin was 35.9%, and we achieved a free cash flow margin of 27%. In Q4, total revenue came in at $1.118 billion, up 4% year-over-year and 6% in constant currency. This result was approximately $13 million above the high end of our guidance. The growth in revenue was primarily driven by strength in our Enterprise business, which grew 18% year-over-year and represented 57% of total revenue, up from 50% a year ago. We expect Enterprise customers to comprise an increasingly higher percentage of total revenue over time.

From a product perspective, we had strong growth in Zoom Phone, coupled with contribution from Zoom Rooms and other products. Online average monthly churn decreased to 3.4% from 3.8% in Q4 of FY '22 and increased slightly from 3.1% in Q3 as expected due to seasonality. The number of Enterprise customers grew 12% year-over-year to approximately 213,000. Our trailing 12-month net dollar expansion rate for Enterprise customers in Q4 came in at a healthy 115%. We saw a 27% year-over-year growth in the upmarket as we ended the quarter with 3,471 customers contributing more than $100,000 in trailing 12 months revenue.

These customers represent 28% of revenue, up from 23% in Q4 of FY '22 and span diverse industries such as healthcare, education, government and more. Our Americas revenue grew 10% year-over-year. EMEA continues to be impacted by the stronger dollar, macro headwinds and online performance, which combined, led to a decline of 9% year-over-year. APAC also impacted by the stronger dollar declined 5% year-over-year.

Now turning to expenses and margins. A quick note on our GAAP results. In Q4, they included a onetime stock-based compensation expense of $208 million due to the sunsetting of our supplemental grant program, which carries neither dilutive nor tax deduction impacts.

Moving on to our non-GAAP results, which exclude stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net litigation settlements, net gains or losses on strategic investments, undistributed earnings attributable to participating securities and all associated tax effects. Non-GAAP gross margin in Q4 was 79.8%, an improvement from 78.3% in Q4 of last year and 79.5% last quarter. The sequential improvement was mainly due to optimizing usage across the public cloud and our co-located data centers.

For FY '24, we expect non-GAAP gross margin to be approximately 79.5%. Research and development expense grew by 43% year-over-year to approximately $103 million. As a percentage of total revenue, R&D expense increased to 9.2% from 6.7% in Q4 of last year, reflecting our investments in expanding our product portfolio.

Looking ahead, innovation will remain a top priority for Zoom. Sales and marketing expense grew by 20% year-over-year to $301 million. This represented approximately 26.9% of total revenue, up from 23.4% in Q4 of last year. As part of our restructuring, we are optimizing our go-to-market strategy to better support our enterprise customers and drive additional productivity. G&A expense declined by 12% to $84 million or approximately 7.5% of total revenue, down from 8.9% in Q4 of last year as we focused on achieving greater efficiencies in our back office.

Non-GAAP operating income was $405 million, exceeding the high end of our guidance and - excuse me, exceeding the high end of our guidance of $326 million as we took actions to reprioritize our investments in Q4. This translates to a 36.2% non-GAAP operating margin for Q4 as compared to 39.2% in Q4 of last year. Non-GAAP diluted earnings per share in Q4 was $1.22, $0.44 above the high end of our guidance.

Due to our share repurchase program, our Q4 weighted average share count has decreased year-over-year by approximately 5 million shares to 301 million.

Turning to the balance sheet. Deferred revenue at the end of the period was $1.3 billion, up 11% year-over-year from $1.2 billion. This is above our guidance as we saw increased commitments from customers and extended contract durations. Looking at both our billed and unbilled contracts, our RPO totaled approximately $3.4 billion, up 30% year-over-year from $2.6 billion. We expect to recognize approximately 56% of the total RPO as revenue over the next 12 months as compared to 63% in Q4 of last year.

As a reminder, our annual seasonality of renewals is weighted towards the first half of the year. We expect Q1 deferred revenue to be up 0% to 1% year-over-year partially due to the strengthening of the dollar starting late in Q1 of FY '23. Since then, the major currencies we do business in are down 5% to 10% vis-a-vis the dollar. We ended the quarter with approximately $5.4 billion in cash, cash equivalents and marketable securities, excluding restricted cash. We had operating cash flow in the quarter of $212 million, up from $209 million in Q4 of last year. Free cash flow was $183 million as compared to $189 million in Q4 of last year.

Our margins for operating cash flow and free cash flow were 18.9% and 16.4%, respectively. Because the Section 174 tax legislation requiring capitalization of R&D expenses was not repealed in FY '23, we incurred an additional cash tax payment in Q4. Despite this payment, we still exceeded the high end of our previously provided range by $36 million for a full year total of $1.186 billion. For FY '24, we expect free cash flow to be in the range of $1.2 billion to $1.25 billion.

Now turning to guidance. For the first quarter of FY '24, we expect revenue to be in the range of $1.08 billion to $1.085 billion, which at the midpoint would represent approximately 1% year-over-year growth or 2% in constant currency. We expect non-GAAP operating income to be in the range of $374 million to $379 million. Our outlook for non-GAAP earnings per share is $0.96 to $0.98 based on approximately 304 million shares outstanding.

This outlook reflects the three fewer days in Q1 versus all other quarters. For the full year of FY '24, we expect revenue to be in the range of $4.435 billion to $4.455 billion, which at the midpoint represents approximately 1% of year-over-year growth or 2% in constant currency. We expect our non-GAAP operating income to be in the range of $1.606 billion to $1.626 billion, representing a non-GAAP operating margin of approximately 36%. Our tax rate is expected to approximate the blended U.S. federal and state rates.

Our outlook for non-GAAP earnings per share is $4.11 to $4.18 based on approximately 309 million shares outstanding. Zoom is dedicated to maintaining a careful balance between growth and profitability. We remain committed to innovating our platform, optimizing our go-to-market motions and evolving our culture to meet the dynamic needs of the market.

We are confident that our continued investment in innovation will enable us to provide an even greater value to our customers, while also positioning us for sustained growth.

Thank you to the Zoom employees, our customers, our community and our investors. Kelcey, please queue up our first question.

Question & Answers

Operator

[Operator Instructions] And our first question will come from Fred Lee with Credit Suisse.

Fred Lee - Credit Suisse - Analyst

Hi, there we go, can you all hear me?

Eric Yuan - Founder and Chief Executive Officer

Yeah,

Fred Lee - Credit Suisse - Analyst

Hi, Kelly, just a question regarding the full year operating margin guide, which looks like it's coming in around five percentage points above consensus. I was wondering if you could break down where those efficiencies are coming from. How much was coming from the RIF versus efficiencies in other operating expense line items.

Kelly Steckelberg - Chief Financial Officer

Yeah. Thank you. So as I mentioned in the prepared remarks, we started really focusing on driving efficiencies across the business in Q4. As you saw in the results, this came from looking across all third-party spend and then as we moved into Q1, of course, the reduction. And so it's really a combination of that, as well as looking across all of our business processes, including go-to-market where there's a restructuring happening to really focus the resources on our enterprise customers and be as efficient as we can in our commercial and small business teams.

Fred Lee - Credit Suisse - Analyst

Got it. And a quick question for Eric. With regard to everything that's happening around AI and generative AI, you've talked a little bit about some of the new product areas where you're expecting some initial impact. So how would you - what kind of analogy can you draw for investors and for us with regard to the uptake of all things generative AI. A little bit of commentary on that would be greatly appreciated.

Eric Yuan - Founder and Chief Executive Officer

Sure. So yes, first of all, that's a great question about AI. I think your question about AI sort of reminds me of 1995, 1996, when Internet was - the first wave of Internet revolution. I was so excited. That's why I moved to Silicon Valley, right, embraced that first wave of revolution. And since I was a targeting for realtime collaboration until today. I can tell you, speaking of AI, I'm as excited as 1995, maybe so I'm wrong, maybe more excited than 1995, 1996, given my engineering and product background. I think AI [Technical Issues] sort of face the challenge, at the same time, also have a huge opportunity ahead of all of us, right?

Given our strong innovation culture, I think AI can truly help Zoom, right, to involve us - to cut sort of part of the Zoom 2.0 journey, right? I think Zoom may be the AI-First company. Speaking of specifically features all related to AI. And even before we talk about ChatGPT and before we talk about all those AI, actually, we already invested having on AI, right? So some customers may not see that, right? Like [Technical Issues] reduction, even with background, a lot of things like that.

Even recently, we announced a feature called Zoom Smart and meeting summary where we already leveraged GPT3 to augment our ML to improve that experience. And we are going to [Technical Issues] on AI, a lot of features like Virtual Agent, Zoom IQ for SKUs. Our chat solution [Technical Issues] as well, I think AI can truly empower everything we are doing here and will benefit the customers. Plus, we are taking a very open approach. And we have our own AI engineers, a lot of talents working very hard and also are going to partner with other companies with opening eyes to great company and [Technical Issues] recently. And this is great. Again, I can talk a lot about AI. I'm very, very excited.

Fred Lee - Credit Suisse - Analyst

Great, thank you. That was very helpful.

Eric Yuan - Founder and Chief Executive Officer

Thank you.

Operator

And Michael Funk with Bank of America has the next question. Michael, you are muted.

Michael Funk - Bank of America - Analyst

Unmuted on my phone.

Kelly Steckelberg - Chief Financial Officer

Now, we can hear you Michael.

Michael Funk - Bank of America - Analyst

Okay. Thank you Kelly. First for you, Eric. You have attributed cash balance is a huge strategic asset for Zoom, specifically today, when a lot of your competitors don't have that optionality. So what is the argument in your opinion against deploying that cash to further your advantage and improve your capacity?

Eric Yuan - Founder and Chief Executive Officer

So when it comes to money better to delegate it to [Technical Issues] probably it's better to have a manager.

Kelly Steckelberg - Chief Financial Officer

Thank you, Michael. I don't think there is any argument against deploying our cash, certainly to continue to advance our technology, advance our customer base. And s I said, we are constantly looking for opportunities. And as I've mentioned in the past. We have kind of three main criteria first we look at. We look at the technology as we want to make sure that we would be providing our customers something that works, as well as the core of Zoom does today before Zoom platform. We look at the culture to make sure that the organizations could come together very, very well. As you know, we take culture so so seriously here. And Eric and the whole executive team have spent a lot of time focusing on building that.

And then last, but certainly not least, is valuation. And that has been tricky in the past. We've seen great assets that we love. We just couldn't get there as, unfortunately, all of you know. And so we now see that becoming easier and easier. So I will tell you that Sanjay and his team have been very busy continuing to look for targets for us, and it certainly is a part of our strategy that we're considering for FY '24.

Michael Funk - Bank of America - Analyst

Great, thank you for that Kelly. And Kelly, while I have you, back to the earlier question about the delta and operating income, fiscal '23 to fiscal '24. We estimated earlier next month about a $260 million benefit from the RIF. Is there an issue with my math around that?

Kelly Steckelberg - Chief Financial Officer

We're not going to get into the specifics around the reduction. I will tell you, it was pretty consistently applied across the company, the 15% that Eric mentioned, across the organizations as well as U.S. and some of our other locations outside of the U.S. So you can take that into consideration as you're calculating what you think the savings are.

Michael Funk - Bank of America - Analyst

Great, thank you Kelly, thank you Eric.

Eric Yuan - Founder and Chief Executive Officer

Thank you.

Operator

We will now move on to Meta Marshall with Morgan Stanley.

Meta Marshall - Morgan Stanley - Analyst

Hi, great. Maybe, Kelly, just for you to start with, maybe versus where we were 90 days ago when you were kind of talking about low to mid single-digit potential for fiscal '24. just trying to get a sense of, is kind of the incremental conservatism, is that more around the enterprise or the online business, particularly given that you did see some kind of stabilization in the online business in the quarter?

Kelly Steckelberg - Chief Financial Officer

Yeah. I guess, I don't know that I would say - I mean, remember on the Q3 call, we weren't specifically giving guidance. We were trying to help sort of give, I think, a little bit of visibility, but we were still right in the midst of doing our FY '24 planning. So as we continue to work on that with all of the go-to-market teams and also made this decision around the team and the reduction, putting all of that together came up with what we've now guided to. And we do continue to see headwinds that we spoke about. Of course, currency is still a challenge, and we're going to see some - as compared to year-over-year, we're going to see some impact in Q1 because remember, the dollar really started to strengthen in the back half of Q1 last year. So you should expect to see some year-over-year impact there as well as just these changes in especially the go-to-market teams right now, making sure that we get everybody lined up and looking at where that is. But all of that was considered as we set the FY '24 guidance.

Meta Marshall - Morgan Stanley - Analyst

Got it. And then maybe, Eric, in the past, you guys have wanted to have kind of this singular Zoom platform and let the third-party apps be where you would kind of do the departmental or industry use cases. And it sounded like there was some departure from that. So I guess I just wanted to get a sense of are there going to be different Zoom additions for kind of some of these different verticals? Or will it still kind of be largely third-party driven?

Eric Yuan - Founder and Chief Executive Officer

Yes, I think that's a good question. First of all, I don't think that we will depart - departure to what are we trying to do before. So may be it's more like augment what we are doing now because given a lot of new opportunities, I do not think everything should be done by our own developers, right? And that's why we also want to have leverage third party. I do not see any change in that strategy just more augmenting what we're doing today.

Meta Marshall - Morgan Stanley - Analyst

Great, thanks.

Operator

And we'll go ahead, and we'll move on to Mark Murphy with JPMorgan.

Mark Murphy - JPMorgan - Analyst

Thank you so much. So you've added so much value into the product. When we look at the amount of recording storage, the white-boarding, you have mail and calendar client and so much more that's on the come. Could you update us perhaps on your pricing strategy and whether you think this could be the right time to - perhaps increase prices a bit or even to just go out of maybe activate a CPI adjustment that would benefit you.

Eric Yuan - Founder and Chief Executive Officer

Yes, Kelly, please go ahead.

Kelly Steckelberg - Chief Financial Officer

Sure. We have announced a price increase for our online customers that will be effective. I believe the date is March 1, as we announced it last - earlier this month, and we believe that reflects and that's only for monthly customers, not for annual customers. And we believe that starts to reflect the value, as you said, that we have created for our customers over the last few years it's been many, many, many years, it predates me since the last time there was a price increase.

And then on the Enterprise side, we did a pricing update all inclusive with Zoom One, the bundle that we came up with last year. And we believe that really reflects the the best way for our customers to buy and to get full value out of the platform. And that considers all of the products that are included and what we feel is an appropriate price point at this time.

Mark Murphy - JPMorgan - Analyst

Okay. But so nothing planned outside of Zoom One on the Enterprise side and nothing more material than what you had already announced.

Kelly Steckelberg - Chief Financial Officer

Yes. That's right.

Mark Murphy - JPMorgan - Analyst

Thank you.

Operator

Piper Sandler's James Fish has the next question.

Quinton - Piper Sandler - Analyst

This is Quinton on for Jim Fish. In terms of the longer-term vision for Zoom, how is the team thinking about the maturity of the core meetings and phone products at this point, especially following what was a really strong Phone quarter in Q4. Do we need adoption of emerging products like Contact Center and e-mail or calendar to reaccelerate growth as we look to '25 and '26? Or are there catalysts that can help the core products kind of reaccelerate from the guided 2024 levels?

Eric Yuan - Founder and Chief Executive Officer

I think - great question. I think we sort of focused on both. Take Phone for example, the market potential is still huge. And we are doing extremely well and it will help us more because given the product, very reliable, as it's really innovation and better than any other phone service providers. That's why on core part, using the huge growth opportunity. And besides that the new product like Zoom Contact Center, Virtual Agent and Zoom IQ for Sales, down the road more and more department applications. in particular, AI and is not a grid layer, I feel like a lot of new opportunity ahead of us.

I think in the second half of this year, probably transition period for us, given the - we launched the Zoom Contact Center last year, Zoom IQ for Sales as well. Although the new service is plus, new services in the pipeline, I think, will help us. We need to focus on both. The reason why our real distributor are all in collaboration platform. right? You can leave within a Zoom interface, can get most of our work done, right? I think that's our vison.

Quinton - Piper Sandler - Analyst

Thanks Eric, very helpful.

Operator

Rishi Jaluria with RBC has the next question.

Rishi Jaluria - RBC - Analyst

Thanks so much for taking my questions. I just wanted to have one. which I wanted to dive a little bit deeper into some of the new features I think you're seeing. I know [Technical Issues] thinking about chat, mail, calendaring. Just to the extent possible, I would love to hear what have you seen in terms of actual uptake rates of these features, right? Because it's available to anyone who's on Zoom One, but probably they are actively using it.

And if you think about those customers who are using these additional features or modules, what are you seeing from those customers in terms of anything like engagement, time spent on the platform, retention, ARPU expansion rates, anything like that. Because I think that would really help us get some color in terms of your ability to expand into a broader Enterprise communication [Technical Issues] platform.

Eric Yuan - Founder and Chief Executive Officer

Yeah, that's a great question. First of all, I would say last year, we developed more than 1,500 features. I think our team worked extremely hard. But one thing we did not do well, I think we should improve - really about the product adoption and say, after we finished the development features, we also need to remember in customers may not know it. Again, this is something important for us this year. Having said that, a lot of customers in order find a lot of good features, take NASDAQ for example, right? They would like to consolidate like meeting with a whiteboard as well. It has a whiteboard. They really like that, right? And also now the feature, we will also have a team chat, which is a precision channel solutions. We use that for many years. A lot of Invest customers also deployed. Why do they want to pay for other services [Technical Issues].

Zoom has a very scalable also very flexible, the grid and the team chat solution offer. They found that, they tested, they also liked that, right? They are also going to adopt all those features. A lot of things like that, not to mention the sales department, right? And upsell Zoom IQ for Sales opportunity. Again, a lot of innovations but we need focus on product adoption. Let the customer know that huge value from the Zoom platform, right? So that's something we need to focus on. And quite a few probably all use Zoom team chat. I can tell you, again, it's much better, whiteboard as well. So anyway, a lot of features, innovations, we should focus on adoption.

Rishi Jaluria - RBC - Analyst

Thank you.

Operator

And we will now hear from Matt VanVliet with BTIG.

Matt VanVliet - BTIG - Analyst

Yeah, good afternoon. I guess one last point, Eric, curious maybe if you could share a few details or some of the winning points around the Contact Center product. What's driving the adoption there? Are you seeing replacing existing Contact Centers? Or are some of these sort of net new where video is going to be a key component, whether it's field service or things of that nature where video really lends an extra help to it.

Eric Yuan - Founder and Chief Executive Officer

Yes, great question. So on product front, right? So we are - we launched it early last year, right, almost one-year anniversary now. I think we are going to keep innovating and essentially, today, look at our - the Contact Center customer, we just grew the 2,000 Contact Center Solution. Everything is [Technical Issues] Zoom Contact Center works very well, not only for the - just - like early last year, we won quite a few deals for internal IT helpdesk. This is for their support agent, right? A lot of features are already built in.

I think the protocol front, we are adding more and more features very quickly. I think we are doing very well. I have a huge confidence for our product team. However, on the go to market side, I think we should have done a better job, to be honest with you, right? And because the buyer is different, right? The good news over the past 12 months, we learned a lot, working with sort of change our go-to-market strategy, right? And make sure all those traditional customers no matter which on-premise solution and deploy or other cloud or Contact Center deployed, we should let them know, right, Zoom has very scalable contact center solutions like those third-party resellers, right, and also we need to change our go-to-market model for Contact Center because the product works so well. So that part, I think we need to focus on this year.

Matt VanVliet - BTIG - Analyst

Great, thank you.

Operator

And our next question will come from Tyler Radke with Citi.

Tyler Radke - Citi - Analyst

Thanks for taking the question. So clearly, the profitability guidance was much stronger than consensus and you've talked about some of the hard decisions you've made as it relates to restructuring. Kelly and Eric, I'm wondering just about your willingness to kind of expand margins from here. Obviously, you're guiding to a pretty low revenue growth for the coming year of about 1%. But how do you just think about the puts and takes on future margin expansion from here in a scenario where you don't get a reacceleration in total revenue.

Kelly Steckelberg - Chief Financial Officer

Tyler, we're always focused on being as efficient as possible in our gross margin. And you've seen - we said we expect to be 79.5% for next year, which is right on top of our long-term target margins.

In terms of our operating margins, we want to always watch for opportunities for investment in top line, is that's really what we are driving for. So we will continue to make these decisions and watch for opportunities throughout the year if we see opportunities to invest in go-to-market, maybe channel programs, anything that we can do to drive top line growth, that would be our first priority. But as we said in the prepared remarks, we're going to balance that with profitability. So, we're certainly committed to the guidance that we set, I don't think we're committing to expanding beyond that today as again, our first priority is continuing to accelerate through go-to-market efficiencies, as well as continuing to expand our product portfolio.

Tyler Radke - Citi - Analyst

Thank you.

Operator

UBS's Karl Keirstead has the next question. But Kelly and Eric, he's on audio only. So he won't appear to you via video. Karl, go ahead.

Karl Keirstead - UBS - Analyst

I'm good. Thank you. Sorry.

Operator

No problem with that, Karl. Thank you so much for letting us know. In that case, we'll move on to Siti Panigrahi with Mizuho.

Siti Panigrahi - Mizuho - Analyst

Hi, thanks for taking my question, Kelly and Eric. So when you think about this year growth, I know you're expecting some online segment to kind of bottom at some point. So what's your expectation when you think about online segment versus enterprise? I know this is, again, renewal will come in Q1, Q2. And what are you now pushing to our customer during renewal? I know last few years, it is Phone. So what other products you're right now pushing to renewal?

Kelly Steckelberg - Chief Financial Officer

So in terms of the expectations for online this year, they are consistent with what we've been saying for the last couple of quarters, which we expect it to stabilize during mid next year from a dollar amount, meaning starting to see the - we've seen it continue to decline quarter-over-quarter from a dollar perspective for the last probably five or six quarters. And when we get kind of like Q2 to Q3 of next year, we expect to see that start to stabilize, which is great. When you look at all the initiatives that are in place. And then I'm sorry, the last part of your question about renewals was about.

Siti Panigrahi - Mizuho - Analyst

Also Enterprise part of the business, how you're thinking about the growth growth and renewal.

Kelly Steckelberg - Chief Financial Officer

Yeah. So renewals were not, right? There's always an opportunity to talk to our Enterprise customers around Zoom One, the platform bundle, which we think is a great opportunity for our enterprise customers to help our prospects and customers understand the full features of the platform. And then, of course, there is a natural opportunity to do that as they're going through the renewal period. And as we guided, we expect renewals to be strong in Q1. However, there is going to be that impact of currency that we've already experienced for Q2 through Q4. But unfortunately, we have one more quarter against the previous year comps that there's going to be some impact and some headwinds there.

Siti Panigrahi - Mizuho - Analyst

Great, thank you.

Operator

And Sterling Auty with SVB MoffettNathanson has the next question.

Sterling Auty - SVB MoffettNathanson - Analyst

Kelly, maybe just to clarify on that last answer, now that we're in fiscal '24 on that online answer you just gave, you meant that we'd see the turn Q2, Q3 of this fiscal year, correct?

Kelly Steckelberg - Chief Financial Officer

Yes, this fiscal year, yes. FY' 23. I just want to make sure people didn't think fiscal - FY '25. Not FY '25. No. Thank you.

Sterling Auty - SVB MoffettNathanson - Analyst

You are welcome. So in terms of questions, I want to take the other side of it and go to the enterprise. What's built into the expectation for full year revenue around the enterprise and maybe dive into at least some qualitative commentary around net retention and what you expect on renewals from customers and what you're expecting from contribution of new customers. So what needs to happen for the enterprise to deliver that side?

Kelly Steckelberg - Chief Financial Officer

So we expect renewals - we talked about renewals over the last year, the last 12 months, and we expect them to consider - continue at kind of the same rate. And what we've mentioned in the past is that we have seen some contraction in seats as organizations around the world are experiencing reductions. So working with them on that. But on the other side, the opportunity to really bring a lot of value to our customers through our total cost of ownership, which includes expansion of the total portfolio. So as you saw, Phone really, really resonating very well, especially in this economy.

And Contact Center, while it's still small, small from an absolute dollar perspective, it doubled the ARR for contact center doubled from Q3 to Q4. So again, small relative dollars, but really exciting to see it coming into its own. And that - we expect that to continue to contribute through all of this year, but then really start to accelerate from a contribution perspective in FY '25, and I do mean FY '25 in that comment. And then, of course, there's ZoomIQ for sales as well, which is on kind of a similar trajectory in terms of contact center, that small dollar contribution, but accelerating in terms of its overall growth.

Sterling Auty - SVB MoffettNathanson - Analyst

Got it, thank you.

Operator

We'll now now hear from Matt Stotler with William Blair.

Matt Stotler - William Blair - Analyst

Hi, Kelly and Eric. Thanks for taking the question. Maybe just one on - a follow-up on Zoom One. You mentioned some strength there, obviously, relatively early days, a couple of quarters in. I would love to get some color on maybe the portion of new customers that are going with the Zoom One bundle versus other paths to buying Zoom products? And then what the characteristics are that you're seeing of those early adopters, right, both in terms of customer size, whether they're adopting that for specific departments and rolling that out like you've seen the core meetings product historically. Any color there would be helpful.

Kelly Steckelberg - Chief Financial Officer

I think what's amazing and really interesting about Zoom One is it's not just new customers that are buying the Zoom One bundle, it's existing customers as well that are upgrading. And as a reminder, it includes Zoom Meetings, but also Zoom Phone. It includes Team Chat and Whiteboard. So really starting to see customers embracing the full effects of the platform. We have a Fortune 10 customer now that is a long-standing customer of ours that moved on to the Zoom One bundle and has standardized on Zoom Teamchat, which we're super excited to see. So that's the example of what starts to happen when these customers are really exposed to the full value of the platform that we can bring to them. And I don't know exactly the percentage of how it broke out in Q3 - Q4, but it is really starting to take the lead in terms of how our enterprise sales teams are selling. Anything you want to add, Eric?

Eric Yuan - Founder and Chief Executive Officer

No, that's great. Thank you.

Operator

Moving on to Kash Rangan with Goldman Sachs.

Kash Rangan - Goldman Sachs - Analyst

Hi, thank you so much. Good to see you guys, Eric and Kelly. I just wanted to understand how we should reconcile the guidance going forward vis-a-vis what seems to be pretty close to the anniversary effect of the SMB attrition and then we should start to really mirror the growth of the so-called enterprise business, but the guidance still seems to be quite conservative. And just Help us understand what might have happened at a higher level, incrementally relative to this anniversary effect and what we should be seeing by this time, a real acceleration of the business.

Kelly Steckelberg - Chief Financial Officer

Sure. So one thing to remember, Kash, is that while we are expecting the online portion of the business to stabilize from a dollar perspective during the year, it is still down year-over-year because of what happened in FY '23, where it was much higher. The dollar amounts were much higher in those earlier quarters as it came down. So we still have the unfortunate impact of the online segment of the business tamping down the growth of the Enterprise business. And so that's what you're seeing reflected there. And - so the stabilization that occurs this year will really help as we look forward to next year, which we've always said is sort of reacceleration to the back half of this year into FY '25 and that's what we see in our internal models today.

Kash Rangan - Goldman Sachs - Analyst

Got it. Curious, Kelly, why does it take until fiscal '25 to see the effect - the net effect will be positive. Can you help us understand the timing of why it takes another year from now?

Kelly Steckelberg - Chief Financial Officer

Well, there's the combination, first of all. Online is still down year-over-year. And so you're not going to start to see the year-over-year stabilization of online until the back half of - even though the dollars are stabilizing, right, the year-over-year comparables are still down until the very back half of this year. And then while we've seen all the strength we've talked about on Zoom One and Zoom Phone, part of the expected growth is coming from these other newer products that are still - so they're doing great, all positive indicators, but they're still early in their trajectory. But if you remember and think about how where Zoom Phone was in its second year of life, that's where Zoom Contact Center and to Zoom IQ for sales. And now you see Zoom Phone, which is about to turn 4, I believe, how it's really contributing. So we've just got a little time ahead to get those products maturing and really contributing.

Kash Rangan - Goldman Sachs - Analyst

Thank you so much, very clear.

Operator

We'll now here from Bernstein's Peter Weed. Peter, please go ahead.

Peter Weed - Bernstein - Analyst

Maybe I'll follow up on that and kind of reinforce what appears to be a reasonably conservative revenue guide this year when we start to think about some of the things you've chatted about earlier in this conversation, everything from stabilization in the online business, which may even do better than that perhaps, hopefully, with some of the pricing increases that go on all of the product that you've that you've been shipping these types of things. And when we take into account the fact that a year ago on the top line, this business was even a little bit smaller than what we're anticipating in quarter 1, this upcoming year might be. help me understand why we would do as bad, I guess, has only a 1% year-over-year, like what's the downside case that gets us there. Or is this more of an opportunity to perhaps start to see some of the lift coming out of here?

Kelly Steckelberg - Chief Financial Officer

So remember, for Q1, there is the definite impact of being 3 fewer days, which has real impact as compared to three fewer days of rev rec, as well as the impact of currency, which we didn't have last year. So that year-over-year impact is going to definitely be visible in Q1 of FY '24. And then we continue to see in the Enterprise, elongated sales cycles, deal scrutiny, I was sort of lapping with a fellow CFO saying, this is the year of the CFO because I have gotten invited to speak at more sales kickoffs this year than you can imagine because every sales team is having to learn how to sell to the CFO and including ours. And that is exactly the experience that we're having. And so it just means they're taking a little bit longer and everybody is being very, very thoughtful about their purchases. And so all of that was taken into consideration as we set our full year guidance.

Peter Weed - Bernstein - Analyst

I guess many of those things are stuff, I guess, in the second half of this year. You have been addressing and are kind of carrying forward, so they're not kind of brand new. I would think that some of this unless you are anticipating another leg down for some reason, are there any additional legs down relative to things that you've been already seeing in the business? Or is this just conservatism on like we just don't know how long this stuff is going to really be impacting? And we can't really say how much people are going to be purchasing the Zoom One bundle, which is kind of the standard thing that you're putting out really how well people are going to react to price increases this year so that it's really created a floor on which we hope to do better than.

Kelly Steckelberg - Chief Financial Officer

I definitely think there is a question as to the state of the economy. And when it comes to investments, while we think we are incredibly well-positioned with our total cost of ownership and the value that we bring to our customers, everybody is being very cautious until there's better visibility about the potential of a recession or not and where we're going to come through this. And we expect that could impact us at least through the rest of this year.

Peter Weed - Bernstein - Analyst

Thank you.

Operator

Imtiaz Koujalgi with Wedbush has the next question.

Imtiaz Koujalgi - Wedbush - Analyst

Two questions, one for Eric. Eric, when you spoke about Zoom One traction in the quarter. And it's still pretty early. I understand that, but when you sell a customer Zoom One from Zoom Meetings, what is the difficult uplift you're seeing in the deal sizes? Let's say somebody has Zoom Meetings today and that were to Zoom One, what is the kind of the uptick you get in the deal value there?

Eric Yuan - Founder and Chief Executive Officer

Yes. Normally - it is a good question. It comes from upmarket opportunities, right? And a lot of our SMB customers, they do not use like Whiteboard and some other features. As an Enterprise customer, given the economic uncertainty and challenge cost reduction, they would like to consolidate, right, into one platform, right? And most of the tool from a total window perspective. When you look at the Zoom product, they're trying to understand what kind of other services features they can leverage more and then also talk a bit Whiteboard and Teamchat, Contact Center, Zoom IQ for sales, more and more of opportunity. This is a great time for those upper market customers, especially commercial and interest customers, right? Because they all trusted brand.

They know those services take viable for example. They know we are doing innovating. They know our service will be better than others, why not deploy Zoom Whiteboard. This is a great example.

Imtiaz Koujalgi - Wedbush - Analyst

So the early deals that you've had so far, what is the uplift you've seen in, I guess, dollars you're getting from that customer? How much some do you see typically, I guess, as an uptick factor when somebody goes from just using Zoom Meetings to using Zoom One? What is the - what's the, I guess, the upsell or the uptick in the deal value?

Kelly Steckelberg - Chief Financial Officer

It really depends on the customer. The thing that I would point out, though, is it's not just the uplift in the dollar amount. It's the retention that we see, which is really important to us as customers that have more - I remember at Analyst Day, we showed that chart that like - I can't remember exactly what it is more than 50% improved retention rates when they have more than 1 product deployed. And so the value of us having a broader platform in there, including the one that is much more retentive like Zoom Chat and Zoom Phone really brings a lot of value to us.

Imtiaz Koujalgi - Wedbush - Analyst

Got it. And just one follow-up, Kelly. Typically, we see customers - companies having free cash flow margins, higher than operating margins. U.S. reversed last year. I think you had a drag from cash taxes and stock-based comp. Is there - would that - again, your guide implies free cash flow margin, I believe, lower by about 9 points from operating margin. Does that reverse at the point in the future? Or do we see that as more of a permanent.

Kelly Steckelberg - Chief Financial Officer

Given that we are a cash tax payer for here to Eternity Now, I think you're likely to see it be slightly under, but what we're getting back to, which was very disruptive last year is a more normalized relationship between those 2 as we're on more of a normal force now from a cash tax perspective.

Operator

Moving on to Matthew Harrigan with Benchmark. Matthew, you are currently muted. If you will come off.

Matthew Harrigan - Benchmark - Analyst

I'm sorry, I tried to take myself out of the queue. I send the message.

Operator

No problem at all. Thanks, Matthew. See you next time. All right. Well, we'll go ahead and in that case and move on to William Power with Baird.

William Power - Baird - Analyst

Great. Thanks for squeezing me in. A lot of my questions have been answered, but I did want to ask about Zoom Phone. It looked like a particularly strong quarter. I think the push around Zoom One is probably helping. But it'd be great to get any other perspective on what seems to be a nice acceleration there in Zoom Phone adoption? And any color you're able to provide just around pricing trends? And when does this become a 10% revenue component?

Kelly Steckelberg - Chief Financial Officer

In terms of when it's going to become 10%, it's sometime - September early this year in FY '24 and we are very excited about the momentum. We had a 100% year-over-year growth in the product. And you get it's back to - even in this economy and especially in this economy, companies looking for opportunities to standardize on 1 vendor and also because there is a lot of value to be gained by getting rid of those on-prem servers as well as the very disruptive price point that we have, all the way around, it's just proving to be very, very attractive. And as Eric mentioned, there's still a lot of opportunity in market available. So we expect that to continue. I don't know it's going to expect - just to remind everybody, Q2 and Q4 tend to be our really peak quarters in terms of Zoom Phone ads. So while we had an amazing number of additions in Q4, I don't expect that necessarily to be the new bar. We expect to be seasonally down in Q1, but still very excited, but the momentum continues to be up and to the right.

William Power - Baird - Analyst

Thank you.

Operator

JMP Securities, Patrick Walravens has the next question.

Patrick Walravens - JMP Securities - Analyst

Great. I have a really fun question for Eric. So Eric, in 2021, you guys invested in [Technical Issues] before their deal and you also invested in Monday [Phonetic]. So how do you feel about those 2 spaces today? How do you feel about the VET technology and how do you feel about collaborative work management.

Eric Yuan - Founder and Chief Executive Officer

So given this is the fun question, maybe I should launch the ChatGPT, let it answer to your questions is better. So I might give you a fun answer. Well, anyway, I think Monday.com interesting, right? Because the reason why I invest in a lot of our customers. They are also based in Europe, right, also deploy the service, they would like them to integrate us and also they also zoom customers as well. I think as far as I know. And I think it's more like from a customer perspective, right, the one [Indecipherable] working together, right, to integrate them, that's reason why I invest them, right? [Indecipherable] for example, and during COVID, and a lot of customers deployed our Zoom and more webinars and Zoom events. And especially for those hybrid events, right, in person events, we are more like a pure technology platform, right? We also some other components to help to make sure we have streamlined your events management. That's why we partner with [Indecipherable]. We see the opportunity to further solidify our leadership, why not to invest them. I think given now it's more a company we support hybrid work, I think [Indecipherable] I they will do well. That's another reason why we invested in them. So that's pretty much maybe my answer not as fun as the ChatGPT, but that's pretty much I can do, sorry.

Operator

We do have time for 1 additional question that will come from Ryan MacWilliams with Barclays.

Ryan MacWilliams - Barclays - Analyst

My question is kind of in the same spirit Pat's question. But Kelly, let's like you filled the remaining amount of your share repurchase authorization this quarter? I guess, how are you thinking about a new authorization for a buyback. And in terms of M&A, would Zoom potentially look at acquisitions where you already have a competing product today? Or are you generally looking at adjacent solutions?

Kelly Steckelberg - Chief Financial Officer

In terms of M&A, we look at both. We've been very successful in the past by buying those technology tuck-ins to accelerate our development, as you've seen with the Solvvy acquisition, which has been a great accelerant for us in terms of Contact Center and continue to look at those. But also looking at other areas that there might be leaders in the space that makes sense for us. So we're continuing to look at both. And we - every quarter, we talk to our Board about our capital allocation strategy. And of course, M&A is at the top of the list. We do not, as you indicated, have a buyback authorization in place today. We will continue to look for opportunities to deploy our capital in the best way possible for our investors. And right now, we - again, as I said earlier, our #1 focus is reaccelerating top line growth and making sure that we have the flexibility to do that if opportunities arise. And so that's why, for the moment, we've decided to hold at least on requesting an authorization for a buyback.

Operator

And again, everyone, that does conclude our Q&A for today. I'll go ahead and pass it back to you, Eric, for any closing or additional comments.

Eric Yuan - Founder and Chief Executive Officer

Thank you all. I'm really pleased to our time, love you all. Thank you. Take care.

Kelly Steckelberg - Chief Financial Officer

Bye, everybody.

Operator

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ZOOM COMMUNICATIONS INC

Q4 2023

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