Zoom Communications, Inc. Q1 FY2022 earnings

Zoom Video Communications reported $956.2 million in revenue for its fiscal 2022 first quarter ended April 30, 2021, up 191.4% from $328.17 million a year earlier. Gross profit rose to $691.2 million from $224.5 million, and gross margin improved to 72.3% from 68.4%. Subscription services to new customers accounted for roughly 57% of the revenue increase, with existing customers contributing about 43%. The margin gain came from greater data center efficiency and lower rates from third-party cloud hosting providers even as usage kept climbing.

Profitability scaled faster than revenue. GAAP operating income was $226.3 million for the quarter, up from $23.4 million a year earlier, lifting operating margin to 23.7% from 7.1%. Net income was $227.5 million, up from $27.1 million, and diluted EPS was $0.74 against $0.09. Non-GAAP income from operations was $400.9 million, up from $54.6 million, for a non-GAAP operating margin of 41.9%. Non-GAAP net income was $402.1 million, or $1.32 per diluted share, compared with $58.3 million, or $0.20. The gap between the two sets of results reflects stock-based compensation, related payroll taxes, acquisition-related expenses, and a litigation settlement, net of insurance, that lifted general and administrative expense in the quarter.

Cash generation held up. Net cash provided by operating activities was $533.3 million for the quarter, up from $259.0 million a year earlier. Capital expenditures were $79.1 million, up from $7.3 million. Free cash flow, a non-GAAP measure defined as operating cash flow less purchases of property and equipment, was $454.2 million, up from $251.7 million. Cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $4.7 billion as of April 30, 2021.

Backlog and customer metrics point to scale and to a shift in mix. Current deferred revenue was $1.07 billion, up from $523.25 million a year earlier, and remaining performance obligations were $2.07 billion, up from $1.10 billion. Zoom ended the quarter with approximately 497,000 customers with more than 10 employees, up about 87%, and 1,999 customers contributing more than $100,000 of trailing 12 month revenue, up about 160%. The trailing 12 month net dollar expansion rate for customers with more than 10 employees stayed above 130%, the 12th consecutive quarter above that level. Customers with 10 or fewer employees generated 37% of revenue, against 30% a year earlier, while customers above the $100,000 threshold accounted for 19% of revenue, down from 23%. Revenue from APAC and EMEA was 34% of the total, up from 25%.

Guidance covers the second quarter of fiscal 2022 and the full fiscal year 2022. For the second quarter, Zoom guided non-GAAP income from operations of $355.0 million to $360.0 million and non-GAAP diluted EPS of $1.14 to $1.15 on roughly 311 million non-GAAP weighted average shares. For the full fiscal year 2022, the outlook is non-GAAP income from operations of $1.425 billion to $1.440 billion and non-GAAP diluted EPS of $4.56 to $4.61. The company also raised its total revenue guidance range for the full fiscal year.

Several risks deserve attention. Zoom warns that paid hosts and users could decline once the pandemic tapers and vaccinations become widespread. Free Basic accounts and the removal of the 40 minute limit for more than 125,000 K-12 school domains generate no revenue while adding network and hosting costs. Competition from other communications platforms, outages at co-located data centers, and failures in internet infrastructure round out the list. Management also said research and development and sales and marketing expenses should rise in absolute dollars and as a percentage of revenue for the rest of the fiscal year, while general and administrative expense should be lower in absolute dollars and as a percentage of revenue for the foreseeable future.