Zoom Video Communications Inc (ZM) Q1 2020 Earnings Call Transcript

ZM earnings call for the period ending April 30, 2019.

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Zoom Video Communications Inc (NASDAQ:ZM)
Q1 2020 Earnings Call
Jun 6, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to Zoom's First Quarter Fiscal Year 2020 Earnings Release. I'd like to remind everyone that this conference is going to be recorded. At this time, I'd like to turn the floor over to Tom McCallum, Head of Investor Relations.

Tom McCallum -- Head of Investor Relations

Thank you, Matt. Hello, everyone and welcome to Zoom's earnings webinar for the first quarter of fiscal 2020. Joining me today will be Zoom's President and CEO, Eric Yuan, and Zoom's CFO, Kelly Steckelberg.

Our earnings press release was issued today after the market closed and maybe downloaded from the zoom.com site on the Investor Relations page. Also on this page you will be able to find a copy of today's prepared remarks and a slide deck of financial highlights that along with the earnings press release include a reconciliation of GAAP to non-GAAP financial results.

During this call we will make forward-looking statements about our future financial performance and other future events and trends, including guidance. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could affect our financial results and the performance of our business and which we discuss in detail in our filings with the SEC, including today's earnings press release and the risk factors and other information contained in the final prospectus relating to our initial public offering. Zoom assumes no obligation to update any forward-looking statements we may make on today's call.

With that, let me turn it over to Eric.

Eric Yuan -- President and Chief Executive Officer

Thank you, Tom. Thank you all. So, first of all, welcome to all of you joining us on today's Zoom video webinar. I really appreciate. And hopefully after the webinar all of you can give us some feedback because we really want to leverage our platform for the future earnings call. Like a brag, I like you all what you brag on. Please tell about what you brag on.

So this is our first earnings announcement as a public company and I am pleased to report that we delivered revenue of $122 million for the first quarter, an increase of 103% year-over-year. In addition to tremendous growth at scale, we are also pleased that our highly efficient business model and disciplined investments contributed to positive profitability and free cash flow.

Our strong first quarter results are evidence that organizations are turning to Zoom as a strategic technology partner to help them increase communications and collaboration. Since this is our first earnings call as a public company, I would like to take a step back to share how Zoom's video first approach delivers happiness to our customers. First, we deliver a single, easy to use platform. Second, we are 100% Cloud-Native and hardware agnostic. Third, we offer high quality service globally. Fourth, we offer robust mobile functionality. Fifth, we are developer friendly with open APIs also with the market place.

We believe the growth opportunity for Zoom is significant. Based on IDC estimates, the markets opportunity at TAM is huge, $43 billion market by 2022. But we believe that it is even larger than that as we are in the early stages of video becoming the new voice. Our platform is fundamentally transforming the way organizations of all sizes communicate. Zoom is enabling far greater effectiveness and intimacy in human-to-human interactions over a distance, and we are witnessing the rapid adoption of Zoom for diverse use cases that were not possible with legacy technology.

So let me give you an example of how our customers leverage Zoom platform. One company Ciena, a networking systems, services and software company, has been a Zoom customer, a happy customer for the last two years. They have built up to a full site deployment of Zoom, including Zoom Rooms, Zoom Webinar and our premium audio. They have transformed how they conduct business and communicate with a video first culture. They are currently doing more than 10 million minutes a month on Zoom platform.

When faced with replacing their legacy very complex PBX infrastructure, they turned to Zoom and Ciena was very impressed with capabilities of Zoom Phone system. So we closed a deal with Ciena in Q1 that brings their Zoom Phone licenses to 5,000 users, while significantly expanding the use of the Zoom platform within their organization. This is a great example of the trust customers have in Zoom.

Now let me discuss a few recent business and technology highlights that further reinforce our long-term growth opportunity. First, we announced that our FedRAMP authorization has been approved, with the sponsorship of the US Department of Homeland Security. This authorization allows US Federal Government agencies and contractors to securely use Zoom for video meetings, API integrations, and more.

Second, we continued to build out our best of breed partnerships with deeper relationships like HP, Salesforce.com and Slack. Many companies, they standardize on Zoom and Slack

platform, that sort of like standard for collaboration. Third, we continued to enhance our core technologies that have disrupted the video communications market. During the Enterprise Connect in March, we announced additional Smart features to Zoom Meetings such as real-time transcriptions. And fourth, we continue to enhance and extend the reach of Zoom Phone. We announced new features that enable Zoom Phone to elevate voice calls to Zoom Video meetings seamlessly, a bring your own carrier service and a new beta for Zoom Phone service for both the UK and Australia market.

In summary, I'd like to thank our nearly 2,000 Zoom employees around the globe for an exceptional performance in our first quarter as a public company. Our industry leading, video-first architecture, viral adoption model, and large TAM were also positive factors to our remarkable results this quarter. It was a great start for the year and we are excited about the growth opportunities in front of us. We truly believe Zoom is very well positioned to capitalize on the transformation of how companies communicate and collaborate with their employees, customers and partners.

In many ways we are helping to drive this transformation. The strategy that we have employed over the years to make our customers happy with a frictionless communications platform is working, and it continues to deliver remarkable results.

With that, let me turn things over to Kelly.

Kelly Steckelberg -- Chief Financial Officer

Thank you, Eric. And welcome to everyone joining us. Let me start by first reviewing financial results for Q1 and then I will discuss our outlook for Q2 and the full fiscal year. As Eric

discussed, total revenue grew 103% year-over-year in the first quarter to $122 million. Some of the key drivers of our revenue performance were our acquisition of new customers and the execution of our land and expand strategy with existing customers.

Specifically, the year-over-year increase in revenue was split between subscription services provided to new customers which accounted for approximately 64% of the increase while the remaining 36% increase was due to subscription services for existing customers. Here are some key customer metrics in Q1 that drove these results. We had over 58,500 customers with more than 10 employees, up nearly 86% year-over-year. We aren't just adding a large volume of new customers though. We are also winning larger customers as a result of our enterprise focus. For example, we are excited to announce we added new customers including DocuSign and FICO. And customers of all size are deploying more Zoom products and users within their organizations as they realize the power of our platform.

During the first quarter, we expanded our relationship with customers including Ciena and Take-Two Interactive. The combination of our land and expand strategy, along with our growing enterprise focus resulted in 405 customers with more than $100,000 in revenue over the last 12 months, up 120% year-over-year. Overall, we have a loyal customer base, as evidenced by an exceptional net dollar expansion rate that has consistently been over 130% for the fourth consecutive quarter.

Geographic expansion is another driver of our strong revenue growth as we continue to enjoy high demand and growth globally. Revenue in Q1 from the Americas was up 98%

year-over-year and was approximately 80% of revenue. Our APAC and EMEA revenue combined grew 127% year-over-year. We believe that this is only the beginning of a tremendous opportunity to bring Zoom platform to customers around the world. To achieve this, we will make additional investments to expand our global footprint and drive additional growth.

Now turning to profitability. Here you can see we were profitable from both a GAAP and non-GAAP perspective, but I will focus on our non-GAAP results, which exclude stock-based

compensation expense. Non-GAAP gross margin in the first quarter was up 17 basis points to 80.9% compared to 80.7% in Q1 last year. Our non-GAAP gross margin reflects some

additional investments to increase the redundancy of our infrastructure. For the full year, we expect non-GAAP gross margins to be at the low-end of our long-term target range of 80% to 82%.

R&D expense in Q1 was $13 million and represented approximately 10% of total revenue. R&D remains a major investment area as we expand our platform with new features and

capabilities every quarter. Approximately one-third of our workforce is R&D, however, it is lower as a percentage of revenue because we have a highly efficient global R&D model. Sales and marketing expense for Q1 was $61 million, representing approximately 50% of total revenue. While we expect to realize leverage in sales and marketing over the long-term, we are currently focused on adding sales capacity to drive growth and capture the large TAM in front of us. These investments include ramping key strategic initiatives such as expanding our global footprint and building out our initial sales coverage for Zoom Phone.

G&A expense in Q1 was $16 million and represented 13% of total revenue. This includes costs associated with expanding our corporate functions to effectively operate as a public company. Non-GAAP operating income was $8 million, translating into a 6.7% non-GAAP operating margin for the first quarter. This was 8 percentage points improvement versus the modest non-GAAP operating loss in Q1 of last year. Non-GAAP earnings per share in Q1 was $0.03, on approximately 290 million of non-GAAP weighted average shares outstanding and adjusting for undistributed earnings. Non-GAAP EPS increased $0.03 from Q1 of last year.

Turning to the balance sheet. We ended Q1 with approximately $737 million in cash, cash equivalents and marketable securities, which is up from $176 million at the end of Q4. The significant increase in cash was due primarily to $543 million of net proceeds from our IPO and our growth in cash flow from operations.

Deferred revenue at the end of the quarter grew to $149 million, up 108% year-over-year. Our remaining performance obligations or RPO totaled approximately $377 million, up 127% year-over-year. We expect to recognize approximately 64% of the current RPO as revenue over the next 12 months compared to 68% in Q1 of last year. We were pleased with the non-current RPO growth which signals growing long-term customer commitments to our platform.

Operating cash flow was $22 million in Q1, up from $3 million in the same period a year ago. Free cash flow was $50 million in Q1 compared to a negative $1 million in the same

period a year ago. Both of these results reflect higher profitability and growth in deferred revenue.

Before I provide the outlook for Q2 and the full year, let me reiterate our investment strategy to drive our growth initiatives. As evidenced from our past results, we have both a highly efficient business model and a proven track record of running the business in a disciplined manner. The end result has been rapid top line growth combined with positive non-GAAP operating income and free cash flow. Our customers' happiness and the rapid adoption of the Zoom platform are our top priorities, and we believe our focus on investing in the business will drive increased market share and future revenue growth.

Now turning specifically to the second quarter guidance. For the second quarter of fiscal 2020, we expect revenue in the range of $129 million to $130 million. We expect non-GAAP operating income to be in the range of $2 million to $3 million, with non-GAAP earnings per share of $0.01 to $0.02 based on approximately 301 million shares outstanding. For the full year fiscal 2020, we expect revenue to be in the range of $535 million to $540 million. We expect non-GAAP operating income in the range of breakeven to $3 million. This forecast includes the impact in Q3 of our premier user event, Zoomtopia. Non-GAAP earnings per share is expected to be in the range of $0.02 to $0.03, based on approximately 301 million shares outstanding.

In closing, Q1 was a great start to our fiscal year. We had strong execution during our first quarter as a public company, and I would like to thank the entire Zoom team for their hard work. We delivered a combination of triple-digit top line growth, increased profitability and positive free cash flow. We're also pleased with the high rate at which customers are embracing our platform. We believe this trust from customers and partners for Zoom will help drive additional growth. I'm excited about our execution this past quarter and the opportunity ahead for Zoom, and I look forward to sharing our progress with you.

With that, let's open it up for questions. If you have not yet enabled your video, please do so now for the interactive portion of this meeting. Matt, please queue-up our first question.


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Questions and Answers:

 

Operator

Our first question is from Meta Marshall with Morgan Stanley. Meta, you are unmuted.

Meta Marshall -- Morgan Stanley -- Analyst

Great. Thank you and congrats on the quarter and thanks for the question. You gave a lot of detail on the revenue mix. But maybe versus expectations, what was the biggest source of surprise during the quarter, was that kind of new customer adds, faster deployments of new products? And then, maybe turning to new products, understanding that it's still early, but just any further details on the Zoom Phone traction and whether any of the upside guide to the fiscal '20 guidance is due to kind of Zoom Phone expectations? That's it from me. Thanks.

Eric Yuan -- President and Chief Executive Officer

Yes, sure. So from product side, customer side, we do not see the biggest surprise and we work so hard to make sure the customer happy. And one thing probably I'd like to highlight is Zoom Phone and we announced that back in January and we do have some early adopters like a Ciena admission right, they put 5,000 licenses. I think that is something I think probably we have us more in the future. Other than that, I think we be just focus on our customer and product experience.

Kelly Steckelberg -- Chief Financial Officer

I think we are also excited about the continued progress we're making the up market, as you saw our customers in that segment grew more quickly than our general customer base, which we continue to be really excited about. We had a really large financial services organization become a customer this quarter which we're really happy about.

Eric Yuan -- President and Chief Executive Officer

Yes.

Meta Marshall -- Morgan Stanley -- Analyst

Thank you, guys.

Eric Yuan -- President and Chief Executive Officer

Thank you. Next question, Matt, please.

Operator

Our next question is from Brad Zelnick with Credit Suisse. Brad, you are unmuted.

Brad Zelnick -- Credit Suisse -- Analyst

Great. Nice to see you all and Eric, nice to see all happy you are and congratulations on great quarter for Q1 as a public company, I have one question for you, Eric, and one follow-up for Kelly. For Eric, I appreciate that the IPO had to have been a fantastic branding event for you. Is there any discernible impact in terms of customer adds, free to page conversion or even top of funnel development that you've noticed since becoming a public company?

Eric Yuan -- President and Chief Executive Officer

Yes, so, Brad. First of all, I like your words, watch your back on. Thank you. I think since we became a public company, I would say very little has changed and maybe it's too early to tell, but for sure I'd say our Company, the brand is getting much better, but from our existing installed base, after we became a public company I do receive so many emails from our customers and really expressed all of the appreciation for what we did before with them, right. And I think branding perspective, it certainly help us a lot. But it's too early to tell. Maybe one more quarter, I can share with you more.

Brad Zelnick -- Credit Suisse -- Analyst

Great. And Kelly for you, if we look at your sales and marketing expense relative to the new customer adds, it would seem that you're losing some productivity per customer. How much of that is related to Zoom Phone and how should we think about your productivity moving forward?

Kelly Steckelberg -- Chief Financial Officer

Yes. So we are really focused this year on continuing to hire international and for Zoom Phone. So you are going to see some impact initially as it takes a while for all those reps to get ramped. And I think when you start to get to the back half of this year, early next year, you should see that taking hold.

Brad Zelnick -- Credit Suisse -- Analyst

Great, thank you so much.

Eric Yuan -- President and Chief Executive Officer

Thanks. Matt, next question please.

Operator

Our next question is from Kasthuri Rangan with Bank of America Merrill Lynch. Kash, you are unmuted.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Zoom team, thank you so much. Very happy to be joining your video conference call. I had two questions for you. One, with respect to the quarter, what were the one or two largest deals the Company landed in the quarter and what were the competitive dynamics and also the nature of the topology of the customers, IT infrastructure against which you were able to win this big deployment? And secondly, could you just talk about the overlap on the phone side? How our customers making the phone decision? Is it in conjunction with the video decision or as a separate standalone capability? How are they making that evaluation? Thank you so much and congrats.

Eric Yuan -- President and Chief Executive Officer

Yes. Better off, first question, you know, feel free to tell me about some lot, the customer who we acquired in Q1. I think if you look at it a competitive landscape, in Q1 I do not think there are any changes because most of our legacy players received old solution with old architecture and I did not see anything new from our legacy competitors in terms of innovation or innovative go-to market model and everything else I think remains the same.

Kelly Steckelberg -- Chief Financial Officer

So we were really excited. We had four deals in the quarter that were over $1 million ARR and unfortunately we can't disclose the names of most of those, but one of them is a really exciting large financial institution that we're thrilled to have as a new customer and a couple of them were upsells. So positive traction I would say on all fronts in that area.

Eric Yuan -- President and Chief Executive Officer

And I think Kash's thought was on the decision to --

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Yes, for the Zoom Phone, what drives that decision making.

Eric Yuan -- President and Chief Executive Officer

So, for -- when we look at our go-t-market strategy for our Zoom Phone system, we focus on our existing installed base because they already trust us, they already use the video, they already use the voice, they really like our quality. You know, customer told us, hey you just add a phone number, right? Then they do not even use any other phone system. Customer like the quality, unified collaborating experience and ease of use and plus some innovative features like seamlessly obligate your phone call to the video call and the customer really like that experience.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Great. Thanks.

Eric Yuan -- President and Chief Executive Officer

Matt, next question please.

Operator

Our next question is from Sterling Auty with JPMorgan. Sterling, you're unmuted.

Sterling Auty -- JPMorgan -- Analyst

All right, thanks. Hi guys. Eric, one of the questions that I consistently got through the IPO and post is the direction of the UCaaS space and specifically with the launch of Zoom Phone, it looks like you are actually on a competitive direction with ring essentially yet you announced the extension of your partnerships and I also get questions over whether you need to actually own some of the technology that you see out of slack. So just directionally, how do you see your partnership and competition and directionally what technologies you need to own versus partner going forward?

Eric Yuan -- President and Chief Executive Officer

Yeah, Sterling. That's a good question. So if you look what's happening in those -- in the industry and also when we cover the customers, let's thing Slack, for example, Slack and Zoom I think are the best partners, and a lot of the companies standardize on Slack and Zoom, right? It's almost -- it's just become a standard, right? It's very important. But if look at UC space like video and phone, and we started from building a platform and our first application built upon that platform is video conferencing. And however customer realized our voice or IP quality is not a very hard for us to add a phone system. In terms of phone system we do our own technology from the ground up. It's more than architecture compared to any other phone system, right? We build it from the group up and the customer really liked that experience, you know, from a phone to the video and video to the phone is one unified collaborating experience.

Sterling Auty -- JPMorgan -- Analyst

Great. And maybe just one follow-up. I do get questions over the US-China relations and things that are happening from that perspective. Given the large R&D presence that you have in China, has anything changed in terms of how you're managing that aspect of the business?

Eric Yuan -- President and Chief Executive Officer

I don't think anything is changed, especially if you look at our core R&D down here in our headquarter in office in San Jose, and across -- we're seeing a lot of other companies who might have office there. I think we do not have enormous revenue. We do not have a big business there in China and I think I do not think there is any impact. So we have very, very good process here in terms of how to manage an offshore team and we have a high confidence. I do not think there are any changes in Q1.

Sterling Auty -- JPMorgan -- Analyst

Great, thank you.

Eric Yuan -- President and Chief Executive Officer

Next question, Matt, please.

Operator

Our next question is from Matt Hedberg with RBC. Matt, you are unmuted.

Matthew Hedberg -- RBC Capital -- Analyst

Hey guys, thanks for taking our questions and I'd love this new interface, hopefully other companies will maybe embrace the same idea for earnings calls. Kelly, I want to start with you. Obviously, stellar results on the top line and bottom line. And you've got a lot of success in international regions. Can you walk us through how you think about balancing growth profitability? I guess specifically, how do you think about deploying direct sales reps out into field especially if you're having more success in larger deals?

Kelly Steckelberg -- Chief Financial Officer

So we are really focused on investing in both R&D as well as sales and marketing, continuing to build out the product as well as expanding internationally. And if you look at our overall sales hires for this year, about half of them are international, which means as a percentage those sales reps are going to grow much more quickly than the US-based reps since we have so many more here today. So I think we mentioned this on the road show, but we recently hired a new Head of International, Abe Smith, and he is really helping accelerate our business there. So I think you'll continue to see strong results there.

Matthew Hedberg -- RBC Capital -- Analyst

That's great and then maybe as a follow-up, in addition to the RingCentral partnership, salesforce.com is a good partner for you guys as well and participated in the IPO. Can you talk a little bit about that relationship? How embedded is it today because it seems like there's obviously a logical integration point between those two -- between yourself and Salesforce.

Eric Yuan -- President and Chief Executive Officer

Yeah. So Matt, you are right on. We are huge fan of salesforce.com service. Our team and we live within the Salesforce platform, but quite often when you use a Salesforce and a Zoom, the integration is not seamless. Our system manager really want to understand what's going on for the Zoom meetings with the customer with the prospect and we need to go back to the Zoom and what if we -- after the meeting is over, we automatically add a transcription back to Salesforce portal, right? With that the customer can live within a salesforce portal. I think we're going to do more partnership integrations with Saleforce.com. We truly believe I think the sales team in the future, they are going to use that live within Salesforce or they can use Zoom, but they do not feel like they are using two different solutions. Right? Seamless integration can truly have sales productivity.

Matthew Hedberg -- RBC Capital -- Analyst

Thank you.

Operator

Our next question is from Pat Walravens with JMP. Pat, you are unmuted.

Patrick Walravens -- JMP Securities -- Analyst

Great, thank you and congratulations to you guys. Eric, my question is for you, which is I love your whole focus on delivering happiness. And I'm wondering, given how fast you are growing, how are you going to make sure that your employees stay happy so they can keep your customers happy, that's the first part. And the second part is, is there as much of an opportunity around Zoom Phone as there was around meetings? The meetings area is such a disaster before you guys came along. I'm not sure there is a same level of -- right? And I'm not sure there is the same level of pain around the phone. So those are my two happiness questions.

Eric Yuan -- President and Chief Executive Officer

So, Pat, first of all, I think that you are reading my mind very well and the first question about the company culture. If there is one thing that keeps me up in the night is about company culture. Before we have 1000 people I think I can remember most of the employees name, I never spent a minute on the people related issues, experience is great for now we have almost 2,000 employees and quite often I need to spend time to deal with those people who might have integrity issues or maybe set to harassment and we need to let them go, right? it's not that easy. However, we try all we can to make sure we have open, transparent culture.

We've just hired our Chief People Officer. We just launched the employee survey, trying to understand where we came improve. So we are very paranoid. We do all we can to make sure every employee is happy every morning. If they are not happy, we would like them to stay at home to figure out the root of cause and and either tell us what had happened and help us fix the problem. Again, this is not very easy. We keep an eye on that. We take it to that very, very seriously.

Patrick Walravens -- JMP Securities -- Analyst

Yeah, sorry.

Eric Yuan -- President and Chief Executive Officer

Then your second question, you're right. Before we build out the Zoom platform, I build web as before, right? I did not see a single happy web at customer. You're so right. But when it comes to a phone system, you look a lot in device today. Most of them are still using like very complex older fashion on-prem systems, for the phone system, very harder to maintain and also quality is not as great. The process, it's through the phone system like Pat I call you, we still talk over the phone. We really cannot upgrade of video experience. But Zoom can fully help that. And if you deploy Zoom phone system, I call your phone number, one more click, we can upgrade to a video experience seamlessly. I think the customer really likes that.

Alright. Next question please, Matt.

Patrick Walravens -- JMP Securities -- Analyst

Thank you.

Operator

Our next question is from Alex Kurtz with KeyBanc. Alex, you are unmuted.

Eric Yuan -- President and Chief Executive Officer

He is still on mute, Matt.

Kelly Steckelberg -- Chief Financial Officer

He is still on mute.

Operator

We can't seem to unmute Alex right now. Alright, Alex, we will come back to you. Our next question is with from Tom Roderick with Stifel.

Alex Kurtz -- KeyBanc -- Analyst

Hi there.

Eric Yuan -- President and Chief Executive Officer

There you go. Great.

Kelly Steckelberg -- Chief Financial Officer

Hi Alex.

Alex Kurtz -- KeyBanc -- Analyst

Sorry about that. Hey, guys. So just on the Cisco front, they've made a some big efforts in the last six months, they revamped platform, the Webex platform, they have done some integration at a high level. They've added some AI functions, so at least from a marketing perspective that's been out in the marketplace. I'm just wondering, during the quarter has there been any change in their competitive posture, especially in the Global 2000? Then I had a follow-up question for Kelly.

Eric Yuan -- President and Chief Executive Officer

I think the Cisco is the right. They made I assume right decision to put on AI, but we already started AI effort two years ago and like the first feature were announced almost two years now, right? So which is meeting transcription to lever AI platform, after the meeting is over, we can automatically generate meeting transcription. We are going to adopt on that as well because we already started it two years ahead of any other competitors.

Alex Kurtz -- KeyBanc -- Analyst

Okay. Then Kelly, just around the Zoom Phone contributions, the updated view for the fiscal year I guess at this point we're not calling out any kind of like contribution at this point. Right?

Kelly Steckelberg -- Chief Financial Officer

That's right. We're really excited about the momentum that we saw in Q1, but we're still at such an early phase that we expect it to have kind of minimal overall contribution the way that we're forecasting it for the full year.

Alex Kurtz -- KeyBanc -- Analyst

Okay, all right, thank you.

Eric Yuan -- President and Chief Executive Officer

Thank you. Next question please, Matt.

Operator

Our next question is from Tom Roderick with Stifel. Tom, you are unmuted now.

Tom Roderick -- Stifel -- Analyst

Hey, thanks for the chat, the question and congratulations on the IPO. I'll second Matt's earlier comment with regards to kudos on the format. I think this means you can't make faces at us when you don't like our questions anymore. Maybe good or maybe bad for you. Eric, I'm going to start with you just on the topic of the IPO and thinking back to when you started this, the days of bootstrapping this Company, you probably didn't foresee the day when you'd have over $700 million of cash in your balance sheet. So, a bit of an embarrassment of riches.

What do you do with all that? And I know, the easy answer is everything. But I'm sure the backdrop of that is investors probably want to understand, is this certainly make you an acquisitive company, do you want to accelerate the advertising in international markets? As you have this big pile of cash, how do you think about how you want to deploy it and how you focus your resources?

Eric Yuan -- President and Chief Executive Officer

So, Tom, you can ask this question to my wife as well because I have no idea how to spend money. I would like to refer to our CFO.

Kelly Steckelberg -- Chief Financial Officer

It's funny. Well, I think it's probably thanks to Eric that we have this cash because of what he just said, but we are continuing to invest certainly as I said mentioned before in R&D and sales market. Those are two key focus areas and then while we haven't been acquisitive historically, Eric and I have talked a lot about this that we will keep looking for companies that we think could elevate our Company in terms of technology or potentially personnel that were needed. So I think we're keeping our options open at this point.

Tom Roderick -- Stifel -- Analyst

Fair enough. Okay, good. Quick follow-up from me, just in terms of the enterprise selling motion here. And looking at the numbers, I mean the number of customers you've landed greater than 10 employees up over 80%, but the enterprise contribution there, up over 120%. So as we think about the selling motion, as you get reps out of the field, as you deploy more product, can you just talk about how that selling motion has changed and how you'd like to further change that as you add a layer more product in to the mix? Thank you.

Kelly Steckelberg -- Chief Financial Officer

Yes. So certainly our enterprise cycles differ from like our SMB approach and it's really -- it's because we've seen a wide range of selling cycles in the enterprise, for example, one of our largest customers went from beginning to end in six weeks. That was really a forward-looking CIO that embraced the need to digitize their platform. I will say that is not typical though. Most of our enterprise customers, they are -- what should we expect more traditionally they have a proof of concept, they have pretty extensive user acceptance testing. I think what happens is once it's in the hands of the users though and they see if there is a lever, assume that drives the demand, which then from that stage usually goes pretty quickly to close.

Eric Yuan -- President and Chief Executive Officer

And in particular for every enterprise customers, normally we start of from land and expand -- experience. We never wanted to let enterprise deploy Zoom with a full-sided deployment on the way. We like this bottom-up approach. That's why it will take some time, but it's very healthy if you look at our pipeline.

Tom Roderick -- Stifel -- Analyst

Great.

Eric Yuan -- President and Chief Executive Officer

Thanks, Tom. Next question please.

Operator

Our next question is from Zane Chrane with Bernstein. Zane you are unmuted.

Zane Chrane -- Bernstein -- Analyst

Eric, Kelly, Tom, hi, congratulations on the successful IPO. Very nicely to see you on the first earnings webinar.

Kelly Steckelberg -- Chief Financial Officer

Thank you.

Zane Chrane -- Bernstein -- Analyst

I have a question on your strategy for capturing market in industry verticals, I know, for example, healthcare, telemedicine, very rapidly growing field. I understand from people in the industry that Zoom is really one of the only platforms aside from typical finance that ties in with the existing major electronic medical records. There seems to be maybe an under-appreciated mode in that industry. How should we think about other examples such as that in different industry verticals? And how you think about developing those industry strategies?

Eric Yuan -- President and Chief Executive Officer

I think that you are right. It comes to vertical industry opportunity, huge opportunity. However, we just cannot speak on that. Reason why, look at our video collaboration, the full system, also the huge opportunity, back to the $43 billion opportunity. For now, we also wanted to explore some ideas. That's the reason why we introduced the marketplace. Mix will focus on our platform to led third-party partners, developers to build up applications based on our platform, but however, whenever we are ready, I mean, you want a number on both video conferencing and a phone system and are in working to top down on those vertical industries, huge opportunity. You are right.

Zane Chrane -- Bernstein -- Analyst

And that makes lot of sense. And I was wondering have you guys had any work regarding -- work on quantifying how expansive Zoom is? It seems like Zoom is very kind of similar to a lot of other industry changing companies where a company come then with better products, easier to use, lower cost adoption, superior functionality. Is there any sense you have for just how much that's increasing the usage of video conferencing among knowledge workers or what multiple that is on legacy? How it's for video conference?

Eric Yuan -- President and Chief Executive Officer

So you look at it, the knowledge workers today worldwide, more than one billion knowledge workers. For today, if you look to the video usage, it is still very small. I think I just spoke on today's TAM, $43 billion market. As long as we do not lose our focus, I think it will keep us busy for next several years.

Zane Chrane -- Bernstein -- Analyst

It's a huge opportunity. So, congratulations. Best wishes.

Eric Yuan -- President and Chief Executive Officer

Thank you. Next question please, Matt.

Operator

Our next question is from Jonathan Kees with Summit Insights Group. Jonathan, you are unmuted now.

Jonathan Kees -- Summit Insights Group -- Analyst

Great. Thanks for taking my question. I hope you can hear me here. I'm having trouble with my video here. Congratulations on the quarter and I just -- I guess, wanted to ask more of a modeling question. You talked about for the quarter -- for the year the top line and bottom line, just curious how we should think about cash flow at the very least if you can give us direction in terms of CapEx? And how we should model that for the year? Thanks.

Kelly Steckelberg -- Chief Financial Officer

Yes, thanks for the question, Jonathan. We are not going to provide guidance around cash flow. But given the opportunity that you're seeing in the top line, I think you should think about that there is a positive impact on cash flow due to that. And given that we're a SaaS business and what you can see is happening also with the change in deferreds, I think you should think about that and what the impact it's having on cash.

Eric Yuan -- President and Chief Executive Officer

Also, please let me know your mailing address. I will mail you our new camera.

Jonathan Kees -- Summit Insights Group -- Analyst

Okay. Great. I look forward to it. We don't normally have video meetings. If I can sneak in one another question, this is more of a high level. I guess I'm trying to reconcile the $43 billion TAM, you know, talking with UCaaS peers, they are also pretty excited about the extensive TAM and how it's untapped and there is -- it's just a lot of potential upwards. I guess the TAMs that they talk about and obviously this is for the voice, but also includes the contact center and even video. The TAMs that they've talked about, this even includes RingCentral. If you include contact center and maybe when you can get up to like around $40 billion TAM, I guess I'm just trying to reconcile if you can help me here between the TAM that you talk about and the TAM that your peers talk about.

Kelly Steckelberg -- Chief Financial Officer

Yes, mean, the way that we -- what we did was we looked at IDC's approach and it's even a bigger TAM of like $60 billion but we looked at it and back down into the areas we could address with our platform today and it estimates by 2022 it's going to be at that $43 billion number. And I think the other thing you should think about, which I don't know if you mentioned exactly which you're talking about, but it's also Zoom Rooms, which is a really important part of our platform and addressing the whole conference room is something that has Zoom can do very uniquely because of our hardware agnostic approach that there is a significant opportunity there that I'm not sure any of our competitors are addressing completely or maybe talking about and we're super excited about that opportunity.

Eric Yuan -- President and Chief Executive Officer

Okay, Matt, next question, please.

Jonathan Kees -- Summit Insights Group -- Analyst

Thank you.

Operator

Actually, that is our last question.

Eric Yuan -- President and Chief Executive Officer

Okay, right. Wonderful.

Well, thank you everyone. Thank you for joining us by video. That's great. And we will look forward to speaking to you guys again. Thank you.

Kelly Steckelberg -- Chief Financial Officer

Thank you.

Eric Yuan -- President and Chief Executive Officer

Yes, by the way, please do send us a feedback. We really wanted to leverage Zoom webinar for the future earnings call. Thank you so much for the time. I really appreciate.

Kelly Steckelberg -- Chief Financial Officer

Thank you.

Eric Yuan -- President and Chief Executive Officer

Thank you very much.

Duration: 42 minutes

Call participants:

Tom McCallum -- Head of Investor Relations

Eric Yuan -- President and Chief Executive Officer

Kelly Steckelberg -- Chief Financial Officer

Meta Marshall -- Morgan Stanley -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Sterling Auty -- JPMorgan -- Analyst

Matthew Hedberg -- RBC Capital -- Analyst

Patrick Walravens -- JMP Securities -- Analyst

Alex Kurtz -- KeyBanc -- Analyst

Tom Roderick -- Stifel -- Analyst

Zane Chrane -- Bernstein -- Analyst

Jonathan Kees -- Summit Insights Group -- Analyst

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