CORRECTION – Zoom Reports Results for Third Quarter Fiscal Year 2021

Zoom Video Communications, Inc.
·19 min read
  • Third quarter total revenue of $777.2 million, up 367% year-over-year

  • Number of customers contributing more than $100,000 in TTM revenue up 136% year-over-year

  • Approximately 433,700 customers with more than 10 employees, up 485% year-over-year

SAN JOSE, Calif., Dec. 01, 2020 (GLOBE NEWSWIRE) -- Zoom Video Communications, Inc. (NASDAQ: ZM) is clarifying the Company's full fiscal year 2021 non-GAAP diluted earnings per share guidance as disclosed in a press release issued on November 30, 2020. Full fiscal year 2021 non-GAAP diluted earnings per share is expected to be $2.89 to $2.91, instead of $2.85 to $2.87.

Zoom Video Communications, Inc. (NASDAQ: ZM), a leading provider of video-first unified communications, today announced financial results for the third fiscal quarter ended October 31, 2020.

“We remain focused on the communication needs of our customers and communities as they navigate the current environment and adapt to a new world of work from anywhere using Zoom. We aspire to provide the most innovative, secure, reliable, and high-quality communications platform to help people connect, collaborate, build and learn on Zoom,” said Zoom founder and CEO, Eric S. Yuan. “Strong demand and execution led to revenue growth of 367% year-over-year with solid growth in non-GAAP operating income and cash flow in our third fiscal quarter. We expect to strengthen our market position as we finish the fiscal year with an increased total revenue outlook of approximately $2.575 billion to $2.580 billion for fiscal year 2021, or approximately 314% increase year-over-year.”

Third Quarter Fiscal Year 2021 Financial Highlights:

  • Revenue: Total revenue for the third quarter was $777.2 million, up 367% year-over-year.

  • Income (Loss) from Operations and Operating Margin: GAAP income from operations for the third quarter was $192.2 million, compared to GAAP loss from operations of $1.7 million in the third quarter of fiscal year 2020. After adjusting for stock-based compensation expense and related payroll taxes, and acquisition-related expenses, non-GAAP income from operations for the third quarter was $290.8 million, up from $21.3 million in the third quarter of fiscal year 2020. For the third quarter, GAAP operating margin was 24.7% and non-GAAP operating margin was 37.4%.

  • Net Income and Net Income Per Share: GAAP net income attributable to common stockholders for the third quarter was $198.4 million, or $0.66 per share, compared to GAAP net income attributable to common stockholders of $2.2 million, or $0.01 per share in the third quarter of fiscal year 2020.

    Non-GAAP net income for the quarter was $297.2 million, after adjusting for stock-based compensation expense and related payroll taxes, acquisition-related expenses, and undistributed earnings attributable to participating securities. Non-GAAP net income per share was $0.99. In the third quarter of fiscal year 2020, non-GAAP net income was $25.2 million, or $0.09 per share.

  • Cash: Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of October 31, 2020 was $1.9 billion.

  • Cash Flow: Net cash provided by operating activities was $411.5 million for the third quarter, compared to $61.9 million in the third quarter of fiscal year 2020. Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $388.2 million, compared to $54.7 million in the third quarter of fiscal year 2020.

Customer Metrics: Drivers of total revenue included acquiring new customers and expanding across existing customers. At the end of the third quarter of fiscal year 2021, Zoom had:

  • Approximately 433,700 customers with more than 10 employees, up approximately 485% from the same quarter last fiscal year.

  • 1,289 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 136% from the same quarter last fiscal year.

  • A trailing 12-month net dollar expansion rate in customers with more than 10 employees above 130% for the 10th consecutive quarter.

Financial Outlook: Zoom is providing the following guidance for its fourth quarter fiscal year 2021 and its full fiscal year 2021. Zoom's revenue outlook takes into consideration the demand for remote work solutions for businesses. It also assumes increased churn in the fourth quarter when compared to historic churn levels due to a higher percentage of customers who purchased monthly subscriptions.

  • Fourth Quarter Fiscal Year 2021: Total revenue is expected to be between $806.0 million and $811.0 million and non-GAAP income from operations is expected to be between $243.0 million and $248.0 million. Non-GAAP diluted EPS is expected to be between $0.77 and $0.79 with approximately 306 million non-GAAP weighted average shares outstanding.

  • Full Fiscal Year 2021: Total revenue is expected to be between $2.575 billion and $2.580 billion. Non-GAAP income from operations is expected to be between $865.0 million and $870.0 million. Non-GAAP diluted EPS is expected to be between $2.89 to $2.91 with approximately 300 million non-GAAP weighted average shares outstanding.

Additional information on Zoom's reported results, including a reconciliation of the non-GAAP results to their most comparable GAAP measures, is included in the financial tables below. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty of expenses that may be incurred in the future, although it is important to note that these factors could be material to Zoom's results computed in accordance with GAAP.

A supplemental financial presentation and other information can be accessed through Zoom’s investor relations website at investors.zoom.us.

Zoom Video Earnings Call

Zoom will host a Zoom Video Webinar for investors on November 30, 2020 at 2:30 p.m. Pacific Time / 5:30 p.m. Eastern Time to discuss the company’s financial results and business highlights. Investors are invited to join the Zoom Video Webinar by visiting: https://investors.zoom.us/

About Zoom

Zoom Video Communications, Inc. (NASDAQ: ZM) brings teams together to get more done in a frictionless and secure video environment. Our easy, reliable, and innovative video-first unified communications platform provides video meetings, voice, webinars, and chat across desktops, phones, mobile devices, and conference room systems. Zoom helps enterprises create elevated experiences with leading business app integrations and developer tools to create customized workflows. Founded in 2011, Zoom is headquartered in San Jose, California, with offices around the world. Visit zoom.com and follow @zoom_us.

Forward-Looking Statements
This press release contains express and implied “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial outlook for the fourth quarter of fiscal year 2021 and full fiscal year 2021, Zoom’s growth strategy and business aspirations for its video-first unified communications platform, its market position, and the continued impact of COVID-19 on its business and operations. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “target,” “explore,” “continue,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. By their nature, these statements are subject to numerous uncertainties and risks, including factors beyond our control, that could cause actual results, performance or achievement to differ materially and adversely from those anticipated or implied in the statements, including: declines in new customers and hosts, renewals or upgrades, difficulties in evaluating our prospects and future results of operations given our limited operating history, competition from other providers of communications platforms, continued uncertainty regarding the extent and duration of the impact of COVID-19 and the responses of government and private industry thereto, as well as the impact of COVID-19 on the overall economic environment, any or all of which will have an impact on demand for remote work solutions for businesses as well as overall distributed, face-to-face interactions and collaboration using Zoom, delays or outages in services from our co-located data centers, and failures in internet infrastructure or interference with broadband access which could cause current or potential users to believe that our systems are unreliable. Additional risks and uncertainties that could cause actual outcomes and results to differ materially from those contemplated by the forward-looking statements are included under the caption “Risk Factors” and elsewhere in our most recent filings with the Securities and Exchange Commission (the “SEC”), including our quarterly report on Form 10-Q for the quarter ended July 31, 2020. Forward-looking statements speak only as of the date the statements are made and are based on information available to Zoom at the time those statements are made and/or management's good faith belief as of that time with respect to future events. Zoom assumes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by law.

Non-GAAP Financial Measures

Zoom has provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Zoom uses these non-GAAP financial measures internally in analyzing its financial results and believes that use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing Zoom’s financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with Zoom’s condensed consolidated financial statements prepared in accordance with GAAP. A reconciliation of Zoom’s historical non-GAAP financial measures to the most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

Non-GAAP Income From Operations and Non-GAAP Operating Margins. Zoom defines non-GAAP income from operations as income from operations excluding stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock and acquisition-related expenses. Zoom excludes stock-based compensation expense and expenses related to charitable donation of common stock because they are non-cash in nature and excluding these expenses provides meaningful supplemental information regarding Zoom’s operational performance and allows investors the ability to make more meaningful comparisons between Zoom’s operating results and those of other companies. Zoom excludes the amount of employer payroll taxes related to employee stock plans, which is a cash expense, in order for investors to see the full effect that excluding stock-based compensation expense had on Zoom's operating results. In particular, this expense is dependent on the price of our common stock and other factors that are beyond our control and do not correlate to the operation of the business. Zoom views acquisition-related expenses when applicable, such as amortization of acquired intangible assets, transaction costs, and acquisition-related retention payments that are directly related to business combinations as events that are not necessarily reflective of operational performance during a period. In particular, Zoom believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses and assist in the comparison with the results of other companies in the industry.

Non-GAAP Net Income and Non-GAAP Net Income Per Share, Basic and Diluted. Zoom defines non-GAAP net income and non-GAAP net income per share, basic and diluted, as GAAP net income attributable to common stockholders and GAAP net income per share attributable to common stockholders, basic and diluted, respectively, adjusted to exclude stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock, acquisition-related expenses, and undistributed earnings attributable to participating securities. Zoom excludes undistributed earnings attributable to participating securities because they are considered by management to be outside of Zoom’s core operating results, and excluding them provides investors and management with greater visibility to the underlying performance of Zoom’s business operations, facilitates comparison of its results with other periods and may also facilitate comparison with the results of other companies in the industry.

In order to calculate non-GAAP net income per share, basic and diluted, Zoom uses a non-GAAP weighted-average share count. Zoom defines non-GAAP weighted-average shares used to compute non-GAAP net income per share, basic and diluted, as GAAP weighted average shares used to compute net income per share attributable to common stockholders, basic and diluted, adjusted to reflect the common stock issued in connection with the IPO, including the concurrent private placement, that are outstanding as of the end of the period as if they were outstanding as of the beginning of the period for comparability.

Free Cash Flow. Zoom defines free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment. Zoom considers free cash flow to be a liquidity measure that provides useful information to management and investors regarding net cash provided by operating activities and cash used for investments in property and equipment required to maintain and grow the business.

Customer Metrics

Zoom defines a customer as a separate and distinct buying entity, which can be a single paid host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts.

Zoom calculates net dollar expansion rate as of a period end by starting with the annual recurring revenue (“ARR”) from all customers with more than 10 employees as of 12 months prior (“Prior Period ARR”). Zoom defines ARR as the annualized revenue run rate of subscription agreements from all customers at a point in time. We then calculate the ARR from these customers as of the current period end (“Current Period ARR”), which includes any upsells, contraction, and attrition. Zoom divides the Current Period ARR by the Prior Period ARR to arrive at the net dollar expansion rate. For the trailing 12 months calculation, Zoom takes an average of the net dollar expansion rate over the trailing 12 months.

Press Relations

Colleen Rodriguez
Global Public Relations Lead for Zoom
press@zoom.us

Investor Relations

Tom McCallum
Head of Investor Relations for Zoom
investors@zoom.us

Zoom Video Communications, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)

As of

October 31,
2020

January 31,
2020

Assets

Current assets:

Cash and cash equivalents

$

730,506

$

283,134

Marketable securities

1,141,425

572,060

Accounts receivable, net

280,896

120,435

Deferred contract acquisition costs, current

126,001

44,885

Prepaid expenses and other current assets

345,448

75,008

Total current assets

2,624,276

1,095,522

Deferred contract acquisition costs, noncurrent

160,142

46,245

Property and equipment, net

108,077

57,138

Operating lease right-of-use assets

63,008

68,608

Goodwill

24,340

Other assets, noncurrent

70,468

22,332

Total assets

$

3,050,311

$

1,289,845

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

12,666

$

1,596

Accrued expenses and other current liabilities

565,520

122,692

Deferred revenue, current

835,762

209,542

Total current liabilities

1,413,948

333,830

Deferred revenue, noncurrent

18,935

20,994

Operating lease liabilities, noncurrent

60,522

64,792

Other liabilities, noncurrent

56,988

36,286

Total liabilities

1,550,393

455,902

Stockholders’ equity:

Preferred stock

Common stock

284

277

Additional paid-in capital

1,086,459

832,705

Accumulated other comprehensive income

1,317

809

Retained earnings

411,858

152

Total stockholders’ equity

1,499,918

833,943

Total liabilities and stockholders’ equity

$

3,050,311

$

1,289,845

Note: The amount of unbilled accounts receivable included within accounts receivable, net on the condensed consolidated balance sheets was $21.9 million and $12.5 million as of October 31, 2020 and January 31, 2020, respectively.


Zoom Video Communications, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share amounts)

Three Months Ended October 31,

Nine Months Ended October 31,

2020

2019

2020

2019

Revenue

$

777,196

$

166,593

$

1,768,883

$

434,407

Cost of revenue

258,727

30,845

554,705

82,849

Gross profit

518,469

135,748

1,214,178

351,558

Operating expenses:

Research and development

42,582

17,573

111,705

46,410

Sales and marketing

190,157

96,048

470,886

239,741

General and administrative

93,488

23,806

227,856

63,264

Total operating expenses

326,227

137,427

810,447

349,415

Income (loss) from operations

192,242

(1,679

)

403,731

2,143

Interest income and other, net

1,779

4,209

9,650

9,674

Net income before (benefit from) provision for income taxes

194,021

2,530

413,381

11,817

(Benefit from) provision for income taxes

(4,621

)

319

1,675

1,851

Net income

198,642

2,211

411,706

9,966

Undistributed earnings attributable to participating securities

(202

)

(4

)

(531

)

(2,493

)

Net income attributable to common stockholders

$

198,440

$

2,207

$

411,175

$

7,473

Net income per share attributable to common stockholders:

Basic

$

0.70

$

0.01

$

1.46

$

0.03

Diluted

$

0.66

$

0.01

$

1.38

$

0.03

Weighted-average shares used in computing net income
per share attributable to common stockholders:

Basic

284,783,006

273,316,850

282,564,481

219,295,445

Diluted

299,258,765

292,771,122

297,605,941

241,512,569


Zoom Video Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Three Months Ended October 31,

Nine Months Ended October 31,

2020

2019

2020

2019

Cash flows from operating activities:

Net income

$

198,642

$

2,211

$

411,706

$

9,966

Adjustments to reconcile net income to net cash provided by
operating activities:

Stock-based compensation expense

93,925

21,795

179,557

46,532

Amortization of deferred contract acquisition costs

30,500

9,913

71,281

25,939

Charitable donation of common stock

23,312

Provision for accounts receivable allowances

5,259

1,283

20,218

3,976

Depreciation and amortization

7,587

4,415

19,401

11,589

Non-cash operating lease cost

2,585

1,724

7,182

4,840

Remeasurement gain on equity investment

(2,538

)

Other

1,689

(1,063

)

3,717

(1,577

)

Changes in operating assets and liabilities:

Accounts receivable

6,809

(1,525

)

(190,117

)

(36,886

)

Prepaid expenses and other assets

5,471

1,158

(48,258

)

(22,439

)

Deferred contract acquisition costs

(52,504

)

(17,124

)

(266,294

)

(50,824

)

Accounts payable

(2,098

)

1,665

8,773

(1,118

)

Accrued expenses and other liabilities

1,853

18,562

203,919

53,485

Deferred revenue

114,451

20,345

633,600

76,579

Operating lease liabilities, net

(2,699

)

(1,429

)

(3,678

)

(4,724

)

Net cash provided by operating activities

411,470

61,930

1,071,781

115,338

Cash flows from investing activities:

Purchases of marketable securities

(531,227

)

(150,620

)

(1,016,109

)

(629,107

)

Maturities of marketable securities

119,269

113,200

406,607

164,140

Sales of marketable securities

36,897

Purchases of property and equipment

(23,264

)

(7,195

)

(58,517

)

(28,132

)

Sales of property and equipment

297

297

Cash paid for acquisition, net of cash acquired

(26,486

)

Purchase of equity investment

(3,000

)

(8,000

)

(3,000

)

Purchase of convertible promissory note

(5,000

)

Purchase of intangible assets

(2,891

)

(4,385

)

Collections of employee loans

1,319

Net cash used in investing activities

(437,816

)

(47,615

)

(673,377

)

(496,099

)

Cash flows from financing activities:

Proceeds from employee equity transactions to be remitted to
employees and tax authorities, net

17,176

48,547

251,641

48,547

Proceeds from exercise of stock options, net of repurchases

6,424

3,393

23,841

5,584

Proceeds from issuance of common stock for employee stock
purchase plan

20,760

Proceeds from initial public offering and private placement,
net of underwriting discounts and commissions and other
offering costs

(455

)

542,492

Net cash provided by financing activities

23,600

51,485

296,242

596,623

Net (decrease) increase in cash, cash equivalents, and restricted cash

(2,746

)

65,800

694,646

215,862

Cash, cash equivalents, and restricted cash – beginning of period

1,031,474

216,030

334,082

65,968

Cash, cash equivalents, and restricted cash – end of period

$

1,028,728

$

281,830

$

1,028,728

$

281,830


Zoom Video Communications, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited, in thousands, except share and per share amounts)

Three Months Ended October 31,

Nine Months Ended October 31,

2020

2019

2020

2019

GAAP income (loss) from operations

$

192,242

$

(1,679

)

$

403,731

$

2,143

Add:

Stock-based compensation expense and related payroll taxes

97,131

22,948

188,979

48,079

Charitable donation of common stock

23,312

Acquisition-related expenses

1,398

6,340

Non-GAAP income from operations

$

290,771

$

21,269

$

622,362

$

50,222

GAAP net income attributable to common stockholders

$

198,440

$

2,207

$

411,175

$

7,473

Add:

Stock-based compensation expense and related payroll taxes

97,131

22,948

188,979

48,079

Charitable donation of common stock

23,312

Acquisition-related expenses

1,398

6,340

Undistributed earnings attributable to participating securities

202

4

531

2,493

Non-GAAP net income

$

297,171

$

25,159

$

630,337

$

58,045

Net income per share - basic and diluted:

GAAP net income per share - basic

$

0.70

$

0.01

$

1.46

$

0.03

GAAP net income per share - diluted

$

0.66

$

0.01

$

1.38

$

0.03

Non-GAAP net income per share - basic

$

1.04

$

0.09

$

2.23

$

0.22

Non-GAAP net income per share - diluted

$

0.99

$

0.09

$

2.12

$

0.20

GAAP weighted-average shares used to compute net
income per share - basic

284,783,006

273,316,850

282,564,481

219,295,445

Add:

Non-GAAP unweighted adjustment for common stock
issued in connection with IPO

50,116,650

Non-GAAP weighted-average shares used to compute net
income per share - basic

284,783,006

273,316,850

282,564,481

269,412,095

GAAP weighted-average shares used to compute net
income per share - diluted

299,258,765

292,771,122

297,605,941

241,512,569

Add:

Non-GAAP unweighted adjustment for common stock
issued in connection with IPO

50,116,650

Non-GAAP weighted-average shares used to compute net
income per share - diluted

299,258,765

292,771,122

297,605,941

291,629,219

Net cash provided by operating activities

$

411,470

$

61,930

$

1,071,781

$

115,338

Less:

Purchases of property and equipment

(23,264

)

(7,195

)

(58,517

)

(28,132

)

Free cash flow (non-GAAP)

$

388,206

$

54,735

$

1,013,264

$

87,206

Net cash used in investing activities

$

(437,816

)

$

(47,615

)

$

(673,377

)

$

(496,099

)

Net cash provided by financing activities

$

23,600

$

51,485

$

296,242

$

596,623