Michael Turrin: Thank you.
Operator: Our next question will come from Michael Funk with Bank of America.
Michael Funk: Yeah. Hi. Thank you for the questions toning. So just on the deferred revenue guidance for 4Q, Kelly, in the commentary on the macro and the rates affecting that. How should we think about growth rate in calendar year ’24 given the decline in deferred revenue and impact on new deals in enterprise?
Kelly Steckelberg: Yeah. So I mean what’s very interesting, if you look at, right, you see growth in RPO, but you’re seeing a decline in deferred revenue, which implies customers while they’re committing for long-term agreements, they are preferring to pay in shorter-term increments to keep their cash and take advantage of the interest rate environment. So the other thing, as a reminder, right, we’re going to have a big renewal cycle in Q1, and then that’s the peak and it’s going to come down. And we believe that in FY ’24 that we’re currently in, we had — the majority of our customers had some sort of renewal period during FY ’24, which means that we believe that we’ve moved through a lot of our customers that were impacted themselves by a reduction.
And we’ve talked in the past about how our team has been doing a great job of preserving that spend. But to the extent we’re helping them right-size or transition from new meetings to say, a Zoom One bundle. We think the majority of our customers, we know the majority of our customers have gone through that renewal period in FY ’24. And so that by the time we get into FY ’25, hopefully, we’re in a little more normalized renewal cycle.
Michael Funk: Great. Thank you.
Kelly Steckelberg: Yeah.
Operator: And moving on to Karl Keirstead with UBS.
Karl Keirstead: Hey. Great. Thank you. Hey, Kelly. The phone business has been a big part of the Zoom growth algorithm lately. So I’m wondering if you could elaborate on how that parties did in the quarter. On the surface, and I know that you round that seat number, but it looks like the sequential phone suggests (ph) that might have been a lot less than the last several quarters. Maybe that’s rounding, but I wanted to give you a platform maybe to elaborate about that part of the business.
Kelly Steckelberg: Thank you. So Q3 cyclically, just as a reminder, Q1 and Q3 cyclically are our lower orders, given that our enterprise reps — some of our enterprise reps are on six month quarter. So we’ve historically seen the big Zoom Phone, just add quarters be in Q2 and Q4. What we did see in Q3 was that customers in the upper segments. So customers with greater 10,000 seats grew 9% quarter-over-quarter. So we’re seeing a lot of strength in the upper end of Zoom Phone. So really happy to that. I mean that’s the largest increase we’ve had so far this year. And then as a reminder, we haven’t always given that metric, honestly at the exact same period. So it’s hard a little hard for you to tell exactly how it’s trending every single quarter. And as just in the past, we’ll continue to update you on future milestones as they make sense.
Karl Keirstead: Okay. Thank you.
Operator: George Iwanyc with Oppenheimer has the next question.
George Iwanyc: All right. Well, thank you for taking my questions. So Kelly, maybe following up on Zoom Phones to give us a bit of extra color on the contact center and the customer traction you’re seeing there?
Kelly Steckelberg: Yeah. So as we mentioned, we’re up to over 700 customers on Zoom Contact Center and we saw our Zoom Virtual Agents product double the number of customers quarter-over-quarter. So really excited there. I mean, maybe Eric can talk about some of the features and functionality, but we’re thrilled with the progress that we’re making there so far.
Eric Yuan: Yeah. So we are extremely excited about our content center opportunity. And it feels like back to a few years ago, when we announced the Zoom Phone, right? Quite often, a lot of people mentioned, wow, you would take you guys many years to get recognized, deployed by large customers and look at what we have today in terms of number of paid user phone (ph). I feel like if we ask well, I think we are going to follow the similar journey and maybe even better because if you look at our content center and modern architecture, extremely stable and plus a lot of AI features and innovation speed. I think whenever a customer really take a Zoom content center seriously, evaluate Zoom contact center. The feedback is very consistent.
Wow, I did not realize you guys have a so powerful contact center, it’s just amazing, right? I think that there’s further boosted our team is confidence double down, triple-down our own contact center. Again, it’s modern architecture, very scalable. I also shared quite a few customer cases, right, during this call, and we are very, very excited. A lot of new AI features in virtual agent and workforce management and so on and so forth. And this is something that are very, very exciting.
George Iwanyc: Thank you.
Eric Yuan: Thank you.
Operator: We’ll know hear from Peter Levine with Evercore.
Peter Levine: Great. Thanks for taking my question here. Maybe for Kelly, as I look at gross margins, how sustainable is it keeping at these levels? I know AI companion is being given away from as part of the package, I guess, prepaid users. But if you think about the cost to run these models, the margin profile of contact center in phone. How durable is it to kind of sustain these levels? And then second, as you think into next year, you have guided, but what’s the best way to think about stock-based comp and dilution as you kind of manage through that?
