Zoom Communications, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended January 31, 2022; comparisons are with the fiscal year ended January 31, 2021. This is an annual report, not a standalone fourth-quarter report. Zoom provides a subscription-based unified communications platform, including Meetings, Phone, Chat, Rooms, Webinars, and Events.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $4.100 billion | $2.651 billion | +55% |
| Gross profit / margin | $3.045 billion / 74% | $1.829 billion / 69% | Margin +5 percentage points |
| Operating income / margin | $1.064 billion / 27% | $659.8 million / 25% | +61% income |
| Net income | $1.376 billion | $672.3 million | +105% |
| Diluted earnings per share | $4.50 | $2.25 | +100% |
| Cash from operating activities | $1.605 billion | $1.471 billion | +$134.1 million |
| Free cash flow (non-GAAP) | $1.473 billion | $1.391 billion | +$81.5 million |
- Revenue growth slowed to 55% from 326% in FY2021. Management attributed FY2022 growth to continued pandemic-related use: existing customers contributed approximately 70% of the increase and new customers 30%.
- Operating expenses rose 69% to $1.982 billion. Research and development increased 121%, sales and marketing 66%, and general and administrative 51%. Stock-based compensation totaled $477.3 million, up from $275.8 million.
- Net income benefited materially from a non-recurring $328.0 million release of U.S. federal and state deferred-tax valuation allowances. The reported income tax benefit was $274.0 million, versus a $5.7 million tax provision in FY2021; the resulting 34% net margin is therefore not a straightforward measure of recurring profitability.
- Cash and cash equivalents were $1.063 billion and marketable securities were $4.356 billion at year-end, totaling $5.419 billion. Current assets were $6.184 billion and current liabilities $1.580 billion. Deferred revenue was $1.180 billion current and $38.5 million noncurrent.
- Investing activities used $2.859 billion, chiefly net marketable-security purchases of $2.405 billion and strategic investments of $305.1 million. Property and equipment purchases were $132.6 million. Financing cash flow was $34.1 million; FY2021 included $1.979 billion of net follow-on offering proceeds.
- The balance sheet reports no borrowings; it does include operating lease liabilities of $105.7 million. Contractual obligations totaled $504.4 million, including $386.6 million in non-cancelable purchase commitments.
Business trends and outlook
- Customers with more than 10 employees rose to approximately 509,800 from 467,100. Customers contributing more than $100,000 of trailing-12-month revenue increased to 2,725 from 1,644; these customers accounted for 22% of revenue, compared with 20% in FY2021. Enterprise customers increased to approximately 191,000 from 141,100.
- Trailing-12-month net dollar expansion was 129% for customers with more than 10 employees and 130% for Enterprise customers, both below the prior-year levels of greater than 130%.
- APAC and EMEA together generated 33% of revenue, up from 31%; the Americas contributed 67%. No individual customer accounted for 10% or more of annual revenue.
- Management expects revenue growth and user growth rates generally to slow as pandemic-driven demand tapers, users return to offices and schools, and market penetration rises. It expects absolute spending on research and development, sales and marketing, and general and administrative functions to increase in the upcoming fiscal year; it expects these expenses as a percentage of revenue to remain relatively flat. No specific revenue or earnings guidance is provided in the supplied filing text.
- In February 2022, the board authorized up to $1.0 billion of share repurchases through February 2024; $997.1 million remained available as of March 6, 2022. The program may be modified or discontinued.
Risks, contingencies, and unusual items
- Key risks include a post-pandemic reduction in demand, slowing growth and renewals, competition from bundled communications platforms, service capacity or outage issues, and the costs of expanding infrastructure and operations.
- Security, privacy, and data-protection risks remain significant. Government investigations by the U.S. Department of Justice and SEC concerning privacy, security, encryption, usage metrics, and related matters were ongoing; Zoom said it was cooperating and could not predict outcomes. The company also faces securities and privacy-related litigation.
- Zoom paid $85.0 million into escrow under a proposed class-action settlement concerning alleged privacy and security practices. It recorded a $66.9 million settlement charge net of estimated insurance coverage; final court approval was scheduled for April 7, 2022. The FTC settlement requires security-program measures and periodic third-party assessments.
- Sales and other tax liabilities were $87.2 million at year-end. Non-cancelable purchase obligations were $386.6 million. Management believes cash, investments, and operating cash generation will meet needs for at least the next 12 months.
- The Tax Cuts and Jobs Act requirement to capitalize and amortize research and development costs, absent legislative change, is expected by management to materially affect cash flows beginning in FY2023.
- Russia’s invasion of Ukraine and related sanctions, global economic conditions, foreign-exchange movements, and evolving telecommunications and privacy regulations could adversely affect operations. The company reported no material historical impact from a hypothetical 10% foreign-exchange or interest-rate change.
Investor verification points
- Assess underlying earnings excluding the $328.0 million tax valuation-allowance reversal and gains on strategic investments.
- Track subscription growth, retention, enterprise expansion, and revenue growth as pandemic-related demand normalizes; review the transition to Enterprise customer metrics.
- Monitor gross margin and infrastructure costs, particularly free-user usage and reliance on third-party cloud hosting.
- Review outcomes and any additional costs from the privacy and security litigation, government investigations, and FTC compliance requirements.
- Confirm future cash-flow effects of tax-law changes, the use of the repurchase authorization, and the scale and returns of strategic investments.