Q1 2020 Earnings Call
[music].
Greetings and welcome to the Ringcentral first quarter 2020 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
If anyone should acquire operator assistance during the conference. Please press star zero and your telephone keypad.
Your mind. Your this conference is being recorded I would now like to turn the conference over to your host Mr., Ryan Goodman head of Investor Relations for Ringcentral. Thank you you may begin. Thank you good afternoon, and welcome to Ringcentrals first quarter 2020, <unk> earnings Conference call.
Yeah, Ryan Goodman, Ringcentrals head of Investor Relations.
Joining me today, our blood tremendous founder chairman and CEO.
Got it sworn president and Chief operating officer, and the cash group Chief Financial Officer.
Our format today will include prepared remarks by Lat am.
Let me touch followed by QNX.
Some of our discussions and responses to your questions will contain forward looking statements, including our second quarter and for your 2020 financial outlook and our assumptions underlying that outlook.
These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements.
A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into todays discussion.
In particular, our business is currently being impacted by the cobot 19 pandemic.
The extent of its continued impact on our business will depend on several factors, including the severity duration and extent endemic as well as the actions taken by governments businesses and consumers in response to the pandemic.
All of which continued to evolve and remain uncertain at this time.
Ringcentral assumes no obligation and does not intend to update or comment on forward looking statements made on this call.
Unless otherwise indicated all measures that follow our non gap with year over year comparisons.
A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and didn't this slide deck.
I encourage you to visit our Investor relations website at <unk> or Dot Ringcentral Dot com.
Access our earnings release slide deck.
GAAP to non-GAAP reconciliations are periodic STC reports, a webcast replay of todays call.
And to learn more about ringcentral.
For certain forward looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website.
With that let me turn the call over the blood.
Good afternoon, and thinking for joining our fourth quarter Gardens gone from school.
Before we begin I'd love to supposed to take a brief moment to address the current macro environment.
Well, maybe even unprecedented Darren global uncertainty and disruption.
Oh for your children Central using health and safety, our workforce and after we complete you transitioned to a walk from coal model.
At the leader in unified Communications. The service, we believe we have responsibility to cope all could you would you maintain business could you know it.
Does that then we began offering with central orphan more free to case, it's both educator.
Oh skill provider mobile.
Women as did you add news media organizations.
We also know hey, we offer for all Glowpoint, except the solution is those affected by Corbett 19 related challenges.
We're providing.
Well communication and collaboration solution.
Organization, the stop working globally and tirelessly to mitigate the impact of this crisis.
This also had been well received and we know that over 4000, such organization now using receptor.
Well, we saw customer partners employees and shareholders, good health and safety Indeed.
Now onto Q1.
We delivered a strong fourth quarter with continued strength in mid market enterprise and general.
We also recently made several key announcements.
So.
We really Ringcentral video Oh, well be did meeting solution completing ringcentral differentiated message Vidya, Paul or what we refer to as NBP platform.
Second.
We have no general availability.
Our backlog <unk> body central delivery on deployment made six months prior.
Sorry.
Yesterday, we announced a new unified Dustin.
And entirely Reimagine user experience for enterprise communications that is available both on Windows Pcs and Max.
Key Differentiators for all you definitely up include close integration and real time switching between message VGF and fall communications as well as he lives switching off meetings between device.
And today, which had been doing all that feel sorry, Jim has joined us as the chief revenue Officer.
What would you do all residents and Oh on them that's where.
Most recently, so what the Colquitt Vice president for the U.S. enterprise business at Microsoft.
Wouldnt expect these key ultimately.
That's the all financial performance revenue and non-GAAP EPS exceeded our guidance.
Good drivers continue to be Midmarket enterprise in general.
We continue to see strong contributions from our vertical market initiatives focused on education financial services and health care.
These initiatives you that would result, including and over 15000 seat when we go now we either city.
And over 8000 seat win with a fortune 500 insurance provider and multiple accelerate it helps get woods.
He might look for Q1 work so across the board.
Total revenue grew $268 million.
This is a 33% increase year over year and even above the high end of our guidance range.
Total annual recurring revenue or air our supply $1 billion for the first time.
Midmarket and enterprise continues to be a key driver <unk>.
We define midmarket and enterprise at $25000 or more E. A R. This grew 52% year over year do a $524 million.
Enterprise you find discuss them with with 200000 or more in Aerostar grew 59% year over year to meet hobby and $18 million.
General era, <unk>, 62% year over year, do you don't need and 29.
Yes.
Looking forward is this challenging macro environment companies are facing the reality that legacy on premise voice only systems can no longer need model works, well and you what required.
We believe unified communication and collaboration cloud solution, our key more productive customer Baltimore and internal interactions.
We believe incentive is uniquely positioned to meet the demands.
We have a differentiated and the personal when global scalable and secure unified message via phone or NBP platform.
In particular Ringcentral provides lobby enterprise class global PBM capabilities.
Even with the integrated with comprehensive native do you messaging and media meeting capability.
With the recent introduction will meet you central video or RCB. If it does with you Ringcentral customer you know truth, they fully engaged and productive from anywhere on any device and in any mode.
Very importantly, we can onboard new cost them as quickly and efficiently without ever having to go on site would you, especially the critical the current environment.
It has never been more clear the customers use with central well look more than just like in GAAP the legacy.
Thanks.
As a matter of fact, we saw all app download increased over hundreds of 80% in April go since February.
Strong app usage metrics across multiple communications does that then.
Total message is bolstered the April are up 70% versus February.
Total video minutes in April are up over 200% versus February.
And Dalton phone call you that in April.
Up over.
50%.
There since February.
Triple digit growth even in that voice is the last Amal makes it abundantly clear that business voice is as important ever.
We also had been very pleased with the uptick Oh, you are CVG or RCB capability.
Let's see rapid adoption of course, TV and no okay all right.
South of the organizations use it goes TV as their primary you get meeting solution.
And this number is growing very rapidly.
We're also excited to see all strategic partners.
Great I see there you caspase.
This includes 18 feet was always the Ken and of why we via cloud office body.
Because people bought as I mentioned, we launched a buyer cloud office body central or Estill on March 31st delivery of the problem is made yielded six months ago at launch.
Okay, that's fine and novel, we Didnt Moscow ages to sell a CEO, including Gee I mean, scansource a bump communication then yeah, Phil hours and today, they've got on boarded over 72.
General partner agents.
We only about one month since the launch it's too early but markets reception is encouraging.
Golden Monkey.
Food and additional spotlight on limitations for legacy on Prem on premise communication systems.
Longer term, we believe that walk from anywhere and in particular work from home will continue to be acute requirement for businesses worldwide.
This is communication solutions that enable walk from anywhere I know more critical ever Ringcentral has always been at the forefront enables people to work from anywhere you anyway and communicate in any mode.
This backdrop and given our recent program with the differentiated HBP platform. The so a mission critical need for me businesses.
We're confident that means the long term cloud will continue when you and with central will continue when you use the cloud.
Now with some additional color on Q1, I'm trying to go over to our President and Chief operating officer on them as well.
Thank you, but good afternoon everyone.
I would like to start by extending my vicious for the good health and safety for you or your families friends and colleagues.
To begin with an update on how we're managing the business in this corporate banking environment.
Then I'll provide some examples of how beyond empowering our customers to succeed in these unprecedented times.
But first I wanted to welcome our new Chief revenue Officer full surgeon, who started this week.
Blacks here soon as a 24 your Microsoft veteran.
And most recently was to corporate Vice President for the U.S. enterprise commercial business.
Prior to that Phil was the global channel Chief Harnessing the power of all partners to drive growth for Microsoft.
I'd also like U.S. small and medium businesses and served as the president of Microsoft Canada in all year olds at Microsoft.
We're excited to have fill join us.
Bill brings 30 years of experience and leading sales and partner organizations, a global scale and is going to have an immediate and lasting impact.
Starting the second equal March we have efficiently transition the working from home across most of our global locations.
This transition went smoothly as we have all these used our cloud communications platform for customer partner and internal communications.
Our employees have maintained their high productivity and enable does it closed the quarter on a strong note.
Thank you the Ringcentral family for the resilience and commitment to demonstrate everyday towards a company our partners and our customers in these difficult times.
In Q1, we that privileged to have helped many on existing and new customers publish it effectively to work from home while remaining productive in these challenging times.
We saw new customers come on board the Ringcentral platform in key verticals like education healthcare financial services.
We saw existing customers accelerate deployment and leverage more elements of our platform and portfolio.
And we saw customers take advantage of our differentiated unified application across messaging video forms you referred to it as NBP.
And our global capabilities to help keep their employees C and productive let me just share a few examples.
In higher education, we continue our progress but talk to your universities.
Our most recent win was with Cornell University, maybe we'll provide our NBP communication solutions to get 15000 plus users.
In launching an initiative to modernize its legacy on premise communication systems.
Cornell required a platform that enables complex call handling services emergency notification said mobility.
Leveraging our deep PBS expertise and unified NBP solution, we've been able to meet these needs while also delivering meaningful peafiel savings.
In health care.
An example is P.M. pediatrics, a pediatric urgent care provider.
In this time of elevated need they needed to optimize resources across their 40 plus locations better so get patients.
In Pediatrics chose Ringcentral office to seamlessly manage demand across all of their locations, we've been able to roll this out in a matter of weeks and deliver full compliance for security and privacy requirements.
Another example is an existing customer or Ringcentral office solution, we talked about in February I'll be on our health care the nations largest provider of pediatric home care.
This customer wanted to get you transition, it's 300 contact center agents to work from home.
And let's spend a week, we've been able to deploy our contact center solution enabled these agents will promote.
An example of a large enterprise when we got a unified communications platform is mutual of Omaha, a fortune 500 provider of insurance and financial services.
Mutual of Omaha, silica drink central to further enhance its communications platform and support it's more than 8000 associates sales representatives and contractors nationwide.
We're also excited to have been selected as the new communications platform for the Detroit Lions.
The lives embraced a complete NBP solution. That's the first virtual NFL draft on April 22.
This is a great example of a mission critical use case, where the customer required approving trusted high reliability solution.
Global organizations fees, even more challenges, but disparate legacy on premise systems, making it difficult for their workforces to communicate effectively.
For example, Forcepoint cyber security provider recently selected Ringcentral Global office solution, which will enable their 2000 users to be on a global unified solution, but NBP capabilities across 13 countries.
In closing.
It is no more evident than ever that customers need a trusted reliable.
We featured unified cloud communications platform that can meet their emerging business needs as a global scale.
We are inspired by our customer and partner success stories and are deeply thankful to them for trusting ringcentral, but getting mission critical communication needs.
While these are trying times, what everyone. We are extremely optimistic about a future.
Now for the financials I will turn the call over to our Chief Financial Officer mutation drew.
Thanks, and good afternoon, everyone.
I'll begin with a few highlights of Q1 results.
Then spend some time addressing how cobot 19 shipping our business and wrap up with how that translates into our twentytwenty outlook.
Q1 was a solid quarter on multiple fronts.
And we exceeded guidance and can tend to across the board.
We surpassed $1 billion are growing at 33% and saw strong momentum and Midmarket and enterprise era with over 50% growth.
And we successfully raised a billion dollar convertible note at zero percent coupon strengthening our balance sheet.
We used a portion of the cash raised the repurchased about 38% off our private notes.
Operating and free cash flow include a nonrecurring outflow approximately 14 million imputed interest on the repurchase notes.
Excluding this our free cash flow margin would've been approximately 5%.
To provide better clarity into cash flow generated by core business activity. We've introduced in non-GAAP free cash flow metric in our press release that excludes the allocation.
We exited the quarter with $762 million gosh.
No I'd like to pick a few minutes to address how cold. It 19 is shaping our business.
We continue to keep strong new logo momentum across the board.
As a company seek to enable employees to communicate effectively in the current work from home environment.
In our large up market customers Cobot 19 has served as a catalyst for some of our existing customers to accelerate adoption of ringcentral across the footprint and use our product across all modes messaging video and phone.
I'm surprisingly small businesses in some verticals like retail travel and hospitality I've seen elevated churn.
We would expect some variability in the area as long as the economic impact covert persist.
Mall businesses within these verticals accounted for less than 10% off our overall installed base.
Yeah, I'll, just seeing some customer extended payment.
However on a positive note nearly all of them are actively using our platform.
We are closely working with our customers to help them be successful it was difficult times.
We hope that these businesses emerge even stronger and would increase loyalty to what drink central.
Moving to our phone revenue piece, which has historically been about 5% off our total revenue.
You've been children's place, we're seeing some demand push out or desktop phones.
Do you feel desktop bone at the low margin add on to our recurring and accretive subscription business Yardley, what our customers convenient and not core to our strategy or long term recurring revenue growth.
For our core platform as I'd mentioned, we're seeing customers increasingly leverage the ringcentral up both on laptops as well as mobile devices, but very high adoption and usage, which is an indicator of long term retention and customer lifetime value.
Switching to our Twentytwenty outlook, it's factored in the headwinds and Tailwinds mentioned above.
We've contemplated and stress stuff that various assumptions about what current macro could mean for a bit.
We believe that in the ensuing outlook, we have conservatively factored in a potential range of outcomes created by corporate 19.
With that let's turn to the outlook what 2020.
Subscription revenue.
We are raising our subscription revenue forecast to be between 1.0 to 4 billion and 1.03 billion for an annual growth rate of 25% to 26%.
This reflects Q1 strength.
Positive new logo trends in early Q2, and a prudent outlook for the remainder of the year given the volatile macro environment.
We have also if you apply for 10 million dollar FX headwind from deterioration of international currencies versus the U.S. dollar.
Other revenue we are adjusting our other nonrecurring revenue to be between 92 million and 95 million or a growth rate of 8% to 12%.
What's in our previously implied guidance up 25% to 27% growth.
This adjustment fumes a further reduction in desktop on demand.
Incorporating our positive outlook for subscription revenue and lower assumptions for other nonrecurring revenue, we expect our total revenue to be between 1.116 billion.
1.1 to 5 billion for annual growth.
24, 25%.
We are reiterating our non-GAAP operating margin of 9.6% to 9.7%.
We are committed to an annual target of 40 to 50 basis points of expansion and redeploying near term setting.
Travel and other discretionary items into growth and innovation.
We expect non-GAAP EPS to be between 90 194 cents based on a share count up 93, and a half million ships.
Includes two cents of headwind from watches our previous guidance from lower interest income assumption given recent deals.
Reported a very similar framework, where our Q2 outlook what subscription revenue range of between 244 point Fivemillion 246.5 million up 26, 27% growth.
And other nonrecurring revenue, all 15, and a half million to 19, and a half million down 14% at the midpoint.
In summary, we are fortunate to operating in a market that is currently but nothing noticeable increase in demand.
<unk> central solution solves a mission critical need for businesses and that should projected well for long term customer acquisition and retention.
The long term outlook for the cloud communications market, it's stronger than ever.
For a market, which was already growing rapidly new work from home requirement should provide additional better.
It is now more clearer than ever.
On bromine system simply cannot served the needs of the new work paradigm.
We believe done in the post Colbert 19 war, many things will change and that modernization of business communications to the cloud will be among key priorities.
That's cloud adoption accelerates.
We are focused on making sure that ringcentral continues to win in the cloud.
That ends we are excited about the launch of our new video product to provide further differentiation to our leading you guess platform.
We have also confident that our strategic partnerships, including those with 80, NT Austin, a buyout well continue expanding our reach to millions of prospects across the globe.
Which bodes well for our long term growth.
We pride ourselves and profitable growth.
We are committed to our goal of operating at or above the rule of 40 longer term, which we again achieved in Q1.
We have a large loyal customer base, a profitable business model and a strong balance sheet, which allows us to continue to invest aggressively and product innovation and go to market efforts.
With that backdrop, we are confident ability to lead and its 50 billion plus you've got some market.
Finally on behalf of Ringcentral I wish you Youre teams and loved one health and safety.
With that let me turn the call well, but to be offered up acuity.
Thank you at this time of the conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation ton will indicate your line is into question can you maybe press start to if you'd like to remove your question from the Q for participants you think speaker equipment, it may be necessary to pick up.
Your handset before pressing the star.
Our first question comes from the line of Terry Tillman with Suntrust Robinson Humphrey. Please proceed with your question.
Yes. Thank you good afternoon, it's good to see the M. D P performance black or on and maybe my first question relates to its its one thing to help kind of turn on.
MVP capabilities, but what we're looking out here with your businesses, particularly the bigger enterprise customers. They got to rethink the way they are doing business in other words work and so it does seem like a great opportunity for systems integrators and somebody strategic partner, So I'd love an update on apples and just maybe other conversations are opportunities you could have with other global size or just other partners beyond service provider.
<unk>.
No not a follow up.
Oh, absolutely Terry <unk>. That's a good question. So let me just after that this is on a quickie hopefully everybody's families safe and held in these sorry and times and thank you for still making the call and listening to us.
So on office deals just early enough well and relationship it autos and you know right now we are targeting up market customers as you can imagine.
Hi, good experiencing an enormous interest with big brands in large customers and do you feel really good about a joint go to market strategy. We're already seeing a lot of traction as you can imagine with all of these enterprise customers. Since we just got started the sales cycles are actually are much much longer I'm excited about the progress you would expect to see some of these come to fruition.
Over the next month.
Got it thanks for the after or not but that's just as a follow up you.
You know, we like to look at that net add or office. There are enough. It's I think 56 million up strong result, maybe you could just a kind of.
I'll dive deeper into the drivers of that and how should we should think about seasonality of a additional a are as we moved through the year. Thank you.
Sure sure Terry Yeah, Yeah, I'll double click on coupons trend that you mentioned, it's a couple of things dairy come to mind, the two or three things that are that stood out for us. This time. The first one is we did see strong new logo momentum across the board.
If you take a slice of the large deals over a million dollars. We did have the best Q1.
Okay, and you know it's fascinating to see that we had this drumbeat even during the cold period. If you look at all the million dollar deals we did about 60% of those deals.
Actually closed in the second half of March which underpin the secular shift on this new work paradigm. So that's number one number two deal sizes are getting larger, especially in the up market segment. Now again, if you take a slice up this multimillion dollar deals a D.C.V. deals.
We saw it 30% year over year growth in the TCV itself. So no new logo momentum due to strength and if you've not only on the product dimension, but just contact center, we did see year over year, two X increase in deals for contact center over the million dollar Dan. So I think it's it did we were lucky this time do.
Being this secular shift up market and a lot of ship stuff a lot away.
In terms of seasonality I wouldn't you know I wouldn't expect any different seasonality it will be more back end loaded for us even a buyout.
Kicking in towards Q4, Oh, we have taken a smidge conservative approach to our guidance, including FX, but overall, it's sort of more of the same.
Thank you. Our next question comes from the line of stuff I'm, sorry, with William Blair. Please proceed with your question.
Hey, guys. Thanks, taking my question saw solid job given the environment.
Yeah, maybe maybe following up on on Terry's common share for another item you <unk> you know tree asked about agents, but let's talk about a via obviously.
If I relationship is a huge part of sort of future growth just you talked about sort of traction a little bit and I'm glad you. Some comments I'd love to get some more color on sort of the early traction traction you see in there and anything you want to highlights I'll give a nearby.
Deployment, not so long ago about a month, but the love term senses more color you can provide ron what's happening with a buyer and the roll out there.
Absolutely you know the first thing as I said, we launched the.
Join product on 331 actually the one thing I called out is a the entire company globally should put to work from home just two or three weeks before that and we delivered on time exactly as we expect it took a pretty proud of all got no don't see a month and this is what probably I'll share weve on boarded roughly 1700 plus channel partners have several monster.
Agents.
The only partnering easement and the customer interest and the customer feedback is actually phenomenal. So we're pretty excited about that.
People are trends, whether its fives or office or leads all the conversion velocity give us great things into feel optimistic about where this is going into long term prospects.
As you heard from US we are confident that you see start to see if fuel contributing towards the end of 2020, but different trends or me because pretty comfortable of auto new commitments.
Got it caught in a quick follow up from a cash but just you know if I look at the cute you guide it looks like it's up 1% quarter over quarter, but by my calculations I think you ever want to 1% 100, <unk> FX headwind. So I think it's the same as Q1 like 2% quarter over quarter sequential guidance, just I'd like to clarify that that's correct.
Then too you know honest talked about sort of trend you've talked about sort of positive early trends into Q how's that reflected in guidance I'd love to understand sort of how you guys have built that into guidance. Thank you.
But they live.
Yeah, there's much at all.
Sorry, sorry, I wasn't mail sorry, Yeah, Bob Let me start with your second part of your question first in terms of trends, which I mentioned that April actually wasn't very fast start.
Our new acquisitions are up 40%.
In April year over year, and that's the fastest start to acute do I've I've seen in my idea that Ringcentral Oh. So that's part one we aren't seeing acceleration for upsells as well in certain cases were up bucket customers want to respond quickly in this crisis mode to make that employs more productive so if you're seeing that trend as well.
Trend is up in kind of churn we'd do we are lucky to have a diversified base of customers, which no a major concentration.
So we I think the buckets of churn like no surprise in some of the SMB segment in Georgia goes so that's sort of the puts and takes there but relatively speaking. It's all you know very good news most of the current backdrop.
Now it's like project forward watching the guide we have assumed that the economy does not materially improve onto Q4 and the work from home trend continues but that's one.
For subscription revenue Weve also assumed conservatism I wouldn't this high risk.
SMB churn, but that's part two and then finally for tied back to your first question, which is the or guidance sequentially. The question. Yes. That's correct Oh, we do have a point of currency headwind that would persist starting Q2. So if you want to normalize Q2.
And your water compared to walk you wouldn't guide, yes, you would see that it's almost very similar a bit of conservatism given the macro but no no big change given the strength.
Look I'll say that finally like you know a you know the management team here, if the macro improved dramatically or we would expect a upside in second half that's the way I I'd characterize it.
The problem. Thank you guys. Thanks again, taking my questions a nice job.
Thank you.
Thank you. Our next question comes in light of might turn with Wells Fargo. Please proceed with your question.
Hey, there Ah. Thanks, good afternoon, good to hear everyone sounds a safe and well flat we saw the launch of the new Ringcentral video product early last month were impressed you've been able to keep the product road map moving forward in this environment is there anything else you can share around what you've seen there in terms of adoption or usage. So far understanding it's still early.
Like you know I don't so lot of muted, but let me just let me just take it as lot comes on so couple of things. One is again goes back to what I said about easier.
Which is be launched Ringcentral video right in the middle of the locked down you know on feature on our on time, which is something good really proud off we're seeing a tremendous amount of increased usage across the board. Our total video minutes in April are up over 200%. What's is have you read a broadly, but you're seeing a lot of dark translate you know to that.
Central video product as well B pack as you know we've been using Ringcentral video internally for over to Europe, and when customers for over nine months in beta and you're seeing there constantly in terms of traction with 80 N D.
But it shouldn't just announced how they've been able to move and transition their entire workforce in a matter of a couple of days well what do they tend to video and over to actually working from home remotely.
And so that was great validation be talked about a worldwide vision Oh, Similarly, using ringcentral video to actually continue the what they're doing from a nonprofit standpoint.
Especially in the middle of the corporate crisis. So early feedback early usage early adoption in the last 30 days I actually has been really couldn't something you're very proud of.
I know you on yet or anything you know my apologies no my apologies I did that they're saying you know, which is I gave us [laughter] beautiful extreme devote soto speech on mute. So I think you're covered you covered the highlights a look I think short version is where we're quite pleased or not only.
You know the timing of being able to get it on time, you know despite a difficult times, but as opposed to cold to GAAP is an enterprise grade product by you know design in in every way. So a you know we built a based an hour well known.
The ability and our Ah well known security and.
You know, which we've established over the years was.
Are you know traditional voice infrastructure and we're seeing all of this you know are translating nicely and holding up well you know knock on wood I should say, but here, but holding up in the video domain as well.
Customer feedback is positive.
And the list a BDC industry I noticed a few book is ER positive and a a seems there is somebody some press you know by third parties.
Which.
You know, which is rather complimentary product.
And what's Gonna say, a you know we have a you know solves this with customers isn't businesses.
You know maybe more on that end users a we it's running our country percent Ah you know oldest product that's many sell some people right there.
And your comments it beginning for us a this for the to the east because it would know a is going to get.
You know substantially you know you will see rapid progress here, because quite a bit definitely behind it and just if somebody wanted to say I think we mentioned that in prepared remarks.
Remember, but you know some NFL teams, a you know rents a draft on it.
You know talk about security and reliability and you know trustworthiness.
You know and a they chose us over several themselves or you know call a button own options for those reasons. So again, we have a bed writers, which went into our CV and they will.
I will remain a window CV and.
It will do well it will continue to grow.
That's great, but maybe one from attached that's that's a lot to go through there in a limited amount of time. So I wanted to ask about one of the additional growth drivers that wasn't in the prepared remarks, Steve. If you can see partnership any update you can be right in terms of how that's progressing I think would be helpful. As well. Thanks <unk> sure Michael Yeah, no. Good one yeah.
No so much to go through and you're setting the transcript or so your 80 M.B. I know, it's I read it saw very good momentum again actually see if your Doubleclick I'm couple of the drivers are we did see increased.
Direct and trying to participation a meeting more folks at <unk> reselling it in our identity products. That's one Ah, that's resulting into a higher pipe a meaningfully higher pipe.
Churn actually is improving in the base. So if you tie all these three drivers together, we saw a sequential uptick again.
Oh over 20% second quarter in a row.
After 18 demand Ringcentral, our lead solution or the overall number that still still smaller a in terms of the bigger picture, but I think at this a this world Cup. This may prove ought to be a it tailwind for future growth.
Great. Thanks, so much like start to the or anything like the job. Thank you.
<unk>.
Thank you. Our next question comes from line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question.
Hi, Thank you very much you see afford to such a good job you anticipate all our question just so hard to ask a good question, but I'm going to try and Outfoxing.
So like maybe question for you probably takes you can jump on it. So that's okay on it congratulations welcome to Ringcentral family Oh, That's you look at the long term beyond 20 2021.
What are the vectors that driver in central its business and I'm not goes vectors, what are the things that could end up being stronger than anticipated or weaker than anticipated. Thank you. So much.
Sure sure.
Yeah, I can I take a start and then black and of course jump in but the bigger picture. So casanello Ah you have outfox make ourselves.
Well, you're asking Big picture question. So I think you know we are seeing thinking that this cool, but impact could be a glass half full for us and it's more of a tailwind. We think then a headwind because this was a much needed catalyst for that transition from on premise to cloud.
And near term what could go a long travel what could go wrong is a the risks our churn from the SMB segment in some challenge industries, it's less than 10% of our installed base, but that is a different headwind we need to acknowledge.
In terms of Tailwinds or the new logos, we talked about right that new demand you're seeing from these customers up like call. It 40% in April the that customers will quickly adopting.
Being more agile and weathering the crisis. So long term yeah, we will have a base of energized lot of customers, but even higher lifetime value because they're here to stay then they're not we layer on all the commentary, which Alan mentioned about 80 and T. I mentioned about 80, M.D., which is performing really well Oh, we have about.
While early signs are very promising it'll start kicking into high gear in Q4, we have autos coming on and Latin mentioned about RCB. So wherever you would be able to capture incremental video demand over time.
Thank you know there are multiple tailwinds going in our favor a recurring revenue model. It's very predictable Oh, we are seeing some marketing efficiencies improve so I think you know we will strive to maintain this rule of 40, that's the way at least I I think about the budget financially and of course, not can chime in but bigger picture.
Yeah, and you know if I was just out a couple of things here as I look you asked me what were you losses for the long term 2021 off and so on that are you know everything that they started is gonna help us do what we really think drives future growth for us which is increased focus on the enterprise 75 to some of the time as of yet a price index and be able to invest.
Thing and that's driving a lot of a growth as like said early on in the prepared remarks, you're going to double down on partnerships or something which accompanies known for and people actually expand.
Blends of partnerships international expansion as a key thing and I'll focus on key verticals you know our our traction in health care today education today has been phenomenal you're going to double down on those six key verticals, which further give us a spring enough that so that's how I look look about the macro strategic elements, we strive for the girl.
Yeah, I know, it's I mean, it's hard to this.
Look obviously the macro risks.
Or just a precedent the times, but for now we've been holding up our business I've been holding up and you know it's above Eddie mentioned several times.
No new logos and acquisitions are accelerating.
You know and.
It also.
At this point, a you know I see no way more a tailwind then headwinds.
The malls or this tailwind a you know being that on Prem.
You know traditionally infrastructure is not going to hold up in and you know alcohol welcome anywhere. So once you know what people are below that what you think more and more of you like no worsening anomalous to pull it.
Uh huh wanting to grow them, but Oh, we were supposed to me.
Understood, it's because well be responsible with.
You know copel get our fashion or maybe more.
Yes.
Got it thank you very much.
Great Great perspectives enjoyed it congratulations on the quarter.
Thank you.
Thank you. Our next question comes on line of some on some on <unk> with Jefferies. Please proceed with your question.
Hi, good evening, thanks for taking my questions.
And your headwinds, but as I think about customer behavior with more people working from home if more customers are using saw phones does that actually accelerate the ability to adopt ringcentral.
Or how does that change the adoption dynamic for Ringcentral software using us off phone versus arts huh.
Yes, I understand rights have been so yeah well.
I mean, when they do you see that yes.
So so phone is always would you.
Especially if you use the mobile version.
To remind people one of our key differentiators and for many years has been mobile first we've talked about.
Mobile workforce. This you know well ever since you've known US public company and they can go from India before well.
So yeah I mean, we're just seeing a lot more engagement.
Definitely as we mentioned we're seeing.
Now let's go through.
But also just taking a look more engagement with your book more minutes, you know being you just because the devices.
The Bible and Interestingly no. One you know they are in the up this of where our MVP message boys phone.
Capability, which is which is well differentiated stuff when it comes up as you know we spend.
No.
Quite a bit it's time to make shows that you can seamlessly switch between mall.
As well those devices.
So we just introduced.
Yesterday.
So nexgen dust upon which makes it easier to do that so again, we see each usage and Weve project more increased usage and more engagement.
You know from the customer base.
And we also I would say cautiously optimistic but definitely optimistic that was more app usage.
We'll be a viral coming in as well.
Again people.
Thank you. So we believe its mission critical said on solving the mission critical need for people.
As more and more people that it's both you know we think it will be another thing well.
Great. That's helpful. And then maybe just a follow up attach on on the outlook for 2020 any color or any kind of double. Thank you can do on on what you're assuming in terms of geography is.
North America versus EMEA versus.
And and thanks again for taking my questions.
Oh sure. Some odd so feedback is very small for us. So North America is you is more than 90% for us a international did grow faster this quarter than usual, that's what we're seeing some tailwinds there, but no no material change in the way we are modeling the outlook overtime.
Think of it the autos and via kicking in there will be some tailwinds internationally, but for now we have not really modeling any acceleration.
Thank you. Our next question comes from the line Stirling with JP Morgan. Please proceed with your question.
Yeah, Thanks, Hi, guys I, even though it's early I wonder if you could give us a sense of the demographics of the types of customers that are in the pipeline through that a by a partnership are they skewing to either particular industry or particular size of organization. Thanks.
This is on it so I'll take that are those early pipe is essentially because of the circumstances. We are in is skewing to sum up the verticals, which we would expect to actually want to accelerate down this path, which is health care and then.
Location, but outside of got no. There's no particular patterns I would call out which are different from what you expected either in terms of segments of customers or any other packers and any other verticals. These are the only thing, which I would say, it's an acceleration based on the times theater.
Got it and then one follow up Matusz, you kind of gave us some of the sense of what's happening in SMB, but when you look across the entire business any sense of the representation from hard hit industries like travel or you know hospitality et cetera.
Yeah, it's similar it's about it's a little bit over 10%. If you then take extrapolate across the board, but wherever you are seeing an impact is on the SMB side of these challenged verticals are upmarket sub segment, even though.
There may be some exposure, we maybe we're seeing some acceleration at the margin because these customers want to make that employs more productive and so they are pulling in some of the seats. They would have normally pulling later on.
Understood. Thank you.
Thank you Sterling.
Thank you. Our next question comes from the line, Brian Peterson with Raymond James. Please proceed with your question.
Hi, gentlemen, thanks for taking my question, then as a lifelong Detroit Lions Phantom I'm glad to hear your helping him out Nitesh, maybe maybe start with one for you I know a lot of people pay attention to the air or.
I wanted to look at kind of the enterprise contribution there. If we think about some of your larger enterprise customers enterprise component of that Oh, how much of that is actually showing up in air or in what could that expansion opportunity ultimately look like.
HM interesting one or so they are.
The larger the customer lower it usually represents in the in quarter a our if you look at let's call. It the top three deal at this time, the adult been being Ah Cornell.
Less than 10% of Cornell deal value is showing up in our a ours. So more future Latam expand now if I were to expand that to some other top three deals. It's about 30% is deployed and they are so I think what's happening there as it. So you actually get up on a key thing that asked me assigning larger deals but.
We that does this exhaust pipe of land and expand where the commitments goal for multiple quarters, a multiple years. So not everything shows up in the first up quarter or just to wrap it up.
This time, 30% ish in the top three deals sort of any along and more to come in the future.
In the catch this maybe a similar vein if we had to look at the enterprise space more broadly did you see a lot of migration on that expand path. It. So far this year. It what would you say is the penetration into the see opportunity across your enterprise space today.
Yeah, No go to one again, Brian So I think a broad strokes here is that because we are signing up such a new logos that more rapid clip.
Penetration is still about 15, 20% and enterprise base that business is.
Over a half a billion dollar business now so even if you don't do anything much and if you explained this installed base within the installed base Fivesix ex there's much more room I had for US just to keep on accelerating just based on that.
Great color thanks for that.
Thank you Brian.
Thank you. Our next question comes from the line of George Sutton with Craig Hallum Capital Group. Please proceed with your question.
Thank you out one of the very interesting points I thought you made related to.
Seeing the acceleration of clients, who previously only had some of their seats with you are beginning to move fully to the cloud I wondered if you could expand upon that if we think through your top 25 customers for four perspective, what percentage was their seats have actually moved to the cloud already.
I don't have that exact Cox George for you. The top 25, what has moved to the cloud let me try another way or roughly I would say in the top 20 top deal. It's called it that would be about 35% to 40% of the seats would be deployed just broad strokes.
Just some looking at some fast I mean total data. So you would say at least more than half is left to be deployed.
Okay.
One other question on extending payments you mentioned, that's a one of the dynamics of the cobot or that we're living through a to quote you. If you could double click on on that and explain the accounting behind it and and how that will work for you in the next quarter or too from a revenue impact in a and Uh huh.
The most impact.
Yeah sure I will Doubleclick, George and then the and I didn't know you had an accounting a minor there so yeah, well, let's let's start from a less aggressive into things, let's start with the working capital and then will also start with the Rev. Rec. So in terms of working capital. It's a natural empaque tried to be are deferring payments and we want to help.
Customers. So there will be some working capital impact in Q2 in terms of higher receivables for us and the good news about that is we do feel very good about these customers, even though they are deferring payments because the usage is very high like nearly all of these customers are using the product so which is good news in terms of Rev. Wright.
Right now.
Defining payments does not equal no revenue.
So as long as they would pay in the future they wouldn't be Rev. Rec, having said, having said that we have taken but up a conservative approach and baked in some reserves in the revenue or assuming that some portion of these customers will not come back and will not pay but that's reflected in our Q1 actuals.
So we observed de risk that a little bit.
Perfect. Thank you very much.
Sure.
Thank you, ladies and gentlemen, the interest of time, we ask that you. Please keep to one question. Each our next question comes from the line I've met Amar shot with Morgan Stanley. Please proceed with your question.
Yes, Hi, this is Karen on chromite congrats on a quarter. One question. You had is just a little bit more color on of your customer adds how many took advantage of free offerings versus pit offerings any color there would be helpful. Thank you.
Yeah and up so all our offerings, which were free you know in light of quoted was basically geared towards the first responder severe educators K through 12 community colleges nonprofit. So you know health care, so be basically high in the last month about 4000 plus organizations.
Which took advantage of those free offers to actually get onto our communications platform.
We added more than 50000 users as part of that.
And it's rapidly expanding every single day. So that's that's what we see right now.
Thank you. Our next question comes on line of how they're building with Goldman Sachs. Please proceed with your question.
Hi, This is Dan Tradeshows I don't believe me. Thanks for taking my question I guess.
The one for me.
That's something you touch on an earlier in terms of the damage feedback on our TV, but.
Anything you can share with her line still with respect to what what the take rate is coming from new customers and how you're thinking about converting Oliver in central customer base, our portion brings us ringcentrals customer base over to the proprietary offering and how we should be thinking through the any possible margin implications from that.
Okay.
Yes.
Let me when I go.
Yeah No sure. So the question is what conversion of Dorsey me from the as long as a base as well as new customers.
Yeah sure so stuff when you got the most it is a default setting at this point.
Unless there are some you know the specific functionality gap there has been identified.
So for example, we have not yet announced GE or central video rooms.
That's underway, but a stupid speaking if somebody wants a room then you know what would leave with the Doe baseball.
We have bought a now our own webinars product yet again, that's underway, but you know so those would be the major.
Exceptions to this one.
But everyone else pretty much is a you know getting RCB.
Okay. So there was a choice you know for people to go you know from Marci to listen to music, which is on based or or or vice versa. So.
So we would do have nothing that.
Capability.
Oh for existing customers.
We are making the switch available at this point, but will not.
You know actively promoting good.
This morning, but.
But that overtime.
We'll see a RCB gross was essential family.
Lastly, I would save that for us.
The LTV.
You know where public I would become the though of course.
While still keeping functionality.
Thank you. Our next question comes from line, a rich Valera with Needham and company. Please proceed with your question.
Thank you.
First on DCIO, just wanted to get a sense of how the that at the level of a transition or migration tools that were in the initial version of DCIO. We're meeting kind of the needs of the the customers that you were seeing out there and how significant of I'm an improvement you're expecting in kind of the second version, there and how that might change the addressable.
Market of a basic perspective as to your customers. Thank you.
Yeah.
Oh.
Yeah, no absolute sort of the broad migration tools are basically get launched in Q3, so that will be something you expect to see but at this point in time Weve always worked with of ideas on premise based or even before the partnership and we have a very good day to actually help transition the on premise customers onto.
You know onto easier. So that's what we're working on right now as the Formula migration tools come out shortly.
Thank you. Our next question comes my line of will power with Robert W. Baird. Please proceed with your question.
Okay, great. Thanks, Yeah, no again cancellations on on the results, but maybe just kinda two quick follow ups. Both later to enterprise I Wonder first.
Other Ben broader market concerns for questions with respect to enterprise sales cycles, and what do we see it links and they're going to covert climate.
I Wonder if you can comment on what you're seeing it feels like you've ever seen just the opposite based on what you're seeing in April and the power of the product, but anything probably what within enterprise sales Oh, that's right.
And then the second piece is just coming back to ATM T. I wonder if you're seeing more urgency on the part of H.M.T. to push.
The ringcentral product in the enterprise given to bad they must be shaved beyond what I think was primarily more but and that should be focused and start.
Absolutely so I'll take that so you're right. As you said you know this sort of you know as I look across the whole lifecycle of what you would expect from a customer standpoint.
We are seeing healthy increase in the leads in the up market segment post corporate you're actually seeing that conversion of those leads to opportunities whole goods at the same clip you're actually seeing a slight drop in the sales cycles you know so.
Customers are you, taking the opportunity to get onto an environment in the cloud communications platform because it's so critical right you're actually seeing those sales cycle marginally draw up and start to close deals Foster and so that's been good and the same thing with anybody you don't have unlimited talk about some of the some of the data because he shared with the acuity.
You're actually seeing a massive increase the number of sellers, who are coming to the table participating in opportunities, we saw that almost 30% increase and instead of the participation in Q1, and you're seeing a fairly significant increase in the enterprise space as we look at April trends, but they didn't he is also you're absolutely right slight push.
Sales cycle, slightly becoming smaller and up you're seeing increased traction in the enterprise with <unk>.
Thank you. Our next question comes from the line that Brian Schwartz with Oppenheimer. Please proceed with your question.
Yeah, Hi, Thanks for taking my question the softer now it's actually a follow up on an earlier question just understand some clarification on terms of the coal that 19 response that the 4000 organizations or the the 50000 subscribers that got Ringcentral office for freight I'm, just wondering if that offers in perpetuity or if there.
The limited duration in the program and you know these subscribers can be converted after they fall in love with your product. Thanks.
We basically announced the offer for three months, we wanted to make sure that we do our bid in this time of need for the community.
So that's you know so it's a wait and watch for us to see how quickly you know hopefully we get to a point as we expect that you'll start to seek some recovery in opening up an ecosystem our announced off what was the three months ago, but you know and we'll see how it goes and make a call on whether it be extended on on in June.
Thank you ladies and gentlemen, this concludes our question and answer session and that's concludes our call today. We thank you for your interest and participation you may now disconnect your lines.