Q2 2020 RingCentral Inc Earnings Call
[music].
Greetings and welcome to the Ringcentral second quarter 2020 earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during this conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the conference over to our host Ryan Goodman head of Investor Relations. Thank you you maybe get thank you good afternoon, and welcome to Ringcentrals second quarter 2020, <unk> earnings Conference call I'm, Ryan Goodman, Ringcentrals head of Investor Relations joining me today, our lunch minutes.
Founder Chairman and CEO.
On a sworn president and Chief operating officer.
That's true Chief Financial Officer.
Our format today, one quick prepared remarks lot on it.
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By QNX.
Some of our discussions and responses to your questions will contain forward looking statements, including our third quarter and full year 2020 financial outlook and our assumptions underlying back.
These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements.
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 today's discussion.
Particular, our business is currently being impacted by the Carbonite gene pandemic. The extent of its continued impact on our business will depend on several factors, including the severity duration and extent depends on mix as well as actions taken by governments businesses and consumers in response to the endemic.
All of which continue to evolve.
In 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 in the slide deck.
I encourage you to visit our Investor Relations website.
I, our dot Ringcentral dot com access our earnings release slide deck, our GAAP to non-GAAP reconciliations are periodic FCC reports.
Webcast replay of todays call yen to learn more about ringcentral.
For certain forward looking guidance to a reconciliation to 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 thanks for joining our second quarter earnings Conference call.
We hope well, if youre C and in books.
And then [laughter] created unprecedented global challenges.
The schedule, it's a core <unk> impact on called businesses operate no.
Future.
Cool transformation.
Miscommunications Flotsam has become your priority.
Companies adopt to a war drama and you work environment.
This is this a full size is no required communication solutions work employees can work for Dr. Scott.
No fear.
Anywhere on any device.
You bet anymore.
We embark on this Jordan <unk>, enabling <unk> integration business communication.
A decade ago.
Rick Central is now uniquely position to meet the demands we our enterprise <unk> global and trusted unified message via phone or M. B B block.
The results speak for themselves.
We delivered a strong second quarter as we continue to benefit from strong contributions from mid market enterprise and our channel partners.
Well, let me highlight.
Recent key events.
Sure.
We're now and expansion football strategic partnership with office.
Dr. together with a buyer, we oh I suppose the global out all of our wallboard.
Central.
Sure.
We still good uptake on power you are seeing offering which we launched in early April.
Well talk more about this week.
And block.
Cobbled together well water. That's ringcentral has been made to the for global two fold.
What's your dog alongside the biggest and most valuable company.
After all financial performance.
Revenue and north Yep, Yep exceeded our guidance.
Good driver can you give me Midmarket enterprise and John.
We delivered a record number.
Hey, good TV wins this quarter.
Several of these large when were in all targeted verticals or healthcare financial services and education, and ultimately cool multiple international works.
Came up for Q2 were solid across the board.
Total revenue grew to $278 million.
This is a 29% increase year over year.
About the <unk> and our guidance range importantly, total annual recurring revenue or eight or our grew 33% year over year do one rig $1 billion.
The difference between overall revenue growth and higher.
Our growth is driven by higher adoption offering central app relative to their both new desktop devices.
We believe the strong due to result.
<unk> rig central as it is usually platform you the global your cap market.
We look forward to building on this momentum and expect our market reach to maximize the effort you that yet.
Oh, no. We recently I know that's ringcentral will be the exclusive you kept provider to atmos unified.
During the flight, formerly Siemens Enterprise communication was acquired by August <unk> 2016.
Approximately 60% absorbed or they're all Brenda installed base well what do you feel that uses eastern Europe with a strong presence in Germany.
Isn't what you're Lucky if Youve addition to our system integrated relationship dolls are there as part of the August They just don't walk.
[music].
Importantly.
You are still love your mom I'll just ended central silky pent up demand to address unified installed base together.
Okay got accelerated reseller outreach effort and now has more than 90 channel partners straight to sell the new unique like both his body central for you.
We expect to be light weight, you all in 11 countries, but the or does this include Youre right.
They eat elite, Netherlands, Austria, Belgium, Arlon, U.S., UK and Australia.
Were also excited to welcome ought to be direct customer do you need quite well to solution.
Oh, well start we've deployed you all to the 5000 strong employee base Opiates office, you see division form or would you anyway.
This will later, thank you all do that Darby well over.
All the employees.
That's doable.
Based on joint Jungle enabled the athletes and store customer win with a backlog or it's for a CEO. We're quite pleased with early progress on this partnership.
Now over to solve the general partners on board.
There is there a ball quite like building and several important large deals already on the books.
An example of a large enjoy between what the selection <unk> platform by a large BP all that supports the UK government quoted Nike trachea program to control the spread of device.
This highly urgent and critical you scale.
Lucia leverage Ringcentral open platform and was rolled out to multiple cells is if you do in approximately six weeks.
In June 8th deal was launched in Australia, Canada and the gate.
Deborah feature and additional migration do or also released in June which would make cloud migration, even more seamless moving forward for large complex.
Of course, all success with these great partnership you rooted in our lead you got <unk> message via phone or NBP platform.
It was only by enabling their employees to communicate via 80 miles from any device.
From anywhere that business, it's gonna stay productive during the strike jobs.
So that and we saw double digit growth in messaging and triple digit both Nvidia and mobile voice minutes on power and be platform quarter over quarter.
Speaking of Columbia.
Our new open standards based Ringcentral video or are you platform has been quickly evolving since its launch at the beginning of April.
[laughter] customer reception has been very positive and we already have overt themselves and be Ringcentral office account enable with Ringcentral media.
Building on the successful launch Ringcentral media in June we know the initial release all ringcentral rooms.
Is it extends the palm oil rig sense of media to confidential and meeting space as well, which you mean importance even as the strike times.
Overall, we're proud to be able to assist you the fight against the global from there.
Our mobile for Enterprise Communications platform combined with our open integration <unk>.
Enabled major institutions like state West, Virginia to rapidly deployed power solution with embedded communications capabilities for thousands of contact traces to use the impact of dependent.
In summary.
Ringcentral, that's always been committed to enabling workforces productively communicate and collaborate via 80 malt on any device anywhere.
And with the new World Order working for you work, it's no longer in Mexico.
It is now at cognizant could you.
Ringcentral is now becoming a platform for business gets you know ritchie with our well proven and eat global solution and out rapidly evolving strategic partners and reseller ecosystem.
We're confident that the cloud will continue to win Andrew essential well continue to win the club.
Now I will jump to go over to our President and Chief operating officer on them elsewhere.
Thank you got good afternoon, everyone.
Operationally.
It was a very strong core.
We are laid the foundation for the next phase of sustainable multiyear growth.
The business a thriving.
At the bad for our cloud based business communication solutions is higher than ever.
Our integrated MVP platform and deeper does to add more new customers in Q2.
Any other important in history.
Interestingly this was accomplished without requiring but physically travel sales.
Professional services organizations.
There was lot spread across a number of important segments and initiatives.
In the air freight segment, we saw a record number of seven figure PCB business.
We also had a very strong quarter four up contact center portfolio, which was included in approximately huh.
Oh for seven figure this.
Our channel.
Please a strong ruled in our success.
Yeah our.
Increased 60% Euro would give the $375 million.
As we continue to grow to become a multi billion dollar revenue company.
We are expanding our strong publish the focus on the for peace.
Got it people processes and partners.
These efforts will enable us to serve our customers needs even better.
I see in targeted vertical markets.
Let me shift somebody.
But in the products here.
Innovation was and remains our first principle.
We launched Ringcentral video Breakered rooms.
While.
We launched a buyer cloud office by Ringcentral.
Subsequent international expansion.
I would also like to highlight this then also deal innovation.
Happened with more.
Teams working remotely.
Second on the people thought.
Continues to expand the management team attracting top talent, including incredible industry. He does like Chief revenue officer, since Oregon, and our Chief people Officer wouldn't just other girl, who you announced recently.
[noise], attracting and retaining a strong diverse.
It's who wants to do our long term success.
It is a priority for a management team.
On the old.
Congratulations.
Well, we can keep being named among the top two Ceos diversity.
Amongst the best deal with it.
And you will Compatibly sobi covering 60000 overnight beach.
Regarding business processes.
We're making great progress to automate and digitize our into in process and operations as a foundation for scale.
This will enable us to apply.
And machine learning to better predict customer needs and deliver enhanced and prove the value to our customers.
Now, let's talk about that.
Well it flat shoes, the details on the strategic partner for a buyer and office, which helps us to further scale, our global reach and capture the massive opportunity.
Second we continue to see strong performance from our food, Florida partnerships led by the new momentum we eat.
And finally.
We also continued to invest you know channel partner ecosystem.
During the quarter, we launched ignite a new partner program.
This program enables bought the to the sales cycle with their customers.
Overall apartments contributed over 70% or seven figure bids in the quarter.
No I wouldn't that be like with a few great customer examples.
One example of a marquee channels bid in Q2 is marvell technology.
A leading global semiconductor company.
Marvel needed a highly reliable scalable.
Ooh communications platform to replace the legacy on premise systems.
Our mobile platform our global coverage.
Integrations with other enterprise solutions, but important differentiators.
Securing the 6500.
So good spread across 20, plus countries, including India and China.
Another notable chandrabhan was with one of those largest custom print apparel companies.
They needed a tightly integrated cloud based communications have contact center solution.
This is the 800 user you Kathryn.
Combined with over 250 ringcentral contact the seats.
As we expand our go to market motions.
Finding compelling new opportunities across several important verticals.
In health care.
Had a seven figure upsells bid at a meeting U.S. provider.
Healthcare services.
This important customer using our unified communications platform.
To better operational.
The across the country.
In Q2, the expanded by 50% over 7500 users.
Could you use it all out ringcentral across an increasingly distributed locals.
In education.
A large globally the dog U.S. University expanded your view of Ringcentral office with an additional 1500 use as I did during Q2.
This is a great example of the opportunities emerging Buda covert baby saw an accelerated deployment cycle at this university.
Oh thousands of potential users still ahead of us.
That is higher usage or Ringcentral suisse's desktop homes, which is a positive indicator better user engagement.
And it should.
Yeah.
Casey.
The accident needed to ensure seamless continue ready for the upcoming school year.
In financial services, we secured a 2500 user been across 15 countries with a large private equity.
That's a customer or rich platform capabilities service quality security and global reach the key competitive differentiators.
Finally last year, we highlighted and engage digital but with a large and transportation company.
Over the past here.
Demonstrated the value of heart rate sensor platform in helping to transform the company.
This transformation became more urgent in the peace accord 19, with a book for moving to work from home.
In Q2, we thought what trifecta.
But the customer extended to are you can't solution, but 2400 Ringcentral office users.
Then they expanded yes, he gets footprint, but 60 agents.
And finally.
Big consolidated.
These are two point solutions the Ringcentral platform.
It is great to see customers increasingly everything.
The value of the full ringcentral portfolio.
Today The club Consummation of communications is a top priority for every business to meet that enterprise needs.
Google scale.
With our enhanced focus on products people processes and partners.
We added a strong position to be a core part of our customers digital transformations and address the large opportunity ahead of us.
Hi, good, but we tend to put a little over six months now.
I'm humbled by our vision.
<unk> commitment to innovation.
And our incredible people centric culture.
I'm excited to be a part of the Knicks fees Ringcentral stroke journey.
Not for the productions.
I will turn the call over to our Chief financial Officer with its true.
Thank you.
Thanks, and good afternoon, everyone.
Sure do wasn't solid quarter on multiple fronts.
First.
For our flagship you got solution Ringcentral office surpassed $1 billion for the first time and good 36% year over year.
Second our overall subscription revenue grew 32% year over year, along with an overall operating margin over 10%.
Starting solid profitable drugs.
This is a testament to the large opportunity and our consistent execution.
Sorry, we're winning larger enterprise customers with a record number of seven figure TCV deals demonstrating how strong the demand as part of a product and the cold environment.
For if you always offshore, but start boding well for the long term opportunity.
And finally, we announce you got to exclusivity, but others unified.
And expanding our global reach and complementing our existing partnerships.
This is the turning to Ringcentral as they transition Workforces to award from anybody environment.
Midmarket and enterprise customers defined as 25000 or more <unk> had another strong quarter, but they are up 50%.
Underpinning this trend was bookings growth from new enterprise customers with hundred <unk> or more.
Which was up over 50% sequentially.
As it relates to our existing customer base, we mentioned in may that small businesses and verticals like retail travel and hospitality that account for less than 10% off our overall installed base so higher churn.
But as the quarter progressed, the churn rate improved consistently August still not at historical levels.
But overall Q2 on solid footing, let's move onto our 2020 outlook.
We are encouraged but recent trends.
And this crisis environment, we continue to make prudent assumptions for the remainder of the or.
Given Q twos outperformance and our highly predictable recurring revenue model, we are raising our annual guidance, we feel confident and executing to our plan.
So now onto specifics, we expect subscription revenue growth of 28% up from 25% to 26% previously.
We expect other nonrecurring revenue growth of 8% to 12%, reflecting customer engagement shipped.
Desktop phones terrain central apps on laptop and mobile devices.
We expect total revenue growth of 26% to 27% up from 24, 25% previously.
We expect non-GAAP EPS to be between 90 to 94 cents up from 91 to 94 cents previously.
It includes a penny impact from lower interest income.
In summary, the global pandemic has provided a structural catalyst for you guys adoption and ringcentral stronger demand than ever.
Even with cobot is behind Us, which we hope happened as quickly as possible. We expect the new normal for enterprise communications will be cloud first.
That's on premise systems have shown to be adequate for the needs of businesses.
We believe that the market inflection as fast the point no return.
And Ringcentral is strongly position to take advantage of distress.
We have an industry, leading product a steadfast commitment to innovation velocity as well as a global and diversified go to market reach.
Our momentum, but 80, NT <unk>, a vial and expansion with all those sort of enables us to scale, our markets reach and add incremental layers of long term profitable growth.
With that backdrop, we are confident in a ability to leap into its 50 billion plus you guess market.
Of course, this would not be possible without our amazing employees.
Somebody did partners and loyal customers. So huge thank you to all of them.
With that let me turn the call to the operator for today.
Thank you.
Ladies and gentlemen at this time it will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate that your line is in the question Q.
You May press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, and maybe necessary to pick up your handset. The four pressing the star Kids and once again that question Press Star one on your telephone keypad.
Our first question comes from Brian Peterson with Raymond James Please state your question.
Oh, Thanks, gentlemen, congrats on a really strong quarter since so much actually I'll start with you, but given the large ready to be I think what kind of used to seeing that but we actually saw big even though the bottom line as well so maybe help us understand how you're thinking about the gross slashed margin balances going forward as you guys. How did the 2020 beyond.
Yeah, no that thank you Brian you had the quarter good progress a as you saw we did beat the quarter pretty handily the quarter did from progress up better than we expected initially throughout the quarter a lot of the dominoes that follow where there. So yes, you're right. So we did beat the subscription revenue by about 11 Schmidt.
In dollars and then a 5 million up that tend to the bottom line, so close to 50% margin flow through from the revenue. It really again speaks to the unit economics and the inherent leverage should be having the business model, where you can creed, that's 50% incremental revenue margin.
As a proxy.
For our installed base undercutting margin.
So really strong unit economics, there and the playbook, Brian is going to be very very similar to the way we have been executing which is that we'll talk fully deployed there's upside towards innovation and go to market for growth, but Meanwhile, we will stay very disciplined but the focus on profitable growth as we have been and promised.
I mentioned, a 40 to 50 basis point itself up margin expansion for Ya.
Understood. Thanks, but that should maybe a follow up or blind I know you get some perspective on Ringcentral video, but I guess, you know where few quarters and would it with RCB I'd be curious how did you get how you would get your progress before so far that's got yeah, Hey, Brian.
So to be clear, where one quarter in a with RCB. So it's still early.
Probably this has been a quite robust.
We are actually she got good number off accounts for most of you know.
It's around don't sell isn't a big accounts at this point.
And most new customers are now getting RCB as we stated to when we source once the product a we expect overall customer base to migrate from Ringcentral meetings, a which is powered by a another provider to migrate to RCD all the time so that.
Still the plan.
And we are working very hard wasn't making this a decision. The you know very positive and an easy decision as the product matures, but so far so good it's it's a deforming well.
Good here thanks.
[laughter].
Thank you. Our next question comes from Bob on surgery with William Blair. Please state your question.
Got you okay.
Yep Yep, perfect and congrats a solid quarter jumps all around.
Oh I got two questions. They maybe first from a cash but that's you know you've done a lot of puts and takes you're not really solid growth over 100, Jade you got churn improving just just can you highlight the puts and takes on the quarter and what drove a the opposite fluff turns down so that puts and takes to the quarter I got a quick follow up.
Oh, no short Siobhan, so I would say a couple of things that to a color maybe three points. So on the corridor. We saw on let's start with new logo on the back adult. So we did see its trend across the board on new logo. If you look at the enterprise segment up.
50% sequential growth is what be solved so so it really good strength, there or even in the TCV deals for 1 million.
We saw 70% of that came from new logos, but that's sort of 0.1 0.2 on the decided that sells are getting larger.
Oh and the third one I'd say is customers actually are adopting.
To a far longer duration. So those are two or three points on the deal momentum.
If you look at the go to market side of it we are seeing a lot of strength from the channel partners as well, which we do 60% <unk>. So if you just you know combined at all if you look at the take or pays for <unk> for these trends that couple of take all these I would say one is a customers are a comfortable with a lot.
Long term commitment to you guys doing this environment second that you know the cold it is becoming a structural positive for us for Ringcentral and the initial fear or at least when you're modeling.
The yard was that hey, they couldn't just panic buying in Q1, and then the demand stage, we're not seeing that head fake that's point do and third as the beat the demand trends, you're seeing we are definitely adding much higher lifetime value customers with a lot of potential done an expense.
That's really helpful. My judgment at some point be granted you revisited the LTV to CAC at the higher the enterprise, but my second question is for for maybe all of you honest to God et cetera.
Microsoft Hobbies, and I'll try to you or maybe late last week that there's some spending some of their core features around.
[noise] carriers around distributing caused by managing that they don't want be a carrier and.
Understood it indefinitely.
Obviously, you also announced integration teams and so look I view it as a mass positive, but but honestly about just how you all think about.
Microsoft announced and the Microsoft partnership.
From a from a from a long perspective, I don't I don't get your care, but that is your view, they're stepping back from sort of competing with carriers and integration of when central teams a lot on and how do you guys think about what that means for Ringcentral nice.
[noise] yeah yeah.
Right.
That's cool [laughter], Yeah, no no haberman, Oh, yeah, a little but let me do high level, and obviously aren't being stressed it from Microsoft can perhaps up to this oh good to high level, we think that Microsoft outlook would be I loved <unk>, a strategic partner for us.
We do feel were bringing a complimentary strengths.
Towards a more being Ah you know customers communications from on Prem to the cloud.
All this we were very very very strong or use the phone system side. It was this equation.
We speak up NBP, so message via phone system.
And Oh, it's Paul Knight, that's that's kinda, let it pushed out to be cool went up but I'd say our sites from Oh, sorry, Central right now and Microsoft again, you know you need to dose was up directly on you know what's their strategy and goals are but from what we can tell that very very strong or the messaging side what's teams.
And you know less so with a this fall in particular, so at the high level. It seems a it's a positive for us Gulf we positive for the customer as well.
But a you know how the market is that people take it to me the book after see on the then you can throw to this.
Oh, you said it all glad I mean for US it's very simple as Luxor, you know the deacons you guys should talk to Microsoft, but you're doing.
Yep.
Okay then.
Regarding was greater against their teams customers access to the best phone system in the industry and on top of it we are investing more in extending that white mold Oh enterprise featured Oh for what is already a bus system. So net net you know you feel good about.
That's super helpful.
I would I would like to design, but I want. Thank you again appreciate it congrats I'll pass on.
Thank you.
Our next question comes from Nikolai Beloff with Bank of America Merrill Lynch. Please state your question.
Hi, My first question for me that Congress on that is often there is put adults came in line with our fuel check and all Sellafield board appointed strong.
Pipeline and especially in all these are the Guy who pretty you ended up the armed with negative in more competitive than a then Tokyo I'm. Just wondering if you can walk through what are you, saying, we'll try and be thinking the pipeline Archer and on your business that call. This year could be a little bit more conservative than last quarter.
No sure sure Niccolite, Yeah, So let's talk from Duff <unk> Phelps so the assumption overall the assumption right for what be made is that the macro.
Oh does not significantly get better than what we experienced in Q2.
And to a large extent.
Lockdown does continue but that's the overall thematic assumption now if you take a dog click below four guidance as you pointed out a couple of things what do you assume is that the productivity.
Salespeople or sales force does not improve.
We saw quite the contrary trend in Q2, where do we did see an expansion of our pipeline. We did see increased conversion rates, but given you know the prudent or assumptions. The oldest stake we have assumed lower close rates on our pipeline, So thats 0.1 and point to.
As you also asked on churn in Metro attention we've made.
More conservative assumptions.
In the back half then we saw exiting Q2, hopefully you know will do better than that and the word opens up a better but for now we are making this assumptions. So we feel really good about you know the way we are guiding and we feel good about exiting two our guidance.
Thank you and the follow up for London, and then you guys to help us contrasting compare but the quality of the installed base of April books of via.
And secondly, the call to book in your business booked Oh, you know comparing that with the buyer and directing sandal business. Thanks.
Okay. Let me take maybe first part of the question. So quality look users. The users. So I didn't know car you can say quality.
But the one thing is with this is many more off or the customers are direct engagements as opposed to through the channel. So one it can things that pick ups. A you know it would be so I didn't know if it's an easy promotion but.
Maybe a somewhat shorter motion.
To get to to those customers.
Of course, so there is the geographical dispersion as well with most of our discussed I must be getting a Europe.
In Germany in particular and of course of a is a a you know very international silly U.S. centric company.
But I have to say when we were evaluating this opportunity and.
A you know deciding to you know to those extra stuff just leave it at homes.
It's neither did seem to be.
Mostly if not entirely complimentary to to advise base again was both cases that are the key to you know theme here is converting existing on Prem users.
To the cloud while keeping a you know the tradition, though brand affiliation and the in as much as users. A you know we don't see that the due mainly you and you got the most who would use both <unk> and others at the same time, so from that perspective, you seem to be they they complementary.
And if a another desk and how does the numbers.
[laughter] talk about that cost.
Yeah, I was like that.
Yeah Okay.
Thank you know on cost to book Nickel I look I think that's the key part right Ben DB look at all these distribution engines Oh for these partnerships our cost to book is lower upfront because we don't have to spend the initial sales and marketing actually alongside that the other vector or the other side of the coin is higher.
Lifetime value because the channels are these partners are incented to hang on to the customers, we're seeing not only lower cost to book.
But also a higher lifetime value. So I think it takes a two pronged approach though.
Thank you got.
Thank you. Our next question comes from Sterling Auty with JP Morgan. Please state your question.
Yeah. Thanks, Todd Guy So wondering if you imagine.
Then you're happy with the performance for a bias, but specifically just wanted to check in on where you are on the ramp of things like <unk> tools to help celleration deployment migrations over the Ringcentral, whether all option channel trains are complete and <unk> and other work are you fully.
I'm sorry, there's still a couple more milestones that we should be looking boards, it's even bigger contribution coming out of it.
Yep.
Exactly.
So in Q2, we actually so we've been act migration sort of wireless you can imagine even before.
Partnership was done but in Q2, you actually delivered more automation onto migration scripts, so as far as migration scripts go I think you have fully deployed that's working with Elia and we feel pretty good about it.
And then from a product standpoint, it's a Johnny I mean, you saw that we launched if you told us to Dawn Oh, we launched or you know internationally in UK, Canada, Australia and be launching more broadly across Europe in age too. So that's a journey.
Got it and then one follow up the touch maybe you looking that you know the go to market motion, but you have now how much savings have you gotten on but the travel et cetera, token 19, and how much about maybe will you be able to hold on to permanently post code base given that's it.
That's you're seeing in the set up in the go to market motion you have now.
Yeah, No I think it's hard to you know exactly quantify for you. Although we have the exact numbers, but you look we all read we do have a lot of discretionary spend not just travel but events customers events employee event, all those out getting re purposed for R&D and.
Go to market support school, but yes, I mean, this is going to be a wake up call for all the companies to make sure. We look at all discretionary spend and tighten the belt. So a fair amount of discipline is going to go on and I think go we'll see some more leverage going forward.
Thank you.
Thank you Sterling.
Our next question comes from Terry Tillman with Truest Securities. Please state your question.
Yeah. Good afternoon, gentlemen, congrats as well for me on the quarter and the outlook I guess, maybe the first question is azure further into the opportunity with Avaya what have been some of the early learnings and how do you see this opportunity playing out as it relates actually driving a or are you know this year next year compared to just months ago, they're not a follow up.
Yeah, Yeah, I'll take them out and Alex Mcleish answer the second part of it [laughter]. Most part you know early purpose is great won more than 2000, plus partners or the pipe is very healthy and in as little as a corner.
Several large deals in Q2, which feels good and it's brought up you'll get bins, and we didn't even higher than manufacturing the BP all species. So it's a broad you know vertical landscape. So all the fundamentals of good as we expected and it continues to be for the second half as well.
I'll, let you answer the second half of the on the financials.
Yeah, No no no the cfos taper temper expectations. Thank you I'm, comparing a marvelous job [laughter] and setting great expectations no.
So all good what he said look in terms of Ah the contribution for the quarter. We've got a billion dollar revenue business. So it doesn't like moved the needle and say it was immaterial in terms of contributions for for this quarter and Oh no change to the expectations. We do expect yeah, there's still a stock Dick.
The ramp to start take hold in Q4. This year and then continue to in 2021.
Okay, and Mattel something in your prepared remarks I like this phrase layers of growth. So whether it is avaya Alto say TNT, Microsoft teams integration engage I'm sure I'm forgetting about five or 10 of them, but investors ask us lots of questions. Because there curious about these opportunities how do we framed as it relates to maybe the growth.
Files, we move into next year, and you know do some stand out more than others, just a little bit of help on all these catalyst kinda.
Confluence of all those catalysts. Thank you.
Yeah, No I'd say, it's Ah, yes, Terry so yeah, we do have multiple catalyst going on but if I can summarize beast catalyst and or let's say two buckets a bucket number one is expansion up market.
And bucket number two is called its strategic partnerships both are starting to ramp up in this year. So if you look at the move up market.
If you look at the bookings for mid market enterprise over 60% off our office bookings came from came from that segment. We also announced a announced a 100000 seat win from out those and I will tell you that we have more deals up the site and the pipeline.
I know you know these large deals a is unpredictable, but customers are evaluating ringcentral or a works I'm anybody environment I will tell you that so that's sort of a bucket number one budget expansion more expansion up bucket and second to let's lump. These thing together in partnerships about 80, and the autos I mean the play there.
Expanding our reach to a broad PBX installed base, that's one international diversification in the second one.
And then nickel I asked about a the cost of acquisition. He does lower our cost of acquisition. So I think these are the two big long term layers of growth and you know the way we're thinking about this business Oh, that's up it's an organic distribution study you for us so going forward, we'll give you color on each and every partnership but it's going to be hard for me to break out.
Individual pieces the way I did for if you have this time.
[noise]. Thank you. Our next question comes from George Sutton.
With Craig Hallum. Please state your question.
Thank you I wanted to poke a little bit more at the international expansion opportunity as you're obviously working with a growing list of both strategic and channel partners around the world can you give us a sense of kind of where you are and what you see is the duration of growth opportunity. How are you plan to expand outside.
The U.S. either through these partners through your own traditional organic growth means I think that would be helpful to understand.
Oh, so good question I'll take that so the first vector is our strategic partnership that's fair autos.
And unified makes a big difference and extending our reach up internationally and we already see joint pipe building up in Europe, which traditionally has not been a hard you know a I'm pleased to be playing.
But you also have a red cells presence in UK, France in Australia, and you continue to do though that as well, but the primary vector of growth.
Right now will come from the partnerships.
Gotcha.
Curious you clearly on the distribution side with the I ptosis, an ATM teasing advisable World you have a distribution advantage I think what what we get challenged by clients on a lot is trying to explain the advance should you have from a product perspective than for years flats talked about out investing everyone.
Wondered if you could a in a world where everyone has a platform of integrated capabilities. How are you trying to define your unique competitive advantages on the product delivery side. Thanks.
[noise] lobby aren't taking.
So you don't want was not as I'm getting on so this is this is how I would put it up we look at this broadly for US you know first it is.
Different modes of message video phone the whole platform coming together you know phone is mission critical and just the level of enterprise feature that we are adding.
On the phone system is best in class.
The second as I look at it is elements like the work we are doing on security on on music experience of unified application is a major product differentiator for us.
Third thing I'd call out, it's just trust up the fact that we have been on Fivenine somewhat reliability and security standpoint.
For a few quarters now.
And it makes a massive differences and the fourth thing I would call out it's just the international footprint. The geographic footprint. We have very global office is available and books need to me is again, there's a huge and white mode around it. So all of these come together.
To meet a product clearly differentiated but on top of Todd you know what also looks you saw the ability to work with our partners to quickly create join products to quickly make sure that you can meet their security security requirements, which are very stringent.
As most of those things then finally come together as the icing on the key to make these partnerships. These distribution models was better than most.
Yeah, let me just add to that.
And you know I know you're going to set up it was just doubleclick Luke Firstly, we do believe but have a differentiated platform.
Message media phone a if you remember a georgia the others are for sometime I was saying well hey, the only other Ah provide they're out there.
With a similar Oh food encompassing vision, a if Microsoft.
It was the latest news the you know fried and today.
It seems that they would be de emphasizing the voice spark if we're just not what they're saying, but outside of that a you know the statements do holds so we do have a differentiated approach.
He was east modalities clearly we are the strongest owns the phone system side.
And that keeps on carrying today for us.
For a wins with they did she was a buyer was autos I'm just going in chronological order here.
There are a testament to that.
Do not underestimate our video efforts.
We know where and what is the lead now a yet.
But I can tell you we're working very hard to know to close on jobs. So it will be getting incrementally better and a you know will be a world class product and a you know our message you can speak with as well. So no that is it's far as long ways from being Commoditized.
But shoot wherever they get to this point you already said it you know a we do have the incentive distribution advantage and all things being equal we think it will you know I didn't know if we carried the day, but certainly will help but all things not being equal as no no.
Number or a from a they want these non haas and.
Until now.
Our biggest issue is access we win way more than the booze Ian It's got to had a you know a you'd have to CAD comparisons a or competes against the dollar field. So where we don't win is where were not.
At the table.
And people like 18, GE people that come by people that are those should make those cases, you know, although it's hard to define the what we're not even at the table and that's what we're banking on again, so far so good.
And the especially I think on another dimension, we have quite a bit of effort in specifically, making these partnerships to be much more turnkey much more streamlined and.
It also much deeper you know with migration tools, a with the you know custom endpoints support you know with or back office integrations or is it are also parts are those integration to scenario for example was the buyer.
So there was old war going on and we think it's to do that so yeah. We celebrated its about thank you did you.
Okay.
Ladies and gentlemen in order to get as many questions as we can during our remaining time, we ask that you did not ask a follow up question when you Q.
Our next question comes from Michael Ciaran with Wells Fargo. Please state your question.
Hey, there thanks good afternoon.
Yeah sure again, I referenced it multiple times showing strength across multiple key metrics you may our growth in SMB. It looks like it picked up a little steam here can you maybe talk through some of the key factors driving that uptick is that one surprised us a bit more and then that's some of the others here.
Yeah, I know I take the good observation that Michael Yes, we did see us trend and SMB as well this time, especially in new logos. A couple of things are happening under the Hood. If I were to a you know they could look like below for you our brand is resonating.
Oh, we're seeing strong evidence of E commerce and actually what's happening is we are spending less money in acquiring these new logos in marketing.
A combination of these two or three trend is actually helping our cat lower.
Oh.
LTV and but going forward I think the light bogey target is about 15% in the overall SMB space, but near term trends do indicate that we're seeing some steam in the south 70 columns.
Got it thank you.
Our next question comes from the mild summer with Jefferies. Please state your question.
Hi, good afternoon. Thank for taking my question. So you know I guess I just wanted to Bob an address partnership if you get you know you initially announced a partnership with them at the beginning of 2020 now this is a pretty significant expansion I'm curious, maybe what the proof points where in that six month period that may not want to extend the partnership and then yeah catch up do you think about.
That's 100000 lessee deal that in the pipeline are those following these partnerships that you guys have ramped on or or where does really already in the pipeline before.
Before the rapidly.
Thanks for taking my question.
Yeah called <unk>.
Right on.
No I can sense. The first part of the question and Oh, I Love Thankfully allocate the second Hoffman days [laughter] first topic just stuff. One you know the first a few months of the partnership the traction with the joint sales forces.
Ah be there a part of their digital what lease portfolio auto was and the message to their customers well is resonating hugely and then could happen and so immediately they saw the difference this could make a bike spending it across the unified piece as well so both of those the traction.
Also often portfolio and to get enterprise customers and then called me first came together. They this extension we make sense and that's how you know this is a I guess this happen, but they don't publish and the rest job here.
Yeah, Hey, some odd so I think in the second part is the it's at scale they get scale correct and yes, it's a mix actually we had some into pipe, they're getting more but this partnership. So I think it's it's starting to spendable virtuous circle for us here.
Thank you and next question comes from Willpower with Robert W. Baird. Please state your question.
Okay, great. Thanks, Yeah, I just wanted to come back to some of the earlier comments on contact center that being a key part of roughly 50% of your larger deals I just I wonder.
Generally if you could kind of characterize the demand you're seeing there and maybe just talk a little bit about you know the road map going forward to make sure you're positioned for that demand obviously, you've done a lot organically on the digital side, but do you need to do more and.
Bring more of the capabilities in house as opposed to partnering with in contact and others overtime.
Yeah, I won't say, it's a good question I mean, our partnership with Incontact remains you know as strong as it has ever been and obviously, we are investing in integrating engaged employees and engage digital strongly up our steel platform. So the product efforts some along.
As we have you all be shared with you guys, but as you look at the sales side, you know simple things like.
You know last year be scared arch capital and the you Cashman. There. So now you know we are basically seeing Dan you know not just deploying you catch on an accelerated basis, but then also picking up on you know needing to deploy a strong see cancellation. So that's where you know on Incontact partnership makes it.
Since because the integration the white quality of our steel platform that open capabilities.
All of it come together there you know are skeptical extended the ucas footprint.
To see cash you know that's why you saw that you know a large percentage of our large deals also then become contact center deals.
That's a key that's a key thing no going forward I think companies are looking at sea guests and you guys decisions and we feel good about you about please.
Okay. Thank you.
Our next question comes from matter Marshall with Morgan Stanley. Please state your question.
Great. Thanks.
Maybe just a question on how you're a common <unk> you noted that conditions have improved throughout the quarter, but I would guess at some of your customers are still little stress. So are you accommodating them with payment pauses or reducing seat count or you know as it causes any change to forward contract structures. Thanks.
Yeah.
Hey made that so yes, both our true we are accommodating so because I'm not seeing couple of things I think two trends friend number one is there the payment deferrals or we did see a customer's approaches and more in April and then subsiding and the May and June for payment defaults, so it'll be a comedy getting them and.
Then in the books, we've taken enough about appropriate reserves to cover for the exposure and the second part we are seeing actually the is an interesting one it's been counter intuitive we have seen one that you would expect that customers are not being as uptrend for annual Prepays. That's why you see some headwinds in deferred revenue, but in fact doesn't was upside.
For longer duration contracts, which doesn't bode well for the long term structure look wrote off you've got some you're seeing those streak trends and that's how we've accounted.
In the guidance.
Got it thanks.
You bet.
Our next question comes from Kash Rangan with Bank of America Merrill Lynch. Please state your question.
Hi, Thank you very much other comment congratulations I'm wondering if you guys have a perspective, how long term lifetime value, if a customer or subscriber will change as you have video how did that change their attention ARPU uptick et cetera, just high level thoughts there because you certainly agree to that you haven't.
Our unique proposition, which as I like them zoned and slack in the marketplace, but how does this play out in the business model Super long term. Thank you so much.
Yeah, Let me, let me take that cash it. Thanks for the surprise cameo segment. So Ah Ah if you look at the the way you didn't economic site. So it doesn't like to thing in my mind, one is churn.
And second is Upselling intervention.
Once we look at if you layer on your SEK two things one is video and the product and second is partnerships. So let's take video first or the product itself given that you're expanding a platform, but NBP. It does put in more barriers to exit and make our based stickier.
Which would be an inhibitor of churn so reduce churn, which would help the lifetime value. So that's that's part one part.
<unk> with the partnership's again lower cost of acquisition forget these customers and again because these are partners.
Incentivized to keep hang on to the customers that means less a chart and more upscale and retention so higher lifetime value. If you package. It altogether long term our sustainable economic margin are going to be trending up higher than they currently have because of these two long term trends.
Sure for as always thank you so much muscles, yeah, you bet.
Our next question comes from Rich Valera with Needham and company. Please state your question.
Thank you I'll, let me add my congrats on nice execution the color gentlemen.
Questions on 18 T sounds like momentum continues to build there, but last couple of quarters, you'd given fairly specific quarter over quarter gains that you were seeing there wondering if there's any color you can add on and how ATM t. bookings trended quarter over quarter and if there's anything you're willing to say about 80, M.T. perhaps transition.
And from a headwind, which I believe you said they were in 2019 and when they might become neutral or <unk> or a tailwind to your overall growth rate. Thank you.
Yes, Thanks, Rich I'll take that you're getting classic got you know again in Wall Street. He can give a metric once you got to be prepared for giving it every single time.
No I I will I will say, yes, we did see strong bookings in 80 M.D. again this quarter.
Right and that seller participation and asked do so both trends what do you saw last quarter. Good continue or we are seeing some fraction and up bucket as well. If he was supposed to be you know initially at SMB play, but now we're seeing some up upmarket there and as it relates to the overall guidance out you call. It dredge Oh overall.
All the growth because of the installed base still churning and our new bookings not quite offsetting that this for the year. It can't be is turning it turning to be unless somebody headwind. This year and I think it's going to start to dissipate.
2021.
Got it thanks potash.
You bet.
Thank you ladies and gentleman that concludes today's conference all parties may disconnect have a great. Thanks.
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