Q3 2020 RingCentral Inc Earnings Call
And one that's already Central's third quarter 2020 earnings conference call.
All participants are in a listen only mode and.
That's your so called <unk>.
Operator.
Please press Star zero on your telephone keypad. Please note. This conference is being Oh no.
What's your hope.
Well thank goodness.
Thank you you may begin.
Thank you good afternoon, and welcome to Ringcentrals third quarter 2014 earnings Conference call I'm, Ryan Goodman, Ringcentrals head of Investor Relations joining me today are.
I'd Shmunis founder Chairman and CEO and then that's one.
President and Chief operating Officer, and that's true Chief Financial Officer.
Our format today will include prepared remarks by blood.
Cash.
QNX some discussion and answers to your questions will contain forward looking statements, including our fourth quarter and full year 2020 financial outlook and our assumptions underlying that.
These statements are subject to risks and uncertainties actual results may differ materially.
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 impotent, given where our business is.
Hi, good by the COVID-19 pandemic the extent of its continued impact on our business will depend on several factors.
Quitting severity duration and extent the endemic as was the actions taken by governments businesses.
In response to the pandemic all of which continue to evolve.
Certain that this time.
Ringcentral assumes no obligation and does not intend to update or comment on forward looking statements made on this call.
Yes, otherwise indicated all measures that follow our non gap with year over year comparisons.
Reconciliation of all GAAP to non-GAAP.
Correct.
Provided with our earnings release and in the slide deck I encourage you to visit to visit our Investor Relations website at IR Dot Ringcentral Dot com the accessories released.
Slide deck, our GAAP to non-GAAP reconciliations periodic SEC reports, a webcast replay of todays call and to learn more about ringcentral.
For certain forward looking items.
Reconciliation of 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.
Let me turn the call over to lot.
Good afternoon, Thank you for George.
Our third quarter earnings conference call.
We hope all of your sales and in good health.
I would want to start to school with a warm welcome to our newest board member.
This mean young vibrant.
Mean, you on what the FCC Commissioner for nine years.
He was committed to closing the digital divide.
Right sure Federal appointment Describer served 11 years once the public Service Commission South Carolina.
No the ringcentral.
There's a special part of the global workforce continues to local we see the global communication solutions.
Regarding the core tenet off business continuity.
Ringcentral importance to our customers for their communication and collaboration needs continues to increase.
Leverage you expect the trends, we delivered a solid quarter.
We saw continued strong adoption over in central as our customers are going through the digital transformation journeys.
And the numbers are decoupled.
For Q3.
Total era grew 34% year over year to $1.2 billion.
Got to my mind sure David the level.
For with record new logo business up over 60% year over year.
Additionally, he pipeline expansion and macro related redemption.
Continue to stabilize.
And then the test will provide more details.
Underpinning these threats.
The Muskogee.
For a complete can you give us a solution that combines all major means in which people could you give.
Messaging video and phone.
We still do as EM VP.
Individually each mode messaging video and phone.
He's imports.
That's great.
Great should cause this to you, but the other thing is what makes ringcentral extend out.
In the enterprise cloud communication space.
Hey, centrally and maybe some forms transactional cold messages and meetings into persistent system of record and engagement for all enterprises external and internal communication needs.
And with that so elegantly and effectively.
As is evidenced by our recent took ignition from that but they just talked to you.
Yes.
We are proud and humble to cover one eight doubling the sweep Gold award easy do you have no.
Okay should still be great.
Do you double your Street Silver award for Best Visual appeal experienced and best visual appeal.
What's the beauty or use it if it is just the beginning.
Does the strength so far whirlpool one born in the cloud platform that enables us to win with five nights reliability World class Global coverage deep featured capabilities and an open platform.
Building on this strength Oh.
Oh innovation velocity continues to accelerate.
Well the video side last quarter, we released over 70, new and innovative features including additional security control waste your brands.
Bill still viewing mode you.
Imaging device switching network quality indicators.
And the dog model among.
Yes.
We continue to rapidly innovate, it's got the rich roadmap.
We also enhanced our open platform with fully integrated high volume that's I'm asking.
This enables our customers to use that bring central possible for SMS ordering notifications and appointment reminders without the need for third parties assumptions.
And importantly, we announced expansion of Ringcentral global office across six continents, and broaden out your platform presents to now include Germany with local.
Local data residency.
This will allow us to better serve large international customers.
Well that that's been a tailwind for us as legacy on premise solutions are now simply inaccessible mostly please.
Let's look ahead.
It's both Scorebig <unk>, we don't expect things to go all the way back to the way they were at the end of 2019.
Business is already blending sports hybrid world, where part of the workforce will continue to work from home for the foreseeable future.
Ringcentral is uniquely positioned to address this new world of war differentiated ecosystem.
Did you could you partnerships with major on premise system vendors as well as a number of leading global carriers.
Does that and we've got some exciting topic.
The honorable said with you shortly.
In conclusion, our business has never been stronger and we see Tailwinds continue.
Oh, well differentiated global secure reliable and B P platform and unique ecosystem of strategic relationships give us better I still do over how did the 80 million end users worldwide.
Or nearly half of the on premise PBX installed base.
The cloud is when you add to the central is when you get to go out and.
We believe the best is yet to come state.
Stay tuned for additional exciting announcements on both the technology and go to market funds with that I'd like to wish everyone a healthy as they've called the disease.
I will now turn to go over to our President and Chief operating officer on them that's what.
Thank you good afternoon, everyone.
Operationally.
Q3 was very strong quarter.
We are seeing strength across all customer segments.
We have strong momentum with new logo wins and Upsells.
Across our unified communications and customer engagement portfolio.
Let me begin with a few highlights.
Uh huh.
China continues to be acute.
<unk> good success.
Yeah, our increased 59% year over year.
$419 million.
Thank you.
Okay are your partners delivered stronger than that.
That exceeded our expectations.
All right well.
Oh strategic partnerships.
We're pleased with early [laughter].
The way a vial and offers a rapid.
On sales neighborhood and joint pipeline building.
I'd also like to warmly welcome Alcatel Lucent and price.
As a new strategic partner.
Or.
Our unified experience and leap he proved to be an important differentiator for our top customer wins.
Oh art.
TCV wins in Q3.
Roughly half.
Cited integrated video messaging and well.
She influencing factor in their decision to go with Ringcentral.
And.
We have seen great returns on our investments in innovation and geographic expansion.
Our open platform ecosystem and global reach was.
Position us to uniquely so the needs of large international companies.
Let me just dive into the details.
Plus gems.
Our strong presence in the channel community.
Right.
I would be comfortable mindshare at scale.
And.
Well it continues to grow at a record pace.
One example of a standout chat a little bit in Q3 is the cornerstone ondemand.
Oh, good veto if people development solutions.
Cornerstone needed to replace legacy on premise systems with the global Unified Communications.
Our high reliability.
Open platform and complete and B P solution.
Tomorrow.
[laughter] Lloyd exactly globally across 20 countries and we're 2500 users.
And Additionally, well why did then but significant savings.
Second our key cabinet.
I just had a strong quarter <unk>.
<unk>, new logos and Upsells.
Yes.
Partnership.
<unk> second product.
Products <unk>.
Cody contact center.
Or 80.
We continue to see strong performance.
New business up triple digit year over year led by expansion into that market.
This acceleration.
<unk> directors up.
That's true, but if you do you leave you cast solution late last year.
Based on this success.
Excited to share.
To date, Vietnam and expanded partnership with British Telecom.
Under the new agreement plus.
Oh, well provided by Ringcentral will be Oh lead you cats and seek out talk right.
Repeat business and public sector customers.
Oh, sorry pardon me.
[laughter] talked with a white.
We continued our is your rollout.
Right I think the moving parts.
Oh, no sales like patient adds.
Geographic coverage.
Over half or.
For Q3, if you do business.
[laughter] plus.
We are seeing.
If you like.
And we are pleased to see.
The largest easier wins in Q.
Hi, Todd.
Like I guess education.
With autos uniform office by Ringcentral was launched in August.
So after looking at countries, we are particularly pleased to see large scale or do you.
Including an eight figure TCV deal in the first month of launch.
And.
Hi, Sheila.
Choosing unify office by Ringcentral as its go forward solution start.
Starting with 30000 use Oh 20 countries.
Our partner ecosystem provides us with a unique go to market mode.
And our differentiated family.
Degree did you catch and see cancellations.
Loss in customer value.
A great example of an integrated you can speak has been what the hawkinson.
One of the nation's largest dental support organizations.
This long time ringcentral customer expanded.
And you can use us.
Added its first two.
200 contact center users in Q3.
By adding rigs or to contact center.
So we'll be able to.
End of <unk> and <unk>.
Oh patient calls from the contact center.
Their local offices.
We also have largely been or engage did you.
Right exactly.
You're too comfortable contact center platform.
No.
The French government organization.
I mean, just not snow has kept branches.
Importantly, see them is also planning to use ringcentral video or RCB.
Dock in conjunction with engaged difficult.
But for whites phenotype with an integrated platform to connect with policy holders and healthcare professionals.
Examples above and many others.
That's great importance of a global solution to our customers.
A big differentiator for Ringcentral Global office, which is now available in six continents.
It's well locally regulatory compliance and security.
This is key to a large cutesy.
No no software.
Since first part lifting ringcentral in 2019. This customer has expanded to 16000, you cats users and over 13 under contact center agents across 40 countries.
Along with building expansion and.
Another key initiative at Ringcentral is meeting the needs of key verticals, such as healthcare and education.
I've already mentioned and important in health care.
And let me know shed one and education.
In Q3, we secured a 6000 users.
The University of Tennessee Knoxville.
Our industry, leading unified NBP solution, and Mobilefirst platform, where all critical to meeting the needs of the University.
[laughter].
Integrations, we have developed the catlin, nothing but insisted that spot <unk> vertical market initiatives wasn't an important differentiator.
Well, maybe I'll talk about our unique distribution network global reach an extensive feature set.
It all starts with trust.
So what is the first principle a drink centric.
And then the garden bar.
Reliable secure trust strict communications are Paramount.
Yes.
Like Ringcentral solution.
Played an important part in how they go big contract pricing in the UK.
I'm incredibly proud of our accomplishments this quarter.
Yes, scaling the business effectively.
And discipline.
With a large market at an inflection point.
Rental flatbread technology platform and unique partnerships gives us confidence in our future.
And now for the financials I will turn the call over to our Chief Financial Officer British through.
Thanks, Don and good afternoon, everyone Q.
Q3 was a standout quarter on multiple fronts.
Yeah. He highlights first overall subscriptions revenue grew 33% year over year accelerating some 32% in Q2.
Non-GAAP operating margin of over 10% was up about a point year over year.
Non-GAAP operating cash flow margin of 15% expanded 350 basis points, Yeah, we are.
This speaks to our philosophy of profitable growth and demonstrates the leverage in our business model.
Sorry, yeah.
Yeah, Doug what our flagship you've got solution Ringcentral office grew 36% year over year to $1.1 billion.
And finally, Midmarket and enterprise customers had another strong quarter.
Yeah.
49% year over year to over 600 million.
Key drivers or.
These strong results include strong momentum.
With new logo wins and Upsells.
Stabilizing core related churn trends across the business and contributions from our strategic partnerships boding well for the long term growth and margin opportunity.
Turning to the enterprise momentum our business from new customers grew triple digits year over year, a significant acceleration.
In recent quarters gone.
Contact center is seeing a strong attach rate with our larger you got some buttons and is an important driver of growth.
Our structural shift up market is essential in fueling our continued land and expand strategy for years ahead.
Yes, good point, new bookings from existing customers accounted for over 40% a bucket bookings demonstrating growing mindshare within the base.
Along with strong new business. We also saw our overall corporate villain should stabilize at similar levels to Q2.
Better than we had contemplated in our guidance.
As to our partnerships. We are pleased to see early contributions from a vial and autos as well as strong results.
From our carrier partners, most notably from 80 empty.
As more users from these partners come on line throughout next year, we expect strong incremental contributions.
This will of course first shopping yeah, there are before meaningfully contributing to subscription revenue in ensuing quarters.
Momentum from Q3, continuing into Q4, and the building structural tailwinds give us confidence to deliver a strong finish to 2020.
As an early read Q4 is off to a good start with robust new logo momentum along with continued strong wind generation and a healthy coverage ratio.
With that we are raising our annual guidance what 2020.
We are increasing our subscription revenue growth to 31% up from 28% previously.
We expect other nonrecurring revenue growth offset a 12% reflecting customer engagement shift from desktop phones, ringcentral apps on laptop and mobile devices.
We are increasing our total revenue growth to 29% up from 26% to 27% previously.
We expect non-GAAP operating margin of 9%.
Okay.
Topping off a five inch.
We are increasing our non-GAAP, yes.
The 96 cents up from 92 to 94 cents previously.
In summary, yes, see multiple catalysts for our profitable growth to continue along Trump.
Macro indicators for churn and retention of stabilizing the forging long term relationship with Uh huh.
<unk>.
Our diversified go to market strategy is bearing fruit.
The important ones from a BYOD autos Indian Dallas are showing solid new business growth.
He didn't get farther doubling down with the Ringcentral and the lead offering.
Okay to lose an enterprise is on track to ship early next year.
Nice expansion remains to be unlocked, especially but they help our strategic partners.
Oh, so expect to hear about additional new initiatives on both the product and on the go to my good friend, that's further expand our already diversified growth vector.
Businesses are now shifting focus from stopped got fixed long term solutions.
Adequate platforms that enable what some anybody work forces that will persist and opposed pandemic environment.
And Ringcentral is at the forefront of the journey.
Yes indeed.
In the early innings there.
Story and.
And we are confident in our ability to thrive in this $50 billion plus you guys market.
With that let me turn the call to the operator QNX.
At this time, we'll be conducting a question and answer session. Like that's a question. Please press star one on your telephone keypad a confirmation. So indicate your line is in the question queue. You mean for star two if you would like to move your questions in the queue for participants using speaker equipment, and maybe not seemed to pick up your hits a couple of questions Sarkies one lucky.
We call for questions.
Our first question comes a lot of trade summit, which was please proceed with your question.
People that are not in the past.
Congrats on the quarter.
Maybe midsize first question for you just relates to you know the traction in the that's kinda programmatic approach moving up market, maybe a little bit more financial color in terms of the million dollar deals in the quarter.
And you know how are you thinking about fourth quarter in terms of exposure to large million dollar plus deals and then a follow up.
Sure sure Charlie.
Hi, I'm sorry.
Yes, so <unk> on how million dollar deals they're doing in Q3, and how Q4 is shaping up so let's start with Q3 first I'll catch up on it.
So for the million dollar deal in terms of the dimensions of the deals itself. So the average size of the deals and the duration. We saw an increase on both these dimensions sequentially.
That's one and the strength.
It was broad based in terms of where the deals came from so.
So 80% of these transactions.
Or new logos a.
Channel accounted for more than 60% of these deals.
And in these deals.
Half of these deals had contact center, an element of products into in them. So.
So across the board very broad trend.
Oh in terms of Q4 or how it's shaping up if.
If you look ahead.
Look the first month of Q4, we bought it it was up it's a fast start.
But oh, we booked about twice the number of million dollar deals.
Back to what we had in the first month of Q3.
And in terms of the deal size as well the total value of all these deals in the first month, it's up about four to five times more than the total value we booked in the first month of Q3. So all in all we're seeing good momentum continue into Q4, so overall I feel that this whole structural shift off.
For Ringcentral being it works from anywhere play is turning out to be a good catalyst for us.
That's great that's great color. Thank you and just a follow up I don't know if this is flat or not but.
Like if you just do the simple math, which I'm glad it's simple math I mean, youre several million plus users I don't know if you've given any update or would think about giving us an update but now you have access to 180 million users potentially be strategic partnerships.
Trying to understand kind of how captive of an audience that is what their propensity to stick with our existing partner and use the ringcentral powered product maybe versus going in a different direction, what kinda signals I know, it's early still but what kind of signals are you seeing around the sticky some of those relationships. Both partners have in order to kind of keep them as a customer as opposed to going to some other cloud.
Platform. Thank you congrats again.
Oh, that's a good question and.
Well take another question greetings, everyone here [laughter], so we feel pretty good about the stickiness across all partners. In fact, I would tell you what are the top three highlights for me in Q3.
One of the things I would have started with partners across [laughter] via Ucaas autos coffee and tea BT catalyst.
And we have seen a record go with our carrier partners on new customer acquisitions, you're seeing record growth on Upselling and we are seeing great momentum.
Across all fundamentals, but you know the beach pipeline, whether it be large deals whether it'd be our transactions quarter on quarter with a vial and arcos. So net effect my answer to your question is our fundamental stenosis, we feel pretty good about our strategic partner a carrier partners are taking us to the next level.
On a joint partnership.
Our next question comes the line up of onsite with William Blair. Please proceed with your question.
Hey, guys. Thanks for taking my question and let me Echo Terry Nice job there, let me start up maybe it maybe with with a contract to Terry's question, which was up market. Let me go the other direction because you had amazing up markets during.
[laughter] really fantastic, but if if I use them out to the market actually looked like it grew really really about really great strength in the SMB I guess, you're not actually be taught company, but that's just some color whats driving that both from a go to market perspective, and financially around the sort of the reacceleration, what I, what I gather in the SMB space.
Sure sure Bob Yes, we see strength across the board and yes, you're right SMB did go up and it showed an acceleration.
Again in the <unk> in the third quarter so.
To set the table compares were definitely easier from last year.
If you look at last year, and but that said.
Despite the compares a couple of things are happening under the Hood, sorry got touched upon there are four dimensions here. The first one is that we are seeing a very strong traction ecommerce.
That's one second does that mean lending, we have done and ringcentral, becoming a and name well off a walk from anywhere is taking off.
The third dimension is a contribution from <unk> <unk> <unk>.
And some of our other carrier partners and the fourth one is Ah churn macro trends are stabilizing. So all these things came together go for a perfect storm for SMB do I take golf now if you.
Good looking.
What it means is that it's a stronger motion in SMB.
With the lower CAC and it's highly profitable SMB business is now helping fuel the higher lifetime value market business. So it's starting to create a virtuous cycle more and more for us.
Yeah, Yeah, the churn number they these conditions huge it's it has you didn't I totally get that I've been here and my follow up maybe for another glad you touched on sort of you know some tailwinds from corner virus, but but you're not benefiting the way someone like a zoom is right. There is some better from work from home.
But it is these.
These sales that Ringcentral has as much more of a centralized sale you have to replace TB acceptably stuff, that's sitting at peoples facilities, and so I would think of the vaccine almost as a tailwind and more people are not going to go to work full time, that's sort of moved back the office to focus a more traditional initiatives would be a tailwind I think about that right or or.
You know it is that sort of not going to play I don't think I love to get sort of your thoughts on that idea that if people do start going up does maybe maybe starting about more traditional implementations and projects and ramping up these old phone system, that's going to benefit you in that trend vis-a-vis kobin, where where that people may have been reticent to do that just to understand how you guys and what you're seeing in the pipeline.
Yeah, let me take that on.
Let me take that maybe you can that you do not look fantastic question or just a very timely and Oh.
Oh, no Ringcentral ER grew nicely before Corbett ER.
We are growing nicely during called it before.
But to grow nicely Oh, the club it and.
Yes, it does the stage.
Look we are not I'm not pointing fingers at any Watson. Please don't take it that way, but we are not that flashes, Japan, you know God or you know.
Stalk golf, where you know the day you know just why didn't you know this one event.
Well not to work from home service, where a walk from any of our service.
When I went on the road or seven years ago. So he doesn't want mom.
For our IPO Road show that wasn't much is ER, which was walk from anywhere mobile Workforces global workforce it distributed workforces.
And major or Mega trend or a big Ti.
Widely available.
Affordable broadband.
And all of those are still in place or only more so and Ah. You know you can argue that with advent or some you know very near Jerome technological advances like five Jupiter example, for example doesn't mobility and broadband will get you.
Yet another shot in the arm so.
So and look at that level.
Ah you know what's good for the World. If people are essential we are here to so real problems.
And we are you know even as much as we called vaccine walks and we hope the world or we'll be opening up for sure it will be done.
Additional opportunities.
You know budgets will not all be hopefully, becoming a little bit more relaxed.
And you don't want I think we have clearly seen is that walk from anywhere really works, okay, and even a in our prepared remarks and see a the core believes that that even with the books you are hopefully just thought though.
Yeah, the occasion of this virus.
Many people.
Our more productive or walking from from home not being in the office. So definitely remain what do you mean, but to tell you what even those people who are in the office or call. It sub 3% three corporate world.
Hello, So they can go over cloud, we're still waiting for Ringcentral will still when you give the crowd or all or a core partnerships.
Well executed before Corbett and you know the underlying or the foundation is still here I would say even more so.
Still makes no sense.
To light up either on Prem system, or a hybrid system and again when you do see more and more of a side the reality that a little bit on the deal. It just makes no sense to do that with traditional legacy hardware.
I have to say ringcentral as the snow is uniquely positioned to penetrate into this core huguley mill that block I would say plus or four.
400 to maybe even a little bit more bipartisan middle that installed base or on Prem users because we do have a preferential access and this is what you get likely.
You know 218 million of those 400 or so so I think you called that out we feel pretty good about things I don't know if you want to add that simply because you.
You said it all.
Hi, guys I appreciate the color there, but thanks again.
Our next question comes a lot of Sterling Auty with JP Morgan. Please proceed with your question.
Yeah. Thanks, Hi, guys. Just one question from from my side, just wonder if you could qualitatively describe to US where are we in the ramp of contribution from the partnerships via a toss in Alcatel, Lucent, and where which quarter do you think we're at kind of.
Fully ramped full contribution getting the full benefit from all of those partnerships.
Yeah, I'll take that sterling or which quarter would be we are in the very very early innings, so ah, but FCO and it was even though we saw some good traction in the Q2 and Q3 and it's far I mean, it's really literally getting started and I don't think it's going to be any one call.
Order that will serve as an inflection point as such it's going to be more a flywheel that'll keep on going you know just link back to what Blatt said 480 million seats right now we are sitting or call. It roughly two and a half threemillion seats.
As a long journey ahead, and the way it's going to layer on light Sterling is going to start sport supposed to shopping they are and then over subsequent ensuing quarters it'll be ratably pick up the second in the subscription revenue. So it's going to be a multiyear compounding girl journey for us.
Got it thank you.
Our next question comes from a lot of Brian Peterson with Raymond James Please state your question.
Hi, gentlemen, congrats on a strong quarter or so so first one for me I know you guys said guy the 2021, but what we're going to get the question any high level thoughts on how you're thinking about next year.
Yeah, I'll take that sure Brian So yeah, we have not provided specific guidance for 2021, which as you know how we do it we provide it in the February quarter, Oh, we do have a lot of things to be excited about going forward for our durable growth. So I touched upon I would say 334 points for the first.
One on the customer front right. The relevancy of your guess is now front and center, we saw an increased customer mindshare with our new logos up over 60%.
I'm glad touched up on the go to market partnerships about a buyout and autos are ramping which I, which I mentioned the Sterling elite will ship next year and all our carrier partners are strengthening but 80 beat the Indian tell us. So that's 0.23rd one on international it's an opportunity at a plus that's just beginning to be unlocked.
Well the dollar mix just over 10% and on the ER and the fourth point I'd say on the on the tax front or our pace of innovation is continuing and then we are quickly becoming a one stop shop for all modes of tightly integrated communications.
And so overall I feel we feel very good about how we're going to end the year.
And setting that up for very good visibility into 2021.
That's good color thanks for catching it maybe one follow up obviously the <unk> results were really strong. This quarter you mentioned the BT expansion, yeah, as you're looking to expand into new markets. How should we think about the opportunity to potentially expand the carrier relationships going forward. Thank you.
That's a good question and I would say the expansion is twofold. One is there's an opportunity to expand with the relationships. We have today. It's just the TNT BT and tell us as you can see you'd already expanding across geographies and across portfolios or you know when they can't even BTM because so that's.
One victim, but you will see happens and the other Victor you will see happen is adding new logos as well and and that's going to be the road map of the journey that for us.
Great. Thank you.
Our next question comes the line of Michael Turner with Wells Fargo. Please proceed with your question.
Hey, there thanks and good afternoon.
You are showing acceleration here some of the partnerships you've struck with the likes of iron out to certainly grab the attention of the industry. Matusz you just answered a question there but is there anything else you're able to provide to help us understand how much those partnerships may have contributed to results here in the quarter and anything else, we should be thinking about going forward there as well there in term.
The timeline, whether it's added functionality or or expansion into new regions. That's that's yet to come.
Yeah, you know all of the above and.
And I wouldn't say look, but it's you know, they're very happy with the progress the way the business ramp right we saw.
ER positive momentum in the number of transactions with the customers. The seats, we won and more importantly, a michael in the in the pipeline, we're seeing right now.
That's part one and if he apart two one is you know is if you look at the up market deals or we had several oh bucket deals, including multiple million dollar TCV wins from all by itself. So that's on the bio autos is though I don't want to jinx it but we just shipped in Q3.
The product and right out of the gate, we had an eight figure deal in the first month of shipping so the promise of international expansion along with up market is happening for autos and look what what's happened is in terms of the acceleration. It was strength of course, if you're in autos, but it was really a strength across the board for all its from all our GTM Moshe.
I think as these partnerships.
Partnerships, along with Alcatel Lucent start to ramp next year, we'll be able to see a sustained a subscription revenue growth before for years to come back to you.
That's all clear, thanks, and nice job to the team.
Our next question comes a lot of George Sutton with Craig Hallum. Please state your question.
Thank you attached you mentioned that you are becoming more and more a one stop shop and I I wondered if you could.
Quantify that a little bit in the sense of a same customer growth number.
Yeah sure we saw a one stop shop being I was saying so I live in two dimensions. Let me answer your question, but so we saw very good natural tension Oh from all our customer base. It was very steady and churn stabilizing that's part one part two we're off to see George customers buying.
Multiple products from us.
In terms of the contact center, we saw in our million dollar TCV deals.
About 40, or 50% had an attach rate to contact center. So that's oh part.
Part two and in terms of I was just slink back a link to the technology part here what be what I meant that the one stop shop in the previous response as you know just from your gas to see gas because the customer experience to this newly launched a SMS programming I'll be habit C pass so and then the video poker product, which is ramping so.
That's what I meant by a one stop shop, where a cult like Salesforce dot com and doing for a customer journey.
Gotcha, so relative to be T. Obviously, that's been a relationship for a few years could you just give us a spin.
Specific sense of whats new with this relationship now.
Absolutely so with BP, what we have announced is that clubs look provided by being central which is our joint product.
It would be a lead you cats and the lead seek ethanol for.
For BT business and public sector. So one good doubling down on a partnership to begin expanding the scope of our partnership with contact center Threed, you're going significantly off market. So we are going across their market segments.
And so this is going to be a strong partnership for the next years to come.
Great. Thank you very much.
Our next question comes the line of Nikolay Beliov with Bank of America. Please go with your question.
Hi, My first question is for bulk lump them and on can you. Please comment on number one.
The Gration with Microsoft games is going and if Microsoft seems becoming effectively a go to market channel four affording central.
And secondly, what when the right or are you seeing against the phone and how often do it on his own falling in the marketplace.
Yeah No. It took her question so as far as Microsoft teams, Yes, I mean, we announced Oh.
Microsoft direct according to Microsoft teams last quarter. The pipeline is building solidly and we feel pretty bullish about our topic in into the Microsoft installed base because it does give them you know the access stamped strike for a best in class you know enterprise grade cloud phone system. So we feel pretty good about that.
Now, let me talk about zoom phone I'll I'll you know obviously, we don't you know not metrics as an omni abuses either not metrics you generally shared in the quarter, but I'll tell you. This.
Which is why I believe that we have expanded our ucas market shares in Q3. So that's the first thing really tell you. The second thing we tell you is a.
We have added substantially more seats than the numbers you've seen from xoom substantially more [noise] and and do you know doubleclick, what I will call it going.
Obviously, all that far exceeds our paid seats and our you know ARPU. It continues to be pretty sturdy yeah. At this point I'm very steady. So you know based on maybe are I mean, do you have a tech more which we feel good whitening every quarter on the phone you ever go to market mode.
You know, especially but don't have access to the 180 million plus each of the 400 million plus people and.
And use a long trend we feel our go to market more is pretty wide given ecosystem mode, but you know 5000 integrations and 50000 developers so metal sales, we feel we are extending the lead every quarter.
Thank you and my second question is for me Thats, especially if you can help us fully signed a few pieces or some of the metrics in this call to that together. So total you're already accelerated to 34% and 33% your capital <unk>, a robust pipeline business from new customers is up 60% enterprise.
Love Us up triple digits average deal sizes up to the large deals. The first month of Q4 is much better than the first month of Q3, So walk us getting the way of air are not continuing to accelerate into Q4 and next next year and is the expectation at this point based on 18 Degrave growing.
Michael digit than and all the partnerships, maybe can help us with the timing between pipeline, a ARR and subscription revenue and how they're going to progress over the next few quarters. Thank you.
Yeah sure you're packing a lot there so I would say this this nikolai structurally we are seeing a lot of just a lot of tailwinds.
Including the pipeline building and Q4 off to a good start Oh, we all days.
Our prudent in the way, we set our guidance and because you don't really know what do you don't know what could derail you, but from a overall fundamental point of view I think we are we feel really good about a wherever you are into the journey.
Go to transfer all these on Prem seats the club.
Got it thank you.
Yep.
Ladies and gentlemen, due to time the trace we ask that you limit yourself to one question.
Our next question comes the line of Samad Samana with Jefferies. Please proceed with your question.
Hi, good evening, Thanks for taking my questions I'm, sorry, Yeah, I had a company mentioned it that the NBP platform that you know 50% of million dollar plus deals that customer, citing the integrated suite I'm curious if you are what type of attach rates, you're seeing for Ringcentral video and if there's any notable call out.
On ARPU for customers that are attaching to full platform versus maybe ARPU a year ago. When when you didn't have your own video offering.
So the way we look at it is we do not sell the product unbundled B cell Ringcentral office. Mitch contains all modes of communication. So video is attached to 100% or you know I think black called out in his prepared remarks.
We didn't 60% growth in new customer acquisitions every one of them are basically comes with a message video and phone.
Just to maybe look our persistent collaboration so every one of them you know as we've had substantial growth in usage.
Quarter over quarter year over year.
Across both remotes, and that's probably what I would say our transition to diminish if he wants to make a comment on the ARPU.
No I think you said it right in the previous Ah Ah culinary on and that's somewhat ARPU has been holding very flat.
And steady so no call no trends to call out an ARPU, except the fact that despite all this competitive rhetoric you here Oh, we've been holding our own in terms of ARPU and itself you know, what we are able to demonstrate value with our customers.
But that's all the trucks.
That's good to hear and then maybe just a follow up on the SMS service a I think a lot of people are pretty excited about that I'm curious how should we should think about the the pricing model for that and and is that a preview for adding more C pass like features into the platform and just pushing forward. Thanks again for taking my questions.
[noise] Yeah. So you know end of the day for US. This is all about customer ask on you know what features within you know next and the high volume SMS launch I mean, it was a big deal because as you know I mean, when you get notifications from your dentist for an appointment reminder, it come some of your unknown number and so.
Essentially what this was the Mark was a huge customer us all using you know the ability to use their business identity to actually send an SMS.
And so it's tightly integrated into our application into our platform and you can expect us to actually have platform open ecosystem and integrations have been a key feature for what we do so you should expect us to go further down on this tied up in the near future.
Great Congrats on the really good results.
Our next question comes online of Middle Marshall with Morgan Stanley. Please proceed with your question.
Great. Thanks, I, just wanted to get a sense on and the sales cycles that you're seeing with some of the partnerships and whether they're.
Kind of similar similar times to what you would've seen normally and just you know how you judge how much of the new partnerships pipeline is kinda substitutional versus additive. Thanks.
Yeah, I mean, we all look at it is most often pipeline from the new partnerships decided if that was the entire reason why we are you know basically extending our customer reach through these partnerships.
Okay pipeline.
The pipeline the sales philosophy, we see in the close rates, we see from these new partnerships are all pretty much consistent with what we expected to see and what we see in our direct business and the work we do with the channel anyway. So it's fairly consistent.
And that's what is exciting about us based which is you are able to extend the reach to Ohio through our doors into new countries, new Jude geography, and new customer segments.
Great. Thanks.
Our next question comes the line of Taylor Mckenna with Deutsche Bank. Please proceed with your question.
Yeah, Hi, congrats on the quarter and thanks for taking my question. So it sounds like large deal activity is really strong so far in Fourq you yet when I look at the subscription revenue guide at the high end, it's only 28%, which is slightly higher than I guess, what we saw the last two quarters. So I understand it. It takes time for me to flow into revenue, but maybe can you talk.
Some of the assumptions embedded in the guide and how we should think about this activity falling into revenue over time and maybe on that I'm curious how much of the guidance driven by stabilizing macro trends persist starting to see some of these strategic partnerships or a large deal activity materialized into right now.
Hey, Taylor, it's it's a myth that I actually my line dropped off can you summarize your question again for me.
Yeah. It was just in your you talked a lot about in the beginning of the call about seeing good large deal activity in Fourq you yet the subscription guide is only slightly higher so at the high end, 20% and like the mid Twentys that we saw the last two quarters. So I'm just curious if can you maybe talk about like some of the assumptions embedded in the guide and how much that might be.
He stabilizing macro trends versus starting to see some of these strategic partnerships or large deal activity. Following the rabbit now.
Yeah, Rick on the under guidance, we always have taken a prudent stance on our guide. So this that's a quarter's guide is no different we are seeing tailwinds from all sides and macro is stabilizing so it's hard to for me to quantify exactly each and every assumption to be made there.
But needless to say that we feel really good about ending the quarter ending the year very strongly including Q4.
Got it thanks.
Our next question comes from the line of will power with Baird. Please state your question.
Okay, great. Thanks, Yeah, Oh, yeah. Congratulations on the strong results I kind of want to come back to the strong growth you're seeing from new customers up over 60% year over year seems like a really nice kind of leading indicator I just wanted to get little more color as to what you think you know what is driving that how much of that's the new partnerships.
Distribution broadly is Ur cobot pulling in there maybe just.
Little more color on the key drivers on new customer acceleration growth.
Yeah, and this just goes back to the previous question much like answered Oh.
Essentially the transition to the cloud.
Oh, it's been driven by one simple thing, which is the mobile under distributed workforce and so all good has done is its you know sort of shine a light on the limitations on you know on premise infrastructures. So no businesses are realizing that they need.
To basically get onto the the whole world from home transitioning to walk from anywhere which is what we've always talked about is here to stay and some businesses are realizing that they need to get going on a cloud communication solution. So why go but just sort of how to shine a light I think this is the structural Hello Mitch.
We will see for Ringcentral going forward and that's what is resulting in this extremely strong new customer acquisition.
Okay. Thank you.
Oh and next question comes the line or Brian Coombs with Rosenblatt Securities. Please proceed with your question.
I think the question on continued great progress there and go to market.
The question is do you have any concerns about oversaturation of these channels at all in terms of the way they compete and you know how do you get strategically aligned with channel partners that are trying to compete on a global basis. Thanks appreciate the comments.
My my cool answer to that is no because you should go back to what you know what you're doing in these partnerships you're converting the installed base to a cloud based communications platform, which has been central and so the first step is you know the installed base is installed base, which is different.
Interesting for each of these strategic partners, we have and you know given where the world is 10 to 11 12 million users on the cloud and 400 million plus on Prem I think you know you have a long runway before we probably will use the word like called Oversaturation.
This point in time, and then add the other records. All you know the carrier partners and then add our channel partners, which you know up my fish called out how you had a very strong channel partnerships are influenced the quarter to quarter growing 60%. So add to Johns Hopkins is about that sprint continues no I feel pretty good.
What about a long runway of continuing the momentum.
All right. Thank you.
Our next question comes the line of Alex Kurtz with Keybanc. Please proceed with your question.
Hi, This is George Chris on for Alex. Thanks for fitting me in here I know I know, it's still early days, but do you guys have any sense, an early read on Alcatel pipeline and if there are any implications for growth thing second half with 21. Thank you.
Oh, that's the first part of that and no. So what I would say is I think give them. The fish called this out in the script as well, which is our new business from existing customers, especially as you look enough market in Q3, it was 40% of the total market business.
And so so that should tell you the trends we are seeing and that is the opportunity the installed base as everyone basically creates a walk from anywhere solution for all of their employees.
Yeah and in terms of the Alcatel pipeline I think that's what your question was for second half of 21 look it takes about three to six months after the product a ship to ship to a far though for the partnership is start showing fruition. So think about eylea being another vector getting layered on.
In the second half at least on the Aero side, and then continuing momentum in.
22.
Really.
Got it thank you very much yeah.
Yep.
Our next question comes online of city Pentagon with Mizuho. Please proceed with your question.
Hi, Thanks for taking my question.
Mr spot right now you're seeing a huge opportunity for growth and you're investing in distribution capacity as well. So I want to ask you. How are you looking at balancing between growth and profitability going forward I mean, whats the framework, you're looking at in near term and long term.
Oh sure City and welcome to the debut Ringcentral called for you. So thanks for picking up coverage here.
Overall, it's been the same balance right its profitable growth for us and if you look at what that means in terms of the business model, our inherent recurring margins on deals or the overall business is north of 30%.
If you now layer on partnerships are like Alcatel EVIA autos, that's that's further expands.
Expands the operating margin profile of the company, because its higher cat or higher LTV at a lower CAC.
Sorry caused part you layer on is our own products like video, which <unk>, which will further help the gross margin profile Wendy Wendy all lending migrate our users to our own platform. So all the dimensions, but all in all will lead to as a steady state margin of 35% to 40% foreign central now what's happening is.
For example, SMB like now is at that is that that scale and we are reinvesting these dollars into.
The future of the business the future of growth. So overall it will be showing 40 to 50 basis points of operating margin expansion. That's the way we've been doing it for multiple years, but under the Hood, there's a lot more in profit dollars that's getting reinvested.
Yeah, that's correct and quick follow up on the international opportunity I think like now its single digit high single digit percent is broadly, but when do you think it'll be significant enough for you to call out in terms of like the contribution.
Yeah. So international is a key lever right. If you look at a business our size over a billion dollars usually the international mix is much higher this is an opportunity for us. So overall I think oh in the future in the next you know you're a couple of years, especially as our other partners ramp international mix was.
I can change right now, it's about 10% of our revenue and over time at the right point, we'll start calling out markers as we hit certain milestones.
That's great. Thank you with that Yep.
Yep.
Our next question comes the line of Rich Valera with Needham. Please proceed with your question.
Thank you. Thanks for squeezing me in here I'm, great progress on the channel obviously I had a question on your direct sales force first materially I think last quarter. You said you hadn't baked in any productivity gains into your into your forecast and I'm guessing since things are strong.
As strong as they were that maybe you saw some and secondly, just wanted to get your sense of the significance of of your direct sales force and how how much that's going to be scaling up going forward versus your channel initiatives and what that balance might be going forward. Thanks.
Yeah, So I'll take that and this is what I'd tell you again. These are not metrics, we specifically publish but as I look at the direct sales force, we had meaningful uptick on more sales fundamentals whether it is.
Sales velocity close rates, a sales rep productivity up and percent of reps, who actually are paying their quotas, we had meaningful uptick across you know all of them.
And the second thing I would say as it relates to your second question is I never look at it as direct worse is a partner because we.
We basically one of the things Mitch has made Ringcentral. The company. It is his harmony across all channels and you know and the reps work hand in hand with the other strategic partners and.
And so it's never works is it's always basically helping our partners accomplish their full potential stuff maybe look at it which is why you know these multiple routes to market all come together meaningfully without much conflict.
Our next question comes the line of patent Levine.
With Evercore ISI. Please proceed with your question.
Okay, great. Thanks for squeezing me in congrats on a great quarter. So when you're going after these bigger deals can you give us some idea how your customers are having to make decisions about maybe taking budget from other areas and giving it to you or where they're pulling it from I mean, obviously you know the environment. We're in at least 30, if somebody's back.
Because what kind of stay with us for some time and it clearly you're taking wallet share, but would love some color around that and the things together and correct for the quarter.
Absolutely. That's a great question I, you know I think the way I look at it as we engage with our customers. These this is what I see the first thing I see is business communications has become an extension priority is always important but with a pandemic and but the need to suddenly transition.
Your entire work flows can be in a mall and in this instance from home I.
I think many companies they caught off guard so business communications transitioning their on premise infrastructure to the cloud has bubbled up to be a number one number two number three priorities. That's the first thing and when that happens redeployment of resources and investments have to happen in line with this this has become a board gone.
Nation, not just an IP conversation that's the first thing I see the second thing I see is.
People are not just solving for today, which is everybody is remote people us now actually taking a step back and solving for where the puck is going which is very soon you know hopefully the pandemic will encourage people will come back to the office not in the same way, it's still beach people working remotely and people in the office so.
People are starting to solve for that which is where.
The persistence of communications, we've always talked about MVP message videophone coming together, that's the persistence of communications and collaborations.
But loves employee productivity to get to the next level, you're solving for that and so those are the two instances why we feel we are getting the traction we are as a company EBITDA customers.
Our next question comes the line of Jonathan Kees with Summit Redstone. Please state your question.
Great. Thanks for squeezing me in I, just wanted to ask you I guess more or the competitive environment I know, it's kind of touched on there and there is some.
References to a you are making do you have a greater market share in that that makes sense. Your your phrase is certainly substantially I agree with your peers or even against a flashing of handset peers, there or making always about their you cast solution I guess I wanted to get a double click on it further just.
See you know in terms your cloud peers.
Are you seeing the same ones are you seeing new entries what does your win rate likely against your cloud Pearson have you won against them.
In embedded cloud base versus the premise space and just more details on that thanks.
Yes, most of my question actually I could we see our vendor age uptick psyche ever more against the cloud peers as well and you know it goes back to two or three simple things, which is you know.
Enterprise grade matters. So we have been working to extend our enterprise feature depth.
Our geographic expansion and so those two things you no matter. The large that's one the second thing I would say, it's again I just talked about the persistence of a communication and collaboration with message video on almost coming together you know that matters and that's been important the third thing, which we haven't talked about much on this.
Paul It's a different situation with contact center. That's one more reason why we see better win rates.
You know again some of these costs are up here as an addition to the on premise vendors up.
The first thing I'd call out is the strength of the open platform and ecosystem 5000 integrations and up you know 50000 developers in our ecosystem and finally, you had one off if not the only company to basically continue our path of reliability and Fivenines I mean instantly standpoint, so bringing.
All of that together.
We feel that give only seeing an uptick and continued progress in up in rates.
Our next question comes in line of Matt Van Vliet with BTG. Please proceed with your question.
Hi, Thanks for taking my question I guess, just wanted to dig in a little bit in terms of what you guys are sales per market or for wallet share of your existing customers and you know the other 2020 cohort that you've signed this year starting up for kind of a larger project initially how upsells bad it gets reset and.
How much over your own C pass or I guess, that's not send video projects or do you feel like is helping your expand more into that that potential watch or [noise].
Yeah, no. It's a good question.
The first thing was always you know it's the full lifecycle right. It's the genius of the and you know so acquisition minus and that's you know one of the first things we shared with you the greater than 60% growth in new customer acquisitions.
Once you get new customers and creating value for them. So they actually then go to the next cycle, which is upsells and for US that's the beauty of our product portfolio upsell happens in many dimensions, there's upside to where the extending the footprint just for the same you've got solutions across their customers and that's why I say.
I had a number which is you know new business from existing customers. For example in the up market was almost 40% this quarter. So so that's that's great. The other factor is you know basically you cast customers Upselling and expanding further into C class customer experience and.
That's fair, we actually bringing everything from our partnership with Incontact do our own products engage boys and engage digital because we are able to trade all of them together to create a digital first contact center experience for the customers. So there's that as well and then thirdly. Obviously you know we are the progress we have made.
On all modes of communication message video and phone I mean video we launched 70 plus features up in just the last three months across a whole bunch of things from you know security to waiting rooms, and so on and so forth of the quantity and so so I think all of them are coming together to actually make this a meaningful mode as customer.
Must consider what you have right communications and collaboration platform needs to look like.
Great. Thank you.
Our final question comes from the line of Catharine Trebnick with Dougherty. Please proceed with your question.
Well. Thank you for sneaking me and my question is you said you didn't see much of a change in the sales cycle, but are you seeing a change in how things are procured, especially are more expansion I lines through E commerce sites more digital marketing, maybe driving the sales. Thanks.
Oh, absolutely that's a good question actually even on the sales cycle you know what I said was actually we see meaningful uptick across all the sales fundamentals you know our velocity is steady isn't there any acceleration.
You know pipe is meaningfully up an expanded from last year. So that's that's one side of it the other side of it is absolutely right Katrin, which as you know we saw an explosion on E. Commerce. This is what they should have put do.
And we've also seen an uptick oneq almost add you know going further up from a market segment standpoint, as well so companies are making quite good buying decisions and we also see engagement with lines of business as they think about what the right engagement platform needs to be Oh, well did employee.
So we are seeing you know digital channels increase in prominence we are seeing lines of business are increasing prominence as well and then finally, just seeing what nichols asking for how to make sure that we can actually help nonprofits engage differently. We can help you know hospitals and health care workers engage differently.
So that's the last thing you are seeing so across the board.
That's where we feel ringcentral is positioned so well to make a difference across verticals across these multiple channels.
And across all market segments.
Yes, the only thing I would add the only thing I would add to Kathryn do it on incentives I did not use the word explosion. He did but I guess Seo auvs and Ceos are entitled to use such words don't Cfos.
And with that this concludes todays question and answer session as well as today's conference call. You May now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
[music].