Q1 2022 RingCentral Inc Earnings Call
Good afternoon, and welcome to the ring Central first quarter 2022 earnings Conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to will Wong head of Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to ring Central its first quarter 2022 earnings Conference call I'm will Wong ring Central as head of Investor Relations. Joining me today are flagship munis, founder Chairman and CEO , Matt <unk>, President and Chief operating officer and by Bob I go all interim Chief Financial Officer.
Today will include prepared remarks by glass mountain and by Bob followed by Q&A.
I also have a slide presentation available on our Investor Relations website that will coincide with todays call, but you can find under the financial results section at IR doesn't ring central Dot com.
Some of our discussions and responses to your questions will contain forward looking statements, including our second quarter and full year 2022 financial outlook and our assumptions underlying that I work.
These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements and 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 brings central 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 are non-GAAP 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. Please visit our Investor Relations website to access our earnings release slide deck, our GAAP to non-GAAP reconciliations our periodic SEC reports a webcast replay of today's call and to learn more about ring central for certain forward looking guidance a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail.
And the slide deck posted on our Investor Relations website with that I'll turn the call over to Vlad.
Thanks will.
Good afternoon, everyone and thank you for joining our first quarter earnings conference call.
I want to start today's call by acknowledging the terrific event, taking place in Ukraine.
We're shocked to see that dreadful challenges facing the local people.
The situation unfolds.
As a company we are proud to support local relief and humanitarian efforts.
We are matching employee donations after $1 million and we've already made $850000 to date.
From a business perspective.
They're enabling free phone calls to Ukraine for all customers using our ring central services.
As you May know this and speaker both humanitarian crisis is very close to my heart.
He called for rapid and does this shocking disaster.
And we send our thoughts and prayers to the people affected.
With that I'd like to shift to our people and our business.
Sure.
I wanted to give a warm welcome to so I know, we bought wreck as our new Chief Financial Officer.
So in Italy will be starting full time later this month.
She joins us from HP enterprise, where she was CFO of H B East Communications Technology group as well as head of corporate development and Investor Relations for the entire company.
Donnelley is a seasoned executive and brings over 25 years of experience in the global technology media and telecommunications industries, including senior roles at Goldman Sachs Barclays Jefferies and others.
I'm also delighted to share that we're appointing our chief operating Officer Mall gets you back to the position of President and Chief operating Officer.
Mall has got a meaningful impact since he joined drink central including driving our strong Q1 performance.
Paul brings outstanding executive leadership, and a customer and people first approach.
In his neuro, mostly sensibilities will be expanded to include human resources and corporate strategy.
<unk> product sales marketing and customer experience.
I would also like to sincerely. Thank vivek agarwal for his valuable contributions to our company as interim CFO .
She is selfless dedication and outstanding leadership ensured that we did not miss a beat during the transition period.
Weber will partner with suddenly as we scale the company in the next stage of growth.
Now turning to our Q1 results.
We had a strong start to the year.
We delivered solid revenue growth and significantly expanded both operating and free cash flow margins clearly demonstrating the inherent benefits of our business model at scale.
Topline growth was very robust and we are well on track to achieve $2 billion in revenue this year.
In Q1.
Total revenue grew 33% to $468 million above the high end of our guidance of $455 million to $459 million.
Subscription revenue increased 35% year over year to $440 million up from 34% last year.
Total exit air or was one $9 billion.
35% year over year.
Mid market and enterprise era, which includes customers generating $25000 or more in air are increased 46% year over year to over $1 billion.
Notably operating margins expanded.
20 basis points to 10.4% significantly above our guidance of nine 2%.
This is a clear testament to the inherent profitability of our business, even as we continued to grow rapidly.
We had a good Q1.
So why are we weak let me give you a dip on the secret of our success.
He's built on C factors.
Trust innovation and partnerships.
Which comprised our core corporate values.
First trust.
I am proud to announce that we have now achieved 15 consecutive quarters of five nines uptime, which is the standard that most of our competitors can only aspire to.
And underpinning everything we do is our dedication to security and data privacy simply put we treat our customers data like our own way.
We also embed state of the art capabilities, such as and then encryption into our into our portfolio.
Our innovation strategy is focused on the customer we invest heavily into making our products easier to setup easy to use and easy to manage.
For businesses and partners alike.
Which is a key competitive advantage.
As to new capabilities in Q1, we introduced ring central Webinar beta.
The simplest seamlessly integrated webinar product available in the market today.
Also new is our AI based meetings insights can summarize a category defining feature that helps people catch up on meetings with short term summaries video highlights and hot links keywords.
Now onto partnerships.
We're fortunate to count names such as AT&T Avaya.
B T Deutsche Telekom, Mitel, Verizon Vodafone and many others as part of our valued partners and.
In Q1, we also added frontier.
It was more to come.
Our partnerships are accretive to our growth and profitability.
<unk> and Babe off we'll go deeper on this.
Looking forward, we see four global Mega trends that give us confidence in the long term prospects for our business. These are one the semantic of hybrid walk in the post Covid era, which in turn reinforces the need for cloud based communications platforms too.
Ongoing adoption of mobility by businesses worldwide.
It drives the need for solutions that enable the walk in any mode on any device from anywhere.
Three Microsoft teams is the enterprise, which creates a meaningful opportunity for well integrated enterprise grade Ucas and she gets solutions.
And four continued preference from CIO to evolve to cloud based unified communications and contact center as an integrated solution from a single provider.
More will expand on how each of these megatrends are a positive long term growth driver exploring central.
We have now delivered 35 straight quarters of strong performance driven by focused execution and we're excited to start 2022 with solid momentum.
With two seasoned leaders in more and suddenly now at the helm, we have the right management team and skill sets to drive the next stage of our growth there.
The market opportunity ahead of us is large and our innovation and go to market strengths are a key differentiator.
Looking ahead, we're firmly focused on durable revenue growth sustainable profitability and stronger cash flows.
With our leadership position in Ucas unique partnerships and most importantly, our great people and I'm very optimistic about the future for ring central.
With that let me canticle over to our President and Chief operating Officer, Mark got too bad.
Thank you Vlad first I'd also like to welcome suddenly I know she is going to be an amazing partner as we execute on our strategy of delivering sustainable growth and profitability with that let me give you more detail on our strong results as <unk> stated, we see four key megatrends that are long term growth.
Drivers for ring Central hybrid work adoption of mobility, Microsoft teams and CIO preference to evolve to cloud based unified communications and contact center from a single provider well, let me go deeper on each of these items and the key capabilities that differentiate ring central and allow us to.
A win.
First hybrid it's clearly here to stay a good example of ring central being a preferred solution for the hybrid world as well as a testament to the traction of our strategic partnerships is Suffolk County in New York State.
Suffolk County selected Avaya cloud office to connect more than 6000 employees across more than 200 locations and everywhere else that their employees happen to be on any given day. This digital transformation project consolidated numerous on premise phone systems across police departments.
And social services and community buildings onto a modern platform and it delivered significant ROI with the cost being approximately half of their legacy solution and more broadly as people are complementing their legacy phones with personal computers or mobile devices, we are seeing that they use.
A ring central on both desktop and mobile devices is outpacing our overall growth in a meaningful way a clear proof point that ring central is an enabler and a beneficiary of hybrid.
Second mobile across every vertical we are seeing customers selecting central for their entire workforce and why the industry, leading capabilities that we provide across all modalities, including wireless devices, whether they're being used in the office or on the go.
A great example of how increasing reliance on mobile phones is a growth driver for ring Central is SCM insurance services, Canada's largest independent claims management firm SCM needed a mobile centric solution that let them replace a disjointed network of regional legacy systems with a modern.
<unk> cloud based solution.
The key differentiated capability that they required with the ability to quickly spin up local numbers for any region or area affected by a disaster. This allowed scm's distributed workforce to reassure victims that they were getting help from someone close by also S. M S.
Using our native ring Central video service, both internally and to give their customers choice in how they want to communicate with SCM employees.
Third Microsoft teams, which we see as a significant incremental growth opportunity for ring central.
The large majority of teams customers or on E. One or E. Three licenses, which do not include any sort of phone or telephony service a key part of any business identity. This creates an immediate opportunity to complete the cloud communications suite by adding a well integrated ucas solution like ring.
Central and.
And as to the minority of teams customers, who have an E. Five license well first they still require an incremental calling plan to make calls outside of their company and even more importantly, they often need a richer feature set five nines reliability integrated contact center options larger geographical footprint all.
Things that bring central can offer let me give you two recent healthcare wins to illustrate this the first is a large dental services organization, who purchased embedded dialer integration across their 350 locations. Our win was based on our ability to deliver key incremental features such as <unk>.
Human assisted call routing multiline appearance on a single device and deep analytics, which allows the customer to gauge employee productivity.
The second is a large health care recruiting and staffing firm, who augment it teams were ring central due to the importance of five nines reliability, and our enterprise grade call queuing capabilities and integrated workforce management capabilities, the customer historically use a spreadsheet to track and dynamically map.
They're on call agents ring central was able to fully automate the process by creating custom call queues for each scheduling scenario in support of their nursing staff after hours.
The net here is that our team's revenue is up 500% year over year and with very healthy <unk>, we are going to be hosting an event in the near future to provide deeper insights into our emerging Microsoft teams practice. Please stay tuned for details.
And last but not least the fourth megatrend is integrated ucas and see cash.
This integration matters, because historically at least 60% of existing on Prem UC and Cc deployments were purchased from a single vendor ring Central is currently the only company offering a fully integrated solution, combining a market, leading ucas and a market leading sika.
And on a single Bill. Consequently, we are seeing continued growth in attach rates for contact center for our largest customers with the average deal size, increasing 34% year over year.
A great proof point is Ryder systems, a leading fortune 500 logistics and transportation company wider was an existing ring central N V. P customer, who recently expanded to add our contact center solution by using our integrated platform and its unified directory wider call center agents can easily transfer.
Calls to non contact center employees at any of their remote facilities and to do so with one click this and other integrated capabilities allowed rider to significantly reduce costs and training times as well as capture end to end performance metrics across their entire business.
Now building on these Megatrends I also wanted to give an update on our partnerships and channel.
First we had outstanding pipeline generation in the quarter up almost 50% quarter over quarter, including record sequential increases from our channel partners second on our strategic partners Mitel is ramping materially faster than originally expected and this is even before the full enablement of the mitel endpoints.
On ring central.
<unk> was up 30% quarter over quarter and showed progress across all customer segments and regions with inner national leading the way.
In international continues to be a meaningful opportunity for ring central with only 10% of our revenues coming from outside of North America in <unk>, We launched the first ring Central wholesale program for Europe to capitalize on this.
In closing my time at ring Central has only increased my conviction and confidence of our market our product portfolio and our team we have a world class product a large under penetrated market and a business model that is inherently profitable. We are now laser focused on driving both growth and.
<unk> margin expansion with discipline and operational excellence.
That I will now turn the call over to <unk> to cover the financials.
Thank you Paul and good afternoon Q.
Q1 was a solid start to the year all key metrics came in above the high end of guidance subscriptions.
<unk> revenue grew 35% year over year.
From 34% in Q1 of last year.
non-GAAP operating margin was 10, 4% an expansion of 120 basis points, putting us well above the rule of 40.
And we ended the quarter with $302 million of cash and generated non-GAAP free cash flow of $39 million.
This represented a free cash flow margin of eight 2%, reflecting a 170 basis points of margin increase year over year.
To summarize we delivered strong growth higher profitability and a corresponding increase in free cash flow generation.
We are committed to durable profitable growth as we captured this massive market opportunity.
Now let me provide you with the key underlying drivers of growth.
First upmarket traction.
Enterprise demand for our cloud based communications platform remains strong.
Enterprise customers defined as customers with $100000 or more of our increased 53% year over year to $790 million.
These customers account for over 40% of our business up five points from a year ago.
Second contact center.
Our unique offering of industry, leading ucas deeply integrated with industry, leading C gas continues to be a strong differentiator.
We're seeing bundled wins with both new and existing customers.
Contact Center is now 10% of our business and is accretive to our growth.
Third our strategic partnerships.
With Mitel still in very early innings of wire towards and Alcatel Lucent enterprise continue to ramp.
While we do not expect this to be a metric we consistently share. We do note that we achieved a milestone of approximately half a million seats across our strategic partnerships.
This is already a positive ROI on a lifetime value basis relative to our initial investments into the fourth three relationships.
As our strategic partnerships are ramping up we are now seeing that in many cases, our partners are working with the channel to deliver our services to customers.
In the spirit of better aligning our reported metrics with current market dynamics, we will be providing total EDA and segment metrics going forward.
Now, let's turn to our booth and profitability.
Overall, our <unk> remained stable quarter over quarter and year over ear in a north of $30.
And off note new customer acquisition or <unk> also remained steady in over $30.
This is driven by the value created by our industry, leading seamlessly integrated enterprise grade message video and phone and see cats, offering which is a competitive advantage that we expect the last well into the future.
Subscription gross margins were stable at 82%.
Operating margin expanded by 120 basis points to 10, 4% as we drove efficiencies through a wide range of initiatives across the company.
As demonstrated in Q1, the inherent leverage in our model allows us to invest in innovation and growth, while delivering sustainable margin and free cash flow expansion as we scale.
Further as the mix from strategic partners increases our profitability will continue to expand.
The unit economics from these partners are better than the company average as we can leverage that highly experienced sales forces marketing investments and installed customer basis.
This drives lower customer acquisition costs.
In addition, the upmarket focus and long standing customer relationships result, in lower churn and higher lifetime value.
These factors result in a higher LTV to CAC ratio.
Now turning to guidance for the full year 2022.
We are raising our subscription revenue growth outlook to 28% at the midpoint versus our prior outlook for growth of 27%.
We are maintaining total revenue growth of 25% to 26% year over year.
This factor has been an increasing demand for our mobile and soft phone applications, while accounting for shifts in demand for legacy desk phones.
We are raising our non-GAAP operating margin outlook to 11.5%.
Which represents a 130 basis points of year over year growth.
This represents a more than three times increase from our prior outlook.
And we are increasing our non-GAAP EPS outlook $2 83 to $1 87.
Up from our prior outlook of $1 69, $2 72.
In summary, we had a strong quarter and are focused on durable profitable growth along with driving operating and free cash flow margin expansion. Looking ahead, we have multiple incremental growth drivers and margin levers and we believe that we will scale to become a multibillion dollar company EBIT.
<unk> growth.
On a personal note I would like to thank blood and the board for the incredible opportunity to serve as interim CFO over the last six months.
It has been.
And immensely fulfilling and rewarding experience and I look forward to partnering with more internally to scale the company to the next level.
With that let's open the call for Q&A.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Our first question comes from Kash Rangan with Goldman Sachs.
Please go ahead.
Very much gladden mocha, congratulations on a fantastic start to the year.
Well I couldn't help but notice that you talked about the mega trends and one of the trends with Microsoft.
And I wanted to just.
Get behind that a little bit more do you see this as a trend whereby Microsoft customers that have purchased the E. One bundle or.
Are increasingly looking to a specialist provider like ring central to augment their capabilities and I also wanted to.
Understand.
I think you've taught in eye-popping number 400 or 500% growth in your Microsoft.
Practice can you just elaborate that a little bit then besides that it was great to see that the ARPA trends are very stable I think there was a fear that that that is going south but you certainly did a good job of talking about the stability there and one for flat of course, you're not going to be forgotten. What the changes are tremendous changes in the management team you've brought onboard some really.
<unk> executives from outside the company how do you think it's all going to gel together.
From a go to market finance strategies to them what are the changes.
We should be expecting or you should be you should be expecting from your new management team. Thank you so much.
Alright, well Hey, Jess.
So yes.
Yes, I guess I'll take the second question since you addressed it to me.
Well.
Look.
Uh huh.
You know, it's hard to predict the future, but I would say so far so good.
Mo joining in January as you know there were quite a few concerns.
With some of the turbulence was experienced in Q4 and as you can see and I should say as advertised so far so good.
Fantastic quarter.
Mo.
<unk> had a lot to do with it.
You see the numbers.
For themselves.
And.
Certainly his.
Recent promotion to president is well deserved even if we just were to limit it.
To do the numbers, but what you don't see is all of the work.
Sure.
Which is under the surface.
The next layer of management that he is bringing in.
Talent, we're adding.
I can tell you now with <unk>.
Virtually 100% confidence.
Why virtually because.
Is never.
We didn't know for sure.
MACRA metals for example, Bob.
With that aside we will emerge.
Stronger.
From.
All of the events of last year with a more experienced management team very importantly, a better aligned management team and specifically.
What.
Both small and some of the Lee will talk about that.
Was it both bring in is tremendous amount of discipline and a culture of discipline and the culture all through profitable growth.
$2 billion company like we are huge.
Absolutely be delivering tangible results.
And what you are seeing.
Our results and.
<unk>.
Raised profitability outlook and.
Record free cash flow generation.
This is.
We expect this to be systemic and both small and suddenly.
I believe are fully aligned with that and we will.
We'll implement.
Again as <unk>, new CFO will firstly my understanding is that <unk>.
Maybe many of you should have.
<unk> is about.
In particular as you did.
So the nice thing with Goldman so.
<unk> been getting some congratulatory notes from some of your co-workers there.
So you couldn't be more excited and she'll be joining later this month.
I can tell you that our entire management team.
Both.
The finance or with very importantly, entire org in Dallas to 60, if you will.
Was deeply involved.
In the sourcing and interview process.
Suddenly.
Was are unanimous.
Winner.
I understand she also has options so.
You now have converged here, so couldnt be more excited than the Mark IV and.
You know.
It's a new beginning for in central.
With the little.
Caveat the size that it is a $2 billion business run rate certainly.
Less profitable and still.
Very strong growth. So I think we're in a good spot Hey, you know what since I'm on the road here, Let me take a quick stab at your team's question as well Mark and Ed.
But luke.
As I think most of us realize.
It seems as a great product certainly has good traction, especially enterprise they simply do not have a.
Viable competitive PBF in the cloud component.
It's completely missing by you know.
Packaging is just missing from E one and E C.
And you need to pay.
<unk> was $18.
To get a.
As an add on.
To get really a much.
Weaker version there is a reason they started calling it Microsoft fall again, maybe because it's not really quieter for Bbs.
And with EFI.
Hello.
Absolutely.
Having success with <unk> customers, who realize limitations.
Of what Microsoft has to offer and please don't forget that.
Even with the features aside and features are not aside they simply don't have all of the gen boxes.
Chuck but you have the situation to where you don't have the <unk> availability is at best three nines, and it's not even being a solid three nine because the SLA everything but the telephony portion. So that's one.
We have a vastly vastly.
<unk>.
Expanded geographical coverage area more which is look the data. So many countries 12 additional countries okay.
Which matters if you if you happen to be in one of those 12 countries then the the.
The other thing is simply not a.
North viable and also remember even 45, it's still mostly you still need to have an underlying carrier, okay, which you need to pay for again, you don't get the countries in any case.
But very importantly, you don't have a single throat to choke.
PBX in the cloud or.
Enterprise Communications, it's about reliability and is about.
You know low drama. So if you have a poor quality coal.
Unless there is an end to end vendor likelihood central.
Or are you going to complain to either Microsoft's issue is it.
You know.
Verizon or AT&T or issues with somebody you know.
So again this is why we're saying that.
Teams.
It's not a full is a channel.
I think we mentioned we have.
We've got tremendous growth, it's a meaningful size business. Even now we will eventually be disclosing the number but for competitive reasons. Let's just say this is one of our stronger growth drivers at this point and what we set out to do was simply to provide the world's best teams integration, which at this.
We already have between direct routing.
Embedded dialer, we really are the only sizable vendor to support both that opens up tremendous amount of opportunities for us.
Some of our competitors.
Quoted their teams penetration I can tell you that were at least towards that already okay. So a lot of juice up there.
Vlad I think you hit all of it in cash if you have any follow ups has a chat with you later why don't we move on to the next question is good yes sure. Thanks, so much.
The next question is from Terry Tillman with Truest. Please go ahead.
Yes, Congrats from me as well I'm glad you certainly are on a row.
Crushed it with those answers there. Thank you.
And high metal and they Bob and congrats to suddenly just two quick questions I guess first for your model.
<unk> had more time under your belt here at the company and there's probably always going to be some low hanging fruit areas on the go to market or operational excellence.
Side that you cannot make an effect quickly. So anything you could touch on in terms of where you've been able to have an early impact and then the second part of that question is.
The market's been rough obviously for software for the shares are a three time sales on 'twenty three and what do you think is most misunderstood about the story and then I had just a quick follow up purvey, Bob on office. They are thank you.
Very good Sir so let me jump in and say two things that I'm quite proud of relative to the first quarter. The first one as we articulated we saw a record increase in pipe from the channel and any time, we're seeing it coming from the channel. It's illustrative of just the.
<unk> power of the product that we're providing and customer demand being strong and so you can imagine behind the scenes. There was a lot of really good operational work by our sales and channels teams to go drive that and really enjoyed seeing that underlies. The second one is obviously the 120 basis points of margin expansion.
And that we saw in the quarter and how we've raised our guidance for the year relative to that and it really boiled down to the way we accomplish that was driving efficiencies across three key areas that are representative of the whole organization. One is how do we think about our people our hiring our head count.
Second one is how do we think about our program spend and then the third one is how are we managing our supply chain and vendor ecosystem and clearly as we're lifting the guidance for the year that should give you confidence about how we're thinking about the sustainability of this and really building on the points that <unk> made as well.
And then I think you had a second question for <unk>.
Well it was the tough question. There was just what do you think is most misunderstood given the stock is where its trading at such a low multiple compared to growth.
Again tough question, but I'm curious how you would respond.
Well you know.
Part of today is getting your questions that I think flushing that out, but look I think that what's happening with teams is a huge part of that in terms of.
Is that a revenue opportunity for us or is this.
Our company and a product that is going to come in and essentially.
When a lot of the legacy PBX seats that were going after and the heart of it as Vlad articulated is it is a 100% a vector of growth for us we're seeing it as a route to market for us to go win alongside and into teams customers and 500% growth that we've seen.
<unk> is a huge part of it and then frankly the other key piece that I think is misunderstood by the market and this is a big one is <unk> cash made reference to it a little bit ago, and we included a slide in the deck baseball is fairly explicitly hit it but are of who is over $30. It has been.
Stable across our base of customers quarter over quarter year over year and arguably most importantly, our new acquisition <unk>, So new customers that we're selling to in the quarter that <unk> is also above us III and stable year over year and quarter.
Over quarter those are kind of the two biggest questions that I, most often that Terry and how I would respond to it.
That's wonderful. Thank you and then just real quick here for Bob in terms of seasonality of office. There are for the rest of the year anything we should think about the seasonality of this business at this point given all the things you have going on or should that kind of ramp higher the net new <unk> you add each quarter as we progress through the year. Thank you.
Yeah, Thanks, Terry for the question.
Look we don't specifically guide to office that are what I would tell you is that we had a really good bookings quarter, we generated about $100 million of booking.
Yeah that is growing kind of in the mid 30, which is very very healthy. We did have some effects of the U S dollar strengthening during the quarter about a point or two but overall demand environment.
God.
Pipeline remains healthy as we get into Q2, so overall feel very good about.
RBR and what we've guided in terms of revenue and operating margins.
Hey, Terry its wonderful congrats.
Yes.
Yeah.
You know what let me just add a few words here I think.
You know the rest of the folks on the call my friend as useful as well because he is the fantastic question about was misunderstood.
Kids is down on the side.
What do you think at a high level.
There are two things that people.
Maybe maybe the pledge realized so.
Related basics.
Basically it okay hey.
You have your competitors and they are larger Microsoft zoom like that and you look at their phone or cloud PBX project is lower than yours. Your prices are not going to hold.
And this policy and that is not <unk> into our package. If you look at the entire package offering.
Zero.
It's very much similar to the price.
With that aside.
The very fabulist of five nines fully featured.
Partner ready.
Global PBX in the cloud.
With tons of integrations in terms of reference cases.
And the others do not and this is why we keep on at least holding our own there and keep posting this very nice growth numbers.
Without you.
Eroding our pools, because again on apples to apples basis, our pricing is quite competitive certainly when you compare to any of the larger companies and the second one is just a little bit related as well is people tend to forget that we are not.
What we call an MVP message video phone not just in message video phone, but we're message video phone plus contact Center company. Okay. We still today have the only the world's only integration between.
Gartner MQ, leading ucas and Gartner MQ reagent Zika.
Available from a single vendor on a single invoice it simply does not exist elsewhere.
And it's.
It's no secret.
Our high end contact center is done in partnership with nice encounter.
But there is tons of IP from both sides at Windsor.
It's northern integrations.
Is it to replicate in this case and point it has not been replicated there is no one else none of our competitors can do.
And nonetheless in context as well okay. So there is real.
<unk> Energia, which is there and this is worth less us continue winning in enterprises, frankly of all sizes, including some very large ones because we are able to offer a differentiated fully functional solution.
Frankly, it's fairly reasonable prices and again, if you look on the blended basis I think we mentioned when our shares it's our blended our pool.
It's still over $30.
Our via.
Our goal is saying.
Our.
New acquisitions are probably saying this thing that what we're hoping is that now with these additional disclosures that people will feel let's call. It incrementally.
That was more comfortable with our ability to stay at this level and continue growing business level without without losing profitability or margin.
That's great. Thank you very much.
Ladies and gentlemen in the interest of time and in order to get to as many of you as possible. Please limit yourselves to one question each and the next question is from Brian Peterson with Raymond James. Please go ahead.
Thanks for taking the question. So I wanted to follow up on Terry's question on IRR as you guys become more enterprise focused I know that that's growing faster than the rest of the average.
The bookings growth outpace AOR growth and so like maybe we shouldnt look at those metrics and at the same things I know not everything is implemented or an IRR to start but I just wanted to make sure I understood kind of the difference between what bookings is what are our has trended during the quarter.
Yes, so thanks for the question Brian .
So air is growing in the mid thirties, and look as we grow and mature as a company <unk> is the metric that we kind of look at internally and we are continuing to add bookings quarter on quarter. So like I mentioned we.
<unk> had $100 million booking quarter, which was pretty strong.
Growing in the mid <unk> and that's what is going to continue to layer on fraud.
As we grow as a company.
More than anything the only thing I'd add to that of course, I think all of US have hit on this as you know at the same time of delivering about $100 million of bookings, we had a very healthy margin.
We're getting the scale, we're ensuring that we're balancing both our revenue and our profitability, which is why you're seeing US guide the way we are guiding on both.
The next question is from some odd Samana with Jefferies. Please go ahead.
Hi, good afternoon, and thanks for taking my question. So I just wanted to ask maybe on the subscription revenue guidance by Bob.
Think about that.
<unk> versus management's guidance the revised guidance, it's actually slightly.
That's where all the full beat sports I'm, just curious if there's something different in the in the guidance methodology or if that's just conservatism with more macro uncertainty.
How should we think about putting that guidance.
Yeah. Thank you so much for the question. So on subs, we did from our full year guidance perspective, we did flow and the beat from Q1.
And the rates from Q2 on the subscription revenue side.
We did have with with the dollar strengthening we did have some FX impacts that are flowing through the subscription revenue line it's around.
Call it between five and $10 million, so that that's something that we factored in into the guidance.
The next question is from meta Marshall with Morgan Stanley . Please go ahead.
Great.
Wanted to dive into the kind of increase you had noted on the channel partnerships.
You know, noting 30% quarter on quarter ramp it up by 50% and channel do you think that that is just the maturing of those relationships or were there any kind of particular efforts over the last kind of six months to kind of drive that that uptick.
Hello, There mirror what I'll tell you is we've got marketing and sales plans with our partners each of them to capture both of those customers that have issued rfps I'll call. It the organic growth.
As well as <unk>.
Programs that are designed to actively go and put our message in front of customers that may have not yet made the decision to move to the cloud and as you pointed out.
Strong increase quarter over quarter with Avaya I'm, particularly pleased with the ramp that we're seeing from mitel, and it's that confidence thats, allowing us to come out and also start disclosing where we're at in terms of the seats from the partnerships and look at the heart of these partnerships.
As we did them for three key reasons right between them they account for over $200 million legacy PBX.
PBX seats. This there's just a huge base out there and we know that these are customers that are going to need the products that we have second the structure of the deals and they both hit on this means that the unit economics are accretive to our overall company economics and then the third one is really about being able to leverage our.
Partners experienced sales and marketing teams and their long standing company relationships that they have with these customers. We know that theyre continuing to drive adoption over time, and we're going to give you periodic updates on how those partnerships are going and the number of seats that they are throwing off.
The next question is from Matt Stotler with William Blair. Please go ahead.
Oh, hi, everybody. Thanks for taking the question I think I'll just ask a follow up on Microsoft maybe a little bit more pointed.
We saw this morning that Avaya announced that they were expanding their relationship with Microsoft There are co selling relationship. So not just include contact center, but also the entire one cloud portfolio. So I wanted to.
See what you can share in terms of confirmation that that includes.
Co selling relationship for Avaya cloud office, what that implies for that product the opportunity there and then any thoughts on the potential for an expanded.
Go to market relationship with Microsoft in the future.
We certainly can't comment on other company's announcements have to direct questions on that back in.
Microsoft.
What I will tell you is that.
As we articulated a little bit earlier, we're continuing to see increases quarter over quarter at our own relationship with Avaya. That's on both a seat and a new revenue bookings basis and.
At the heart of it I think it boils down to they've got a lot of legacy PBX customers that's outside of the C caps.
Section of their business, which is I think where they focused on this morning that need a solution to move to the cloud and that's where our partnership with Avaya is currently focused.
Yeah.
The next question is okay I'm sorry.
Im sorry, I was going to say and obviously can't speculate on any future.
Partnerships or other go to market or relationships with with Microsoft either but we're very excited about the <unk> team's practice that we talked about quite a bit earlier, so I won't repeat myself.
The next question is from Matthew <unk> with Deutsche Bank. Please go ahead.
Hey, guys. Thank you for taking the question.
Can you talk about how churn trended across cohorts between small and mid size business and enterprise. Thanks.
Sure.
Yes, the overall churn Matt <unk>.
200, and line and was stable quarter over quarter year over year.
And that was true across the segment as well.
So no material kind of trends to kind of outline I think from a net retention standpoint.
You know when you look at the cohorts every subsequent cohort has been better than the previous one.
When we look at the 2021 cohort as an example.
Net retention is call it north of 150%, so healthy net retention trends there.
Okay.
The next question is from George Sutton with Craig Hallum. Please go ahead.
Thank you using frontier as a proxy how many frontier is how many might tells remain out there from your perspective with relatively untapped customer sets.
Thanks for the question. This is Bob I'll take that one what I will tell you is first we're excited to welcome frontier is our latest global service provider partner in the quarter and broadly we're seeing strong seat in revenue growth from our Gsp's those service providers.
These are relationships that are going to continue to unlock new sales addressable markets for us for the foreseeable future to get to the heart of your question Here's the way I have.
Do you think about it last year, we ended the year with 12 contracted relationships with GSP and of that 12, only three of them were producing meaningful revenue because of the cycle between when you do the contracts you go and you actually build the product together you integrate their products.
And then you enable your sellers and they go off into the market. So 12 contracted three producing revenue we're expecting at the end of this year that we're going to have about 18 contracted relationships. So six more and of that nine are going to be producing meaningful revenue. The net here is that the.
New revenue producing gsp's are going to continue to grow both this year as well as next year and then we can talk about 24 at a later point in time.
The next question is from Taylor <unk> with UBS. Please go ahead.
Hi, Thanks, so much for taking my question.
That's on operating margin and the guidance raise there.
You look at Q1, it looks like most of the leverage was coming from the R&D.
G&A line in terms of leverage so I guess, when we think about the raise for the full year and I know you had some commentary earlier on that can you just talk about like.
We're where we should see most of that increase coming from it and how to think about that in relation to the model.
You cannot so great question. Thanks for asking it what I will tell you is that R&D G&A and sales and marketing all actually saw improvements in the quarter relative to those three areas that we focused on on the SLM side, we were able to take some of those savings in <unk>.
<unk> invested as part of driving broader awareness of ring central in the marketplace.
We know that our win rates are quite strong in the industry and as more and more businesses to become aware of ring central with that same win rates. It will drive more organic revenue growth into the future and so that's what happened there and then as you think about the rest of the Europe same general dynamic.
This is not about being focused on any one line item of the P&L. It's about those three key areas that we're focused on which is how do we think about discipline and operational excellence as we look at hiring in our head count how do we think about our program spend and where can we drive efficiencies and then third.
How do we continue to go rationalize our supply chain and vendor ecosystem and drive savings there they've all been anything you want to add.
No I think you've covered it thank you.
The next question is from Peter Levine with Evercore. Please go ahead.
Great. Thank you for taking my question.
I guess you addressed it on the prepared remarks, but can you walk us through or quantify what the incremental margin contribution looks like on a partner deal led deal versus direct.
And then kind of as we think about the model longer term in terms of profitability.
Do you think that leverage comes from.
Okay.
Yes. Thank you for the question so.
So I think the way to think about the various go to market motions is as follows.
When we book a deal through our direct the Costa book has the highest because we are paying for the lead Gen and for our sales force. So we are paying kind of end to win for getting the sale as we utilize our channel partners. We are only paying for wind and adds the partner strategic partner led motion take share.
It's even more accretive on two fronts.
One is in terms of the upfront cost to book, we are able to leverage the sales forces of our partners and their marketing motions. So we get efficiencies there and that results in a lower cost to book.
And then on the other hand because of these partners that have had long standing relationships with these customers and they are incentivized for the customers to stay on the platform.
Churn is lower and it drives higher lifetime values. So when you kind of put the sum of the parts together the LTV to CAC ratios are improved mentally better.
On the direct on the partner led motion when compared to the overall.
The next question is from Michael <unk> with Wells Fargo. Please go ahead.
Yes.
Hey, guys. This is Austin Williams on for Michael Thanks.
Thanks for taking my question I, just wanted to touch on the key contributions from partners.
How should we think about the mix of those 500000 seats from from Mitel versus the.
The three days and as a follow up is there any color you can provide on how those GSP partners how bad it was account in the context of those as well.
Okay. So the seat count that <unk> articulated earlier Austin actually excludes mitel. So it's only from the first three relationships.
So I think that answers the first part of your question and then on the GSP side. We've we don't disclose the number of seats that we get from those relationships.
But I guide you back to my earlier comments, which is.
What I love about the GSP relationships is that they are stacking over time and as they come on board and actively start producing revenue I think of that as incremental growth that we have line of sight into not just for the rest of this year, but 'twenty three as a minimum as well thanks for the question.
The last question will be from Alex Zukin with Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the question I just wanted to get a better understanding I'm doing the calculation on the IRR.
I'm trying to get a just a sense of diluted net new IRR added.
It's down on a year over year basis versus Q1 of last year is that I think to someone else's question is that just delayed recognition is that currency is that something.
Something in the business, we should be mindful of and not on a gross margin standpoint can you just maybe comment on if I look at GAAP gross margins they were pretty significantly down sequentially again, if you could just comment on kind of where that stabilizes and what's what's the driver there.
Okay.
Good Alex I'll take the first half and then hand, it off to Bob Bob.
I'll come back to what I articulated a little bit ago, which is a good bookings quarter about $100 million. If you look at the last X number of years of our business Q1 is almost always the seasonally lowest quarter of the year and really as we think about how we're managing the business it's about.
Both driving that top line revenue growth in new bookings as well as ensuring that we're doing it in a very disciplined and profitable way and.
That's where management's focus is right now we want to drive both topline and bottom line and Thats why youre seeing us accelerating our margin guidance about three <unk> up for the rest of the year versus our prior guide last quarter and then maybe Bob if you want to talk about gross margin, yes. So on the gross margin side.
Look at the non-GAAP gross margins that are multiple kind of good guys. There.
We are upgrading to a native video product, we get efficiencies and generally with.
With scale spreading the cost.
The fixed costs over a wider base and we are getting scale.
From a GAAP perspective, the two things that we exclude stock based compensation and intangibles amortization and we acquired the cloud gaming technology from Mitel last quarter I think that the amortization of that technology is running through we are getting the full impact of that in the quarter that's driving.
Down GAAP gross margins.
This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.
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