Q2 2022 RingCentral Inc Earnings Call

Okay.

[music].

Hello, and welcome to the ring Central second quarter 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

To withdraw your question. Please press Star then two.

Please limit yourself to one question.

Please note this event is being recorded.

At this time I would like to turn the conference over to well Wong VP of Investor Relations. Please go ahead.

Yeah.

Thank you good afternoon, and welcome to ring Central second quarter 2022 earnings Conference call I'm Well-worn ring Central as Vice President of Investor Relations.

Joining me today I have watched fairness founder chairman and CEO , Matt <unk>, President and Chief operating officer, and totally parents Chief Financial Officer. Our format. Today will include prepared remarks by Vlad Mo in Southern Lea followed by Q&A.

We 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 Dot ring Central Dot com.

Some of our discussions or responses to your questions well contain forward looking statements, including our third quarter and full year 2022 financial outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements.

Some of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission is incorporated by reference into today's discussion.

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.

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 actually learn more about ring central.

Certain forward looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website with that I'll turn the call over to Vlad.

Thanks will.

Good afternoon, everyone and thank you for joining our second quarter earnings Conference call.

While we're not immune from the current market environment, we delivered a strong Q2.

Let me start by giving you five bonds back one we are able to do in our company.

Sue.

Contact center is now over a quarter billion of era.

And is a key growth driver for us.

Three we are now at more than 5 million bases in our base.

Or.

We made a quarterly record of one New Zealand dollar Bloc GCB deals, bringing the total to almost 500.

And five we delivered a record operating margin in the quarter was 11, 3% up 10 basis points year over year.

These results demonstrate ring central leadership position you can drill.

Driven by our product innovations and unique go to market strategies.

We have been able to achieve these milestones through consistent execution.

Q2 was no exception.

Lee, who I'd like to welcome to core source or a new school as ring Central CFO will share with you more details about our financial results shortly.

Let me first give you the highlights.

Subscription revenue grew 32% year over year, and 33% on a constant currency basis.

Total revenue grew 28% year over year, and 30% on a constant currency basis.

Both were above the high end of our guidance, even taking into account the stronger dollar.

Operating margins of 11, 3% were quarterly record and well above our guidance.

With free cash flow margins, expanding 220 basis points year over year to 6%.

Following solid margin expansion in Q1, these results give us confidence in our ability to deliver sustainable growth, while expanding our margins.

Our success to date is grounded in four global Mega trends.

These are.

The one that's the main thing called Sky bid work in the post Covid era.

You can turn reinforces the need for cloud based communications platforms.

Two the ongoing adoption of mobility by businesses worldwide, which drives the need for solutions that enable walk in any mode on any device from any of our mobility. He's a friend not at fault.

Three teams in the enterprise, which creates a meaningful opportunity for a well integrated enterprise grade Ucas and seek out solutions. We believe teams is a growth driver for ring central.

Sure.

Whereas from CIO to gorgeous and integrated cloud based unified communications and contact center from a single provider.

With historical on premise buying behavior.

Voice remains a key mode of communication or consumer to business interruption across a vast array of industries.

Does this include health care professional services, such as insurance and finance logistics government and education to name a few we continue to win in all of these verticals.

Another fun fact, we recently engaged a third party to conduct its survey of gate technology purchase decision makers.

85% of respondents to kind of hit their voice to be very extremely important to customer engagement, 80% note the voice.

They're extremely important to revenue generation.

We continue to win because of our core corporate values drop innovation and partnerships.

It dropped for our customer as this marks the 16th consecutive quarter of five nines uptime, which is a key competitive differentiator.

Our customers need to know with certainty is that when their customers need to reach them or when they need to communicate with all of the stakeholders.

Stakeholders, the technology will work.

And again <unk> got so much dollar that's one of the top reasons, but they can go with Samsung is a proven reliability.

Underpinning everything we do is our dedication to security and data privacy.

People with REIT, our customers' data like our own we also embed stead state of the art gigabit switches.

Gotcha, and then in kitchen into our portfolio.

I speak English dropped we are proud to announce that yesterday, we released our 2021 impact report, which highlights our commitment to our customers our people our shareholders.

Communities, we operate in.

Second innovation.

Central is committed to leading with innovation, creating features and functionality that customers want and need.

To highlight a few of our significant innovations in Q2.

We launched new enhancements with our sales force and hotspots integration, making it easier for our customers to reach and engage with their prospects and customers.

For a large international deployments, we introduced a smart diet plan and the new bulk number management capability.

This innovative features make it easier for international enterprises.

Connect their employees and customers across the globe.

We have also in her room control room, with new seamless integration with hardware partners alike, Albacore job rock pad.

People.

This allows customers to enhance their ability to work from anywhere was it means the office or remotely.

And last but not least partnerships we've had a good quarter with US did you just partners led by Michael and our buyer on that note, we would like to welcome our bias New C E O and reiterate our commitment to this unique partnership that paved the way for the world's largest installed.

Longtime customer base, the most of the worlds, leading ucas solution.

Our unique global partnerships Cup contributed to our growth as customers transition from on Prem to the cloud and we're still relatively early in his journey.

Looking at cat with firmly focused on durable growth improving profitability and stronger free cash flows we've.

We have the industry's leading ucas platform and the talented management team in place to drive our continued success as we address a large untapped opportunity still ahead of us with.

With that let me turn the call over to our President and Chief operating Officer Moe Gotcha.

Thanks, a lot.

Q2 was a strong quarter with strength from our direct business and our partners. We won't close to 50 deals with the T. C V of over $1 million, our integrated market, leading ucas and see Cas offering also performed very well with continued increase in the attach of C. C. On you see for our up market teams.

And we were able to achieve these results, while driving revenue and operating margin growth in short we executed well now let me give you. Some examples of how we benefited from the four mega trends that Vlad outlined.

First hybrid work companies are enabling their people to work from anywhere and ring central helps them be productive wherever they are.

As an example, CNS wholesale grocers a U S industry leader in supply chain solutions and wholesale grocery supply recently selected bring central to replace their legacy PBX infrastructure.

Here's what C N N had to say.

As we researched cloud solutions to replace our P. B X infrastructure, we saw that with the ring central we could integrate a whole suite of communication features in one platform connect our dozens of offices across the country for the first time ever.

Power, our employees to communicate from anywhere and still save a million Bucks a year.

Second mobility, one of the largest real estate brokerages in the United States needed a solution that seamlessly allowed their offices to back each other up and securely rock call. So there are thousands of agents whether in the office at home or in the field.

Beyond creating a truly mobility centric solution. The brokerage was able to recognize meaningful ROI by selecting ring central with $2 million of savings over five years via a transparent and predictable cost structure as a bonus. This also freed up there I T teams to focus on other key.

<unk> initiatives.

Microsoft teams, which continues to be a growth driver for ring Central second quarter was the single largest quarter of growth yes.

Yeah.

The vast majority of teams customers 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 it's still the minority of teams customers, who have an E. Five license first they still require an incremental calling plan to make calls outside of their company and even more.

Fortunately, they often need a richer feature set five nines reliability and integrated contact center option and a larger geographical footprint all things the ring central can offer.

In short customers are benefiting both from a feature and cost perspective, when adding ring central to their teams environment. For example, a global provider of professional services purchased Avaya cloud office this quarter the customer use teams for messaging and video but required a telephony option that provided five.

Reliability and global reach in evaluating their different options. They concluded that adding telephony to teams was more costly and offered less reliability and functionality when compared to ring Central. These cost savings are in addition to the rois of the customer will realize as they reduce resources.

That supported several legacy systems.

Last but not least customers want an integrated ucas with C cast solution remain central is currently the only company offering a fully integrated solution combining market, leading ucas and see cash on a single bill and leveraging a highly scalable and reliable global voice network.

Risk insurance, a professional services company highlights the benefits of our integrated you cast in CCAR solution preferred risk insurance encountered significant challenges during the pandemic using legacy communications technology, which caused call quality issues and broken customer experiences it became vice.

For the company to upgrade to a cloud solution that would allow their employees to call message and meet in one app from the home or in the office. They also required a cloud contact center that would provide innovated features for example, with ring Central contact center. They will now have the <unk>.

<unk> for their claims agents to take our reported statement that can be added to the insurance claim while also ensuring that they can still leverage end to end automated call recordings for compliance purposes net ring central is continuing to benefit from the four mega trends that we've outlined and we see this in our <unk>.

Pipeline and our partnerships.

Regarding our pipeline we saw three key trends this quarter first sales cycle times from opportunity to close has reverted to historical pre COVID-19 trends, which we expected second and demonstrating demand we saw an increase in leads quarter over quarter and.

Year over year.

Third opportunity size for small businesses remained consistent however, we are seeing cautiousness from larger customers and their buying decisions.

<unk> on smaller initial deployments what is clear is customers ranging from small business to enterprise and across all verticals continue to see the value of our offerings. While also being mindful of broader near term market forces that is influencing buying behavior is.

Part of our diverse vertical go to market approach, we are focused on how moving to ucas from an on premise solution generates a strong return on investment for our customers in the current environment, where many customers are looking more closely at their spend we show value very quickly with them.

Average customer payback of about nine months customers that moved to ring Central N V. P. On average are also able to reduce their telecom costs by 23%. There are hardware cost by 20% and there are I T spend by 16%.

Turning to our partnerships, we continue to see growth from our strategic partners and the GSP community seats from our strategic partnerships are up almost 100% year over year Mitel continues to gain traction as endpoint compatibility remains on track and we continue to onboard their channel partners.

Mobile also continues to consistently add seats to our growing base with another sequential growth quarter. We continue to believe that there is a meaningful opportunity for ACO is the destination for a bias customers, which represent the world's largest installed on premise space partners.

Part of our differentiated go to market strategy and are contributing to our million dollar plus wins in the enterprise market.

Last international continues to be an area of opportunity. In addition to recently launching with Vodafone in Germany, We closed multiple million dollar T. C V wins outside of North America, and launch services and new geographies. We continue to build up our efforts globally is we're still early in the opportunity.

To summarize we had a strong quarter, we win because of our unmatched best in class product go to market motion and our ability to address customer needs and pain points with clear value and ROI.

Now I'll pass it over to suddenly to discuss financials and our guidance.

Thanks, Matt.

It's a pleasure to be here on my first earnings call as ring Central CFO .

I've met some of you since I joined in May and look forward to spending time with more of you in the coming weeks and months.

I chose to join ring central because I saw a compelling opportunity to join a category leader in a high growth space operating at scale.

Importantly ring Central is one of the few high growth SaaS companies with a 2 billion dollar revenue run rate expanding operating margins and <unk>.

Free cash flow.

My first few weeks have reinforced my belief that ring central is still in the early innings of a tremendous market opportunity.

And I look forward to sharing our progress with you in future quarters.

As ring Central CFO .

My top priority will be driving efficient growth.

This includes expanding operating margin and free cash flow, while investing in and driving our future growth.

I will be firmly focused on creating value for our key stakeholders.

Which include our customers.

Our employees and our shareholders.

With that let me turn to our Q2 highlights.

Q2 was a strong quarter.

All key metrics came in above the high end of our guidance and we delivered a record operating profit margin.

Subscription revenue rose, 32% year over year to 463 million above the high end of our guidance range of 28% to 29%.

Adjusted for constant currency, which represented a roughly one five point impact subscription revenue rose over 33%.

As we highlighted last quarter balancing growth and profitability is one of our core tenets.

I am, particularly pleased with the improvement in our non-GAAP operating margin of 11, 3%.

Which was meaningfully above our previous outlook of 10, 4%.

This was up 110 basis points year over year and continue the expansion we delivered last quarter.

Additionally, we ended the quarter with $306 million of cash on hand, and generated non-GAAP free cash flow of 29 million.

This represented a free cash flow margin of 6% up 220 basis points versus last year.

Now, let me share with you some commentary around the key drivers of our results.

Firstly growth.

During the quarter, we benefited from strong upsell into our base as customers continue to move to higher value and higher price point skus as well as expand their seats at that.

Additionally, contact center continues to be a strong growth driver for us and it's outpacing our overall growth.

Many C I always want to buy a unified communications and contact center as an integrated global solution from a single provider and.

And we are well positioned to benefit given our leading product and integration.

Importantly, overall, our opinions remained stable quarter over quarter and year over year, and our north of $30.

Also new customer acquisition.

Remained steady and over $30.

Customers buy ring central because they see the value in our global integrated message video phone and contact center platform.

With advanced features including analytics and AI.

And our consistent five nines of reliability.

We save customers money and improve their productivity.

Regarding new bookings, we saw 15 million dollar impact from the stronger dollar.

Adjusted for currency, our implied new bookings would have been over $100 million and consistent with last years sequential trend.

Now, let me turn to profitability.

Our solid operating margin starts with our industry, leading subscription gross margins of 82, 7%.

Additionally margin improvement during the quarter was driven by realizing efficiencies such as more disciplined hiring and vendor consolidation, while prioritizing investments in our core innovation and growth factors.

We will continue to take a balanced view of investment ensuring they meet our return criteria.

<unk>, we will be looking at all aspects of the business to evaluate further opportunities to drive efficiency and continued growth.

Now turning to guidance.

I will provide you with an outlook that is reflective of what we see in the market today.

Regarding the current macro backdrop as Mary stated, we saw a three key trends in the quarter.

These were.

One.

Sales cycles reverting to pre Covid norm.

Two sales leads increasing quarter over quarter and year over year.

And three.

More cautious buying behavior from larger customers manifesting itself in smaller initial deployment.

We recognize that companies are navigating through a more challenging backdrop than what we thought even three months ago.

As well as the impact of a stronger dollar.

Taking this into account for.

For the third quarter, we expect subscription revenue growth of 23% to 24%.

Adjusted for constant currency, we expect subscription revenue growth of 25% to 26%.

Total revenue growth of 21% to 22%.

Adjusted for constant currency, we expect total revenue growth of 23% to 24%.

non-GAAP operating margin of 12, 5%.

And non-GAAP EPS of 50 to 51 cents per share.

For the full year 2022, we are reiterating our topline guidance.

We continue to expect subscription revenue growth of 27% to 28% adjust.

Adjusted for constant currency, we expect subscription revenue growth of 29% to 30%.

We continue to expect total revenue growth of 25% to 26%.

Adjusted for constant currency, we expect total revenue growth of 26% to 28%.

On profitability, we are raising our full year non-GAAP operating margin outlook to 12% up from our prior outlook of 11, 5%.

This reflects a 180 basis points of year over year improvement at the midpoint.

And we are increasing our non-GAAP EPS outlook range to 191 to 195 per share.

Up from our prior range of 183 to 187 per share.

We have guided to 180 basis points of margin expansion. This year. Despite the strong dollar.

Looking forward, we are committed to ongoing margin expansion and are reiterating our target of achieving at least a 20% operating margin with continued growth in our free cash flow.

To summarize we had a strong quarter marked by solid execution.

We are well placed to navigate the current environment and we will continue to invest in a disciplined matter, where we see the highest returns and potential for growth.

Finally, I'd like to thank ring central team and our board for their warm welcome and support during my first few weeks here as well as for their ongoing hard work and dedication to our shared vision.

I believe we have a large opportunity in front of us and the right team to deliver sustainable profitable growth and to create value for our stakeholders with that let's open the call to questions.

Thank you we will now begin the question and answer session.

Again to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys is that anytime you're question has been addressed and you would like to withdraw your question. Please press Star then two.

In the interest of time, please limit yourself to one question.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Our first question today comes from Kash Rangan of Goldman Sachs. Please go ahead.

Hi, Thank you very much nice improvement in operating metrics and good to see the mid.

The team's channel.

Prolific are for you guys I have two questions. One you were very upfront about the macro environment that you saw some some level of caution.

How do you think about the second half of the year. What are you incorporating with respect to macro assumptions is it a smaller deal sizes with close rates etcetera I didn't ask it because it's in Q4 for you as well for example is generally a nice pickup in our bookings. So it should we still be expecting that sort of a sort of seasonality in the workforce suddenly.

Congratulations and welcome to the CFO clean Central you talked about how you'd be looking for operating efficiencies, while not compromising growth.

What are the things that you've identified in the business model that should be sources of operating leverage in the future as you target. The 20 person cool. Thank you so much.

Yeah.

Thanks, Josh for the question and also for your very kind remarks, I'm extremely extremely excited to be here at bringing central and to be partnering with this great team. That's amazing leadership team. So I really do appreciate those comments and maybe what I'll do is start with your second question just around how do we manage or how we're intending to manage and balance.

<unk>, both growth and our drive towards greater and stronger profitability and what I would say is you can look at this quarter is a great example, because we managed to deliver.

Pretty exceptional subscription growth.

And total revenue growth, while also expanding our old T margins significantly you know it was a.

A record quarter as you know 11, 3% and Oh, Okay Martin.

And we really manage to do this I been quite deliberate in terms of running the business efficiently and we specifically looked at areas such as sales and marketing and also R&D as well as efficiencies around higher and vendor.

Consolidation.

Taken together, we were actually able to drive that <unk> margin efficiency, whilst also delivering great revenue growth.

If you think about where we're guiding for the full year and the fact that we've raised our op margin guidance again.

Second quarter in a row and if you think about the guide and the minimum oops margin aspiration that we put out there, but you can see is theres a lot more goodness to come there.

And we will be evaluating all aspects of the business, but what I can tell you. It's just been a couple of weeks or my second month into the job I see opportunities in all three of these categories. So further opportunities to drive sales and marketing efficiency R&D efficiency and DNA and the other thing I would just add there is.

As we become a larger company as we scale and you know on my opening remarks.

Remarks, I mentioned being part of a $2 billion revenue run rate company.

We're seeing the inherent benefits of that scale comes through in the operating model and again, you know just expect to see more from us in that area.

In terms of the macro and what we called out specifically I think know in his remarks talked about a couple of trends that we saw in the quarter won with sales cycles were verde to pre COVID-19 levels and the other one was slightly more cautious buying behavior from the larger customers and that was manifesting itself in a smelter.

She'll deal deployment, and what I would say there isn't that.

Our guide is reflective of what we're seeing in the market today and that includes the current macro backdrop and those trends that we talk to them in our prepared remarks, but when you think about the guide you know there's obviously several puts and takes so on the one hand, we see those trends.

And then we also have the impact of the stronger dollar, which will continue and is embedded into our guidance for the second half not strengthening of the dollar and what I would say there is we factor in about one to two points of revenue growth just from the dollar impact.

And then if you balance that against some of the other trends, we talked about which was extremely strong demand from our customers and strong pipe and most specifically talked about quarter on quarter increase in year over year increase so what we feel is that demand for our product is extremely strong and I can say is as CFO .

You know I think it's an easy decision to them you know.

Which from PBX to the cloud because there's a positive ROI decision with a very short payback. So if anything we feel like we're more relevant than ever in this type of macro backdrop.

So in terms of the guide, we really are reflecting what we see today, including today's macro.

I Dunno smile.

Yeah.

Very comprehensive answer.

If we move on to the next question next question. Please operator.

Our next question is from Terry Tillman of Truth to Securities. Please go ahead.

Yeah. Thank you for taking my question, it's one question, but two parts.

Welcome to ring central.

And also thanks for the color on the IRR the exit subscription revenue. They are now that's very helpful. The two part question. The first part is for MAU I'm, just trying to reconcile it sounds as though you still have pretty good productivity that 50, 50, or so or near $50 million plus T. C. V deals. So I'd love to just understand some more color in terms of they clearly were starting with.

Little bit small or is it less contact center seats or is it maybe half the size of the deployment and then the second part of this question, though is for you suddenly.

Is people do look at the exit subscription revenue IRR because it has implications into the next kind of 12 or 15 months should we see it kind of ramp up though as we exit the year, even with these puts and takes because of all the growth initiatives and channel partners. Thank you.

Okay, Arizona.

The first half of that question and I think the punch line is as I articulated.

Leads were up in the quarter, both quarter over quarter and year over year and as we discussed when we are seeing is a degree of cautiousness in terms of our larger customers generally going with smaller initial deployments you.

You made a comment around contact center I'll tell you that our attach rate of contact centers continuing to go up so that certainly is not a factor in play it's really just about.

You know the buyers are looking at any potential impact on their own business what's.

What's happening with their own budgets.

Testing the technology, if you will deployment in smaller ways.

Seeing the value creation that we spent a lot of time talking about with our various customer examples and then bringing it to life. Okay. That's all I really want to take the second half sure. So firstly Terry thanks for your kind wishes as well so with respect to them.

As you know, we don't specifically guide to our I am really proud of what we achieved in the quarter of 31% of growth in the second quarter. We did have obviously an impact from FX.

And you know that obviously is a negative impact for this quarter.

But we will continue to add healthy bookings and feel really confident in the way that we guided for both Q3 and the full year. So hopefully that answers your question.

Operator next question. Our next question comes from George Sutton of Craig Hallum. Please go ahead.

Thank you Sally mice.

Great wishes as well congratulations so I'm curious as a user of stock compensation with the stock decline how are you using it perhaps differently today relative to retention into our new hires.

Hey, George I Hope Youre doing well this is mo.

We've guided that we expect to bring stock based comp down year over year. This year by a couple of hundred basis points, we're well on our path to achieving that potentially even exceeding it by the end of the year.

And what we're finding is frankly that our team and our talent.

Is embracing the strategy, they're fully engaged on.

Part of this team, we're utilizing SBC, where it's required.

Obviously, we think about our employee base superstar talent are key contributors et cetera, and as we bring that together, we're finding that we're able to find that balance of compensating appropriately healthily, while at the same time.

Ensuring that we're bringing down the comp as a percentage of revenue year over year, and frankly, I expect that we're going to continue to drive discipline in this space and improve over time.

Our next question is from meta Marshall from Morgan Stanley . Please go ahead.

Great. Thanks, so much and congrats on the quarter, maybe bladder Mo just as you gave the disclosure on how big the contact center business had become you know kind of being over 10% of air or you know does that change how you guys think about partnering versus developing organically or just.

The other feature sets that you would think on adding in addition to kind of contact center to expand the error of your customers aren't the ARPA of your customers. Thanks.

Yeah, Hi, Amanda.

Yeah Vlad here.

Luke.

<unk> is a very important obviously AR and AR as we stated and reiterated we are still has a unique position or.

Being able to provide.

<unk> market, leading MQ, leading ucas and seek out.

All the same paper and on the same network. So that is just a unique differentiator not existing elsewhere.

No clearly.

Customers are liking it historically people have been buying.

Buying.

From the on Prem days people have been buying UC and cc largely from the same vendor.

Led by Avaya and Cisco historically.

And we are now seeing similar behaviors.

Ah repeat themselves in.

Yeah.

Both business.

The cloud software as a service world.

Okay no.

So top line growth is.

It is wonderful no clearly it would be nice to be able to owns a cold stack, but it's a very very fabulous. So the strategy that we have.

Seems to be working and we think we will continue working whereby for those customers who require best of the best.

In Ucas and seek out you.

You know our approach is.

A unique and industry leading for those customers.

With a lesser requirement and in particular with smaller contact centers.

We do as a matter of fact, our own product called with central engage.

We have some cycles have been central engage Oh E.

Which have everything.

But certain central engaged digital she says every general Bud voice.

And we also have something called Green central engage oney.

Which is a full integrated solution.

It does not have every bell and whistle that.

For example, you can conquer cats.

As well as the.

The other industry leaders.

It doesn't often come in product and we expect that youll be hearing more about.

Our next question is from Samad Samana of Jefferies. Please go ahead.

Hi, Good afternoon, just a couple of questions I guess first just I wanted to ask on the expense side. Obviously, it's been great to see margins really inflect here can you remind us maybe how much of your Opex is in U S D versus in other currencies.

Okay.

Yeah.

Yeah.

Hi, I didn't totally here I'll take that question. So opex is obviously a bit of a natural hedge to our revenues, but it's a much smaller proportion of overall and it would mostly be euro base.

So it's about 5% that's outside of the U S. In the Opex number.

Okay.

The next question is from Peter Levine of Evercore. Please go ahead.

Great. Thanks for taking my questions. It's all very welcome to the team.

We continue to hear more buyers wanting to bundle collaboration video and chat with voice in a bigger way they'd be glad in your view how would you keep both of those saying that video collaboration suite kind of take priority over voice and then maybe second what are you doing today to evaluate elevates our.

The art RCD brands, where the investments on the collaboration side to kind of better compete against some of the larger players in the space.

Yeah.

They're both important.

B to B.

Especially within an org, yes, mainly our interactions not all but many interactions are now over video or over internal conferencing. Microsoft teams is tricky because of that.

Seem to be consumer.

Interruptions consumer to business.

Still largely older boys and there doesn't seem to be any slowing down of that trend.

The two core businesses.

Then to go the providers.

Bye bye.

By voice.

And most of the cell phones.

I think as we mentioned we have a we run a survey.

And the vast majority of people. These are our business customers as well as our other businesses grow north of our customers.

That they believe voice will be important to extremely important.

Balls or customer engagement as well as for margin expansion okay.

And their revenue. So this is a voice is here to state.

To state the obvious the school was I didn't know is via voice okay.

So that's how we would do bonkers it continues to be a tremendous market.

As I stated in our prepared remarks, and this is not the first time problem of the last time I'll say that.

That.

Mobility wireless <unk>, they're all tailwind for us the friends and ourselves, Okay, and we continue redoubling our efforts and are maintaining our leadership in our you know the very poor means.

Which people communicate.

We will communicate in words.

They'll just buy things.

The next question is from Ryan Macwilliams of Barclays. Please go ahead.

Thanks for taking the question just on the strategic partnerships and with and which ring Central has made a significant investment.

Should those strategic partners enter financial difficulties or were acquired would you anticipate any changes to those relationships.

Oh God bless you.

Look we have an absolutely unique.

G T M our approach and the partner network.

There is simply not another player.

Think of any size there that again both.

These close relationships with a number of leading DSP as well as a majority of our people who are responsible for a majority of on Prem.

Okay no.

These are durable and times.

And obviously.

Some people are experiencing difficulties.

And I assume the question behind your question is what about Nevada. So let me just address that Avaya has been a contributor there has been a partner a strong partner.

We are also representative of the world's largest installed on Prem base, which means what it means that we always want more we wanted more we want more and we will continue to watch it more.

But they are again somebody that's been contributing to our success, we expect them to continue doing that we expect that.

They understand that ring central continues to be both a growth driver for them as well as the profit margin driver for them.

We have a new CEO that they've announced a few days ago is the person we know extremely well Oh I have a good solid relationship with Ireland and.

We think that the frankly could be reinvigorating the relationship.

It was very positive outcomes.

For both companies and very important for the customer because remember their customers still need to go to get to the cloud rent central and Avaya Cloud office button Central still continues to be the only.

Drew you cap multi tenant global high availability solution that is able to accept incoming avaya on premise customers.

By leveraging with leveraging the multi year investment into endpoints and other points of integration, we're simply in a unique position to do that and we expect that new management will.

Well appreciate that fact.

Okay.

Okay.

The next question comes from will power from Baird. Please go ahead.

Okay, great yeah. Thanks for taking the question.

Just a question on enterprise a are we seen it I guess, it's a deceleration of couple of quarters in a row and it sounds like FX.

FX is certainly a piece of that but I guess I'm wondering how much.

The slope.

Slower growth there is macro how much have you already seen on the macro side versus any other factors.

<unk> versus <unk>.

How much more of a macro that you referenced in terms of smaller deal sizes are smaller slower deployments.

Your bigger customers are still on the come I guess I'm trying to figure how much that macro is already impacting net IRR versus maybe expectations for Q3 and Q4.

Thanks, Rob I'll take that one yeah I think the net here is two key factors. The first one is FX was a headwind suddenly talked about that one and then the other one is what I brought up which was call. It the three key trends we saw in the quarter sales.

Sales cycle times are hurting the pre COVID-19 norms.

Leads were up both quarter over quarter year over year, and then the third one while opportunity size for us. It would be remained very consistent we did see some degree of cautiousness from larger customers and their buying decisions at the end of the day I mean, I think I put all those things together the lead growth continues to demonstrate.

To me the opportunity ahead is real that we can create value for our customers, frankly, and especially some larger ones that have legacy telecom hardware IV support costs, whereas the value creation that we can bring for them is actually a help.

When you're in these sorts of times.

Okay.

The next question comes from Matt nickname of Deutsche Bank. Please go ahead.

Hey, guys. Thank you for taking the question.

A quick simple one just on churn any changes you're seeing and how is this trending across SMB mid market and enterprise. Thanks.

It's Matt I'll take that one.

We saw sequential improvement in churn for the quarter over quarter.

And year over year and that was generally true across all of our key segments.

The next question is from Michael <unk> of Wells Fargo. Please go ahead.

Hey, guys. This is Austin on for Michael I, just wanted to ask you about premium SKU adoption as you push further up market and if that's potentially offsetting any volume related discounts with those larger customers and just as a volunteer that is our pricing dynamics and your passport broadly you have have you seen any change.

Tentatively that might be impacting the lower priced skus. Thank you.

This is more of a I'll jump on that one so just to reiterate.

Our overall <unk> were resilient they were stable quarter over quarter year over year, they remain north of 30.

New customer acquisition, <unk>, which really goes to the second part of your question also remained steady and over 32.

To your point, we're a multi product company.

As we think about our crews were looking across both our SKU.

The SKU base as well as the products that we're offering and as we go further and further up market, we do see our customers buying more premium skus as I mentioned, a little bit ago. We're seeing continued increase in the attach rate of our contact center and all of those become factors in the dynamic.

That drives these strong and healthy ARPA as well.

Look the I think the heart of this is we're creating value by bringing together messaging video and phone.

As well as the ability to integrate markedly.

Solution and this is a competitive advantage that we expect to retain.

Okay.

Yeah.

The next question comes from Taylor Mcginnis from UBS.

Please go ahead.

Yeah, hi, thanks, so much for taking my question. So I know that at that Opex is a little bit of Oh at play here. So I know, it's tough to parse out but suddenly you know if you look at the difference between air our last quarter, I guess subscription revenue and QQ. It seems that you know some of the net new business would have been late in the quarter. So can you comment on.

You know linearity or what you might have I'm, sorry, I've seen there and then I guess as you know we look ahead into the guide just to be clear are you assuming a similar environment that you're seeing today in the guide are you assuming that things deteriorate in parts are or get worse.

Sure Taylor. Thanks, Thanks for the question. So firstly on FX, you're absolutely right FX was a factor in Q1.

As well as in Q2, and what I would say is that the impact to bookings in Q2 was more exaggerated just given the dislocation in the dollar.

And in terms of what the guide is currently contemplating what I said in my prepared remarks is that it's reflected reflecting on what we're seeing in the market today, including the trends that we've called out.

And also embedded within that.

The guidance includes an additional one to two points of headwind.

On growth from a stronger dollar and that's for the full year in 2022. So just to recap Q1 had a and impact the Q2 impact was stronger and the full year, we're saying calling out an impact of between one and two point and the other thing I would just say as you know in spite of the.

Impacts from from the dollar in Q2, we still had 100 million or over $100 million booking quarter, if you adjust for currency.

The next question is from Matt Vanvliet of B P. I G. Please go ahead.

Yeah, Hi, Thanks for taking the question I guess as you look at the expansion of the Vodafone, Germany deal that you announced recently.

In light of all of the strategic partnerships do you feel like you're getting to market a little faster as the initial reception stronger how are you feeling as you continue to expand sort of the breadth of those relationships and even the depth within each of those partnerships.

And how that's encouraging you to go out and seek other partnerships going forward. Thanks.

Yeah, Thanks, Matt so.

As you think about our global service provider community, we're continuing to see consistent revenue and seat growth.

And I think the heart of your question and the way I'd answer it is.

Each of these relationships is allowing us.

<unk> new sales addressable markets.

And frankly, unlocking new markets for the foreseeable future I expect that the new revenue producing gsp's will continue to grow both this year as well as in 2023 and many of them internationally.

The next question is from Michael Funk of Bank of America. Please go ahead.

Yeah. Thank you for the question one for a moment if I could modus.

Just given your unique experience coming from AT&T in your first point about the point success for you know for ring Central you know part.

Part of that being a transition from from PBX just wonder if you could comment on your T V boats imported weaker business revenue. This quarter I think part of that probably is that transition that we've seen from legacy to next generation technology. So you know from your perspective in your history do you think we're seen acceleration.

And that transition.

Is that working in the T and Verizon results, obviously, a lot in there, but love to hear you unpack that a bit.

Well.

Appreciate the question I, certainly can't comment on any other company's results in the sub pending drivers if you will.

I'll tell you is that I do fundamentally believe and it's a core part of why I came to ring central that Ucas and the transition of legacy you see on Prem seats as well as legacy CCC.

U.

<unk> is something that is going to last for many years to come.

Businesses.

Not all not all ready to move to the cloud in any one given year frankly as you look at the current macro environment I think that that's going to be a factor of the plays and we called it out several times throughout this conversation, but what I am comfortable and confident in is that the Tam is extremely large and that youre going to see <unk>.

Distant growth for many many years to come.

The next question is from Matt Stotler of William Blair. Please go ahead.

Hi team. Thank you for taking the question maybe just wanted to dig in on Microsoft teams. Specifically you know obviously you guys are still seeing some notable success in the market alongside teams any additional color you can provide whether it's in terms of the.

A portion of the installed base that either you know connected teams or assist with teams.

Any kind of updated color on how to think about <unk> infused environments here and then any thoughts on additional opportunities for collaboration with Microsoft do you think about.

Go to market for the integration going forward. Thank you.

Very good so let me I'll address that slightly out of order.

On the <unk> side I'll tell you that our.

Teams are who is consistent with our overall <unk> and quite strong our teams customers tend to skew up market and be larger and thus they fall into the category of more premium skus and more likely to attach contact center by the way. It's one of the key reasons, along with five nines reliability.

<unk> feature functionality geographic reach that we're winning with that base and then I just reiterate a couple of points, which is we saw meaningful growth year over year second quarter was the single largest individual quarter of growth that we've seen with our emmis teams practice.

And frankly, it's exciting for us.

As we see them growing in the market, where we're seeing success for ourselves as well and then I.

I can't comment on any potential future opportunities and how we're thinking about that I will tell you we're going to continue to execute on our own strategy and it is one of the four mega trends and growth drivers for the company.

Great. Thank you.

This concludes our question and answer session as well as the conference. Thank you for attending today's presentation. You may now disconnect.

Okay.

Yeah.