Q1 2023 RingCentral Inc Earnings Call
Hello, and welcome to arrange Central's first quarter 2023 earnings Conference call. Let me know please turn the call over to <unk>, Vice President of Investor Relations.
Thank you good afternoon, and welcome to Ringcentral first quarter of 2023 earnings Conference call. Joining me today are watchman is standard chairman and C. E O <unk>, President and Chief operating officer, and suddenly <unk> Chief Financial Officer Alpharma. Today will include prepared remarks by Vlad smell and suddenly followed by Q&A we offer.
Have a slide presentation available on our Investor Relations website that will coincide with today's call, but you can find under the financial results section at I R. Dot Ringcentral dotcom.
[noise] discussion and responses to your question will contain forward looking statements regarding the company's business operation financial performance and outlook. These.
These statements are subject to risks and uncertainties some of which are beyond our control and are not guarantee of future performance actual results may differ materially from our forward looking statements and we undertake no obligation to update these statements. After this call for a complete discussion of the risks and uncertainties related to our business. Please refer to the information contained in our filings the secure.
[noise] and exchange Commission as well today's earnings release.
Otherwise indicated all measures that would follow a non-GAAP with year over year comparisons a reconciliation of a gap to non-GAAP results is provided with our earnings release and and then fly back for certain forward looking guidance Ah reconciliation the non-GAAP financial guidance to the corresponding gap 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 flat.
Also known and thank you for joining <unk>.
We had a soulless thoughts of the.
Q1 results demonstrate that our strategy of driving Selsey profitable growth is playing golf.
Total revenue grew 14% to $534 million.
Above the shy and football guidance range.
N a R. R grew 14% to $2.2 billion.
<unk> margin rose almost 700 basis points year over year 217.2 per cent.
This was also above all guidance as was once again a quarterly records.
Our higher margin was driven by its continued cost disciplined improved operational efficiencies and the benefits of the actions with Duke last year.
Those actions position us to emerge stronger and more focused when a democracy environment in books.
Well as a matter of amazing Susan we continue to be laser focused on what we can control.
This concludes drive it continued innovation and maintaining our disciplined approach.
<unk> profitability and free cash flow.
Suddenly we will provide more color on all perfect the ability to shortly.
You've heard me talk about trust innovation and partnerships being the cornerstone of our success.
S. The trust, we achieved 99.999 per cent availability for the 19th straight quarter.
With respect to partnerships mobile provides more color on our progress was the channel the dziedzic partners and global service providers.
I will now highlight some of our key innovation accomplishments with water.
We believe these innovations overtime will increase our customer value proposition and create additional expansion that puts you in the just within our large customer base.
These include.
Ringcentral 14th two little next generation Microsoft teams embedded at.
Ring fence, our new AI platform and its source commercial application links for sales.
Ringcentral for frontline Warriors, which combines you boosted functionality with growing central V jail and messaging.
And in partnership with Vodafone business, whichever released Ringcentral overly which enables our messages and video collaboration capabilities on Dover political voice services.
So let me now provide more details.
We recently announced Ringcentral 14th stood adult.
This solution brings <unk> essentials World class cloud P. B S capabilities into Microsoft teams with a forbidden native experience.
With algae quite a second application.
This means that and customers can now enjoy ringcentral renowned five nines reliability.
Mobile I really reality.
I normally takes industry, leading features and third party integration capabilities entirely within deems single.
Pane of glass.
Second ring sense.
The past I stoked about four microtrends driving our business.
Lisa <unk>.
<unk> took a big war.
I'm Goin' adoption of ability businesses.
Increasing relies on distributed war forces and the desire for an integrated cloud based U C. C C solution form a single provider.
His his mega trend cause now emerged the distributed evolution theory and that is a I.
<unk>, we now have the ability to inject a I capabilities across the entire ringcentral portfolio.
Is one of the world's largest ucas providers, we are in a unique position to offer our customers powerful insights into their conversations.
It was the Ringcentral sales are first offering and respectful that.
We'll be able to offer safety features such as engagement, scoring keyboard analysis and eh I generated took inundations.
Where jonathan transitioning our own sales team from a third party conversational intelligence solution Doolin, that's for sale as well as testing it with a number of golfing almost enclose Baker.
Third is Ruth central for frontline workers.
This powerful solution combines new pushed the door capabilities wisdom Ringcentral video messaging.
Gardner estimates there are 2.7 billion frontline workers more than two times the number of desk based workers.
With our solution frankly, Walker's across all industries can use any smart mobile device will seamlessly and efficiently connect with their front and back office team.
It is available in beta today, if he's a standalone solution or as an add onto Ringcentral MVP more will provide more details.
And force Ringcentral overly.
Which enables break central messaging and Vijay collaboration capabilities for legacy customers.
This innovation in partnership was about the phone business enables skybridge workforces and serve as a stepping stone for those customers to move to a complete yoga communications solution in the future.
Yeah somebody towards a solar water across growth perfect the ability and innovation will continue to innovate and casting a differentiation.
We're also laser focused on efficiency, which we expect will generate a robust free cash flow going forward.
This sets us off well for the future and is why I am so excited about the opportunity in front of us.
Now, let me turn the call over tomorrow to go over the quarter in more detail.
<unk>, we had a solid quarter, what's healthy growth cost a portfolio.
An example of the wind contributing to this healthy growth as a fortune 500 company. The purchase 5000 seats of you cast and 5000 seats of C cast based.
They selected Ringcentral for three main reasons.
First our ability to integrates seamlessly into teams, providing five nine reliability and deep integrations and the service now sales force and other key aspects of their employees workflows second are integrated you C. N C C platform.
The simplicity of having a single vendor to manage the entire organization can now use a single communications platform.
This results in increased customer satisfaction and potential new revenue opportunities for example, if no one at a local branch location picks up after a certain number of rings. The call can now be easily forwarded to its contact center.
And finally, the company is projecting to save millions of dollars by standardizing on a single platform, we're moving maintenance costs Shadow I T intelco fees.
Reducing cost is a key value proposition for all of our customers, especially in today's environment. We continue to see good traction within our core business because of our ability to help customers save money.
Forester, a third party research firm recently published a new report on the total economic impact of using Ringcentral M. B P and contact center together.
This report concluded the customers are seeing a 211 per cent return on investment with an average payback of under six months.
In addition, Forster concluded that using Ringcentral, you cast and see cast together has three key benefits.
First call handling time was reduced by 45% versus 20% for Standalone contact Center <unk>.
Second in.
Internal contact center, and you cats I T support tickets were reduced by 30% and third time to close each ticket was reduced by 60% moving.
Moving onto our team's practice.
In Q1 seats within our team is business more than doubled your over your with an updated ringcentral for teams Chew Dot O solution, which is available in beta today and will be generally available. This summer we are able to provide an even better user experience and that's not all most teams users or an E.
One or eat three licenses, including many in key customer facing verticals, such as health care retail and professional services those customers chose ringcentral versus teams phone given our deep integrations reliability, an advanced feature sets all at a very attractive price.
Point.
For example, you K G a leading provider of H R payroll and workforce management solutions is currently using ringcentral with Microsoft teams, we integrate seamlessly within their existing workflows enhancing both their internal employee experience and their customer communications.
Now let me give you an update on our go to market.
First strategic partners.
It recently emerged from bankruptcy a few days ago, and we expect that their contribution will ramp in the latter part of the year.
Also mitel continues to perform in line with expectations and closed a million dollar T C b transaction in Q1.
We're also seeing good traction with many of our GSP partners charter one of our newest partners performed well. We also launch with Vodafone business, an additional European Geography's Lastly, our new partnership with AWS, while still in early days is developing well and we expect to be on the AWS marketplace. Later this year.
Now channel partners. They represent about 40 per cent of our a our base and continue to help us broaden our reach the channel is an important part of our go to market and we continue to ensure that incentives are aligned with the value that they bring in fact, we recently launched our Ringcentral ignite program that.
<unk> partners to manage all go to market and customer lifecycle activities without Ringcentral sales assistance, which in turn provides economic benefit for all parties.
Moving the international I'd like to highlight two international deals the week closed with our partners. The first is with a European athletic retailer with over 2000 stores. They selected a ringcentral solution to help them streamline communications across their retail stores in France. They purchased thousands of N D P.
P seats and also added our new frontline pushed to talk capabilities. This won't allow store members to easily and securely communicate through voice video or messaging with the push of a button and all without additional hardware.
The other is a regional government body in Europe . The recently selected Ringcentral to provide video and messaging to more than 55000 users. This was a great win and demonstrated the power and value Ringcentral video and messaging can provide a large organization on a standalone basis.
Lastly, I wanted to discuss the current demand environments. The macro remains consistent with the trends we've been seeing over the last few quarters.
Also sales cycles remain elevated versus last year as customer buying decisions continue to receive significant internal scrutiny and additional layers of approval. We're also seeing less upsell within our existing base is customers have slowed hiring and rationalize their employee counts however, when rates remain stable.
<unk> and lead flow remains consistently strong demonstrating continued demand for on premise to cloud conversion with that let me turn the call over to suddenly to discuss our financials.
Thanks Ma'am.
I'll provide highlights from the first quarter, and then discuss our business outlook for the second quarter and full year.
Subscription revenue of 508 million, but up 16% you're over here and above our guidance range.
On a constant currency basis.
<unk> revenue 17 per cent euro per year.
A R. R. I was 14 per cent are since last year.
2.2 billion.
On a constant currency.
Are are rose 15 per cent.
We continue to expect Irk route to outpace subscription revenue in 2023.
This is due to our enterprise fitness being more back half way back.
Moving to profitability.
I'll be referring to non-GAAP results.
Otherwise noted.
Our subscription gross margin was solid at 81.8%.
<unk> with again resilient and above $30 supporting our strong grasp Martin.
Operating margin Rose 680 basis points persons last year to 17.2% another quarterly record.
The increase was driven by efficiencies generated across the bed.
Most notably in sales and marketing.
Which was down 420 basis points versus last year.
Pier one demonstrated good progress on our path to driving best in class profitability and free cast them commensurate with our scam.
Regarding free Castro.
Generated 54 million in Q1 23.
Which includes roughly 7 million related to one time restructuring items.
The improvements to our cost of customer acquisition collections activity.
Vendor management and continued focus on driving efficiency.
It's bleeding too strong free cash broken version and.
And we expect continued improvement throughout the year.
Our focus on growing free cash flow generation allows us to employ a dynamic capital allocation strategy.
That includes evaluating organic and inorganic investments.
Repurchasing shares.
And importantly, addressing or convert about that maturity.
Regarding our dad.
Our free Cashflow provides us many options in terms of how we address or convert maturity.
While they were to convert both Kerry is zero per cent coupon.
And are not due until 2025 and 2026 still.
Still two and three years out respectively.
They are a top priority for us and for me personally.
Based on our 20 twenty-three outback and assuming our current capital structure.
Our net leverage will be less than three times net debt to epitaph for the trailing 12 months ending December 31st 2023.
Which we expect will continue to improve.
Given the deleveraging profile.
We believe we have a number of attractive choices.
To address our outstanding convert about maturity.
Now turn into guidance.
Well, we outperformed R Q1 revenue outlook.
We are still early in the year.
Given the macro uncertainty we are remaining prudent in our guidance.
Taking this into account.
For the second quarter of 2023, we expect.
Subscription revenue growth at 10 to 11 per cent.
Total revenue crowd of 10 per cent.
non-GAAP operating margin of 17.5 per cent.
non-GAAP E P S.
74 to 76 cents.
For the full year 2023, we now expect.
Prescriptions revenue growth at 11% up from 10 to 11 per cent.
Total revenue growth.
211%.
non-GAAP operating margin of at least 18.5 per cent.
Up from our prior outlet.
18 per cent.
Based on the midpoint of our revenue guidance.
We expect operating profit dollars to grow at least 65 per cent.
From at least 60 per cent.
non-GAAP E P S. Three.
$3 and $93.25.
From our prior outlook of $3 and four to $3.10.
In summary to one with a solid quarter.
[noise] exceeded guidance on the top and bottom line.
We continue to see how they grow within our business.
The current macro backed up.
We believe the market opportunity are leading and differentiated product and a laser focus on balancing growth with increase profitability physicians as well for continued success.
With that but the open the call for questions.
Thank you very much we will now begin the question and answer session to ask a question you May press star one on your telephone keypad.
Using a speaker phone please pick up your handset before pressing the keys in the interest of time today. Please limit yourself to just one question only two.
You are from the queue press start to.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from <unk> with Jeffries. Please go ahead.
Good afternoon, and thanks for taking my questions get to see the the stable results like maybe for you I. Just was curious you talked about a number of new products and increased innovation and I'm curious how do you think about this product do you see them as ways to expand our poo or drive crosstown upsell or did you see that.
Features that add value that will make it easier to acquire customers just maybe how should we think about whether it is a direct monetization opportunity or is just a way to continue to attract more and more customers to the ringcentral platform.
Yeah, Hi, I'm a great question look it's a bit of both and you know it it depends so for example, when you look at <unk> or a I you know our entry into the a I space that is absolutely a <unk>.
<unk> driver received it will be monetized separately.
I also want to point out is that it is not only aimed to be an add onto our existing customers or the ringcentral customers in general, but we also designed it in a way that this could be a standalone product working with are there ucas.
See cats, and frankly, even use C N C C solutions.
It is general dealt with <unk>, let legs out when you look at.
Frontline workers with Bush to talk is a whole separate skew in the stolen right and a young can stand on its own or can be added to do customers.
When you look at our work on overly that's actually Super exciting yeah.
Cause this is really the first time to where we are showing clear attraction in areas outside of our core P. B X in the cloud so the whole point in overly is two integrate.
With legacy on print providers.
But augment the experience customer experience was I'll review due and messaging.
And this we believe will a you know it presents a separate monetizable opportunity in the zone right as well as sets up for an easier migration best for those customers. Once they want to go ahead and embrace the whole crowd.
Am I missing sounds like are you single or good so.
So yeah, a bit of both is a short answer but getting said that Luke and you think would do any value Oh, I'm, sorry, but but by far north last or the least is our teams work and what we call. The essentials for teams do that Oh.
And cause that's a major major step forward, we believe that we simply at this point have czar bust. His outburst teams integration on in some markets today in the universe, it's a completely seamless experience.
What we have heard from customers.
Loud and clear is that they they have standard there's the teams they would much prefer to operate within the teams single pane of glass.
But as we all know teams does not really have a.
Fully viable Ucas solution, we do.
And this is a very close integration.
So we feel we had good teams business before but we were <unk>.
<unk> was the market's technology wise. This we believe will really push us in a position us well actually I do have.
Ah well ahead of competition again will absolutely open new doors for us. So it is definitely revenue driver move forward, but we also believe will be will provide stickiness to our existing teams customers because suggested much better experience.
The next question comes from Sterling Audi <unk>. Please go ahead.
Yeah. Thanks, Hi, guys I just wondered if you could go maybe one layer deeper in terms of your discussion around how you're gonna handle the convertible debt you know, maybe you don't Wanna get into too much specifics, but.
Anything that you can give around timing and how proactive you wanna be with managing it as well as just you know what are some of the options that seemed to be the most you know obvious for for managing through thank you.
Thanks, Darlene Hey, it's only here and you know thanks for the question as I said in my prepared remarks. This is a and very specific focus for us as a management team. It for me personally.
So a couple of points I would make without giving too much away. One is that we expect to generate girly free cash flow over the next several years and you would've seen in today's print.
Long with expanding operating margin by nearly 700 basis points year over year.
We also delivered a quarterly record on free cash flow.
So free cash, though was $61 million in the quarter and that was including about 70 million of restructuring charges and were clearly not done yet when it comes to free cash flow.
Within that we have several options to address to convert so one is using the cash that we're generating organically again, which will and you will see improved throughout the year.
Secondly, you may remember last quarter, we announced a $400 million term loan a that's a delay draw a facility, which we have available to us through November of 2023.
And will be opportunistic in terms of when and if we decide to go on that depending on market conditions.
But with the financial profile were driving and if you think about how you know rating agencies. For example look at Uhm enterprises, such as ourselves and you think about our EBITDA profile, we will have other financing options available to us. So we don't have access to more conventional debt markets, which we can.
<unk>, if we so desire.
Today, the the coupon on the convertible that is zero per cent. That's you know and see I've always dreamed. So we will balance addressing the convert.
With other capital allocation priorities, but we will not allow the converts to go current.
The next question is from C. T <unk> with Mizuho. Please go ahead.
Thanks for taking my question, then definitely I I just wanted to focus on profitability cashflow. It's good to see that progress had been in the margin expansion site suddenly so so understand that you're benefiting from some of the cost cutting in the head contradiction direction, you did announced earlier, but could you talk about some.
Other drivers in progress there and you know driving margin expense then and also further Castro cumbersome, how sustainable is that how should we think about for the next few quarters sort of yours.
Sure C D and and you know I'm just gonna hit the the second part of your question right off the bat is very sustainable and.
Again, I'm Gonna repeat you know, there's more to come and we're not done yet and you saw the 700 basis point improvement ear over here at this quarter, but you also know that we raised our Oh P. Martin Guy this for the full year, where now targeting at least 18.5% operating margins and.
I'm still very much exiting at at least 20 per cent.
In queue for so not only is it sustainable it's going to get better from here.
Uhm, Yes, we did take some actions at the end of last year difficult actions that you're seeing flow through the numbers in the current quarter.
I think the profit potential of our business model at scale is really starting to shine through.
And we are continuing to focus on the productivity out of our workforce and optimizing and driving down the cost of customer acquisition. This is something you've heard no and I talk about in the past.
And you know that's an area that we are still really investing in.
Another personal example, I'll give you just from the finance side around efficiency action is in in the procurement project that we're running we had many many mountains manual processes from procurement to payment as you might understand for a company that scaled and grew as quickly as we did.
And at the moment within my Finance team, we're implementing a software that will automate a lot of these processes and that procurement initiative alone will be saving high single digit millions just that one initiative within finance.
You know there's also the operating leverage inherent in the business, we're focusing on higher or a lie programs were really prioritizing how and when we're we're investing our donors.
We're actively managing the workforce. So that includes opening up hubs in Dallas, and Charlotte, which are lower cost G. OS verses, making incremental hires in Belmont for example, in my team I'm, not making incremental hires and on the finance side Uhm and Belmont any of those.
New hires would be in in lower cost Gino's, and then no probably talk a little bit about what we're doing on the channel side, but we are.
You know very much looking at how we pay our partners and how we work with those partners and that will drive further efficiencies and incremental savings as partners really take on a larger role in the overall you know soup to nuts sale process and then finally, the vendor management consolidation, where we're reviewing.
Every contract rationalizing license is bidding out our vendor contracts you know everything.
It really gets it to best in class Best practice, and one last thing I'll I'll share. It just because you were pushing on that sustainability of this profitability and I I do want to also make a strong point on free cashflow, we shared last quarter that we would double free cash flow generation from a normalised level of 140 million.
2022, two at least 280 million by 2024, my fiscal year and 2024 I'm now confident we can achieve this level of free cash flow generation much earlier than end of the fiscal year 24, and this level of free cash flow generation gives us a lot of flexibility around capital allocation.
And importantly, addressing our convertible debt in a cost efficient manner.
The next question comes from Madame Marcia with Morgan Stanley . Please go ahead.
Great. Thanks.
Wanted to see if you could kind of break down you know with some of the upside of that your thoughts about a quarter that lower churn is you know better pricing on my new old does that just slightly better to add that appeared kind of the mid market was the greatest source of kind of incremental era.
So just trying to see is that turn came out a little bit less than I expected just any details on kind of that context would be helpful. Thanks.
Thanks me that yeah. So I I think it will start off just by addressing that retention, which again is a big focus for this this management team.
So we produce net retention we came in at above 100 per cent and within that.
Churn remain stable on a percentage basis, so annualized turn on a percentage basis.
I will call out is stable turn on a larger base does actually mean higher dollar churn, but overall churn stable and within plan.
Again, we're actively focused on it we've invested in C. S M. So customer success and analytics in this area.
Is a a big renewal year as Covid laps.
What I would say is that we saw some pressure in upsell.
Due to the macro we believe in that was mostly an enterprise so you're absolutely right to call out that S. M. B was a bright spot.
So we saw no material change to the dynamics in that business.
And you know some customers with an enterprise are starting to rationalize seats, given the head count actions that they were taken internally.
But we are very much focused on maintaining the logos and again just investing actively in that area no mate Wanna add a bit in terms of the strength were seen on S. M B.
Suddenly I think you nailed it at the end of the day strengthened S. M. B, we're seeing that market stabilizes continued to do well for us acquisition broadly across the board what's wrong and then as suddenly pointed out stadium turn and these are the factors that we've utilized as we think about our go forward guide as well.
The next question comes from Ryan Coons with need them. Please go ahead.
Thanks for question I wanted to ask about the the teams environment had a chance to see your.
[noise] enterprise connection was really interested in that it was also heard anecdotally that you know teams phone ads are really slowing I'm sure. That's you know due to the macro in general, but I Wonder if you see any impact in that in terms of your upside opportunity. So the turnkey.
Bring your cash solution versus opportunities just fell into teams as a as your own app instead of changed appreciate any color on that thank you.
Thanks, Ryan and thanks for coming by in checking out the demos right now are as we've said in our prepared remarks, you know, we're seeing strong growth with our teams one dot O business. If you will over 100 per cent C. Gross you're over here as we think about teams to dot.
Oh, it really is an opportunity to drive traction with what is already a fairly substantial teams base through a significantly improved experience versus what we offer in our one dollar a product and frankly as <unk> pointed out what other competitors in the market or offer.
And our emotion there is really about targeting E. One and E. Three users that don't have a teams film license and constitute the vast majority of the teams users that are out there in this place you know directly into R. B a U sales motion if you will wear.
There is part of the discovery process, we are talking to our customers about what solutions, they're using today are they on and on Prim legacy solution. Some of them may tell us that there are teams user and to the degree that there are teams user then we pivoted into offering the value and the benefits of our integrate.
<unk> our analytics, all frankly at one simple valuable price and then to the degree that a customer needs contact center as well see cats were able to integrate that and bring that to life. So to simply answer. Your question. There's a fairly material number of teams users out there today, we can see.
Did you see that as a key growth opportunity for us moving forward and it only gets better with our two daughters solution.
The next question comes from Brian Peterson with Raymond James. Please go ahead.
Congrats on the shrunk over guys. So I I I just wanted to start on the enterprise in the top a funnel I know you mentioned that that are our growth in that revenue growth in the enterprise was delta. There you know what are you guys seeing in the top of the funnel that gives you confidence that enterprise will will step up in the back half of the year. Thanks guys.
Thanks for the question Bryan appreciate it you know as we think about the top a funnel our lead flow is still quite strong.
And as I mentioned, a few minutes ago, we are seeing broad acquisition strength across the board.
The dynamic this and play and quite obviously driven by the macro environment is upsell down cell two sides of the same coin are impacting our enterprise business and so as the macro improves our ability to sell our traditional.
<unk> products that into the enterprise organically willing to with it one and then two and obviously just takes a little bit longer but as you think about the new innovations that bled articulated they become you crossville upsell opportunities as well as an acquisition a wedge strategy.
The ability to go sell these new products as stand alone and then pull through our castle castle regions along with it. So those are the dynamics were playing well thanks for the question.
The next question comes from that nickname with Deutsche Bank. Please go ahead.
Hey, guys. Thanks for taking the question I'm just curious if you can talk about the cadence of bookings over the course of the quarter and more specifically I guess was there any.
Drop off in March or any spillover into April and then just one quick follow up on on a small business. They are.
Obviously.
<unk> I'm just wondering if you can comment on what's driving the relative resiliency, there maybe relative to just mid size and enterprise. Thanks.
Sure he might suddenly here I'll take the first part of the question and then I may have never to my oldest son, specifically on S. M. B. So in terms of linearity on bookings as you know, we don't guide specifically on bookings, but I think in the current environment. It is worth giving you some color.
I I won't speak specifically month by month, but yes, we did seem much more back end loaded bookings.
So you know March Where's the lion's share of bookings for this quarter.
And as you know, we have guided them or giving some color last quarter around are our growth being higher than total revenue growth for the full year twenty-three and we still expect that to be the case and as you know enterprise bookings any way tend to be more back.
And loaded so we are seeing more of that trend in the current environment. So I'll hand over to mow just on who can talk to the S. M. B at <unk>. Yeah. So thanks for the question is you think about the opportunity to close cycle time dynamics, we articulated that we're still continue to see.
A long gated cycle times visa B Q1 of last year now as you think about S. M B Soho and Smb's space, obviously that opportunities are closed is significantly faster and one of the dynamics that played out trust during the quarter was frankly very.
Three good execution by our marketing organization that we talked about historically that we were going to rationalize brand spend we're going to improve the efficacy of our marketing demands in motion and that is playing out wisdom Alas they were able to drive more pipeline.
That pipeline clothes is fairly quickly down market and is one of the reasons that you're seeing the strengths and the numbers that we were able to put up.
Thanks for the question.
The next question comes from Peter Levine with Evercore ISI. Please go ahead.
Alright. Thank you for taking my question for you is called out of by every emergency bankruptcy.
Guess, you would have seen some kind of impact from the channel was there I mean I guess when they were in bankruptcy was there an impact in the first half and if so can you maybe quantify what that impact was and then maybe second for some really are.
<unk> about 30 can you made me dissect what core you cast.
Pricing looks like if you were to exclude the contact center from that number. Thank you.
Thanks for the question Peter I'm supposed to talk about a by they just emerged from brain bankruptcy a few days ago with the very beginning of May as we said before we're expecting that their contribution will ramp in the latter part of this year, obviously, you know tied to.
Putting the restructuring behind them, we're comfortable did the contractual provisions that we have in place are gonna allow us to achieve the minimum commitment volumes that we talked about last quarter as well as the enablement of new go to market motions, including wholesale integrations additional in a.
Durations that we're building tied to a by legacy contact center et cetera, et cetera, and frankly to the degree that they're not able to achieve those minimum commitments if that ever happens then we're comfortable that there's mechanisms in place to address that as well so that's totally out.
Turn it over to you to talk about our pets.
Yeah. Thanks for the question Peter So as you know, we we look at and run the business and and disclose our Pomona blended basis and.
I'm happy to say that the trend was stable there as you know see cats has higher or boo significantly higher I approve of Newcastle.
But even when you take out the.
<unk> number from over all our Pooh, they're generally holding steady there wasn't a little bit of weakness in ucas relative to see gas.
But it's very very mild overall you know.
Very stable unstable within a range.
And there was some some of that was actually ethics to be clear some of the the softness was ethics, but it was you know very marginal yeah.
Spot on and no material change.
The next question comes from Michael Frank with Bank of America. Please go ahead.
Hi, This is Matt from Mike. Thanks for taking the question, it's great to hear that the demand environment as broadly holding up can you call out any incremental strength or weakness you saw in specific articles this corner.
Yeah. Thanks for the question as we've talked about in previous quarters. The strength that we're seeing relative to verticals really ties back to areas that are very focused on what we call business.
Consumer.
A K, a vertical and companies that sell or service and consumers as their customers. So health care financial services retail professional services public are generally the areas.
The value Ucas and the services that we provide frankly, because luis reliability service uptime et cetera has gotta be walk solid cause it's the difference between happy customers driving revenue et cetera. So those are still the vert.
Colds that are are doing really really well for us and provide a meaningful opportunity as we look at.
The next question comes from that start like with William Blair. Please go ahead.
Taking the question.
The news and it's for mortgage based on something so we mentioned earlier and it should be talking about last wednesday's some efficiency improvement initiatives partner, specifically should be incentive structures in those relationships you just need to get an update on your level.
She does change isn't partners and then any kind of early indications on the impact on productivity those relationships.
Very good broadly we did not see any impact your over your relative to our partnerships tied to the changes that we've made as we disclosed last your Ah I'm, sorry last quarter alien <unk>.
No longer exclusive we remain partners with them. They continue to have a large on prime base and they are going to be compensated as seats are sold.
That's generally the model that we've been targeting that model, we find drives the right incentive structure and behavior and and broadly from our channel partners. We're continuing to see that lead flow is steady and no meaningful change quarter over quarter.
The only other comment that I'd make it you know going back to my prepared remarks is the launch of what we're calling the Ringcentral ignite program and we we've had a variant of it out there for awhile, but we're really putting some you know would behind the arrow if you will.
And what this program does is serve as another way for us to help continue driving our sales and marketing percentage of revenue in the right direction overtime and how does it do that one it provides economic incentive for our partners to take on more of the <unk>.
Hills, and marketing motion themselves and not include R. O direct sales space. This is a great motion Ah many of our channel partners have long standing relationships with on frame legacy customers.
There are now able to go work with move them over to bring central and do it without any additional incentive this drives economic benefit for all parties and early days, but we're seeing very solid interest from the channel partner community about this motion as well.
The next question is from Ryan Mcwilliams with Barclays. Please go ahead.
[noise] Hi, this is Jamie comment on for Orion Mcwilliams Thanksgiving My question.
I'm just curious how your renewal scared in the first quarter may be compared to the fourth quarter and if you've seen any changes in these customer meals as a result of that.
Well, we don't guide on renewal, but what I'll bring you back to the comment that Santoli made which is we're seeing the churn as a percentage is stable and doing well as we mentioned in the enterprise space Upselling downhill frankly, two sides of the same coin there is.
Some pressure on the downhill side at the renewal timeframe is our enterprise customers, who have been impacted themselves by the macro are doing some degree of rationalization of seats tied to their own needs, but again broadly speaking the churn percentage has remained stable quarter over quarter you over here.
The next question comes from Catherine <unk> with Rosenblatt Securities. Please go ahead.
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The next question comes from Terry Tillman truly please go ahead.
Great. Thanks for taking my question. This is Bobby <unk>, just one on contact center for those larger million dollar plus deals is contact centre attached spilling the over 60 per cent range or you know has there been any notable up or down taken attach your today. Thank you.
Stable, we're continuing to C. R. A million dollar plus T. C V deals have more than 60% attach a <unk> and really this boils back to what we've seen historically, which is in the legacy U C. C C space about 60% of all.
All of the C. C. C sold we're from the same vendors that were selling you see to those customers. It's a very obvious buying motion drive significant economic benefits to customers as I laid out in my prepared remarks recently validated by Forrester an independent third party.
Consulting company.
Today's last question comes from Michael turn with Wells Fargo Securities. Please go ahead.
Hey, there. Thanks for sticking me on suddenly I just wanted to go back to margin you're lacking a lot of margin expansion in fairly quick order you had some useful commentary around the sustainability of those improvements is there anything you can add around how you ensure your driving the right level of optimization instead of leaving enough in the tank for growth the hold EM about double digits going.
For it as well just curious how you manage the balance through this thanks yeah.
Yeah sure I mean, you've heard us say that we're focused on driving healthy profitable growth.
So you know we absolutely are and always will be a gross company, what I said I'm in previous calls and tried to read it right today as we are seeing the benefit of scale and the model.
You know, we're actually seen the profit potential of the business model is starting to shine through and that's from lots of efficiencies we found within the workforce.
Within optimizing our cost of customer acquisition and you may remember last quarter. When we talked about the actions. We're taking we were very specific not to touch front line salespeople.
And that is something that you know it's still.
Very much part of the Ringcentral playbook in terms of becoming significantly more profitable and significantly more cash generative. We are protecting you know the P times Q celie motions within the portfolio.
And you know some of the things that we've talked about you know what I was talking about Ah lowering customer acquisition within the channel I talked about vendor consolidation reviewing contracts rationalizing licenses being disciplined about expense being disciplined about hiring in some of the G&A areas you know where.
We still have a bit of work to do but we feel like we've come a long way. So what I would say is that we feel like we're we're getting the balance right and you know I I very much believe that we need to invest for growth and one of the great things about optimizing your cost base.
Is it frees up cash to be able to invest in future growth.
And you know that's that's what this team will be focused on.
Thank you all and that concludes our call for today you may now disconnect.
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