Q4 2023 RingCentral Inc Earnings Call
Operator: Good afternoon, and welcome to the RingCentral fourth quarter 2023 earnings conference call. All participants will be in listen-only mode.
Good afternoon, and welcome to the ring Central fourth quarter 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Operator: Please note, this event is being recorded. I would now like to turn the conference over to Will Wong, Vice President of Investor Relations. Please go ahead.
Please note this event is being recorded.
I would now like to turn the conference over to will Wong Vice President of Investor Relations. Please go ahead. Thank.
William Wong: Thank you. Good afternoon, and welcome to RingCentral's fourth quarter 2023 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, and Sonali Parekh, CFO. Our format today will include prepared remarks by Vlad and Sonali, followed by Q&A.
William Wong: Thank you good afternoon, and welcome to rate pendulum fourth quarter of 2023 earnings Conference call. Joining me today are blast furnace, founder chairman and CEO and CFO.
CFO well format today will include remarks, and Saturday followed by Q&A. We also have a slide presentation available on our Investor Relations website.
William Wong: We also have a slide presentation available on our Investor Relations website that will coincide with today's call, which you can find under the financial results section at ir.ringcentral.com. Additionally, some of our discussion and responses to your questions will contain forward-looking statements regarding the company's business operations, financial performance, and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control, and are not guaranteed for 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 with the Securities and Exchange Commission, as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons.
What I would say I'd call, which you can find them at the financial results section at IR that Grand Central and Dot com.
William Wong: Some of our discussion and responses to your questions will contain forward looking statements regarding the company's business operations.
William Wong: Vince and outlook. These statements are subject to risks and uncertainties some of which are beyond our control and are not guarantees of future performance.
William Wong: 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 with the Securities and Exchange Commission as well it's changed everything.
William Wong: Unless otherwise indicated all measures that follow are non-GAAP with year over year comparison.
Vladimir G. Shmunis: A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck. 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 can be found in the slide deck posted on our Investor Relations website. With that, I'll turn the call over to Brian.
William Wong: A reconciliation of GAAP to non-GAAP results is provided with our earnings release and in the slide deck 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 in the slide deck posted on our Investor Relations website with that I'll turn the call over to Scott.
Vladimir G. Shmunis: Good afternoon, and welcome to our fourth quarter 2023 earnings call. First, I'd like to welcome two new board members, Nat Segal and Proud Butt, to the RingCentral family. Ned is a seasoned executive with more than 25 years of technology, finance, and capital market experience, including Twitter, Intuit, and Goldman Sachs. Brad is an accomplished technology industry veteran and financial expert, having served as the chief accounting officer at Cisco Systems for over 20 years. I look forward to working with them both.
Scott: Good afternoon, and welcome to our fourth quarter 2023 earnings call.
Scott: Sure I'd like to welcome two new board members Nasty Gal and brought back.
Scott: In central family.
Scott: No.
Scott: With more than 25 years of technology finance and capital markets experience.
Scott: Including winter Intuit and Goldman Sachs.
Scott: Right, even accomplish technology industry background and financial expert.
Speaker Change: As the Chief Accounting Officer.
Speaker Change: System for over 20 years.
Speaker Change: Well look the walking examples.
Vladimir G. Shmunis: I also want to warmly thank Alan Sigerson for his nine years of service on our board as he will be transitioning off the board in Q2. Now, moving to our results. We ended the year on a strong note. In Q4, total revenue rose 9% above the midpoint of our guidance, and ALR rose 11% to $2.3 billion.
Speaker Change: I also want to warmly. Thank all of them speak with him when he was nine years of service.
Speaker Change: Wallboard.
Speaker Change: We'll be transitioning over the board in Q2.
Speaker Change: Yeah.
Speaker Change: Now moving to our results.
Speaker Change: We ended the year on a strong note in Q4 total revenue rose, 9% above the midpoint of our guidance.
Speaker Change: Oh Wow.
Speaker Change: 11%.
Speaker Change: Two point Street.
Vladimir G. Shmunis: We also achieved record profitability with a quarterly operating margin of 20.5% and free cash flow of nearly $100 million, well above our outlook. Our strong finish to 2023 positions us well to execute on our strategy in 2024 and beyond. I reach on the CEO to deliver on our strategy of one, delivering durable growth and value from our core. 2.
Speaker Change: All right.
Speaker Change: We also achieved record profitability with quarterly operating margin when did you and the health care centers and free cash flow of nearly $500 million.
Speaker Change: Well above our outlook.
Speaker Change: Our strong finish to 2023.
Speaker Change: It goes back to well to execute on our strategy in 'twenty 'twenty four and beyond.
Speaker Change: Yeah.
Speaker Change: I actually wanted to T O to deliver on.
Speaker Change: Our strategy.
Speaker Change: One delivering durable growth and value from our core.
Speaker Change: Sure.
Vladimir G. Shmunis: Expanding our time by joining RingCentral as a multi-product, AI-first communications leader. To that end, we have recently added three new products to our portfolio: RingCX, our native AI-first contact center; RingCentral Sales, our conversation intelligence platform for sales professionals; and RingCentral Events, our new virtual, hybrid, and on-site events platform. And three, driving continued robust free cash flow generation while materially reducing SBC and maximizing free cash flow per share growth over the long term. Our right to win is rooted in our industry-leading, reliable, global, fully-featured business communications platform that now includes Cloud PBX, Cloud Contact Center, and video meetings, webinars, and events, all infused with state-of-the-art AI capability. As a testament to our industry leadership, in November 2023, RingCentral was named a Leader in the Gardner Magic Quadrant for Unified Communications as a Service Worldwide Report for the 9th consecutive year. And we're excited to report that Ergon Research, an independent third-party research firm, just named RingCF as the leader in the Intelligent Contact Center for SMB.
Speaker Change: Changing all the time by joining with central into a multi product yeah.
Speaker Change: Any indications.
Speaker Change: Is that and we've got recently added three new products to our portfolio.
Speaker Change: Oh, yeah yeah.
Speaker Change: It's bumpy center Wednesday hotels.
Speaker Change: Our conversation.
Speaker Change: TV platform for sales professional and Lynx central event.
Speaker Change: You know, Joe so I'd been onsite events platform.
Speaker Change: I'm sorry.
Speaker Change: Given continued robust free cash flow generation, while materially reducing SBC.
Speaker Change: And maximizing free cash flow per share growth over the long term.
Speaker Change: Our right to win is rooted in our industry, leading reliable global fully featured business communications platform that now includes cloud PBX cloud context center and video meetings, where the knife and events.
Speaker Change: All infused with staples.
It does.
Speaker Change: As a testament to our industry leadership in November 'twenty, two 'twenty three.
Speaker Change: He was named a leader is the magic quadrant for unified Communications as a service.
Speaker Change: My report for the ninth consecutive year.
Speaker Change: And we're excited to report that Aragon research and independent third Party research firm just named drinks yet.
Speaker Change: The intelligent contact center.
Speaker Change: Yeah.
Vladimir G. Shmunis: We believe this is a testament to RingCentral's ability to continue delivering a superior, differentiated solution in a competitive market. We are proud to have built a $2.3 billion recurring revenue business that is growing, profitable, and serves over 400,000 customers across enterprise, mid-market, and SMB. With an enterprise, which we define as customers that generate $100,000 in ARR or more, I am particularly proud to report that this segment has just achieved $1 billion in ARR. This is a major milestone for our company. In fact, in this post-COVID world, enterprise continues to be a strong growth driver for us. Today, we count almost 20% of Fortune 1000 companies as our enterprise customers. Among these are two of the world's three largest hotel brands, one of the world's largest car rental companies, and many leading Fortune 500 financial service companies.
Speaker Change: We believe there's a good testament to incentives ability.
Speaker Change: Can you believe it.
Speaker Change: P a differentiated solution.
Speaker Change: Competitive market.
Speaker Change: We are proud to kind of build a $2 3 billion dollar recurrent revenue business that is.
Speaker Change: Growing profitable and so it's all but 400000 customers across enterprise mid market and SMB.
Speaker Change: Within enterprise, which we define as customers.
Speaker Change: Founded in $2000 or more.
I'm, particularly proud to report the new segment, because just the cheap one bill I'm bullish.
Speaker Change: Got.
Speaker Change: This is a major milestone for our company in fact.
Speaker Change: Covid World Enterprise continues to be a strong growth driver for us.
Speaker Change: Today, we count almost 80% of fortune 1000 companies.
Speaker Change: Our enterprise customers.
Speaker Change: Among these are two of the world's three largest picked all done well.
Speaker Change: One of the world's largest car rental company and many leading fortune 500 financial services company.
Vladimir G. Shmunis: Notably, the majority of our enterprise customers utilize our solutions integrated with and alongside Microsoft Teams. This strong presence with large customers and within the Microsoft Teams environment is a testament to the trust our enterprise customers have in our products and our ability to add value to the Teams environment. Our new advanced integration with Microsoft Teams is a key reason enterprise customers select RingCentral. This includes customers such as Republic Airways, one of the largest regional airlines in the U.S.
Speaker Change: Notably the majority of our enterprise cost them utilize our solution integrated with and alongside Microsoft teams.
Speaker Change: With a strong presence with large golf.
Speaker Change: The Microsoft <unk> environment is a testament to the trust, our enterprise customers cutting all product and our ability to add value to the environment.
Speaker Change: Our new advanced integration with Microsoft teams is the key reason enterprise customer.
Speaker Change: Central.
Speaker Change: This includes customers such as your public Airways, one of the largest regional airlines.
Vladimir G. Shmunis: Overall, Enterprise continues to be a growth driver for RingCentral with positive long-term results. Let me now share some additional highlights of why customers, large and small, continue to choose RingCentral to power their communication. Broadly speaking, customers have historically chosen us because of our 99.999 or 590 reliability, which we achieved for the 22nd straight quarter. Robust feature set, regulatory compliant, and that's the best of our integration. Here are some examples of key large wins and expansions for this quarter. One is a Fortune 100 insurance provider that purchased 20,000 UTCs to connect its distributed broker network made up of thousands of field workers. Another one is a global 500 retailer that purchased 18,000 UTCs to power communications across more than 2,000 stores.
Speaker Change: Overall, and the price continues to be growth driver, scoring central with a positive long term outlook.
Speaker Change: Yeah.
Speaker Change: Let me now share some additional highlights why it got some a large and small continue to choose one central Bolivar communications.
Speaker Change: Speaking, it's got the most historically addict off because so far 99.999 or five nights related to AG.
Speaker Change: Which we achieved for the second straight quarter.
Speaker Change: Teachers that with regulatory compliance.
Speaker Change: The depth and breadth.
Speaker Change: Our integrations.
Speaker Change: Some examples of a few large wins and expansion for this quarter.
Speaker Change: One of the Fortune 1000 insurance provider is that just the way 2000, you got you okay.
Speaker Change: It's distributed broker network made up of thousands with field offices.
Speaker Change: Another one is a global flight from did you meet the alert that don't just aging thousands you got teeth to ball communications across its more than 2000 stores.
Vladimir G. Shmunis: And finally, a Fortune 500 global healthcare solutions company that added millions of dollars to their existing company. One of the key integrations for this customer is a reliable and powerful calling capability embedded in Microsoft Teams, which they have already deployed to their employees. Their additional spend is a testament to their confidence in our ability to deliver a full communications platform and add value to the team's environment. Leveraging our core strengths, we are now expanding into adjacencies such as CCAS, hybrid and virtual events, and conversational intelligence for sales. These categories target addressable markets that more than double our current opportunity to over 70 billion dollars, providing multiple vectors for us to drive long-term profitable growth. Industry analysts and customers alike are already recognizing our ability to deliver in one of our key adjacent markets, Namely, Seacast. In their latest report, Ergon Research praised RingCX's ability to deliver powerful AI functionality, which includes automated quality management, coaching, and conversational analytics, while being easily deployed, easy to use, and easy to maintain, and all at a disruptive price point.
Speaker Change: And finally, a fortune 500 global healthcare solutions company that added millions of dollars.
Speaker Change: Our existing contract.
Speaker Change: One of the key integrations for this customer is a reliable and powerful calling capabilities embedded in Microsoft teams.
Speaker Change: We have already deployed two please.
Speaker Change: Is that additional spend is a testament to their confidence in our ability to deliver a full communications platform.
Speaker Change: Ed volumes.
Speaker Change: Bye.
Speaker Change: Leveraging our core strengths, we're now expanding into adjacencies, such as T Kat hybrid and virtual events and conversational intelligence with it.
Speaker Change: As these categories, who kept addressable markets that more than doubled during that puts you in that you do over $72 billion, providing multiple vectors for us to drive long term profitable growth.
Speaker Change: Industry analysts and customers alike.
Speaker Change: Radio recognizing our ability to deliver in one of our key adjacencies, namely T K.
Speaker Change: He was our latest report Aragon research.
Speaker Change: She actually its ability to deliver powerful AI functionality, which includes automated quality management coach, Inc, and conversational and others.
Speaker Change: While being easy to deploy easy to use and easy to maintain and all at a disruptive price point.
Vladimir G. Shmunis: Regarding customers, we now have over 100 paying RingCF accounts, up from about 50 when we launched in November. These accounts include two Fortune 1000 enterprises who each purchased over 1,000 seats. We also now have hundreds of paying RingCent for sales customers after it just launched in the second half of 2023. Lastly, approximately six months ago, we acquired Hoppin' Events Business. We are happy with this acquisition and will use it as a key addition to our portfolio. Since relaunching as RingCentral Events, hundreds of customers have hosted virtual and hybrid events on this platform in the past few months. These include many large Fortune 500 companies and well-known businesses such as Spotify, Reddit, and HubSpot.
Speaker Change: You guys have got some we know cats over.
One time do you think Brink's U S accounts up from about 50, when we launched in November.
Speaker Change: And this accounts, including two fortune 1000 enterprises, who each grew just over 1000 seats.
Speaker Change: We also now have some digital thing ring Central states customers. After having just launched in the second half of 'twenty.
Speaker Change: Sure.
Speaker Change: Lastly, approximately six months ago, we acquired shopping events business.
People just acquisition and viewed as a key addition to our portfolio.
Speaker Change: We have to be launching a new essential events Congress passed almost got posted and fabric. Dubai owns this platform is about two months.
Speaker Change: These include many large fortune 500 companies and well known businesses, such as Spotify and tough spot.
Vladimir G. Shmunis: We continue to see strong demand for our events platform. With recent improvements in packaging and pricing, and the addition of AI-powered features for events, we expect to significantly scale this business over time. Notably, we recently won Harvard University over a well-known video-first competitor.
Speaker Change: We continue to see strong demand for our events platform.
Speaker Change: The recent improvements in packaging and pricing and the addition of AI powered features for events, we expect to significantly scale the business over time.
Notably, we recently won sorry with Citi.
Speaker Change: A well known to be the first completed that so.
Vladimir G. Shmunis: Harvard chose us because of our advanced branding capabilities, level of production, and superior AT&T user experience. Why is it still early for our new product? Given the level of traction we are already seeing, we believe we can achieve at least $100 million in ARR from RingCF, RingCentral, and RingCentral events, collectively, by the end of 2025. We expect these new products to be meaningful contributors to our strategy of delivering long-term profitable growth. Importantly, going forward, our multiproduct strategy will be augmented by taking an AI-source approach to everything we do. AI is revolutionizing the way the world works and communicates.
Speaker Change: Hardly chose us because so far advanced they didn't give you a bit which is a level of production and superior I D.
Speaker Change: User experience.
Speaker Change: While it is still early.
Speaker Change: Paul do you want to know whether those traction well Gee, we believe we can achieve at least $500 million in ore from blue chip Greensand and bring some sort of event.
Speaker Change: Actively.
Speaker Change: At the end of 'twenty to 'twenty five.
Speaker Change: These new products to be meaningful contributors.
Speaker Change: Our strategy of delivering.
Speaker Change: Long term profitable growth.
Speaker Change: Importantly, going forward.
Speaker Change: Multi product strategy will be augmented by taking an AI first approach to it.
Speaker Change: They stick with it.
Speaker Change: But you shouldn't I think the way the world works and communicate with.
Vladimir G. Shmunis: The pace of AI innovation in our industry is accelerating. We have a robust roadmap of new AI features that should help differentiate our core and new products from the competition. Over the course of this year, we are planning to announce many more AI-rooted innovations that will enhance both the employee and customer experience. Stay tuned for some exciting product and innovation announcements at Enterprise Connect at the end of March. We will leverage our broad growth market capabilities as we execute on our AI-first multiproduct strategy. In that vein, I am pleased to welcome BrightSpeed, formerly known as CenturyLink, who will join other valuable members of our global service provider family that now includes AT&T, BT, Charter Communications, Alice, and Vodafone, amongst others. Speaking of Vodafone, we started with Vodafone UK in Germany, and in 2023, we expanded with Vodafone in Italy, Portugal, and Spain.
Speaker Change: With our innovation in our industry is accelerating we have a robust roadmap of new AI best teachers that should help differentiate our core and new products for the competition.
Speaker Change: What was the course of this year, we're planning to announce mainly more AI innovations.
Speaker Change: And chance, both employee and customer experiences.
Stay tuned for some exciting product innovation announcements.
Speaker Change: Connect.
Speaker Change: Yes.
Speaker Change: We will leverage our broad go to market capabilities.
Speaker Change: Execute on our multi product strategy.
Speaker Change: That's great.
Brian: Pleased to welcome Brian.
Brian: Formerly known as Centurylink, who will join other valuable member of our global service providers.
Brian: It includes AT&T BG charter communications.
Brian: And one of the phone amongst others.
Brian: Speaking of Vodafone.
Brian: We started with the waterfall in the UK in Germany and in 2023 we expanded with Vodafone, Italy, Portugal and Spain.
Vladimir G. Shmunis: And we're super excited about a recent enterprise win with Vodafone, lending a 15,000 seat deal at IKEA Germany. And last but certainly not least, profitability. We have greatly expanded our profitability with operating margins improving from 12% in 2022 to over 20% in 2023. We also more than doubled our adjusted unlevered fee cash flow to $325 million for the year.
Brian: And we're super excited about our recent enterprise wins with Vodafone landing a 15000 seat deal at a Germany.
Brian: And last but certainly in the northeast.
Brian: We have greatly expanded our visibility with operating margins improving from 12% in 2022.
But 20% exiting 'twenty to 'twenty three.
Brian: We also more than doubled our adjusted Unlevered free cash flow.
Brian: So you'd have to $25 million for the year, we continue to expect to.
Brian: Growth and margin expansion and robust cash flow generation in 'twenty 'twenty four and beyond.
Brian: Another important factor in creating shareholder value is minimizing M D C.
Vladimir G. Shmunis: We continue to expect to drive closer margin expansion and robust free cash flow generation in 2024 and beyond. Another important factor in creating shareholder value is minimizing SBC. I, and our entire senior management team and the board, are laser focused on and committed to delivering meaningful improvement in 2024 and beyond. Cheney will provide more color shorts.
Brian: And Oh, sorry, senior management team.
And the board are laser focused on and committed to delivering meaningful improvement in 'twenty 'twenty four it can be on.
Speaker Change: Familiar will provide more color Russell.
Speaker Change: In closing we.
Speaker Change: Exiting 'twenty to 'twenty three is a stronger leaner more profitable business.
Speaker Change: Well on our way to becoming a multi product portfolio company.
Speaker Change: Our opportunity is large our strategy is clear and where it comes down to execution.
Speaker Change: I'm optimistic about their future.
Vladimir G. Shmunis: In closing, we exited 2023 as a stronger, leaner, more profitable business, and we are well on our way to becoming an AI-first, multi-product portfolio company. Our opportunity is large, our strategy is clear, and we're a hands-down technical team. I'm optimistic about their future, and I'm happy to be back at the helm leading RingCentral's next chapter. With that, thank you, and let me turn the call over to Samad. Thanks, Vlad.
Speaker Change: I'm sure you can be back at the helm leading.
Speaker Change: Central next chapter.
Speaker Change: With that thank you and let me turn the call over to suddenly.
Suddenly: Thanks, a lot.
Speaker Change: I will now provide highlights from our fourth quarter and full year 2023 and then discuss our guidance for 2024.
Speaker Change: In Q4 subscription revenue.
Suddenly: 747 million was up 9% year over year.
Suddenly: Above the midpoint of our guidance range.
Suddenly: A R. R. A 2.33 billion up 11% versus last year.
Suddenly: Our enterprise era uncles, 13% versus last year to 1 billion.
Suddenly: We saw good traction in our 1 million plus G. C D D.
Sonali Parekh: I will now provide highlights from the fourth quarter and full year 2023 and then discuss our guidance for 2024. In Q4, subscription revenue of $547 million was up 9% year-over-year, above the midpoint of our guidance range. ARR of $2.33 billion was up 11% versus last year.
Suddenly: We finished with a seasonally strong Q4, resulting in over 100 large T. L study yeah.
Suddenly: Within SMB.
Suddenly: Our rose 9% versus last year.
Suddenly: And mid market Ara grew 10%.
Suddenly: And we believe the demand environment has begun to stabilize.
Maybe just take us.
Suddenly: Once again, we saw more than 60% of our large million dollar plus G. C. D T O.
Speaker Change: Thank you Kat and take care.
Sonali Parekh: Our enterprise ARR grew 13% versus last year to $1 billion. We saw good traction in our $1 million plus TCB deal. We finished with a seasonally strong Q4, resulting in over 100 large deals for the year.
Speaker Change: Because they are now represents over 350 million of our total <unk>.
Speaker Change: Now moving to profitability.
Speaker Change: I'll be referring to non-GAAP results unless otherwise noted.
Speaker Change: Subscription gross margin was 82% consistent with prior quarters.
Speaker Change: Overall I'll tell you it was again above $30.
Sonali Parekh: Within SMB, ARR rose 9% versus last year, and MidMarketARR grew 10%. And we believe the demand environment has begun to stabilize. Moving to CCAP.
Speaker Change: Additionally, we are seeing good traction with our new products.
Speaker Change: We have already sold thousands of Marines gx and ring fence for style sheets at Rps that are higher than our corporate average.
Sonali Parekh: Once again, we saw more than 60% of our large, million-dollar-plus PCB deals include both UCAS and CKB. DCAS ARR now represents over $350 million of our total ARR base. Now, moving to profitability. I will be referring to non-GAAP results, unless otherwise noted. Subscription gross margin was 82%, consistent with prior quarters. Overall, our pay was again above $30.
Speaker Change: And expect new products to be accretive to our two and retention over time.
Speaker Change: Operating margin of 20.5% above our guidance for 20%.
Speaker Change: 650 basis points versus last year.
Speaker Change: Our focus on increased efficiency and productivity and the significant operating leverage in our business continues to drive the meaningful increase in our profitability.
Sonali Parekh: Additionally, we are seeing good traction with our new products. We have already sold thousands of RingCX and RingCent for sale seats at ARPUs that are higher than our corporate average, and expect new products to be accretive to change and retention over time. Operating margin of 20.5%, above our guidance for 20%, rose 650 basis points versus last year. Our focus on increased efficiency and productivity and the significant operating leverage in our business continue to drive a meaningful increase in our profitability. Importantly, we generated a quarterly adjusted unleveraged cash flow of $97 million, a quarterly record. Moving to our balance sheet, In December, we repurchased $253 million of the nominal value of our 2025 convertible notes for approximately $240 million. During the quarter, we also repurchased 2.1 million shares at an average price of approximately $31.
Speaker Change: Importantly, we generated quarterly adjusted Unlevered free cash flow of 97 million.
Speaker Change: Quarterly records.
Speaker Change: Moving to our balance sheet in December we repurchased 253 million nominal value of our 2025 convertible notes for approximately $240 million.
Speaker Change: During the quarter, we also repurchased two 1 million shares at an average price of approximately $31.
Speaker Change: Now turning to the full year.
Speaker Change: Let me share a few key takeaways.
Speaker Change: First we delivered growth that was it.
Speaker Change: Part of the market.
Speaker Change: Second we meaningfully transformed our profitability and free cash flow generation profile.
Speaker Change: Third we executed against our capital allocation policy that includes debt reduction share repurchase and investing in innovation.
Speaker Change: <unk>.
And Inorganically.
Speaker Change: Now, let me provide some more detail about it.
Speaker Change: First regarding the us.
Sonali Parekh: Now, turning to the full year, let me share a few key takeaways. First, we delivered growth that was above the market. Second, we meaningfully transformed our profitability and free cash flow generation profile. Third, we executed against our capital allocation policy that includes debt reduction, share repurchase, and investing in innovation, both organically and inorganically. Now, let me provide some more detail about the First, regarding growth. Total revenue of $2.2 billion was up 11%.
Speaker Change: Total revenue of $2 2 billion was up 11%.
Speaker Change: We began to see stabilization of demand in the second half of 2023.
Speaker Change: Second profitability.
Speaker Change: We added over $210 million of incremental subscription revenue in 2023.
Speaker Change: Keeping our operating expenses roughly flat.
Speaker Change: This was driven by the reduction in sales and marketing expense, which as a percentage of total revenue declined 370 basis points versus last year.
Speaker Change: As we optimize our marketing spend increased the productivity of our sales teams and continue to be disciplined in compensating partners based on the value they create.
Sonali Parekh: We began to see stabilization of demand in the second half of 2023. Second, profitability. We added over $210 million of incremental subscription revenue in 2023 while keeping our operating expenses roughly flat. This was driven by a reduction in sales and marketing expense, which is a percentage of total revenue, declined 370 basis points versus last year.
Speaker Change: This resulted in operating margin right at 670 basis points versus last year to 19, 1% and adjusted Unlevered free cash flow margin, increasing from 5.2% change.
Speaker Change: 14.8 person.
Regarding free cash flow, we generated 325 million of adjusted Unlevered free cash flow for the year.
Speaker Change: Which exceeded the midpoint of our guidance by roughly 30 million.
Speaker Change: The significant increase in our free cash flow reflects our increasing profitability.
Sonali Parekh: As we optimize our marketing spend, increase the productivity of our sales teams, and continue to be disciplined in compensating partners based on the value they create, this resulted in operating margins rising 670 basis points versus last year to 19.1% and adjusted unlevered free cash flow margins increasing from 5.2% to 14.8%. Regarding free cash flow, we generated $325 million of adjusted, unleveraged free cash flow for the year, which exceeded the midpoint of our guidance by roughly $30 million.
Speaker Change: Well as I thought you have undertaken to optimize iPhone channel commissions and improve our working capital efficiency.
Speaker Change: Lastly, we executed against our capital allocation policy.
Speaker Change: Previously shared.
Speaker Change: In 2020 three we strengthened our balance sheet as we repurchased 839 million about 2025 convertible notes.
41 million about 2026 can pick up on that.
Speaker Change: Meaningful discount.
Speaker Change: And we were able to reduce our gross debt by over $90 million.
Speaker Change: We exited the year at two six times net debt to adjusted EBITDA down almost two times compared to 2022.
Speaker Change: We also repurchased roughly 10 million shares for $315 million well approximately $31.50 per share.
Sonali Parekh: The significant increase in our free cash flow reflects our increasing profitability as well as efforts we have undertaken to optimize upfront channel commissions and improve our working capital efficiency. Lastly, we executed against our capital allocation policy that we have previously shared. In 2023, we strengthened our balance sheet as we repurchased $839 million of our 2025 convertible notes and $41 million of our 2026 convertible notes at a meaningful discount, and we were able to reduce our gross debt by over $90 million. We exited the year at 2.6 times net debt to adjusted EBITDA, down almost two terms compared to 2022. We also repurchased roughly 10 million shares for $315 million, or approximately $31.50 per share.
Speaker Change: Our board increased our repurchase authorization.
Speaker Change: 15 million.
Speaker Change: We currently have 200 million remaining on our total authorization.
Speaker Change: Lastly, we acquired an a bench pottstown market, while continuing to invest in the development and launch of many new products.
Speaker Change: We accomplished a lot on the financial trends in 2022.
Speaker Change: In 2020 four priorities.
Speaker Change: Priorities are to one invest in the business to drive growth.
Speaker Change: Sure.
Speaker Change: Expand profitability and remaining disciplined in our spend and focused on increasing efficiency.
Speaker Change: Productivity.
Speaker Change: Three.
Speaker Change: Significantly, reducing SBC expense and net share dilution.
Speaker Change: And for <unk>.
Speaker Change: <unk> to deploy our capital allocation approach centered around deleveraging share repurchase on.
Sonali Parekh: Our board increased our repurchase authorization by $150 million, and we currently have $200 million remaining on our total authorization. Lastly, we acquired an advanced platform from Hopin, while continuing to invest in the development and launch of many new products. We accomplished a lot on the financial front in 2023. In 2024, our priorities are to one, invest in the business to drive growth. To expand profitability by remaining disciplined in our spend and focused on increasing efficiency and productivity. Sari, significantly reducing SBC expense and net share dilution. And four, continue to deploy a capital allocation approach centered around deleveraging, share repurchase, and both organic and inorganic investment. Let me now expand on each of these priorities.
Speaker Change: On both organic and inorganic investments.
Speaker Change: Let me now expand on each of these pilots.
Speaker Change: First investing in our business to drive growth.
Speaker Change: Growth in our core business remains stable as the Ucas market is large and continues to expand.
Speaker Change: Additionally, as Rob noted, we expect new products to meaningfully increase our Tam and contribute at least $100 million.
Speaker Change: By the end of 'twenty five.
Second expanding profitability.
Speaker Change: We felt like in 'twenty 'twenty four and beyond we believe we can continue to grow revenue faster than operating expenses.
Speaker Change: We will continue to focus on increasing sales and marketing efficiency.
Speaker Change: This includes increased discipline with commissions paid to centers and channel partners and reallocating resources to where we see the highest ROI.
Speaker Change: Sure and very importantly, SBC.
Speaker Change: As Bob noted the senior management team and the board.
Speaker Change: We're just focused on reducing stock based compensation and dilution.
Sonali Parekh: First, investing in our business to drive growth. Growth in our core business remains stable as the UCAS market is large and continues to expand. Additionally, as Rob noted, we expect new products to meaningfully increase our TAM and contribute at least $100 million of ARR by the end of 2025. Second, expanding profitability. Going forward, in 2024 and beyond, we believe we can continue to grow revenue faster than operating expenses. We will continue to focus on increasing sales and marketing efficiency. This includes increased discipline with commissions paid to sellers and channel partners and reallocating resources to where we see the highest ROI. Third, and very importantly, SBC. As Rob noted, the senior management team and the board are laser-focused on reducing stock-based compensation and dilution. We expect to reduce net new grants in 2024 by over 50% from the 2023 level.
Speaker Change: We expect to reduce net new grants in 'twenty to 'twenty four.
Speaker Change: Over 50% from 'twenty to 'twenty two levels.
This results in total stock based compensation coming down.
Speaker Change: Proximately 350 basis points in 2024.
Speaker Change: We expect meaningful improvement in 2025 and beyond.
Speaker Change: Finally, executing against our capital allocation priorities.
Speaker Change: Addressing our 2025 and 2026 King birth is a key priority.
Speaker Change: 161 million at the 'twenty to 'twenty five converts remains outstanding at December 31st 2023.
Speaker Change: We plan to utilize a portion of our free cash flow to retire the 2025 kingbird by its maturity date in March 'twenty 'twenty bonds.
Speaker Change: Based on our 'twenty 'twenty four guidance and deleveraging post pay down our net leverage ratio will trend closer to two times.
Speaker Change: Our loan and improving maturation.
Speaker Change: Strong double B credit rating and strong free cash flow growth gives us numerous options for fully addressing our 2020 six converts prior to maturity.
Sonali Parekh: This results in total stock-based compensation coming down by approximately 350 basis points in 2024. We expect further meaningful improvement in 2025 and beyond. Finally, execute and engage our capital allocation priorities. Addressing our 2025 and 2026 converts is a key priority. 161 million of the 2025 converts remain outstanding at December 31st, 2023.
Speaker Change: Beyond addressing our converts and we will allocate our free cash flow to investments with the highest return.
Speaker Change: This includes organic and inorganic investments and share repurchases.
Speaker Change: We see an opportunity to take advantage of the dislocation between how the market could be valued bought and the insurance strength of our business.
Speaker Change: We expect all of these actions will drive significant growth.
Speaker Change: Adjusted Unlevered free cash flow per share of approximately 25% in 2024 and to allow us to reduce share count in the intermediate term.
Sonali Parekh: We plan to utilize a portion of our free cash flow to retire the 2025 convert by its maturity date in March 2025. Based on our 2024 guidance and deleveraging post-paydown, our net leverage ratio will trend closer to two times. Our Low and Improving Leverage Ratio. Our strong BB credit rating and strong free cash flow growth give us numerous options for fully addressing our 2026 converts prior to maturity. Beyond addressing our converts, we will allocate our free cash flow to investments with the highest returns.
Speaker Change: Now, let me turn to guidance.
Speaker Change: Embedded in our guidance.
Speaker Change: Expectation that the macro environment and current business trends remained stable with no further improvement or deterioration in conditions.
For the first quarter of 'twenty 'twenty four we expect subsea.
Speaker Change: Subscriptions revenue growth of 8% to 9%.
Speaker Change: Total revenue growth of 8% to 9%.
Speaker Change: non-GAAP operating margin of 19, 5%.
Speaker Change: non-GAAP EPS.
Speaker Change: 79 to 80 cents.
Speaker Change: We also expect to incur restructuring charges of roughly five to 7 million in Q1 in connection with the reallocation of resources to our new products, such as rain CX and it makes sense.
Sonali Parekh: This includes organic and inorganic investments and share repurchases, where we see an opportunity to take advantage of the dislocation between how the market currently values us and the inherent strength of our business. We expect all these actions will drive significant growth in our adjusted, unlevered free cash flow per share of approximately 25% in 2024 and allow us to reduce our share count in the intermediate term.
Speaker Change: For the full year 'twenty 'twenty four we expect.
Speaker Change: Subscriptions revenue growth of 8% to 9%.
Speaker Change: Total revenue growth of 8% to 9%.
Speaker Change: non-GAAP operating margin of 21%.
Speaker Change: This is up 190 basis points versus 'twenty to 'twenty three.
Speaker Change: Stock based compensation as a percentage of revenue is expected to be approximately 16% at the midpoint in 2024.
Sonali Parekh: Embedded in our guidance is the expectation that the macro environment and current business trends remain stable, with no further improvement or deterioration in conditions. For the first quarter of 2024, we expect... subscription revenue growth of 8 to 9 percent. Total revenue growth of 8 to 9 percent, and a non-GAAP operating margin of 19.5%. Non-GAAP EPS of $0.79 to $0.80. We also expect to incur restructuring charges of roughly $5 to $7 million in Q1, in connection with the reallocation of resources to our new products such as RingCX and RingCent. For the whole year 2024, we expect.
Speaker Change: And down from approximately 20% and 2023.
Speaker Change: We are also targeting a further meaningful improvements and stock based compensation as a percentage of revenue and 20 to 25 and beyond.
Speaker Change: Thanks.
Speaker Change: We expect non-GAAP EPS of $3.50 to $3.58.
Speaker Change: Lastly.
Speaker Change: We expect an adjusted Unlevered free cash flow margin.
Speaker Change: 17, 5%.
Speaker Change: Or 450 to 420 million.
Speaker Change: This represents a roughly 300 basis point increase versus 2023.
Speaker Change: In summary, 2023, it was a year in which we delivered above market topline growth.
Speaker Change: While achieving record profitability and free cash flow.
Speaker Change: Building on the significant margin improvement, we achieved in 2020 three we expect operating margins and free cash flow should continue to expand.
Sonali Parekh: Subscription revenue growth of 8 to 9 percent. Total revenue growth of 8-9%, and non-GAAP operating margin of 21%. This is up 190 basis points versus 2023. Stock-based compensation as a percentage of revenue is expected to be approximately 16% at the midpoint in 2024, and down from approximately 20% in 2023. We are also targeting a further meaningful improvement in stock-based compensation as a percentage of revenue in 2025 and beyond. For example, we expect non-drop EPS of $3.50 to $3.58. Lastly, we expect an adjusted unlevered free cash flow margin of 17.5%, or $415 to $420 million.
Speaker Change: All while reducing stock based compensation.
This is reflected in the over 600 basis point combined improvement in SBC as a percentage of revenue and free cash flow margin that we have shared in our guidance.
Speaker Change: We have put in place a strong financial foundation and I believe we are set up well to deliver on our strategy of multi product growth and expanding margins in 'twenty 'twenty four and beyond.
Speaker Change: With that let's open the call for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Sonali Parekh: This represents a roughly 300 basis point increase versus 2023. In summary, 2023 was a year in which we delivered above-market top-line growth while achieving record profitability and free cash flow. Building on the significant margin improvement we achieved in 2023, we expect operating margins and free cash flow to continue to expand, all while reducing stock-based compensation. This is reflected in the over 600 basis points combined improvement in SBC as a percentage of revenue and free cash flow margin that we have shared in our guide.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: In the interest of time, please limit yourself to one question.
Speaker Change: Our first question today is from meta Marshall with Morgan Stanley. Please go ahead.
Great. Thanks, maybe Vlad you could just speak to you know given some of you stepping back into the CEO role just whether there were any change in objectives between kind of.
Speaker Change:
A different management that has been in the role over the last six months and then maybe just on brings the Ax. Clearly you guys are seeing a lot of traction with new customers just any initiatives to sell that into the installed base or you know.
Speaker Change: Is that largely being sold to new customers today. Thanks.
Operator: We have put in place a strong financial foundation, and I believe we are set up well to deliver on our strategy of multi-product growth and expanding margins in 2024 and beyond. With that, I will open the call to questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Speaker Change: Yeah, Hi, Amanda.
Speaker Change: Sure. So have there been changes with the new management as you say has been around for a few months. So obviously you know, we're a large company and whatever momentum.
Speaker Change: Scared a into the period of you know continued but.
Speaker Change: But I would say that are with me coming back and taking a fresh look at things.
Speaker Change:
Speaker Change: I think that you can expect Elizabeth are more focused on technology and innovation.
Speaker Change: I think as you saw in the prepared remarks there is.
Speaker Change: Uh huh.
Speaker Change: Renewed focus on.
Speaker Change: Timing, a multi product company and new product introduction. So you can expect to hear the word product for me a little bit more often than maybe from the.
Meta A. Marshall: To withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question. Our first question today is from Meta Marshall with Morgan Stanley. Please go ahead.
Speaker Change: Brian management here.
Speaker Change: And.
Speaker Change: Senior concentration and focus on.
Speaker Change: From a profitability and profitable growth so that has not been a change.
Vladimir G. Shmunis: Great, thanks. Maybe Vlad, you could just speak to, you know, given some of you stepping back into the CEO role, just whether there were any change in objectives between kind of, different managers who have been in the role over the last six months. And then maybe just on RingCX, clearly you guys are seeing a lot of traction with new customers. Just any initiatives to sell that into the installed base, or is that largely being sold to new customers today? Thanks.
Speaker Change: Another one.
Speaker Change: Is that they wanted to highlight is our I think there was.
Speaker Change: Some may be confusion, a few months ago about ring central growers, reaching back into SMB that is not what my plan is a ring central our origins, where indeed was F&B, but we've spent a better part of it.
Speaker Change: The last decade in expanding from SMB.
Vladimir G. Shmunis: Yeah, I'm in. Sure. So, look, have there been changes? Look, the new management, as you say, has been around for a few months, so obviously, we're a large company, and whatever momentum was carried into that period, you know, continued, but I would say that with me coming back and taking a fresh look at things, I think that you can expect a little bit more focus on technology and innovation. I think, as you saw in the prepared remarks, there is a renewed focus on becoming a multi-product company and new product introductions. So you can expect to hear the word product from me a little bit more often than maybe from the prior management here. And there is continual concentration and focus on profitability and profitable growth, so that is not going to change. Another one that I want to highlight is that I think there was some confusion a few months ago about RingCentral, call it, retreating back into SMB. That is not what my plan is.
Speaker Change: To and all the market the company, including a large enterprise.
Speaker Change: As you heard today it is now a billion dollar business.
Speaker Change: It's not a billion dollars is no assumptions that most people would walk away from and use that M. I.
Speaker Change: And in particular in the enterprise.
Speaker Change: If it continues to be a growth vector for us so it grows faster than the company overall.
Speaker Change: We are extremely pleased.
Speaker Change: With the traction we're now getting within the team ecosystem.
Speaker Change: And as you've I believe prepared remarks, you've heard that we count them 20.
Speaker Change: 20% of our fortune, one thousands amongst our enterprise customers so to be clear. It means that you have you know 110 seats in a large company, but the VSAT countered a thousand dollar plus <unk> deals.
Speaker Change: Real users.
Speaker Change: And over half or close.
Speaker Change: Close to 60% of it.
Speaker Change: Our actually teams users.
Speaker Change: Uh huh.
Speaker Change: Very cool.
Vladimir G. Shmunis: RingCentral's origins were indeed with SMB, but we've spent the better part of the last decade expanding from SMB to an all-market company, including a large enterprise. As you heard today, it is now a billion-dollar business. It's not a billion dollars. It's not something that most people would walk away from, and neither am I.
Speaker Change: That that the segment will continue to perform.
Speaker Change: The next question is from C. T panic Rohit with Mizuho. Please go ahead.
Rohit: Oh, hi, Thanks for taking my question are suddenly very impressive margin expansion and cash flow generation, but if if I look at your topline growth now decelerating from 11% in a high single digit in 'twenty poor.
Catharine Trebnick: So what needs to happen or is there a possibility for you to get back to this double digit growth.
Vladimir G. Shmunis: And in particular, in the enterprise, it continues to be a growth vector for us, so it grows faster than the company overall. And we are extremely pleased with the traction we're now getting within the team's ecosystem. And as you prepared remarks, you heard that we count 20% of Fortune 1000s among our enterprise customers. So to be clear, that means that not you have, you know, one with 10 seats in a large company, but that these are $100,000 plus ARR deals, so these are real users. And over half, or I think we're saying close to 60% of them, are actually Teams users.
Catharine Trebnick: And what are the key is M sensor driver for growth in this year that you embedded in your 2020 for guidance and what sort of conservatism baked into the guidance.
Speaker Change: Yeah, Hi C. T. Firstly, thanks for your comment on profitability and free cash flow and secondly, great question I'm glad you asked that on top line I think it's really really important for me to address that we did take a deliberately conservative approach to the way we guided on revenue for this year because.
Speaker Change: There is still some macro uncertainty out there I mean, you know, we're all saying that I think if you look across and you know.
Speaker Change: All of the software companies that have reported up to now and because of that uncertainty we wanted to be prudent in the guide and what I would say is we're being very prudent.
Vladimir G. Shmunis: So this gives me really great hope that that segment will continue to perform. The next question is from Siti Panigrahi with Mizuho. Please go ahead.
Speaker Change: And I do believe strongly that we can drive back to double digit growth. This is not in operation. This is something we can realize based on the very strong building blocks, we have in play.
Sonali Parekh: Hi, thanks for taking my question. Sonali, very impressive margin expansion and cash flow generation. But if I look at your top-line growth, now decelerating from 11% to now a high single-digit in 2024, so what needs to happen or is there a possibility for you to get back to this double-digit growth? And what are the key assumptions or driver for growth this year that you embedded in your 2024 guidance? And what sort of conservatism was backed into the guidance?
Speaker Change: Place already today.
Speaker Change: You've heard from blood, but I'm going to talk about new products as well customer and analyst feedback, we're receiving from our new products gives me a lot of confidence in our ability to ability to scale. These products to at least $100 million of ore by the end of 'twenty five.
Speaker Change: And that will have a very positive impact on our upsell, which you've heard me call out in the past have been impacted by the current macro environment, but doesn't macro improves we do believe these will be important tailwind several percentage point tailwind to our growth.
Speaker Change: So together with the incremental growth from new products and the Reacceleration from the core as a result of improved retention. We think that those are key catalysts to getting growth above that at a high single digit or 9% that you talked about just now.
Sonali Parekh: Yeah, hi Siti. Firstly, thanks for your comments on profitability and free cash flow. And secondly, a great question. I'm glad you asked it.
Speaker Change: In terms of margins I'm, just one other point I want to make is that.
Speaker Change: The margin expansion for 2024 that I've guided to which is 200 basis points. It would have been higher. However, we've made some investments in the business in 2000 and for it to drive growth in new products, including around demand Gen and customer and channel and standardization, but also we have made.
Sonali Parekh: On the top line, I think it's really, really important for me to address this. We did take a deliberately conservative approach to the way we guided on revenue for this year because there is still some macro uncertainty out there. I mean, you know, we're all seeing it.
Speaker Change: Deliberate decision to shift a portion of our stock based compensation to cash. So you know both of those are elements together resulted in about a 200 basis point headwind to operating margins. So it would have been that much better in terms of the guide and we expect to be able to.
Sonali Parekh: I think if you look across all the software companies that have reported up to now, and because of that uncertainty, we wanted to be prudent in the guide. And what I would say is we're being very prudent, and I do believe strongly that we can drive back to double-digit growth. This is not an aspiration; this is something we can achieve based on the very strong building blocks we have that are in place already today.
Speaker Change: You know continue to deliver annual margin expansion this year and next year and beyond that due to the operating leverage in the model.
Speaker Change: Your next question is from Terry Tillman with Truth Securities. Please go ahead.
Terry Tillman: Yeah, well, thanks for all that extra color there suddenly high bright in front of me and well just my Multipart single question is just first on the 100 million dollar.
Sonali Parekh: You've heard from Vlad, but I'm going to talk about new products as well. Customer and analyst feedback we're receiving from our new products gives me a lot of confidence in our ability to scale these products to at least $100 million of ARR by the end of 2025, and that will have a very positive impact on our upsell, which you've heard me call out in the past has been impacted by the current macro environment, but as the macro improves, we do believe these will be important tailwinds, several percentage point tailwinds So together with the incremental growth from new products and the re-acceleration from the core as a result of improved retention, we think that those are key catalysts to getting growth above the high single-digit or 9% that you talked about just now.
Target for <unk> at the end of 'twenty five I'm, just kind of curious from here to there I mean are we talking like 25 or $50 million and 24, just trying to understand how much of a deepness, we're gonna need under 25 and then the second part of this question is on enterprise they are or even with the conservativism should we assume comfortable below about 10% or maybe even low teens enterprise they are our growth.
Terry Tillman: Okay.
Terry Tillman: Yeah.
Speaker Change: So in terms of the actual <unk> hundred million target that we said I mean, we will certainly look for opportunities to give you milestone updates to that but.
Speaker Change: Dan just leading on the conservatism point, we feel like that is a very achievable number.
Speaker Change: And you know that will be mainly driven by rings. The axe them that would be the lion's share of it but we think that we will continue to deliver across all of the new products that we've introduced in the last a quarter or so.
Sonali Parekh: In terms of margins, just one other point I want to make is that the margin expansion for 2024 that I've guided to, which is 200 basis points, would have been higher. However, we've made some investments in the business in 2024 to drive growth and new products, including around demand generation and customer and channel incentivization. But also, we have made a deliberate decision to shift a portion of our stock-based compensation to cash. So, you know, both of those elements together resulted in about a 200 basis point headwind on operating margins. So it would have been that much better in terms of the guide.
Speaker Change: And you know I think importantly, when we thought about our guidance, we decided to specifically be very conservative on the ramp for 2024, so expect to see much more of that to hit in 2025 and beyond so I'd say really Terry back like second half of 'twenty for them and then.
And certainly in 2025 very very strong contribution.
Speaker Change: Yeah.
Speaker Change: The next question is from Ryan Macwilliams with Barclays. Please go ahead.
Ryan Macwilliams: Let's take the question great to see the year over year growth in revenue growth implied in the first quarter similar to the fourth quarter.
Ryan Macwilliams: So where are we overall in terms of the macro like are you starting to see bookings conditions improved generally and do you see any changes in linearity like the things get better at the end of the quarter.
Sonali Parekh: And we expect to be able to, you know, continue to deliver annual margin expansion this year, next year and beyond that due to the operating leverage in the model. The next question is from Terry Tillman with Truist Securities. Please go ahead. Yeah, well, thanks for all that extra color there, Sonali.
Speaker Change: Yeah. So on linearity I'm great question. So you've heard me the last couple of quarters talk about seen bookings much more backend loaded and it was quite exaggerated.
Speaker Change: And the last two quarters, and particularly not final month of the quarter you know the way that we've guided for this year is really assuming no change to that linearity. So that that are more backend loading them. However, we have seen some stabilization in some of the macro trends that you've heard us call out in the last Ah.
Terry Tillman: Hi Vlad, Sonali, and Will. Just my multi-part single question is just first on the $100 million target for ARR at the end of 25. I'm just kind of curious from here to there.
Speaker Change: Month to 18 month and in particular things like sales cycles deal size deployments approvals things like that so you know we do see a stabilization. We've certainly seen that stabilization continue into Q1, where we are as we stand now and.
Sonali Parekh: I mean, are we talking about $25 or $50 million in 24? Just trying to understand how much of a deepness we're going to need into 25. And then the second part of this question is, on enterprise ARR, even with the conservatism, should we assume above 10% or maybe even low-teens enterprise ARR growth? Thank you.
Speaker Change: The guidance today, just assumes that continued stability.
Speaker Change: Yeah, and I just wanted to add to that that was a bit.
Speaker Change: Look Uh huh bookings are actually pretty good.
Ryan McWilliams: So, in terms of the actual 100 million target that we've set, I mean, we will certainly look for opportunities to give you milestone updates on that, but, you know, again, just leaning on the conservatism point, we feel like that is a very achievable number, and, you know, that will be mainly driven by RingCX. That will be the lion's share of it, but we think that we will continue to deliver across all the new products that we've introduced in the last quarter or so, and, you know, I think, importantly, when we thought about our guidance, we decided to specifically be very conservative on the ramp for 2024, so expect to see much more of that hit in 2025 and beyond. So I'd say, really, Terry, like the second half of 20 The next question is from Ryan McWilliams with Barclays. Please go ahead.
Speaker Change: Bookings are strong.
Speaker Change: Given our you know still a bit of instability.
Speaker Change: Macro.
Speaker Change: Upsell for us is a little bit more challenged so when you say bookings I mean, the I mean, new logos and our new business in particular.
Speaker Change: So we are seeing a strong demand there, okay, and that's really why we're saying would bode well for us for the future issues a bit more with upsell and so it gives us down so and this is just as businesses are right sizing.
Speaker Change: But you know hopefully as the economy recovers this too will join into back into a tailwind.
Speaker Change: But as you can you saw from our press release and leases and some of the prepared remarks, Luke we continue signing up.
Speaker Change: New logos and very important logos.
Speaker Change: And you know.
Speaker Change: Tomatoes commentary I went into how well our enterprise segment is doing but our SMB segment, which is the $1 3 billion dollar business you know he's also going to be strong so.
Sonali Parekh: Great to see the year-over-year revenue growth in the first quarter, similar to the fourth quarter. So where are we overall in terms of the macro? Are you starting to see booking conditions improve generally? And do you see any changes in linearity, like do things get better at the end of the quarter? Yeah, so on linearity. Great question.
Speaker Change: I would say that you know.
Speaker Change: It is certainly high are far from.
Speaker Change: Being a frothy.
Speaker Change: But oh I would say the general.
Speaker Change: My General feeling is that things are healthy.
Speaker Change: Yeah.
Speaker Change: The next question is from Michael Funk with Bank of America. Please go ahead.
Michael J. Funk: Yeah. Thank you for the question one one for Vlad if I, if I cut so somewhat of a proven playbook and a subscription based model with all with slowing growth is to roll up smaller competitor everything and gain scale.
Vladimir G. Shmunis: So you've heard me talk in the last couple of quarters about seeing bookings much more back-end loaded, and it was quite exaggerated in the last two quarters, and particularly in that final month of the quarter. You know, the way that we've guided for this year is really assuming no change to that linearity, so more back-end loading. However, we have seen some stabilization in some of the macro trends that you've heard us call out in the last 12 to 18 months, and in particular, things like sales cycles, deal size, deployments, approvals, things like that. So, you know, we do see a stabilization, and we've certainly seen that stabilization continue into Q1, where we are as we stand now, and the guidance today just assumes that continued stability. And I just want to add to that a little bit. Look, bookings are actually pretty good.
Michael J. Funk: I know you mentioned inorganic as a potential use of capital during her earlier remarks. So in your view what is the argument against rolling up smaller competitors to improve scale at ring Central and you know potentially grow margins faster and your your dominant market share.
Michael J. Funk:
Michael J. Funk: Yeah.
Michael J. Funk: Firstly.
Vlad: We are by no means are adverse to M&A you've got.
Speaker Change: Makes sense.
Speaker Change: We've highlighted our recent pickup in acquisition and how well it's doing for us.
Speaker Change: So Ah I would say that in the hop in case, it would be more of a GCC.
Vladimir G. Shmunis: Bookings are strong, but given, you know, still a bit of instability in macro, upsell for us is a little bit more challenging. So when I say bookings, I mean new logos and new business, in particular.
Speaker Change: A competitor I think that Oh, there are different ways to look at this but by going after a Jason says, you're acquiring or buying into new dams and use them.
Vladimir G. Shmunis: So we are seeing strong demand there. And that really, one would think, would bode well for the future. Issues a bit more with upsell and, in certain cases, downsell. And this is just as businesses are right-sizing. But, you know, hopefully, as the economy recovers, this too will turn back into a tailwind.
Speaker Change: And you know it would be a we think are deals like that would provide long term tailwind to the business as a whole and we're set up well for long term growth.
Michael J. Funk: But as you can see from our press release and releases and some of the prepared remarks, look, we continue signing up new logos and very important logos. And, you know, to make this comment, I went into how well our enterprise segment is doing. But our S&B segment, which is a $1.3 billion business, you know, is also going pretty strong. I would say that, you know... It's certainly far from being frosty, you know, but I would say the general, my general feeling is that things are helpful. The next question is from Michael Funk with Bank of America. Please go ahead. Thank you for the question. One for Vlad, if I could.
Speaker Change: As far as buying competitors look there are many reasons to do it such as Oh, Yeah, you know various efficiencies.
Speaker Change: That's gonna be Gartner, but you know then if we're talking about the Red competitors then it's a matter of a you know what do you do about the platforms to run multiple platforms do you move from one to the other I think we've got some relatively recent the recent examples in the industry.
Speaker Change: Where are our even our most of our folks its bundles it would be in our space well.
Speaker Change: Where these types of mergers are you know yielded results is we're a little bit mixed. So you just need to be a little bit more careful but certainly at the right price, we would never say no and I can tell you that we routinely look at numerous opportunities.
Given our size and stability of our business and very importantly.
Vladimir G. Shmunis: So, Vlad, a proven playbook in a subscription-based model with slowing growth is to roll up smaller competitors and gain scale. Sonali mentioned inorganic as a potential use of capital during her earlier remarks. So, in your view, what is the argument against rolling up smaller competitors to improve scale at RingCentral and potentially grow margin faster and your dominant market share position? Yeah. Look, firstly, we are by no means adverse to M&A. It has to make sense.
Speaker Change: Our most recent guest slow our expansion in the you know in free cash and profitability.
Speaker Change: Do feel that we are a natural acquirer or natural consolidator, so I'm always a little Gov.
Speaker Change: Yeah that was very.
Speaker Change: Helpful and suddenly I look forward to hosting our next week in Boston for the N D. R. So I'm looking forward to seeing that.
Speaker Change: Same here thank you.
Speaker Change: The next question is from some odd Samana with Jefferies. Please go ahead.
Samana: Hi, good evening. Thanks for taking my question. So it's kind of a multi partner as well so on the new products I'm glad you know big expansion of the portfolio, but may touch up against at least some of what your IFC partners also provide if I think about sales.
Vladimir G. Shmunis: We've highlighted our recent acquisition of hopping companies and how well it's doing for us. So I would say that in the hopping case, it would be more of an adjacency versus a competitor. I think that there are different ways to look at this, but by going after adjacencies, you're acquiring or buying into new TAMs and new SAMs. And it would be, we think, deals like that would provide long-term tailwinds to the business as a whole and would set up well for long-term growth. As far as buying up competitors goes, look, there are many reasons to do it, such as, you know, various efficiencies that can be garnered. But, you know, then if we're talking about the red competitors, then it's a matter of, you know, what do you do about the platforms? Do you run on multiple platforms?
Samana: One how should we think about maybe where you fit into the ecosystem versus some of the companies that you partner with.
Samana: And then finally, just what are you assuming for.
Samana: <unk> versus <unk> versus other maybe as we think about 2024 air Air our growth just occurred and then.
Samana: Any differences in the growth rate above me.
Speaker Change: Yeah, Hi, Simon Yeah, no great question, our questions a little.
Speaker Change: When you were saying some.
Speaker Change: Some of the companies to partner with I assume you're referring to bring CX vis V. A ring central contact center, which is hosted by nice in contract.
Vladimir G. Shmunis: Do you move from one to the other? I think we have some relatively recent examples in the industry where, amongst our, you know, folks that one would say would be in our space, these types of mergers yielded results that were a little bit mixed. So you just need to be a little bit more careful. But certainly, at the right price, we would never say no, and I can tell you that we routinely look at numerous opportunities. Given the size and stability of our business, and, very importantly, our most recent cash flow expansion in free cash and profitability, we do feel that we are a natural acquirer or natural consolidator. So, we are always on the lookout. That was very helpful, and certainly I look forward to hosting you next week in Boston for the NDR, so I look forward to seeing you then. Same here, thank you.
Simon: So assuming I heard the question right.
Simon: Look there are designed to address different segments of the market and different use cases by and large a nice in context. He is a well established enterprise leader, they're able to and have proven success in coasting multi.
Simon: <unk> thousand.
Simon: Seat contact centers with very complicated use cases.
Simon: And are they still a very nice niche in the upper end of the market.
Simon: So we have this integration with them, it's multi year old and obviously has been quite successful for us and for them over the years and you know we stay committed to that relationship having said this we clearly see an opportunity at the bottom end of the market.
Simon: As well as maybe even some of the larger customers.
Michael J. Funk: The next question is from Samad Samana with Jeffreys. Please go ahead. Hi, good evening.
Simon: But with a simpler more streamlined a streamlined workflows.
Samad Samana: Thanks for taking my question. So it's kind of a multi-partner as well. So on the new products, I'm glad it's a big expansion of the portfolio, but it may touch up against at least some of what your ISC partners also provide, if I think about sales, and events. What should we think about maybe where these fit into the ecosystem versus some of the companies that you partner with? And then finally, just what are you assuming for UCAS versus PCAS versus others, maybe as we think about 2024 ARR growth, just because there's been big differences in the growth rates. Thanks to both of you. Yeah, hi Samad.
Simon: And this is where we saw an opportunity to come in with a differentiated product Ah that's a simpler to use simpler to deploy.
Simon: Look more cost effective we truly are.
Simon: Positioning get with disruptive pricing and people are taking notice and we are I think we mentioned we've.
Simon: Doubled the number of logos are in about three months. So we were happy with this result.
Simon: We already have some larger customers in the thousands of seats frankly.
Simon: That was a pleasant surprise for us, but you know success breeds success.
Simon: And.
Vladimir G. Shmunis: Yeah, look, no, great question or questions. Look, when you're saying some of the companies to partner with, I assume you're referring to RingCX, vis-a-vis RingCentral Contact Center, which is hosted by Nice and Company. So, assuming I have the question right, look, they're designed to address different segments of the market and different use cases. By and large, Nice in Contact is a well-established enterprise leader. They're able to and have proven success in hosting multi-thousand seed contact centers with very complicated use cases, and they fill a very nice, you know, niche in the upper end of the market. So we have this integration with them that's been going on for many years, and it obviously has been quite successful for us and for them over the years. And, you know, we stay committed to that relationship.
Simon: No.
Simon: Early but early signs are a pretty positive. So for now we're we believe that the two will coexist.
Speaker Change: So tomorrow just to answer your question about you Cassie cask AR bookings growth breakdown. So first of all you know we don't specifically guide on bookings and certainly not bookings are both by product, but I can just give you a bit of color. There, we do believe and certainly.
Embedded.
Speaker Change: And in the guide and the comments I made earlier about we think we do see upside to where we're guiding and we believe we can grow faster than the market for each of these markets. So when I talk about the market I'm talking about third party data.
Speaker Change: You know where are you cast a sort of mid single, we we think we can grow significantly above that.
Speaker Change: And then for seed cost I think the market again, it's you know below 20% in terms of what third party data is saying and are certainly brings the X will be well above that but overall, we believe we will grow faster than the market in both of those segments.
Vladimir G. Shmunis: Having said this, we clearly see an opportunity at the bottom end of the market, as well as maybe even some of the larger customers, but with simpler, more streamlined workflows. And this is where we saw an opportunity to come in with a differentiated product that's simpler to use, simpler to deploy, and a lot more cost-effective. We truly are positioning it with disruptive pricing, and people are taking notice. And we are, I think we mentioned, we've doubled the number of logos in about three months, so we're happy with that result. We already have some larger customers with thousands of seats.
Speaker Change: The next question is from Kash Rangan with Goldman Sachs. Please go ahead.
Speaker Change: Yeah.
Kasthuri Gopalan Rangan: You talked a lot about new products et cetera.
Kasthuri Gopalan Rangan: New product direction of ring central looked like.
Kasthuri Gopalan Rangan: Next for you guys, where do you see untapped opportunities for innovation.
Kasthuri Gopalan Rangan: That can get.
Kasthuri Gopalan Rangan: The company back to re accelerating growth as you pointed out and it's always good to see founders be involved in the business at this stage, it's going to get to.
Vladimir G. Shmunis: Frankly, that was a pleasant surprise for us, but, you know, success breeds success, and, you know, it's very early, but the early signs are pretty positive, so for now, we believe that the two will coexist. So Samad, just to answer your question about UCASC-CCASC bookings growth breakdown. So firstly, you know we don't specifically guide on bookings, and certainly not bookings or growth byproducts, but I can just give you a bit of color there. We do believe, and certainly embedded in the guide and the comments I made earlier about, you know, we think we do see upside to where we're guiding. We believe we can grow faster than the market in each of these markets. So when I talk about the market, I'm talking about third-party data, um, you know where UCAS is sort of mid-single digit, and we think we could grow significantly above that, and then uh for CCAS, I think the market again is, you know, below 20 percent in terms of what third-party data is saying, and certainly RingCX will be well above that, but overall, we believe we will grow faster than The next question is from Kash Rangan of Goldman Sachs. Please go ahead.
Or have you back.
Kasthuri Gopalan Rangan: I'm sure you'll agree more than anybody bad are not satisfied with single digit growth rate.
Kasthuri Gopalan Rangan: They are inherently growth people.
Kasthuri Gopalan Rangan: How do we put that.
Kasthuri Gopalan Rangan: But your new product strategy in the context of your real aspirations for the company and one of the things that you could be doing differently in the next few years. Thank you so much.
Right, Yeah, Oh, yes.
Speaker Change: Look oh.
Speaker Change: So we are I would say it's a.
Speaker Change: The early stages of executing on exactly the strategy that you've outlined.
So we are now.
Speaker Change: And frankly from what I remember really maybe for the first time in our existence.
Speaker Change: Public company. We are now actively talking about N. P is new product introductions and the book about becoming a multi product company I can tell you that you know it sounds simple for sure you have one product with another one to add it is actually a big deal okay.
Speaker Change: To go from a single product where.
Speaker Change: You have a.
Speaker Change: You know salesforce trained to do to to sell.
Speaker Change: One particular solution.
Kasthuri Gopalan Rangan: Yeah. Product direction. Next for you is, where do you see untapped opportunities for innovation that can get the company back to re-accelerating growth, as pointed out. It's always good to see founders be involved. It's good to have you back.
Speaker Change: Well you have brought up people who are specialists in one particular area that particular area. What are the technology base, you know only needs to address one use case.
Speaker Change: Support et cetera, so everything now needs to be done several times before which is a heavy lift, but we think that our juice might be worth the squeeze here because it opens up new Tam for us.
Vladimir G. Shmunis: Founders, I'm sure you will agree more than anybody, Vlad, are not satisfied with single-digit growth. http://www.ringcentralinc.com In the context of your real aspirations, what are the... www.ringcentralinc.com, Right? Yeah, Kesh, look, so we are, I would say, at the early stages of executing on exactly the strategies that you've outlined. So we are now, and frankly, from what I remember, really, maybe for the first time in our existence as a public company, actively talking about NPIs, new product introductions, and about becoming a multi-product company. I can tell you that, you know, it sounds simple, but sure, you have one product, what's another one to add? It is actually a big deal, okay?
Speaker Change: Largely expense our cumulative dam.
Speaker Change: And very importantly provides us with a new a buyer persona so your addressable market.
Speaker Change: It increases as well.
Speaker Change: In addition to the down increasing okay. So if you look at our just recent introductions Luke.
Speaker Change: Had we reintroduce a well introduce <unk> just last quarter okay.
Speaker Change: Already has over 100 logos, we have repackaged events could.
Speaker Change: The big Central events that was it.
Speaker Change: Also last quarter.
Speaker Change: And we've announced a very major win.
Speaker Change: We announced a very major win we've covered today.
Speaker Change: Because that's a big deal.
Speaker Change: Okay.
Speaker Change: Win against a very well known and a well funded competitor lets say.
Vladimir G. Shmunis: To go from a single product where you have a, you know, sales force trained to sell, you know, one particular solution, where you have product people who are specialists in one particular area and owns a particular area, where a technology base, you know, only needs to address one use case, support etc so everything now needs to be done several times over which is a heavy lift but we think that juice might be worth the squeeze here because it opens up new temps for us largely expense our cumulative time and very importantly provides us with new buyer personas so your addressable market increases as well in addition to the time increasing okay so if you look at our just recent introductions look we've had we've reintroduced or introduced RingCX just last quarter okay and it already has over 100 logos we have repackaged events, RingCentral events, that was also last quarter, and we've announced a very major win. We announced a very major win with Harvard today. That's a big deal.
Speaker Change: Okay. So we think that these are early signs of success to come.
Speaker Change: If you think about it.
Speaker Change: Goalpost that we've set of.
Speaker Change: For hundreds of millions of dollars into years are from these new products.
Speaker Change: It's meaningful you know and Oh, I guess, you can say well Gee Whiz, you know central as the $2 3 billion dollar company what wasn't another hundred because it is a big deal. Okay. Because it's Oh you know as of today you know if we had that it was before additional points of growth so that by itself would put us into <unk>.
Speaker Change: And yeah. This is Eric.
Eric: Our core belief here is that by redoubling, one new product.
Eric: They're not introductions I mean, we cannot be introducing important per quarter.
Eric: That would be hard to manage but ring CX gets us squarely into the cloud contact center market.
Eric: And which is a large growing faster than the traditional ucas market. So it will be a growth driver.
Eric: <unk> is a completely different buyer persona, but for US we are now able to sell to marketing departments and sales departments and it's something that we've been that we're able to do with our traditional products.
Vladimir G. Shmunis: That was a head-to-head win against a very well-known and well-funded competitor. Okay, so we think that these are early signs of successes to come. If you think about it, the goalposts that we've set of a hundred million dollars in two years from this new product. It's meaningful, you know, and I guess you can say, well, gee whiz, you know, RingCentral is a 2.3 billion dollar company; what's another 100? But 100 is a big deal, okay? Because, you know, as of today, if we had that, it would be four additional points of growth, so that by itself would put us into double digits, and, you know, this is Earth. The core belief here is that by redoubling on new products, not introductions, I mean, we cannot be introducing a product per quarter. That would be hard to manage, but RingCX gets Events is a completely different buyer persona for us; we are now able to sell to marketing departments and sales departments, something that we were never able to do with our traditional products, so we believe that that's going to be a meaningful business.
Eric: So we believe that that's going to be a meaningful business.
And.
Eric: Meanwhile, we see continued stability in our base.
Eric: We are able to gain a substantial new logos, both in SMB and enterprise already covered that so I think I believe that all of this will be edging up and I'm optimistic that we can over time get back into a double digit growth even.
Eric: As you know we cross the you know during the half billion dollar Mark and and beyond that I mean, it's okay to lift, but we do have a strong team and most importantly, we have a we're playing in markets, which are still grossly underpenetrated.
Eric: And we are one of the large and profitable company. It's one of those a few large profitable companies.
We're playing in the space.
Eric: The next question is from Ryan Koontz with Needham. Please go ahead.
Thanks for the question I wanted to ask about the competitive environment and the shift toward you know AI features and new products and how are you seeing that shift impact the decision criteria of your customers that maybe just want to buy.
Ryan Koontz: Are you seeing that in the forefront and how is it changing the types of competitors you bump into you know whether it's a you don't.
Ryan Koontz: Legacy player or maybe all casino more of a dial pad that's more focused on it.
Speaker Change: Yeah, well look I'll just speak about ourselves you know I won't comment on what zoom or adult whether anyone else.
Vladimir G. Shmunis: Meanwhile, we see continual stability in our base. We are able to gain substantial new logos, both in SMB and Enterprise. I've already covered that. I believe that all of this will be adding up, and I'm optimistic that we can, over time, get back into double-digit growth, even as we cross the $2.5 billion mark and beyond that. It's a heavy lift, but we do have a strong team.
He's doing a I would maybe question a little bit of things that are are any of them are more concentrated than we are are we do see ourselves as an AI first company.
Speaker Change: Ring CX in particular.
Speaker Change: He is is leveraging.
Speaker Change: Bring sense technology, which is AI platform.
Vladimir G. Shmunis: Most importantly, we are playing in markets that are still grossly underpenetrated, and we are one of the large and profitable companies, one of the few large profitable companies, to play in the Euro. The next question is from Ryan Koontz with Needham. Please go ahead.
Speaker Change: And that is getting very good traction out there.
This is very much in.
Speaker Change: In my mind at least.
Speaker Change: My understanding is very much.
Speaker Change: To specifically.
Speaker Change: Being an AI first product.
Ryan Koontz: Thanks for the question. I wanted to ask about the competitive environment and the shift toward, you know, AI features and new products. How are you seeing that shift impact the decision criteria of your customers that maybe just want to buy UCAS or CCAS? You're seeing that at the forefront, and how is it changing the types of competitors you bump into, you know, whether it's a legacy player or maybe like a Zoom or a dial-up. Yeah, well, look, I'll just speak about ourselves. You know, I won't comment on what Zoom or Dialpad or anyone else is doing.
Speaker Change: Okay and okay I.
Speaker Change: In a way.
Speaker Change: <unk> is the great equalizer.
Speaker Change: With our AI technologies.
Speaker Change: We can go.
Speaker Change: Against our industry incumbents.
Speaker Change: And.
Speaker Change: You know, we don't need to replicate the entire feature set to be competitive just because the way that people approach for example, customer service is radically changing with availability of and all of them.
Speaker Change: And.
Speaker Change: No.
Speaker Change: No I V Ace and the U S.
Speaker Change: As a game shift from okay, let's empower or balrog more agents versus let's kind of do more and more transactions at quality, but if a company is our.
Vladimir G. Shmunis: I would maybe question a little bit saying that any of them are more concentrated on AI than we are. We do see ourselves as an AI first company. RingCX, in particular, is leveraging our RingSense technology, which is our AI platform, and that is getting very good traction out there. In my mind, at least, my understanding is very much tied to specifically it being an AI-first product. Okay, and, look, AI, um... In a way, it's a great equalizer.
Speaker Change: Money by looking at them reduce their contact center stuff.
Speaker Change: So we think that for <unk> in particular, it would be a great delta tailwind.
Speaker Change: Safer events, Okay, which is the two products were highlighting.
Speaker Change: Again it is absolutely.
Speaker Change: Absolutely.
Speaker Change: Ripe for AI innovation and.
Speaker Change: We will have a little more to say about both of these in some more at enterprise connect which is coming up next.
Vladimir G. Shmunis: With AI technologies, we can go against industry incumbents. And, you know, we don't need to replicate the entire feature set to be competitive, just because the way that people approach, for example, customer service is radically changing with the availability of LLMs and No IVAs and, you know, just as the game shifts from, hey, let's empower or power up more agents versus, let's handle more transactions at quality but save companies money by letting them reduce their contact center staff. So we think that for RingCX in particular, it would be a great tailwind.
Speaker Change: Next year.
Speaker Change: As far as our core product is concerned.
Speaker Change: Hello, when all said and done why do people buy ring central given to other options in the market.
Speaker Change: The answer is.
Speaker Change: To me at least is relatively straightforward so if they buy us.
Speaker Change: Eight because were stable, we're always up would have five to six nines availability for many years and counting.
Speaker Change: <unk>.
Speaker Change: We are being told this is absolutely industry.
Speaker Change: Okay. So this is one reason second reason is we're global and regulatory compliance across the world wherever we are allowed to do business.
Vladimir G. Shmunis: Same for events, okay, which are the two products we're highlighting. Again, this is absolutely ripe for AI innovation, and we'll have a lot more to say about both of these and some more at Enterprise Connect, which is coming up next year. Now, as far as our core product is concerned, look, when all is said and done, why do people buy RingCentral, given the other options in the market? And that, to me at least, is relatively straightforward. So the bias is:
Speaker Change: There are still some countries that are close. Unfortunately for example, China, Okay, we're not going to be.
Speaker Change: Regulatory compliant.
Speaker Change: Offering services, there, either but they're really everywhere else.
Speaker Change: Jeff Ultra boxes, so companies large and small can be.
Speaker Change: Yeah.
Speaker Change: Good good.
Speaker Change: Say from that perspective, who are using us retail and gas. Okay. Then there is.
Speaker Change: Our sensor is the feature set okay and we've.
Vladimir G. Shmunis: Hey, because we're stable, we're always up, we have five to six nines availability for many years and counting, and for what we are being told, this is absolutely impossible. Okay, so this is one reason. The second reason is that we are global and regulatory compliant across the world, wherever we are allowed to do business. And there are still some countries that are closed, unfortunately, for example, China.
Speaker Change: We pioneered this space.
Speaker Change: We've been at it for the longest we simply have more features and more integrations than anyone else out there and that includes even some of the larger competitors that you can easily cycle. Okay.
And very importantly is our commitment to data privacy.
Speaker Change: We are.
Speaker Change: Religious about our customers' data just as we are about our data and.
Vladimir G. Shmunis: So, okay, we're not going to be regulatory compliant. Then we're not offering services there either, but everywhere else.
Speaker Change: That is a commitment you know come again from the highest levels.
Speaker Change: And it's just something that our customers dogs.
Vladimir G. Shmunis: We've checked all the boxes, so companies large and small can feel safe from that perspective when using us or reselling us. Then there is the feature set. And we've pioneered the space. We've been at it for the longest. We simply have more features and more integrations than anyone else out there. And that includes even some of the larger competitors that you can easily think of.
Speaker Change: They have to be concerned about is Ah Ah.
Speaker Change: The breadth of his data privacy or our commitment to security.
Speaker Change: This is why people buy with central now what does it have to do with AI.
Speaker Change: You take all of that and overlaid a eye on it that you simply get a more.
Speaker Change: More powerful solution.
Speaker Change: People given our size.
Speaker Change: And statutes in the field our.
Vladimir G. Shmunis: And very importantly, it's our commitment to data privacy. We are religious about our customers' data, just as we are about our data, and that is a commitment, you know, coming from the highest levels, and it's just something that our customers don't know. What we tend to be concerned about is data privacy or our commitment to security. So this is why people buy RingCentral. But what does it have to do with AI? If you take all of that and overlay AI on it, then you simply get a more powerful solution, okay?
Speaker Change: People don't need to buy a ring central.
Speaker Change: For AI alone Okay.
Speaker Change: But if you combine this industry leading stable global.
Speaker Change: <unk> secured platform with state of the art.
Speaker Change: Capabilities, then we think you have something that's quite differentiated.
Speaker Change: And that.
Speaker Change: Ah well through take us into this decade and beyond.
Speaker Change: No when's the next.
Speaker Change: The magnitude of innovation will happen that could compare with Woodbury now experiencing with AI, we're super early there.
Vladimir G. Shmunis: People, given our size and our status in this field, people don't need to buy RingCentral for AI alone, okay? But if you combine this industry-leading, stable, global, secure platform with state-of-the-art AI capabilities, then we think you have something that's quite differentiated and that will truly take us into this decade and beyond. I don't know when the next one is.
Speaker Change: And.
Speaker Change: The opportunity to innovate.
Speaker Change: And to differentiate.
Speaker Change: Literally boundless, okay. So again I would really urge all of you to please visit us at enterprise connect will have more more to share them.
Speaker Change: And you know.
Vladimir G. Shmunis: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES, www.enterpriseconnect.com, Expect that even as we are very much moving towards a better balance between growth and profitability than perhaps what we've had in the years past, our commitment to innovation is unwavering. We have well over a thousand engineers involved with the company. It is not an area that we're saving on or skimping on, so expect more goodness. And the final question today is from Brian Peterson with Raymond James. Please go ahead.
Speaker Change: Obviously results would be for themselves, but you can expect that even as we are.
Speaker Change: Very much moving towards a better balance between growth and profitability than what we've had in three years, but our commitment to innovation is unwavering.
Speaker Change: We have well over a thousand engineers are involved with the company. It is not an area where the saving on those can be gone. So we expect more good news.
Speaker Change: Okay.
Speaker Change: And the final question today is from Brian Peterson with Raymond James. Please go ahead.
Brian Peterson: Thanks, and nice job on the precastle ramp this quarter. Senator Lee, I appreciate all the color on the demand environment but would love to hear about what's going on at the top of the funnel. How is that trending?
Thanks, and nice job on the free cash flow ramp this quarter suddenly I appreciate all the color on the demand environment, but would love to hear about what's going on at the top of the funnel how has that trended in any notable changes in mix there via a partner versus direct or enterprise grade products would love to get any perspective, there. Thanks guys.
Sonali Parekh: Any notable changes in mix there via partner versus direct or enterprise new products? We'd love to get any perspective there. Thanks, guys. Yeah, sure.
Speaker Change: Yeah sure. Thanks, Thanks for the kind words on free cash flow.
Sonali Parekh: Thanks for the kind words on free cash flow. So in terms of what we're seeing in the demand environment, I would say there's not a really big change to call out. One thing that I would just comment on is that we did see stabilization in SMB, but we saw strong trends from the enterprise side of the house. And we don't really tend to give you much more breakdown in terms of segments or what we're seeing from the segments. But in terms of how the guidance is reflecting what we're seeing, it's assuming this continued stabilization. So there was no real improvement.
Speaker Change: So in terms of what we're seeing in the demand environment I would say, there's not a really big change to call out one thing that you know I would just comment on is we did see a stabilization in F&B, we saw strong trends from the enterprise side of the house.
And you know, we don't really tend to give you much more of a breakdown in terms of.
Speaker Change: Segment.
Speaker Change: Or what we're seeing from the segments, but you know.
Speaker Change: In terms of how the guidance is reflecting what we're seeing is assuming this continued stabilization. So no real improvement. So if we were to see an improvement for example in the upsell environment or if we were to see traction from some of the.
Sonali Parekh: So if we were to see an improvement, for example, in the upsell environment, or if we were to see traction from some of the steps we're taking around churn to improve net retention, then that would be upside in terms of what we've laid out for you today. The other thing I just want to say before we conclude the call is that Vlad and I and the senior management team are extremely focused on SBC, and hopefully, you saw that in the way that I guided, there are meaningful, meaningful reductions in 2024. So we're guiding to 16% coming down from 20%. But we're not going to stop there.
Speaker Change: Steps, we're taking around.
Speaker Change: Turning to improve net retention then that would be upside in terms of what we've laid out to you today.
Speaker Change: The other thing I, just want to say before we conclude the call.
Speaker Change: Rod and I and the senior management team are extremely focused on SBC and hopefully you saw that.
Speaker Change: And the way that I guided him, there's meaningful meaningful reductions in 2024, so we're guiding to 16% coming down from 20%.
Speaker Change: But we're not going to stop there you know net new grants for 24 will be down by approximately 50%, but we will continue on our drive to bring that down and you should expect further or several hundred basis point improvement as you look forward to 2025.
Sonali Parekh: You know, net new grants for 24 will be down by approximately 50%, but we will continue in our drive to bring that down, and you should expect further several hundred basis point improvement as you look forward to 2025. This is something that we take very seriously. And, you know, thanks for calling out free cash flow and mentioning free cash flow, but we care about free cash flow per share. And hopefully, you will have noted that the free cash flow per share growth that we will deliver for you in 2024 is 25% year over year growth. So I look forward to spending more time with all of you at the conferences coming up over the next several weeks. But I just wanted to be sure that that point was taken home. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021 BF-WATCH TV 2021, BF-WATCH TV 2021 BF-WATCH TV 2021, The Bulletproof Executive 2013
Speaker Change: This is something that we take very seriously and you know thanks for calling out the free cash flow and mentioned the free cash flow, but we care about free cash flow per share and hopefully you will have noted that the free cash flow per share growth that we will deliver for you in 'twenty 'twenty four is 25% year over year ground.
Speaker Change: So yeah look forward to spending more time with all of you in the conferences coming up over the next several weeks, but I just wanted to be sure that at that point was that was taken home.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].