Q3 2024 RingCentral Inc Earnings Call
Speaker Change: Hello and welcome to the RingCentral 3rd Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then 1 on your telephone keypad, and to withdraw from the question queue, you may press star, then 2.
As a reminder, this conference is being recorded.
Speaker Change: I would now like to hand the call to Will Wong, Vice President of Investor Relations. Please go ahead.
Will Wong: Thank you. Good afternoon and welcome to RingCentral's third quarter 2024 earnings conference call. Joining me today are Vlad Shmunis, founder, chairman, and CEO, and Vaibhav Agarwal, senior vice president of FP&A and chief accounting officer. Our format today will include prepared remarks by Vlad and Vaibhav, followed by Q&A.
Will Wong: We 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.
Will Wong: Some of our discussions 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 guarantees of future performance.
Will 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 for the Securities and Exchange Commission as well as today's earnings release.
Will Wong: Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons.
Will Wong: A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck.
Speaker Change: 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 Vlad.
Thank you.
Vlad Shmunis: Good afternoon and welcome to our third quarter earnings conference call.
Vlad Shmunis: Before I discuss our results and highlights from the quarter, I'd like to provide a management update.
I want to extend a warm welcome to Abay Lamba.
who we announce today as our new Chief Financial Officer.
Vlad Shmunis: Built in from his start as a software engineer at Bentley Systems, Abay is a seasoned finance and technology leader with over 30 years of experience.
Vlad Shmunis: Abay joins us from Amazon Web Services where he is Vice President of Finance for Global Infrastructure, including Gen AI Investments.
Vlad Shmunis: Prior to Amazon, he held finance leadership roles at Cisco Systems and Autodesk.
Vlad Shmunis: In his various roles, he has driven growth and profitability for multi-billion dollar businesses.
Speaker Change: Previously, he served as a self-site analyst on Wall Street for over 15 years, where he covered enterprise technology, hardware, and SaaS companies at UBS, ISI Group, and Mizuha Securities.
Speaker Change: Abay will join in his new role in the coming weeks.
Speaker Change: I would also like to sincerely thank Vaibhav Agarwal, our SVP of FP&A and Chief Accounting Officer, for his valuable contributions to our company during this transition.
Speaker Change: His selfless dedication and outstanding leadership ensured that we did not miss a beat during the transition period. Vaibhav will partner with Abai and myself as we scale the company in the next stage of growth.
Now, moving to results.
We had a solid third quarter.
Revenue was above our guidance range.
Speaker Change: Our outperformance was driven by continuous strength in our core UCAS market combined with strong traction from our new products, in particular RingCX.
Speaker Change: We also delivered on our profitability goals, including achieving gap-operating profitability in the quarter.
Speaker Change: The combination of strong growth and operating margin expansion, a material reduction in SBC, and the return of capital via buybacks has driven a 56% year-over-year increase in free cash flow per share this quarter.
Speaker Change: We have built a leading business communications platform grounded into which stands for trust innovation and partnerships.
Speaker Change: Punk dropped.
Speaker Change: We've been delivering five nights or better reliability for over six years.
Speaker Change: Customers of all sizes, including some of the world's best known brands choose us because of our robust feature set is.
Speaker Change: Ease of deployment and use and carrier grade reliability all built on a secure does this complied and highly scalable global platform.
Speaker Change: This continues to be a key differentiator and a competitive advantage for us which is why we have been named by Gartner for the desk consecutive year as the leader in the 'twenty to 'twenty four magic, what John before you get to your board.
Core to this recognition is a leadership in voice voice.
Speaker Change: Voice continues to be mission critical.
Speaker Change: We see this in our user base well voice minutes per user remains consistent with historical trends.
Speaker Change: This is supported by a recent IDC survey, which concluded that quote.
Speaker Change: Well, 78% of organizations agree that voice call link will remain a priority mode of communication in their employee and customer interactions unquote.
Speaker Change: Given our leadership in voice enterprises are choosing grand central business phone platform to complement the use of Microsoft teams messaging and Vijay.
Speaker Change: James customers, John doing center for advanced phone capabilities that are not available with teams.
Speaker Change: These include but are not limited to SMS Socs kollmorgen drink cold chain management IV are rich communications API broader global reach native integrations with major Crs.
Speaker Change: But on the Olympics since you bought it.
Speaker Change: Based on these advantages and our deep integration with schemes. This quarter, we booked a 1 billion dollar plus D. C V win with a large European health care provider, who is also a teams customer.
Speaker Change: This customer will deploy.
Speaker Change: 35, plus offices across Europe.
Voice is the primary mode of business communication and AI is a tailwind for voice.
Speaker Change: Business is good now unlocked the bar or was there a voice conversation, it's a rich source of data that enables more insights and smarter decisions.
Speaker Change: This is why we recently announced ring central.
Speaker Change: System, which is now included at no additional cost or all right.
Speaker Change: <unk> got some rigs.
Speaker Change: Bring central system at the magical agenda is detailed real time nose for voice calls.
Speaker Change: Right and translate decks and summarizes meetings to create action items, reducing time spent on Monday.
Speaker Change: <unk> got employee status for more critical work.
Speaker Change: Do your research recently cited the subscription, but central AI assistant.
Speaker Change: Quote amazingly accurate unquote.
Speaker Change: Our long time customer the Detroit distance is already implementing AI powered no taking for the team meetings and strategy sessions.
Speaker Change: Paul Revere, the VP of a T cell that that well it has been a game changer for the distance separation.
Speaker Change: Yes, we were.
Speaker Change: Worried about missing crucial detail, especially doing five space became preparations you can significantly enhance our ability to stay organized and aligned.
Speaker Change: As this technology isn't just improving our administrative efficiency is giving us a competitive edge by ensuring no vulnerable insightful strategy falls through the cracks unquote.
Speaker Change: Two thirds of our competitive moat, we recently achieved a significant milestone by receiving eight pad.
Speaker Change: India license from the Indian Department of Telecommunications.
This integration allows us to operate across all 22 daily communication circle skin, India, making us the source cloud provider to deliver fully compliant you'll get you get solution throughout the country.
Speaker Change: Multinational organizations can now seamlessly connects with our global offices with Indian bridges facilitate an efficient communication and collaboration.
Speaker Change: Now, let's move onto the new products.
Speaker Change: Alright.
Speaker Change: Our new <unk> product <unk>.
Speaker Change: IDC recently highlighted that over 80% of organization believes it is important that the UK solution inclusive she gets capabilities.
Speaker Change: Benefits will be joined you get you get solution include improved collaboration between call Center agents and the rest of the organization, resulting in overall improved customer experience.
Speaker Change: Integrated cause irritation intelligence unified usage analytics.
Speaker Change: The old world user and administrator experience and uniform Sle's full for all internal and external communications.
Speaker Change: <unk> is a modern AI powered Omnichannel sea gas platform.
Speaker Change: Native conversation intelligence and quality management in over with digital channels. In addition to voice and SMS.
Speaker Change: Is it seamlessly integrated with our industry, leading <unk> platform and source of differentiation when combining ease of deployment and use with desktop functionality reliability and security.
Speaker Change: Based on these trends this quarter, we booked a $1 million plus D. C V deal with one of North America's largest manufacturers of.
Speaker Change: But the module replacement dies that we'll be deploying <unk> <unk> and ring fence.
Speaker Change: The entire international footprint.
Speaker Change: As an additional proof point for brakes, yes, just the ability to scale, including more advanced use cases, we have also recently moved the entire central customer service team of over a thousand support agents two rigs here.
Speaker Change: Because this was done cost efficiently in the few short weeks and without disruption.
Speaker Change: We now have over 5000 customers on the platform up over 45% sequentially. In addition to strong customer growth. We're also seeing strong <unk> expansion, which was up sequentially.
Speaker Change: The <unk> what would your management has been a good driver of this expansion with a nearly 50% attach rate to new bookings in the quarter.
Speaker Change: All debate and auto loan specialists that.
Speaker Change: Quote since we migrated to rigs, yes, we estimate a 20% time savings for customer success reps due to sophisticated AI based technology that drink CX delivers unquote.
Speaker Change: Two thirds of enhance the value proposition of Auryxia in the Midmarket and enterprise segments today, we've announced a strategic partnership with Baird.
Speaker Change: Through this partnership <unk> will be able to leverage very Allegiant W. E. F E N C S automation solutions, which complements ring central nature, if I keep it villages.
Speaker Change: This is to enhance employee productivity and improve customer experiences ultimately driving competitive advantage and operational efficiency to our customers.
Speaker Change: With the ability to address a full range of use cases.
Speaker Change: We'll be prioritizing are native speakers platform rigs he ex the.
Speaker Change: The strong traction, we're seeing with drinks here because validated its value proposition in the market as <unk> grows it's base you've got the potential to capture a meaningful share of the multibillion dollar Sika staff with order economics foreign central.
Speaker Change: Second ring fence, our conversation intelligence platform that was formerly called rig sensor sales now cause over whilst cognex customers.
Speaker Change: Over 45% sequentially as the rigs down customer base and use cases are diverse.
Speaker Change: For example, legal firms are using it to simplify case management and health care organizations Saatchi Art E. Medi Cal are using it.
Speaker Change: Magically review approximately 75000 calls a month for specific keywords versus previously only being able to menu leave you a few hundred calls per month.
Speaker Change: And third our virtual and hybrid event solution ring central events.
Speaker Change: It's over 100, new customers during the quarter.
Speaker Change: These included Trimble, a fortune 500 technology company Trimble victory central events for its ability to easily create high production quality breadth of events.
Speaker Change: We also renewed relationships with key ring central events customers, such as block G. G. L E Bay, and why you Rutgers and Dulles amongst others.
Speaker Change: In February of this year, we set a target of achieving at least $200 million of exit ore from our new products by end of 'twenty to 'twenty five.
Speaker Change: We are encouraged by our results so far and believe we are well on our way to achieving this target.
Speaker Change: Now onto partnerships.
Speaker Change: Our differentiated go to market includes a large direct sales force.
Speaker Change: Global service providers or <unk>, and the large partner and reseller network.
Speaker Change: This allows us to have access to multiple customer groups geographies and verticals.
Speaker Change: It is an important part of our competitive moat that allow us to successfully scale, our multi product business.
Speaker Change: Let me give you some highlights from the quarter.
Speaker Change: Sure Gsp's.
Speaker Change: Our juice business again grew faster than our overall business.
Speaker Change: This network of GSV partners is the deep engagement that we have built with them on both product and go to market are unmatched by our UC and cc peers.
Speaker Change: A great example of the deep engagement is out there Europe last partnership with AT&T is the nation's premier fiber fixed wireless and wireless provider, which we recently renewed.
Speaker Change: We're also leveraging our large GSP network to grow internationally.
Speaker Change: We recently added Optus, a leading service provider in Australia and are now seeing early traction together.
Speaker Change: We also continued to see success with Vodafone as well as British Telecom and Dallas internationally.
Leveraging our unique GSP network is also a key opportunity and differentiator for <unk> growth.
Speaker Change: For the phone Cox and that you.
We have already chosen rigs here as they seek a solution to break to the diverse customer bases and we're optimistic all sorts of programs with these and other key partners on this front.
Speaker Change: In summary, we had a strong quarter in delivering against our strategic priorities.
Speaker Change: Central is a proven leader in Ucas, Where's the opportunity remains large and new gas AI and <unk> are showing good early traction.
Speaker Change: We're also executing on our efficiency initiatives.
Speaker Change: Which is resulting in expanded profitability and free cash flow as well as reducing SBC.
Speaker Change: We are on an existing pad and then confident that we can continue to execute in the quarters and years ahead.
Speaker Change: With that I would like to again thank.
Speaker Change: Bob for his outstanding contributions and will now turn the call over to him to discuss our financial results in more detail.
Speaker Change: Thanks flat now I will provide highlights from the third quarter, and then discuss our business outlook for the fourth quarter and full year.
Speaker Change: In <unk>, we executed well across all our key financial metrics revenue growth operating profit S. P C and share count reduction and are raising our full year revenue and free cash flow guide.
Speaker Change: In Q3 subscription revenue of 583 million was up 10% year over ear solidly above the high end of our guidance range.
Speaker Change: You got out of $2 48 billion was up 9% year over year on a reported and a constant currency basis.
On a sequential basis currency was a moderate tailwind.
By customer group enterprise, Yeah that rose, 11% with both mid market and small business up 8% versus last year.
Speaker Change: As Vlad noted new products in particular ring CX continue to perform well with sequential growth in <unk> consistent with Tokyo.
Speaker Change: Moving to profitability I will be referring to non-GAAP results unless otherwise noted subscription gross margin was 81% down slightly sequentially as we invest in infrastructure to support the strong growth of our new products as they scale.
Speaker Change: Overall, our pool remained over $30 with new product are meaningfully higher than overall output.
Speaker Change: Over time as the contribution from new product growth and its penetration within our large base increases, we expect new products to be accretive to overall ARPA.
Speaker Change: Operating margin rose approximately two points year over year to 21% the year over year increase is driven by continued spending discipline and focus on operating efficiency.
Speaker Change: Sales and marketing expense as a percent of total revenue declined 220 basis points to 39%.
Speaker Change: As we continue to drive down costs in the sales and marketing organization and optimize for higher margin routes to market.
Speaker Change: Overall, we view operating margin expansion in conjunction with the reducing stock based compensation as both ultimately drive higher free cash flow and free cash flow per share.
Speaker Change: During the third quarter, we generated free cash flow of $105 million up 51% versus last year free.
Speaker Change: Free cash flow margin was 17, 3% up 480 basis points year over year.
Speaker Change: In addition to continued operating leverage and disciplined spending free cash flow has also benefited from working capital efficiencies.
Speaker Change: Moving to stock based compensation stock based compensation was $85 million or 14% of total revenue down 630 basis points towards since last year.
Speaker Change: Through the first three quarters of 2024, net new share grants are down more than 60% versus last year.
Speaker Change: And we are on track to exceed our goal to reduce share grants by 50% of 2023 levels.
Speaker Change: The reduction in grants as important as the lower number of shares granted and lower grant values will result in continued improvement in SBC going forward.
Speaker Change: Importantly, free cash flow again exceeded S. P C and is a reflection of our disciplined and meaningfully reducing stock based compensation, while significantly growing free cash flow.
Speaker Change: Moving onto our balance sheet and capital allocation.
Speaker Change: We will continue to employ a balanced and disciplined approach to returning cash to shareholders through both debt repayment and share repurchase.
Speaker Change: Yeah.
Speaker Change: Net debt to adjusted EBITDA improved to two three years down from three <unk> last year as we meaningfully increased our profitability.
Speaker Change: Consistent with what we shared last quarter, we plan to address that $161 million of 2025 convertible notes with available cash and cash flow.
Speaker Change: In Q3, we secured an additional 275 million delayed draw commitment to our term loan E, bringing total commitments to $350 million.
We haven't pivoted made 2025 to draw down on this commitment VP.
Speaker Change: We plan to address the convertible notes coming due in March 2026 with this commitment.
Speaker Change: The free cash flow, we expect to generate between now and March 'twenty 'twenty six.
Speaker Change: As part of deploying our dynamic capital allocation approach, we continue to target, reducing our gross debt from $1 5 billion today to no more than 1 billion before the end of 2026.
Speaker Change: Note our liquidity as of Q3 stands at $788 million, which is comprised of cash on hand, plus the undrawn commitments on our term loan E Andrew Baltimore.
Speaker Change: We believe that share repurchase continues to provide an attractive relative return in Q3, we repurchased two 6 million shares for $83 million.
Speaker Change: So far in 2024, we have repurchased seven and a half million shares for $245 million and have approximately $243 million remaining on our authorization.
Speaker Change: September 30th 'twenty 'twenty four.
Speaker Change: Our recent share buybacks combined with continued discipline on stock based compensation will result in a fully diluted share count continuing to decline further.
Speaker Change: We are making good progress with fully diluted share count declining by 1% sequentially and 3% versus last year.
Speaker Change: Going forward, we plan to continue to at least fully offset dilution from SBC via buybacks, all while preserving financial flexibility with respect to excess cash.
Speaker Change: Overall, our results this quarter demonstrate our ability to execute on our plan to deliver growth from our core and new products.
Speaker Change: Expand margins through continued spend efficiencies.
Speaker Change: Stock based compensation and deploy a balanced capital allocation approach that includes share repurchases and debt pay down.
Speaker Change: With this strategy, we believe we can continue to strengthen our financial profile.
Speaker Change: And believe we are well positioned for the future.
Speaker Change: Now, let me turn to guidance embedded in our guidance is the expectation that the macro environment and the current business trends remained relatively stable with no further material improvement or deterioration in conditions.
Speaker Change: With that backdrop for the fourth quarter of 'twenty 'twenty four we expect subscription revenue growth of 7% to 8%.
Speaker Change: Total revenue growth of 7%.
Speaker Change: non-GAAP operating margin of approximately 21% and non-GAAP EPS of <unk> 96 to 97 cents based on a fully diluted share count of 92, and a half to 93 million shares.
Speaker Change: For the full year, we are raising our revenue outlook. We now expect subscription revenue of 2.2 dollars 95 billion to $2 297 billion.
Speaker Change: Representing growth of 9% and total revenue of 2.3 97 billion to $2 $3 99 billion, representing annual growth of 9%.
Speaker Change: We continue to expect our non-GAAP operating margin of 21% as we balance profitability with reinvesting back into the business Importantly, we now expect stock based compensation of $350 million to $355 million down from 370 to 380.
Speaker Change: Million dollars previously.
Speaker Change: We also expect non-GAAP EPS of $3.69 up from $3.62 to $3.67 driven in part by a lower share count outlook as we now expect 94, and a half million fully diluted shares outstanding and 22.
Speaker Change: 24.
Speaker Change: Down from 95 to 96 million shares to previous peak.
Speaker Change: Regarding free cash flow, we now expect free cash flow of 400 to 405 million up from $395 million to $400 million.
Speaker Change: Our outlook includes capitalized expenditures of $85 million.
Speaker Change: Cash paid for interest of $60 million restructuring and other payments of 27 million as well as $25 million of cash received from certain strategic partners.
Speaker Change: As flagged noted prioritizing rink CX will be a key long term growth driver with a significantly better margin profile given its owner economics.
Speaker Change: We are excited about the opportunity to meet the emerging customer demand for a fully scaled native UC plus cc solution.
Speaker Change: <unk> is our own proprietary technology that will allow us to innovate faster and better serve our customer needs.
Speaker Change: While it's still early for ring CX, we believe that overtime. Its bookings will eventually meet or exceed those of ring central contact center bookings at its peak levels.
Speaker Change: In summary, we had a good quarter.
Speaker Change: We are executing against our strategy of delivering growth from our core expanding that addressable markets through our new products and driving our strong financial profile, while reducing our reliance on third parties for core competencies that will result in continued free cash flow generation, while materially to lowering our <unk>.
Speaker Change: Share count.
Speaker Change: We believe this strategy will maximize returns for all the shareholders.
Speaker Change: With that let's open up the call for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Good question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Please limit yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Okay.
Speaker Change: Today's first question comes from Kash Rangan with Goldman Sachs. Please go ahead.
Speaker Change: Thank you very much have lagged a great hire with a great guy known them for a long time.
Speaker Change: Looks like you have a pension for hiring former sell side people starting in potash. So a great job on the business itself I wanted to just get a better understanding as to how you would.
Evaluate your own AI strategy. So we have a bunch of hypotheses, we we develop and redevelop these products we test it out in the market what are the things that you have learned from the introduction of your AI products into the marketplace and what is your best prediction as to when we hit an inflection point where.
Speaker Change: The good is good enough that it's a I think drone and growing parts of the portfolio, including a drink CX et cetera that you could get a reacceleration in top line growth rate, which is something I know that is very near and Dear to you and you sort of intimated that that that's your plan ultimately, but how is at all playing out near.
Speaker Change: Term with respect to AI and how that could be a positive for your business. Thank you so much.
Speaker Change: Yeah no. Thank you. Thank you I'll now bye.
Speaker Change: And yeah, hopefully it will.
Speaker Change: The vehicles drawn with him as well.
Speaker Change: So well to your question.
Speaker Change: So the engineering me says the good is never good enough, but probably does not what you want to hear a little Oh, Yeah, Israel is transformative it.
Speaker Change: It is indeed, the mother of all Mega trends, you've heard me say that we are now seeing.
Speaker Change: Sure can there there is a real demand.
Speaker Change: Real traction real usage, it's early so we're not ready to share numbers, yet, but you know everything is growing are they you know not just you know quarter over quarter, but literally day over day. You know this is new technology that are going to affect.
Speaker Change: Many people probably most if not all people and certainly the vast majority of our customers.
Speaker Change: Hum.
Speaker Change: We are now at the stage, where we're not just experimenting with AI, but we've started monetizing.
Speaker Change: I think that.
Speaker Change: If you look at our corporate deck that's available online.
Speaker Change: You will see that we are specifically, calling out a number of our AI sourced or even a I.
Speaker Change: Specific products that are already being monetized.
Speaker Change: Bring sense is one of them, but there are some newer entrants for example, a ring central agent assist four rigs here comes to mind and.
Speaker Change: Some other related acknowledges our I think we already said that is pulling up our pool.
Speaker Change: And it's also a very high attach rate.
Speaker Change: So all of those are extremely positive signs and either it's very very early but we expect that over time, our AI will.
Speaker Change: It will be a major boom, a major growth driver and our pool.
Speaker Change: The far right, maybe even our pool driver for ring E X because with AI.
Speaker Change: It does not replace the person to person communications.
It only augments and enhances it and in the contact center space.
Speaker Change: While it will likely have an effect on the number of agencies, but in our case, we are going to drop door.
Speaker Change: Because you know we have some agencies, but certainly we can bring a lot more value and a lot more revenue by automating.
Speaker Change: Automating.
Speaker Change: Deflecting calls and this is where our AI our agents will come into play.
Speaker Change: We will develop ourselves and I'm sure you noticed we've announced a new strategic relationship with varied.
Speaker Change: That is a very serious about it they believe solar is a between <unk> variant.
Speaker Change: We are now well on our way of our.
Speaker Change: Offering a very wide based a contact center solution spanning from very small accounts to some of the largest accounts because a world class enterprise grade.
Speaker Change: Work.
Speaker Change: Forest management and automation.
Speaker Change: You know only a few companies are on the globe tablets, and you know where it is but it is actually in the elite.
Speaker Change: So qualitatively it is very very positive and promising going up into the right.
Speaker Change: Want to take carefully we have.
Speaker Change: Hey, whats that run rate 2.5 billion almost.
Speaker Change: So we have this business, which is very very sizable it's 100% recurrent revenues.
Speaker Change: And to really move the needle on.
Speaker Change: You know an entity of the size is simply takes time. So it will absolutely be contributing I think you will see first a ice contributions to our pool.
Speaker Change: And then over time, they will translate into our bar and then overall growth, but not quite ready to guide at this point.
Speaker Change: As it is still very very early in the cycle.
Speaker Change: Thank you so much Vlad.
Speaker Change: The next question comes from C. D <unk> with Mizuho. Please go ahead.
Speaker Change: Oh, Thank you a great to see how Biogen has new CFO are now flat it looks like a lot of emphasis on see Cas and you talked about rinks, yes, our CX and his partner says that and a few question Oh, what what kind of plane side are you seeing on the CCAR.
Speaker Change: As a SMB versus enterprise and now that you have links yes, with varying partner's favorite how you're going to put you send a deceleration against night Oh, that's nice Oh, you're going to put you send in the market.
Speaker Change: Sure Great question.
Speaker Change: And again, thank you on the body.
Speaker Change: Look we've conceived <unk> initially as an SMB product.
It is indeed doing very well in SMB and it is showing very strong growth.
Speaker Change: Quarter over quarter.
Speaker Change: But what we're realizing now is that it is a much wider solution than just for smaller businesses are.
Speaker Change: We are indeed, getting accounts, Wisconsin and thousands of seats.
Speaker Change: And as the great and as great a proof point.
Speaker Change: We are we are now becoming our own customer and we have migrated.
Speaker Change: Well over half are actually closer to three quarters of our internal contact center.
Speaker Change: <unk> two <unk> and this was a direct migration from <unk>, which as you know as we all know nicely contact base.
Speaker Change: So this transition.
Speaker Change: You know took a few weeks.
Speaker Change: And went a C.
Speaker Change: Loosely and without loss in productivity.
Speaker Change: So we now know firsthand that <unk> can't handle.
Speaker Change: Cases use cases, not only for smaller and simpler simpler businesses, but also for larger enterprises.
Our use case is actually internally, it's not that simple we have disciplined countries with skus that we're managing to optimize our you know we are you know running a very sizable call center and our processing lots of lots of traffic.
Speaker Change: And you know.
Speaker Change: With the agent Count you know well over a thousand okay, and we now have well over 1000 agents.
Speaker Change: That ring CFS as well.
Speaker Change: So to answer the second part of your question, Luke and I think I said that in my prepared remarks, as well re in Seattle is our future.
Speaker Change: <unk> central.
Speaker Change: He is uniquely positioned and has <unk>.
Speaker Change: Unique experience worldwide, you need Ian combining top level, you see with top level, you guess, what stope level cc or C cap okay.
Speaker Change: Over the years, we've been combining our cloud PBX product, which is.
Speaker Change: It's a pure play leader in this market with in context.
Speaker Change: <unk> cloud contact center, which is I have to say a very good product, but now with a ring CX in the fray.
Speaker Change: We believe that we can get a all or you know maybe you at this point almost all but eventually all of the benefits of a high end Ucas high end Cts together only this time around it will be with owner economics are you know basically in.
Speaker Change: User experience being under our control.
Speaker Change: And of course.
Speaker Change: I think in packaging.
Speaker Change: Will be such that we expect to be winning our fair share or maybe a little bit more.
Speaker Change: The overall <unk> space.
Speaker Change: So we're very optimistic.
Speaker Change: <unk> is our go forward solution a rink a ring central contact Center ring C. C. You still out there we still have time left on the in contract relationship.
Speaker Change: Perhaps it may even be extended who knows never say never I'm, not saying it will or will not just be clear.
Speaker Change: Because you know look it's a very good product and they've been a you know edits for a while and I'm sure that there are customers, who want that particular feature set which we are not trying to replicate but what we are trying to do is not try and what we are doing is we're disrupting the entire seek assets.
Speaker Change: Space with our new AI, driven an AI first.
Speaker Change: Ring CX products.
Speaker Change: And just to finish my variable incentives here.
Speaker Change: With veterans as a new strategic partner, we really do believe that we can address.
Speaker Change: Entire stack of use cases from very small to very very large.
Speaker Change: Black Thanks for that color and a quick follow up by above we see gross margin.
Speaker Change: Down ticking last two quarters I'm wondering a how should we think about that going forward what's.
Driving that.
Speaker Change: Yeah. Thanks for the question. So look overall gross margin is still very strong at about 81%.
Speaker Change: The article was continued to be stable and we are seeing scale benefits from our cost base, so things like transport costs and our fixed costs are spreading over a bigger base. There is a slight sequential headwind as we are ramping up our new products, particularly ring CX Sylvia inverse.
Speaker Change: In the infrastructure and that is expected to rationalize that some of these products ramp.
The next question comes from Ryan Macwilliams with Barclays. Please go ahead.
Speaker Change: Hey, guys. This is Damon Cognos Roddick Williams. Thanks for taking the question great to hear that you guys remain on track to hit the $100 million from new products by the end of next year. As you begin to think about total revenue for 2025, but just curious that the <unk> growth rate would be would be a good starting point.
Speaker Change: Any other puts and takes we should keep in mind.
Speaker Change: Yeah, let.
Speaker Change: Let me let me take may be a first part of this question, maybe a little bit more qualitatively at this point and you know labor will provide more color.
Speaker Change: Look our number one are we are not yet ready to guide for 2025.
Speaker Change: To be.
Speaker Change: Honestly, we are laser focused on getting a good Q4 here and of course, we are in the planning stages, but it's relatively early.
Speaker Change: So we're not ready to guide and on top of this as you. All know we have just announced a new CFO he's not in the building yet. So certainly we would like him to have a you know he is he has his stake.
Speaker Change: And chassis scanned.
Speaker Change: Now having said all of this.
Speaker Change: A little we see very many positives, California goes there are again some of what I'm about this idea is in our earnings is in our prepared remarks. Some of it I would refer you to our investor deck, which has been updated lately, but fundamentally what.
Speaker Change: We see is a continued strong use of voice.
Speaker Change: We see a third party.
Speaker Change:
Speaker Change: Proof points are from the analyst community, but we also see it in our own user base to where voice minutes per user are steady and or at least keep them.
Speaker Change: Keeping our.
Speaker Change: Pace with our overall growth of the company. This is a very positive sign for us.
Speaker Change: We know that there is still huge greenfield left.
Speaker Change: In the UC space and you know we are hedging a.
Speaker Change: Lots of new logos two shows us okay to do to leverage this opportunity.
Speaker Change: In the contact center space. It is also good news was <unk> doing.
Speaker Change: Well and I would say, maybe a bit better than expected.
There's also the reality that for a number of years, we've been selling a combined ucas she cast product with.
Speaker Change: A nice in contact based and nice and contact technology we.
Speaker Change: We have a sales force and our channel outside Shadow is well trained in selling junk a combined solution.
Speaker Change: Moving forward with as I, just indicated we will be leading with ring see X.
Speaker Change: And bring central contact center, the OEM solution will still be part of the portfolio.
Speaker Change: But that will not be our foot forward. This may create a maybe its the operative word but it may create a bit of friction and it could potentially result in a bit of a headwind.
Speaker Change: In the near term.
Speaker Change: It is hard to quantify.
Speaker Change: What we know for sure. However is that we are well.
Speaker Change: Well on our way of having a rink CX.
Speaker Change: Bookings.
Speaker Change: Be on their way, but not quite there to address oh or to get to the level, where <unk> was at its peak and.
Speaker Change: Uh huh.
Speaker Change: This is net new because it is a wiser product is addressing needs for smaller businesses as well as larger enterprises, but some of it is inside the SKU placement. So what I would urge you to do is give us a little bit of time.
Speaker Change: We will be of course, providing a full outlook for a 2025.
Speaker Change: At our next earnings call and we should have substantially more information.
Speaker Change: Time.
Speaker Change: Hi, Thanks, a lot and if I could just one more how did the Microsoft came up teams opportunities perform in <unk> compared to <unk> and then just helping you land with larger customers also is it helping pull through more contact center deals with bring CX.
Speaker Change: Good questions Luke.
Speaker Change: So our teams.
Speaker Change: Teams itself is generally for larger customers.
Speaker Change: Most of our larger customers.
Our team's players.
Speaker Change: We're seeing is that our enterprise growth is still ahead of our company growth and there's still in double digits.
Speaker Change: From my.
Speaker Change: Limited understanding this is actually you know may be unique in the industry at this point to be growing you know anything because this level in double digits. So we feel super good about that.
Speaker Change: So was that in mind, yeah, our many of our enterprise customers. Our teams customers and are still choosing ring central Rinky apps in particular as an add on to team again.
Speaker Change: Again, there will be fewer refer you to our investor deck.
Speaker Change: When we actually have added some very specific information on exactly why people are choosing to use a rink E X on top of teams and again I, just really want to reiterate, especially if we have some euro people on this call.
Speaker Change: That teams is not a competitor to us.
Speaker Change: It is a potential channel and.
Speaker Change: It's an ecosystem.
Speaker Change: Like an operating system that we simply need to be part off.
Speaker Change: Okay.
Speaker Change: Forest Ranch T X historically and with some notable examples to the contrary centrally.
Speaker Change: Central itself included but historically.
Speaker Change: Is being more slated for smaller businesses, which is what is there is not so much teams. So I would say is at this point ring CX and teams integration.
Speaker Change: It's not it's not a needle mover, we expect it to become that overtime and I can tell you is that just like we have ranked E. F. Four teams, we expect to have <unk> for teams.
Speaker Change: The foreseeable future to add to the portfolio.
Speaker Change: Yeah.
Speaker Change: Thank you and the interest of time, we ask that you. Please limit yourself to just one question.
Speaker Change: The next question comes from Michael <unk> with Wells Fargo. Please go ahead.
Okay, great. Thanks, very much I appreciate all the color thus far but you you had a comment on ARPA expansion that I wanted to spend some time on them.
Speaker Change: Can you just speak to the drivers of that how much of that is cross sell from some of the newer products are focusing it on or are you seeing base price improvements as well as you continue to focus in on selling the newer products can you continue to also drive leverage on the sales and marketing line. Thank you.
Speaker Change: Definitely.
Speaker Change: Look okay. So it comes in several guys. This you use the word cross sell so how I would look at the cross sell is selling new products into the base.
Speaker Change: <unk> is one such new product ring CFS is absolutely driving up overall, our pool for the entire base.
Speaker Change: Hum.
Speaker Change: I you know look I don't have the exact numbers in front of me, but I believe is registering already for overall, our pool labor will keep me honest on that.
Okay no.
Speaker Change: I guess you can also call it cross sell I I've I've looked at this more as an upsell maybe but.
Speaker Change: We have our newer products in particular AI based products that are also beginning to move the needle. So we have ring fence, we used to call. The June sales per sales why we renamed it shortens. The name touring says is that the use cases, we're seeing are much above just for sale.
Speaker Change: It is general quality management for a call or contact centers are of you know.
Speaker Change: As of Oh.
Speaker Change: Denomination, so not necessarily the sales based alright.
Speaker Change: We have.
Speaker Change: Our systems are there.
Speaker Change: We have al Zahra summer our own some are through our OEM relationships.
Speaker Change: To be clear over time, we would be looking to replace.
Speaker Change: As much as we can from the OEM ecosystem with our native technology. This is as far as our core competencies are concerned.
Speaker Change: So.
Speaker Change: These things are all accretive to our pool what against the again I'll just refer you referred to the deck is look we've been holding all our pools.
Speaker Change: Above $30.
Speaker Change: For quite some time now guy.
And many times a week here, there's not many times, sometimes we hear well how can that be because if you go and look at competitive pricing just go on the web and you know this person that's below your means that doses below you and surely you might you must crash and the fallacy in that argument.
And is that we actually deliver more bang for the buck than probably anyone out there that has that.
Speaker Change: You can think point out too so what gets lost in translation is that for our $30. We are delivering full up high on P. B S that in many cases in its own right outside the friendship he's already used as a.
Speaker Change: Small to even midsized contact center this is driving price up or up and delivering goods wider. Okay. We are offering analytics, we're offering reporting many people don't cabinets period or charge extra for it we bundle it all in now with a I E.
Speaker Change: I'm pleased with opens up new possibilities for us because we know that while some AI is now is now table Stakes. So we have a.
Speaker Change: Our.
Speaker Change: AI assistant for <unk>, which we offer at no charge, but buildings that are various forms of bots are which are you know think of it as things that AI can do before the call things that AI.
Speaker Change: Hey, I can do during the call so agent assist and Bull skull call. It quality management. All of these are revenue opportunities for us revenue generating opportunities.
Speaker Change: And again I'm not going to guide I'm, not even going to guide with respect to our pool, but what they will say is that the value that a company gets a user get for amarin central at $30 is very very hard to match.
Speaker Change: From anyone in the industry and you know some of the interesting examples out there is for example, Microsoft score pilot Standalone is $30, Okay and were incorporating parts of that.
Speaker Change: Into our stack, so again, we deliver value for the money and intend to do so.
Speaker Change: Moving forward.
Yeah, and then on the sales and marketing side Michael.
Speaker Change: As a percentage of total revenue.
Speaker Change: It has declined by about 202 hundred basis points in the quarter. So it's now below 40% used to be in the 45% back in 2022. So it continues to be an area of focus for us and we are.
Speaker Change: Continuously lowering our CAC, which has significantly improved over the past two years and we are doing this in a.
Speaker Change: We're doing that by a couple of different ways.
Speaker Change: It's driving higher sales productivity remaining disciplined on cost and we are very mindful of the business that we are taking.
Speaker Change: By shifting to routes to market that have a favorable unit economics.
Speaker Change: Yeah.
Speaker Change: The next question comes from Samad Samana with Jefferies. Please go ahead.
Speaker Change: Hey, guys. This is Billy Fitzsimmons on for some odd maybe if I could double click on some of the macro on go to market dynamics. If I go back to the second quarter print. The strengths were cited as large deals and upsells at the high end with maybe some relative softness in SMB.
Speaker Change: How do those dynamics progress.
Speaker Change: Third quarter, and what's kind of implied in the fourth quarter guide any any material changes positive or negative in terms of enterprise versus SMB demand and then any material changes quarter over quarter in terms of customer vertical demand.
Speaker Change: <unk>. Thanks for the question. So look in Q3, we are quite pleased with the results that we delivered what we saw in Q3 was enterprise are growing in double digits. We continue to add larger customers and we provided a couple of examples of customers buying multiple car.
Speaker Change: <unk> and for a longer duration contracts.
Speaker Change: So that continues to be a positive trend for us having said that though.
Speaker Change: Enterprise continues to be more backend loaded and there is some variability in the timing of the deals.
Speaker Change: SMB, it's showing some early signs of stabilization.
Speaker Change: In terms of the macro but we are still.
Speaker Change: Kind of seeing macro headwinds.
Speaker Change: And we expect that as as conditions improve in the macro subsides. This could be a higher growth segment for us.
Speaker Change: In terms of our new products blood provided commentary in terms of the strong early traction that we are seeing and we are very encouraged that in terms of some of the early momentum, especially considering the potential for improved margins from the unit from the owner economics.
Speaker Change: And that are continues to be above 99%, we see churn in balances to be stable, but new seats Upsells continues to be an opportunity as companies are rationalizing head count growth, so that that'll be an area of opportunity to put us.
Speaker Change: And other revenue continues to be impacted by it.
Speaker Change: Cloud adoption and we are making some investments to enable our customers, particularly as they are buying new products to onboard seamlessly. So I think when we put all of those things together, that's what's incorporated in the guidance in terms of the trends that we're seeing today.
Speaker Change: Today's last question comes from Ali Agha with Rosenblatt Securities. Please go ahead.
Ali Agha: And just how much could you. Please provide some insight on how their relationship with AWS is progressing and are you guys observing additional revenue from this partnership thank you.
Ali Agha: Yeah.
Speaker Change: Relationship is.
Speaker Change: Alive and healthy.
Speaker Change: And.
Speaker Change: Certainly we are a big customer of theirs.
Speaker Change: But in addition to that we are seeing.
Speaker Change: Some deal flow from them.
Speaker Change: Because in the end our a con artist.
Speaker Change: Our technology is complementary to theirs.
Speaker Change: We are not able to.
Speaker Change: Break out these numbers on this call.
Speaker Change: And by the way part of the reason is that.
Speaker Change: In many cases, we have multiple sources of referral if you will.
Speaker Change: And they are all working together, but it's certainly helpful to have someone like AWS on your site and they are on our site.
Speaker Change: So we're happy with the relationship.
Speaker Change: Hopefully there as well.
Speaker Change: And we do believe that there is more to do there and I can tell you is that we have teams actually working on.
Speaker Change: Making power.
Speaker Change: Our solutions are.
Speaker Change: More yet more appealing to AWS is very very large customer base.
Speaker Change: Okay.
Speaker Change: This concludes our call for today. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].