Q2 2025 RingCentral Inc Earnings Call
Greetings and welcome to the ring central second quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode. A brief question. Answer session will follow the formal presentation.
It is now my pleasure to introduce your host the wrong Shaw SVP of growth. Thank you. You may begin. Thank you, good afternoon and welcome to ring Central's. Second quarter 2025 earnings call. Joining me today are flats munis founder, chairman and CEO, Kira makon president and coo and wipe off Agarwal CFO. Our former today will include prepared remarks by Vlad Kira and wipe off followed by Q&A.
We also have a slight 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 toggling central.com.
Some of our discussions and responses to your questions will contain forward-looking statements regarding company's business operations financial performance and Outlook, these statements are subject to risks uncertainties, some of which are beyond our control and are not guarantees of future performance.
Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update the statements after this call.
For a complete discussion of risks and uncertainties related to our business. Please refer to information contained in our filings with 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. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck. With that, I'll turn the call over to Vlad.
Afternoon and Welcome to our second quarter conference call.
Before we get into operational details.
I have a few important announcements.
I want to start by announcing wave of a wall as our new Chief Financial Officer.
I also want to thank a bay lamba for his contribution.
And I look forward to working with him in his new role as an executive advisor.
VA has been a key leader at R Central for over 9 years.
And has played an instrumental role in our financial transformation, including prior roles as Chief Accounting Officer, Chief Transformation Officer, and Deputy Chief Financial Officer.
Baba has played a critical role in helping scale, the company from 400 million dollars in Revenue to a 2.6 billion dollar run rate business while meaningfully increasing profitability.
As CFO his deep understanding of our business, and proven Financial leadership sets us up well for our next phase of profitable growth.
Now, on to additional important news.
Today we announced a multi-year extension of our long-standing partnership with knife.
Continue to sell and support ring, central contact center powered by nice cx1 and Power.
Ring, central contact, center customers will continue to benefit from the deep integration between 2er Magic. Quadrant leaders for UK and Cass.
We look forward to working with a nice team, offering a best-in-class integrated, AI, powered Cloud, telephone and contact center Suite. That is the ideal choice for Enterprises with complex and advanced use cases.
We are also thrilled to have announced yesterday that AT&T is expanding. Its decade-long relationship within Central.
In addition to AT&T office at hand powered, by in central, 18, AT&T will now be adding 2 of our new AI first products to their portfolio, ring sense, and ring CX.
This enables AT&T to start offering RingCentral's Cloud contact center and conversational intelligence to their customers.
That elevating customer engagement and experiences through AI enabled Technologies.
Moving on to the financial results.
Q2 was another solid quarter with all key metrics coming in at or above the high end of our guidance.
We are executing on our strategy of accelerating Innovation while delivering sustainable profitable growth.
Total revenue grew 5% year-over-year to 620 million dollars which is at the high end of our guidance.
Our performance was driven by strong execution in our Core Business combined with continued momentum in our new product portfolio which includes AI receptionist or are ring central, conversational intelligence and ring CX Cloud contact center.
Delivering on our commitment to profitable growth. We delivered another quarter of record free cash flow while materially reducing stock based compensation and debt.
Most notably, we achieved both positive Gap, operating income, and gaap net income for the first time in ring Central's history.
Given our financial strengths, our board has approved an increase to our stock repurchase authorization to 500 million.
Our success is rooted, in our strong leadership in business voice.
With the Advent of AI is being said, that voice is a new UI.
And we see strong proof points of that in our own business.
Voice is the fastest most expressive, and natural way to engage with AI.
Making those interactions feel seamless and intuitive.
It also Remains the most Preferred channel for customers to connect with businesses.
As a global leader in voice brings, Andrew is uniquely positioned to benefit.
We process tens of billions of minutes per year on our platform, with average voice usage per user remaining stable year over year and SMS usage growing.
While our traditional ucast and Cass markets are large and robust.
The new outside grows opportunity lies with AI powered customer experiences.
Ring central services are often the first point of contact between businesses and their customers.
We are in a unique position to deploy AI Agents from the very onset and throughout the customer Journey.
With a proven robust Global platform to leverage and is significant portion of our R&D. Now, dedicated to our new AI products, we are well positioned to play a leadership role in this rapidly emerging market.
We're investing over a quarter billion dollars, annually in innovation.
With a significant and growing share now dedicated to AI.
We are well on our way to meeting the hundred million dollar, our new products go for this year.
And we expect this new products to comprise a meaningful portion of our overall revenues in a few years.
Kira will share additional details on our product portfolio and progress.
Now, let me share some insights on our key customer cohorts.
While we are providing this details again today to highlight progress and performance. Please note that we may not be updating them regularly going forward.
We continue to see particularly with strong momentum with small business, customers defined as businesses with under 100 employees.
As well as with global service providers.
We now have a billion dollar plus business growing in double digits, with an average time to break even in under 18 months.
Speaking of gsps.
This particular quarter, we're very excited about a couple of marquee customer wins.
Win Central and Vodafone Ireland, have secured. Ryan are the largest European Airline planning to deploy across 172 locations in 25 countries.
In addition.
Ring central and Vodafone have won a top 10 European bank with seats in excess of 10,000 across their organization. This monkey wins. Underscores the value of our differentiated service provider Partnerships, as well as our ability to serve, even the largest global Enterprises,
In general, in larger businesses with more than 100 employees. We continue to hold our own
as we add new logos and our retention patterns, remain stable.
We also see continuous demand from larger customers with 1 million dollar plus tcv deals remaining stable quarter over quarter.
Note.
Is our particularly strong Traction in our golden verticals that include Healthcare Financial Services, retail travel, and hospitality and Professional Services.
Where voice is the key mode of communications importantly, many of these, large customers are adapting multiple products from link Central thus proving the value of our multi-product platform approach.
K will share more details and customer examples.
Additionally, our Microsoft Teams integration remains a key differentiator for larger businesses.
Uh, rink expert teams in embedded app, seamlessly, integrates ring Central's best-in-class, Cloud. PBS into the teams environment.
Rink expert teams accounts are growing in strong, double digits, with monthly active users doubled year over year.
In conclusion, our Core Business remains strong and are new AI. First products are gaining momentum with double digit growth quarter over quarter.
We are innovating rapidly while driving profitable growth and expanding. Free cash flow all while lowering SBC paying down that and improving operating margin.
Our success is rooted in our robust platform, a talented and internal team and unique deep Partnerships that are growing and expanding
I am very excited about what lies ahead as we continue to lead in the new era of AI communications and customer experiences.
We will share more details on our product and our strategy at our upcoming Innovation day at the New York Stock Exchange on November 5th.
A formal invitation will be extended soon and we look forward to seeing you there.
With that, I'll turn the call over to Kyra. Thank you.
Thank you Vlad. Let me start by congratulating WBO on his appointment as CFO. Why both is a trusted partner and I look forward to working with him as we execute on our AI driven growth strategy.
I'm also excited about our extended Partnerships was nice, as well as AT&T broadening, their portfolio with additional products from in central.
Both of these developments represent new opportunities for in Central.
At the central, were not just adapting to this new era of AI, we are shaping it. Our AI first platform is redefining customer Communications by enabling smarter faster and more intuitive interactions.
Our priorities are to extend our leadership, in voice with AI.
And expand our AI powered customer experiences.
Let's start with air.
AI receptionist has seen strong momentum now used by over 3,000 customers tripling. The number since our last earnings report.
The rapid adoption is driven by its core value proposition.
Are leverages powerful AI to ensure no important call is missed yet. It's very easy for everyone to deploy and use regardless of their technical expertise.
Today as part of our are everywhere announcement, we launched new capabilities.
Are everywhere. Brings AI powered, call handling Beyond, and ex to third-party telephony systems both on premises and Cloud.
Additionally, in central are now includes a appointment booking with Google Calendar and Microsoft Outlook, and supports, British and Australian English, Spanish and French to cater to a wider customer base.
In central air will also be available in UK and Australia later. This quarter.
The top vertical categories were are is seeing the most traction include Healthcare Professional Services construction and real estate financial services and Retail.
For example.
By leveraging are access mental health through new patient intakes by 60% resulting in projecting 1.7 billion in incremental Revenue.
And are success is not limited, just to our golden verticals.
The Detroit distance are an early adopter and they expect to see significant improvements in their customer support response time.
I am excited about where we are. Taking are next. It represents a foundational. Step toward our vision for identic AI.
I'm enabling businesses to deploy multimodel AI agents that can reason act autonomously and drive outcomes.
Now, let's talk about incense.
Incense improves business outcomes by using AI to analyze, conversations score calls, identify coaching opportunities and deliver performance insights across both employee and customer experiences.
We now have more than 3,600 customers using incense up from 2,800, last quarter.
Deflecting solid sequential growth and customer demand.
As an example, Endeavor capital, a leading financial services company.
So, a 40% increase in sales using incense.
They saved 50 hours and pay the agent monthly.
So AI generated, follow-up emails and boosted contact center disability, why 100x?
This is a clear example of how innocence is driving both efficiency and performance.
Infants. Also transformed operations for books on Windows and Doors.
Cutting 600 hours of male, call listening down to minutes and enabling 100% analysis of customer interactions.
We are making AI Central to how businesses serve their customers.
And ECX is at the heart of that strategy.
Our native AI Force contact center lcx.
Health businesses, engage customers across any channel and create immersive agent experiences.
Customers are choosing ECX for its powerful, AI features, Rich Omni Channel capabilities and numerous Integrations.
1 example of a key integration will introduce the Spas quarter is the newly launched. Ring CX, for Salesforce service cloud with
Unified and streamlined experience for Asians by integrating RingCentral's digital channels and voice capabilities into Salesforce.
In Q2.
we surpassed 1,200 rcx customs and once again, half of our 1 million plus TC videos included lcx,
Underscoring. Strong demand.
1, standout customer win. This quarter is the leading restaurant chain with 850 locations across the US.
These selected 3cx with our AI quality management solution.
And thousands of brands exist as part of their digital transformation.
Was their ambitious growth plans. We are proud to be their customer communication platform of choice.
another great example is a top private university already using ring ex to
support 5,500 employees and 35,000 students.
They recently added 3cx to modernize their contact center and are already seeing 52% perceived cost savings compared to their previous provider.
Alongside new operational efficiencies driven by AI.
In the second quarter.
The continued.
Will launch the controlled availability of customer Journey analytics, providing real time visibility into full customer Journeys across index and dcx.
A key capability in delivering unified experience.
We also made AI agent assist generally available.
For example.
Claim Solutions, Inc, reduced call handling time by 50% doubled, Asian productivity and improved. First Contact resolution by 35%.
All driven by surfacing relevant knowledge based content in real time.
And with the beta of AI interaction, analytics, we are enabling real-time sentiment analysis, and predictive set, helping businesses understand customer satisfaction in real time and is all issues quickly.
To sum up.
Rapidly expanding our portfolio. With many new AI capabilities.
These allow us to do.
outcomes for our customers, a contribute to monetization for in central,
In closing.
We are proud of the rapid AI Innovation underway at through Central.
And the yield measurable success. Are customers are already seeing.
As the leader in Cloud business voice Communications, we are in a unique position to apply AI to every customer interaction before during and after a call.
We are supercharging voice with AI and delivering solutions that provide businesses with AI-powered customer experiences at scale.
And we're just getting started as we execute on our vision of an agentic, AI future.
With that, let me hand it over to V off.
Thank you, Kira and good afternoon, everyone.
I'm honored to step into the role of CFO at ring central.
Over the past 9 years, I've had the privilege of working alongside an exceptional team as we have transformed into an AI powered multi-product company.
My tenure begins with ring central in a strong financial position with approximately 2.6 billion in our expanding margins and record free cash, flows. I want to thank Vlad and the board for the opportunity and a way for its contributions.
Before turning to the results, let me briefly outline my focus areas to support our priorities.
Of course.
Drive sustainable profitable growth through our Market, leading UK product, and scaling our calf and AI based offerings, through targeted investments in new product, innovation.
Second, expand. Margins. And free cash flows.
Through cost discipline, particularly in sales and marketing.
Operational transformation.
Vendors and consolidation.
And prudent stock-based compensation management.
Third.
Execute a balanced Capital, allocation strategy focused on debt repayment.
Share BuyBacks and reducing share count.
These Focus areas support continued growth in free, cash flow per share.
While positioning the company for long-term value creation.
With that, let me turn to our Q2 highlights.
We delivered solid results and executed well across our key metrics.
Total revenue was $620 million, up 5% year-over-year and at the high end of our guidance.
Subscription revenue grew 6% to approximately $600 million, and ARR increased 7% to approximately $2.6 billion.
We have a number of growth drivers that contribute to our Topline growth.
As Vlad noted, our small business customers and gsps continue to drive above market growth, and healthy unit economics.
Our new products are contributing to overall growth reflecting strong execution of our eild multi-product strategies.
Now, moving to profitability.
Subscription, gross margin remains strong at over 80.5%.
Operating margin was 22.6% above the high end of our guidance up 160 basis points, year-over-year.
Is grew 16% to 1.6 cents per diluted, share, we continue to generate year-over-year. Margin expansion, driven by continued spending discipline and focus on operating efficiencies.
Sales and marketing expenses as a percent of total revenue declined 170 basis points to 37.8%.
Reflecting continued improvements in GTM efficiencies.
we reduced SPC by 450 basis points year-over-year as a percent of Revenue with net new, grants down, 45% in the first half,
As a result, we achieved positive Gap. Operating income for the fourth consecutive quarter and also delivered positive. Gaap. Net income.
Overall, we view expanding operating margins in conjunction with reducing stock based compensation, as both ultimately, driving Higher free cash flow per share.
In Q2 we generated 144 million of free cash, flow up 33% versus last year.
This was driven by continued focus on efficiency and working capital optimization.
Free cash flow per share was a $157 per diluted share up. 37% year-over-year
To our balance sheet and capital allocation.
From a capital allocation perspective, we repaid 105 million of our debt.
Bringing the remaining growth. Debt down to 1. 2. 7 7.
Our net Leverage is now at 1.8 x.
With our strong free cash flow and access to capital, we have sufficient liquidity to meet our near-term and long-term obligations.
Both, which and Moody's recently upgraded, our credit ratings recognizing our improving leverage and free cash flow profile.
We believe that share repurchases continue to provide an attractive relative return.
in the first half of 2025, we have repurchased a total of approximately 3 million shares under previously authorized Plus
given our strong financial profile. The board has now increased our total buyback authorization to 500 million
Improving free cash flow per share is a key priority for us.
With our strong performance, in the first half of 2025, we are raising our full year. Free cash flow Outlook to 515 to 520 million or a 20.5% margin, 50 basis points above prior guidance.
We are also improving our stock based compensation Outlook to 285 to 295 million, which is 11.5% of Revenue. Down 50 basis. Points from prior guidance,
In our stock, grants our annual, grants this year, are expected to be approximately 150 million or 6% of Revenue.
We expect for overall SBC to Trend lower over time towards these levels as the impact of the prior year grants rolls off.
We are reducing our share, count projections to 92, and a half to 93 million shares for 2025 down from our previous guidance of 93 and a half to 94 and a half million shares.
Our free cash flow per share for 2025 is now expected to be approximately.
5.54 to 5.62 cents per diluted share, which is up 31% year-over-year at the midpoint.
Now, moving to guidance.
For the full year 2025, we are reiterating our prior guidance for subscription revenue, total revenue, and operating margins.
Raising our full year free cash flow Outlook to 515 million to 520 million.
Improving stock-based compensation range to $285 million to $295 million.
Raising non-gaap EPS to 4.20 to 4.32 per diluted share based on 92 and a half to 93 million shares.
For the third quarter, we expect subscription, revenues of 611 to 619 million with year, over year growth of 5 to 6%.
Total revenue of 631 to 639 million with year-over-year growth of 4 to 5%.
Non-gaap operating margin of approximately 22.6% up 160 basis, points, year-over-year.
Is compensation range of 72 to 78 million.
Non-gaap EPS of $16 to $18 based on 93 million fully diluted shares.
In summary, let me conclude with key takeaways.
We delivered strong Q2 results and are executing well on our key priorities.
We continue to lead in business voice with Mission critical products serving over 500,000 customers while gaining strong Traction, in our AI lead product portfolio which are contributing to growth expanding our Tam, and increasing wallet. Share.
We believe we have the building blocks in place for sustainable long-term growth.
We are making solid progress on expanding margins. Generating record free. Cash flows and meaningfully reducing SPC.
Our strong profile gives us the flexibility to reduce debt return capital through share repurchases and invest in innovation. This year, we expect to deliver over $5.50 in free cash flow per diluted share, which is a compelling yield for our shareholders.
Overall, we have the foundation for long-term, sustainable and profitable growth, and I am truly excited about what lies ahead.
With that, let's open up the call for questions.
Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question Cube.
You may press star 2 if you would like to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we post our first question.
Our first question comes from Mater, Marshall with Morgan Stanley. Please proceed.
Hey, this is uh, Jamie on from me. I appreciate you taking the question and and congrats on the quarter. Um, I think maybe just to start off, it'd be great to just get any additional color. You can provide as to how the um, renewed agreement with Knight kind of compares to the, uh, to the Legacy arrangement.
Uh, yeah. Uh, hi, Vlad here. Thanks for the question. Uh, look, it's an extension of that original agreement. Uh,
We've been doing business for a good number of years.
The partnership, uh, coming to an end. That is clearly not the case. Um, as as it would've been flagging, all along, uh, to be clear, uh, that originally agreement, uh, you know, it never expired. Uh, uh, we were still, uh, uh, you know, engaged and, uh, uh, doing deals and, uh, upselling customers signing up some new deals. But, uh, you know, we hope that with this, uh, new, um, uh, development. Uh, it dispels, all kinds of uh, myths and uh, hearsay about where this is going. Uh,
Uh, as I think we said in the prepared remarks uh it is an absolutely unique, integration unique in the industry to this day between 2, uh, clear leaders in our respective, segments, ring central for uks and uh, nice and contact for Cass.
uh, they are extremely well received uh throughout but especially in uh higher end Enterprises uh, with more complicated needs and uh,
Uh, their combination with, uh, ring central. Uh,
just continues this product, which was really very, very successful. Uh, since the get-go. Uh, I believe our first integration actually live in predates, uh, nicest acquisition of in contact and uh, it has done uh even better under nice ownership. Uh we're very optimistic. Uh, we think that there is a long Runway ahead. And like I said, it continues to be uh well differentiated and a very strong choice for Enterprises who are looking to combine their, uh, telephony UK. And they are customer engagement. Uh, Seekers needs under 1 umbrella.
Great, thank you so much. I'll jump back in queue.
The next question comes from Kash Rangan with Goldman Sachs. Please proceed.
Cash, your line is lying.
Hi uh, thank you. Uh, sorry about that. Vlad. I'm just wondering if you could talk about
What's driving uh new product traction it rings Central 1 for you via. Congrats on becoming CFO. A free cash flow generation has been already quite robust. How do you see the system already of this going forward?
Okay, I guess we'll do an order. Hi cash.
Uh, what's driving new products is uh, outstanding demand. And uh, the fact that, uh, we are, uh, a very strong leader, uh, in business telephony. Uh, and we are a very natural choice for people, uh, to go to when they are looking to, uh, start leveraging, uh, AI, uh, in their workflows. And, uh, if you think about it, uh, ring central, uh, we are as Upstream As It Gets in, uh, customers interacting, uh, with their business providers. We are the ones Fielding that phone call. We're the ones, um, uh, terminating, uh, this, uh, text message. This is the primary modes of communications, uh, between uh, uh, uh, customers uh, consumers and businesses.
And we are the ones, uh, you know, that are the first line of defense. So it is very natural for us to be adding AI, um, in the form of, uh, you know, IVA or, uh, AI receptionists, uh, or, uh, you know, a little bit down the line from that, uh, uh, conversational analytics. Uh, we are in a unique position to be able to, uh, AI EI, uh, the entire workflow.
Uh, before during and after the call.
And given our position in the industry, given our brand, uh, the fact that now we have a, uh, pretty complete AI portfolio to ride on top of our well-known platform, you know, that is what's allowing us to grow these products double, if not triple, digits quarter over quarter.
And this is very early, I mean just the beginning, there will be a lot more of that.
Number one, we now have a track record of delivering improvements year over year.
To about over 500 million in free. Cash flows.
Uh today which is 30% year-over-year. And the reason you are seeing the improvements is really due to the operating leverage in the business, you know, the strong gross margins that we have and the continued cost discipline.
Um and also you know the quality of the free cash flows is improving as operating margins and free. Cash. Flows are now converging uh due to working capital efficiencies.
And then the last point is we when we look at free cash flows, we also look at SBC in conjunction with that.
And we've taken meaningful steps, which I outlined in the prepared remarks around, SPC, which combines with BuyBacks will result in a lower share count. So, when you put all of these things together, our free cash flow guide for the year is now above 5.50 30% up year-over-year, which is a very compelling return from a shareholder standpoint.
So overall, I feel like we have a strong foundation to sustain and improve our free cash flows over time.
Thank you so much for that. And by Buff,
The next question.
Samad, sauna with Jeffrey's. Please proceed.
Hey guys, this is Billy Fitz Simmons on for Samad. Maybe expanding on that free cash flow question. When I look at the guide, the thing that stands out to me is...
the the reduction in in SBC expenses that you just mentioned in in over the last couple years, SBC is a percent of Revenue has has declined and is, is kind of continued to expect
Is continuing to decline. Can you just walk through some of the internal changes you've made to to drive that reduction in in what change on that line specifically since you provided uh SBC guidance at the start of the year.
Yeah. Thank you Billy. This is about soil address. That look reducing. Uh, SBC is a key priority for us. And, uh, I think the outline that on the prior earnings calls and we've made a lot of progress on this, over the years, you know, SBC has a percent of Revenue has come down by almost half. It used to be around, 20% of Revenue, we are now tracking to about call it 11%
Based on the guidance we provided
uh, look, we stock Brands continue to be a key tool for us to incentivize employees. So we'll continue to use it and we want to make sure that the employees interests are aligned with shareholders, so it will be a key tool for us to incentivize people. However, having said that, um, you know, we remain disciplined in terms of our net new grants.
Uh, which uh, on on, in our prepared remarks, I mentioned will be around 150 million for about 6% of revenues. So as you know, SBC has 2 components. It has the tail from the prior grants, which were higher and granted at higher prices and it has the impact of the in-ear grants. So, over time, as the older grants roll off, our SBC run rate will increase just a new Grant activity, which is significantly lower.
Thank you. And if I could sneak in 1 more there, there was upside and and second quarter Revenue. But the the full year Revenue guide was kept flat. Uh, the guide implies kind of
uh similar expectations for like similar uh expectations around kind of the subscription Revenue dollars added both both 3 q and and 4 q. So can you just level set for us what assumptions, went into the back, half guide and and what are you thinking around macro deal activity and renewals in the back half.
They look in terms of a guide, there is no fundamental change in the overall philosophy or, uh, you know, the approach. If you will, it's consistent with how we've guided in the past, which is we provide prudent guidance around the visibility that we have, and based on what we know. But, you know, there are always goods and takes in business of this size. So, overall, look from a Q2 standpoint, we had a good strong quarter, uh, the business is fundamentally strong, we have a number of growth. Drivers vladan is prepared. Remark, had talked about SB and GSB growing in the double digits so they are showing good, grammar entrance.
While raising free cash flow and operating margins uh and reducing as we see in a material way. So overall net, let feel good about the guidance range that we provided.
Perfect, thank you.
The next question comes from Peter, LaVine with evercore, please proceed.
Thank you so much for the for the, the appointment of CFO. Yeah. Um so glad you maybe share with us. You know how are you thinking about links? You have again, you did over to the factors a lot of North Market around the ring ships but obviously that's that's not going away. So explain to us. How are you going to go to market with rings? How are your sales reps going to delineate between? You know, the ring C, experts is nice. It's just walk us through some of those
Yeah. Hi, Peter. Uh, yeah, no, a fair question. Uh, look, it's actually not that hard. Uh, and I think we've been fairly clear about this all along, but I'll reiterate, uh, look. Um, there are different products, you know, and they are fundamentally, uh, aimed at different audiences. So, um,
Uh, uh, RCCC nice and contact based. Uh, it's a high-end enterprise product, uh, sky is the limit, uh, no limit on the number of seats, uh, best-in-class, um, uh, capabilities, uh, able to address any and every, uh, uh, complicated use case one can think of, uh, you know, it's a, uh, it's the Rolls-Royce of a product. Uh, and, uh,
uh,
you know, we perceive that our
Enterprise product.
Uh, is that, uh, for cloud PBX. And, you know, just now this quarter, uh, you know, we've announced Ryan are, um, you know, I don't know about you all. I see the planes all the time and every airport in Europe is going to. So, you know, they're pretty big, I think the largest in Europe and, uh, you know, all this top 10 Bank, uh, which is the household name. I wish I could tell you the name, but you know, what did we say? 10,000 plus seats, right? So we know we can scale up and, uh, we know, uh, firsthand that, uh, in many of those cases. Okay. Um, people actually have a preference of purchasing from a single vendor, and there does not exist a single vendor on the planet today that have that has its native. Both high-end Rolls-Royce. Uh, you
Ukas and Rolls-Royce Cass. You know, homegrown today does not exist. So this is the next best thing and there is nothing else even remotely close. Okay. No other, uh, pair of vendors have anything like this level of integration. Uh, you know, starting for the, you know, covering entire customer Journey. Uh, you know, sign up billing, uh, care, uh, support network, Etc. That's where CCS okay. CX is a wonderful product. It does really, really well. But it is fundamentally aimed at smaller and simpler use cases, okay. Uh, it will most likely always have more logos but much lower average. Aging count than CC and, uh, we, you know, uh,
We know that, you know, in certain cases, you can have a very large company that, uh, you know, is a good match for CX.
But and they exist. And we, you know, we we've noted some, uh, wins with those but, uh, the rather specific, you know, uh, it's not kind of your, you know, it's not right down the middle, uh, which CC so nice and content they cover, they cover the whole gamut.
Uh, you know, and, uh, CF just scales, well, way more down more. So serve, uh, you know, AI-native product. And guess what? Even a better integration, uh, with RingCentral with Ring X than anything else. So that's how it's going to bifurcate. Uh, we think that there was absolutely room for the two to coexist, and, uh, you know, hope we will be proven right? We know we were able to grow both very effectively.
You know, if you're thinking about the durability of of growth here, you know longer term, you know, how sustainable would you call Mid single digit growth?
With, you know, increasing profitability, maybe you could walk us through your mindset in terms of managing, you know, growth versus profitability. Are you more focused on sustaining growth here, like low to mid individuals, or really focused on profitability? Just maybe walk us through. Give us kind of like a framework to think about, you know, the model here longer term as you can, please. Thank you.
Yeah, I think, in terms of the framework, uh, you know, we are a growth company. Uh, so we'll continue to grow and, uh, you know, there are multiple growth drivers that are durable. So on in the UK space, look, we continue to be the market Leaders, with steady market, share. Um, there are pockets of the business like SMB and gsps that are growing in the double digits.
And in terms of our enterprise space, we are continuing to add million-dollar TCV events. We are adding logos at a decent clip as customers move from on-prem to the cloud.
In addition to that.
We are new AI products are now gaining traction. So Vlad and Kira in their prepared, remarks talked about the multi-product portfolio in the strong traction that we are seeing their, uh, our new products combined are growing in the double digits and we are well on track to hit the 100 million Target by the end of the year that we had laid out. So in my mind, these will all be uh, drivers for sustainable, long-term growth, in terms of profitability, uh, the framework that I called out in my prepared, remarks was to continue to expand both free cash flow as well as operating margins. And that will come from 2 places. Uh, they'll continue to be operating leverage in the business. Plus we'll be disciplined in terms of our, uh, cost management. So together, uh, we will continue to be on that path of margin and free cash flow expansion. And then when you take that together, with SPC reduction, and
Share account dilution. Our goal is to maximize free cash flow per share, which we think is a key metric to track for shareholders on a go-forward basis.
Thank you very much.
The next question comes from, Katherine trebnick with rosin Platt, please proceed.
Oh, hi. Two quick ones: one, last quarter, you noted that Microsoft grew 30% year-over-year. You talked today about RingCentral CX. Now, piece of it, you know, can you talk about the size of the deals that you're seeing through the Microsoft partnership? Thank you.
Yeah, uh, so I'm not sure how you got to RingCX in there. Uh, we have an integration with Microsoft Teams.
We use, uh, you know, a number of APIs that they provide. And, uh, we actually have a very good integration, uh, uh, our, uh,
embedded client, uh, with their terminology, uh, make it seem quite seamless for a team's user to be using ring centrioles and, uh, uh, represent those capabilities which are meaningful for you over and above, what might be your phone to provides. Uh, it is a strong double digit growth.
Uh, and um, uh, you know, it's aimed, uh, look, uh, it's aimed at larger Enterprises, but but the token that uh, you know, most of teams, you know, the skill larger. So uh SMB customers, uh you know, there is Meaningful, less teams usage.
So there we will stand, you know alone, but I think we know what it was that half of our uh, Enterprise deals, uh, includes this integration and it's a big differentiator for us. It's a good asset so that will continue
All right. The follow-on quick question is, uh, with this, uh, knocking down some debt. What's your, uh, capital allocation strategy going forward? Are you looking to do some more acquisitions? How are you planning to, or are you planning?
Uh, for some of the cash you have, thanks.
Million dollars of debt and net debt is already at $1.1 billion.
So we'll be opportunistic about paying down the debt and we'll strive to get it to under a billion. Uh, dollars, our net Leverage is already improving. Its under 2X and this this task quarter given the strength of our ebita margins, which is growing in excess of revenues.
Uh, and the net debt position, uh, both Fitch and Moody's upgraded our rating. So we are now one notch below investment grade, which was a pretty good outcome for us.
Um, I can continue to feel that at these current stock prices. Um, you know, stock buybacks will continue to be an attractive opportunity for us, so we will continue our stock buybacks under our current authorization.
Also, our Board, given the strength of our financial profile, increased our stock authorization to $500 million.
Uh, the other uses of cash would, of course, be we will continue to invest in innovation. Uh, you heard Black talk about us spending a quarter billion dollars in R&D. A lot of that is going towards new products, which is where we are seeing good traction and which will be an important growth driver for us. And then, from an M&A standpoint, we will also be, uh,
Allocating capital there to the extent. We have assets or opportunities that kind of make sense.
So I think overall, it'll be our approach will be flexible. We'll be opportunistic based on the return on investment
Thank you very much.
Thank you. Our next question, comes from Michael Funk with Bank of America, please proceed.
Yeah, thank you for taking the questions. Um, 1 1 thing about the
Want to go back to the nice and the AT&T extension. And whether or not the extension is strategic shift.
For you, in terms of your your goal, your go to market.
I'm getting some feedback, I apologize.
Well, look, uh, both, uh, like you say, uh, both are extensions so that know that it signifies, um,
You know, strategic shift. But let's take them one by one. So with, uh, Nice and Contact, uh, you know, uh, we've just, uh, you know, regained a tool that we've had for a number of years that, when you, uh, was a very powerful tool, which is this combined high-end UC CC combo. And again, to reiterate, uh, we were, uh, you know, always under contract and, you know, within our rights to continue, uh, selling that product, but given all.
The noise, uh, and FUD in the market, frankly, it was hard to, you know, convince people that this product has lags. Now, it's a multi-year extension, um, you know, you're hearing it from me directly that we consider this to be a strategic relationship and we're, uh, very happy for it to continue. Uh, we think that there is a lot of juice still left. Uh, you know, instead of bucket, um, you know, and hopefully you'll hear the same from Scott and, uh, their management team.
So, um, a little bit Back to the Future on nice and contact. Uh, as far as, uh, uh, as far as AT&T look, it's very momentous, AT&T has been a strong partner of ours, uh, for about a decade. If not more. I think that's unique, uh, certainly for us, but maybe, even for AT&T don't want to speak for them. Um, uh, and, uh, the fact that they're choosing to extend their engagement with us, but, by now offering our newer products, uh, into their portfolio is uh, hu hugely significant, you know, AT&T is obviously 1 of the top, um, uh, brand names, uh, globally. Uh, you know, it's a major shareholder, uh, in US delcom but it's not just us.
And, uh, you know, it's a wonderful channel. Wonderful brand and, um...
You know, now they chose our technology to bring their customer base into this new era of AI.
So this is momentous. Uh, it's not necessarily a change in our GTM, but certainly we hope it will open up major opportunities for our new products, which, you know, as we all know, include Rings here, X, uh, RingSense and, you know, hopefully others as they mature.
But I met with um John Sankey recently highlighted they want to actually lean in a little bit harder to SMB. They felt they giving up Market there too much in the last few years. So as part of the agreement will this be more of a post by AT&T and their sales force um incorporating your functionality for. Will it be an add-on where a customer can elect it? But want to be part of the core offering and then then final question if I could, please, um, can can you call out, um, any, um, FX benefit, or maybe this isolate, the constant currency growth during the quarter. And then what you have in your expectations, the remainder of the year for FX, it's G, the, the movements and the rates recently,
Oh, there's the first part of the question. Uh, look, uh, as far as AT&T's GTM.
Uh, you know, philosophy or tactics, you'll have to ask them. Uh, I can tell you that, uh, it's a deal that we believe is a fair deal. Everyone wins. Uh, you know, it's good for us, it's good for AT&T financially, and of course, it's very good for the customer because remember, these products are about saving people time and money and saving, uh, leads and, uh, letting uh, calls not drop on the floor. Uh, but instead, you know, resolving positive business outcomes.
How exactly they're going to do and package it. Um, you know, you you you would need to you would need to talk to them directly. But uh what John said about them uh wanting to regain a bit of sharing SMB, certainly we could not be happier uh you know to to hear that because it is definitely less strength of us and our offering, okay? Um and uh way before take uh the rest of the information. Yeah, in terms of FX look, there was some benefit in the quarter uh
Uh, nothing meaningful. So, nothing specifically to call out in their overall look. We had a good, strong quarter. We had sales and bookings coming in at a healthy clip, and overall we called out the strength of the business in terms of SBS and GSPS growing in the double digits.
so,
Uh, overall, uh, you know, we ended strong and reiterated our guidance for the year.
Great. Thank you both very much.
Thank you. At this time, we have time for one more question. The next question comes from Brian Peterson with Raymond James. Please proceed.
Hi, thanks for taking the question. This is John from Brian, on the air receptivity there. It's great to hear about the early success with their, and I know it's still really early, and you got into some of the prepared remarks. But I'm just curious where you're seeing the most success so far. It sounds like larger customers are really the early adopters there, but are you also seeing positive adoption across?
Mid-market and SMB, to sort of set in another way, is our adoption running. How is it running versus expectations across customers of various sizes? Thanks.
Hi, this is Kyra. I look, I I think the, uh, the rate of adoption is uh, is is very positive. Um, and going from thousand to 3,000 in short period of time, just customers um, indication of strong demand, um, in terms of customer cohorts and how they're buying, uh, a lot of the customers are buying actually smaller customers with some big large customers buying as well. Uh, the use cases are all, um, similar in a way that its routing calls, it's essentially,
Uh, uh, taking, uh, providing us with this digital employer that, uh, that takes it, never misses a call. Um, and this is of all sizes, need that especially acute when you're a small business and you need a receptionist and you just don't have one or you have after-hours calls and, and nobody.
To mind the shop, um, in a large businesses, the use cases that we see have to do more with routing calls and figuring out, uh, across the organization without having, uh, complex, uh, ivr or roles to be imposed, uh, in, in the middle of of the flow. Um, and, uh, the value is is the same. It's essentially, it saves you cost. It increases, uh, uh, your opportunity for monetization of those incoming calls, uh, also control spam. Um,
And uh, it's a much better customer experience across the board. The reason customers are adopting. This easily is is so easily is because it's really fit to purpose. You don't have to have a complex implementation. Don't have to have technical, expertise any size know it required. You can get going by essentially configuring it for a specific use case.
Thank you very much.
I would like to thank everyone for joining the teleconference. You may now disconnect your lines, and have a great day.