Q3 2025 RingCentral Inc Earnings Call

Speaker #1: Good afternoon. And welcome to the RingCentral, third quarter 2025 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.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.

Speaker #1: To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Horowitz, Vice President of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you. Good afternoon and welcome to RingCentral's third quarter 2025 earnings conference call. Joining me today are Vlad Shmunis, founder, chairman, and CEO; Kira Makagon, president and chief operating officer; and Vaibhav Agarwal, CFO.

Speaker #2: Our remarks today include 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.

Speaker #2: Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission, as well as today's earnings release.

Speaker #2: 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 presentation.

Speaker #2: Which you can find under Financial Results section at ir dot ringcentral dot com. With that, I'll turn the call over to Vlad.

Speaker #3: Thank you, Stephen. Good afternoon, everyone, and thank you for joining our third quarter earnings conference call. Let me begin by welcoming the talented people from community WFM to the RingCentral family.

Speaker #3: We have now added a high-driven workforce engagement management capabilities that strengthen our RingCX contact center solution. This also lays the foundation for a new standalone product line.

Speaker #3: We delivered another strong quarter in Q3 with subscription revenue growth at 6% year over year. This results reflect continued execution in our core business, coupled with strong progress from our AI-led new product portfolio.

Speaker #3: In fact, our pure AI ARR is growing in strong double-digit rates sequentially. While also making meaningful contributions to overall ARR from these AI-enabled customers.

Speaker #3: Importantly, we are also delivering expanding margins meaningfully lowering stock-based compensation and generating strong free cash flows. This strong performance is rooted in our leadership invoice, the most mission-critical mode of communication for businesses.

Speaker #3: While voice continues to be an important means of intercompany communications, it is critical for consumers' engaging with businesses or B2C. This is particularly true in our top verticals, such as healthcare, financial services, retail, and professional services.

Speaker #3: Revenue from these verticals represents over half of our entire business. As a further proof point, overall voice usage on our platform remains robust and is growing in double digits.

Speaker #3: In short, voice remains a critical modality for business communications, as missed calls result in lost revenues, missed opportunities, or worse. RingCentral has built a two and a half billion dollar business from ground up by providing a robust global secure and reliable voice-first cloud communications platform that is trusted by over half a million businesses, with spans of billions of minutes of annual use.

Speaker #3: RingCentral has been at the forefront of moving business communications to the cloud. If you think about our initial offering as RingCentral 1.0, it was about enabling digital transformation for businesses worldwide by transitioning their business communications from on-prem to the cloud.

Speaker #3: By leveraging our voice-first global secure and reliable cloud business communications platform, we have built a strong leadership position over the last two decades. This remains to be the case to this day.

Speaker #3: In the next phase of our journey, which I call RingCentral 2.0, we built on this foundation to become a multi-product platform provider. Many customers prefer to purchase both their business communications and contact center solutions from the same vendor.

Speaker #3: Increasingly, organizations also need seamless interaction between contact center agents and other company employees to resolve customer inquiries. RingCentral has purpose-built solutions to meet these needs.

Speaker #3: There are situations where consumer inquiries are handled by employees who are not dedicated contact center agents. To support these scenarios, we enhanced RingEX with call queues, analytics, and other contact center-like functions.

Speaker #3: This has been extremely well received, with over one-third of our overall inbound traffic now being consumed by such informal contact center use. As for dedicated customer engagement needs, we've introduced our own native AI-first contact center solution, RingCX.

Speaker #3: It is a fully integrated offering that intuitive to use, easy to deploy, and is infused with AI from the start. This product has been well received, with strong traction and double-digit growth.

Speaker #3: And now we are entering the era of RingCentral 3.0. We are innovating rapidly with a majority of our quarter billion dollar annual spend on innovation is now being dedicated to our new AI-led products.

Speaker #3: We are now expanding and extending our platform by adding a host of voice-first AI agents, as well as infusing AI across our entire product portfolio for a better customer experience and engagement.

Speaker #3: Why are we well positioned to win in this new AI era? RingCentral is the first point of contact between businesses and their consumers. This puts us in a unique position to deploy AI agents from the get-go.

Speaker #3: Thus, giving us a natural advantage as we lead the shift to intelligent business communications via agentic voice AI. To double-click, our agentic AI product portfolio covers every phase of the customer journey, before, during, and after an interaction.

Speaker #3: For before the interaction, our AI receptionist or AIR handles inbound calls, routes them intelligently, and automates routine interactions before they reach a human. Since launch, AIR has seen strong early traction and is growing rapidly.

Speaker #3: For during the interaction, today we announced our new AI virtual assistant, or AIVA. It's an AI agent that helps employees and agents in real time, surfacing insights summarizing key points and automating tasks to enhance productivity.

Speaker #3: And for after the conversation, our AI conversation expert, or ACE, formerly known as RingSense, analyzes calls, extracts insights, and provides actionable intelligence. It's growing at a healthy double-digit pace, and it's helping customers understand and improve their customer experiences.

Speaker #3: Together, these AI-driven solutions—AIR, AIVA, and ACE—complement RingEX and RingCX and are already contributing meaningfully to growth. We're investing significantly with over 50% of our approximately 250 million dollar R&D spend now focused on our new products portfolio.

Speaker #3: And we remain on track to exceed the $100 million in AIR from new products by the end of 2025. Adoption of our new AI-led products is broad-based across various customer cohorts, from small businesses to large enterprises.

Speaker #3: Our GSP partners are also beginning to sell this new offering, expanding our reach and accelerating adoption. Importantly, we have recently expanded our partnership with AT&T, which began offering AIR to their customers, highlighting our shared commitment to intelligent communications experiences.

Speaker #3: Our small business and GSP businesses together now represent over $1 billion in AIR and continue to grow in double digits, with strong unit economics and increasing adoption of our AI portfolio.

Speaker #3: In summary, we are executing well across the board. Our core voice platform remains durable and mission-critical, and we are expanding into new high-growth markets through RingCX, and our AI-led product suite.

Speaker #3: We've evolved from a UCAS leader into a multi-product AI-powered communications platform with multiple growth levers. We are excited about the road ahead as we enter the era of agentic voice AI, driving smarter, more efficient communications for our customers and sustainable, profitable growth for our shareholders.

Speaker #3: I want to thank our employees for their dedication and focus on driving innovation and our customers for trusting us to be the voice of their business.

Speaker #3: With a tenured and talented management team in place, a strong commitment to innovation, and a loyal and growing customer and partner base, we are well positioned for this next phase of our AI-led evolution.

Speaker #3: With that, I'll turn the call over to Kira to tell you more. Thank you.

Speaker #2: Thank you, Vlad. I'm looking forward to meeting many of you at our Investor Product Briefing on Wednesday. It's a great opportunity for you to see our AI portfolio in action.

Speaker #2: I'll start by giving you an update on my strategic priorities. First, build upon our leadership in business voice with agentic voice AI. As Vlad noted, RingCentral is uniquely positioned here.

Speaker #2: Voice is mission-critical and is the richest source of business intelligence. We're turning voice data into insights that elevate customer experiences, automate work, and drive faster outcomes.

Speaker #2: I'm proud of how quickly we're executing against our agentic AI roadmap, delivering value throughout the entire conversation before, during, and after. For before the conversation, we're seeing fast adoption of RingCentral AI receptionist, or AIR.

Speaker #2: Since our launch earlier this year, we now have more than 5,800 paying customers and over 80% increased quarter over quarter. AIR ensures businesses never miss a call or an opportunity.

Speaker #2: And today, we rolled out new features in AIR, including lead capture, enhanced appointment settings, and contextual handover. We're thrilled to see that AIR is having a material impact on our customers' businesses.

Speaker #2: For example, with AIR, TeleVera Health now answers 100% of their calls, and achieved a 15% increase in monthly appointment volume within just a few first months of deployment.

Speaker #2: This resulted in a $200,000 uplift in monthly revenue, providing meaningful ROI. For during the conversation, today, we unveiled RingCentral's next-generation AI virtual assistant, or AIVA.

Speaker #2: For example, Trinity Logistics is a leading freight and logistics provider, saving 30 seconds to a minute per call by using AI to capture real-time notes and action items from every customer interaction.

Speaker #2: This frees up their salespeople to focus on building relationships and driving new business. For after the conversation, AI conversation expert, or ACE, formerly known as RingSense, unifies customer and employee conversations into one powerful analytics dashboard.

Speaker #2: We now have more than 4,300 customers using it, up from approximately 3,600 customers reflecting sequential, solid growth. Our customers are using it to coach their agents and improve efficiency.

Speaker #2: For example, Modisoft, a point-of-sale cloud software company, is using ACE to gain clear visibility into customer sentiment, behavior patterns, and emerging trends, insights that they did not have before.

Speaker #2: ACE enables them to turn voice data into business outcomes. AIR, AIVA, and ACE together with our core RingEX and RingCX products create a fully integrated agentic voice AI workflow.

Speaker #2: Before, during, and after every interaction. This is the power of our unified AI-first platform. The second priority: expand TAM through our multi-product portfolio. We're seeing strong traction with RingCX.

Speaker #2: Customers value its simplicity, omnichannel flexibility, seamless integration with RingEX, and a rich set of AI capabilities. As Vlad said, this product is enjoying double-digit sequential growth, and makes up nearly half of our $1 million-plus TCV deals this quarter.

Speaker #2: The strong length and expand motion of AI-first RingCX with RingEX is demonstrating our ability to increase our share of wallet. A good example of an expansion deal is one of Canada's largest insurance companies, who was already using RingEX and chose to add RingCX with various AI modules.

Speaker #2: Together, these solutions are expected to improve outbound performance, reduce agent turnover, and ultimately contribute to their revenue growth as they transform their contact center operations.

Speaker #2: Today, we also announced the integration of community WFM into our workforce engagement management suite, a major step toward helping organizations optimize contact center performance.

Speaker #2: By harnessing AI across three key pillars: agent performance, customer sentiment, and operational planning, we're empowering smarter, more efficient operations. These capabilities are available as add-ons for the core RingCX package and now included in the new RingCX Advanced and Ultra packages.

Speaker #2: In parallel, we're expanding our core UCAS offering. As Vlad said, a meaningful portion of RingEX inbound call minutes and SMS usage are used for customer engagement.

Speaker #2: To capitalize on this, we are introducing new paid add-ons for enhanced call queues and advanced SMS, and we're bringing together RingEX and these add-ons in one simple integrated package called the Customer Engagement Bundle.

Speaker #2: This expansion opens a new growth avenue and extends our total addressable market. Now, onto my third priority: we're harnessing AI across our organization to work smarter, move faster, and do more with less.

Speaker #2: While we're using a number of third-party tools to improve efficiency across all departments, we're particularly happy with the adoption and internal use of our own products within our company.

Starting with growth total revenue was 639 million up 5% year-over-year and at the high end of our guidance.

Subscription Revenue grew 6% to 616 million reflecting the durability of our Core Business. And increasing traction, from our AI Le products.

As flat highlighted, we have multiple growth levels across the business. We delivered continued growth in our core business with healthy new customer adds and stable over 99% monthly net retention rates.

Putting us well on track to exceed 100 million in ARR by year end.

In keeping with our philosophy of profitable growth, we drove record. Margins and free cash flow per share. This was made possible as we continue to drive efficiencies with hiring discipline, extended use of offshoring, vendor consolidation and increasing use of AI internally.

Subscription growth margin remains strong at about 81%. Operating margin was 22.8%, up 180 basis points over a year and above the high end of our guidance.

Sales and marketing expenses are a percent of revenue. Improved by 140 basis points, driven by ongoing go-to-market efficiencies.

Non-gaap EPS increased 19% to a dollar 13 per diluted share.

Reducing SBC remains a key Focus through the first 3 quarters of 2025, new share, grants, declined year-over-year. As we are able to achieve more with less with offshoring and use of AI,

As a result of this, we are updating our 2025 SPC Outlook to 11% of revenue, reflecting a 350 basis points improvement year-over-year. Our annual grants this year are expected to be about $150 million, or 6% of revenue.

Which we expect to further improve upon in the years ahead. We expect SBC as a percent of Revenue to Trend lower to these levels over time as the older grants roll off.

With a reduction in SBC and improved profitability, we delivered another quarter of positive GAP, operating, and net income, which we expect to continue.

Moving to free cash flow. We generated 130 million of free cash flow in Q3 up. 23% year-over-year, this reflects ongoing efficiency, gains and discipline working Capital Management.

As a result, we are raising our full year. Free cash flow Outlook again to be between 525 and 530 million, which represents over 30% year-over-year growth and a free cash flow margin of 21%.

Lower SBC coupled with our share repurchase program is driving a meaningful reduction in share count. We now expect fully diluted share count for 2025 to be approximately 92 million shares returning to 2020 levels. We are optimistic of driving this further down in the years ahead.

We now expect 2025, free, cash flow of over 570 per share, which is an increase of about 35% year-over-year. We are delivering strong and compounding free cash flow per share and driving long-term shareholder value.

Moving to Capital, allocation.

Following the framework I outlined earlier year-to-date, we have paid down $275 million of debt and repurchased $200 million of stock. We also acquired Community WFM, which is consistent with our strategy of accelerating innovation by adding capabilities that enhance our product portfolio.

During the quarter, we expanded and extended our credit agreement.

The facility. Now, totals 1.26 billion of which 955 million remains and drawn.

This refinancing was a proactive step to address our 699 million. Convertible notes due in March 2026.

The refinancing maintains our current leverage profile and extends all debt maturities until 2030.

Following our earlier upgrades from Fitch Ratings and Moody's, S&P has also upgraded our ratings, recognizing our improving leverage and free cash flow profiles.

Going forward. We remain committed to reducing gross debt to 1 billion by the end of 2026.

We also view share repurchases as an attractive use of cash at current valuation levels. In Q3, we repurchased 3.9 million shares for $117 million, with $384 million remaining under the current authorization.

Moving to guidance.

For the fourth quarter, we expect subscription revenue of 618 to 626 million total revenue of 638 to 646 million.

Of $1.12 to $1.15 based on approximately 90 million fully diluted shares.

Share based compensation range of 64 to 69 million.

as a result, we expect our full year 2025 to be

Subscription revenue growth year-over-year of approximately 5.5% to 6%.

Total revenue growth year-over-year of approximately 4 and a half to 5%.

Operating margin at approximately 22 and a half percent.

Raising non-gaap EPS to $4.29 to $4.33 per diluted share.

Improving share base. Compensation range to 275 to 280 million.

Raising free cash flow per share to approximately 5.71 to 5.79 cents per diluted share based on approximately 92 million shares.

Let me conclude with 3 key takeaways.

First, we delivered another quarter of profitable growth with Revenue at the high end.

Margins, reaching record levels and expected annualized, free, cash flow growth of over 30% year-over-year.

Which are well on track to exceed 100 million in ARR by year end.

Third. We are delivering on our Capital allocation strategy. We are on track to generate well over 500 million in annual free, cash flow resulting in more than 5.70 cents in free cash flow, which is best-in-class among the peer group.

We are looking forward to meeting many of you at our investor product briefing on Wednesday at the End, by a seat.

With that, let me open up the call for questions.

We will now begin the question and answer session.

to ask a question, you may press star then 1 on your telephone keypad,

If you are using a speaker-phone, please pick up your handset before pressing the keys.

To withdraw your question. Please. Press star. Then 2

Our first question today, is from Kash rangan with Goldman Sachs. Please go ahead.

Hi, thank you very much team. Uh this may be the last time for me on a drink to earnings conference call. I wanted to say, it's been uh, great working with you Vlad and the team you've been resilient, you pivoted the company hard during the downturn went for profitability.

And also steered the ship once again, not from a financial standpoint, but from a, from a technological standpoint to be ready for the AI World ahead. So, I wish you really well in that journey ahead and you've been, um, once again validating, uh, the view that you're very resilient leader and a very resilient company Vlad. As you look ahead mean the, the product discussion certainly is, uh, is thoughtful, but it also represents a lot of rebranding change, etc, etc. And I assure the term bring Central 3.0 being thrown about. So, as you project ahead, if a customer a large Fortune, filtered customer where do buy into your vision of ring central 3.0 and where, to implement your full family and portfolio of products under the 3.0 Banner

What are the business benefits that a Fortune 500 company would stand to benefit from that they couldn't get?

With ring Center 1.0 or 2.0? That's it for me. Thank you very much. And best wishes to the team. Yeah, yes. Firstly, uh, thank you very much for your very kind words. And obviously very, very sorry to, uh, you know, understand that this might be your last call with us.

However, never say never—never is a long time, so who knows? In any case, I certainly wish you and yours the very best in this next chapter of your life.

Uh, to uh your question uh, ring sounds at 3.2 is a very, very big deal. Um,

Same applies to your, uh, financial advisor. Uh, same applies, uh, to your, uh, architect or not a business service, provider, um, you know, uh, your mechanic and so forth.

uh, and um,

Uh with voice as a uh Global leader in voice and increasingly text Communications ring. Central is uniquely positioned to deploy AI at the very onset of every consumer to business interaction.

we process, uh,

10th of billions of uh, minutes on our platform annually and uh billions of text messages, okay? And for each and every 1 of those, uh, with agentic AI. And uh, at this point, it's we're really pivoting hard to agentic voice AI. We are in a great position to enhance human to human interactions.

Uh, throughout the entire life cycle of a transaction and that includes, uh, offering uh, assistance, uh, and AI agent before a human picks up the phone. Uh, so we call it are AI receptionist.

During the call. And we call it AA AI virtual assistant that if you will is our version of a co-pilot, and lastly, by far, not least is uh the AI can uh, expert uh, conversation expert which we'll call Ace. So this is where after a call. Uh, and in a contact center use, uh, we have, um,

Uh, most of the calls are being recorded and transcribed. This gives us an opportunity to, uh, analyze or enable our customers, uh, to analyze, uh, these calls, uh, at a deeper level, uh, understanding, uh, caller intent, uh, sentiment, uh, providing all kinds of, uh, deep analytics. And, uh, very importantly, feeding all of this data, uh, and knowledge right back, uh, into the cycle. So, uh, through, uh, Ace, both Air and Ava become, uh, smarter and more powerful with increased use.

Uh, so this is a watershed moment. Uh, it is uh, uh, on par for us with creation of the cloud itself that as, you know, we had uh, a bit to do with and we have actually pioneered uh use of cloud in uh, business voice, and PBS in the cloud. And now, uh, with Advent of AI, and our application of identic AI to Voice and text. This gives us the ability to not only move these interactions and transactions to the cloud. But to also deeply enhance, uh, the experience for both callers, uh, which is really the population of this world, uh, as well as, uh, part is being called, which is the entire Global business community. So could not be more excited.

The next question is from Elizabeth Porter with Morgan Stanley. Please go ahead.

Great. Thank you so much for the question. I wanted to follow up on the strength in your Global service provider Partnerships

Can you speak to which products are gaining the most traction and the durability of that growth? Are the GSP contributions becoming more recurring and predictable, or are they somewhat concentrated in the new deployments?

And then, just as a follow up, as this partner scale, how should we think about the revenue mix and margin implications versus the direct sales? Thank you.

Great. Um, no great question. Um, look, uh, I believe we've disclosed that our GSP business is already a bit over 10% of our revenues.

Uh, I think we also disclosed that, uh, it is, uh, a tailwind for our growth overall, so that entire GSP segment, uh, is, uh, growing in, uh, double digits, which is higher than, uh, the company overall.

our Direct business is

okay. Uh, what we've been seeing lately is, and and we were frankly, pleasantly surprised is how readily the gsps are adopting, uh, our, uh, new product portfolio. So they started out, uh, with ring CX, uh, which was, uh, really our first major product after our original Flagship ring ex product. But now,

With, uh, what we now call. Uh, the 3 A's, uh, which is uh, are AA and uh, Ace

uh, there is uh,

definite energy with GSP speak. Uh, picking them.

We, uh, announced, uh, just now is that, uh, our, uh, biggest and, uh, oldest GSP partner, which is AT&T is, uh, now adopting and deploying are, uh, on their version, uh, offering Central. So, that's a big deal, okay? Uh, and look, it's very, very early, but, uh, given the success and learning that we are seeing with are internally, not internally. But in our Direct business, uh, we are quite optimistic that, uh, this will be uh, now,

Uh, uh, uh, also will apply to AT&T and their scale, as well as to a number of other service providers.

On just to add to the profitability point, uh, we have disclosed that gsps from a 1 of the metrics, we look at is time to break even and from A Time To Break Even standpoint, they are under 18 months. So they, in addition to growth, they are also demonstrating strong unit economics.

Great, thank you so much.

The next question is from Brian. Peterson with Raymond James, please go ahead.

Thanks for taking the question. Uh, so a really nice job on free cash flow again this quarter. I guess as we think about the durability of that metric going forward, is there anything that you guys can share in terms of long-term drivers or long-term targets? I would appreciate any context there. Thanks, guys.

Yeah, thanks, Brian for the question. This is, uh, VBA and I'll address that. So uh, thanks for the call out, on the free cash, flow expansion. Look. We've done a lot of work over the last couple of years and uh, very proud of what we've delivered. Uh, as you saw we raised our free cash flow Outlook uh today for the rest of the year and over 500 and 25 million or 30% of growth.

When you look at the last 2 to 3 years, we've driven a 5x expansion. So we've gone from a 100 million to 500 million. So we have a track record now of a number of years of driving expansion. Uh, where is the expansion coming from? It's, it's, uh, concerted effort and a disciplined approach that we are taking in, right? Sizing the cost base, you know, we are very disciplined when it comes to hiring. Uh, you know, there is offshoring that we are using vendor consolidation and there's increasing use of AI internally. So net, net, uh, long story short, we are doing, you know, more business. So, that's Point number 1, and I expect that that will continue as we look ahead. Uh, Point number 2, is from a quality of a free cash flow standpoint. We are also making meaningful improvements what I mean with that is

Getting margins are now converging with free cash flows, and that's a result of working capital efficiencies. So we've taken a number of steps there.

And point number 3 is we look at free cash flow. Also in conjunction with SBC uh as a driver of free cash flow per share growth. So again we've taken a number of steps

I would actually like to add to that. That is, of course, all all exactly right. But, uh, uh, taking, uh, looking at it from the other side, um, from the product side and here, I'm, uh, preempting a little bit, uh, uh, some of the information, uh, will be sharing, uh, on Wednesday during our uh, analysts uh product day.

But, um, as a, uh, you know, product, uh, person, uh, I am, uh, always keenly interested in actual usage, uh, of the platform because, uh, a core belief is that, uh, if, uh, people are using your product, then, uh, you will be, as a provider, able to derive value from it. And if people are not using the product class, then no, uh, amount, you know, of, uh, financial engineering or price increases or anything, you know, you cannot counteract that trend if you're dealing with a falling knife.

And to be blunt, uh we hear sometimes things that uh the whole Market is a full knife uh falling knife, our market and that voice is going away. Uh and uh that you know video and other means of communication so taking over

And what we see is that, uh, nothing could be, uh, farther, uh, from The Source. Okay. Uh, our usage on the platform is increasing and, uh, it's actually increasing ahead of our revenue. So people are using more, they're placing more calls on our platform, they're doing more tasks, and, uh, utilizing or consuming, uh, more voice minutes. Okay? And this is, uh, what uh gives us, uh, a great amount of uh, confidence that uh, our margins will actually.

Continue improving because our core belief is that, uh, our uh costs, uh, will be, uh, uh, we we, we, we will be rising, uh, slower than our revenues in, in the, in the big scheme of things, we are able to utilize, uh, cost efficiencies we're using AI heavily internally, definitely being able to achieve a lot more with less. And for, as long as we see, increasing usage, uh, of uh, our platform, we have every reason to believe that, uh, free cash flow will follow. And again, we

in your financial this

Flow per share will follow and will be rising as well. Uh, we think quite likely, this will be even ahead of Revenue growth which will also project to be uh to be continuing. Um so we think that we are uh you know perhaps uh at an early phase uh of another virtual cycle here.

Great to hear. Thank you.

Next question is from CD Panigrahi with Mizuho. Please go ahead.

Uh, thank you. Uh, I just have 2 quick question. Uh, starting with the contact center momentum. Um, uh, how, how are you seeing the trend? Following your, uh, renewal partnership with nice and, uh, both in the up market and and and ring, ring CX, ring CX momentum on the down market and uh quick follow up for web of how you think about your Capital, allocation framework given the you have to pay back, pay down some of the debt and how should we think about the buyback, uh, you know, going forward?

And, uh, you know, we see some positive movements, but, uh, you know, certainly not at the level where it used to be, so to speak.

Uh, having said that, quite a bit of that slack is being picked up by ring CX, uh, which is, uh, a, uh, lighter weight product, uh, less expensive product. Uh, but also a lot easier to deploy and, uh, we are showing, uh, very strong growth with that, uh, product, uh, with, uh, uh, double digit growth, uh, sequentially. Which is a lot to be said, uh, you know, for the product, uh, for a product that's in, uh, you know, strong tens of millions of dollars, and, you know, still, you know, double digit sequential growth. So we, we feel very, very good about that. Uh, we also think that, uh, with, uh, our uh, introduction of our new, uh, agentic voice, AI family, uh, again are Ava and Ace.

All of them uh are uh applicable to ring CX as well as during ex. So that's a very important Point, our agentic uh uh AI Cloud covers both ex and CX, okay? So we think that that will be a further accelerator uh and also already mentioned a number of

Uh, important GSPs are picking up the entire portfolio, including, uh, CX. So we're quite optimistic. Uh, we also, uh, know, uh, what customer and partner, uh, requests are. Uh, we have enough of a history with this product now, uh, and, uh, whatever people are asking for, uh, is on our immediate roadmap. And, uh, I want to mention, uh, we have, uh,

Dollars in annual spend on R&D.

That's not insignificant. Uh, majority of the spend is now dedicated towards new products, which is ring CX are Ava. Uh, and uh, Ace. And, uh, the fact, uh, also, is that we're using quite a bit of AI for code development, uh,

We're seeing some amazing results, uh, being able to, in certain cases, uh, developed by factors faster, uh that uh, you know, using traditional methods, so expect rapid Innovation. Okay. Uh, we have introduced more products this year than, uh, at any point in more new products than at, at at, uh, at any point in our, uh, 20 plus year history. Uh, and, uh, you know, uh, uh, I'm not going to say that we'll be introducing C4.

New products every quarter that probably will get too confusing if nothing else. But now expect quick iteration and quick improvements in what we have. And, uh, look, we really believe that we have a unique suite addressing, uh, needs of, uh, consumers contacting, uh, their, uh, business service providers.

And we expect to go wide and deep on that.

Yeah, and city in terms of capital allocation. Um, local approach always has been a disciplined approach and it's all aimed at improving, free cash flow per share. Um, the benefit of having over 525 million in free, cash flow, is that it opens up a lot of flexibility and, uh, you know, provides opportunistic, uh, benefits of capital allocation. So first as a priority is always investing in Innovation and growth. So, as Vlad said over a quarter billion dollars, spend in product Innovation over half of, which is going into new products. So that's the use of cash. We are also opportunistic in terms of m&a, you know, where it uh, accelerates our product road map, uh, case in point being the recent acquisition of community wfm. And from there, uh, look we

And overall we remain committed on that, path of reducing growth debt to a billion dollars by 2026.

Uh, in terms of BuyBacks, it remains an attractive use of cash at the current valuation levels. This year, we bought back, roughly, 200 million of shares, and we still have, uh, close to 380 million remaining in authorization, which we plan to execute on. So discipline in stock based compensation, as well as buying back, stock will result in lowering share count, which we are committed to

So, overall framework is to prioritize actions to enhance long-term shareholder value while maintaining a strong balance sheet and financial flexibility. Uh, net net of which is all aimed at improving, free cash flow per share.

Thank you both for the caller.

The next question is from Ryan. MCW Williams with Wells Fargo. Please go ahead.

Hey, thanks for the question. It's a lot. I'd love to hear your thoughts on how ring central has an advantage compared to startups in servicing the voice. Ai. And AI receptionist use case to me these voice use cases are complex from a telephony standpoint and require call routing expertise from AI to human. That'd be difficult to build without a history of providing telephony services. But is there more that comes to mind that kids ring central and Advantage versus others. And going after this agentic voice, AI opportunity.

Yeah, uh yes uh, fantastic question.

Uh so uh uh look ring central used to be a startup uh to be blunt uh and and fair I still do everything I can in my power to continue behaving like a startup but uh it is a 2 and a half billion dollar startup now.

So, startups have good ideas, smart people, and I am sure some of them will do well.

But I don't believe that most of them will do well. And the reason is, here is what they don't have. They do not have a network. Uh, they do not, uh, have uh, Decades of, uh, knowhow and, uh, data, uh, of, uh, actual behavior and calling patterns. Uh, that uh, we have

Uh, they, uh, do not have, uh, the extended, uh, GTM, uh, capabilities. Uh, we have tens of thousands of, uh, reseller partners. Uh, close is not over to 100,000 people on the street. That's been, you know, trained with RingCentral. We have this absolute, uh, unique, uh, GSP, uh, network.

Very importantly, uh, here's the other thing that, uh, they don't have, they don't have, uh,

Uh, with maybe one or two exceptions, they don't have, uh, $250 million of annual spend that they can dedicate, uh, to this area where we're laser focused on. But I tell you what, uh, the most things they don't have is they don't have a 2,000-strong engineering team and product team, uh, that's been, uh, doing uh, business communications at scale and globally, uh, for years. Uh, and, uh, in uh, certain cases, uh, for a couple of decades.

Uh and uh also want to bring up this other point. Uh I I I think that sometimes what people under appreciate about your central is how deep Our Roots are.

And how stable the core team has been over, uh, literally. Uh, doing they have decades from our, uh, inception back in, uh, 1999. Uh, the engineering team, engineering leadership, uh, the CTO, uh, who is my co-founder, uh, and many, uh, senior directors and VPs have been with us for, uh,

Uh, for over 10 years, uh, I believe this is unique in the industry and gives us just unsurpassed, uh, know-how and depth, uh, in, uh, and talent pool in, uh, being able to out-innovate, uh, you know, anyone, uh, in the space. Uh, and I believe that this is, uh, likely to continue.

Uh, AI, this AI Revolution explosion is really the best thing that ever happened. Uh, to us as a company. Uh, I I I think uh to the industry as a whole but because we are at scale and we're a clear leader in a key Communications modality, which is voice. Uh I think that we will uh stand a lot to gain and uh including market share in this space.

Totally handling 1 or a handful of voice. AI calls today. It's a lot different than handling 10,000 voicemail voice I call today. Appreciate filler. Thanks a lot.

I see, I think uh yes and I suspect it's more than 10,000. Yeah. What way more.

The next question is from Peter, Levine with evercore. Isi, please go ahead.

Great. Thank you for, uh, taking my questions. Do you want to just maybe talk about the acquisition of Community WFMS? How does that strengthen kind of your internal offering on RingCX?

Kind of compare that to some of the Standalone offerings out there in the market and then second 1 for out. Can maybe can you just kind of walk us through your 42 guide? I know there's a bit of a kick down for the full year so maybe just walk us through to put some takes with our deals like that pulled forward into Q3. Is it macro is the government shutdown just impacting kind of how we think about Q4. Thank you.

Okay. So, um

Uh, this is Kyra. Let me handle the WM. Uh, so uh we have a a a uh uh our ECX Suite uh of of um uh today uh contains a number of modules, the core CX product, and the number of, uh, AI modules that, uh, work together with that. Base product, for quality management for agent, assist for, um, interaction analytics, um, screen recording. Um, um, AI supervisor, assist all these work together, um,

And this works together with RingCentral, Inc. with the acquisition of Community FM product and WFM product. We've completed that suite. And actually today, we've announced something that we now call.

um, WM

power suite. And, uh, that includes the acquisition from Community wfm, which is work force management that component was not something that was part of our core product, and something, that now is absolutely integrated and actually deployed, uh, uh, at at, at Central for 1, uh, over the last couple of weeks that went live and, uh, completes, uh, that offering that makes us, uh,

A complete suite, uh, uh, for CX deployments.

uh, in terms of

uh,

How does this, uh, interact with existing customers? All existing customers can buy on, uh, any one of these modules in addition to the base modules that they've got. So the sweet works together and, uh, a la carte.

Hey, real quick, before we, uh, just to get the saying, I just want to get back to the prior comment.

Um, so, um, we actually do a little bit more than 10,000 calls a day. Uh, we just looked it up and it's approximately 100 million calls.

Yeah, it's a 100 million minutes a day, uh, which uh, translate into 10th of, uh, millions of call per day of calls per day. Uh, again, uh, just to reiterate we are running 1 of the world's uh, largest business voice, uh, platforms.

by by use,

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephen Horwitz for any closing remarks.

Uh, thank you, everyone, for attending. Today, we're looking forward to seeing many of you on Wednesday for our investor product briefing. For those who can't make it, it will be webcast on the RingCentral IR site, and there will also be a replay available there. Thank you, and for those who aren't there, we'll see you next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.