Q3 2024 RingCentral Inc Earnings Call

In This Article:

Participants

Will Wong; Vice President, Investor Relations; RingCentral Inc

Vladimir Shmunis; Executive Chairman of the Board, Chief Executive Officer; RingCentral Inc

Vaibhav Agarwal; Chief Accounting Officer; RingCentral Inc

Kash Rangan; Analyst; Goldman Sachs

Siti Panigrahi; Analyst; Mizuho Securities USA

Damon Coggin

Michael Turrin; Analyst; Wells Fargo Securities, LLC

Samad Samana; Analyst; Jefferies

Ali Ohaba

Presentation

Operator

Hello, and welcome to the RingCentral Third Quarter 2024 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. 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 2021 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. 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.
Some of our discussion and responses to your questions will contain forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call.
For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings please. 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. 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.

Vladimir Shmunis

Good afternoon, everyone, and welcome to our third quarter earnings conference call.
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 Abhey Lamba, who we announced today as our new Chief Financial Officer. Building from his start as a software engineer at Bentley Systems, Abhey is a seasoned finance and technology leader with over 30 years of experience. Abhey joins us from Amazon Web Services where he is Vice President of Finance for Global Infrastructure, including Gen AI investments. Prior to Amazon, he held final leadership roles at systems and other desk.
In his various roles, he has driven growth and profitability for multibillion-dollar businesses. Previously, he served as a sell-side analyst on Wall Street for over 15 years, where he covered enterprise technology, hardware and SaaS companies at UBS, ISI Group and Mizuho Securities. Abhey will join in his new role in the coming weeks.
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. His selfless dedication and outstanding leadership ensured that we did not miss a beat during the transition period. Vaibhav will partner with Abhey 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. Our outperformance was driven by continued strength in our core UCaaS market, combined with strong traction from our new products, in particular, RingCX. We also delivered on our profitability goals, including achieving GAAP operating profitability in the quarter.
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.
Our results demonstrate we are executing against our strategic priorities. They are, one, solidifying our UCaaS leadership by infusing AI across our entire portfolio amongst other initiatives. Two, expanding TAM through new AI-powered products. This includes RingCX, our native AI-powered CCaaS solution; RingSense, our conversation intelligence offering; and RingCentral Events, our virtual and hybrid events platform. And third, broadening our reach by nurturing and growing our large and diverse partner network and expanding into new geographies.
We believe these priorities will drive long-term profitable growth through increased wallet share, improved retention and more efficient new logo acquisition.
Now let me share more about each priority and how we performed against it during the quarter. First, solidifying our UCaaS leadership. We have built a leading business communications platform grounded in TIP, which stands for Trust, Innovation and Partnerships On Trust. We've been delivering five nines or better reliability for over six years. Customers of all sizes including some of the world's best-known brands choose us because of our robust feature set ease of deployment and use and carrier-grade reliability, all built on our secure, standards compliant and highly scalable global platform.
This continues to be a key differentiator and a competitive advantage for us which is why we have been named by Gartner for the tenth consecutive year as a leader in the 2024 Magic Quadrant for UCaaS report. Core to this recognition is our leadership in voice, Voice continues to be mission-critical. We see this in our user base, where voice maintenance base remains consistent with historical trends. This is supported by a recent IDC survey, which concluded that 78% of organizations agree that voice calling will remain a priority mode of communication in their employee and customer interactions. Given our leadership in voice, enterprises are choosing RingCentral's business phone platform to complement their use of Microsoft Teams messaging and video. Teams customers centering center for advanced phone capabilities that are not available with Teams.
These include, but are not limited to SMS, fax, call monitoring, call queue management, IVR, rich communications APIs, broader global reach, native integrations with major CRMs and robust analytics and reporting.
Based on these advantages and our deep integration with teams, this quarter, we booked a $1 million-plus TCV win with a large European health care provider, who is also a Teams customer. This customer will deploy in their 35-plus offices across Europe.
Voice is the primary mode of business communication and AI is a tailwind for voice. Businesses can now unlock the power of their voice conversations and the resource of data that enables more insights and smarter decisions. This is why we recently announced RingCentral AI Assistant, which is now included at no additional cost for all RingEX customers. RingCentral AI Assistant at a magically generated detailed real-time notes for voice call helps write and translate texts and summarize his meetings to create action items, reducing time spent on mundane tasks, freeing up employees type for more critical work.
Omdia Research recently cited the subscription by RingCentral AI Assistant as amazingly accurate. A long-time RingCentral customer, the Detroit Pistons, is already implementing AI-powered noticing for their key meetings and strategy session. Paul Raiper, their VP of IT, said that it has been a game changer for the business operations. Previously, we worried about missing crucial details, especially during fast-paced pregame preparations. It has significantly enhanced our ability to stay organized and aligned.
This technology isn't just improving our administrative efficiency. It is giving us a competitive edge by ensuring no valuable insight or strategy falls through the cracks. To further our competitive malt, we recently achieved a significant milestone by receiving a pan-India license to the Indian Department of Telecommunications.This authorization allows us to operate across all 22 telecommunication circles in India making us the first cloud providers to deliver fully compliant UCaaS and CCaaS solutions throughout the country. multinational organizations can now seamlessly connect the global offices with Indian branches, facilitating efficient communication and collaboration.
Now let's move on to the new products. First, our new native CCaaS product, RingCX. IDC recently highlighted that over 80% of organizations believe it is important that their UCaaS solution includes CCaaS capabilities benefits of a joint UCaaS and CCaaS solution include improved collaboration between call center agents and the rest of the organization, resulting in overall improved customer experience, integrated conversation intelligence, unified usage analytics, a better overall user and administrative experience and uniform SLAs for all internal and external communications.
RingCX is a modern AI-powered omnichannel CCaaS platform, offering native conversation intelligence and quality management in our digital channels in addition to voice and SMS. It is seamlessly integrated with our industry-leading RingEX platform and differentiates on combining ease of deployment and use with depth of functionality, reliability and security.
Based on these trends, this quarter, we booked a $1 million-plus TCV deal with one of North America's largest manufacturers of automotive replacement tires that will be deploying RingEX, RingCX and RingSense across their entire international footprint.
As an additional proof point of RingCX's ability to scale, including more advanced use cases. We have also recently moved the entire RingCentral customer service team of over 1,000 support agents to RingCX. This was done cost efficiently in the few short weeks and without disruption.
We now have over 500 customers on the platform, up over 45% sequentially. In addition to strong customer growth, we are also seeing strong ARPU expansion which was up sequentially. The RingCX AI quality management add-on has been a key driver of this ARPU expansion with a nearly 50% attach rate to new bookings in the quarter.
AUTOPAY, an auto loan specialist, said, since we migrated to RingCX, we estimate a 20% time savings for customer success reps due to sophisticated AI technology that RingCX delivers.
To further enhance the value proposition of RingCX in the mid-market and enterprise segments, Today, we've announced a strategic partnership with Verint. Through this partnership, RingCX customers will be able to leverage Verint's leading WEM and CX automation solutions, which complement RingCentral's native AI capabilities. This is to enhance employee productivity and improve customer experiences, ultimately driving competitive advantage and operational efficiency to our customers.
With the ability to address a full range of use cases, we will be prioritizing our native CCaaS platform, RingCX. The strong traction we are seeing with RingCX has validated its value proposition in the market. As RingCX growth is based, it has the potential to capture a meaningful share of the multibillion-dollar CCaaS TAM with owner economics for RingCentral.
Second, RingSense our conversation intelligence platform that was formerly called RingSense for Sales, now has over 1,200 customers, up over 45% sequentially. The RingSense customer base and use cases are diverse. For example, legal firms are using it to simplify case management and health care organizations such as REE Medical are using it to automatically review approximately 75,000 calls a month for specific keywords versus previously only being able to manually review a few hundred calls per month.
And third, our virtual and hybrid event solution, RingCentral Events added over 100 new customers during the quarter. This included [Trimble], a Fortune 500 technology company, through picturing central events for its ability to easily create high production quality branded events. We also renewed relationships with key RingCentral events customers such as Block, DHL, eBay, NYU, Rodgers and TELUS amongst others.
In February of this year, we set a target of achieving at least $100 million of exit ARR from our new products by end of 2025. We are encouraged by our results so far and believe we are well on our way to achieving this target.
Now on to partnerships. Our differentiated go-to-market includes a large direct sales force, top global service providers or GSPs and the large partner and reseller network. This allows us to have access to multiple customer groups, geographies and verticals. It is an important part of our competitive moat that allow us to successfully scale our multiproduct business.
Let me give you some highlights from the quarter. First, GSP. Our GSP business, again, grew faster than our overall business. This network of GSP partners and the deep engagement that we have built with them on both product and go-to-market are unmatched by our UC and CC peers. A great example of this design is our 10-year plus partnership with AT&T, the nation's premier fiber, fixed wireless and wireless provider, which we recently renewed.
We're also leveraging our large GSP network to grow internationally. We recently added Optus, a leading service provider in Australia and are not seeing early traction together. We also continue to see success with Vodafone as well as British Telecom and TELUS internationally.
Leveraging our unique GSP network is also a opportunity and differentiator of RingCX growth. Vodafone, Cox and Zayo have already chosen RingCX as a CCaaS solution to bring to the diverse customer bases, and we're optimistic of shorter progress with these and other key partners on this front.
In summary, we had a strong quarter in delivering against our strategic priorities. RingCentral is a proven leader in UCaaS where the opportunity remains large. And their new CCaaS, AI and Events products are showing good early traction. We are also executing on our efficiency initiatives, which is resulting in expanded profitability and free cash flow as well as reducing SBC. We are on an exciting path and then I'm confident that we can continue to execute in the quarters and years ahead.
With that, I would like to again thank Vaibhav for his outstanding contributions and will now turn the call over to him to discuss our financial results in more detail.

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