RingCentral : First Quarter 2025 Earnings Script

Published: 2025-05-09 08:02:55 ET RNG

Published on 05/09/2025 at 08:02

Thank you. Good afternoon and welcome to RingCentral's first quarter 2025 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Kira Makagon, President and COO, and Abhey Lamba, CFO. Our format today will include prepared remarks by Vlad, Kira and Abhey, followed by Q&A.

We also have a slide presentation available on our investor relations website that will coincide with today's call, which you can find under the Financial Results section at ir.ringcentral.com.

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 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. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website.

With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us today. We had a strong start to the year and are excited about the opportunity ahead.

We exceeded $2.5 billion in ARR, delivered revenue at the upper end of our guidance, expanded operating margin, generated record quarterly free cash flow and reduced debt and share count year over year and quarter over quarter. Our AI-powered

multi-product strategy is clearly working, and we continue to see strong proofpoints that our new products are resonating with customers.

We achieved total revenues of $612 million. Our operating margin was 21.8%, exceeding our guidance range. This marks our third consecutive quarter of GAAP operating profitability, and we are committed to maintaining GAAP operating profitability going forward.

We generated record free cash flow of $130 million up 70% y/y, putting us well on track to achieve our 2025 goal of over $500 million. Additionally, we paid down $166 million of debt during the quarter, reducing our net leverage ratio to 2x.

Our robust free cash flow generation enables us to invest in growth while simultaneously strengthening our balance sheet.

Our success continues to be grounded in the values that have guided us from day one: Trust, Innovation, and Partnerships or TIP. These principles shaped our rise from a start-up to a market leader, and now guide us as we expand into a multi-product company, with AI at the core.

We continue to lead in the $30 billion UCaaS market with a steady 20% market share. Now we are leveraging our leadership position by supercharging our platform with AI and expanding our portfolio to enable us to expand our TAM and grow our market share.

We are investing over a quarter billion dollars in innovation annually, with a significant and growing portion dedicated to our emerging AI led new products. This underscores a continued commitment to a best-in-class and complete product portfolio, focused on

AI-powered employee and customer experiences - which includes our flagship RingEX, RingCX, and our emerging portfolio of voice-centric agentic AI solutions.

The early results of these new products are promising. Kira will provide additional details, but here are some quick proof points:

At the core of our new product portfolio is RingCX - our modern, AI-powered, omnichannel cloud contact center solution that is delivering strong double digit

sequential growth. The success of RingCX is further validated this past quarter by "leadership recognition" by key industry analysts, including Aragon, ISG, and GigaOm

- citing seamless capabilities, ease of deployment and use, and AI throughout the customer interaction lifecycle.

RingSense, our AI-powered insights and coaching tool, also saw a strong double digit sequential increase in the number of customers this quarter. RingSense is integrated with and being sold alongside RingEX and RingCX for sales, customer care, and other quality management use cases.

I am also extremely excited about the early progress that we are seeing with our latest innovation, RingCentral AI Receptionist, or AIR, which launched last quarter. AIR is a category defining AI phone agent that augments and replaces human receptionists, resulting in major productivity improvements and substantially better customer experience. We activated more than 400 AIR customers within just 6 weeks of the launch and now have over 1,000.

These are early but meaningful proofpoints that our AI led multi product strategy is working. And this gives us continued confidence in our ability to achieve over $100 million in ARR from new products by the end of 2025.

Our Q1 results reflect our performance as a unified multi-product enterprise. However, I'd like now to dive deeper into some specific customer cohorts that are integral to our success. Please note that while we're sharing these details today, we may not update them regularly.

Our company is trusted by over 400,000 businesses as their mission-critical communications provider. We proudly count some of the world's largest companies as our customers. The majority of our customers however are smaller businesses. In fact, approximately 30% of our overall ARR comes from customers with fewer than 100 employees.

Small business is the backbone of the US economy, contributing over 40% of our

nation's GDP. RingCentral is positioned extremely well in this cohort as many of these businesses are in consumer-facing sectors such as healthcare, financial services, retail, and travel & transportation. Voice communication remains an important mode of interaction in these industries, and as a leader in business voice solutions, we are

well-positioned to meet their needs. Importantly, we are seeing strong adoption of our AI-based products, in particular AIR and RingSense with these customers due to strong product fit.

The numbers speak for themselves: In Q1, ARR from these smaller customers grew by double digits, marking an acceleration over the past two quarters and reaching a

two-year high. Moreover, these customers generate higher ARPU and deliver good ROI, with a time to break even of under 18 months.

Another key customer cohort for us is telecom carriers and Multiple System Operators (MSOs), collectively referred to as Global Service Providers (GSPs). Our GSP partnerships are not merely transactional; they are strategic alliances that amplify our market presence. By collaborating with GSPs, we leverage their extensive networks and customer relationships to deliver our innovative products and services more effectively, while allowing them an opportunity to deliver world-class modern innovation to their vast

customer bases. This symbiotic relationship enables us to tap into new markets and customers that might otherwise be challenging to reach directly.

And importantly, most of our major GSP partners including but not limited to AT&T, BT, Charter, Optus, Telus, Vodafone, and now Cox Communications -are now signed up to resell many of our new products, including RingCX, RingSense, and now AIR. This is a critical validation of our multi-product platform strategy and global go-to-market reach.

The overall GSP opportunity is substantial, with an estimated over 40 million seats worldwide, approximately half of which are in North America. GSPs account for over 10% of our ARR, delivering double-digit growth, with a time to break even of under 18 months.

Our success is a testament to our position as a known and trusted provider to GSPs. The competitive landscape is favorable. Other vendors are either too small and unproven or too large and directly competitive with the GSPs, making RingCentral uniquely positioned in this space.

Between our smaller customers and the GSPs, we have cultivated sizable cohorts with over $1 billion in ARR. These cohorts are growing in double digits and boast impressive ROI metrics with time to break-even of under 18 months. These cohorts also provide strong competitive moats as we continue to innovate and expand our offerings.

Our remaining customer cohort comprises larger businesses with over 100 employees. While the competitive environment in this cohort is more challenging-particularly with some larger enterprises emphasizing alternative communication modalities-we continue to perform strongly. Voice remains an important communications modality, especially for customers in B2C verticals such as healthcare, insurance, professional and consumer services, retail, and manufacturing, and we are the preferred choice for those.

As a proof point, in Q1, we saw a year-over-year increase in $1 million-plus total contract value or TCV deals. We continue to displace legacy on-prem providers due to our leading enterprise grade cloud-voice capabilities, reliability, global reach, and our unique channel partner network that is best-in-class.

Another important factor in our success with larger customers is our open platform that offers superior integrations into Microsoft Teams, Google, and Salesforce which now includes our new integration of RingCX with Salesforce Service Cloud Voice. In fact, we now have over 500 integrations in our app gallery, which is a key competitive advantage for us.

Of particular importance with larger enterprises is our strong Microsoft Teams integration. It is a key differentiator as enterprises look to pair our best-in-class voice with the Teams collaboration suite. Simply put, for enterprises seeking to augment their Teams chat and video with a best of breed cloud-voice solution, RingEX for Teams is the answer. Consequently, our Teams integration Monthly Active Users (MAUs) grew by 30% year-over-year, which is outpacing our overall growth.

Looking forward, our competitive positioning is now greatly aided by the introduction of RingCX and our emerging AI product portfolio. In fact, over half of our $1M TCV deals were with customers who bought multiple products from us.

Larger enterprises continue to be a growth driver and a profit generator for us, and we are optimistic about this cohort given the depth and breadth of our product portfolio and GTM strengths.

In closing, RingCentral is a pioneer and a break-away leader in driving the shift from on-prem to cloud communications. The next phase in our growth will be driven by leveraging AI throughout our growing portfolio with increased addressable market and wallet share. RingCentral was always about helping businesses succeed by saving them time and money. And now with voice-centric agentic AI at the core of our product portfolio, we are uniquely positioned to provide further efficiency and productivity gains to businesses of all sizes world-wide.

The opportunity ahead is bigger than ever and we are just getting started. With that, I'll turn this call over to Kira. Thank you.

Thank you, Vlad. I'm energized by the momentum we're seeing across the business. RingCentral has built a category-leading business cloud communications platform where voice remains mission-critical. AI is fundamentally reshaping how people communicate and work, presenting a significant opportunity. Our voice centric agentic AI solutions are resonating with customers and we're well-positioned to capitalize on this shift by aligning our product innovation and go-to-market strategy to lead in this evolving landscape.

Last quarter, I outlined three strategic priorities, and I'm pleased to report measurable progress across all of them. So, let's go through each.

Customers consistently choose RingCentral for our market-leading cloud business phone system, especially in key B2C verticals, our platform strength with leading integrations and an expanding AI-powered multi-product portfolio.

Let me give you an example of a new customer win in UCaaS:

We won an iconic 150 year old consumer food brand. They selected RingEX for its enterprise grade voice capabilities to meet the requirements of connecting their global and distributed workforces. Our reliability, ease of administration, seamless integration with Microsoft Teams and global reach were key differentiators. This company anticipates substantial cost savings by moving away from their incumbent legacy solution to the RingCentral cloud platform while enhancing employee and customer experience.

In addition to our leadership in UCaaS with our RingEX platform, we are uniquely positioned to transform the industry with AI. Our vision centers on a voice-first agentic AI platform that harnesses RingCentral's two decades of expertise in advanced voice technology and our massive global communications network. We're delivering measurable value throughout the entire communication lifecycle-before, during, and after every interaction-making work dramatically faster, significantly easier, and fundamentally more intelligent for our customers. This AI-driven approach isn't just enhancing our existing offerings; it's creating entirely new possibilities for how businesses communicate and operate.

Let's start with "before the interaction." We launched AIR in Q1. AIR creates a new category with an AI phone agent that uses generative AI to automatically answer customer inquiries and transfer calls. AIR is easy to set up for businesses of any size and delivers measurable ROI by driving efficiency, reducing spam and strengthening customer opportunities. We are seeing early success across healthcare, accounting, transportation, and financial services, demonstrating AIR's ability to deliver targeted and impactful business outcomes.

As proofpoints of AIR's impact:

Owen Security said that they are "seeing massive efficiency gains" and that AIR, "saves each agent 2-4 hours per day, which is a 50% decrease in time spent on inbound calls." Now with the time saved, Owen Security is able to spend more time on outbound calls, and focus on client follow-ups, all without adding

headcount.

Integral Recruiting said that they "used to have hundreds of calls every month, with around 90% of them being spam or irrelevant." Now with AIR, they can filter out irrelevant calls, and focus on the 10% which are relevant customer opportunities. The value here isn't just time saved - it's the focus on real customer leads to help grow their business.

Next, for "during the call", we've enabled AI Assistant for RingEX customers. "AI Assistant" enables end users to be more productive - transcribing calls, taking notes and composing texts and messages with AI. It continues to gain strong traction across Healthcare, Financial Services, Transportation and other verticals. In Q1, AI Assistant for calling has generated 40+ million notes for U.S. based users, and among those who use it for automating notes, we're seeing 85% repeat usage.

Next, let's talk about the "after the call" experience. RingSense analyzes conversations, scores calls, surfaces coaching opportunities and delivers key performance metrics. We now have more than 2,800 customers using RingSense-up from more than 2,000 last quarter, highlighting strong sequential growth. RingSense attach with $1 million + TCV deals in Q1 is demonstrating our ability to scale RingSense AI across customer cohorts. As an example:

MedCare, a long-time RingEX customer, recently added RingSense. By using AI-powered analysis, they've been able to optimize operations by reducing the

time spent on manual call reviews by 90%, freeing up resources to allocate more focus on care and outcomes. Now that they're using RingSense, all calls are automatically analyzed and summarized. And from what they've seen, RingSense is highly accurate with its analysis and call insights.

We're seeing strong traction with RingCX. Customers are choosing RingCX because it's AI-powered with rich omnichannel, it's seamlessly integrated with RingEX, it's easy to deploy and use, plus it delivers fast time to value. At the end of Q4 we had over 700

RingCX customers. This count now stands at over 1,000. We are seeing a strong attach of RingCX, including in large deals, which underscores that our multi-product strategy is working across all cohorts.

A great example is a new win with one of the largest auto dealership groups in the world. This customer is deploying thousands of RingEX seats, alongside

RingCX, and RingSense AI across nearly 100 locations. With RingCentral, they're standardizing communications, improving call performance analytics and enhancing customer experience across sales and support.

Another example is NHS Hertfordshire, a well known regional healthcare trust in the UK, went live in Q1, only six weeks after signing up. Serving over 1.2 million residents, they've already achieved a 30% reduction in call wait times and are expanding services that benefit both patients and agents.

Over the last three quarters, more than 50% of $1 million+ deals involving RingCX also included AI Quality Management (QM), underscoring the value of combining CX and AI together. Our AI QM automatically scores 100% of calls, providing actionable insights for coaching and performance improvement. For instance:

A large prescription benefits administrator - a $1 million+ TCV deal signed in Q1, selected RingEX, RingCX and AI QM to streamline their support operations and improve service quality.

These examples illustrate how our AI-powered multi-product strategy is resonating with customers, driving growth, and delivering measurable outcomes.

We also continue to see strong traction with RingCentral Events which recently was awarded and recognized by Frost & Sullivan for its visionary approach to transforming virtual, hybrid and in-person events due to its disruptive pricing, and rich AI-powered capabilities for customers.

As you heard from Vlad, we are generating profitable growth, expanding our operating margin and driving more free cash flow. And AI adoption is a key driver in improving efficiencies across our organization, and the early results are compelling. Let me give you some examples of how we are using AI.

In Customer Support, we are laser focused on improving customer outcomes. AI is helping us modernize both technology and workforce efficiency. With RingCX deployed, we are seeing a 10 to 20% reduction in average handle times using it in concert with AI Agent Assist and AI Supervisor Assist, which are now in open Beta, and will be generally available in the coming months.

In Sales and Marketing, we are using AI to improve accuracy in targeting and customer outreach. This enhances our pipeline quality, account planning and overall sales agent productivity. Our use of AI has led to a 10x increase in productivity in content creation, more effective campaigns, and improved lead quality. To put it simply, we are now able to generate more qualified leads for less dollars.

In Innovation, we are already seeing a 20% productivity improvement from using AI to accelerate development cycles and improve code quality.

In summary, AI is not just a technology shift-it's a business transformation engine that is enhancing both our top-line growth and bottom-line efficiency.

We're staying focused on driving profitable growth through disciplined execution in our core and delivering on our multi-product strategy. AI is transforming business communications in profound ways, and RingCentral is committed to leading this change, helping businesses communicate more effectively, work smarter, and deliver exceptional customer outcomes.

With that, let me turn it over to Abhey. Abhey Lamba, RingCentral, Inc. - CFO Thank you, Kira.

We kicked off the year with a solid overall performance and maintain a very strong financial profile. I am pleased with our execution across all key financial metrics: revenues, operating margin, FCF per share, debt paydown, and reduction in stock based compensation in absolute dollars and as a percent of revenue.

Let me first provide highlights from the first quarter and then discuss our outlook.

Total revenue of $612 million, up 5% year over year, was at the high end of our guidance. Subscription revenue grew 6% to $590 million.

ARR increased to $2.53 billion, up 7% year over year, driven by our AI-powered

multi-product portfolio. Large deal activity was strong as $1 million plus TCV deals were up year over year with a strong RingCX and RingSense attach. New products continue to show strong traction and we are on track to deliver over $100 million in ARR from

new products by the end of 2025.

Now, moving to profitability. I'll be referring to non-GAAP results, unless otherwise noted.

Subscription gross margin continues to be strong above 80%.

Operating margin expanded 110 basis points year over year to about 22%, which was above our guidance. This was driven by realizing efficiencies, especially in sales and marketing. We are committed to further driving operational efficiencies resulting in margin expansion while enabling us to invest in growth opportunities.

Notably, we delivered GAAP operating profitability for the third consecutive quarter as we reduced stock-based compensation as a percent of revenue by almost 250 bps year over year due to disciplined new grant activity, in addition to improvement in operating margin.

Moving to our cash flows. Our strong operating performance, combined with increased rigor in driving efficiencies and working capital improvements, resulted in record quarterly free cash flow of $130 million, up 70% versus last year. FCF margin was 21.3%, up 820 basis points versus last year.

Moving to buybacks. During the quarter, we also repurchased approximately 1.8 million shares for $50 million. We have $218 million available in our buyback authorization as of March end. As a result of our disciplined capital allocation policy over the last year, our diluted share count declined 3% versus last year to 92.9 million.

Moving to our balance sheet. We paid down $161 million of convertible debt during the quarter, bringing our gross debt down to $1.36 billion. The reduction in debt combined with 9% growth in EBITDA to $155 million, drove our net debt leverage ratio to 2.0x from 2.2x on a trailing twelve months basis.

We expect to generate over $500 million of free cash flow in 2025. Our strong free cash flow generation combined with cash on hand and available long-term credit facilities, provide us with sufficient liquidity to address our debt obligations both in the near and long term. We remain committed to further reducing our gross debt level to below $1 billion by the end of 2026.

We performed well in Q1 and our business remains strong. Macro however remains uncertain. We are therefore taking a prudent approach in guiding for the remainder of 2025.

For the full year 2025, we expect:

Subscriptions revenue growth range of 5% to 7% year-over-year.

Total revenue growth range of 4% to 6% year-over-year.

Non-GAAP operating margin of approximately 22.5%, up approximately 150 basis points year over year.

Non-GAAP EPS range of $4.13 to $4.27 based on 93.5 to 94.5 million fully diluted shares.

Share-based compensation range of $300 to $310 million.

Free cash flow of approximately $500 to $510 million, growth of approximately 25% at the midpoint.

For the second quarter, we expect:

Subscriptions revenue range of $594 to $600 million, representing year-over-year growth of 5% to 6%.

Total revenue of $614 to $620 million, representing year-over-year growth of 4% to 5%.

Non-GAAP operating margin of 22.0% to 22.5%.

Non-GAAP EPS of $1.00 to $1.04 based on 92.3 to 92.8 million fully diluted shares.

In summary, we are executing from a position of strength in a large and expanding market. Our business benefits from a sticky revenue base and a growing portfolio of mission-critical products with AI at the core. We continue to deliver profitable growth,

supported by robust cash flows, and are maintaining disciplined financial management. We are actively managing dilution and further strengthening our balance sheet by reducing debt. We are confident that we are well positioned to deliver sustained shareholder value.

With that, let's open up the call to questions.

Disclaimer

RingCentral Inc. published this content on May 08, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 09, 2025 at 11:49 UTC.