RingCentral, Inc.

Good day and welcome to the RingCentral Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. 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 Will Wong. RingCentral's Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to RingCentral's third quarter 2022 earnings conference call. I'm Will Wong, RingCentral's Vice President of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Mo Kattaba, President and Chief Operating Officer, and Sona Lee Parekh, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Mo, and Sona Lee, 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 discussions and responses to your questions will contain forward-looking statements, including our fourth quarter and full year 2022 financial outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference in today's discussion. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP's non-GAAP results is provided with our earnings release and in the slide deck. Please visit our investor relations website to access our earnings release, slide deck, our gap to non-gap reconciliations, our periodic SEC reports, a webcast replay of today's call, and to learn more about RingCentral. For certain forward-looking guidance, a reconciliation of the non-gap financial guidance to the corresponding gap 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 our third quarter earnings conference call. We had a solid quarter and exceeded our guidance on every key metric. Total revenue of $509 million was up 23% versus last year and above our outlook of $502 million. We achieved this result despite an increasingly difficult macro environment. While it is hard to predict the exact timing of an economic recovery, we're confident that RingCentral will continue playing a prominent role as businesses rationalize their spend and strive to be more efficient via digital transformation efforts. We serve a mission-critical need and provide customers value as they migrate from legacy systems to the cloud. Additionally, we delivered a record quarterly operating profit margin of 13.5% up 300 basis points versus last year. This was significantly above our guidance of 12.5%. Looking ahead, I'm confident in our ability to deliver strong operating results which includes meaningfully expanding profitability. To this point, we're now targeting operating margin expansion of at least 350 basis points in 2023. This puts us on an accelerated path to achieving our prior commitment of at least a 20% operating margin. Now, Let me share the reasons why RingCentral is winning in the UCaaS market. First, we win because we believe we have the world's best cloud phone system. Innovation is part of our DNA. We will continue to make targeted investments in key growth areas such as AI, analytics, and contact center, and provide differentiated, intelligent, and connected experiences to our customers as they proceed with their digital transformations. This investment will further add to what we believe is the most complete cloud PBX solution in the world, with features for every type of user and use case. With over 8,500 private and public applications and an ecosystem of over 75,000 developers, we enable customers to innovate on our platform. This includes over 150 pre-built telephony apps, over 330 pre-built apps for UC and CC, and the most advanced integrated contact center experience. One integration example is with Salesforce. Our integration lets customers make and receive calls, schedule RingCentral video meetings, and quickly assign call dispositions, all without having to leave Salesforce. Customers are also able to make and log customer calls from anywhere in the world. With advanced features such as offline and multi-call logging that no other provider has, users can save time, which they can allocate to revenue generating activities. This integration and the hundreds of other integrations we've developed, including with Microsoft, Google, ServiceNow, HubSpot, Zendesk, and others have helped us become an industry leader. But that's not all. Other key differentiators include our outstanding 99.999% reliability, which we achieved for the 17th consecutive quarter, as well as our global reach with full availability in over 45 countries and presence in over 100 countries. We also support a wide range of endpoints, including from our strategic partners such as Mitel, Avaya, Atos, and Alcatel-Lucent Enterprise. We also have a fully integrated IMS cloud architecture that enables fixed mobile convergence that is a key requirement from some of our GSP partners. Second, we win because of our unmatched partner ecosystem. which is made up of our strategic partners and multiple global service providers. We have a proven ability to partner with the world's leading on-prem PBX providers, as well as leading service providers such as AT&T, BT, Telus, and Vodafone. I'm also very pleased to announce our new upcoming relationship with Charter Communications, where we will be launching a joint offering for both SMB and enterprise businesses. Be on the lookout for more details in the coming days. And last but not least, we have over 15,000 resellers spanning the globe. We believe this gives us unrivaled access to the large market opportunity ahead of us. Finally, we win because we're known as the leader in our industry. We are proud to be a Gartner Magic Quadrant for the Unified Communications as a Service worldwide leader for seven years in a row, with the last recognition occurring in 2021. Gartner also recognized RingCentral for being ranked number one in all four use cases in the 2021 Gartner Critical Capabilities for Unified Communications as a Service worldwide report, updated August 1, 2022. Additionally, this quarter, the Tolley Group, a leading global provider of testing and third-party validation and certification, conducted a feature-by-feature comparison of analytics capabilities in which RingCentral met 100% of the specification criteria outlined in 13 categories. The next closest vendor only met 100% in four of the 13 categories. Lastly, Synergy Research Group recently recognized RingCentral as the leader in UCaaS, with over 20% market share based on paid seats, which is double the second and third place vendors. Big picture is that voice remains as relevant as ever. A good reminder of this is a recent survey of key technology purchase decision makers, which highlighted that 90% of business leaders prefer to use the phone over other communication tools. This is true across companies of all sizes, with use cases ranging from internal calls and meetings to external client and vendor calls. Of note, we see this in our own customers as well, as more than 95% of our base actively use phone. We're just at the beginning of the journey. There are 400 million telephony seats worldwide. and many of those seats are expected to move to the cloud, driven by a number of clearly visible megatrends. These include the shift to hybrid work, ongoing adoption of mobility by businesses, increasing reliance on distributed workforces, and the desire for an integrated cloud-based UC and CC solution from a single provider. Synergy recently concluded that just 21 million UCCs are in the cloud today, or a single-digit penetration rate. This highlights how early we are in the journey when comparing to the number of seats that are still on-prem and are yet to be migrated. Looking forward, we will remain laser-focused on delivering a best-in-class UCaaS offering by investing in innovation and driving profitable growth. Throughout the year, we have taken steps to expand our operating margins and drive efficiencies throughout our business. While we recently made the extremely difficult decision to further rationalize our workforce, we believe this will allow us to be more agile and better align our costs with our strategic priorities in the current macro environment. This decision was not made lightly. And we understand the impact this has on our people and their families. We're taking meaningful action to help ease the transition for our impacted employees. We want to underscore how grateful we are for their hard work and all their contributions. RingCentral would not be where we are today without them. Finally, I want to reiterate how proud I am of what we as a company have accomplished. Building from two guys in a garage, we are now a $2 billion recurring revenue business with leading share and an unrivaled platform. I believe we're well positioned to emerge even stronger as the economic recovery begins. Now, let me turn the call over to Mo. Thanks, Vlad.