RingCentral, Inc.

Good afternoon and welcome to the RingCentral third quarter 2023 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. 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. 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, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to RingCentral's third quarter of 2023 earnings conference call. Joining me today are Tarek Robiadi, CEO, Vlad Shvinas, Founder and Executive Chairman, and Sotolink Peric, CFO. Our format today will include prepared remarks by Tarek, Vlad, and Sonali, 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 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 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 now turn the call over to Tarek.

Good afternoon. I'm excited to be on my first earnings call as RingCentral's CEO. We had a good quarter as we exceeded our guidance across our revenue and operating profit metrics. Finally, we'll provide more financial details shortly, but the key takeaway is that RingCentral continues to win and innovate in a competitive market. We win because we have an industry-leading product that is mission-critical to many customers. In particular, within the SMB mid-market and consumer-facing verticals, RingCentral is a de facto choice for many businesses, given our leading reliability, product integrations, and commitment to innovation. This theme was apparent throughout the many conversations I've had with customers and partners since I took on the CEO role in August. It is also why I am optimistic about our goal of driving sustainable, profitable growth. As CEO, I will be focused on delivering a plan to help us realize that goal. Today, I'd like to share a few of my initial observations, as well as areas I will be targeting to unlock growth opportunities and drive increased productivity and profits. First, regarding my initial observation about our business operations. As I alluded earlier, RingCentral is an innovation leader. Vlad and the R&D team have been busy over the last few years building out an AI platform that we are now leveraging to infuse AI across our entire portfolio. Combined with our UCaaS leadership built over the past 20 years, we are now transforming into an AI-first, multi-product company with proprietary offering in UCaaS, CCaaS, conversation intelligence, sales analytics and events, webinars, and meetings. Vlad will discuss in more detail our recent product developments and focus areas going forward. Additionally, Sonali and her team have done a great job of delivering increased profitability in 2023. Our operating profit dollars have increased over 70% year to date through actions such as more discipline spending, reducing organizational spans and layers, consolidating vendors, and driving down customer acquisition and retention costs. The key takeaway is that we're doing many things well, and RingCentral's foundation is strong. I believe we can build on that foundation to unlock further growth and productivity. Moving forward, I will be focused on a few areas to deliver on this potential. They include, number one, continuing to innovate and build a multi-product business. Number two, focusing more deeply on customer segments and key verticals. Number three, expanding partnerships. Number four, growing internationally. And finally, number five, increasing operational productivity. First, let me share with you on a high level our plan to build a multi-product business. In CX, our RingSense AI platform and RingCentral events are starting to gain strong traction as they are a natural extension of our core. For example, the Fortune 500 company partnered with RingCentral this quarter to solve a critical internal communications use case for its employees that involved the purchase of over 25,000 MVP and 1,000 RingCX licenses. Using a combination of RingCentral MVP and RingCX, we're able to help them reliably connect drivers to dispatchers while integrating seamlessly into their other technology workflows. RingTX is just one example of a new product we've recently introduced. Going forward, we'll be focused on continuing to invest in our new products as well as their related go-to-market rollouts to ensure they will be successful. In addition to these new products attracting new customers, they will also provide an opportunity to expand our footprint within existing customers. Our net retention at roughly 100% today is below where I think it can be, particularly because we now have more to sell. Additionally, new products also create more stickiness, as the more a customer adopts our differentiated offerings, the more likely they will remain a customer. Second, regarding developing a deeper focus on customer segmentation and key verticals, one area I'm investing more in is the SMBM mid-market, which was 57% of our business in Q3. These cohorts have traditionally been underserved by largest vendors and thus are not encumbered by the bundling dynamics that may influence larger customers' decisions. Also within this market, voice remains a primary method of communication for these businesses, and they pick GreenCentral given our clear leadership in cloud voice. By driving incremental focus on the SMB and mid-market, it provides us with a significant opportunity to sell our full suite of communication tools. We have also seen good progress in key verticals such as healthcare, education, financial and professional services, and public sector. For example, the top four dental service organizations run on RingCentral. Thousands of other healthcare organizations have also selected us for our proven reliability, deep integrations, and commitment to innovation. This quarter, Boston Medical Center Health System, the largest safety net hospital and busiest trauma center in New England, selected RingCentral to modernize their business communications. With RingCentral's joint UCAS and TCAS offering, Boston Medical Center Health System will have one integrated voice platform for both internal and external communications, which should improve their provider and patient experiences. There is more we can do to capitalize on our success in these bold verticals. One way is by tailoring our solutions even more in both the enterprise and SMB mid-market. For example, we continue to invest in attaining certain government certifications for the public sector and are developing other specific integrations and go-to-market strategies for industries for which voice is mission critical. There are also many ways we can bifurcate the enterprise segment with specific go-to-market motions to better address customer needs. For example, for enterprise customers with a Teams deployment, we can sell RingCentral for Teams 2.0. This motion allows us to provide voice functionality and potentially attach other products such as Contact Center to our offerings. Now, moving to partnerships. Our current partnerships with global service providers such as AT&T, BT, Telus, and Vodafone, and strategic partners NICE, Avaya, and Mitel Unify provide us with the broadest reach in the industry and are a key differentiator. We will also focus on other partnership opportunities that expand our partnership ecosystem, including new relationships with other service partners and ISVs that can help us expand our reach. More to come on this in further quarters. Moving to geographic expansion, international has remained roughly 10% of our business for the last two years. It has the potential to be much higher. I'm focused on how we can leverage our distribution channels and partner network to grow outside the US, with a particular focus on Europe, where we have go-to-market operations and several partners and GSP relationships. Last, but by far not least, is my focus on materially increasing productivity. One area that is high on my radar is stock-based compensation. We're fully committed to and are taking tangible steps already towards materially reducing stock-based compensation. Another key area for me is sales and marketing expense. We have seen sales and marketing spend increase only 2% year-to-date, while subscription revenue has grown 12%. However, as a percent of revenue, this is still above where I think it should be in the current environment. I am reviewing our go-to-market motions both before, during, and after the sale to ensure that the cost of acquiring and maintaining a customer is optimized. I realize that while some costs, such as residuals, have a longer tail, there are opportunities to better align our sales and marketing investments to the value they create. There has been some good early traction with initiatives such as our new child program, Ignite, that is aimed at reducing dependence of resellers on RingCentral's own sales force. This has direct impact on improving overall productivity and lowering sales and marketing costs. We're now taking an additional step to adjust and optimize our cost structure, reallocating resources across the company and routes to market over the next few months as we operationalize these productivity initiatives. I hope my initial observations and focus areas are helpful to you in understanding RingCentral's key differentiators as well as opportunities for advancement. While the macro has had an impact on our business, there are also areas that are in our control and that we can enhance. There's a clear plan, and we must now execute on these priorities. I believe the combination of our solid core, strong team, and exciting and disruptive new products positions as well for the future. I also want to take this opportunity to thank everyone at RingCentral for delivering a solid Q3. With that, I want to turn the call over to Vlad, who will discuss in more detail one of the key pillars of our plan, innovation and new products.