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Operator
In the question queue, you may press star and one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Will Wong, Vice President Investor Relations. Please go ahead.
Will Wong
Good afternoon and welcome to Ring Central's first quarter 2024 earnings conference call. Joining me today are Wajd Shemines, founder, chairman, and CEO, and Sonali Parekh, CFO. Our format today will include prepared remarks by Wajd 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 .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 guaranteed at future performance. Asher 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 -over-year comparison. Reconciliation of all GAAPs and 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 Invest Relations website. With that, I'll turn the call over to Vlad.
Vlad
Good afternoon, and welcome to our first quarter conference call. We had a solid start to the year. In Q1, total revenue rose 9% to $584 million above the high end of our outlook. ARR rose 10% to $2.4 billion, with Enterprise up 13% for the fourth consecutive quarter. Consistent with our strategy of driving profitable growth, we delivered a record quarter of profitability with operating margin rising to approximately 21%, which was well above our outlook for Q1. I'm also proud of the material progress we have made on reducing stock-based compensation, as we have delivered another quarter of -over-year improvement in SBC as a percent of revenue. Our execution in driving profitable growth has already resulted in an approximately 4x -over-year increase in non-GAP operating profit less SBC. Improvements in SBC, combined with our share re-purchase program, is expected to result in our full year fully diluted share count declining -over-year for the first time in our history. Speaking of making history, I'm excited to share that in Q1, we signed our largest UCAT heat deal ever. We won a competitive RFP and sold 40,000 seats to a Fortune 500 retailer with over $20 billion in revenue. Within Central, this customer will be able to address their main pain points, which include dropped calls, long hold time, inadequate call reporting, and lack of advanced voice features. In this mega deal win, Ring Central will be replacing their legacy solution, Skype for Business, demonstrating our ability to win against Teams phone while operating within the Teams ecosystem. In fact, the majority of our enterprise customers have Teams, and in Q1, more than half of our large $1 million TCB deal were to customers that are utilizing our solution, integrated with and alongside Microsoft Teams. Importantly, this win was in one of our gold verticals, which include healthcare, financial and professional services, retail and public sector. We're mission critical in this vertical, and we win given our unmatched reliability, ability to solve complex use cases, our integrated UCAT and TCAT platform, and our thousands of available integrations. This vertical has been a key growth driver, especially in enterprise. And we believe that there are at least 100 million seats in this vertical that we can convert over time. Let me now give you more color on why we win, which is centered around our guiding principles of trust, innovation and partnerships, or TIP, as we call it. First, trust. We achieved five nights of time for the 23rd trade quarter. In fact, over the past year, we've reached a new milestone of six nights. Our cloud platform is carrier-grade, secure, standards-compliant and battle-tested, and continues to be a wide competitive mode and the key differentiator. Another core strength is our ability to solve complex use cases and integrate into customers' commonly used horizontal and vertical-specific applications, especially in our goal vertical. We offer these customers a large breadth of business communications API, as well as industry-specific integration, workflows and certification. For example, within the healthcare vertical, we integrate into patient data management applications such as Epic and Turner, as well as meet CHI trust and HIPAA-compliant requirements. These customers can create workflows based on the specific needs of their businesses. For example, healthcare providers can use RingCentral API to send prescriptions directly to the pharmacist system electronically and automatically trigger appointment reminders via SMS. Additionally, our market-leading UCAS solution, integrated with the CCAS platform, supports a wide variety of use cases and is also a vital differentiator. With RingCentral, companies have the ability to streamline workflows with our advanced tools and integration. This was a key factor in why Sanitas, a Fortune 500 operator of medical centers in the US, selected RingCentral this quarter to power its communications platform. With RingCentral, Sanitas will be able to provide their customers with the unified, seamless experience across integration, such as scheduling, billing, and general inquiries. We believe this should drive increased revenue and patient retention from improved customer experiences as well as lower costs from the increase in employee efficiency that our industry-leading, integrated UCAS and CCAS platform provide. These are just two examples of our robust progress in new customer acquisition activity in Q1. But equally as important is our ability to retain existing customers and maximize customer lifetime value. On this point, our renewed focus on customer care is resulting in improved growth retention and better NPS scores. The combination of better growth retention, improving micro trends, and the introduction of our new product should drive higher net retention going forward. Now, onto innovation. This past quarter, we announced a name change of our flagship industry-leading UCAS solution from MVP to RingEX, which stands for RingCentral Employee Experience. With this change, we're signaling our commitment to continuous innovation based on emerging generative AI technologies. We started off on the high note with RingEX with RingCent's AI as we won the overall Best of Enterprise Connect Award in March. One key reason we won is because of our differentiated industry-first real-time AI for voice interaction. With this feature, users are able to capture key decisions and track action items in real time, enabling -the-spot referencing and heightened accuracy. It is early days, but users are already seeing significant time savings. For example, one customer highlighted that for an average 20-minute call, real-time nodes save them five minutes post-call while also keeping all their nodes attached to the context to allow for easy referencing in future interaction. Voice-driven data historically has been largely inaccessible at scale as the data has been siloed. With RingCent's AI now being an integral part of RingEX, we empower customers to take advantage of the billions of minutes of conversations that take place on our platform. Our customers will thus be able to automate manual tasks, unlock deeper insights, and create more streamlined employee and customer work. Continuing on the theme of innovation, let me now share progress on our new products. First, RingCent, our AI-powered contact center, which is simple to use and easy to deploy, and which provides agents with -in-one capabilities across 20-plus digital channels, automatic screen paths, contact matching in the CRM, case and ticket processing, ticket creation, and interaction logging for all voice and digital interaction, all from an intuitive user interface. We now have over 200 RingCent customers, almost double versus fourth quarter 2023. RingCent is now available in six countries, the US, Canada, the UK, France, Germany, and most recently Australia. In fact, one of our newest RingCent customers is from outside the US. Rosaram Metropolitan Borough Council is the United Kingdom. They purchased over 200 RingCent seats and over 3,000 RingEX licenses in Q1. Two key factors for our win. One, our unmatched reliability as a prior cloud provider has consistent outages. And two, our fully integrated RingEX and RingCF solution. They will be using RingCF to provide a range of services for their almost 300,000 residents, including addressing incoming social care, planning, housing, and business regulation and enforcement questions. We are rapidly innovating with RingCF. We added over 300 features in Q1, bringing the total to over 1,000. Among the new features of RingCF are native integration into Salesforce, HubSpot, ServiceNow, Zendesk, and Microsoft Dynamics. We have also opened the RingCX platform to enable a growing ecosystem of partners such as Google, Dialogflow, Agnegee, Yellow.ai, Balto, and Calabria. Our strength in voice, ease of deployment, use and maintenance, and our attractive pricing and packaging give us confidence that we will continue to see positive results from RingCF going forward. We also continue to see good traction with RingCents for sale, our first product in the RingCents portfolio. We have more than doubled our customer count sequentially in Q1 to over 600. Many customers are benefiting from the automated interaction summary, follow-up notification, poll scoring, sentiment analysis, and performance management. This frees up salespeople's time, allowing them to focus on selling versus performing administrative tasks. For example, an insurance agency in the Midwest is using the AI-driven insight for RingCents for sale to gain visibility into what's working and not working in the agency's sales and client services practice. RingCents is able to monitor and glean insights from all their voice data, tone, word choice, energy, sentiment, helping the customer identify valuable insights they would not have caught by listening to a random selection of agent conversation. And within our own sales organization, we are seeing RingCents for sale deliver both productivity and efficiency gain. Our employees are now able to save at least two hours a week, or about one full workday a month from using RingCents' automated note summary features. That is one extra day to speak with customers and potentially win more deals. Lastly, events, which provides us with the opportunity to expand into new personas outside of our typical base, including line of business decision makers. RingCentral events saw a roughly 25% sequential increase in new logos in the first quarter. New AI features for events, such as AI Writer and QA categorization, further enhance the value that customers receive. These features also continue to differentiate RingCentral from the competition and work important contributors to customers such as the Detroit Pistons, Vanderbilt University, a Fortune 50 technology company, and one of the largest media companies in the world, selecting RingCentral events during the first quarter. Last but not least, partnerships, which are a key to continue to scale our multi-product business. We have a diverse network of partners, which includes over 15,000 channel partners, a number of large strategic OEM partners, AWS, and some of the largest global service providers, which include AT&T, BT, Chartered Communications, Deutsche Telekom, Telus, and Vodafone. We also continue to expand this network and announce our new partnership with Optus, Australia's second largest provider of telecommunication services during the first quarter. GSPs are a key growth driver for RingCentral and are growing above our overall growth rate. We saw good traction with this cohort in Q1, including with Vodafone, where we won a 1,000 seat plus deal with a large European retailer. Regarding Avaya, they continue to be the world's largest holder of on-prem UC and CC seats. RingCentral continues to be Avaya's exclusive UCAS provider, and in Q1, we extended the term of our multi-year agreement and enhanced our GTM and innovation collaboration model. We expect to work even more closely with Avaya to position, market, and sell Avaya Cloud Office by RingCentral to the millions of existing Avaya on-prem users. Stay tuned for additional joint product announcements at the upcoming Avaya Engage Conference next week. We believe that as a whole, our broad partner network will be an important contributor to our continued profitable growth. In closing, Q1 was solid. We're executing on all our strategic priorities. Our core growth is stabilizing. Our new products are demonstrating traction. Our SBC is improving, and our free cash flow is expanding, demonstrating the strengths of our business and its inherent profitability. I am very excited about our future. With that, let me turn the call over to Sonalish.
Avaya
Thanks, Vlad. I'll provide highlights from the first quarter and then discuss our business outlook for the second quarter and full year. In Q1, subscription revenue of 557 million was up 10% year over year above the high end of our guidance range. ARR of 2.37 billion was up 10% versus last year. On a year over year basis, currency was neutral, while on a sequential basis, currency represented an almost $10 million headwind. Enterprise ARR continues to perform well and rose 13% versus last year to 1.02 billion. We saw good traction with large customers, winning many $1 million plus TCB deals in our gold verticals. As Vlad highlighted, this includes a new Fortune 500 retailer that has committed to spending more than eight figures with us over the next few years.
Vlad
Now,
Avaya
moving to profitability. I'll be referring to non-GAAP results unless otherwise noted. Subscription growth margin was 82%, consistent with prior quarters. Overall ARPU was again above $30. Our new product ARPUs are solidly higher than current overall ARPUs. Over time, we expect new products to become increasingly accretive to overall ARPU and retention. Operating margin rose 350 basis points versus last year to 20.7%, solidly above our guidance of 19.5%. The outperformance was driven by upside to our revenue guidance, as well as the timing of certain operating expenses. Importantly, we continue to remain disciplined in our spending, in particular within sales and marketing. Moving to free cash flow. We are now reporting and we'll guide to free cash flow, defined as net cash provided by operating activities, less capitalized expenditures. This more closely reflects the cash flow generation of our business in a given period, and includes cash paid for interest and other non-recurring items, such as restructuring, which we will call out separately. In the first quarter of 2024, we generated free cash flow of 77 million. This is net of cash paid for interest of 23 million and non-recurring payment of 15 million, as well as 10 million of cash received from certain strategic partners. Excluding the impact of interest and these non-recurring items, free cash flow would have been 105 million, compared to 61 million in the first quarter of 2023, representing over 70% growth. Moving to stock-based compensation. As a percent of total revenue, stock-based compensation fell to 15.6%, down 340 basis points versus last year. We also remain disciplined on stock rent to both new and existing employees, and continue to expect new grants net of forfeitures in 2024 to be about half of 2023 levels. Moving to our balance sheet. During the quarter, we repurchased 2.4 million shares for $80 million under the plan previously authorized by our board of directors. Recently, our board increased our repurchase authorization by an incremental 250 million. We currently have approximately 375 million remaining on our total authorization. Given our current valuation, strong and growing free cash flow, and the significant progress we have made to bring down our leverage, we believe that share repurchase provides an attractive relative return. Moving to our convert. We had 161 million of our 2025 convertible notes outstanding on March 31st. There is no change in our plan shared last quarter to utilize our existing liquidity sources and a portion of our free cash flow to retire the 2025 convert prior to its maturity date in March 2025. Our net leverage ratio, which declined year over year by over one turn to two and a half times at the end of Q1 2024, continues to trend downward as we expand our adjusted EBITDA and reduce gross debt. Our low and improving leverage ratio, strong double B credit rating, significant liquidity and strong free cash flow growth gives us flexibility and a range of alternatives for addressing our 2026 convertible notes. Now, let me turn to guidance. Embedded in our guidance is the expectation that the macro environment and current business trends remain relatively stable with no further material improvement or deterioration in condition. With that backdrop, for the second quarter of 2024, we expect subscription revenue growth of 9%, total revenue growth of 8 to 9%, non-GAAP operating margin of 20.7%, but versus the first quarter of 2024 and non-GAAP EPS of 87 to 88 cents. For the full year, we are raising our revenue outlook to reflect our Q1 revenue outperformance. We now expect subscription revenue of 2.267 billion to 2.287 billion, representing growth of 8 to 9%, and total revenue of 2.379 billion to 2.399 billion, representing annual growth of 8 to 9%. We continue to expect non-GAAP operating margin of 21% and stock-based compensation as a percentage of total revenue of approximately 16%. We are raising our non-GAAP EPS to $3.59 to $3.67, up from $3.50 to $3.58, as we now expect 96 to 97 million fully diluted shares outstanding in 2024, down from 98 to 99 million shares previously. Regarding free cash flow, under our updated definition, we expect free cash flow of 385 to 390 million. Our outlook for 385 to 390 million includes cash paid for interest of 60 million, and cash paid for non-recurring restructuring and other items of 20 million, as well as 25 million of cash received from certain strategic partners. Excluding interest in these non-recurring items, we are raising our free cash flow outlook from 415 to 420 million, to 440 to 445 million, up 25 million from our prior outlook. Our updated free cash flow guidance reflects the benefit we are seeing from better cash collections and lower commission. We are also benefiting from a shift to annual upfront billing for some contact center customers. In summary, we had a strong start to the year, and are raising our revenue and free cash flow outlook. Our leading differentiated product and unique -to-market combined with our scale and laser focus on driving profitability and free cash flow, position us well for creating long-term shareholder value. With that, let's open up the call for questions.
Vlad
Thank you.
Operator
We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using the speakerphone, please pick up your handset before pressing any keys. In the interest of time, please limit yourselves to one question each. To
Vlad
withdraw your question, please press star then two. First question comes from Cash Rangan of Bank of America.
Operator
Please go ahead.
spk03
Hi, thank you very much, Goldman Sachs. Vlad, question for you. It looks like enterprise air is growing faster than the overall company. It looks like that's an area of relative strength for the company as evidenced by the 40,000 UCAS deal that you signed. Can you tell us what is driving the strength in the enterprise product or competitiveness or execution standpoint? One for you if I could slip in suddenly. You raised free cash flow guidance by a pretty meaningful amount. Can you tell us, congratulations, and can you tell us how sustainable is the free cash flow growth rate of the company going forward? Thank you so much.
Vlad
Great, hi, Cash, and thank you. Okay, so the first question. Look, we have a good product. It continues to be an industry-leading product. We continue innovating. As we mentioned, we have just and for the first time ever won Best of the Show overall award at Enterprise Connect. That's a big deal, and we want it specifically on the strength of our differentiated AI offering. With respect to both enterprise as a whole, but this one particular policy deal in particular, look, what are we known for? We're known for reliability. We are known for, and it is bulletproof, nothing but. It's multiple, multiple years of five nights availability, and now I think what, about a year and a half of six nights. That has not been matched, I don't think, in history. I can tell you, it did not come by accident. There was a lot of blood, sweat, and tears that went into this over many, many years by many people. Okay, and you know, it might be a little bit particular. We have, we are uniquely positioned to complex, to address complex use cases. As noted in preferred demarks, we were chosen in this particular case, our reliability, as well as use cases, and some of the examples, ability to handle messages and just hold times in general. Hold times, what's happening during the hold is a big deal for many enterprises. This one in particular is a meaningful retailer. They also have, as part of their retail establishment, they hold pharmacies. So what's happening during, on hold times is incredibly important. And you know, we just have better ways of handling that. But I wanna turn the mic over to somebody here in a sec, but also wanna give you the big picture. And the big picture is, why do we win the enterprise is, again, good product, robust, reliable, full of features, but very importantly, huge amount of green fields still left. I really want people to internalize the fact that in spite of all of the rhetoric about, oh, you know, videos taking over, messaging taking over, collab taking over, which by the way, we have all of those modalities as well, but voice continues to be the primary mission critical medium of communications for people. And especially in our goal verticals, which includes retail, includes healthcare, includes financial, et cetera, we can easily see 100 million hits out there. Salesforce, I think, just published a report saying that prevalent modes of -to-vee communications are voice and email, and there's not video messaging. And this is where we shine. And last but by far not least, why we continue winning there, and we have stabilized our growth in double digits still, is focus. There was rhetoric, as you know, relatively recently, that RingCentral is abandoning enterprise. Well, this is our way of showing that not quite. We're not abandoning enterprise. We're doubling down on enterprise. We absolutely see our right to win there. And I tell you what, as we have focused on enterprise and we'll continue to focus, we will also be redoubling our efforts on SMB. It's been relatively underperforming in a very challenging macro for SMB, but we think that there's still a lot of juice left there. We also have a very strong position in the very strong and protectable right to win. So let's say I'm cautiously optimistic that we'll be showing good results there as well moving forward. Rana Lee.
Rana Lee
Thanks a lot. And thanks, Cash, for the call out on free cashflow. Yes, we are very, very proud of what we delivered. So as you know, last year, we took really important steps to transform the profile of our cost base. And we expanded operating margins by nearly 700 basis points a year over a year. And the efficiencies and productivity benefits realized are now reflecting in a big way, not only on operating margin, but we're seeing it in free cashflow. If you look at where I've guided today, our unlevered adjusted free cashflow was expected to grow 34% this year. And free cashflow margins are expanding by about 370 basis points based on that updated guidance. So free cashflow margins are really starting to converge with operating margin. This is a trend that we sort of telegraphed because we're realizing the positive impact of the lower intensity of deferred commissions that we're amortizing over the last couple of years through the P&L. And we've also realized significant working capital efficiencies and shifting more of our long-term contractual commitments to upfront payments. So the power of the growing free cashflow coupled with our focus on driving SBC down, which hopefully you noticed as well, provides a real opportunity to drive significant free cashflow per share growth and driving that growth in excess of both revenue and overall free cashflow growth. So this year we expect based on the midpoint of our guide on free cashflow, that our free cashflow per share will grow about 36%. And that outlook has improved by about 10 percentage points since we last reported last quarter. So, given the improvements in our free cashflow and the updated outlook we've given you on share accounts, which we now expect to reduce year over year, we hope that you will judge us on the strong free cashflow per share growth that we will continue to deliver on
Samad
a sustainable basis.
Vlad
The next question comes from Samad Samana
Operator
of Jeffreese. Please go ahead.
spk08
Hi, good afternoon. Thanks for taking my questions. Also honored to go after cash. So, we love the order of the Q&A. Hope you guys are doing well. Maybe first question, just Vlad, as I think about the large deal, it's obviously small in the overall context of the millions of seats that RingCentral has. But when I think about that's gotta be one of your larger individual deals, could you help us maybe double click into, what the timeline looks like in terms of winning the deal, what led it maybe in terms of like the features, so on so forth, and what they expect to roll out of a deal of this size looks like just given how big the deal is, and it's a signature win. And then suddenly just, I'll squeeze in a stub question for you upfront as well, which just on the upfront billing, is there any discounting that's going on to drive the upfront collections, or is that just the customers are agreeing to that and the timing doesn't really matter to them? Thank you both for taking my questions.
Vlad
Yeah, hi Samad. Okay, yes, glad to have you in the poll position here on the Q&A list. Okay, so as far as the deal, it wasn't one of the largest, it was our largest. So this is especially interesting, given again all of the especially more recent rhetoric about our positioning in the enterprise and the teams and all of that. Look, as far as how long, these types of deals are generally one to two year cycles. This particular one happened to be right in the middle, 18 months, okay? And it's, you know, I already mentioned some of the differentiated features. This customer is rotating out of Skype for Business, so it was a competitive RFP process. We don't always know who else is involved, but you can probably imagine the usual suspects. And as I already mentioned to Kiasz, it really has to do with reliability and features, okay? And again, we don't think that this is such an aberration. 40 seat deals, there are only so many of them on the OTB head, but you know, we do have other large installments. We have 20% of GPK, which is, which we count as part of our enterprise segment, so they're spending more a hundred thousand ARR with us. So we are very much active in large accounts. We continue this, we believe in this, we have a good chance to continue this being the case. And they really want to serve this one more thing. Again, this is getting going back into enterprise and teams and how do we coexist there. And we need to understand that there is teams and then there is team phone. We compete with team phone and as you can see, we have some success competing against team phone. We work and partner with teams itself, okay? So we are an integral part or extension to teams via available APIs. We provide a support that is single pane of glass and that's the major strength. We have really what we believe one of the best is not the best team integrations on the market today. So I hope that answers your question.
Rana Lee
Yeah, and Samad, just suddenly here. On your question with respect to discounting, no, there's nothing to call out there. It's really a mix shift. So as we grow in enterprise and the composition of enterprises total increases in our overall revenue, it tilts us to more upfront billings and longer term contracts. And that's obviously much more common in enterprise to bill upfront than say SMB,
Samad
which is often month to month.
Vlad
The next question comes from Ryan McWilliams of Barclays. Please go ahead.
Ryan McWilliams
Thanks for the question. I'll also continue with the term about the two part questions, one for Vlad, one for Sunil Lee. For Vlad, just given the macro uncertainty, how does your pipeline look like for the rest of this year and have you noticed any trends in the pipeline, whether between SMB and enterprise or UCAS and CKS opportunities? And then for Sunil Lee, nice revenue result in pre-cash to step up, but it looks like the non-GAAP for your operating margin guide was maintained. We just used this as conservative as earlier to start the year or are you leaving room for more additional sales and marketing and R&D investments this year?
Vlad
Thanks. Okay, great. Yes, Aaron. Okay, look, pipeline. So you see how we guide it. We have a good quarter and what we believe is a strong guide as well. So that should tell you that we feel relatively good and optimistic about the pipe. You asked between enterprise and SMB, they're very different because enterprise, again, is a year plus cycle. SMB could be easily under six months in many cases, one to three months. So pipe there is a lot less, it's not important, but it's just a very different dynamic there. But again, overall, we feel that we are finding bottom, if you will, and you have seen our enterprise rate stabilize over multiple quarters. You have not yet seen this from us in SMB, but we are optimistic that we're not far from that as well. And given the size of the greenfield opportunity, which is still, we're still under 10 million seats ourselves, right? And we're in the lead by a few seat counts according to third party research. Some of you may have got our Wall Street Journal at least in English details on that research. With the overall opportunity just in the enterprise, okay, being 100 million, that's a long way to go. And given that we are still doubling, driven down on innovation, we're infusing AI across the entire portfolio and not just limited to our new products, for example. Again, we are very optimistic that we will continue holding our own and not be disappointing people. Okay, I think that was the question. Yeah,
Rana Lee
so on the margin question, so overall we're really happy with the improvements we've driven in profitability over the last two years or so margins have gone from 10% to as you say 21% to where I've held the guide today. I think really we feel we need to balance growth versus profitability and we need to maintain some flexibility to be able to go after attractive investments in either product innovation on the marketing side. We talked about the gold verticals, vertical specific campaigns. So yeah, we really see it as a balancing act. And on operating margin, I would say that I've guided closer to the pin. Hopefully what you've seen is that we took up free cash flow margins from 17.5 to 18.5%. That's adjusted on
Samad
leverage. So hopefully that answers the question.
spk00
The next question.
Vlad
So the next question comes from Siti Penigrahi of
spk09
Mizuho. Please go ahead. Thanks for taking my question. I wanted to ask you about the new products that you expect to hit 100 million ARR by end of next year. Which one you feel more excited about between the RingCX, RingSense and the RINGCENSE? RingCenter events. And also, how do you, as you keep adding features to RingCS, how do you try to position your product versus your partner product within the install base?
Vlad
Yes, sure. Okay, well, for those of you with multiple kids, it's like asking which daughter you like best. So there's no politically correct answer to that. We like them all, or else probably we will not be investing in some of them. As far as, they're very different. So we're talking about three products, one of which is really not a product but a family of products. So it's RingCX, which is our native contact center. It's RingCenter events. And it's RingSense for sales, but it's the first in a family of products for us because we expect to be introducing RingSense for other verticals and specific solutions. I think it's easiest to quantify RingCX because the UCAP market is relatively well covered and well understood. And this will get into the second part of your question. RingCX differentiates on ease of use, pricing and packaging, and very importantly, it's an AI native product. So AI is infused from day one. And of course, it seamlessly integrates with RingCX, which is our flagship UCAP product. So we have internal projections, which we are not going to share at this point. But suffice to say that we feel confident that our goal of 100 million ARR across all three products is achievable. We mentioned some numbers. We have approximately doubled or even more than doubled customer counts on both RingCX and the central events. And that's just quarter over quarter. So while the service obviously very strong growth, very strong demand for the both of them. Events, I think what is the share suddenly? I think we said, is the share sharing? Well, we can do it. I think we have 25%. Yeah, quarter over quarter growth, which is still very, very strong. So again, it's very early for all of them, but very promising. Okay, and I tell you what, I like having multiple courses in this race. They all help each other. When we have an event sale, for example, it absolutely opens opportunities for us with CX, with RingCX, and with EX
Vlad
itself. So it's a virtuous cycle. So, yeah. The next question comes from Mehta Marshall
Operator
of Morgan Stanley.
spk01
Please go ahead. Hey, this is Jamie on from Mehta. I appreciate you taking the question. I think maybe just following up on that last point. Great to see the traction you guys are getting with RingCX. Are you able to provide any detail on how much of that base comes from existing customers versus new? And then just as a follow up to that, Have you seen any conflicts with the partnership that you guys have with NICE? Are you running into any challenges in terms of what to present to the customer? Or have you seen NICE try to take any of those customers direct?
Vlad
Yeah. So your last question, look, it would not be in the spirit or for that matter, letter of the agreement for them to take them direct. So we hope not. Okay. As far as base or not, when you say base, some of them are coming from our base, but not necessarily from the RCCC, which is in contact base, NICE base. You know, we're not trying to convert those to CF. Again, the two products are very different. In many ways, complementary. Ring CF is much simpler to use. Install very different price points, more aggressive price points. Of course, we have owner economics on it, so margins are healthy. But it is really designed to address simpler use cases, more mass market, if you will, as opposed to ring control contact center RCCC, which is flagship industry-leading, gardener, and queue-leading products that NICE has. So again, we have very clear rules of engagement, self-imposed internally. When we get an inquiry or a lead, we qualify which product to present it to, or which product will be presented to the customer. And once we do, we are locked into that path. Okay, so it's rare to see a tug of
Vlad
war between CF and RCCC. The next question comes from Tim Horan of Oppenheimer. Please go
Operator
ahead.
Teams
Thanks, guys, too, also, if I might. On RingCX, do you think you're expanding the number of agency seats out there or companies, you know, adding contact center capabilities or is it, you know, kind of more you taking market share from existing? And then secondly, on Microsoft Teams, do you have a sense of what percentage of Teams users now are using it for external, you know, phone calls and maybe a sense of where that can kind of go to? And, you know, do you maybe just have a rough sense of what percent Microsoft has versus other outsources like yourself?
Vlad
Thanks. Yes. No, I mean, Microsoft, you have to have their own numbers, you know. Our use within Teams is, I mean, I think it's a well-known fact that people use Microsoft more for internal than external. Our goal verticals, let me answer this way, our goal verticals all tend to be B2C, okay? So whenever you have a consumer needing to access their brand, okay, whether it be healthcare or financial, you know, or retail, these are just some of these what we call goal verticals, this is where we shine, okay? And it's a very, very large market scale and a huge amount of greenfield still left there. Okay. So what was the CX part of the question?
Teams
I'm trying to understand, do you think the number of agents are growing in CX? Are they shrinking? You know, your price point is pretty low and, you know, easy to use. Do you think you're enabling people to kind of go into this business for the first time if you're a small business that maybe didn't have this capability before?
Vlad
Absolutely. Absolutely. So if your question is, well, you know, our count of agents is of course growing, growing very rapidly because, you know, we are early in that cycle and we are, you know, just adding, you know, I mean, doubling quarter over quarter or just we're growing quite nicely. But if your question is about overall number of agents in the industry growing, that's a really interesting question. And obviously there is this line of thinking that AI will replace agents. For now, we're seeing more AI augmenting agents. I do believe that over time, overall number of humans in the industry will stabilize and be decreasing. I also subscribe to that. And for that reason, we're building AI and agent assist, co-pilot, and even agent replace capabilities into CX. So this is absolutely taking place. It will always be the case and already is the case that a bot is much cheaper than a human being. It's not as good yet, not as versatile. And this is across the industry or else there wouldn't be any agents left. You made an interesting point about, hey, small businesses, they didn't have access to this type of functionality before. I would agree to that. That's largely true. I can tell you from my personal interactions with small and medium-sized businesses, many of them actually pride themselves on the fact that they provide human assistance and not, you know, if you hide behind bots. And this is a way of differentiating and kind of showing the human touch and human TLC. I do expect that to stay for the foreseeable future as well. So there are different dynamics here. As a business and at the high level, how we approach it is saying, look, customer, you know, if you want to have a good, solid cost-effective solution of empowering and lighting up your human agents, here is a solution. As you are ready, here is a simple and relatively seamless path of augmenting their experience, your agent's experience and your customer's experience. And as you get more comfortable, if you feel that you can start reducing the number of agents, that's just fine as well because here is this technology which will allow you to do that without leaving the platform. Okay, so it's more often evolution than the revolution is what we
Vlad
see and we're structuring in that roadmap. The next question comes from Byron Peterson and Raymond James.
Byron Peterson
Please
Vlad
go ahead.
Byron Peterson
Thanks for taking the question and congrats on the quarter. So Vlad, the tone of GSP was notably strong this quarter. I'm curious, is that a broad-based comment or are there a couple that are really driving that strength and how are you thinking about that growth profile through that channel over the next couple of years? Thank you.
Vlad
Right, with GSP. So yeah, thank you for asking that. Look, GSP is a hidden gem, you know, and actually I'm surprised that not more people ask this question and concentrate on this because this is one area where we really have built a practice that is unrivaled in the industry. If you think about it in historical terms, a few years ago, Broadsoft, which was an on-prem provider, really have licensed something like 700 carriers worldwide, which is really almost all of them, and they provided them with software licenses. In many cases, they were perpetual licenses, okay, which carriers have just bought in bulk and it's, you know, all found was wonderful and the company had a nice exit and Cisco now owns them. The thing is, this platform has not been innovated on in a number of years now. It is still on-prem. There is not a natural path to the cloud. And Telcos are, I'm going to say Telcos, it's not just Telcos. It's Telcos and cable providers as well. Okay, for example, Charter Communications is a very valued member of our GSP partners and they're doing extremely well with our product. So they're just increasingly realizing that they have to move on this dated age, really almost unsupported software that's out there with Broadsoft, which has seen it prime, and there are mass migrations underway. So we are very bullish about this channel. We are seeing both growth from called same store sales to where each and every individual GSP is growing nicely, as well as we are adding new major logos, we just announced Optus, Australia's second largest. I believe all of you think about it, so you can imagine that there are conversations across the board there. And look, Broadsoft, we have a number of very good people from what used to be Broadsoft. We know the playbook. We know who the accounts are. We also are well aware of the fact that out of the 700 that they have, we have approximately 2% of those. So long run with there. And we will be, we start to be sharing more in this later in the year and perhaps at our annals day. But it is definitely an area of strength and a very nice
Vlad
competitive model for us. And our last question comes from Terry Tillman of Truvis.
Operator
Please go ahead.
spk05
Great. Thanks for squeezing me in. This is Bobby Dion for Terry. I am curious with the Ring EX rebrand, I am curious how the -to-market organization has reacted and evolved with the change. Are there potentially some productivity gains on the table for more of a multi-product platform selling approach? Thank you.
Vlad
Yeah, I think people understand the reason for this. I think general reception has been quite positive. They understand that by remaining from MVP, which was message video phone, to Ring EX, it does not mean that we are abandoning the multimodal strategy. It just means that we are redoubling on the experience part of it. It is more about any modality in particular, but more about integration of all modalities together. But even more importantly than that is infusion of AI and semantic capabilities across the entire portfolio and across all modalities. And this is what people are excited about. This is what won us Best of Show at Enterprise Connect. And look, we are in beta, we are in closed beta here. But expect that we will be showing and showcasing these capabilities even to this group, our coverage universe, in the relatively near future. I can tell you that we are using these products internally, and it is a game changer. It is just amazing what you can do with AI. If you apply it to a large network,
Vlad
just what kind of results can be achieved. And this concludes our conference call. You may now disconnect.
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