RingCentral, Inc.

And welcome to the RingCentral Second Quarter 2024 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 touch-tone 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, Vice President of Investor Relations. Please go ahead. Thank you.

Good afternoon, and welcome to RingCentral's second quarter 2024 earnings conference call. Joining me today are Vlad Shmus, Founder, Chairman, and CEO, and Sonali Parekh, CFO. Our format today will include prepared remarks by 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 outlooks. 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 welcome to our second quarter earnings conference call. We had a solid second quarter, as results were above the high end of guidance on all key metrics again this quarter. Total revenue rose 10% to $593 million, $7 million above the midpoint of our guidance. We saw good traction with our new product. In particular, with RingCX, our native AI-first cloud contact center product. RingCX traction was solidly above our expectations. Importantly, we also delivered another quarter of expanding profitability and strong cash flows. Sonali will provide more details shortly. but some key highlights include achieving an operating margin of 20.9%, which was above our guidance, driving down SBC by 5 percentage points year over year, and generating $109 million of levered free cash flow, a quarterly record. We see our business as being comprised of three major customer groups. These are Large businesses or enterprise, which are customers that generate over 100,000 of ARR and which represent about 40% of our total ARR. Mid-market, which are customers that generate between 25,000 to 100,000 of ARR and which represent about 20% of our total ARR. And small businesses. which are customers with less than 25,000 of ARR and which represent about 40% of our total ARR. Our results reflect continued strength in our core UCAS business across all customer groups. Our enterprise business continues the trend of double-digit year-over-year growth in Q2. We're also seeing growth in the average enterprise deal size on both acquisition and upsell. We closed around 20 deals with over 1 million TCV or total contract value in Q2, which was in line with the number of such deals in Q2 2023. Importantly, the average TCV of large deals grew by 30% year over year. As we have seen the last few quarters, Many enterprise customers want our deep Teams integration. In fact, more than half of our large deals this quarter were again to customers that are utilizing our solutions integrated with and alongside Microsoft Teams. This is a key differentiator and an important reason why we win. We see Teams as a tremendous opportunity to grow our presence with the many large enterprises that use it for collaboration, but are also in need of best-in-class telephony. Within enterprise, we also continue to see strong traction in our gold verticals, which include health care, financial and professional services, retail, and public sector. Given the mission-critical nature of voice in these industries, we are uniquely positioned to disproportionately capture the opportunity in our gold vertical. We estimate this opportunity represents at least 100 million on-prem seats that we expect to move to the cloud over time. In past quarters, we have discussed our large enterprise wins in financial services and healthcare. This quarter, I want to specifically call out the significant strengths we're seeing in the retail sector. which we believe comprises nearly one-third of seats in our gold vertical. Last quarter, we announced the largest win in our company history. This was 40,000-seat win with our flagship Cloud PBX UCAS Ring EX product with a large capacity. Fortune 500 retailer. This quarter, we won two 10,000-plus C deals in the retail vertical as well. The first is a large retailer with hundreds of stores across Europe that purchased 13,000 Ring EF seats. The second is a well-known retailer in the Asia-Pacific region that purchased 11,000 Ring EF seats. the largest APEC deal in our company's history. These customers selected RingCentral because of our combination of vertical specific integrations, deep team integration, proven ability in solving complex use cases, and critically, best-in-class reliability. In our small and mid-market customer groups, we're seeing early signs of stabilization despite a continually challenging macro. This is due to our ongoing focus on customer support experience, as well as our transition to a multi-product portfolio company, which allows us to get greater wallet share from our sizable SMB base. Looking ahead, we believe these improvements should drive net retention and growth higher. So why do we win? Our success is driven by our differentiated strategy of trust, innovation, and partnerships, or TIP, as we call it. First, trust. We achieved 99.999% uptime for the 24th trade quarter, and our carrier-grade reliability combined with our secure, standards-compliant, and battle-tested platform continue to be a key differentiator. It is one of the reasons why Whirlpool, a Fortune 500 manufacturer, selected RingCentral this quarter to power communications at its U.S. manufacturing plants. The company purchased 5,000 Ring EX seats and selected us for our ability to deliver a cloud communications platform that is reliable, easily deployable, and scalable. Innovation. The past 12 months have marked one of the most innovative periods in the company's history. In this short time, we launched RingSense, our AI platform, RingCX, our native CCaaS product, RingSense for Sales, our conversation intelligence offering, and RingCentral Events, our hybrid events product. This has transformed us into a multi-product portfolio company. We're seeing strong early momentum across all our new products. In February of this year, we set a target of achieving at least 100 million of exit ARR from our new products by the end of 2025. Six months in, these products are already having a positive impact on our growth, and I'm confident we will achieve this target. Let me provide more detail on the traction we're seeing with each new product. First, RingCX. We're seeing strong demand for RingCX, which now has over 350 customers, up more than 70% sequentially. RingCX net new bookings nearly doubled in 2Q, delivering a higher average revenue per account. This ARPA expansion has been largely fueled by over 25% of our 1 million plus TCV deals, now including both Ring EX and Ring CX. Ring CX wins because it is a modern AI-sourced product that is natively integrated with our industry-leading Ring EX UCAS solutions. RingCX is reliable, easy to deploy and use, and is disruptively priced. In Q2, the rapid pace of innovation continued as we added more than 300 additional features, including integrations with ServiceNow, HubSpot, and importantly, Microsoft Teams. Notably, in Q2, we rolled out RingSense for RingCX, a premium add-on which provides AI-powered quality management and conversational analytics. This product is currently in the controlled availability phase of its rollout. However, we're already seeing strong early traction with nearly two-thirds of our 1 million plus TCV deals that included RingCX also attaching RingSense. When RingSense is purchased alongside RingCX, Our combined list price is roughly $100. A good example of a combined Ring EX, Ring CX, and Ring Sense win last quarter is a large county in the Midwestern United States. The county, one of the 25 largest in the U.S., purchased 5,000 Ring EX seats and 500 Ring CX seats, as well as added on Ring Sense for Ring CX. The county will use RING-EX to power communications for its workforce and RING-CX to power its contact center, allowing seamless collaboration across departments such as treasury and election. The county is also a great example of a major win in the public sector, one of our key gold verticals. Building on the RING-CX momentum, is a recent announcement that Vodafone will be reselling RingCX, the first major GSP to offer RingCX to its global customer base. With all the great early traction we're seeing with RingCX, we also continue winning with our upmarket RingCentral Contact Center product, which targets customers with more complex use cases. During the quarter, we significantly increased our presence with a multinational travel and leisure firm and a large global healthcare organization. We also added two large credit unions to RingCentral contact center customers. Many enterprises, especially in our gold verticals, where voice is mission critical, demand best-in-class UCAS closely integrated with the strong CCaaS solution. RingEX combined with RingCentral Contact Center is a unique deep integration between two Gartner Magic Quadrant leading products. And for customers looking to streamline workflows while leveraging the power of AI, we have the RingEX, RingCX combination to offer. In In the case, reliability, scalability, security, global reach, standards compliance, depth and breadth of integration, and their robust feature set are table stakes. Ring EX with Ring CX and Ring EX with RCCC check all of these boxes and continue to be unique in doing so. Our total contact center business now stands at $390 million off ARR, up 19% year-over-year. Now moving on to Ring Sense for Sales. We now have over 800 customers with net new bookings almost tripling sequentially. Customers choose Ring Sense for Sales for its ability to record and summarize conversations, provide AI-powered coaching, deliver insights on what customers care about most, and allow managers to have a comprehensive, easy-to-access view of the team's performance. For example, Terrytown ExpoCare, the largest IGD-focused pharmacy in America, reported that it is now able to review 100% of their customer calls, thus realizing significant productivity gains. Continuing with our strong innovation cadence, In Q2, we introduced a new integration with Microsoft, which now captures and creates insights from Teams conversations. This, combined with our integrations with leading CRM tools, such as Salesforce and HubSpot, allow our customers to keep track of all their interactions without needing to toggle between applications. And now, on to RingCentral events. Customer count was up over 30% sequentially, with bookings growth of over 40% sequentially. New wins included a large six-figure deal with the leading global management consulting firm, one of the world's largest aerospace companies, and a large global personal computing company. On the innovation front, we introduced a new LinkedIn integration which allows users to directly register and share events all within LinkedIn. The traction we're seeing across all our new products, we believe we can attract new customers as well as increase upsell to our existing base, which is the key driver of net retention. We will be providing you with periodic updates on our new products as we achieve certain milestones. Back to tip. Last but not least, partnerships. As we scale our business, we will continue to leverage our expansive and differentiated go-to-market ecosystem. This ecosystem, which includes channel partners, strategic partners, and global service providers, combined with our direct selling motions, allows us to have access to multiple segments, verticals, and routes to market. It has been key to our success and an important part of our competitive mode that allows us to successfully scale our multi-product business. Let me now give you some highlights from the quarter. First, GSPs. Our GSP business again grew faster than our overall business and now represents over 10% of our total ARR. Our network of GSP partners and deep engagements that we have built with them on both product and go-to-market are unmatched by our UC and CC peers. Today, I'd like to warmly welcome Cox Communications, the largest private broadband provider in the US and the comprehensive technology provider for businesses to our growing GSP family. Cox selected TruthCentral to support their future UCaaS and CCaaS solutions with plans to launch UCaaS later this year. Cox provides us with another meaningful channel to help move more on-prem customers to the cloud. We now have a network of 14 GSP providers in total, including two MSOs, as Cox follows the successful rollout of Charter in late 2022. Our presence and expansion with the leading GSPs in Europe is key to scaling our international presence. In this vein, as I already mentioned, Vodafone recently announced that it will be reselling RingCX to their user base. We also continue to expand into new geographies with Vodafone. For example, in the second quarter, we launched in Ireland and already won a sizable deal at Smith Toys. one of the country's largest toy retailers. We expect to have access to a total of 30 global markets through Vodafone by 2025, up from 20 today. Now on to strategic partnerships. First, Mitel. In Q2, we acquired certain additional assets and customer relationships related to Mitel's MeCloud Connect and Sky UCAS platform. While we have migrated hundreds of thousands of Mitel's cloud since already, we expect that this will allow us to provide a better customer experience for the remaining cloud base in the customer's digital transformation journey. Moving forward, RingCentral and Mitel will be non-exclusive partners. Now on to Avaya. Earlier this year, we announced an extension of our relationship. We're already seeing good renewed traction, including with several of Avaya's top customers who are going through their digital transformation. This includes a recent large win with one of the busiest commercial ports in North America, as well as another win with an auto retailer with locations in all 50 states. In Q2, We also jointly announced a new hybrid solution that allows customers to integrate their existing Avaya on-prem products with RingCentral's cloud messaging and video solutions. This hybrid approach will enable Avaya's customers to transition to Avaya Cloud Office powered by RingCentral or ACO at their own pace. by allowing employees from the same company to use either Avaya or on-prem product or ACO to power their calling. Meanwhile, they can use RingCentral's AI-powered cloud messaging and VDA capabilities for digital collaboration. We believe our opportunity with Avaya remains significant and that we're well-positioned to drive the transition of Avaya's large UC base to the cloud. In summary, Q2 results were a continuation of the strong execution that we saw in the first quarter. Demand in our core UCaaS business remains solid. Our new products are gaining traction, our pace of innovation is quickening, and we're expanding our partnerships. We're doing all this while continuing to improve profitability, reduce stock-based compensation, and grow free cash flow and free cash flow per share. We believe this will generate value for all our stakeholders over time. We are on an exciting path, and I'm confident that we can continue to execute in the quarters and years ahead. With that, let me turn the call over to Sonali.