RingCentral, Inc.

Good afternoon and welcome to the RingCentral fourth quarter 2025 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 Stephen Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's fourth quarter and full year 2025 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Kira Macagon, President and Chief Operating Officer, and Vaibhav Agarwal, Chief Financial Officer. Our remarks today include 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. If the call is replayed after today, the information presented may not contain current or accurate information. 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 presentation, which you can find under the financial results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. Before I begin, let me warmly welcome Mahmoud El-Asir to our Board of Directors. As Senior Vice President and Chief Technology Officer at United Health Group, Mahmoud leads technology infrastructure, platforms, and services, including corporate systems. Previously, Mahmoud held senior leadership roles at Google and Verizon, where he led major AI and cloud network and platform transformation initiatives, powering global enterprise and consumer services. Mahmoud brings deep expertise in AI native platforms, cloud infrastructure, real-time data systems, security, and large-scale product engineering. His perspective will be invaluable as we scale RingCentral through the next phase of our AI-led evolution. Moving on to the results. We had a strong Q4, capping a solid 2025. in which we met or exceeded all our key operating metrics. Total revenue for the year grew nearly 5% and subscription revenue grew just over 5.5%. Of particular note, we generated record free cash flow of more than half a billion dollars, up 32% versus 2024. This translated to over $5.80 of free cash flow per share in 2025. I am also pleased with the progress we have made in meaningfully reducing the value of new shares granted by over 35% year-over-year. Managing SBC is a key priority. Our steady-state SBC target is 3% to 4% of annual revenue, as we expect to achieve it in the next 3 to 4 years. Improving profitability combined with reduction in SBC translated to our full year of positive gap operating margin. We achieved nearly 5% gap operating margin in 2025, which we expect to approximately double in 2026. We are targeting to achieve approximately 20% gap operating margin in the next three to four years. With this in mind, we are now in a position to expand and diversify our overall capital allocation strategy. I'm happy to share that today we announced our first-ever quarterly dividend of 7.5 cents per share. We believe that these strong results are not an aberration, but an early sign of good things yet to come, as RingCentral transforms itself into an agentic voice AI company. Here is why. RingCentral is an acknowledged leader in cloud-based business communications. We have built a $2.5 billion business from scratch by making human connections simpler, cheaper, and more reliable. Our global platform is carrier-grade, secure, and regulatory compliant. It is trusted by half a million businesses and over 8 million end users worldwide, and supports tens of billions of minutes and billions of calls and SMS messages annually. Critical technical requirements are low latency and bulletproof reliability, with the system designed to avoid any downtime even during maintenance windows. scratchy voice or worse, no dial tone are simply not acceptable. With a multi-billion dollar cumulative investment and thousands of highly specialized real-time communication specialists expanding and improving our cloud native platform over the last two decades, this asset is a strong differentiator as the world gets transformed by AI. Simply put, RingCentral's investment and know-how serve a mission-critical need and are very hard and likely not cost-effective to replicate. Far from being outdated by forthcoming AI agents, RingCentral's platform is a natural bedrock for emerging agentic voice AI. Looking forward, consumers communicate with their providers predominantly via voice and text, and these interactions are growing. When a consumer calls or texts their business provider, it can be answered by a human or an AI agent. In either case, it is RingCentral's platform that makes this interaction possible. And as workflows gradually incorporate more AI agents, RingCentral is in a strong position to provide additional value by incorporating agentic voice AI at the very top of the B2C communications funnel. At a recent investor product day, I laid out our vision for RingCentral 3.0, whereby RingCentral is well on its way to transforming itself into a leading agentic voice AI platform. With agentic voice AI, we are now in a position to not only make connections, but also to add significant value to those interactions themselves. before, during, and after every call or text message, thus enabling businesses to answer more calls more efficiently, garner more leads, and process more inquiries at a higher quality. This makes our service substantially secure and more valuable to our customers as we're able to answer questions, provide insights, and analyze conversations for better customer experience and outcomes. While it is still early, recent results are encouraging. Firstly, our pure AI ARR revenues have almost tripled year over year and has contributed significantly toward us meeting our stated goal of $100 million ARR from new products in 2025. But even more importantly, ARR from customers who utilize at least one of our monetized AI products, which we refer to as RCAI utilizing customers, has now more than doubled year over year and is now approaching 10% of our overall ARR. With new logo acquisitions, AI attach rate is meaningfully higher, making it a long-term tailwind. Importantly, Our RCAI utilizing customers average significantly better ARPU and are stickier, with net retention rates exceeding 100%. This is another strong tailwind. Looking forward, I could not be more excited about 2026 and beyond. We're leveraging a scaled, cloud-native, real-time communications global platform. and are able to spend over $250 million on innovation annually. AI is a natural tailwind to our business. The majority of this ongoing investment is now directed towards our new AI-led product portfolio.