RingCentral, Inc. (RNG) Earnings Call Transcript & Summary

Okay. Well, hello, everyone, and thanks so much for coming to the 2022 UBS tech conference. My name is Taylor McGinnis, and I'm the lead analyst covering the cap software, communication, SaaS apps, spaces. And today, we have RingCentral joining us. We have Sonalee, who is the CFO of RingCentral; and Vaibhav who is an interim CFO, Chief Accounting Officer.

Deputy CFO.

Deputy CFO, and there we go. So yes, and just before we started, I'm sure you guys have been to a few sessions so far. I'll save 5 to 10 minutes at the end for questions. [Operator Instructions] You can do the questions either QR codes on all these little pieces of paper that are right in front of you guys. And if you just scan the QR code, you can ask a question, then I'll check in on the iPad at the end.

So perfect. Well, let's start right in, Sonalee so you've been here about 6 months, right? And so I think what would be really helpful for investors to start would maybe be where are your key areas of focus? What are any changes that you're currently contemplating, right, or have made and maybe just how you're thinking about the business overall and opportunities?

Sure. So happy to answer that question and also thanks for having us here at your conference. I love being in New York at Christmas time, so it's been fabulous so far. So yes, you're right. I'm 6 months into the job. And in terms of priorities, if any of you listen to our Q3 conference call, I talked about driving efficient growth as my #1 priority. And a lot of people ask, does that mean you're focusing or pivoting to profitability at the expense of growth? And for me, it's no absolute not it's efficient growth. So it's being smarter about the way we grow. And I don't think it's an either or. I'm focused on both. And I would say, if you look at some of the guidance that we put out since I've joined as CFO, you've seen a step change in terms of the profitability metrics that we're striving for and driving and in our Q3 results, where we raised our OP margin guidance for the fourth time. We also gave out some very what I would say is a step change in terms of the profitability that we believe this business can drive. And so that's 1 of the changes that I believe I've made and really tried to focus on Secondly, and I think that this is just as important, we're making sure that whatever profitability gains we make, which are inherent in just being a $2 billion recurring revenue business we're actually going to take some of those savings and invest for our future growth. And that's super important. And I think that really differentiates RingCentral partly because of the evolution of where we are. Vaibhav always reminds me, we've always been profitable, and that puts us in a very unique situation as a SaaS company. And an example on where we're investing for that future growth, that I wanted to share with you is something like investing in FedRAMP, for example. We're already -- we have a very strong presence with universities, local state governments, Fed makes very -- it's a very logical next place for us to go. And the beauty of having this efficient growth is that you can then reinvest in areas where you see the highest potential for growth and highest ROI. And ROI is another -- when you talk about changes, it's really important that every dollar investment of investment we make is driven by the potential ROI. And I think the thinking internally has evolved there as well. And finally, I would just say I'm also focused on the culture of the company. We made a very difficult decision last quarter to let the approximately 10% of our full-time workforce go. And it's really important to me, and I can't tell you how difficult that decision was. We ahead of making that decision, we were maniacal on anything discretionary, first and foremost. So cutting literally anything that was discretionary, we went to first. And then ensuring that post those actions, there is still this growth mindset. And RingCentral is a company that is innovation-led. We are very strongly focused on product, R&D and IP, and it's really important to be able to preserve the ability to invest in those areas, and that's another big priority for me.

Yes, that's perfect. I was going to end with margins, but now that you talked much about it, let's just like start with those questions. So yes, I think the big surprise in the quarter, right, was the fact that you guys raised right 4Q margins, I think, by 50 basis points. You committed to improvement of 350 basis points next year. And so maybe starting with the restructuring because that's a key piece here, right? You talked about it a little bit, can you provide more color what drove that decision to ultimately do the restructuring? And then two, for those in the crowd that are attempting to model this, right, and understand, hey, which line item is this really occurring? And maybe you can provide a little bit more of the absolutely.

Sure. So a couple of questions in there. So firstly, yes, we did guide to at least 350 basis points of margin improvement, not 350, but at least. And you're absolutely right that we've had lots of incoming calls from investors saying, well, how do we unpack that? And how much is the headcount of that. And whilst we haven't been specific, there is some disclosure in our Q that will help you get to the answer. But what I said was a significant portion of the 350 basis point improvement will be the headcount. But on top of that, we talked about a couple of other levers or drivers of that margin improvement. One is just the operational operating leverage in the model. That just comes when you're $2 billion plus of recurring revenues. Someone was who was asking me the other day, can you give an example. And it's even at our current growth rate, you don't need to hire a 25% larger HR function or 25% larger finance function to hit the same revenue number. Even around the marketing dollars, there are efficiencies and program spend, things like that. But the other areas are procurement, we've actually just hired a new SVP of procurement, but there are very significant savings to be had there. Just from rationalizing the spend, there were some using multiple vendors where we're rationalizing to 1 vendor and just areas where there was even some duplication. So we're really being very, very maniacal going through line by line. I think we have over 30 different initiatives within procurement alone. And then sales and marketing is an area that you've probably heard me talk about before. And when I first arrived, naturally as a CFO, you're going through your OpEx base and you're looking at the cost buckets. I called out R&D earlier. And actually on R&D, we're about where we should be, especially for a company where innovation runs in our DNA where we were all benchmarked with sales and marketing. And there was a portion of that was brand spend, that was always. Even before I joined, that was very much seen as a onetime step change function and some investments we made. But over and above that, it was the way we had organized marketing. We're today reorganizing as a center of excellence. Previously, we had been somewhat siloed. So you have a different person doing the same thing going out to a different go-to-market channel. And that is not how we see the highest potential for being efficient. So those are examples of where we're also going into the OpEx base. But if you're trying to figure out how much is labor versus nonlabor, 60% of our OpEx today is labor cost. And if you think about the proportion of the 350 basis point that's going to come from labor, it's not that far off, a little bit more than 60%, but it's not that far off. So that's how I would think about it. In other words, the other drivers are also really, really important for us to go out and execute on and execution on something like this, this transformational is really important. And I'm very disciplined on it. My chief of staff is involved in kind of running dashboards on it. So you'll get update and expect to see updates from us on how we're tracking.

Perfect. And then I guess just one point of clarity there. So when you talk -- you mentioned at least, right, 350 basis points. So is a lot of that 350 basis points more so just the step change in some of the initiatives that you talked about on vendor consolidation rates, some of the procurement steps, then you have the restructuring. Is that really what's making up all of that 350? And then if you think about operating leverage that you have in the model, would that be something on top? Like how do you think about the differences between those 2?

Yes. So good question. And what I would say is if you take the 350, yes, a lot of that would be consumed by the items that you talked about. And then there's more to go for over and above that. If you think about the profile that we're driving. And just one other thing, I would add, going back to your first question about priorities, and I don't think I quite answered -- you asked why are we doing this? And again, it's natural at this -- like when you scale from $1 billion to $2 billion over a couple of years, it's a natural evolution in the model. And most of you know SaaS businesses. And the beauty of SaaS is the leverage of the model. But the other thing that I would call out is thinking about our capital structure and capital allocation going forward. It was really important to me that we were going to be able to drive a significantly strengthened financial profile in terms of OP margin, in terms of EBITDA margin, in terms of free cash flow and margin and also growing those numbers on an absolute basis because you didn't specifically ask about it, but we have a $1.65 billion convertible. And we get questions from investors on how we're intending to address that. And of course, as a CFO, it's something that's a priority for me. And what I called out in the conference call, and this was very deliberate was that we feel very confident in terms of having flexibility around addressing that and addressing that before it becomes current. And the financial profile that we're driving towards allows us a degree of flexibility around how we choose to refinance that or pay it down or whatever we decide to do at the time.

Perfect. And then last question on margins here. A question that we get a lot is just that there's not a lot of visibility to the economics, right, or near-term, long-term margin structure of the differences between the go-to-market motions, right? So the partnerships that you have that are more strategic and you have the master agent channel, right? You have direct. And so I think one, like I said, question we get a lot is how do those compare and contrast, right, near term and long term? So any color you can provide there for the group and then also to how that parlays potentially longer term into some of the areas of efficiency you have.

Yes. And I'll take that. So thank you for the question. So you're right, we have a multifaceted GTM motion and that's by design. The market opportunity is extremely large, and we want to be able to capture that market opportunity organically through ourselves as well as through some of these other motions. Some of the color that we've talked about in the past is a direct motion, which is through our direct sales force is profitable. But when we go through the channel, it becomes incrementally profitable because we are able to leverage the go-to-market motions, the customer relationships that are our channel partners and also when we go through the channel, the metric that we look at is LTV to CAC customers have a lower churn because the channel has deep relationship. So it helps us on the LTV side and our cost of acquisition is lower. Then over the years, we've also developed our strategic partner relationships, and those are also incremental in the sense that we are selling our cloud product into their customer base, utilizing partners go-to-market motions. So again, that's an area where we are able to leverage the go-to-market motions of our partners, and it becomes incremental in terms of an LTV CAC ratio. So if you look at our -- I think it was a couple of quarters ago in our earnings deck, we did provide some color as to how the LTV to CAC metrics change relative to our direct and wire motion when we go...

The one we did.

Yes -- through the strategic partnerships. So I think that's the color we provided. We will continue in our earnings release to provide incremental commentary and color around how the partnerships are performing, how the different go-to-market motions are doing. And to finish off this question, I think the incremental point I would make is the recurring margins on our business on a lifetime value basis of the customer are a lot more than what we are kind of printing today. I mean today, we are printing -- this year, we've guided to 12.4%. Next year, Sonalee has indicated at least 350 basis points expansion. Over time, as the business matures, there is a lot more the recurring margins in the business over and above what we've guided to.

Got it. And maybe as a quick follow-up. I think what's very unique to the communication software business is the fit right residual model as you go a little bit more heavily. So is there any opportunities, right, in that model? One thing we've picked up a little bit in our field work is you're starting to maybe see even those pits come down. I'd be curious if there's any trends you guys have noticed, right, or any areas of opportunity as you look at that model.

Yes. Certainly, I mean that's an area Sonalee mentioned or talked about operating efficiencies in the business as you scale and as you grow. So channel [ space ], channel residuals is another incremental area that will be kind of looked at that will be rationalized over a period of time as the business continues to grow.

Awesome. And then maybe moving to the top line, some of the growth drivers. So first, starting with macro, right? That's obviously top of mind. I think you talked the last quarter about churn pretty stable areas that you guys are seeing weakness is more on deals taking longer. Maybe you're seeing small deal sizes, right, upmarket. Can you just give the group kind of an update, right, on those trends and what you're seeing. And certainly, maybe you could talk a little bit about what kind of scenario is embedded in the guide, right? And what case could happen where that you could see further downside? Or what would be kind of more of that worst case?

Sure. So in terms of what we're currently seeing, first, what I'd say is at Q3, which was November 9, our earnings, we gave guidance that was based on what we were seeing in the market at that time. So it wasn't embedding any worsening and it wasn't embedding any improvement. It was truly based on what we were seeing. And in Q3, I also talked to the fact that we saw a degradation on the macro Q3 on Q2. And I think there were a couple of things there that I had called out and now reflecting that we're a couple of months on. Q2, we were -- we only really had about 1 month of impact of macro, I believe, Q3 was much more of the entire at the time when it first happens in Q2, you're not quite sure what you think it could be macro, but you're looking for other indicators. By Q3, what I did say is we saw a slight worsening and one of the things that happened in Q3 was this notion of multiple approvals to get a deal over the line. And we're even seeing it internally at RingCentral, and we've recently changed our delegation of authority, where more things are coming to my desk and Vaibhav's desk for approvals, whereas in the past, you could -- it could be approved at VP level, AVP level we're seeing that at our customers. So there's multiple layers of approval, they add time to the deal cycle. And we also talked to the sales cycles lengthening back to pre-COVID levels. And some smaller initial deployments as well. And what I would say sitting here today, we're seeing much the same of what we saw -- when we talked to you over night. So I am still very, very confident about how we guided for Q4, and there would be absolutely no change there. The other thing I would call out is just on the demand side, end user demand. we're still seeing very strong demand from our customers. And if you look at pipeline and leads, all of that very, very strong. And not age, it's stable and strong. And that was what we saw in Q3 as well. Now your other question is what might happen to make that better or worse? Or I think you said specifically worse. I mean we don't -- like no one has a crystal ball. I like to, and I think this is just inherent in who I am, I'm someone who does like to plan for a rainy day, just in case. And we have lots of levers at our disposal when you talk about the OP margin improvement that we're guiding to be at least, there's more we can go for there. I personally like to take OpEx efficiency and at least take a portion of that and reinvest for growth. But if the world were to fall apart, and that's certainly not the base case. And if anything, it seems like the macro, what I'm reading externally and being an arm show economist here, if anything, the latest data has been more supportive. If things were to get materially worse, there are levers we can pull. So I feel very confident and comfortable on that side of things. That being said, we evaluate the environment constantly.

Got it. That's helpful. And then I'd love to focus in a little bit about the -- on the customer segment, right? And some of the differences that we saw out there even last quarter and over the last like couple of quarters. So I think it was enterprise era that's seen kind of more of the steeper, right, decel where it was 52% growth, I think, in 1Q, all the way to 30% in 3Q and SMB and mid-market, I think it's held up better. So one, the first part of the question is, can you maybe talk it exactly like where are the pockets of weaknesses in enterprise? Is that on new business existing, right, expansions? And then two, just in comparing and contrasting what you're seeing in those different customer segments, love for more color there.

Sure. I'll take the first part. So on the enterprises, what we are seeing is a few things. There are both kind of tailwinds and headwinds. The tailwinds are -- and again, Sonalee alluded to this, is our pipeline continues to remain strong, and that's kind of reflective of the demand is there for the UCaaS product. Our win rates continue to be strong and stable, and our churn is also continuing to be stable. So we are seeing stabilized net retention rates, if you will. On the flip side, though, in terms of headwinds, what we are seeing is even though the pipeline is there, it's taking longer for it to convert sales cycles are elongating because the enterprise customers are being more cautious in the current environment. So it's taking longer to close on deals. Initial deployments are smaller in this current environment. And we factored all of those headwinds and tailwinds when we provided the guide for the year and implied in there is the Q4 guide at 18%. So you will see a slight decel coming in from Q3 into Q4. And kind of going forward, I would use that as a guide. And again, to Sonalee's point, look, we don't know what we don't know in terms of how the macro is going to evolve, but should the macro continue and the uncertainty remain, I think we will continue to see these trends. I think 2 of the trends that impacted our results were the strengthening of the U.S. dollar did have an impact on our results. And we also -- we are starting to see linearity being more back-end loaded on the enterprise side more so than before. So these are all the kind of factors that are playing into how the enterprise ARR kind of got reflected. Now when you turn to the other side, which is the SMB, SMB is surprisingly continues to be very, very resilient. Again, we monitor the SMB segment very closely in terms of the similar kind of trends on the pipeline, churn rates, collection rates and whatnot. So far, those trends have continued to be stable. So nothing to call out yet, but it will be an area where we'll continue to watch out.

Got it. And you, I think, almost answered or slightly my next question, which was just going to be related to how to think about the 4Q guide, right, and the pace of like decels that we've been seeing going forward into next year potentially. And I know you haven't obviously like guided into next year, but I think you made a seeing those potential trends, right, continue. And I think if that starts to level out, I think you get somewhere potentially in the mid-teens, right, for growth next year. So I guess like 1 question, any like high-level color like you guys are giving on the trends that you're seeing, right, how to think about the potential of these going on into the future. And then to what you think about the demand drivers, right, or the revenue drivers, any catalyst or tailwinds, right, especially as we get to the back half of the year. You obviously have a lot of these strategic partnerships, like anything else you just lag into the group to keep this in mind.

Yes. So I think the same commentary that I just talked about. We are exiting the year with about an 18% growth on total revenues, 19 to 21 of the subscription. So I would use that from a modeling perspective as a starting point? And should the macro continue to stay as is or -- or if it were to kind of worsen then look, we, as a company, we are not immune to the macro environment. So there could be a further headwind to growth going into 2023. So just in the current environment, there's a lot of moving parts, a lot of puts and takes. So we've put our kind of best judgment forward in terms of the trends that we are seeing today. but the environment is fairly uncertain. So -- and we'll continue to provide everyone with more color as time goes on.

Yes. The only thing I would just add there is we would typically never really guide on revenue at this point in our -- we always wait to see how the year ends and we're deep in our planning cycle. And as you say, you alluded to, there are various scenarios that we're working towards. And it's very hard to see where we'll end in 2023. But what I would say is -- and this is again where I think we're really differentiated, and I feel very fortunate as a CFO of a company that has the ability to be able to invest through the cycle and that we will continue to do on R&D, on innovation, on product, on features and functionality. Our customers are asking us for more. They want AI, they want analytics. They want webinar, we're continuing to invest in the video product. And that ability to invest through this cycle, I believe, will allow us to emerge even stronger and even more relevant to our customers.

And then maybe a last question on some of like the potential like macro impacts we could see one being on cash flow, right? So you're starting to hear, I think, more software companies show a little bit more of a divergence, right, between implied billings growth and revenue growth. I think you're hearing more flexibility on payment terms. So as we think about -- because I think for you guys, your operating income has roughly trended in line, right? Your operating income margins trended roughly in line, maybe like modestly below our operating cash flows relative to where your operating income margins are. So anything that you would like help the growth with when we think about modeling those 2 line items going forward? And any differences we could see because of some of the things with macro or flexible invoicing terms and how to think about the plans there?

So Vaibhav, I'll start and feel free to add. So you're right in terms of operating income and cash flow moving directionally. Similarly, there is a delta between the two, as there is with most SaaS companies, because of the way cost of servicing versus cash collections. In terms of how we're billing our customers and in terms of the collection cycle or even working capital movement, I wouldn't say there's anything specific to call out regarding the current macro. I think the assumption that you made that free cash flow margin expansion should be at a similar rate to free cash flow margin expansion. That's the right way to think about it. However, in the current year, we did have some one-off items impacting cash flow. Those were related to moving some of our R&D workforce as a result of the Ukraine -- Ukraine-Russia conflict. And that already was apparent in our Q2 and Q3 numbers, and you'll continue to see an impact in Q4. And then the other thing that I called out around the restructuring that we announced is a $10 million to $15 million free cash flow charge as a result of restructuring. And that you will see in Q4 and to a certain extent haven't been specific, but actually in callback, I have been saying, I would say it's probably the higher end of that $10 million to $15 million range as we roll things up. But going forward, the free cash flow generation of this business is very significant. And both OP in absolute terms and free cash flow in absolute terms should grow at a very healthy rate.

Perfect. I'd love to maybe flip topics a little bit and talk about the longer-term growth opportunity, right? And I know the big investor debate tends to be very focused on right? And now that you have Microsoft teams in here, you have Zoom Phone. And the first area would be on the ARPU side, right? You guys have talked about that ARPU has been very stable at greater than $30 per user per month. But can you maybe unpack that a little bit more? So obviously, CCaaS, right, has been a big has been growing faster than the total. That has higher ARPU. I'm sure, to some extent, that's helping the total ARPU. And I think on the UCaaS side, what would be really helpful for group is just to hear if there's been any changes on the licensing side, right, mix between enterprise and SMB, if that has any impact on ARPU. And maybe just providing a little bit more color on like the puts and takes there and what's really keeping that sustainable greater than 30% ARPU.

Sure. So I think there's 2 parts to the question, competition and then ARPUs maybe. So on the competition side, look, the TAM in this space is very, very large. And we are all adding like all the players are adding seats. I mean if you look at the synergy data, we are twice compared to the second and the third companies in terms of our peer set. So we are all adding seats. We certainly -- our strength is cloud PBX. So cloud voice is what we lead with. And we are seeing a fair bit of success in that as is noted through the Gartner Magic Quadrant as well as through some of the independent studies that have published seats and revenue for us relative to our peers. So I think that's point number one. Point number 2 is, you know, why is that the case? I think we have invested over the years in terms of innovating on the cloud PBX side. Over time, we've added messaging. And a couple of years ago, we came out with our own video product. So the unique selling proposition is having an integrated message video and phone product and when you couple that with a Magic Gartner Quadrant leading -- sorry, Gartner Magic Quadrant-leading CCaaS solution, I think we are the only pure play provider that's providing an MQ leading solution on the UCaaS as well as the CCaaS side. And I think that's what results in us being able to hold ARPUs, stable and consistent. And I think over the last couple of quarters, we published charts showing how our ARPUs have trended above -- at or above $30 consistently over the last several quarters. And the reason for that is the strength in the product, the Five9 reliability, the security, the privacy features that we've been able to sustain through continued innovation. Now then the second level question that often comes up is how much is CCaaS helping ARPUs. The CCaaS obviously, is a pull-through on the ARPUs because the average selling prices on the CCaaS side are higher compared to the UCaaS side. But even when you strip out the CCaaS portion, our UCaaS ARPUs are also holding steady. We haven't seen a material deceleration or a fall-through, which is a question that we often get, it's fairly stable. And it again comes down, it comes back to the strength in innovation, the strength in the product, the feature and the functionality set that our customers need.

Perfect. Helpful. And then maybe taking on this topic of competition. So you guys have talked about RingCentral has over 5 million seats, right? We estimate Zoom has now close to 5 million phone seats. Microsoft claims to have over 12 million PSTN users. So as investors are kind of seeing all these metrics, right, and trying to make comparisons, maybe you guys any thoughts to the group there, right, when people are making those comparisons? And is there any differences in the opportunity, right, that RingCentral is addressing? I know you talked about red ramp right earlier? And maybe there is differences on the functionality side, right, to keep in mind. But I think any thoughts there would be great.

Yes. Look, the opportunity in the UCaaS space is huge. I think industry analysts have estimated that there are 400 million seats in this space. The space overall is underpenetrated. There's less than 10% adoption at this point in time. So the opportunity is massive and look multiple players will coexist. So relative to Microsoft, again, this is a topic that comes up a lot. We provided extensive commentary in our earnings releases of teams being a growth driver for us. And the Microsoft PST and disclosures around 12 million seats is case in point on that there is a large opportunity for third-party providers like RingCentral to plug into the team's user base, and it is proving out to be a growth driver for us. We see increases quarter-over-quarter, year-over-year in terms of our team's user base. And it comes down to having deep integrations. We began through our innovation process. We've invested consistently in building best-in-class innovations for the team's user base, and that is helping us increasing our kind of seats and users over a period of time. And again, relative to Zoom, look Zoom's approach is video first, we go in with cloud PBX first. And again, where we are seeing success is in the B2B2C communication outside of the knowledge worker base. There is a huge TAM wherein customers need to call or businesses need to call their customers and vice versa. Video may not be a choice of communications in a large part of the TAM there.

That was helpful. And then maybe moving to some of the strategic partnerships and starting with Avaya. So Avaya, there's some hurdles there. So maybe you can just talk about -- or give an update, I should say, on the relationship, right? And if there's been any changes on that front? And I think as a second part to this, I think you guys said -- I don't think you've given an updated disclosure, but I think the last disclosure was that, hey, you have over 500,000 seats from the strategic partnerships. I think the potentially was an expectation that, that number would be higher, right, where we stand today. So maybe you can just talk about the puts and takes there, how we should think about that ramping over time potentially from where we are today?

Sure. So you're right that we did give that disclosure a couple of quarters ago, and we haven't updated it. But of that 500,000 number that we put out, Avaya is the lion's share of that. And the -- that's natural because they're the most tenured of our partners. And do we want to see more? Yes, heck, yes. We want to see more all of our partners. In terms of how things are going commercially, notwithstanding there. You're right, they're having their financial issues, which we read about in the press the same way you do or analyst reports. But on a commercial basis, what we said and what we're continuing to see is good momentum. And I think Q3, we said we took more seats than in Q2. And in Q2, we said we took more Avaya seats or ACO seats than we did in Q1. We did take the opportunity and felt it was right to write down part of our prepay balance in our last quarter, it was $125 million write-down and we did that out of prudence, not because we were seeing any meaningful change on the commercial side. Again, if anything, it was better. Now, of course, we hope that things with Avaya in terms of their own financial profile, they are able to stay an independent company. But should they not or should there be a change there. We still feel very strongly that RingCentral is the natural destination for those Avaya on-prem customers. And customers are moving to the cloud and no one's moving back. Like no one moves to the cloud and then goes back to PBX, goes back to on-prem. So we do believe that, that will continue. And we have, by far, the strongest integrations with -- thanks to our partnership, thanks to our that's been going on for a couple of years. For anyone else to be able to take on those customers, it would require significant investment. So we are, without a doubt, best placed in that situation. And if Avaya ends up to having some kind of a change in their capital structure, there's still a very large on-prem base there that will continue to exist. I mean they have huge customers. And so that won't change, although the ownership may.

Yes. And then you actually just reminded me of one of the questions that I had, which was you talked about the write-down, right? Is the write-down included in like the 350 basis points of improvement next year. So is that at all part of like the -- is that at all part of that margin uplift that you can see...

Yes. So there'll be -- the amortization will be lower as a result, but then we'll continue to amortize the remaining balance as customers move over.

Yes. And then maybe as a last question in the 30 seconds that we have. I think what's interesting for you guys in a lot of these strategic partnerships is my -- a lot of these are actually overseas right? And it gives you guys kind of an interesting inroad into a lot of those areas. So could you maybe talk about how that's trending, right, and that international opportunity? Maybe what you're seeing on the competitive landscape there? And then even two, is there any differences in terms of the macro impact, right, that you're seeing in the U.S. versus international that might be impacting that ramp that you could see there?

Sure. So you're absolutely right. Our partners are a major channel -- or a major foray into international for us, and you named a couple of them. And today, international is about 10% of our revenue. So it is a huge opportunity for growth. And if you think about the PBX seats out there, there is a large proportion that are out there internationally, and we are investing there. And we are adding new partners internationally. Vodafone is the major 1 that we've recently added. I think on the international side, we were slightly impacted by changes in regulation around GDPR. So for example, Vodafone took a little bit longer to ramp, but we're now in a very good position there with the investments we've made. On the macro side of things, of course, FX was a big factor, particularly that dislocation in the British pound at the end of last quarter. And the U.K. is one of our largest international markets. So we were impacted there disproportionately. And on the macro side, I would say that our international partners are probably feeling a slightly worse impact than what we saw in North America, which is 90% of our base. So yes, there is a slight difference in macro there, but we continue to see it as a very, very opportunity for RingCentral. And as I said, we continue to invest.

Perfect. Well, we're all out of time. Sonalee and Vaibhav, thank you so much for taking the time. This is great. We appreciate your attendance.

Thank you. We really appreciate being here.

Thank you.

Thank you, everyone.