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

Hi, everyone. Welcome to the 2025 Barclays TMT Conference. I'm Eamon Coughlin, software research analyst here at Barclays. Very happy to have Kira Makagon, President and Chief Operating Officer at RingCentral; and Devang Shah, SVP of Strategic Finance. Thanks for being here, guys.

Good to be here.

Great.

I guess for those in the room or maybe are new to the RingCentral story, can you help us understand some of the key business trends that you're seeing throughout 2025, maybe some of the key investment areas and maybe some of the bets you're making for the long term?

Yes. So RingCentral is a global communications provider. We are about $2.5 billion in revenue. And we have 500,000 customers of all sizes that use our products across our communication portfolio that includes UCaaS and CCaaS and our AI portfolio. We are profitable. We are throwing about $500 million worth of cash on an annual basis, expanding margin. And it's important to note that voice is mission-critical, and we sit at the very tippy top of that voice pyramid. And from there, all communications flow. And it's mission-critical from business to communication -- business-to-consumer communication. And that's also important to note because it's often UCaaS is thought of people to people within the company. And what we're seeing is our platform, whether it's UC or CC, is used for business to consumer. We pioneered 25 years ago, this migration of cloud to cloud, from on-prem to cloud. Our first product was a PBX replacement from on-prem to cloud. And we -- what we did is we democratized access to cloud communications. We made it simple, we made it affordable, and we made it ubiquitously available on any device. And we called this RingCentral 1.0. That was the initial product that RingCentral took to market. We then introduced a multiproduct portfolio. We called it RingCentral 2.0, where we added to our phone product, contact center product, integrated it. We actually defined that category of integration between CC and UC. And we made it multimodel, including media messaging and other digital channels. And now we're embarking on what we call RingCentral 3.0. RingCentral 3.0 is about agentic voice AI. We are a voice-first platform. And like I said, we sit at the tippy top of that communication. And that puts us in an excellent position to leverage the power of AI across our product portfolio. And what does that do? That makes experiences much better, cost reduction, efficiency. It provides business intelligence behind our communication. That is our 3.0 portfolio. So moving from cloud PBX to really a cloud agentic voice AI platform across all our modalities.

Yes, it's super interesting. I feel like -- I think the mission criticality of voice is like a new evolution of thought, I think, throughout the investor base that we thought with the evolution of AI that voice wouldn't be as critical, but that's not what you're seeing today. And I think maybe could you speak to like from a minutes perspective, are you seeing that increase over time and continue to grow at the same, I guess, similar rate?

Our minutes are growing at an accelerated rate. We are processing tens of billions of minutes per year, and we're processing over 1 billion SMSs per year, which is sort of tied in some way to our communication platform and the way people communicate. The reason voice is mission critical is that, that's the preferred, the most ubiquitous way that people want to communicate. And for businesses of any size, that's also really important, whether you're a small business, a midsized business or a very large business, what is the most natural way of communicating, you want to call the business and say, even really simple things on the road, what are your business hours? So today, we can supplement that with AI. And that's where sort of -- that's where the flow starts. So we're definitely believers and our 500,000 customer base and growing supports that. Voice is absolutely the way that is a preferred choice of communication for many of the business-to-consumer communication conversations.

Yes. And you talked about a little bit of RingCentral defining the UCaaS market. Now you've seen over the last 10 years, multiple new entrances to the market, but RingCentral has confidently maintained your market share throughout that time. I guess like what drives that differentiation? What drives that steady market share throughout the last 10 years?

Yes. We made a mark for ourselves in our reliability, in our security. And I think we're unmatched. I can confidently say that today. We actually coined this term called trust innovation partnership. So trust comes from our ability to provide reliable service and voice being mission-critical is super important. Then we've always innovated at a rapid pace. We defined -- we have a history of these markets first. And previously to taking this job and a couple of other jobs in between, for a decade, I run our innovation organization. So I was behind innovating very rapidly and defining these categories. And so we have full confidence that we can continue to define the market in a differentiated way with a differentiated portfolio. And then what makes us really also unique is our partnerships. We have over 15 partnerships with global service providers. We have thousands of channel partners that we -- that take us to market. That footprint and that reach not only provides us access, it also provides us with partnerships that refine and help us innovate in the product in a differentiated way.

I guess just staying on like the innovation aspect. I think some of the more exciting parts of the RingCentral story have been some of the AI products. I think Vlad likes to call it the 3 As. Am I correct in saying that? Maybe just describe those 3 products, what's the pricing mechanism behind them? And then maybe some of the early growth signs you're seeing on the products.

Yes. This is sort of the favorite part of this conversation is the 3 As. We call them AIR, AVA, ACE and they stand for -- AIR stands for pre-conversation interaction, AVA for during the interaction -- during the conversation, Copilot and ACE is what summarizes and analyzes conversations and provides that close feedback loop. So to give you an example of AIR, AIR stands for AI receptionist. And to give you an example how -- what that does is it essentially fields calls coming into the business. It can answer routine questions. It can transfer calls. It can make appointments. And as an example, customers are always a great validation of what it does. I'm going to use a regional health facility called Access Mental Health. They trained -- they have the receptionist trained, a virtual receptionist. Now what does a real receptionist cost, more than $40 a month. AIR starts at $40 a month. That's the starting price. So they were able to do that. And they were able to field a lot more calls and take a lot more inquiries. And with that, they were able to grow their business, acquire businesses and so grow their revenue for small business by like almost $2 million very rapidly. I mean that's huge ROI. Now let me look at -- let me then take you to AVA, which is the Copilot part of the AAA portfolio. And every conversation on RingCentral, whether it's in UC or CC part of the portfolio, is -- has the ability to be transcribed, listened to, analyzed for basically day-to-day conversations. One of our customers, Detroit Pistons, a known sports team. They use AVA to essentially transcribe their strategy meetings and transcribe their conversations. And with that, they can then deposit the summaries of those conversations, the notes into their CRM systems and be able to feedback on that and not take the time from the conversation to take notes. Imagine every salesperson out there that's sitting on a phone trying to take notes, trying to do a disposition, and that's immediate productivity right there. And then in the contact center environment, I'd like to use this -- we have this large outsourcer, [indiscernible]. They're a contact center -- outsourcing contact center. That means they take a lot of calls and the agents have -- need to be trained, need to be listened to. They need to be onboarded and supervisors need to have visibility. That provides that capability. That's our AVA, the Copilot. And to wrap it all up, ACE is the business intelligence and quality management. And again, for customers of any size, it will analyze all your conversations, provide you this business insights. And for individual agents or salespeople or anybody who is actually using this to communicate in a meeting or in a phone conversation, it will provide you with ranking, scoring of every conversation and analysis conversation, scoring of all the agents, so you can help improve and see full business picture. And so in terms of kind of what does it produce by way of outcomes, RE Medical, which is -- it's a firm that puts together deterrence with doctors, very important there to be able to monitor quality of those conversations and understand the insights behind those conversations. They use ACE to be able to analyze hundreds of thousands of conversations per year, over 1 million per year. They used to be able to do 300 a month, that kind of...

It sounds like there's just clear ROI through these 3 products. I guess just like is there one product that is clearly leading ahead of the other 2 or...

Well, great question. And I should mention that all of these products are growing in triple digits. And AIR is -- we started with -- we just launched the product in February of this year. It is now pushing 5,000 customers. It's growing over 80% quarter-over-quarter. And so that's clear monetization right there. ACE, we've had for more than a year. It's growing at 50%, I think, year-over-year, for example. So clearly, quite substantial traction in actual monetization.

Sure. And then I guess like the adoption is super interesting, too. So 50% from new and 50% from existing. But does that -- what does that look like from a year from now? Like is it going to continue? I guess the upsell is easier with the initial conversation with some of the newer customers. I guess just maybe how to think about that end?

We have -- since we have 500,000 customers to upsell to and every customer that we acquire may not actually buy all the products. So there's a big opportunity. The ratio is about 50-50. What it does is it actually drives our ARPU up on acquisition and actually on retention. And that balance comes from both from direct business and channel partners as well.

Definitely. I guess just taking a step back for the broader UCaaS environment. Can we just maybe level set and maybe do like a state of the union of like how that market has been growing over the past 12 months, over the past 24 months? How that market looks like the next 12 months? What are the changes and the core trends that RingCentral is seeing in that market?

Yes. It's a competitive market. And it's a market, however, that still has a huge opportunity in front of it because there are still millions of seats out there of on-prem systems that have not been migrated. And while it may not be growing as rapid a pace as it was growing 5 years ago, it's still growing and it's still meaningful. And those systems are moving both in UC and CC spaces, so both from on-prem to cloud. And I don't think you can think any more of the UCaaS space or CCaaS space as a stand-alone space. I think we need to think about them as spaces that combine that with AI innovation that fits side by side or in front of them, which we bring to the market, and that changes the equation of how customers buy. Customers come to us and they don't want to just buy a communication system from us anymore. They want to buy a transformation system from us.

So the communications platform on one platform, not a single pane of glass?

Single pane of glass potentially if they buy it all from us, but there's also stages when they migrate, they migrate in stages.

I guess maybe just staying on like the CCaaS aspect. We just talked about UCaaS, now moving to CCaaS. RingCX, I think you're now out in the market for a little over a year -- a couple of years now. Maybe just understanding some of the dynamic you have with NICE. Obviously, with the recent contract extension, I think you're still maybe leading with RingCX in some of your sales motion, but still offering NICE. But just how to think about that partnership, what you're seeing there?

Yes. So yes, we renewed the partnership with NICE. And we think about it as sort of parallel lanes. RingCX works really well in simpler use cases, potentially not necessarily smaller but simpler, where absolutely one vendor is essential and that's entirely single pane of glass. For NICE, what we call with RingCentral Contact Center, it's a parallel train. And it's important to note that we have a very big installed base. That installed base is renewing and buying more products. So we live in these -- the 2 coexist today and they coexist successfully, and that's why we actually renewed the partnership because we see the opportunity for both.

Yes, definitely. I think investors were definitely pleased with that extension. I guess, Devang, when we think about like the last couple of years, RingCentral has been on this great path of margin expansion. How should we think about further leverage? Where would that leverage come from? Yes.

Yes. So first, we have been on this path, as you mentioned, of expanding margins. Our margins have gone from a little over 10% a few years back to now 22.5%, what we guided. So we have doubled our margins. The margin expansion has come because of primarily 3 growth levers or 3 levers. One is we have reduced redundancies in our business. There are more things we are working on, but we have reduced redundancies. We have rationalized vendors and spending. So -- and that continues to be there, which will keep on happening. And then the third most important thing is we have leveraged AI and driven AI deep into all parts of our businesses. For example, in R&D, we are talking about all this innovation. A lot of our coding and QA work, all of that is done now using AI. We are seeing massive efficiencies over there. At least 25% of our work is now all done on AI. And then we have instituted a program internally, which is called RC on RC, so -- which is where we are leveraging our own AI products as well as RingCX internally in all departments, specifically sales contact centers and support contact centers. And because of this, we are seeing massive improvement in call handle times, average time to transfer calls and things like that. So we are seeing benefits of ROI from just using our own AI products.

Yes. No, definitely. I mean, I guess then how to -- is that how we should think about like the future of RingCentral's margin expansion story, like it maybe just continue to get leverage from those AI products, continue to rationalize vendors?

Yes, right. So we are still early on, and we will continue to rationalize in all 3 buckets and which will drive the pace of margin expansion. And at the end of the day, this -- all this margin expansion -- we have also done one more thing is we have reduced -- we have done a good job at reducing stock-based comp. And as we expand margins and we reduce our stock-based comp, this should all drive higher free cash flow. And our growth in -- we have almost 5x our free cash flow over the last few years. And all this improvement in free cash flow will help us get better at capital allocation.

Yes. I guess just maybe just staying on that, you led me right to my next question. As you're continuing to grow your cash generation, how do you think about maybe further share buybacks or M&A? I think the last acquisition was Hopin. Like how do we think about further acquisition opportunities, where that might be, what market that might be or maybe more share buybacks?

Yes. So we remain disciplined in our capital allocation methodology. And so we are focused on 4 main areas. First is to invest back in our business. We are putting a lot of focus on innovation that Kira talked about. Second, we are reducing debt. We have set a target for us to get our gross debt to $1 billion by end of '26, and we remain on pace for that. And third, we are buying back stock. We have authorization to buy back more stock over here, almost $400 million of authorization still left to go. And fourth, we continue to look at tuck-in acquisitions. So these are our 4 main areas.

Got it. And I guess like how to think about the opportunity for growth acceleration. I think we've talked a lot about the improved cash generation, improved margin expansion in the last couple of years. But what would be the key drivers of the growth acceleration? Obviously, we talked about some of the AI products, RingCX, obviously growing very quickly after being launched only a couple of years ago. How do we think about maybe that growth acceleration with tying back to like the broader market being a little bit slower? I would love to hear about that.

Yes. So our new products, which include RingCX, we -- 2 years ago, we said we'd be $100 million in ARR starting from almost nothing. We're confident we're going to exit the year with $100 million plus in ARR. That acceleration pace is triple-digit growth right there. And that is the platform, which opens up for us a huge aperture. The market out there, the TAM according to IDC, Gartner of what customer engagement and AI bring together is something like a $60 billion TAM. And we ourselves believe to be -- believe we're in an excellent position to be able to take advantage of that. Why? Because of our installed base of 500 customers because we are the tippy-toe of this mission-critical voice pyramid and because we're innovating faster than ever before, there's not that many companies out there that can put in $0.25 billion in revenue and our ecosystem of distribution. All that together puts us in a position of taking advantage of that emerging market and nobody really knows the size of it, the numbers keep on going up. And that is our growth vector.

No, definitely. I mean RingCentral has shown the ability to maintain market share through many different macro and market challenges. I guess just understanding some of the more market changes that we've seen over the last 2 years. I think a lot of your competitors have changed pricing have been a key topic for investors over the last 2 years. Are we through most of those dynamics? Is like some of that downsell or discounting opportunity? Is that -- are we through most of that? Or is there any changes that we should expect in the future? Any thoughts?

The market remains competitive. There's still that sort of what we call post-COVID pricing normalization that's taking place. We believe we'll be largely through it by 2027. Right now, we're still in sort of the end of that transition. And the new products, though, are priced very differently. The new products, most of them are priced per seat. AIR, for example, is priced is usage-based, but attaches to like the seats or accounts. So that presents a totally new pricing landscape that is actually changing rapidly. And prices are robust.

I guess just staying on that topic, what is the ARPU uplift typically with some...

Yes, excellent question. I'll just give you one example. So overall company ARPU is stable, but I'll give you one example. Our RingCX product, its introductory price when it was launched is $65. That's the base tier. We now have multiple tiers. With the AI attaches to it such as the AVA and ACE attaches to it, it's average -- its ARPU is now north of $100. So that gives you -- it's almost doubling the base price of the product. And we're seeing that across, for example, 50% of our CX customers buy with it our ACE product together because they want to see that full quality and business insights as part of the deployment. So that's what -- so that's still changing. That's still new.

So I mean that motion is evolving. It's clear ROI, definitely a motion that we should go forward in the future. I guess a key debate for the UCaaS and CCaaS market has been like the AI agent first human agent debate and the idea that seats are magically going to go away with AI over time. I guess can you just level set us in understanding like what that has looked like over the last 2 years? Are customer service agents going to magically go away tomorrow? If we could -- you could help us just understand some of the dynamics there.

It's a great question. And I would say the demise of agents is largely exaggerated. Just like there was -- a couple of years ago, this demise of voice is largely exaggerated. Having said that, of course, AI makes -- supplements what agents do, what people do, what you and I do or what agents do. It doesn't matter what your role is, it supplements it. So we largely think of our products as augmenting people, making them more efficient, more productive, making their work more delightful and improving customer experiences. And if we improve customer experiences for them, ultimately, that's clear ROI there. And that's how we make money. There are situations where people will be eliminated. I gave you an example of an AI receptionist. You don't need two, you need one, but you still need one that the other one could be AI. But somewhere at the end of the day, a human ultimately is going to handle the customer in more involved use cases. A number of use cases can be offloaded to purely AI. So again, while some positions and some interactions are being eliminated, we're not really seeing that the agents or people will go away.

Yes. No, it's an interesting topic and definitely a debate. I don't think it's going to go away anytime soon, unfortunately. I guess just like understanding some of the growth drivers for the future in terms of maybe taking share from competitors like or maybe the cloud migrations from on-prem or maybe further uplift from like some of your AI products. I guess just help us understand like some of the key drivers for that? Like what drives a competitor to be displaced by RingCentral? Like what is the differentiation there? How does RingCentral take further share in the future?

It goes back to our principles of trust innovation partnership. We are -- our reliability and scalability is super important. That creates trust, and that has been one of our key lasting differentiators in the market that to date is unmatched regardless of who the competitor is. The rapid pace of innovation allows us to partner with our customers and the trust innovation partnership. And this works -- all of it works in tandem to be able to produce differentiated competitive products via that route of investment in innovation, understanding customer trends and leveraging them, like jumping on that as a market first and then ability to go to market and refine it with a large ecosystem of partners. Those things work in tandem, and that was what gives us confidence. Yes, I mean, it's a battle out there. It always is, but it always was.

No, it hasn't changed for sure. I guess, Devang, can you help us understand just from a guidance perspective, what's implied by your Q4 guide, if there are any underlying assumptions that you can provide to the investor base? And then obviously, it's still a little early to guide to 2026, not asking for a preannouncement today, but any sort of help you can help us with like the building blocks for how you're thinking about that guide?

Well, for us, look, at the end of the day, our core business remains stable. We think of our business in 3 big blocks where small business, which is 1 to 99 seats, that business is growing double digits. And we expect to continue to grow at that rate. The GSPs, which Kira talked about, we have 15 of them. That business is also growing double digits. And these GSPs, we have expanded our partnerships with them recently, and they will be taking on NPIs and new products that we have introduced, and we expect them to grow. And the enterprise side of the business over there, we -- that still -- there is a large amount of on-prem base, which is migrating to cloud. And over there, where we find a lot of people are on Teams and in Teams environment. And over there, we continue to lead with our RingCentral's integration into Teams, and we see our MAUs growing over 40% year-over-year. So net-net, between all of these things, we expect to continue to grow at market share rate, which is in about mid-single digits.

Got it. I think that's all the time we have for today. Devang, Kira, really appreciate the time. Thank you.

Thank you.

Thank you.