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

Good day, and welcome to the RingCentral Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steven Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Second Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO. 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 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. We delivered another strong quarter, exceeding the high end of guidance across all key metrics. Total revenue, subscription revenue and both GAAP and non-GAAP operating margins surpassed expectations. . Free cash flow generation also remains strong, and we now expect to deliver more than $7 per share for the full year. Given our quarterly performance and our confidence in the longer-term sustainability of our operating model and free cash flow profile, I'm excited to announce that our Board has approved an increase to our quarterly dividend to $0.125 per quarter per share. We are also making meaningful progress towards our medium-term target of reducing SBC to a range of 3% to 4% of total revenue. Our disciplined focus on profitability has put us ahead of schedule on GAAP operating margin, and we now expect to reach our 20% target within 2 to 3 years. A year ahead of schedule. We also remain on track to reduce gross debt to $1 billion by this year-end. This performance reflects a multiyear effort to strengthen our financial profile while transforming the company into an agentic voice AI leader. RingCentral is becoming an intelligence layer where AI agents and human agents work together to manage customer interactions end-to-end for better business outcomes. We believe the market opportunity is large, spanning UCaaS, CCaaS and conversational AI, totaling more than 150 billion. This is based on estimates from IDC and Gartner. Further, we believe that the convergence of these disparate markets into a broader category of AI-powered customer engagement plays to our strengths and that we are well positioned to address this shift with 1 of the industry's broadest AI-powered customer engagement portfolio. We are investing over $0.25 billion annually in R&D to expand our portfolio, deepen our moat and accelerate innovation. Voice is at the center of this transformation. It remains the primary way customers engage with businesses through both human-to-human conversations and increasingly interactions between people and AI agents. Our carrier-grade platform serves approximately 600,000 businesses across 45 countries and support international numbers in nearly 100 countries. It carries roughly 40 billion voice minutes annually and more than $3 billion text messages. both growing faster than our user base. Adding to our moat are billions of recorded and transcribed conversations that reside on our platform. This gives us invaluable learnings in delivering AI native solutions that are best tailored to address our customers' needs. This wealth of data combined with our infrastructure, scale, reliability and decades of operating experience creates a high barrier to entry. In addition, the branch of our product portfolio gives us the ability to cover all aspects of customer to business interactions, including person to person, person to informal contact center agent person to a dedicated contact center agent and of course, increasingly person to an AI agent. It is this ability to freely intermix AI and human agents while having both learn from the other that gives RingCentral a sustainable structural advantage. Unlike many AI point solutions that depend on third-party telephony or contact center stacks, RingCentral agenetic voice AI is built on our own global business voice network that can't be replicated. It also integrates closely with our well-established cloud-native product portfolio. This matters because most businesses want a single platform that can support, connect and orchestrate across every customer interaction, whether to a human or an AI agent. This constitutes a clear competitive advantage for RingCentral. This advantage translates into strong adoption, broader portfolio penetration and meaningful customer expansion. We're seeing the demand across every part of our go-to-market engine, direct channel and GSP with customers and partners increasingly leaning in to adopt AI across the entire platform. Numbers don't lie. ARR from customers who utilize at least 1 of our native paid AI products now represent approximately 13% of ARR, having doubled year-over-year. These customers have net retention well above 100% and meaningfully higher ARPU than the rest of our base. This momentum spans our entire AI portfolio. we ended Q2 with more than 16,000 paying air or AI reception with customers, which is up 400% year-over-year. At our AI conversation expert has more than 6,300 customers, growing more than 70% year-over-year. More broadly, ARR from our AI-led new products grew nearly 60% during the first half of the year. These new products also help us increase wallet share. One example is a large U.S. automotive dealership group with approximately 30,000 employees. Beginning with Ring in 2024, the later expanded into Ring CX and AI quality management and more recently rolled out AIR and Call Queues across its dealerships. This has more than doubled their ARR over the last several months. Our new customer engagement solution, or CEB is another standout. CEB adds lightweight contact center capabilities to RingEX, such as Call Queues, Shared SMS Inbox and Analytics. CEB now serves more than 9,600 customers and has grown more than 80% sequentially. Our progress on product innovation wouldn't be possible without transforming ourselves into an AI-native company. This quarter, most of our product and technology employees in partnership with OpenAI executed an AI-native project with over 99% success rate. This marks a major milestone towards RingCentral becoming an AI-native company. We'd like to thank OpenAI for their guidance and support in making this happen. Another core strength in moat is our differentiated go-to-market, which includes direct sales over 16,000 channel partners and resellers and global service providers. Our AI and new products are resonating with channel partners. In fact, about half of our AI ARR originated from the channel. Partners investing in AI services and outcomes are winning, and we are building out programs around that momentum. We also have 16 leading global service providers in our network, and they remain an important part of our go-to-market strategy. These partners are increasingly bringing our AI products to the market. Recent wins include BT, selling RingCX and AI quality management to one of the U.K.'s largest electricity and gas brokers. And Vodafone U.K. recently deploying AI-powered RingEX at PwC, one of the big four consulting firms. To truly build on our momentum I am delighted to welcome NICE to our family of strategic resellers. Today, RingCentral and NICE announced an extension and expansion of our partnership, whereby NICE will begin marketing and selling RingEX in combination with CXone. While RingCentral continues to offer NICE CXone to our customers. We now have a symmetrical mutually reinforcing partnership that brings together two market leaders to deliver the future of AI-powered customer and employee experiences to businesses of all sizes. Also, in an effort to streamline customer experience and to better align with our respective strategic directions moving forward, we have recently restructured our relationship with Avaya. While RingCentral will remain Avaya's exclusive multi-tenant cloud UCaaS offering, existing Avaya cloud office customers and partners will transition to the RingCentral platform and brand directly. We see this restructuring as a win-win for in RingCentral, Avaya and most importantly, for ACO customers and partners alike. We look forward to continue to serve the ACO community under the RingCentral brand and working with them directly. Last, but by far not least, this progress would not be possible without our outstanding people. I am delighted to announce that RingCentral was recently made to times list of America's best companies for 2026, recognizing employee satisfaction, financial performance and sustainability over a few year period. This important award recognizes the passion of our employees, the trust of our customers and our focus on culture, innovation and execution. I could not be more excited about the role ahead's. With that, I'll turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone. As Vlad said, RingCentral is uniquely positioned as the most complete customer engagement platform with a genetic voice AI woven across the portfolio. This quarter, we saw customers accelerate their adoption of RingCentral AI. For example, BGM Group, a national post-acute health care organization deployed our full in RingCentral AI portfolio, AIR, AVA ACE on top of RingEX. AIR recovered 45% of their calls previously lost to abandonment. AVA eliminated manual mutating, ACE delivered the core visibility and coaching to help them improve their customer introductions. They're now rolling out AI solutions to every department across the company. This example highlights the flywheel effect of more calls captured less time spent on manual work and more insights that make each interaction better than the last. Now let me hand back our AI portfolio further. AIR, our AI receptionist, handle inbound voice call and text messages, deploys in minutes and works with businesses of any size. This quarter, we enhanced AIR with new SPAM blocking filters and lead capture that collects information at the right moment and syncss with Salesforce, HubSpot and Zoho. Customers are seeing the impact of using AIR. Based on a recent survey, AIR customers reduced miss-call rate from an average of 20% to close to 0. For example, GTR Insurance, a family-owned insurance business says they are no longer buried in 50 calls a day and AIR is saving them $6,000 a month. That's time and money we are putting back into growing their small business. For customers with more complex use cases. Air Pro enables businesses to build purpose-built agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing. This quarter, we advanced our AI agent to handle multiple intents, retain context across conversations and ask targeted follow-up questions to improve accuracy. We're excited about the traction with Air Pro since launching just a few months ago in early access. One example is a leading BPO achieved a containment rate of above 85% with no live agent transfers after using AIR Pro together with their CRM integration. Another example, is a health care customer, which added Air Pro and ACE for integrated scheduling and customized lead qualification. The deployment succeeded quickly, and they're already expanding Air Pro to new use cases. That kind of rapid time to value is exactly what we're seeing across our portfolio. ACE, our conversation expert, give sales, marketing and compliance leaders, complete visibility across every call automating reviews, replacing manual evaluations and feeding conversation intelligence directly into their CRM and ticketing systems. In the last quarter, we saw a record ACE adoption with the number of calls processed jumping to double digits quarter-over-quarter. An example of a customer with this past quarter is one of the nation's large health care workforce providers, which purchased nearly 700 licenses of ACE to improve the nursing placement conversation rate and enhance the recruitment, training and coaching. ceb, our customer engagement bundle solution is also scaling fast with a healthy attach of our AI products. A recent customer win in the financial services firm, that chose CEB, attached with ACE to manage inbound calls and SMS with automation, AI support agent quality and to have full visibility into call queue volume with a robust analytics. This example underscores the growing attach motion of AI CEB. We continue to invest in strengthening our Air Pro offering with RingCX. We've added autonomous outreach enabling AI to proactively initiate conversations on its own. And while human judgment is needed intelligent handsoff transfer full context to a live agent seamlessly. The market is taking noticed. This quarter, both Aragon Research and Nucleus Research, naming RingCX, a leader in their respective contact center reports. Recognizing our AI investment workforce engagement capabilities and embedded contact center experiences. We are proud of this industry recognition and our ability to give customers powerful right-sized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve. Our unwavering commitment to innovation and well differentiated go-to-market, we're in a strong position to drive AI first customer engagement at scale. With that, I'll hand it off to Vaibhav.

Thank you, Kira, and good afternoon, everyone. Q2 was another solid quarter with all key metrics above the high end of our guidance. Our results reflect RingCentral's strong position in a growing market, durable TAM, well-established competitive moat and rapidly emerging AI portfolio that is increasingly contributing to our performance. We continue to strengthen our financial profile through disciplined execution, driving profitable growth, expanding GAAP and non-GAAP margins and free cash flow reducing SBC and executing a balanced capital allocation strategy across innovation, debt reduction, buybacks and dividends. As Vlad mentioned, given our strong operating performance, demonstrable traction of our AI and AI-led products and our confidence in the long-term free cash flow generation, we are pleased to announce that our Board has approved an increase in the quarterly dividend to $0.125 per share. Together, these actions position RingCentral to deliver durable, profitable growth, strengthen our balance sheet, enhance capital returns and drive sustained long-term shareholder value creation. Now let me turn to our second quarter results. Total revenue was approximately $657 million up 5.9% year-over-year, and subscription revenue was approximately $634 million, up 5.8% year-over-year. Both came in above the high end of our guidance reflecting the durability of our core business and increasing traction from our AI-led products. Customer trends remained healthy, including steady new customer additions and improving monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers. As Vlad mentioned, our AI-led new products are still early, but they continue to gain traction. Combined with the durability of our core business, they are improving the quality of our growth by increasing the ARPU and net retention while also expanding our long-term opportunity by increasing the TAM we are addressing. Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached 23.4%, up nearly 90 basis points year-over-year and again above the high end of guidance. We believe our margin expansion trend is sustainable and supported by multiple structural drivers such as scale benefits of our recurring revenue model, increasing contributions from our AI products disciplined hiring, expanded use of lower-cost locations, vendor consolidation, broader internal adoption of AI and continued focus on our highest return products and go-to-market motions. SBC as a percentage of revenue declined approximately 150 basis points year-over-year to 9% in Q2. We remain on track for SBC to be approximately 9% of revenue in 2026, down 180 basis points from '25. This continued improvement reflects our disciplined approach to equity management. The combination of stronger non-GAAP margin and lower SBC drove GAAP operating margins of 7.7% improving by more than 170 basis points year-over-year in Q2. As Vlad mentioned, we believe that we are ahead of schedule in reaching our target of 20% GAAP operating profit now expecting to accomplish this milestone in the next 2 to 3 years. Turning to free cash flow. We generated $180 million of free cash flow in the quarter, up 25% year-over-year. This reflects strong operating performance, continued efficiency gains and improved working capital, including certain onetime benefits from customers and partner prepayments and continued discipline around vendor spend. Our recurring revenue model, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. Given our first half performance, we are raising our full year free cash flow outlook to $620 million at the midpoint, over 23% of revenue. Importantly, we believe the durability of our recurring revenue base with growing contributions from AI products, structural margin expansion, disciplined capital allocation and continued reduction in SBC provides a strong foundation for sustained free cash flow generation over time. As a result, free cash flow and free cash flow per share remains central to how we manage the business. Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we reduced overall debt by approximately $85 million and lowered net leverage to 1.5x. Together in the first half of 2026, we have reduced our gross debt by about $130 million. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. We Important to note is that we have no maturities until 2030, and we maintained $355 million of undrawn credit capacity. We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.2 million shares using approximately $94 million. At the end of Q2, we had approximately $326 million remaining under our repurchase authorization. Diluted share count declined 6% year-over-year to approximately 87 million shares. The durability of our free cash flow enables this balanced approach and gives us confidence in our ability to continue investing in innovation, strengthening the balance sheet and returning capital to shareholders over time. With that, let me turn to Guidance. For fiscal 2026, we are raising subscription revenue to be at $2.55 billion to $2.561 billion, representing growth of 5.1% to 5.5%, raising total revenue to be at $2.635 billion to $2.646 billion representing growth of 4.8% to 5.2%. Raising GAAP operating margin to be from 9% to 9.7%, expanding 460 basis points year-on-year. Non-GAAP operating margin of approximately 23.6% to 24%, raising free cash flow by approximately $20 million to $615 million to $625 million up 17% year-over-year. SBC in the range of $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue. Fully diluted share count of 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.96 to $5.10 up 15% year-over-year. This results in free cash flow per share of $7.07 to $7.23 for the year, up 23% year-over-year. For Q3 '26, we expect subscription revenue of $643 million to $649 million, total revenue of $664 million to $670 million, GAAP operating margin of 7.2% to 8.6%, up 310 basis points year-over-year. Non-GAAP operating margin of 23.5% to 24%, up 100 basis points year-over-year. Non-GAAP EPS of $1.25 to $1.30, up 13% year-over-year. SBC in the range of $63 million to $67 million, improving 60 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million shares, lower by 6% year-over-year. In closing, Q2 was another strong proof point of the durability and the efficiency of the RingCentral model. We exceeded the high end of guidance across all key metrics, expanded both GAAP and non-GAAP profitability, generated strong free cash flow, reduce debt, return capital to shareholders including increasing the dividend and continue to reduce dilution. At the same time, we are investing in innovation and seeing early AI traction contribute to our growth profile and revenue quality. With free cash flow per share now expected to exceed $7 this year, we believe RingCentral is well positioned to continue compounding shareholder value. With that, let's open the call for questions.

[Operator Instructions] The first question will come from Elizabeth Porter with Morgan Stanley.

I wanted to follow up on AIR, including the recent expansion with AirPro last month. Can you provide any more detail around how this will act as a tailwind to some of the expected economics of a typical RingCX transaction, whether in terms of AI attached, ACV or the competitive win rate. just relative to the existing CX offering.

Yes. Elizabeth, Vlad here, and thank you for the question. Look, I would answer it this way. AirPro, AVA, ACE, it's all part of our transformative transformation towards an AI-led company. And look, we predate AI native. That's obviously a fact of life. But we are turning ourselves into a company that thinks and operates like an AI-native company. and including our recent announcement was open AI. So -- but to the point of your question, AIR various flavors of AIR including AirPro, that is the new UCaaS and CCaaS, how we see it. AI is rapidly becoming an integral part of the offering, okay? We are -- to your financial part of your question, we're absolutely able to charge extra dollars for it at a good margin. And for the simple reason that combined solution is, it basically saves customer time and money. It saves on human agents, but it also empowers remaining human agents and make them more productive. And what makes RingCentral quite unique in the industry and with our approach in our various modes is the fact that we are able to power both human agents and AI agents and make them work close together while in the way of learning from each other. So our AI, and we're in a unique position to do this. Our AI is able to learn from human agents, both in real time as well as from literally billions upon billions of recordings that are already sitting on our platform. Okay? And similarly, our human agents are also able to learn from AI, sometimes in real time based on all of the new data that's now being generated by our AI agents. So in a nutshell, that is the promise of AIR and frankly, even more so of AirPro which has deeper intelligence and deeper integrations. And that's what we call this flywheel, which is really a virtuous circle, if you think about it. Everything just becomes stronger together. So moving forward, we strongly, strongly believe that AI is going to be a major tailwind for us as a company, both growth-wise and margin-wise. Unlike the [bear case], hopefully that is dissipating now that somehow AI is going to mean less business for Ring. We're seeing exactly the opposite. It means more business for Ring.

Great. And just for a follow-up, I wanted to ask what the expanded partnership with NICE AND how investors should think about the incremental revenue opportunity and channel economics in particular, does this open up NICE's enterprise installed base to RingEX or how does it change the competitive positioning of RingCentral and the larger UCaaS plus CCaaS transactions?

Yes. I mean, look, that is the idea. I mean, hopefully, is exactly what you say. NICE is a well-known enterprise player. We have as you all know, a multiyear partnership with them, and it went to various phases. If nothing else, as you've been seeing over the last a year or so, the partnership has been strengthening. And with this current latest announcement, I don't know what other proof points you need that things are live and well between the two companies. But market positioning wise, our RingCentral Contact Center powered by NICE, just because of the nature of most of our business, most of it has been in the mid-market. At least certainly as far as number of logos are concerned. But even though overall is business, I mean, we have some very large accounts we won with RCCs. But again, majority is more mid. NICE incontact on their own volition, they are a pure enterprise company. They have very, very large accounts. They're one of the basically two undisputed industry leaders in high-end enterprise CCaaS. And this is just a great testament to the fact that they are now also seeing that UCaaS and CCaaS are stronger together; not just in the mid-market, but also in the enterprise. So we're super excited. And hope that there will become a meaningful new channel for us in this very, very important segment. And I think as the press release and you read Scott's quote and my quote, all of this becomes stronger with AI, their AI assets, our AI assets, there is much of it is complementary to each other, okay? So I will always be of the opinion that providing a customer of any size with a unified solution with single throat to choke that is a customer-friendly gesture that is what customers want. And now more customers will be exposed to it. So I'm super excited about this.

The next question will come from Siti Panigrahi with Mizuho.

Vlad, as you're seeing AI picking up momentum. How do you see your AI, your product sets in the AI evolve? And how do you see the TAM expanding for RingCentral? And specifically, how do you see your customer spend evolving? Are you seeing more that to increase, decrease? Or where do you see that incremental spend will come from customer base?

Let me answer it this way. Again, just looking at the numbers that, as we all know, don't lie, what do we see? We see more of our customers buy AI from us, okay? I want to say not -- and I'm being very specific here, not just use AI because many people will claim AI, but they're just giving stuff away. We're also giving lots of lots of staff away in AI, but the stuff that is differentiated where we have moat around, that's the stuff we charge for. So just concentrating on that portion of the customer base that is buying AI products from RingCentral, and these are -- I really want to stress this. These are our natively developed products. Not third party were not OEMing for this calculation, okay? So a number of customers that's using at least one paid AI product from RingCentral has doubled year-over-year. It's about 13% of revenue which is, give or take, $300 million, if I can do it on my head. Yes. Okay. So that is a substantial business. And what else do we know about this business? It is also more sticky. So the net retention for this cohort is over 100%, okay, which is really good news. So to be blunt, when people say, "Hey, SaaS is going down and Ring in particular, is a melting ice cube, you know what, not so much not so much because AI and AI affected revenue is growing. It's, again, doubling with meaningful numbers already, and retention is over 100%. Moving forward, we're optimistic we'll be more of the same, okay? Our AI products are only getting better. We are spending $250-plus million per year on innovation. More and more is going towards AI. We are on the map now, AI natives and foundational model people like OpenAI are taking notice. This is why they're showcasing their relationship with us perhaps. And by the way, want to reexpress my thank you to OpenAI and the team in working with us. It was an amazing eye-opening project. But I'll tell you what, RingCentral now has over 2,000 -- well over 2,000 people who have completed a native AI project. I don't know how many other companies in the industry or in general, can claim that. So we will be accelerating, okay? We'll be doing more product for more customers. And again, going back to my answer to a little bit this question. I just want to reiterate where we have natural moat, of course, our network and our presence and our channel and our GSPs, all of that but also very importantly, the fact that we have this portfolio that can do people and AI agents altogether and the people part of it goes all the way from a high-end contact center down to a -- to a customer engagement application with maybe a few folks talking to their customers. So for as long, this is a core belief in the core bet. For as long as consumers are calling or testing their business providers of any type, we'll be fine and I do believe we'll only be stronger.

And Vaibhav, it's good to see you raise free cash flow now by $20 million. I wanted to ask the capital allocation strategy, one where you are raising dividend and reducing debt. But what about investing to reaccelerate growth?

Thank you for the question,. So in terms of capital allocation, look, there's no structural change. It's around having a balanced and disciplined approach and it's centered around improving free cash flow per share. And as you rightly called out, we are generating high-quality and free cash flow now, which gives us the flexibility to deploy capital across multiple priorities. The priority is investing in growth, which Vlad just talked about investing in innovation, particularly take advantage of the massive AI opportunity in front of us. Secondly, in terms of the balance sheet strength and profile. Our leverage is relatively in a sustainable level. We are continuing to pay down debt and remain committed to bringing down gross debt to $1 million by the end of the year. And thirdly, it's about returning additional capital through a combination of buybacks and dividends. At current stock levels, buybacks remains an attractive opportunity. We continue to buyback stock like we did in Q2. We are lowering our share count, which is now at 2019 levels and given the strength of our free cash flow, our Board authorized an increase in our quarterly dividend. It is a reflection of the confidence in our durable growth profile and long-term sustainability of our free cash flow. And your last comment, it's not coming at the expense of growth. In fact, it's the opposite. I would say it's an outcome of driving durable growth and strong free cash flows. And it provides more predictable returns to our shareholders. So net-net, look, we are a compounding free cash flow model, built on a durable recurring revenue base with a growing AI portfolio and consistent cash generation. And we are focused on allocating capital in a way that drives long-term shareholder value.

The next question will come from Tim Horan with Oppenheimer.

Two questions, one for you, Vlad, and one for you, Vaibhav. But Vlad, it seems like AI is transforming business phone line utility, and I think usefulness. For existing customers that are using it, are you seeing an increase or an acceleration of the minutes per month that they use it or how they use it both on wired and wireless. And are you starting to win new customers because of AI? And do you think this might accelerate the migration to the cloud on-prem for the industry?

Yes, really good question. So yes, to all of the above and more. Firstly, as far as the usage is concerned, we're seeing minutes usage increasing across the platform, and that's ahead of our revenue growth or seat growth, okay? So that means deeper engagement just across the whole network. That's with as well as without AI. And it's phone calls, and text messages. Everything is growing meaningfully faster. And I have to say that many people don't realize that we are becoming quite a sizable provider of business SMS, and that is growing strong double digit for us, okay? Also a pretty meaningful base already. So that's one. Now within AI, with AIR in particular, AIR ends up connecting more calls. So there is just less dropped calls. Why? Because people at this point are not too keen on leaving voice mail. And AIR is specifically optimized for ideally resolving the call right there and then. So that's not a dropped call. But if it cannot -- and the only reason it cannot is that the customer hasn't taught it how to. Customer has the tools to teach. So we are working with them to try to get more and more deflection. But at the very least, it's able to figure out who to direct a calls to from a live agent perspective. So that is absolutely -- that's kind of the bottoms-up view on why AIR customers are using -- in the end, they're using more minutes, which in the end good for our business. It's just a deeper engagement. And I think your last question was, is AI helping sell us new products? 100%, I mean, we easily half of our new sales include AI, easily half of channel sales includes AI, easily half of AI sales come of the channel, right? So they're kind of multiple sides of the same coin. And -- but I tell you what, I really do believe that if you were to fast forward a bit, I don't know, are we talking a year or 2, maybe less. I don't know. But I think the entire definition of UCaaS and CCaaS will need to include AI. I don't -- the days of just a siloed, hey, let's just connect a person to another person or a person to a group, those days are numbered, and we recognize this. And we believe we will be one of the winners, hopefully, one of the major winners of this movement as we are able to embed AI at every stage of a consumer business interaction, starting with before human during human and after a human is a processing a call transcript or recording and making it all work together. And that's unique position and this unique flywheel that I keep talking about.

And Vaibhav, can you give us what you think the normalized free cash flow margin was in the quarter? And is there any reason as you're expanding the GAAP margins that a good chunk of that wouldn't continue to flow down to free cash flow margin expansion over time?