RNG - NYSE

Good day, and welcome to the RingCentral First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note, today's event is being recorded. I would now like to turn the conference over to Vaibhav Agarwal, Deputy CFO for RingCentral. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's first quarter 2025 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO; Kira Makagon, President and COO; and Abhey Lamba, CFO. Our format today will include prepared remarks by Vlad, Kira, and Abhey, followed by Q&A. We also have a slide presentation available on our Investor Relations website that will coincide with today's call, which you can find under Financial Results section at ir.ringcentral.com. Some of our discussion and responses to your questions will contain 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. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission, as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in the slide deck posted on our Investor Relations website. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us today. We had a strong start to the year and are excited about the opportunity ahead. We exceeded $2.5 billion in ARR, delivered revenue at the upper end of our guidance, expanded operating margin, generated record quarterly free cash flow, and reduced debt and share count year-over-year and quarter-over-quarter. Our AI-powered multi-product strategy is clearly working. And we continue to see strong proof points that our new products are resonating with customers. We achieved total revenues of $612 million. Our operating margin was 21.8%, exceeding our guidance range. This marks our third consecutive quarter of GAAP operating profitability, and we are committed to maintaining GAAP operating profitability going forward. We generated record free cash flow of $130 million, up 70% year-over-year, putting us well on track to achieve our 2025 goal of over $500 million. Additionally, we paid down $166 million of debt during the quarter, reducing our net leverage ratio to 2x. Our robust free cash flow generation enables us to invest in growth while simultaneously strengthening our balance sheet. Our success continues to be grounded in the values that have guided us from day one: Trust, Innovation, and Partnerships, or TIP. These principles shaped our rise from a startup to a market-leader and now guide us as we expand into a multi-product Company with AI at the core. We continue to lead in the $30 billion UCaaS market with a steady 20% market share. Now, we are leveraging our leadership position by supercharging our platform with AI and expanding our portfolio to enable us to expand our TAM and grow our market share. We are investing over $0.25 billion in innovation annually, with a significant and growing portion dedicated to our emerging AI-led new products. This underscores a continued commitment to a best-in-class and complete product portfolio, focused on AI-powered employee and customer experiences, which includes our flagship RingEX, RingCX, and our emerging portfolio of voice-centric agentic AI solutions. The early results of these new products are promising. Kira will provide additional details, but here are some quick proof points. At the core of our new product portfolio is RingCX, our modern AI-powered omnichannel cloud contact center solution that is delivering strong double-digit sequential growth. The success of RingCX is further validated this past quarter by leadership recognition from key industry analysts, including Aragon Research, ISG, and GigaOm. They cited seamless capabilities, ease of deployment, and use, and AI throughout the customer interaction life-cycle. RingSense, our AI-powered insights and coaching tool also saw a strong double-digit sequential increase in the number of customers this quarter. RingSense is integrated with and is being sold alongside RingEX and RingCX for sales, customer care, and other quality management use cases. I am also extremely excited about the early progress that we are seeing with our latest innovation, RingCentral AI Receptionist or AIR, which launched last quarter. AIR is a category-defining AI phone agent that augments and replaces human receptionists, resulting in major productivity improvements and substantially better customer experience. We activated more than 400 AIR customers within just six weeks of the launch, and now have over 1,000. These are early but meaningful proof points that our AI-led multi-product strategy is working. And this gives us continued confidence in our ability to achieve over $100 million in ARR from new products by the end of 2025. Our Q1 results reflect our performance as a unified multi-product enterprise. However, I'd like now to dive deeper into some specific customer cohorts that are integral to our success. Please note that while we are sharing these details today, we may not update them regularly. Our Company is trusted by over 400,000 businesses as their mission-critical communications provider. We proudly count some of the world's largest companies as our customers. The majority of our customers, however, are smaller businesses. In fact, approximately 30% of our overall ARR comes from customers with fewer than 100 employees. Small business is a backbone of the U.S. economy, contributing over 40% of our nation's GDP. RingCentral is positioned extremely well in this cohort as many of these businesses are in consumer-facing sectors such as healthcare, financial services, retail, and travel and transportation. Voice communication remains an important mode of interaction in these industries. And as a leader in business voice solutions, we are well-positioned to meet their needs. Importantly, we are seeing strong adoption of our AI-based products, in particular AIR and RingSense, with these customers due to strong product set. The numbers speak for themselves. In Q1, ARR from these smaller customers grew by double digits, marking an acceleration over the past two quarters and reaching a two-year high. Moreover, these customers generate higher ARPU and deliver good ROI with a time to breakeven of under 18 months. Another key customer cohort for us is telecom carriers and multiple system operators, MSOs, collectively referred to as Global Service Providers or GSPs. Our GSP partnerships are not merely transactional. They are strategic alliances that amplify our market presence. By collaborating with GSPs, we leverage their extensive networks and customer relationships to deliver our innovative products and services more effectively, while allowing them an opportunity to deliver world-class modern innovation to their vast customer bases. This symbiotic relationship enables us to tap into new markets and customers that might otherwise be challenging to reach directly. And importantly, most of our major GSP partners, including but not limited to, AT&T, BT, Charter, Optus, Tellos, Vodafone, and now Cox Communications, are now signed up to resell many of our new products, including RingCX, RingSense, and now AIR. This is a critical validation of our multi-product platform strategy and global go-to-market reach. The overall GSP opportunity is substantial, with an estimated over 40 million seats worldwide, approximately half of which are in North America. GSPs account for over 10% of our ARR, delivering double-digit growth with a time to breakeven of under 18 months. Our success is a testament to our position as a known and trusted provider to GSPs. The competitive landscape is favorable. Other vendors are either too small and unproven or too large and directly competitive with the GSPs, making RingCentral uniquely positioned in this space. Between our smaller customers and the GSPs, we have cultivated sizable cohorts with over $1 billion in ARR. These cohorts are growing in double-digits and both impressive ROI metrics with time to breakeven of under 18 months. These cohorts also provide strong competitive moats as we continue to innovate and expand our offerings. Our remaining customer cohort comprises larger businesses with over 100 employees. While the competitive environment in this cohort is more challenging, particularly with some larger enterprises emphasizing alternative communication modalities, we continue to perform strongly. Voice remains an important communications modality, especially for customers in B2C verticals such as healthcare, insurance, professional and consumer services, retail, and manufacturing. And we are the preferred choice for those. As a proof point, in Q1, we saw a year-over-year increase in $1 million-plus total contract value or TCV deals. We continue to displace legacy on-prem providers due to our leading enterprise-grade cloud voice capabilities, reliability, global reach, and our unique channel partner network that is best-in-class. Another important factor in our success with larger customers is our open platform that offers superior integrations into Microsoft Teams, Google, and Salesforce, which now includes our new integration of RingCX with Salesforce Service Cloud Voice. In fact, we now have over 500 integrations in our app gallery, which is a key competitive advantage for us. Of particular importance with larger enterprises is our strong Microsoft Teams integration. It is a key differentiator as enterprises look to pair our best-in-class voice with the Team's collaboration suite. Simply put, for enterprises seeking to augment their Teams chat and video with the best-of-breed cloud voice solution, RingEX for Teams is the answer. Consequently, our Team's integration monthly active users or MAUs grew by 30% year-over-year, which is outpacing our overall growth. Looking forward, our competitive positioning is now greatly aided by the introduction of RingCX and our emerging AI product portfolio. In fact, over half of our 1 million-plus TCV deals were with customers who bought multiple products from us. Larger enterprises continue to be a growth driver and a profit generator for us, and we are optimistic about this cohort given the depth and breadth of our product portfolio and GTM strengths. In closing, RingCentral is a pioneer and a breakaway leader in driving the shift from on-prem to cloud communications. The next phase in our growth will be driven by leveraging AI throughout our growing portfolio with increased addressable market and wallet share. RingCentral was always about helping businesses succeed by saving them time and money. And now with voice-centric agentic AI at the core of our product portfolio, we are uniquely positioned to provide further efficiency and productivity gains to businesses of all sizes worldwide. The opportunity ahead is bigger than ever, and we are just getting started. With that, I'll turn this call over to Kira. Thank you.

Thank you, Vlad. I'm energized by the momentum we are seeing across the business. RingCentral has built a category-leading business cloud communications platform where voice remains mission-critical. AI is fundamentally reshaping how people communicate and work, presenting a significant opportunity. Our voice-centric agentic AI solutions are resonating with customers, and we're well-positioned to capitalize on the shift by aligning our product innovation and go-to-market strategy to lead in this evolving landscape. Last quarter, I outlined three strategic priorities, and I'm pleased to report measurable progress across all of them. So, let's go through each. First, build upon our UCaaS leadership, infusing AI across our entire portfolio. Customers consistently choose RingCentral for our market-leading cloud business phone system, especially in key B2C verticals, our platform strengths with leading integrations, and our expanding AI-powered multi-product portfolio. Let me give you an example of a new customer win in UCaaS. We won an iconic 150-year-old consumer food brand. They selected RingEX for its enterprise-grade voice capabilities to meet the requirements of connecting their global and distributed workforces. Our reliability, ease of administration, seamless integration with Microsoft Teams, and global reach were key differentiators. This company anticipates substantial cost savings by moving away from their incumbent legacy solution to the RingCentral cloud platform, while enhancing employee and customer experience. In addition to our leadership in UCaaS, with our RingEX platform, we're uniquely positioned to transform the industry with AI. Our vision centers on the voice-first agentic AI platform that harnesses RingCentral's two decades of expertise in advanced voice technology and our massive global communications network. We are delivering measurable value throughout the entire communication life cycle: before, during, and after every interaction, making work dramatically faster, significantly easier, and fundamentally more intelligent for our customers. This AI-driven approach isn't just enhancing our existing offerings, it's creating entirely new possibilities for how businesses communicate and operate. Let's start with before the interaction. We launched AIR in Q1. AIR creates a new category with an AI phone agent that uses generative AI to automatically answer customer inquiries and transfer calls. AIR is easy to set up for businesses of any size and delivers measurable ROI by driving efficiency, reducing spend, and strengthening customer opportunities. We're seeing early success across healthcare, accounting, transportation, and financial services, demonstrating AIR's ability to deliver targeted and impactful business outcomes. As proof points of AIR's impact, Owen Security said that they are seeing massive efficiency gains and that AIR saves each agent two to four hours per day, which is a 50% decrease in time spent on inbound calls. Now with the time saved, Owen Security is able to spend more time on outbound calls and focus on client follow-ups, all without adding headcount. Integral Recruiting said that they used to have hundreds of calls every month with around 90% of them being spam or irrelevant. Now with AIR, they can filter out irrelevant calls and focus on the 10% which are relevant customer opportunities. The value here isn't just time saved, it's the focus on the real customer leads to help grow their businesses. Next, for during the call, we've enabled AI Assistant for RingEX customers. AI Assistant enables end users to be more productive - transcribing calls, taking notes, and composing texts and messages with AI. It continues to gain strong traction across Healthcare, Financial Services, Transportation, and other verticals. In Q1, AI Assistant for calling has generated 40+ million notes for U.S.-based users, and among those who use it for automating notes, we're seeing 85% repeat usage. Next, let's talk about the after-the-call experience. RingSense analyzes conversations, scores calls, surfaces coaching opportunities and delivers key performance metrics. We now have more than 2,800 customers using RingSense, up from more than 2,000 last quarter, highlighting strong sequential growth. RingSense attach with $1 million+ TCV deals in Q1 is demonstrating our ability to scale RingSense AI across customer cohorts. As an example, MedCare, a long-time RingEX customer, recently added RingSense. By using AI-powered analysis, they've been able to optimize operations by reducing the time spent on manual call reviews by 90%, freeing up resources to allocate more focus on care and outcomes. Now that they're using RingSense, all calls are automatically analyzed and summarized. And from what they've seen, RingSense is highly accurate with its analysis and call insights. The second priority: Expand TAM through our multi-product portfolio, led by RingCX, our native AI-powered CCaaS solution. We're seeing strong traction with RingCX. Customers are choosing RingCX because it's AI-powered with rich omnichannel, it's seamlessly integrated with RingEX, it's easy to deploy and use, plus it delivers fast time to value. At the end of Q4, we had over 700 RingCX customers. This count now stands at over 1,000. We are seeing a strong attach of RingCX, including in large deals, which underscores that our multi-product strategy is working across all cohorts. A great example is a new win with one of the largest auto dealership groups in the world. This customer is deploying thousands of RingEX seats, alongside RingCX, and RingSense AI, across nearly 100 locations. With RingCentral, they're standardizing communications, improving call performance analytics and enhancing customer experience across sales and support. Another example is NHS Hertfordshire, a well-known regional healthcare trust in the U.K., went live in Q1, only six weeks after signing up. Serving over 1.2 million residents, they've already achieved a 30% reduction in call wait times and are expanding services that benefit both patients and agents. Over the last three quarters, more than 50% of $1 million+ TCV deals involving RingCX also included AI Quality Management, underscoring the value of combining CX and AI together. Our AI Quality Management automatically scores 100% of calls, providing actionable insights for coaching and performance improvement. For instance, a large prescription benefits administrator, a $1 million+ TCV deal signed in Q1, selected RingEX, RingCX, and AI Quality Management to streamline their support operations and improve service quality. These examples illustrate how our AI-powered multi-product strategy is resonating with customers, driving growth, and delivering measurable outcomes. We also continue to see strong traction with RingCentral Events, which recently was awarded and recognized by Frost & Sullivan for its visionary approach to transforming virtual, hybrid, and in-person events due to its disruptive pricing and rich AI-powered capabilities for customers. Now, for the third priority: Drive profitable growth and improve customer engagement across our entire business. As you heard from Vlad, we are generating profitable growth, expanding our operating margin, and driving more free cash flow. And AI adoption is a key driver in improving efficiencies across our organization, and the early results are compelling. Let me give you some examples of how we are using AI. In Customer Support, we are laser-focused on improving customer outcomes. AI is helping us modernize both technology and workforce efficiency. With RingCX deployed, we are seeing a 10% to 20% reduction in average handle times using it in concert with AI Agent Assist and AI Supervisor Assist, which are now in open Beta, and will be generally available in the coming months. In Sales and Marketing, we are using AI to improve accuracy in targeting and customer outreach. This enhances our pipeline quality, account planning and overall sales agent productivity. Our use of AI has led to a 10x increase in productivity in content creation, more effective campaigns, and improved lead quality. To put it simply, we are now able to generate more qualified leads for less dollars. In Innovation, we are already seeing a 20% productivity improvement from using AI to accelerate development cycles and improve code quality. In summary, AI is not just a technology shift, it is a business transformation engine that is enhancing both our top-line growth and bottom-line efficiency. We're staying focused on driving profitable growth through disciplined execution in our core and delivering on our multi-product strategy. AI is transforming business communications in profound ways, and RingCentral is committed to leading this change, helping businesses communicate more effectively, work smarter, and deliver exceptional customer outcomes. With that, let me turn it over to Abhey.

Thank you, Kira. We kicked off the year with a solid overall performance and maintain a very strong financial profile. I am pleased with our execution across all key financial metrics: revenues, operating margin, free cash flow per share, debt paydown, and reduction in stock based compensation in absolute dollars and as a percent of revenue. Let me first provide highlights from the first quarter and then discuss our outlook. Total revenue of $612 million, up 5% year-over-year, was at the high end of our guidance. Subscription revenue grew 6% to $590 million. ARR increased to $2.53 billion, up 7% year-over-year, driven by our AI-powered multi-product portfolio. Large deal activity was strong as $1 million+ TCV deals were up year-over-year, with a strong RingCX and RingSense attach. New products continue to show strong traction and we are on track to deliver over $100 million in ARR from new products by the end of 2025. Now, moving to profitability. I'll be referring to non-GAAP results, unless otherwise noted. Subscription gross margin continues to be strong above 80%. Operating margin expanded 110 basis points year-over-year to about 22%, which was above our guidance. This was driven by realizing efficiencies, especially in sales and marketing. We are committed to further driving operational efficiencies resulting in margin expansion while enabling us to invest in growth opportunities. Notably, we delivered GAAP operating profitability for the third consecutive quarter as we reduced stock-based compensation as a percent of revenue by almost 250 basis points year-over-year due to disciplined new grant activity, in addition to improvement in operating margin. Moving to our cash flows. Our strong operating performance, combined with increased rigor in driving efficiencies and working capital improvements, resulted in record quarterly free cash flow of $130 million, up 70% versus last year. Free cash flow margin was 21.3%, up 820 basis points versus last year. Moving to buybacks. During the quarter, we also repurchased approximately 1.8 million shares for $50 million. We have $218 million available in our buyback authorization as of March end. As a result of our disciplined capital allocation policy over the last year, our diluted share count declined 3% versus last year to 92.9 million. Moving to our balance sheet. We paid down $161 million of convertible debt during the quarter, bringing our gross debt down to $1.36 billion. The reduction in debt, combined with 9% growth in EBITDA to $155 million, drove our net debt leverage ratio to 2x from 2.2x on a trailing 12-months basis. We expect to generate over $500 million of free cash flow in 2025. Our strong free cash flow generation, combined with cash on hand and available long-term credit facilities, provide us with sufficient liquidity to address our debt obligations both in the near and long term. We remain committed to further reducing our gross debt level to below $1 billion by the end of 2026. We performed well in Q1 and our business remains strong. Macro, however, remains uncertain. We are therefore taking a prudent approach in guiding for the remainder of 2025. For the full year 2025, we expect: subscriptions revenue growth range of 5% to 7% year-over-year; total revenue growth range of 4% to 6% year-over-year; non-GAAP operating margin of approximately 22.5%, up approximately 150 basis points year-over-year; non-GAAP EPS range of $4.13 to $4.27 based on 93.5 to 94.5 million fully diluted shares; share-based compensation range of $300 million to $310 million; free cash flow of approximately $500 million to $510 million, growth of approximately 25% at the midpoint. For the second quarter, we expect: subscriptions revenue range of $594 million to $600 million, representing year-over-year growth of 5% to 6%; total revenue of $614 million to $620 million, representing year-over-year growth of 4% to 5%; non-GAAP operating margin of 22% to 22.5%; non-GAAP EPS of $1 to $1.04 based on 92.3 million to 92.8 million fully diluted shares. In summary, we are executing from a position of strength in a large and expanding market. Our business benefits from a sticky revenue base and a growing portfolio of mission-critical products with AI at the core. We continue to deliver profitable growth, supported by robust cash flows, and are maintaining disciplined financial management. We are actively managing dilution and further strengthening our balance sheet by reducing debt. We are confident that we are well-positioned to deliver sustained shareholder value. With that, let's open up the call to questions.

[Operator Instructions] And today's first question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Great. Thanks. And appreciate all of the detail up front. Just wanted to get a sense - that was very helpful in terms of kind of what the current makeup of the business is. As you look forward, is there kind of a target split that you think of that should be the makeup of the business, just from the various customer types? And then second question, just on kind of where or what part of the customer types or verticals, or customer sizes are you seeing kind of the greatest success with RingSense? That would be helpful. Thanks.

Yes, hi, Meta. Vlad here. Yes, no, thank you for noting the additional information that we've shared. Look, as far as ideal split, we'd like to grow all cohorts to the maximum degree possible. As noted, smaller businesses, that's 40% of U.S. GDP. So, one way to look at it is to say that we should just track how businesses in general distribute themselves. As I noted, we are seeing better traction with smaller businesses at this point, and it has to do with a better product market fit, very different competitive environment that we're seeing with larger enterprise, and just greater reliance on voice for business communications in general. And we are still leading with voice. We clearly have other modalities as well. We have chat, we have meetings, SMS, fax, all of that, but voice is still the predominant reason why people would be choosing us. And voice is critically important in a number of very important verticals, which is getting to the second part of your question. And as noted, it's healthcare, it's financial services, it's retail. As we move to larger businesses, you start adding things like manufacturing, travel pervades all segments. So, I think one takeaway I'd really like people to take is the fact that we excel and dominate whenever there is need for enterprise-grade, and enterprise-grade means robust, reliable, secure, fully featured, state-of-the-art. Whenever there is a need for that, for voice communications, that's where RingCentral wins. And I also want to point out that the market is still largely underpenetrated. There is still a lot of on-prem left, and especially in the enterprise, we're still seeing quite a few on-prem-to-cloud conversions. On-prem presence is still well over 50% throughout, okay, and so that remains a good opportunity for us. And finally, we also broke out additional data on our GSP practice, and that is really one of the probably most underappreciated aspects of our business. The fact that we have this very differentiated, and frankly, very amazing set of partnerships, where we have a great name there. They all talk to each other, so we have a good number of positive references to the service that we provide, and it really allows us to reach wide, and deep. They have international presence, for example, with Vodafone, with British Telecom, with Deutsche Telekom that we simply don't have, and it's a very efficient route to market for us. But even here domestically they have this captive user bases, and a few years ago, most of them chose BroadSoft, since acquired by Cisco, but that product is growing long in the tooth. It's not cloud, it's not keeping up with the time, and we're having a really good run at being able to convert those seats from legacy to the cloud, which is the RingCentral Cloud. So, it's growing in strong double digits. It's quite profitable for us, very good ROI economics, as noted, and we keep on signing new partners. Cox was the latest, along with Hawaiian Telcom, and we're optimistic there will be more to come.

Great. Thanks.

Thank you. And our next question today comes from Kash Rangan with Goldman Sachs. Please go ahead.

Hi, thank you so much, Vlad, and team. So, Vlad, just watching the AI trajectory, the innovation that the Company has put in place, do you - how much pricing power does the Company have? Because after all, as Kira talked about, there's a lot of cost savings that your customers are getting today with AI that just was not possible with the RingCentral 1.0 pre-AI. So, how much of a ceiling do you have to be able to raise prices, and get paid for the value that you're delivering to the client? One for Abhay, ARR growth rate, so it's like an outpaced subscription revenue, and revenue growth rate. Could this be a leading indicator, or should we not be misled by this turn? Thank you so much.

Well, no, it's absolutely a leading indicator if you're talking about impact that AI is going to have on our revenues and our portfolio. And, look, I'll tell you how I think of this. So, when we were leading the transformation, we literally were one of the first cloud companies, born in the cloud companies, and emerged as one of the leaders and winners in the on-prem to cloud. But if you think about it, what were we doing? We, and the others like us who were leading in this transformation, we were replacing, in our case, hardware by a cloud-based service. And some other people, for example, Salesforce.com software, that used to be their slogan, as you all know. Okay? And there were multiple benefits to be associated with that. But in the end, you were replacing one type of IT spend with another type of IT spend. And it worked wonders. And it so happens that if you look at pre-cloud software spend as a whole, and now you look at the cloud spend as a whole, the cloud spend is now greater than pre-cloud overall spend was. Okay? But now you look at what AI is doing, is it's taking this into a completely different dimension to where we're no longer replacing IT with IT, we're replacing human labor, we're replacing HR with IT. So, savings that we can deliver are meaningfully greater. And if we are now replacing a $2,000, $3,000, $4,000, maybe $5,000 per month agent, human agent, with a software package that costs you tens of dollars or maybe hundreds of dollars per month, that's an easy trade. So, as this technology matures, we absolutely expect it to have a very, very positive impact on our ARPUs, which of course will translate into overall profitability and growth. I'd also want to point out that all of these products that Kira and I mentioned in our prepared remarks today, so of course RingCX itself, but RingSense, AI, AI Quality Management, all of these are paid for products. So, none of these are bundled. It's extra ARPU and ARPA from these accounts. And look, it's very, very early. And if you look at the overall numbers, okay, we have 1,000 accounts here, and 1,000 accounts there, but that's on a base of 400,000-plus accounts. But on the other hand, it took us weeks to get to 1,000 accounts. So, we are extremely happy with this, and there is quite a bit more to come, we think.

Yes, and Kash, to your question about ARR, thanks for pointing it out. We're excited about the 7% growth we posted on ARR, and a lot of the positive momentum that Vlad talked about on the call is helping. So - and as you can see, our full year guide is for 6% subscription growth. So, ARR is a positive indicator for us to think through our revenue guide as we are thinking about it.

Thank you so much.

Thank you. And our next question today comes from Samad Samana with Jefferies. Please go ahead.

Hi, this is Billy Fitzsimmons on for Samad. I want to dig a little deeper on macro and the potential impacts early in the second quarter. Some other companies discerning cycles called out lengthening sales cycles or deals pushing in April post tariff announcements. And so how have deals and customer spending tracked in April, and in quarter-to-date? Have they lengthened, have sales cycles and deals lengthened? Any differences in deal activity in early April versus early May? What are some of your third-party hardware partners saying about the tariff impacts? And does some of the macro uncertainty potentially make it easier to sell some of your AI tools given the productivity gains involved?

Hi Samad, this is Kira. So, I'll just start with the AI, answering that. I think selling AI into businesses today is almost like it is becoming a must because everybody's looking for cost savings, macro or not. And so that's probably why we're seeing such rapid adoption of AIR, essentially because it eliminates some of the need for human agents, replacing them with digital employees. And so in terms of macro overall, look, we're all listening to the same news, and there's uncertainty in the air. Specifically for us, we're not necessarily seeing the impact today. So, it's business as usual, and phones really still make up like there's a relatively small component of what we sell, and haven't seen that either. But we're all watching the news. And in terms of sales cycles, I think that was your second point. I think, again, business as usual as of now.

Thank you. Apologies for the interruption. Our next question today comes from Peter Levine at Evercore ISI. Please go ahead.

Great. Thank you for taking my question here. Maybe just one on the guidance. You kept the full year flat from the guide you gave us in Q4. So, maybe just talk about, what are your expectations then into the second half? It sounds like you're being a little bit more prudent here in 2Q. Maybe talk about how you stress tested the second half, and your kind of expectations going forward.

Yes, I'll try it at a high level. Yes, look, I mean, we've reiterated the guide for the year is how we're looking at this. We had a pretty strong Q1. As you know, we've beaten all parameters. But as Kira said, we are not necessarily seeing direct impact, but we also don't know what we don't know. So, for this reason, and really only for this reason, is we have the guide at this point. And we'll be watching what's happening with tariffs, what's happening with interest rates, and all of that. And nothing on the horizon at this point suggests that we would be directly impacted if things were to start going in the other direction again. But certainly, some of our customers and prospects might be, which is why it just makes it a little bit harder to project. But I can tell you that anything under our power, and the direction the Company is going, look, we are saving people time and money, and making their businesses better. With AI, we're simply connecting more phone calls, and more interactions, and we're letting more transactions go through, which in the end results in better outcomes for our customers. So, that's all you can ask for. So, for as long as our customers are in business, we think we'll be fine as well.

And leveraging to that point, are you at all maybe perhaps changing your go-to-market in this environment, meaning the consolidated approach, given that you guys now have the full suite of UC assets? Is it more prudent for you all to kind of sell that platform? Obviously, there's cost savings, there's one vendor. Maybe walk us through, are there any tweaks to your go-to-market that you're taking advantage - if you're taking advantage of the macro, is any of that feeding into your go-to-market today?

Excellent question. Well, here is one case in point that I'll just double-click on. So, with our new product, our GSP partners, most of them are taking many, if not all, of the new products. Okay? And over time, we expect for all of them to take all of the new products. So, what does this mean? It means that there is tremendous appetite, okay? And there are these brands with massive followings that need product, new product, new tech, to feed to their customers, and we're the provider there. So, that's with GSPs. We're seeing very similar with channel partners. I can tell you that we never hear - here's one thing we never hear is, okay, we like your EX product, you're the leader in PBX in the cloud, but you know what, your AI's voice agent, we're not interested. We've never heard that. And the reason is, whatever we are doing with AI is very much cut to measure. It is voice first. We've made this point in the prepared remarks as well. And we are just riding on these two decades of experience as a Company to deliver exactly the right solution or solutions, plural, but using the very latest in tech, and AI advances. And of course, that thing is improving geometrically in its own right. So, the net result is, we are seeing major savings internally within the Company. Kira addressed some of those. I think if you look at our corporate deck, our earnings deck, there are a few more details there maybe. So, we're seeing it for ourselves, and we're able to pass similar to our customers.

Thank you. And our next question today comes from Brian Peterson of Raymond James. Please go ahead.

Hi, this is Jessica on for Brian. So, following up a little bit on a previous question, these new products have had really impressive customer growth. I was wondering if you'd talk a little bit more about the embedded expansion opportunity within this installed base, specifically, how much expansion potential do you see within the customer cohorts, and how are you thinking about adoption if they've already adopted a solution by possibly going for more of these new solutions? Thanks.

Yes. Look, so, yes, another good question. So, when we talk about AIR, for example, so far, majority of those are internal expansion opportunities. So, these are upsells into the base, okay? Especially since for now, and this is not going to be this way forever, I can tell you, but for now, we are mostly targeting our own base with AIR. We're mostly targeting our own base with RingSense, with quality management. And even with RingCX, we are getting more, and more traction as an independent CCaaS provider as people are getting more familiar. But it's by far easier for us to go into after our own base, which is 400,000 accounts strong. So, definitely an expansion, and an upsell opportunity with all of this.

Got it. Thanks. And then also, I was curious, so you held the outlook, but is there anything you have embedded from a geographic perspective, as in, international opportunities? And is there anything outside the U.S. that you're really excited about?

We're excited about the way things are going. We're excited about AI, and the opportunities it creates. But look, 90% of our business is U.S., and Canada. So - and these tend to be the early adopter markets, at least for us anyway. So, we see more traction here. Our play with international, a lot of it will have to do with GSPs. It is just a much more efficient way for us to go to market, as well as building out - further building out international channel presence. So, again, with the guide, everything that we knew to put in, we did a quarter ago. That's how the guide was put together, and we just haven't seen any dislocations at this point with regards to domestic versus international.

Thank you. And our next question today comes from Catherine Trebnick with Rosenblatt. Please go ahead.

Well, thank you for taking the question. Yes, mine has to do with some of your partnerships. NICE was a really nice partnership for upmarket. And then, how are you looking at that partnership going forward? Thank you.

Yes, look, it wasn't even nice partnership. So - and it's hunting everywhere, but it is better suited for upmarket. And look, very simply put, if you take two very strong, if not undisputed leaders, us in UCaaS, them in CCaaS, put it together, and it's a product that continues to be absolutely unique in the market. Okay? And the way that NICE's business is, and I don't want to speak for them, but it is generally known as a very feature-rich, robust solution for mission-critical contact centers. Okay. And by us, and we have similar - I think we have a similar perception on us that if you want your voice to work, and to have all of the features, then here's RingCentral. So, again, you put the two together, it's a very good product, it's a very differentiated product. We have a strong following with that product. And I can tell you that in spite of all of the rhetoric to the opposite, even last quarter we saw upsell deals, we saw some new deals, we're optimistic it will continue. Grant, absolutely. At this point, there is RingCX. RingCX, it's a different type of a product. It's much lighter weight, it does not have all of the features, it's priced quite a bit differently. So, I've been saying this for a long time, I think there is absolutely an opportunity to have both of these in the market. And in a large degree, we think that they can be complementary to each other.

Okay. Thank you. And the follow on is with RingCX, and a bake-off, who do you usually come up against most frequently?

Yes. Kira, you want to take that? It's a list.

Yes. It's a list. I think there's no one that comes out. It's sort of a standard list of people who play in the same segment that we sell with RingCX. And so, without naming specific competitors, you know who they are.

Yes, I think - I would say it's a bunch of smaller companies. We usually don't come up with this against, call it MQ leaders. We come up - we come against people who are newer to the space. And you can say, okay, they're new to the space, as you are, but many of them are meaningfully smaller, meaningfully less known. And of course, don't have our history, don't have our reach, don't have our GTM, breadth of our GTM motions, don't have our worldwide coverage. So, that's generally how we win. And just by reputation, I mean, we're known as a good, solid, secure product, which is why it's making the inroads that it is making. Again, without naming specific people, but you can see how long it took some of the other newer entrants to get to 1,000 accounts, and compared to where we are, okay? How long it took us. And many, many have not many have not even reached 1,000, you know? And we did it in basically a year. So, we feel really good about adoption of this product.

Thank you. And our next question comes from Michael Turrin at Wells Fargo. Please go ahead.

Hi, this is Ronit Shah on for Michael. Just a question on the RingCentral AIR product. Just wanted to know how initial customer feedback has been since the launch, and how much is embedded into your $100 million new product ARR target for the end of the year?

Hi, Michael. So, the feedback as adoption has been very positive. Essentially, we have something, some quotes in our prepared remarks, and there's a lot more of that sort that shows that essentially we're improving productivity by 50% or decreasing need to be able to answer calls that now can be handled automatically, including deterring spam calls, and answering basic questions, which is much needed in a number of verticals. It kind of spans across healthcare, financial services, et cetera. And so that's the feedback, and adoption speaks to that in terms of baking it into the, we'll call the MPI new products. We're not disclosing individual products in there. I'll just suffice to say that that continues to be led by RingCX.

Got it. Helpful. And just a follow-up here. Are you seeing any increased discounting from competitors in the current macro environment? And if so, what's your pricing strategy been?

I would say that if anything, pricing has stabilized. I don't think that we're seeing increased discounts by competitors. There was a time when there was quite a bit of that. And right now it's, we're premium priced product for premium quality, and reliability, and competitors price accordingly.