Greetings, and welcome to RingCentral’s Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to our host, Ryan Goodman, Head of Investor Relations. Thank you. You may begin..

Thank you. Good afternoon, and welcome to RingCentral’s third quarter 2020 earnings conference call. I am Ryan Goodman, RingCentral’s Head of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Anand Eswaran, President and Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer.

Our format today will include prepared remarks by Vlad, Anand and Mitesh, followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements, including our fourth quarter and full year 2020 financial outlook and our assumptions underlying that outlook.

These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today’s discussion.

In particular, our business is currently being impacted by the COVID-19 pandemic.

The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time.

RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. 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.

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide deck, our GAAP to non-GAAP reconciliations, our periodic SEC reports, a webcast replay of today’s call and to learn more about RingCentral.

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, let me turn the call over to Vlad..

message, video, and phone, or what we refer to as MVP. Individually, each mode message, video, and phone is important. But seamless integration across these three modalities is what makes RingCentral a standout in the enterprise cloud communications space.

RingCentral MVP transforms transactional calls, messages, and meetings into a persistent system of record and engagement for all of enterprises’ external and internal communications needs. And RingCentral does so elegantly and effectively, as is evidenced by our recent recognition from the prestigious Academy of Interactive and Visual Arts.

We are proud and humbled to have won a W3 Gold award in the General Website Applications Services category, and two W3 Silver awards for Best Visual Appeal Experience and Best Visual Appeal Utility. But superior user interface is just the beginning.

It is the strength of our well-proven born-in-the-cloud platform that enables us to win with five nines reliability, world-class global coverage, deep feature capabilities, and an open platform. Building on these strengths, our innovation velocity continues to accelerate.

On the video side, last quarter, we released over 70 new and innovative features, including additional security controls, waiting rooms, film strip viewing mode, in-meeting device switching, network quality indicators, and the dark mode, amongst others. We continue to rapidly innovate and have a rich roadmap ahead.

We also enhanced our open platform with fully integrated high-volume SMS capabilities. This enables our customers to use the RingCentral platform for SMS order notifications and appointment reminders without need for third-party CPaaS solutions.

And importantly, we announced expansion of RingCentral Global Office across six continents and broadened our European platform presence to now include Germany with local data residency. This will allow us to better serve large, international customers.

COVID has been a tailwind for us as legacy on-premise solutions are now simply inaccessible by most employees. But let’s look ahead. In the post-COVID world, we don’t expect things to go all the way back to the way they were at the end of 2019.

Businesses are already planning for a hybrid world where part of the workforce will continue to work from home for the foreseeable future. RingCentral is uniquely positioned to address this new world of work via our differentiated ecosystem of strategic partnerships with major on-premise system vendors, as well as a number of leading global carriers.

To that end, we have some exciting updates that Anand will share with you shortly. In conclusion, our business has never been stronger, and we see tailwinds continuing.

Our well-differentiated, global, secure, reliable MVP platform and a unique ecosystem of strategic relationships give us preferential access to over 180 million users worldwide, or nearly half of the on-premise PBX installed-base. The cloud is winning, and RingCentral is winning in the cloud. And we believe the best is yet to come.

Stay tuned for additional exciting announcements on both the technology and go-to-market fronts. With that, I’d like to wish everyone a healthy and safe holiday season, and I will now turn the call over to our President and Chief Operating Officer, Anand Eswaran..

Thank you, Vlad. Good afternoon everyone. Operationally, Q3 was a very strong quarter. We are seeing strength across all customer segments. We had strong momentum with new logo wins and upsell, across our unified communications and customer engagement portfolio. Let me begin with a few highlights.

First, channel continues to be a key driver of our upmarket success. Channel ARR increased 59% year-over-year to $419 million. Second, our carrier partners delivered strong results that exceeded our expectations.

Third, for strategic partnerships, we are pleased with early success and the way Avaya and Atos are ramping on sales enablement and joint pipeline building. I’d also like to warmly welcome Alcatel-Lucent Enterprise as a new strategic partner. Fourth, our unified experience MVP proved to be an important differentiator for our top customer wins.

Of our top million dollar-plus TCV wins in Q3, roughly half cited integrated video, messaging, and phone as the key influencing factor in their decision to go with RingCentral. And fifth, we are seeing great return on our investments in innovation and geographic expansion.

Our open platform ecosystem and global reach position us to uniquely serve the needs of large, international companies. Let me just dive into the details. First channels. Our strong presence in the channel community provides us valuable customer mindshare at scale. And our channel network continues to grow at a record pace.

One example of a standout channel win in Q3 is with Cornerstone OnDemand, a global leader in people development solutions. Cornerstone needed to replace legacy on-premise systems with a global, unified communications platform.

Our high reliability, open platform, and complete MVP solution enabled this customer to deploy RingCentral globally across 20 countries and over 2,500 users, and additionally provided them significant savings. Second, our key carrier partners. Telus had a strong quarter with new logos and upsell.

We are expanding our partnership to include new market segments and products, including contact center. For AT&T, we continue to see strong performance, with new business up triple digits year-over-year, led by expansion into upmarket. This acceleration is a direct result of RingCentral becoming AT&T’s lead UCaaS solution late last year.

Building upon this success, I’m excited to share that, earlier today, we announced an expanded partnership with British Telecom. Under the new agreement, Cloud Work provided by RingCentral will be a lead UCaaS and CCaaS offering for BT business and public sector customers. On strategic partnerships, let me start with Avaya.

We continued our ACO roll-out with ramping customer wins, partner sales participation, and geographic coverage. Over half of our Q3 ACO new business came from upmarket customers. We are seeing robust ACO pipeline growth, and we are pleased to see some of the larger ACO wins in Q3 coming from targeted verticals like healthcare and education.

With Atos, the Unify Office by RingCentral was launched in August in seven European countries. We’re particularly pleased to see large-scale early wins, including an eight figure TCV deal in the first month of launch.

And we’re delighted to have Atos choosing Unify Office by RingCentral as its go forward solution, starting with 30,000 users across 20 countries. Our partner ecosystem provides us with a unique go-to-market moat. And our differentiated family of integrated UCaaS and CCaaS solutions creates lasting customer value.

A great example of an integrated UCaaS and CCaaS win was with Heartland Dental, one of the nation’s largest dental support organizations. This long-time RingCentral customer expanded to 10,000 UCaaS users and added its first 200 contact center users in Q3.

By adding RingCentral contact center, Heartland Dental will be able to run end-to-end analytics of patient calls from the contact center to their local offices. We also had a large win for Engage Digital, RingCentral’s digital customer contact center platform, with CNAM, a French government organization that manages national healthcare branches.

Importantly, CNAM is also planning to use RingCentral Video, or RCV, that in conjunction with Engage Digital, will provide CNAM with an integrated platform to connect with policyholders and healthcare professionals. Examples above and many others illustrate the importance of a global solution to our customers.

A big differentiator for RingCentral global office, which is now available in 6 continents, is full local regulatory compliance and security. This was key to a large Q3 win with a multinational software company.

Since first piloting RingCentral in 2019, this customer has expanded to 16,000 UCaaS users and over 1,300 contact center agents across 40 countries. Along with global expansion, another key initiative at RingCentral is meeting the needs of key verticals such as healthcare and education.

I’ve already mentioned an important win in healthcare and let me now share one in education. In Q3, we secured a 6,000 user win with the University of Tennessee, Knoxville. Our industry-leading unified MVP solution and mobile-first platform were all critical to meeting the needs of this university.

In addition, the integrations we’ve developed with the Canvas learning management system as part of our vertical market initiative was an important differentiator. While we have talked about our unique distribution network, global reach and an extensive feature set, it all starts with trust. Trust is the first principle at RingCentral.

And, in the current environment, reliable, secure, trusted communications are paramount. We are humbled that RingCentral’s solution has played an important part in helping COVID contact tracing in the UK. I am incredibly proud of our accomplishments this quarter. We are scaling the business effectively, with vision and discipline.

With a large market at an inflection point, the strength of our brand, technology platform, and unique partnerships give us confidence in our future. Now for the financials, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv..

strong momentum in enterprise with new logo wins and upsell, stabilizing COVID-related churn trends across the business and contributions from our strategic partnerships, boding well for the long-term growth and margin opportunity.

Starting with our enterprise momentum, our business from new customers grew triple digits year-over-year, a significant acceleration from recent quarters. Contact center is seeing a strong attach rate with our larger UCaaS wins and is an important driver of growth.

Our structural shift in upmarket is essential in fueling our continued land and expand strategy for years ahead. Case in point, new bookings from existing customers accounted for over 40% of upmarket bookings, demonstrating growing mindshare within the base.

Along with strong new business, we also saw our overall COVID-driven churn stabilize at similar levels to Q2 and was better than we had contemplated in our guidance. As to our partnerships, we are pleased to see early contributions from Avaya and Atos as well as strong results from our carrier partners, most notably from AT&T.

As more users from these partners come online throughout next year, we expect strong incremental contributions. These will, of course, first show up in ARR, before meaningfully contributing to subscription revenue in ensuing quarters.

Momentum from Q3 continuing into Q4 and with building structural tailwinds gives us confidence to deliver a strong finish to 2020. As an early read, Q4 is off to a good start, with robust new logo momentum along with continued strong pipeline generation and a healthy coverage ratio. With that, we are raising our annual guidance for 2020.

We are increasing our subscriptions revenue growth to 31%, up from 28% previously. We expect other non-recurring revenue growth of 10% to 12%, reflecting customer engagement shift from desktop phones to RingCentral apps on laptop and mobile devices. We are increasing our total revenue growth to 29%, up from 26% to 27% previously.

We expect non-GAAP operating margin of 9.7%, which is at the top end of the prior range. We are increasing our non-GAAP EPS to $0.96, up from $0.92 to $0.94 previously. In summary, we’re seeing multiple catalysts for our profitable growth to continue long-term. Macro indicators for churn and retention are stabilizing.

We are forging long-term relationships with our customers. Our diversified go-to-market strategy is bearing fruit, with early important wins from Avaya and Atos. AT&T and Telus are showing solid new business growth. BT is further doubling down with RingCentral as a lead offering. Alcatel-Lucent Enterprise is on track to ship early next year.

And further international expansion remains to be unlocked, especially with the help of our strategic partners. Also, expect to hear about additional new initiatives on both the product and on the go-to-market front that further expands our already diversified growth vectors.

Businesses are now shifting focus from stop gap fixes to long-term solutions. They require platforms that enable productive work-from-anywhere workforces that will persist in a post-pandemic environment. And RingCentral is at the forefront of that journey.

We are still in the early innings of the RingCentral story, and we are confident in our ability to thrive in this $50 billion-plus UCaaS market. With that, let me turn the call to the operator for Q&A..

[Operator Instructions] Our first question comes from the line of Terry Tillman with Truist. Please proceed with your question..

Hi, Vlad, Anand and Mitesh congrats on the quarter. Maybe Mitesh, first question for you just relates to the traction and the kind of programmatic approach, moving upmarket.

Maybe a little bit more financial color in terms of the million dollar deals in the quarter? And how are you thinking about fourth quarter in terms of exposure to large million dollar plus deals? And then I have a follow-up..

Sure, Terry. So yes – so question on how million dollar deals they're doing in Q3 and how Q4 is shaping up. So let's start with Q3 first, I'll touch up a couple of areas.

So for the million dollar deals in terms of the dimensions of the deal itself, so the average size of the deal and the duration, we saw an increase on both these dimensions, sequentially. That's one. And this trend was broad-based in terms of where the deals came from.

So 80% of these transactions or new logos, a channel accounted for more than 60% of these deals. And in these deals half of these deals had contact center, an element of contact center in them, so across the board, very broad strength.

In terms of Q4, how it’s shaping up, if you look ahead, look, the first month of Q4 we've – it was a – it's a fast start. We've built – we booked about twice the number of million dollar deals compared to what we had in the first month of Q3.

And in terms of the deal size as well, the total value of all these deals in the first month, it's up about four to five times more than the total value we booked in the first month of Q3. So all-in-all, we're seeing this momentum continue into Q4.

So overall, I feel that this whole structural shift off the RingCentral being a work-from-anywhere play is turning out to be a good catalyst for us..

That's great. That's great color. Thank you. And just to follow-up, I don't know if this is for Vlad or Anand, but like if you just do the simple math, which I'm good at simple math, I mean, you'll have several million plus users.

I don't know if you've given any update or you're thinking about giving us an update, but now you have access to 180 million users potentially with these strategic partnerships, trying to understand kind of how captive of an audience that is, what's their propensity to stick with their existing partner and use the RingCentral powered product, maybe versus going in a different direction.

What kind of signals, I know it's early still – but what kind of signals are you seeing around the stickiness of those relationships those partners have, in order to kind of keep them as a customer as opposed to going to some other cloud platform? Thank you, and congrats again..

That's a great question. This is the Anand. I’ll take the question. Great to talk to everyone here. So we feel pretty good about the stickiness across our partners. In fact, if I were to tell you, what were the top three highlights for me in Q3, I want to save it.

I would have started with partners across Avaya, across Atos, across AT&T, BT catalyst, and we had seen a record growth with our carrier partners on new customer acquisitions.

You're seeing record growth on upselling, and we are seeing greater momentum across all of the fundamentals, whether it’d be pipeline, whether it'd be large deals, whether it'd be our transactions quarter-on-quarter with Avaya and Atos.

So net effect, my answer to your question is our fundamental status, we feel pretty good about our strategic partners or carrier partners taking us to the next level on a joint partnership..

Our next question comes from the line of Bhavan Suri with William Blair. Please proceed with your question..

Hey guys, thanks for taking my question and let me echo Terry, nice job there. Let me start off maybe with contradict to Terry's question, which is upmarket. Let me go the other direction because you had amazing upmarket strength, really fantastic.

If I do some math to, the SMB market actually looked like it grew really, really well – really great strength in the SMB. Again, you're an SMB company. So Mitesh, just some color on what's driving that both from a go-to-market perspective and financially around the – sort of acceleration, what I gather in the SMB space..

Sure, Bhavan. Yes, we did see strength across the board and yes, you're right. SMB did perk up and did show an acceleration, again in the third quarter. So to set the table compares we’re definitely easier from last year – if you look at last year. And, but that said, despite the compares, a couple of things are happening under the hood.

So I could touch upon three or four dimensions here. The first one is that we are seeing a very strong traction in e-commerce, that's one. Second is the recent branding we've done and RingCentral becoming and name of work-from-anywhere is taking off. The third dimension is a contribution from Avaya and AT&T and some of our other carrier partners.

And the fourth one is, churn. Macro trends are stabilizing. So all these four things came together to go for a perfect storm for SMB to take off. Now, if you look at what it means is that it's a stronger motion in SMB with a lower CAC, and this highly profitable SMB business is now helping fuel the higher lifetime value upmarket business.

So it's starting to create a virtual cycle more and more for us..

Yes. The churn – the stabilization is huge, it as good impact, I totally get it. That's good to hear. And my follow-up, maybe for Anand or Vlad, you touched on sort of some tailwinds from coronavirus. But you're not benefiting the way someone like a Zoom is, right.

It hasn't been from work-from-home, but the way I think about it is, the sale that RingCentral has is much more of a centralized sale. You have to replace PBX, you have to replace stuff that's sitting at people's facilities.

And so I would think of the back scene almost as a tailwind in lot of people and not going to go to work full time that sort of moved back the office to focus on more traditional initiatives would be a tailwind.

Am I thinking about that, right? Or is that sort of not going to play at home thinking about I'd love to get sort of your thoughts on that idea that, if you will do start going about the office, maybe start think about more traditional implementations and projects and ripping up these old phone system, that's going to benefit you in that trend vis-a-vis COVID where that people may have been reticent to do that.

Just to understand how you guys are thinking about it and what you're seeing in the pipeline?.

Let me take this maybe, and you can add detail. Now look fantastic question or this is very timely. And look, as you all know RingCentral grew nicely before COVID. We are growing nicely during COVID and we fully expect to grow nicely after COVID.

And just to set the stage, look, we are not – I'm not pointing fingers at anyone, so please don't take it that way. But we are not at flushing the fan kind of stock off what the day just riding this monument. We’re not a work-from-home services, we’re a work-from-anywhere service.

We’re now – we went on the road exactly seven years ago, seven years, and one month for IPO road show. That was message to then, which was work-from-anywhere, mobile workforces, global workforces, distributed workforces and major mega trend of mobility and widely available and affordable broadband. And all of those are still in place only more so.

And you can argue that, we’re advent of some very near-term technological advancement like 5G, for example. For example, both mobility and broadband will get yet another sudden down [ph]. So and look at the high level, what good for the work is good for essential. We are here to solve the real problem.

And we are, in this March, as we hope vaccine walks and we hope the world will be opening up for sure, it will present additional opportunities as budgets will be hopefully becoming a little bit more relaxed. And one thing we have clearly seen is that work-from-anywhere really works, okay.

And even in our people at market can see, there is a core belief that even with the vaccine and hopefully gets total eradication of this virus, many people are more productive working from home, not being in the office. So that will remain.

But to tell you what, even those people who are in the office, call it the 100% pre-COVID world cloud was still thinking over. Cloud was still winning, RingCentral was still winning the cloud. All of our core partnership were executed before COVID. And the underlying foundation is still here, I would say even more so.

It still makes no sense to light up easier and on-prem system or a hybrid system. And again, we really see more and more of a hybrid reality. This will become the deal. It just makes no sense to do that with traditional legacy cloud zone.

And I have to say, RingCentral, as of now, is uniquely positioned to penetrate into this $400 million plus I would say, plus, $400 million to maybe even a little bit more $500 million is cloud-based or long time users, because we do have a preferential access. And this puts in good lively to $280 million of those $400 million or so.

So as said, to be involved with I was thinking about things. Anand, I don’t know, if you want add thing or Mitesh..

You said it all..

I appreciate the color of last. Thanks again..

Our next question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question..

Yes. Thanks.

Just one question from my side, just wondering if you could qualitatively describe to us where are we in the ramp of contribution from the partnerships of via Atos and Alcatel-Lucent, and where – which quarter do you think we're at kind of fully ramped, full contribution, getting the full benefit from all of those partnerships?.

Yes, I’ll take that Sterling, which quarter – we are in the very, very early inning. So with ACO and Atos, even though we saw some good traction in the Q2 and Q3, it is far, I mean via just really literally getting started. And I don't think it's going to be any one quarter that will serve as an inflection point as such.

It's going to be more a flywheel that'll keep on going to just link back to what Vlad said, 480 million seats right now, we are sitting over call it roughly 2.5 million, 3 million seats.

There's a long journey ahead and the way it's going to layer on, right, Sterling is going to start support to us show up in ARR and then over subsequent ensuing quarters, it'll be ratably prospective to net subscription revenue. So it's going to be a multi-year compounding growth journey for us..

Got it. Thank you..

Our next question comes from a line of Brian Peterson with Raymond James. Please proceed with your question..

Hi gentlemen, congrats on the strong quarter. So the first one for me, I know you guys haven’t guided 2021, but we're going to get the question.

Any real high-level thoughts on how you're thinking about next year?.

Yes. I’ll take that. Sure, Brian. So yes, we've not provided specific guidance for 2021, which is, how we do it. We provide it in the February quarter. We do have a lot of things to be excited about going forward for our durable growth. So I’ll catch up on, I would say, three, four points.

For the first one on the customer front, right, the relevancy of UCaaS is now front and center. We saw an increased customer mind share with our new logos up over 60%. Vlad touched upon the go-to-market partnerships with Avaya and Atos are ramping, which I mentioned to Sterling.

ALE will ship next year and all our carrier partners are strengthening with AT&T, BT and the Telus that's point two. Third one, on international, it's an opportunity ahead of us. That's just beginning to be unlocked with our mix just over 10%.

And the fourth point, I'd say, on the tech front, our base of innovation is continuing and then we are quickly becoming a one-stop shop for all modes of tightly integrated communication. And so overall I feel – we feel very good about how we are going to end the year and setting it up for very good visibility into 2021..

That’s good color. Thanks, Mitesh. And maybe one follow-up, obviously, the AT&T results were really strong this quarter. You mentioned the BT expansion, as you're looking to expand into new markets. How should we think about the opportunity to potentially expand the carrier relationships going forward? Thank you..

That's a good question. And I would say the extension is two-fold. One is there's an opportunity to expand with the relationships we have today, which is AT&T, BT and Telus. As you can see, we’re already expanding across geographies and across portfolios with AT&T, with BT and Telus. So that’s one vector, which you will see happen.

And the other vector, you will see happen is adding new logos as well. And that's going to be the roadmap of the journey ahead for us..

Great. Thank you. .

Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question..

Thanks and good afternoon. You're showing acceleration here. Some of the partnerships you've struck with the likes of Avaya and Atos have certainly grabbed the attention of the industry.

Mitesh, you just answered a question there, but is there anything else you're able to provide to help us understand how much those partnerships may have contributed to results here in the quarter? And anything else we should be thinking about going forward as well there in terms of timeline, whether it's added functionality or expansion into new regions that's yet to come?.

Yes. All of the above, and I wouldn't say, look, but ACO, they are very happy with the progress, the way the business ramp, right? We saw a positive momentum in the number of transactions with the customers, the seats we won, and more importantly, Michael in the pipeline we're seeing right now. That's part one on ACO.

Part two on ACO is if you look at the upmarket deal, we had several upmarket deals, including multiple million dollar DCB wins from Avaya itself. So that's on Avaya. Atos is, I don't want to jinx it.

But we just shipped in Q3 the product and right out the gate, we had an eight figure deal in the first month of shipping, so that promise of international expansion along with upmarket is happening for Atos. And look what's happened is in terms of the acceleration.

It was strength of course, in ACO and Atos, but it was really a strength across the board for all – from all our GTM motion. I think as these partnerships along with, I'll get the loose and start to ramp next year. We'll be able to see a sustained subscription revenue growth for four years to come, Michael..

That's all clear. Thanks. Nice job to the team..

Our next question comes from line of George Sutton with Craig-Hallum. Please proceed your question..

Thank you. Mitesh, you mentioned that you're becoming more and more a one-stop shop and I wondered if you could quantify that a little bit in the sense of the same customer growth number..

Yes, sure. We saw – one-stop shop being, I was saying – I'll do it in two dimensions. Let me answer your question first. So we saw very good net retention from all our customer base. It was very steady and churn stabilizing. That's part one.

Part two, we're also seeing, George, customers are buying multiple products from us in terms of the contact center, we saw in our million dollar TCV deal, about 40% or 50% had an attach rate to contact center. So that's part two.

And in terms of, I would just link back – link to the technology part here, what it would be – what I meant at the one-stop shop in the previous response is, just from UCaaS to see CCaaS through the customer experience, to this newly launched SMS programming that we have the CPaaS also and then the video product, which is ramping.

So that's where, what I meant by a one-stop shop where call it like a salesforce.com end-to-end for customer journey..

Got you. So relative to BT, obviously that's been a relationship for a few years.

Could you just give us a specific sense of what's new with this relationship now?.

Absolutely, so with BT, what we have announced is that Cloud Work provided by RingCentral, which is our joint product will be a lead UCaaS and the lead CCaaS for BT business and public sector. So one, we’re doubling down on our partnership. Two, we’re expanding the scope of our partnership with contact center. Three, we’re going significantly upmarket.

So we are going across their market segments as well. So this is going to be a strong partnership for the next years to come..

Great. Thank you very much. .

Our next question comes to the line of Nikolay Beliov with Bank of America. Please proceed with your question..

My first question is for both Vlad and Anand.

Can you please comment on number one, how integration with Microsoft teams is going and is Microsoft teams to become an effectively a go-to-market channel for RingCentral? And secondly, what win rates are you seeing against Zoom Phone and how often do you run Zoom Phone in the marketplace?.

Yes. No, it’s a good question. So as far as Microsoft teams, yes. I mean, we announced – the direct driving to Microsoft teams last quarter. The pipeline is building solidly. And we feel pretty bullish about tapping into the Microsoft installed base because this gives them the access.

They have strived for a best-in-class enterprise grade cloud phone systems. So we feel pretty good about that. Now when we talk about Zoom Phone, I'll say this, we don't – these are not metrics as in how many views of – these are not metrics we have generally shared in the quarter.

But I'll tell you this, which is one, I tell you that we have expanded our UCaaS market share in Q3. So that's the first thing we'll tell you. The second thing, we'll tell you is, we have added substantially more seats than the numbers you've seen from Zoom Phone, substantially more. And double click or add more color to it.

Obviously, all of our seats are paid seats and our ARPU is continues to be pretty steady at this point in time, very steady.

So based on their VR, I mean, we have a tech mode, which we feel we’re widening every quarter on the phone, you have go-to-market mode, especially with the access to the 180 million plus seats of the 400 million plus people and users on-prem. We see go-to-market mode is pretty wide.

We have an ecosystem mode with 5,000 integrations and 50,000 developers. So net effect, we feel we are extending the lead every quarter..

Thank you. And my second question is for Mitesh. Mitesh, if you can [indiscernible] sign the two pieces some of the metrics, you disclose today together. Is that also ARR accelerated to 34% from 33%? Your capital is over robust pipeline, business from new customers is up 60%, enterprise logos up triple digit. Average deal size is up for the large deals.

The first month of Q4 is much better than the first month of Q3.

So what could get in the way of ARR and not continuing to accelerate into Q4 and next year, and is the expectation at this point, based on AT&T growing triple digits and all the partnerships? Mitesh, you can share with timing between pipeline, ARR and subscription revenues, and how they're going to progress over next few quarters? Thank you..

Okay. Sure. You packed in a lot there. So I would say this, Nikolai, structurally, we are seeing a lot of tailwinds, including the pipeline building and Q4 off to a good start. We always are prudent in the way we set our guidance. And because you don't really know what you don't know, what could derail you.

But from a overall fundamental point of view, I think we are – we feel really good about where we are in this journey to transfer all these on-prem seats to cloud..

Got it. Thank you. .

[Operator Instructions] Our next question comes from the line of Samad Samana with Jefferies. Please proceed with your question..

Hi. Good evening. Thanks for taking my questions. Yes, I know the company mentioned that, the MVP platform 50% of million dollar plus deals customers citing, the integrated suite.

I’m curious if, what type of attach rates you’re seeing for RingCentral Video, and if there’s any notable call-out on ARPU for customers that are attaching the full platform versus maybe ARPU a year ago, when you didn’t have your own video offering..

So the way we look at it is, we do not sell the product unbundled, we sell RingCentral Office, which contains all modes of communication. So video is attached to 100% of our – I think Vlad called out in his prepared remarks, we did 60% growth in new customer acquisitions.

Every one of them basically comes with message, video and phone, which is the way we look at persistent collaboration, so every one of them had it. We’ve had substantial growth in usage quarter-over-quarter, year-over-year across all three modes. And that’s probably what I would say. I’ll transition it to Mitesh, he wants to make a comment on ARPU..

No, I think you said it right in the previous Q&A, Anand. But Samad ARPU has been holding very flat and steady, so no trends to call out an ARPU expect the fact that, despite all this competitive rhetoric you hear, we’ve been holding our own in terms of ARPU and it’s – we are able to demonstrate value with our customers with a solid product..

That’s good to hear. And then maybe just a follow-up on the SMS service. I think a lot of people were pretty excited about that. I’m curious how we should think about the pricing model for that. And is that a preview for adding more CPaaS like features into the platform in just pushing forward. Thanks again for taking my questions..

Yes. So, end of the day for us, this is all about customer ask on what features would they need next. And the high-volume SMS launch, I mean, it was a big deal because as you know, when you get notifications from your dentist for an appointment reminder, it comes from a weird unknown number.

And so essentially what this was about was a huge customer ask of using the ability to use their business identity will actually send an SMS. And so it’s tightly integrated into our application into a platform and you can expect us to actually have platform open ecosystem and integration have been a key feature for what we do.

So you should expect us to go further down on this path in the near-future..

Great. Congrats on the really good results..

Our next question comes from the line of to a lot of Meta Marshall with Morgan Stanley. Please proceed with question..

Great. Thanks. Just wanted to get a sense on the sales cycle that you’re seeing with some of the partnerships and whether there kind of similar times to what you would have seen normally. And just, how you judge, how much of the new partnership pipeline is kind of substitutional versus additive. Thanks..

Yes. I mean, we all look at it as most of the pipeline from the new partnerships with additive that was the entire reason why we – we are basically extending our customer reach through this partnerships.

If I look at pipeline, the pipeline, the sales velocity we see and the close rates we see from these new partnerships are all pretty much consistent with what we expected to see and we see in our direct business and what we do with the channel, anyway, it’s fairly consistent.

And that’s what we’re excited about it, which is, we are able to extend the reach through our customers into new countries, new geographies and new customer segments..

Great. Thanks..

Our next question comes from the line of Taylor McGinnis with Deutsche Bank. Please proceed with your question..

Yes. Hi, congrats on the quarter and thanks for taking my question. So it sounds like large deal activity is really strong so far in 4Q yet. When I look at the subscription revenue guide at the high end, it’s only 28%, which is slightly higher than I guess what we saw the last two quarters.

So I understand that it takes time for these to flow into revenue.

But maybe can you talk about some of the assumptions embedded in the guide? And how we should think about this activity falling into revenue over time? And maybe on that, I’m curious how much of the guide is driven by stabilizing macro trends versus starting to see some of these strategic partnership or large deal activity materialize in the revenue..

Taylor, it’s Mitesh. I actually – my line dropped off.

Can you summarize your question again for me?.

Yes. It was just – you talked a lot about in the beginning of the call about seeing good large deal activity in 4Q yet. The subscription guide is only slightly higher, so at the high end 28% and like the mid-20s that we saw the last two quarters.

So I’m just curious, could you maybe talk about like some of the assumptions embedded at the guide and how much that might be stabilizing macro trends versus starting to see some of these strategic partnerships or large deal activity fall in the revenue?.

Yes. Look, on the guidance, we always have taken a prudent stance on our guide. So this quarter’s guide is no different. We are seeing key elements from all sides and macro is stabilizing. So it’s hard to – for me to quantify exactly each and every assumption we’ve made there.

But needless to say that we feel really good about ending the – end the year very strongly, including Q4..

Got it. Thanks..

Our next question comes from the line of Will Power with Baird. Please proceed with your question..

Okay, great. Thanks. Yes. Congratulations on the strong results. Kind of want to come back to the strong growth you’re seeing from new customers up over 60% year-over-year. Seems like a really nice kind of leading indicator.

I just want to get a little more color as to what you think is driving that? How much of that’s the new partnerships, distribution broadly, is there COVID pulling in there? Maybe just a little more color on the key drivers and new customer acceleration of growth?.

Yes. And this goes back to the previous question that Vlad answered. Essentially the transition to the cloud has always been driven by one simple thing, which is the mobile and the distributed workforce. And so all COVID has done, sort of shine a light on the limitations on on-premise infrastructure.

So now businesses are realizing that they need to basically get on to the whole work-from-home transitioning to work from anywhere, which is what we’ve always talked about is here to stay. And so businesses are realizing that they need to get going on a cloud communication solution.

So why COVID is sort of help to shine a light? I think this is the structure help which we will see for RingCentral going forward. And that’s what is resulting in this extremely strong new customer acquisition..

Thank you..

Our next question comes from the line of Ryan Koontz with Rosenblatt Securities. Please proceed with your question..

Hi. Thanks for the question and continued great progress there in go-to-market. Now the question is, do you have any concerns about oversaturation of these channels at all in terms of the way they compete and how do you get strategically aligned with channel partners that are trying to compete on a global basis? Thanks. Appreciate the comments..

One natural answer to that is no, because if you go back to what we’re doing in these partnerships, we’re converting the installed base to a cloud-based communications platform, which is RingCentral. And so the first step is, the installed base is the install base, which is different and distinct for each of these strategic partners we have.

And given that alert is 10 million, 11 million, 12 million users on the cloud and 100 million plus on-prem. I think we have a long runway before we probably use the word like oversaturation at this point in time.

And then add the vectors of the carrier partners, and then add our channel partners, which Mitesh called out, we’ve had a very strong channel partner influenced the quarter, the quarter is growing 60%. So as the channel partners, the back strength continues. No, I feel pretty good about a long runway of continuing the momentum..

All right. Thank you..

Our next question comes from the line of Alex Kurtz with KeyBanc. Please proceed with your question..

Hi. This is George Kurosawa on for Alex. Thanks for fitting me in here. I know it’s still early days, but do you guys have any sense or early read on the upsell pipeline? And if there are any implications for growth in the second half of 2021? Thank you..

I’ll answer the first part of that. And so what I would say is, I think Mitesh called this out in his script as well, which is, new business from existing customers, especially as you look it upmarket in Q3, it was 40% of the total upmarket business.

And so that should tell you the trends we have seen, and that is the opportunity, the installed base as everyone basically creates a work from anywhere solution for all of their employees..

Yes. And in terms of the Alcatel pipeline, I think that’s what your question was for second half of 2021. Look, it takes about three to six months after the product is shipped to ship to – for the partnership started showing fruition.

So think about ALE being in other vector, getting layered on in the second half, at least in the ARR site, and then continue in momentum into 2022..

Got it. Thank you very much..

Yes..

Our next question comes from the line of Siti Panigrahi with Mizuho. Please proceed with your question..

Thanks for taking my question. Mitesh, right now you’re seeing a huge opportunity for growth and you’re investing in distribution capacity as well. So I want to ask you, how are you looking at balancing between growth and profitability going forward? I mean, what’s the framework you’re looking at in near-term and long-term..

Sure, Siti and welcome to the debut RingCentral call for you. So thanks for picking up coverage here. Overall it’s been the same balance, right? It’s profitable growth for us. And if you look at what that means in terms of the business model, our inherent recurring margin on deal of our overall business is north of 30%.

If you now layer on partnerships, like Alcatel, Avaya, Atos that further expands the operating margin profile of the company because it’s higher tech, higher LTV at a lower CAC. The third-party layer on is our own products like video, which for which will have the gross margin profile when we all – when we migrate our users to our own platform.

But all the dimensions all in all will lead to a steady state margin of 35% to 40%. For RingCentral now what was happening is, for example, SMB right now is at that scale and we are reinvesting these dollars into the future of the business, the future of growth. So overall we’ll be showing 40 to 50 basis points of operating margin expansion.

That’s the way we’ve been doing it for multiple years. But under the hood, there’s a lot more inherent profit dollars that’s getting reinvested..

That’s good. And quick follow-up on the international opportunity. I think right now, it’s single digit, high single digit percentage globally. But when do you think it will be significant enough for you to call out in terms of growth contribution..

Yes. So international is a key lever, right? If you look at a business our size over $1 billion, usually the international mix is much higher. This is an opportunity for us. So overall, I think in the future, in the next year or a couple of years, especially as our other partners ramp, international mix will start to change.

Right now it’s about 10% of our revenue. And over time, by the right point, we’ll start calling out markers as we hit certain milestones..

That’s great. Thank you, Mitesh..

Yes..

Our next question comes from the line of Rich Valera with Needham. Please proceed you’re your question..

Thank you. Thanks for squeezing me in here. Great progress on the channel, obviously. I had a question on your direct salesforce. First, Mitesh, I think last quarter, you said you hadn’t baked in any productivity gains into your forecast.

And I’m guessing, since things were strong as they were that maybe you saw some? And secondly, just wanted to get your sense of the significance of your direct salesforce and how much that’s going to be scaling up going forward versus your channel initiatives and what that balance might be going forward? Thanks..

Yes. So I’ll take that.

And this is what I’ll tell you, again, these are not metrics we specifically publish, but as I look at the direct salesforce, we had meaningful update on more sales fundamentals, whether it is sales velocity, close rates, sales rep productivity and percent of reps who actually attain their quarters, we had meaningful updates across all of them.

And the second thing I would say, as it relates to your second question is, I’ve never looked at it as direct versus partners because we basically – one of the things which has made RingCentral the company it is, is harmony across all channels. And the reps work hand-in-hand with the other strategic partners.

And so it’s never versus, it’s always basically helping our partners accomplish their full potential. So that’s the way they look at it, which is why these multiple routes to market all come together, meaningfully without much conflict..

Our next question comes from the line of Peter Levine with Evercore ISI. Please proceed with your question..

Okay, great. Thanks for squeezing me. Congrats on a great quarter.

So when you’re going after these bigger deals, can you give us some idea of how your customers’ are having to make decisions about maybe taking budget from other areas and giving it to you? Or where they’re pulling it from? I mean, obviously, the environment, at least – some of these factors will kind of stay with us for some time and clearly you’re taking wallet share.

But we’d love some color around that. And thanks again, and congrats for the quarter..

Absolutely. That’s a great question. I think the way I look at it as we engage with our customers, this is what I see. The first thing I see is, business communication has become an existential priority.

It was always important, but with the pandemic and with the need to suddenly transition your entire workforce to be remote and in this instance from home, I think many companies were caught off guard.

So business communications transitioning their on-premise infrastructure to the cloud has bubbled up to be a number one, number two, number three priority. That’s the first thing. And when that happens, redeployment of resources and investments have to happen in line with that. This has become a board conversation, not just an IT conversation.

That’s the first thing I see. The second thing I see is, people are not just solving for today, which is everybody is remote. People are now actually taking a step back and solving for where the puck is going, which is very soon hopefully the pandemic will end.

People will come back to the office, not in the same way, it’s still be people working remotely and people in the office. So people are starting to solve for that, which is where the persistence of communications, we’ve always talked about MVP, message, video phone coming together.

That’s the persistence of communications and collaborations, which allows employee productivity to get to the next level. They’re solving for that. And so those are the two instances why we feel we are getting the traction we are as a company with our customers..

Our next question comes from the line of Jonathan Kees with Summit Redstone. Please proceed with your question..

Great. Thanks for squeezing me in. Just wanted to ask you, I guess, more of the competitive environment. I know you guys kind of touched on there and there was some references to – you were making – you have a greater market share. That makes sense.

Your growth rate is certainly substantially greater than your peers, even against clashing of hands peers there who are making noise about their UCaaS solution.

I guess, one is, to get a double click on that further and just see, in terms of your cloud peers, are you seeing the same ones? Are you seeing new entries? What is your win rate like against your cloud peers? And have you won against them in embedded cloud-base versus the premise space? Just more details on that. Thanks..

Yes. No, it’s a great question. Actually, we our win rates uptick slightly ever more against the cloud peers as well. And it goes back to two or three simple things, which is enterprise grade matters, so we have been working to extend that enterprise feature depth, our geographic expansion. And so those two things, matter a lot, so that’s one.

The second thing I would say is, again, I just talked about the persistence of communication and collaboration, with message, video, phone all modes coming together, that matters. And that’s been important. The third thing, which we haven’t talked about much on this call is the differentiation with contact centers.

That’s one more reason why we better win rates, again, some of these cloud peers in addition to the on-premise vendors. The fourth thing I’d again call out is the strength of the open platform and ecosystem 5,000 integrations and 50,000 developers in our ecosystem.

And finally, we are one off, if not the only company to basically continue our path of the liability and five nines from an estimate standpoint. So bringing all of that together, we feel that we have only see an uptick and continued progress in our win rates..

Our next question comes from the line of Matt VanVliet with BTIG. Please proceed you’re your question..

Yes. Hi. Thanks for taking my question. I guess, just wanted to dig in a little bit in terms of what you guys are seeing from market – from wallet share of your existing customers.

The 2020 cohort that you’ve signed this year, starting up for kind of a larger project, initially how much of them against recent? And how much of your own CPaaS, or I guess SMS and video projects, you feel like it’s helping you expand more into that potential wallet share..

Yes. It’s a great question. The first thing was always, it’s the full life cycle, right? It’s the genius of the end. So acquisition matters and that’s one of the first things we shared with you, the greater than 60% growth in new customer acquisitions. Once you get new customers, then creating value for them.

So they actually then go through the next cycle, which is upsell. And for us, that’s the beauty of our product portfolio upsell happens in many dimensions.

That upsells where they’re extending the footprint just for the same UCaaS solution across the customers and that’s where I shared a number which is, new business from existing customers, for example, in the upmarket was almost 40% this quarter. So that’s great.

The other vector is basically UCaaS customers upselling and extending further into CCaaS customer experience.

And that’s where we actually bring in everything from our partnership with InContact to our own products, engage voice and engage digital because we are able to thread all of them together to create a digital first contact center experience for the customers. So there’s that as well.

And then thirdly, obviously, we are – the progress we have made on all modes of communication message, video and phone. I mean, video, we launched 70 plus features in just the last three months across a whole bunch of things from security to reading rooms and so on and so forth, the quality.

And so I think all of them are coming together to actually make this a meaningful mode as customers consider what their right communications and collaboration platform needs to look like..

Great. Thank you..

Our final question comes from the line of Catharine Trebnick with Dougherty. Please proceed with your question..

So thank you for sneaking me in. My question is, you said you didn’t see much of a change in the sales cycle, but are you seeing a change in how things are procured, especially more expansion aligned through e-commerce sites, more digital marketing, maybe driving the sale? Thanks..

Absolutely. That’s a great question. Actually, even on the sales cycle, what I’ve said was actually we’ve seen meaningful uptake across all the sales fundamentals. Our velocity is steady, is in steady acceleration. Pipe is meaningfully up and expanded from last year. So that’s one side of it.

The other side of it is, you’re absolutely right, Catharine, which is, we saw an explosion on e-commerce, this is what Mitesh referred to. And we’ve also seen an uptick on e-commerce going further up from a market segment standpoint as well.

So companies are making quicker buying decisions and we also see engagement with lines of business, as they think about what the right engagement platform needs to be for their employees. So we are seeing, digital channels increase in prominence. We have seen lines of business increasing prominence as well.

And then finally, we are seeing verticals asking for how to make sure that we can actually have nonprofits engage differently. We can help hospitals and healthcare workers engage differently. So that’s the last thing we’ve seen. So across the board, that’s fair.

We feel RingCentral is positioned so well to make a difference across verticals, across these multiple channels and across all market segments..

The only thing I would add Catharine to what Anand said is, I did not use the word explosion, he did, but I guess COOs and CEOs are entitled to use such words, not CFOs..

And with that, this concludes today’s question-and-answer session as well as today’s conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..