RingCentral Stock

All right. Good afternoon, everybody. Jim Fish with Piper Sandler. And now we start the afternoon post lunch. I hope you had a good meal there. With us, we have Vaibhav from RingCentral. Thanks for joining us.

Thank you for having me here. My first time. So looking forward to the conversation today.

Yes. Well, I mean, we turned up the temperature for you outside. So a little hot out there now. But one of the questions that we're asking everybody just to kind of kick things off is just the health of sort of IT spending and what you're seeing. And you guys have this unique view in the sense of you have some large customers as well as down at the SMB kind of level. So I guess what are you seeing on IT spending? And how is AI impacting how budgets are flowing?

Yes. No, that's a great question to begin with. So look, IT spending from what we are seeing remains healthy, is growing at the macro level. I think the color underneath is AI is definitely becoming a larger share of that budget, the existing budget and incremental budgets, if you will.

I think what we are seeing is that customers are incrementally looking at solutions where they can drive real ROI. I think customers are beyond the experimentation phase. So they are looking for solutions that can drive outcomes, drive productivity, they can measure ROI.

And then the third trend that we are also seeing emerge is customers want to buy AI from existing software vendors versus having to put point solutions together. And those are some of the trends we are seeing in the business, frankly.

Our demand is stable. No material changes in sales cycles. We anyway play in the communications and customer engagement space, which is mission-critical for our customers and AI is rising to be a priority within that. And that plays well into our strengths because for us, AI is natively integrated into our communications platform, and we are applying it through the entire journey of the communications life cycle. So overall, trends remain healthy, demand, sales cycles are remaining healthy and customers are increasingly focused on buying AI.

Yes, makes sense. I want to get to AI in a few minutes here. But one of the things that seemed to pop up here on the sort of off-calendar earnings cycle was this notion around SMB top of funnel. And like I said, you guys have a decent viewpoint into kind of how SMBs are thinking about it. What are you seeing in terms of how SMBs are acting differently potentially, how you are approaching that side of the market in terms of website traffic being impacted by AI and the sort?

Yes. So certainly, there's an evolution in terms of how customers are discovering and evaluating software now. With the lens of AI. So we are evolving our kind of investments and broadening our investments from the traditional, call it, search engine optimization.

And we are investing or reallocating spend into making branding and content more available for AI-led search. Having said that, in our case, we have a multifaceted kind of customer discovery process and motions wherein we go through the -- obviously, the search engines and the AI kind of tools, but we also have a direct motion.

We have a large customer base where we can go and upsell, and we have a large network of channel and global service carriers who help us get to the customers. So in our case, while we are evolving the way we are discovering and reaching the customers, we also have a multifaceted motion. And in fact, the SB portion of our business is growing in double digits. There is strong demand, and it's a highly optimized motion for us. It's almost a Rule of 40 business.

Got it. One of the more exciting parts, I think, to the RingCentral story here is you guys have 600,000-plus customers. And meanwhile, you have a couple of new, I'll say, toys to play with between CX or ACE. How should we think about that opportunity, that white space opportunity within your installed base? What sort of penetrations you and the team are kind of thinking about, not just for this year, but over kind of the next couple of years here?

Yes. No, we are very excited. Look, one of the metrics we had disclosed at earnings was the cohort of customers or ARR of customers that have bought at least 1 paid AI product is 13% of the total base. So our total base is, call it, $2.5 billion plus. So that mathematically gets you to $350 million odd.

So I guess there's a couple of points there. The first point is we are very, very early on. It's only 13%. So by definition, there's a long runway to be had. We are still in the early innings. The reason we provided that metric was to show the AI penetration, the customer adoption.

And to my earlier point, I think what we are seeing is customers are moving beyond experimentation now. They see real value in our products. They see value in AI being integrated and tethered to a platform versus having to stitch together multiple point solutions, if you will. So they are seeing the benefit of that, and therefore, they are willing to pay for it. And within that cohort of customers, we are seeing higher net retention rates, higher ARPUs, and it's being driven by the AI uplift for the most part. So we are seeing that.

So there's a lot of runway ahead of us. We are still very, very early on. And while AI is contributing to our growth today, it's growing off a small base, and it's small relative to the overall size of the business. So our expectation and where we are working very hard is to come out with products, innovate and come out with a product suite that can address real use cases for customers so that, that AI adoption grows. And over time, it will become a more meaningful contributor to overall growth.

Yes. Is there a way to think about how much AI is an uplift here? And really, the crux of my question is we're getting this feedback as to like if you take the 13% versus this point last year, the rest of the business seems still growing, but kind of flattish. So how much of an uplift are we getting there? And additionally, how do we balance the growth between sort of AI versus that core business?

Yes. So both sides of the business are growing. The core business is growing in line with the market. We are continuing to maintain our #1 market positioning in the UCaaS space. And then AI, the AI product portfolio is growing faster than that. It's a question of mix.

The core product is about, call it, 80% of our business. And the AI products are still relatively young and still early in their kind of contributing cycle. So as the -- as adoption grows, as they become a bigger part of the mix, they have the potential to take the growth profile of the company up.

Got it. And so how in your role, are you trying to balance the sort of growth initiatives versus kind of the margin uplift? Because you guys have done arguably one of the top quartile in terms of software expansion of margins in the last few years. What's going on between the balance between the 2? How are you using AI to sort of help yourselves internally? And what's left to optimize in the business?

Yes. So there are multiple questions there. So let me start with, we absolutely look at it as the power of that, which is -- we want to grow the business and expand operating margins and free cash flow at the same time. What's helping us do that is our recurring margin business. We have a very scaled recurring margin business that is producing 80% gross margins.

So that allows us to reinvest back into the growth of the company. And then there are structural drivers to expand margins and free cash flows over time. Now where we are investing in growth is clearly AI and the new products, wherein one of the statistics we provided is we are investing over $250 million in R&D, a large majority of which is going into developing our AI products. So that's an example of where we are investing in the growth because the market opportunity is so large.

The flip side to it is we also make sure that when we are investing the dollars, they come in with -- we are focused on returns as well. So everything goes through a scrutiny of we look at metrics like time to payback and LTV CAC and customer lifetime value. So we are not just making investments. We are making bets on investments where we will get returns. So that's the first part of your question.

The second part is where can we get more? How much more is left? Look, I think there are structural drivers in the operating margin profile of the company. For every $100 of revenue I'm adding, I'm getting $80 of gross margin and the fixed cost base is not increasing in the same proportion as revenue. So like a simple way of saying it is there's operating leverage in the business.

And then we are also being very disciplined in terms of our cost profile, headcount spend, vendor spend. And we are increasingly -- that's the third part of your question, is we are increasingly using AI across the company. And this past quarter, we made an announcement wherein we did a pilot with OpenAI. And we have over 2,000 engineers. All the engineers went through a case study alongside OpenAI, and everybody is trained in that organization. So over time, as AI takes hold, that will be an incremental driver of operating margins.

Yes. Maybe sort of sell-side ask a tripart question there, by the way. But you guys -- speaking of partnerships, you guys actually just expanded your relationship once again with NiCE on the contact center side.

Why the decision to kind of go back to that route given you guys were looking at potentially the direct economics benefit with RingCX. And how do you think about now just the opportunity for RingCX within your installed base?

Yes. I think the -- so one way to frame the conversation is -- so when you look at communications now, the idea for us is to have a complete customer engagement platform.

And what that means is being able to address all forms of communication, whether it's human to human, it could be human to a non-dedicated agent. It could be human to a dedicated contact center agent or it could be human to an AI agent. And the one trend we are seeing is customers are increasingly kind of looking for a kind of integrated platform wherein they can orchestrate all these communications across a singular platform, if you will.

So within that umbrella, RingCX is absolutely a strategic priority for the company. Where it plays well is in situations where customers are looking for a simpler solution. It's simple to deploy. It's easy to use. It's priced disruptively, and it is AI native.

So there are a lot of use cases wherein customers don't need all the bells and whistles of a full-on contact center. So that's where the product is doing well. And as you rightly pointed out, we get owner economics.

And then on the higher end of the market is where the NiCE solution plays, wherein customers are looking for addressing more complex use cases. They may have more distributed support organizations and whatnot. So that's where the NiCE partnership plays in. And the announcement that we made this past quarter was to announce a bilateral nature of the relationship. So we've been selling their CXone product.

Now they will start selling RingCX into their base. And what that does is 2 things. It allows both companies to get access into the enterprise space, and it also allows customers more choice points in terms of getting an integrated UC and a CC solution.

Yes. So maybe along those lines, we're going to talk about competition here. Have you seen any change year-to-date or over the last year in terms of what's going on competitively? We hear all the time about stand-alone AI start-ups as well as like what are some of the CRM vendors doing over the top and of course, some of your more direct competitors. How are you guys thinking about the competitive level out there?

Yes. Look, on the core UCaaS side, no material changes in the competitive. It's always been competitive, continues to be that way. We usually see Zoom and Microsoft Teams there. And the way we differentiate ourselves is on the strength of the cloud voice solution that we bring that is highly reliable, secure, it's global, has several hundreds of integrations across the board.

So that's how we differentiate ourselves. And where we win is in customer bases wherein voice continues to be a primary mode of communication. And there are a lot of use cases, think health care, retail, financial services, like these industries kind of work on voice and texting. So that's where we do well.

In terms of AI, so we come across both AI kind of start-up companies as well as the established vendors -- and then when we go up against the AI start-ups, look, there's a lot of companies. Where we are bidding against them is on scale. Like we have the scale, we have the infrastructure, which they lack. We have a large customer base and the strength of the R&D investment.

And against the incumbent players, a lot of incumbent players may not have the entire suite of AI products. So that's where we are trying to differentiate ourselves is provide a complete solution, communication, customer engagement with AI kind of natively built and embedded.

What about the RingCentral architecture, especially on the voice architecture differentiates you guys?

Yes. So look, our voice infrastructure has been built over the last 20-plus years. It's taken over 2 decades for us to get here. And the voice infrastructure has several unique requirements. Like it's a highly regulated industry in a lot of different markets.

There are telco interoperability requirements that are there. And there are a lot of unique like E911 emergency requirements that billing and taxation requirements. So we've kind of architected this over the last 2 decades, and it's taken a lot of investment. And we believe that's a unique asset for us that's very hard to replicate, and it will not be, frankly, cost effective to replicate as well.

So in terms of the architecture, think of us having the infrastructure layer, the communications layer. There's a lot of data that's flowing through the platform. And in the past earnings, we've kind of laid out some metrics around tens of billions of calls and billions of SMS messages that are going through the platform. And then AI is natively built wherein it's getting applied throughout the life cycle of a conversation or interaction.

Yes. So maybe on that voice side of sort of the core business, almost a decade ago, I believe, when you joined roughly, a large part of the RingCentral thesis was we are the #1 in UCaaS. We're getting now all these partners kind of shifting their on-prem endpoints to us.

How did that play out in your view? What's left in terms of what's going to make that enterprise or SMB actually change at this point if they haven't already? I mean we went through a pandemic and what's the next catalyst here on that side of it?

Yes. So a few things are still true. We are still maintaining our #1 market share in UCaaS positioning as per studies from Gartner. So we've maintained that. I think I'll make maybe 3 points. One is on the go-to-market motions. Again, we have a multifaceted go-to-market motion strategy. So we have direct sellers. We have over 16,000 channel partners.

We have 16 GSPs. And then we have the partners that you mentioned. And each one of them are contributing to growth in their own way. So we are not dependent on any one channel per se.

And there, the second point is there still continues to be a lot of opportunity. There are a lot of -- by many accounts still tens of millions, hundreds of millions of on-prem seats that are still out there. And the catalyst for the change or those seats are already migrating at their own clip, but the catalyst will be AI. For customers to be able to benefit from AI, I think they'll have to migrate from on-prem to the cloud to be able to take that benefit.

And is there a way to think about how some of these major partnerships are contributing to net new customers?

Yes. I think to my earlier point, look, they're all contributing. When you look at our -- like the metrics that we provided, GSP partners, for example, that part of the business is growing in double digits. It's a Rule of 40 business. We announced the NiCE partnership, which is now bilateral kind of we are going to provide EX and their CXone solution into the base. So that will start contributing into the future. And then our direct and the channel motions are already contributing.

Yes. So we always talk about voice with you guys. But one interesting bit that you guys called out last quarter was SMS growing double digits. I guess why now? Is it growing double digits? What's happening underneath?

I think it was always growing double digits. It's a matter of we kind of provided more color around it. And the color, frankly, is when -- even when you think of our daily lives, when you are -- when consumers are interacting with their providers, they're either calling or texting or SMS-ing. So SMS has always been a big part of our business. Like that volume of traffic has been growing, and it's going through our platforms. It's a high, call it, high converting channel, if you will. And AI is just improving how SMS are being used.

Now with AI, AI is enabling businesses to understand the intent of SMS, and you can personalize SMS messages. So I think that's a catalyst. And then relative to us, because call, voice and SMS messages are going through the same platform, it allows customers to get context across those 2 channels and get intelligent -- more intelligent outcomes, if you will.

Makes sense. So as we kind of move down the P&L a little bit, one question we get is around gross margins. And how is AI going to impact gross margins versus the traditional seat-based model as well in terms of shifting from seat-based consumption?

Yes. So overall gross margins, we are holding at 80%, call it, plus/minus. Now within that, our AI products are generally holding to the corporate average. And when you look at gross margins for AI products, it's a function of pricing, the ARPUs and the cost side. So maybe I'll cover both. So on the ARPU side, look, we are very deliberate in terms of pricing decisions that we are making.

The idea is value-based optimization. So customers are paying for the usage and the value that they are getting. And customers are willing to pay for these products because they are able to measure ROI both from a cost as well as from a revenue standpoint. And we provided several examples in our earnings around AI wherein customers are able to capture more leads. Those leads are converting to more revenue, and therefore, they are able to drive more customer growth and then reinvest back into the business as an example. So that's on the pricing side.

On the cost side, it's -- we look at the cost in terms of model selection. We are looking at inference efficiency, and we are looking at the infrastructure cost. Those are the 3 big pieces. In terms of the models, look, we are currently using frontier models. And there are 2 dynamics that are happening. As inference is getting better across the models, the price per unit is coming down. And then over time, there is a potential for us to use open source models where in the price again, the price differential is quite meaningful.

So we haven't switched yet, but that's the potential to get price efficiencies, and then in terms of infrastructure as well as AI products scale, we will naturally see efficiencies across the infrastructure. So those are kind of the 2 or 3 drivers for gross margins. So net-net, we expect to hold gross margins at 80% plus at the corporate level.

Got it. And so then as we think about kind of one shift down again, what's left in terms of the low-hanging fruit? What's the structural operating margin of RingCentral here? Where do free cash flow margins kind of get to over time?

So look, we are very focused on expanding both GAAP as well as non-GAAP operating margins. If you look at our history, we had a big step function change 1 year, and then we've been steadily increasing between 100 to 200 basis points every year. So again, with the operating leverage and the structural discipline that we have put in the business and increasing use of AI across the company, my expectation is that we'll continue on that path. So there is more room to grow.

And again, it's a function of the fixed costs with 80% gross margins. The fixed cost base will not continue to grow. We are being very disciplined in terms of our hiring practices. We are offshoring our vendor spend goes through multiple levels of scrutiny. And with AI, I think the expectation is that the direction of travel will be up into the right.

Makes sense. And so I know you're not going to guide here for 2027, but you obviously had some headwinds in terms of the last of the sort of COVID-19 renewals coming in. Any puts and takes to think about as we start thinking about next year's growth rate?

I mean what you should expect for next year is durable growth. I think the COVID headwinds that we had talked about will start to kind of moderate next year. I think our expectation certainly is that AI will continue to kind of grow faster than the core business as AI gets integrated into the core portfolio. We are very focused on expanding margins and free cash flows. We will be disciplined and are, again, focused on getting to the 3% to 4% target that we had laid out on SBC. So you should see progress on that front as well as the 20% GAAP operating margin target.

Yes. Last one quickly, capital allocation. I think you surprised everybody with the dividend start the year to a degree. I guess what's the philosophy behind that, especially now that you actually increased it already midyear?

Yes. It's just the confidence in the free cash flow profile of the company and the sustainability of that. Look, we've stabilized growth. We are expanding margins. Those margins are converting into free cash flows. And we are using those free cash flows in a very disciplined and a smart way. And the goal for us, frankly, is to optimize free cash flow per share. This year, we've guided to over $7 of free cash flow per share, which is best-in-class among our peer group.

Okay. That's a good spot to leave it. Thank you very much for your time and all your inputs here. So -- and thanks, everybody, for joining us.

Thank you. Thank you.

Thank you.

All right. Good afternoon, everybody. We have RingCentral here this afternoon. Vlad Shmunis, CEO; and Vaibhav Agarwal, CFO. Welcome back to the conference, guys.

Thank you.

Awesome. Vlad, let's start with you. So how do you define the next chapter for RingCentral? And what are the 2 to 3 priorities that will matter most to making it successful?

Next chapter is to embed AI across the whole portfolio externally, internally to become just like an AI-native company. Obviously, we predate AI and all this, but we were a SaaS native company, and we continue to do that. And I think we have a very good chance of doing this again, leveraging the best of AI. And again, that will be both customer-facing as well as major revamp of all internal operations to become substantially more efficient and to better serve the needs of the market as well.

Okay. All right. Good level set. So ARR from customers using at least one of your native paid AI products now represents 13% of ARR. I think it's doubled over the past year. I guess what's driving the adoption today? And I guess what needs to happen for it to broaden meaningfully across your customer base? Maybe we start with you, Vlad and then will move to Vaibhav.

Yes. Look, I mean, we're happy with this progress, but there's a lot more to do. It's only 13%. It's not 30%, it's not 90%. Over time, we see it touching the entire portfolio, doubling year-over-year is good. Hopefully, that will continue and maybe even accelerate. Look, there is a lot of demand. AI is absolutely becoming a new reality for everyone, certainly for the vast majority of our customer base. How do we get to them? We have 600,000 companies, logos on the platform. So that's a lot.

So to get through to all of them at the right time. So many times, we just get to talk to them around renewal times. Obviously, we're working on PLG type motions as well. So we just think that there's a lot of goodness to come. And I think we shared before, but about half of our new business, if you're looking at new logos are taking AI, so ROA, okay? So I would say that, that would be the goalpost is to get from 13% to at least 50% and then we'll go from there.

Is there any sort of -- anything to read across in terms of like the types of customers that you're landing in these earlier stages like within the installed base or even from a new logo standpoint?

Yes. Look, so first, so far, our AI has been skewing more down market. There are some very notable exceptions. But majority, I think we announced 16,000 logos last quarter. I can tell you it's meaningfully more than that now. And most of them are smaller businesses or SMBs.

Where it plays the best, but since it applies to almost our entire base anyway, is they are like B2C businesses, which makes us a B2B2C, okay? So where Ring shines is when we're serving businesses whose customers are consumers who are calling or texting. And we have massive amounts of traffic on our network. Some of the numbers we shared, 40 billion minutes. We're sitting on billions of transcripts and recording. We're processing billions of text SMS messages. So these are that's across the globe, okay? And as long as consumers are calling their service providers, business providers, we are in a very good position to get in the middle of those transactions and to apply AI before a human picks up, assist a human if there is a human transfer and then do post processing and generate insight after the call is done.

Okay? So basically, back to your question is, so what makes the customers special is they're the ones dealing with consumers and they are the ones who need help putting an AI agent at every stage of this consumer provider interaction. And we're just very strongly positioned there.

Okay. Great. I want to talk about AI. I was at Enterprise Connect, I think, last year when you guys introduced that product, I got to see the demo. It was really compelling. Fast forward today, more than 16,000 paying customers. So maybe talk to us about like once a customer adopts AI, like what does expansion typically look like? Is it primarily greater usage, deployment across more parts of the organization, adoption of additional RingCentral products? And Vaibhav, feel free to opine as well.

Yes. Look, like I say, for now, it's been mostly SMB. So expansion is usage. And there's absolute expansion, there's a lot more usage. So it's in a way of an outcomes-based approach. But it also results in stickier customers, stickier customers over time will take more products, okay? With larger enterprises, sky is the limit because they can be deploying multiple agents so we have various business models that we offer. But in the end, it is about outcomes, and there's just more outcomes to be had with larger enterprises.

And then Vaibhav, maybe just to expound here. You've highlighted stronger ARPU and net retention among customers that are adopting at least one AI product. How should we interpret those benefits today? And what additional proof points would demonstrate that AI is becoming material to RingCentral's overall growth?

Yes. No, that's a good question, and thanks for hosting us. Always good to see you. So look, that's a key metric for us, the RC AI adopting customers. And the reason for that is as we are selling more bundled products, that metric shows paid AI adoption. It's showing product penetration, and it's kind of, frankly, showing quality of growth that Vlad talked about. So that metric is showing importantly that it's showing the monetization potential of AI, and it's showing that customers are more sticky because that cohort of customers have better ARPUs and higher net retention rates. It's also demonstrating that customers are not just experimenting with AI. They are paying for these AI products. They are expanding the use on the platform. They are getting benefits of it, and they are staying longer. So as the adoption of AI products increases over time, it will start becoming an increasing driver of growth.

Understood. Vlad, let's talk about customer engagement bundle. I think that's now 10,000 customers in a relatively short period of time. What unmet need was that addressing? And how do you see its role alongside RingEX, RingCX and more of the traditional contact center offerings?

Yes. No, it's worth 10,000. It's like I said, a bit more than that now early quarter. Yes. No, it's our fastest-growing product ever. It actually has a lot of AI in it as well. And it sits between EX and CX. It's officially part of the EX. We call it a bundle. But what it is, is it is a lightweight contact center for generally speaking, with some exceptions, but generally speaking, for smaller businesses who don't have dedicated human contact center agents. So that's a rapidly emerging category.

And it's actually fairly well protected sort of call it from the AI threat because everyone ourselves included with a formal dedicated contact center, you know what, you just want to have less agents because they're expensive and AI agents can do as good a job, maybe a better job, lot cheaper, okay? And this is why we're investing so much into AI Agent voice AI.

But with the bundle, people who pick up the phone, they are not -- they have other jobs. They can be dental technicians. They can be realtors, maybe junior realtors, right? Any walk of life, insurance agents. They have things to do and yet people are calling them and they're calling their business number or testing their business, somebody needs to pick up, not necessarily that particular person. And many times, the interaction can be handled by an AI agent and progressively more so. So that's kind of where it sits in the portfolio. It's basically for our higher-end PBX customers who are not yet full enterprise, and that's just a sweet spot there.

Okay. Vaibhav, let's switch back to you. The newer AI-led products are growing rapidly. We've talked about it extensively, but subscription revenue growth is still holding in sort of the mid-single-digit range. What needs to happen for that product level momentum to begin moving the company-wide growth rate more meaningfully?

Yes. Look, first of all, we've gotten the growth rates at a stabilized at a sustainable level. If you look at the last 5 or 6 quarters, we've been in a similar range in terms of subscription revenue growth. So I think that's point number one. Number two is we have a durable core base that is a recurring revenue model with strong retention rates and high ARPU. So that's the foundation.

And our AI portfolio, like Vlad mentioned, is growing strong. It's growing rapidly, and it's showing customer traction. Having said that, it's growing off a small base relative to the overall company, which is at $2.8 billion in ARR. So look, as AI adoption grows across the base and as we acquire new logos, it will become a more meaningful portion of the overall ARR and be an incremental layer for growth in the future.

Okay. Great. Vlad, bigger picture one for you. As communications, contact center and AI come together, customers have more choices across established platforms and AI-native point solutions. What is owning the underlying voice network create a meaningful advantage? Or where does it create a meaningful advantage? And where does RingCentral still need to kind of prove its differentiation in the market?

Look, so that's where the magic is. There is a network. There is also traffic of that network, and there is data that's going through this network. Some of it is transient, but especially with AI, a lot of it gets transcripted. So what's transient now becomes fixed and then we like that. So it's really a combination of those. If you were to ask me in that, what is your one differentiator is the fact that we can seamlessly combine AI agents with human agents with human representatives, and we can make them work together as a cohesive team. And some of this team, again, is just as humans and some of the team is new AI agents, which are obviously very rapidly evolving.

So if you look at it, you have AI natives purely agentic companies. That's all great. We have so much traffic, most of them. But tech-wise, they simply don't have -- they cannot light up human-facing endpoint. And that's a very hard. It took us a couple of decades, for example, okay? Anybody who has tried, you're talking years, if not decades. So that's the differentiator. And then you have people coming in from the human side, your contact center providers. And that's fine. They're kind of trying to do the same thing. Thing is, they don't have the breadth of the base.

So what we're seeing is it's pretty competitive out there. In the enterprise, it's very, very competitive. And we have our hat in the ring too. But we just find it easier to grow and to deliver value at scale in lower segments of the market with SMB, which is like 40% of U.S. economy is that. And you talk about growth being, say, still stuck in single digits. That is true. But about 2/3 of our business is double digits and Rule of 40 plus, which is exactly the non-enterprise portion.

And look, we're hoping that we can turn this enterprise around sooner than later. But the backbone of the business, we started out as an SMB company. That backbone is alive and well and healthy and double-digit growth, Rule of 40 plus. So I also want to make sure that people don't know.

Yes. Absolutely. Now you recently expanded the NICE partnership and restructured the Avaya relationship as well. So how do those changes strengthen Ring's position in the enterprise market, to your point? And what would make these partnerships meaningful contributors to growth?

Yes. Look, so with Avaya, basically, we're transitioning this ACO base to our native RingEX. So it's just a customer-friendly gesture. Look, I don't want to speak for Avaya, but it's a very different company now than it was when we started out at then 2018, I think. So coming on 9 years. And look, we're still the exclusive provider for UCaaS so as much as there is a need, it would be met for us. But they seem to be retrenching into the very high-end enterprise, on-prem and more powerful with welcome that, okay?

With NICE inContact, it's different. We've been reselling NICE, not the NICE. We are reselling inContact partners right? It's been very, very successful. We've built a multi-hundred million dollar portfolio on that. And the latest announcement was that they are now saying, "Hey, why can't we also offer this complete solution as well? And it's a very good solution. It's still clear industry leaders coming together with best-in-class UCaaS, which is us and best-in-class CCaaS, which is them. And having this combined solution out there, which is otherwise not available.

So it's been early. And again, they're playing also high-end enterprise, so they are long sales cycles. But they're now enabled, and we continue to be enabled with them. So we'll see what happens.

Okay. Good. Vaibhav, let's talk about margins and investment philosophy. RingCentral has been investing more than $250 million annually in R&D, but you're also expanding margins. So how do you balance investment in the core platform with the opportunity across newer AI products? And where do you see the greatest potential returns today?

Yes, absolutely. So yes, look, I mean, the strength of the cash flows and our expanding operating margins allow us to both invest in product and innovation and show a better profile. And we are doing it at scale. In terms of how we are able to do it, it's a very deliberate and a conscious effort, like every investment decision in the company goes through very strict ROI criteria, whether it's time to payback or LTV CAC type metrics or gross margin. So everything goes through a hurdle before we make the decision. And in terms of balancing the investments between core and AI, look, we have a large core base of customers, over 0.5 million customers that we have.

Look, core is the foundation of the telephony infrastructure, security and reliability upon which AI is built. And that's a very unique asset for us. So we continue to kind of assign dollars to that to protect and strengthen that portfolio, if you will. And increasingly, we are making more investments in the AI product portfolio, AIR, AVA, ACE and AIR Pro that Vlad touched on earlier.

So I think essentially for us, it's not a choice between core and AI, like core is what the AI is built on and AI is strengthening the value of the core. So look, at the end, we have strong free cash flows, a strong margin profile, and that allows us the flexibility to make these investments.

Okay. And then as usage-based AI products start to scale, compute and model costs become a larger part of that equation, right? So how are you thinking about pricing and model optimization to preserve attractive unit economics while continuing to deliver a compelling ROI to the customer?

We're doing it now. We'll be doing more of it. Look, so we are arbitraging among the models as of late, more and more open source comes in. My general belief is that token pricing will be coming down at least effective token pricing, and there always will be bleeding edge models or whatever it is to come up with next that will be worth a lot of money as it should. But at least in our use cases, you don't necessarily need that much of that stuff. Maybe you get or something but that's not our thing. So we are able to do quite a bit with frontier models, but cost effectively. And more and more we'll be looking at open source and different pricing that's one.

What does that look like today, like just in terms of the complexion of sort of open source versus frontier? And even on the frontier side, it almost sounds like maybe you're not using OPUS 5, but you might be using OPUS 4.6 for some of those.

Yes. So how -- what does it look like?

Yes, like in terms of like...

We see, look, again, we want to do world-class job and present world-class experience at the least possible cost. So there is constant experimentation and research. And it helps that every couple of months, something new comes out and something that was bleeding edge, is not bleeding edge anymore, so prices go down. So we think it's a good thing.

Yes. And I'll make maybe 2 other points. So when you talk about unit economics, there are really 3 drivers, right? There is pricing -- there is the costs associated with LLM and infrastructure that Vlad talked about. And then there is the GTM scale and the cost, right? So on pricing, look, we are being very deliberate. The idea is value-based monetization. Customers are paying for what they are consuming and the benefits they are getting. And frankly, a lot of customers are paying less prices for these products because they are the ROI is very tangible, both from a revenue standpoint and from a cost efficiency standpoint. And that's visible in the metrics, the RC AI metric wherein both ARPUs and net retention rates are higher. So that's the pricing part.

On the cost part, like Vlad said, we are doing model orchestration. There is inference kind of efficiency that's getting built in and the infrastructure costs. So over time, with scale, I think these costs will come down. As the models are training, inference is getting better and the price per unit is coming lower and expect it to come down even lower with open source models. And then on the GTM side, our current GTM infrastructure is selling multiproducts now. So we don't need to add incremental sellers. So there is further efficiency that we are seeing from a go-to-market standpoint.

Yes. Maybe expound on that a little bit. Like talk to us about a little bit of how you're deploying AI internally, like how mature that motion is relative to maybe 6, 12 months ago?

It's a little more mature, but we had a press release on this. We actually ensured that entire product and technology workforce, that's all of the PMs plus all of the engineers -- as included, they had to complete an AI native project. So that's actually an effort I'm pretty proud of.

Anything cool come out of that?

Yes, lots of cool stuff came out of that. I'll tell you, not everything that they were doing was Ring related, just first. Moving forward, everything we do is AI native because now we've established the baseline. And now there is no excuse. Well, I don't know how it works. I don't know how to extract from Jira and then check back in, AI generated. So there's just a lot of sort of friction, just education. It's no friction because people are fighting just because like how they do this.

So we're doing a lot of education. We are working closely with OpenAI to this day, we're working with [indiscernible] just to name a few, we're always pretty close to Google. So there is all sorts of stuff going on. And more and more -- not more and more, but P&T is all AI today, okay? Analytics is all AI, both generated by AI and consumed by AI, okay? Other parts of the work, work in progress, but next time we chat, I'm sure I have more to report there. And we're seeing major efficiencies, major, major efficiencies. And yes.

Okay. Great. All right. Vaibhav, let's talk about margins. You expect to reach 20% GAAP operating margin, I think, in 2 to 3 years. How much of the remaining improvement comes from underlying operating leverage versus lower SBC and other factors? And how much flexibility do you retain to reinvest if the growth opportunity develops faster?

Yes. No, thanks for the call out there. And look, our GAAP operating margins are growing faster than non-GAAP. And the reason that's happening is there are 3 drivers for it. There is operating leverage in the business, and then there are structural efficiencies that we are gaining with the use of AI that Vlad touched on. And then we are being very disciplined on SBC and dilution. So it's a combination of those 3 things that are allowing us to improve operating margins.

If you look at our history, we've improved margins call it, about 200 basis points every year. And again, we haven't laid out targets for '27 and beyond, but our expectation certainly is that, that we'll continue on that journey.

In terms of SBC, we are very focused, disciplined on grants and focused on getting to the 3% to 4% target that we've laid out for the medium term. So it will be a combination of improvements in operating margins over time, SBC reduction as we go on and continue the discipline on share grants. So the two things put together kind of give us the confidence to be able to achieve the 20% GAAP operating margin.

Okay. And then I know free cash flow per share has become central to how you manage the business. So as you look over the next several years, I mean, what gives you the confidence that can continue to compound from here? Yes.

So I'll maybe answer that. I'll give you two perspectives, one of which is, look, we are absolutely confident in the compounding free cash flow and free cash flow per share model. Again, the drivers there are -- if you look at our base, we have a large base of customers. It's a durable revenue model, recurring revenue model with strong retention rates and gross margins. So that's number one.

Then there's a lot of operating leverage in the business, like we have 80% gross margin. So our fixed cost base doesn't need to grow in the same proportion as revenue. So as operating margin increases, that will drive more free cash flow. And on the other side, we are managing SBC and dilution and being very disciplined on capital allocation in terms of buybacks, paying down debt and dividends, which are incremental ways of compounding free cash flow.

So when you put the top line expanding margins, discipline on capital allocation, that's resulting in over $7 of free cash flow per share, which is where we've guided for this year, and I believe that's the best amongst our peer group. And frankly, that gave us the confidence to introduce the dividend and then expand the dividend this past quarter.

So I think that's one perspective. The other perspective is, look, illustratively and again, we haven't given out long-term guidance. But if I were to project the current run rate of this year's guidance of over $600 million, over the next 3 years, we can generate close to $2 billion of free cash flow. That's 30% of the enterprise value of the company gives us a lot of flexibility. We can become debt free. We can certainly pay dividends, expand dividends over time and keep investing in the growth of the business. So net-net, there's a lot of flexibility. We are very confident in continuing to compound free cash flow and free cash flow per share over time.

Okay. Very clear. Vlad, maybe to close out here, we've talked a lot about AI. But stepping back, what do you think changes most about how businesses communicate with their customers over the next 5 years? And where do you want RingCentral to sit in that ecosystem?

Yes. Well, sit in the middle of it. Yes. But again, lots and lots of B2B and in particular, B2B2C communications serving today. And we're still a 20% shareholder. That hasn't changed the way. So we intend to build on this. How it will change qualitatively, look, there will be a lot more AI. And AI is not only deflecting calls or resolving calls, but it's also making humans smarter about how they deal with things. And what we're seeing is there are just lots and lots of learnings that are coming out now once you expose it to AI.

It's just really, really good at pattern matching AI and better than our humans even today. And so who knows what's going to be coming out. But I think that in the end, businesses who embrace it, not just Ring, but our customers and customers of our customers, but population that embraces it will be at a major competitive advantage. And certainly, we intend the company to be on that side of the equation. So future is very interesting. I think it's pretty bright. It's going to be different.

Okay. Well, that's a great place to leave it. Really appreciate both of your time. Thanks for coming out. Thank you.

Thank you.

Appreciate it.

Hello, everybody. Tim Horan here. I am the communications and digital infrastructure analyst here at Oppenheimer. Good afternoon, everybody, by the way. My pleasure to be hosting RingCentral once again. RingCentral has been our top pick luckily for the last few months. Hopefully, many of you have read our research. We think for a few reasons, it's a fairly amazing turnaround story that was incredibly undervalued, but we still think it's very, very undervalued.

Luckily, we have a CFO who I admire and respect quite a bit. Vaibhav has been talking to me for years and years. And when we were a little bit concerned with some of the trends, he was a gracious gentleman. Now that we've gotten substantially more positive, he's still a very gracious gentleman and has answered all my questions and been incredibly professional and very knowledgeable.

And Vaibhav, how long have you been at RingCentral now? I know it's been a long time.

Yes. Thank you, first of all, for giving me the opportunity to join the fireside today, and thanks for the kind words. So I'm finishing up on my 10th year anniversary here at RingCentral in July, actually as we speak.

So you know basically more about the industry and the company than almost anybody out there, and I know you worked your way up from the bottom up and have -- frankly, we'll get into it, but amazing turnaround in the -- frankly, in the free cash flow generation. And -- we still think there's quite a bit to go. But at the same time, we're starting to see a pretty amazing grassroots turnaround in the revenue and in the product, but we'll get into that. So one of my big theses when I got a lot more positive on the stock a little over a year ago was the fact that business voice lines are -- the utility of business voice lines, thanks to AI is improving dramatically.

And I think the usefulness for people and I think the willingness to keep business voice lines, grow them and pay more for business voice lines because the utility is going to improve pretty dramatically. And you guys are at the center really of applying AI onto business voice communications. Can you give us your thoughts on what you've seen so far, what AI is just meaning for the overall industry and business communications?

Yes, absolutely. Look, business lines have always been mission-critical and in our strongest verticals like health care, financial services, retail and others. And if you look at our daily lives, like whether it's a health care provider, whether it's a financial adviser, whether you're calling your gym or a furniture store, generally, those interactions are still happening either through a call or a text message on a daily basis. So I think AI, what we are seeing is that AI will make business communications more useful, not less because it turns a business line from a simple voice endpoint into an intelligent customer engagement channel. And essentially, that's what we've been doing over the last 12 to 18 months is to transform into -- from a pure communications company into a complete customer engagement platform so we can handle or our customers can handle all forms of interactions.

Now interactions today are very different than they were several years ago. Today, they are person to person, could be person to a non-dedicated contact center agent, could be with a dedicated contact center agent. And increasingly, we are talking more to AI agents. So I think AI will frankly be a tailwind. It's a generational shift. And I think Vlad talked about this extensively at our prior earnings. AI is just making business interactions more and more kind of efficient, more intelligent. And this handoff between humans and agents is kind of incredible. I think Vlad coined this term humans in the loop, and we are seeing that in practice on a day-to-day basis. So essentially, net-net, AI will just increase the value of a business line because it will become tied into productivity.

It leads into better customer experience and better outcomes rather than just being a business line. And I think that's where we fit in well with our broader strategy of bringing voice messaging, contact center and AI together into one platform.

And you're also doing this on an integrated or -- I'm not sure the right word, hybrid, where you can either get it on your smartphone or your business phone or your soft phone, almost any different device. I mean a little bit like over-the-top television where you can kind of watch it anywhere, you're going to be able to use your business voice line basically anywhere. Can you talk about customer adoption of that and how important that is?

Yes. So I think when you look at the genesis of RingCentral was to bring communications in the cloud. And what that meant was those communications or interactions were device agnostic. They were location agnostic. And obviously, we went through the generational shift of Internet of mobility and AI is this basically next shift. So here's what we are seeing. I think there are 3 trends that are -- or maybe 4 trends that are very, very evident to us. Number one, voice continues to be a primary mode of communication in B2C settings, like as consumers, when you want to reach your businesses, voice and SMS is the primary mode. And we are seeing voice traffic on our platform continue to grow. So that's one trend.

And we are acknowledged leaders in voice. So essentially, we are -- voice is going strong, and we are strong in voice, if you will. So that's one trend. Number two is -- there is also this buying behavior wherein we are seeing customers wanting a bundled solution with a single provider wherein they can manage all forms of communications and can seamlessly transfer between humans and AI because with the humans in the loop, it's not either/or, it's both. Like AI is making calls more efficient, more intelligent, but for more complex and judgmental type situations, you need a human. So customers want a singular platform versus -- I think there is this fatigue that's setting in wherein you could have a lot of applications from different vendors and then it becomes eventually more expensive and difficult to manage.

So customers are looking for one solution, which we are offering through our customer engagement bundle. And again, to my earlier point, customers will be able to manage all forms of communications, whether it's with humans or with AI agents. So that's the second trend. The third trend is for AI to be successful, you need a strong infrastructure layer. And we built a telephony infrastructure layer over the years that is now trusted by over 600,000 customers. There's a lot of traffic that's flowing through the platform. So there are 40 billion-plus calls that are happening on an annualized basis, billions of -- sorry, minutes and billions of calls and SMS messages that are going through the platform.

So for AI to be successful, you need data and that data on the system, as consumers, you're able to kind of utilize AI from the get-go, and you're able to train your models on your own data. So that's the third thing. And the fourth trend is customers need to see measurable ROI. So what we are seeing through our AI product portfolio, which we coined as 3 A's, AIR, AVA and ACE, customers are seeing measurable ROI. Customers are using AI to capture more demand. They are automating more repetitive work like note taking with our AVA product and improving the quality of interactions through our ACE product.

And these products are all working in tandem with each other and improving on a daily basis. So I think those are some of the trends, Tim, that we are seeing. And those trends are getting reflected in the traction that we are seeing in our AI product portfolio.

No, that's -- and it all kind of ties together, obviously, being able to communicate on any device, be able to communicate more effectively. That flexibility is fairly incredible. And where do you think we are in adoption of all 4 of these trends? Like what inning are we in?

I think from a market opportunity standpoint, it's still large. Like the market is large. It's still growing. I think Gartner estimates the whole market that is broken between UCaaS, CCaaS and AI to be $150 billion-plus market, and that is growing. So the market opportunity is large. We are seeing a trend wherein these disparate markets are now converging into a singular category of customer engagement.

Again, it comes back to my prior point of consumers are looking for a singular platform for all of their interaction needs. Having said that, I think there's still a lot of opportunity from -- for on-prem to cloud migrations just on the core UCaaS side. There's still by different measures, tens of millions, if not hundreds of millions of seats still on on-prem. And what customers are realizing is that to be able to benefit from AI, they need to be on a cloud solution. So I think, number one, the on-prem to the cloud migration is continuing to be there. We are capturing our fair share of it, and we are adding new logos at a healthy clip. In terms of the AI adoption, we are still in the early innings.

One metric that we disclosed was that our -- the portion of our customers that adopt at least one of our paid AI product is about 13%. So by definition, there's a long way to go, like there's 87% to go. So we are still in the very, very early innings of this. And our product portfolio, we've done a good job at releasing products at a very, very fast pace. The velocity has been high. And we've come out with a portfolio over the last 12 to 18 months that is showing a lot of good early traction. So again -- yes.

I mean, I think, 2 years ago, the AI products were a little immature, the ones that I saw. They have improved dramatically. But I mean, do you think they'll be substantially better in 2 or 3 years from now?

Yes. I think the velocity of how -- the velocity of development is very, very high, especially with the use of AI. Customer needs are evolving fast. And I think what we are seeing is eventually everyone will need some form of AI. They will need AI agents to kind of sit alongside with humans and kind of make business interactions better, and they will -- customers will also need a productivity suite to reduce the manual work.

So -- so overall, look, the product set will continue to improve. Like we have -- we are spending over $0.25 billion in R&D spend on an annual basis. And a large majority of that is going into AI product development. And the idea is not necessarily to come out with more products, but to keep improving the quality of the product sets and the features that we have through our current product set that we have introduced.

It makes a lot of sense. And I know you touched on ROI. Like your AI receptionist product, AIR, what type of savings can customers get do you think? Like if they're spending $1 on you, are they saving like $10?

Yes. I think, look, it depends on the use cases. But the reason AIR, I think we have, what, 16,000 customers now growing almost 4x. The reason we are seeing that kind of traction is the ROI is immediate and it's measurable. So what does AIR do? So when calls are coming in and we recently had a customer from a health care institution that she ran. I think she spoke at our Analyst Day. And when we spoke to her, the feedback we got was they were -- like they were getting, call it, thousands of calls on a daily basis, and they had 2 receptionists. So the 2 human receptionists cannot answer those thousands of calls. And then it's -- some calls are more important than others.

So not everything is kind of created equal. So they implemented AIR. And by implementing AIR, they were -- they were able to kind of filter out spam calls. AIR was able to answer some of the basic questions like if you wanted to book an appointment, know hours and directions, AIR was handling those calls. And then it was really transferring on calls wherein patients needed more kind of in-depth consultation. So what that did for this customer was they were capturing more leads. They were filtering out nonessential calls, and it was saving them, call it, millions of dollars in terms of -- not saving, but creating opportunities for millions of dollars of additional revenue, which they were able to then kind of invest back into the business.

We also recently ran a survey and AIR customers told us that they are reducing their missed calls from roughly 20% to 0% and others kind of cited saving thousands of dollars per month in savings. So for a lot of businesses, these dollars are very, very big, and they are able to then take these additional revenue dollars and put it back into their business, expand their business and maybe, yes, expand into new areas, if you will.

That's interesting. So what you're saying is maybe more of the benefits coming from many customers. It won't be obviously across the board is coming from incremental revenue opportunities that were missing.

Absolutely. Yes. It's actually both in a way wherein our AI products are creating more revenue opportunities as well as cost savings opportunities. The revenue savings is the example I gave you from a cost savings perspective, as businesses are growing, they are utilizing AI, and therefore, they don't have to keep adding people costs or additional costs as they are scaling. So in that sense, it kind of helps them save costs.

And you're also using AI on the contact center side, and that's also extremely measurable. Well, just get back to the receptionist for a second. Like so how much would it -- I hate to put it this way, but instead of adding a new receptionist, like that might cost me $70,000 a year. How much would the AIR cost me versus the $70,000?

Yes. Our AIR is priced at $39 for a 100-minute entitlement. So it's call it, $0.39 a minute, if you will, list price. So when you do a comparison to an equivalent human agent, I think the cost differential is big.

Very good. And where do you think we are with penetration? What do you think the ultimate number of seats you can have for AIR?

I think, again, it comes back to today, we have the cohort of customers that is utilizing one paid AI product, which includes AIR is about 13%. So there's a long way to go. I think there's a lot of opportunity. And the way we are addressing that opportunity is when -- we are acquiring new logos, our sales teams, our channel teams and our GSP motion is all enabled to sell new products and AI. So they are offering these AI products as part of new sales.

We have a large customer support organization and a customer success organization that is pitching these products to customers in the installed base. And as customers are coming up for renewal, we are also engaging into conversations around these products. So net-net, look, there is clear ROI. There are measurable use cases at customers that these products are able to address. And they are seeing real ROI, and that's slowly translating into the trends that we are highlighting.

And for -- Vaibhav, how much a minute is it again for the AIR product?

$39 for 100 minutes -- for 100-minute entitlement.

Got it. And is there -- that's list price is the determined volume discounts?

Yes. I'm sure depending on the volume that you're buying, there are discounts offered.

And just lastly, is -- are you also finding that it's better than a human receptionist over time? And is it improving on -- is it self-training as it gets used more?

Yes, absolutely. So it's -- look, it's handling -- it's what it's doing for customers is 2 things. A, it works 24/7 versus a human receptionist is working like a 9 to 5, right? So what AIR is doing is it's working 24/7, and it can handle kind of multiple calls at the same time. So it can handle like several hundreds and thousands of calls that are coming in, and it can dispose of those calls and then transfer to a human as needed. So in that sense, it can address more capacity, if you will. And secondly, it's training on these. It's constantly training, and our 3 products are constantly training together.

So AIR will also look at transcripts of the calls over time to see what types of questions customers are asking and then it will kind of improve its ability to kind of answer questions, then it will also train off the ACE product. It will look at, again, customer sentiment and deeper analytics from customer calls and it's training so as to be able to better handle and address calls and deflect calls over time.

And I mean, this is almost like what you're describing is almost like a little mini contact center, which I know you're in the contact center business. Obviously, contact center would have a lot more capabilities. But I mean, maybe not, are they converging over time where AIR might be able to tie into back-office data or databases? Or yes, how do those 2 look over the long term?

Yes. I think it's -- I think there is a convergence that's happening. And again, it comes back to my opening remarks on there is a convergence that's happening across UCaaS and CCaaS in the sense that the lines are getting blurry in that customers are looking for a platform, and there are a lot of cases in which employees are acting as non-dedicated agents. Then there are customers who have smaller contact centers and then there are customers who have very large contact centers. So I think there's clearly a convergence that's happening across the industry. And the idea is to have a product suite or a customer engagement platform that can handle all of these types of conversations through a mix of humans and AI together.

And the reason it's important to have an integrated platform is it's easier to kind of do integrations. It's easier to kind of transfer calls as needed. The handoffs become more seamless. And the AI is kind of seamlessly embedded into the contact center workflow. So in that sense, it's kind of all -- the lines are getting blurry and it's converging in that sense.

And just while we're on the contact center, your pricing is substantially below what a lot of legacy carriers are charging. And in many ways, it's got better features and functionality. How are you able to do that? And how is the AI improvements going there?

Yes. So look, we offer actually 3 products in the contact center space. So again, our product portfolio has evolved over time. So obviously, for the very high end, where customers have dedicated contact centers and large contact centers that may be geographically dispersed and are handling a lot of calls. We offer our RingCentral contact center product through our white label relationship with NICE. But over time, what we also saw was there's some greenfield opportunity in some sense of customers who were looking for a much simpler contact center solution. So there are a lot of customers who don't have like large contact centers. They may have smaller teams, and they were looking for a simpler solution.

So that's where RingCX plays really well. And it plays well in 2 different ways. One, it's very -- it's meant for simpler use cases, so it's easier to deploy versus a full-on contact center can sometimes take 6 to 12 months to deploy. These -- the RingCX can be deployed within a matter of days and weeks and months, if you will, depending on the use case. So it's simpler to deploy. Customers who are requiring a simpler solution don't want to pay triple-digit kind of seat prices. So that's why the pricing has been is the way it is. It's a lot more disruptive in that sense. And the reason we are able to do it is, again, the power of the platform. Like we have the scale on our cloud PBX platform. So we are able to translate some of that scale onto the RingCX solution.

And just -- well, before we get off this topic because I want to talk about some of the fears about the whole SaaS concerns out there, the SaaS business model. But the AI assistant or admin, I think you call it Assistant. Are you seeing much traction there? And how are you pricing that product?

Yes. So the AI -- I think you're referring to the virtual assistant, AVA. AI virtual assistant. So AI virtual assistant is available to all of our customers as part of the core EX product. So essentially, what the product does is back in the day, you and I were having a call or an interaction, we had to each take notes and then we would go and follow up on those notes and do kind of things manually. AVA is essentially -- it's transcribing the call, it's taking action items and then the AI agent embedded in there is setting up follow-on meetings, follow-up appointments. And in a contact center setting, it's helping agents and supervisors get more effective.

So essentially, there is an agent assist and a supervisor assist capability for agents as they are in the live call with the customer, the agent assist will help them answer calls in a better way by making knowledge articles and other kind of integrations available to them. And for supervisors, it gives them the ability to kind of get real-time alerts and whatnot as the live call is going. So again, it's a product. The AVA for RingEX is not priced separately today. Now that could change in the future. But it's essentially helping -- that's an example of where it's helping customers be more efficient and effective by reducing the manual work.

And will it filter calls for you, too? And I kind of know like this is a priority call. I'd better let it through no matter what happens or yes.

That's more of the AIR product. I think AIR does that filtering. So it will filter out spam calls. It will try to answer questions and deflect calls and try to resolve calls. And then to the extent needed, then it will transfer it to a human agent, at which point AVA will kick in.

And will those 2 converge over time? Because me as just my regular business line, I'd like to have all those capabilities, right?

Yes, yes. I think over time, I think our AI portfolio will converge into one broad, call it, RingCentral AI category. And the idea will be to provide customers with different skills-based agents so that they can kind of create their own agents and they can address whatever use cases are important for them because, again, different use cases are important for different settings. So it will give customers the ability to kind of do that.

So just to bring up the negative for a minute, a lot of investors have been worried about, broadly speaking, the software will get disrupted by AI. Can you describe why you're maybe not in that same category?

No, I think that's a great question, and I heard the pause you had because even I'm not able to kind of pronounce that word, the SaaS apocalypse or however...

Yes, I can't pronounce.

But I think it's a question that we get asked a lot. I think there's a few different reasons why we believe we are uniquely differentiated. Number one is voice isn't going away, voice interactions are increasing. Number two is AI is increasing the value of voice rather than replacing it. And it's a structural advantage for us -- and the future to my earlier comment is it's increasingly AI plus humans working together, not AI versus humans, at least in the near to the medium term. So AI can automate routine interactions. It can assist live agents, analyze conversations, while humans in the loop will be there for judgment and for more complex issues, right? So that makes the communication layer a lot more valuable because businesses will continue to need to orchestrate those conversations seamlessly across humans and AI agents.

And we believe we are well positioned because we combine carrier-grade voice infrastructure. We have a large installed base. We have deep integrations. There's a lot of data that's flowing through the platform and a broad product portfolio that we have that is addressing all these needs on a singular platform. And again, we've built one of the largest and the most reliable and feature-rich voice infrastructure globally. Again, there's 600,000 customers, billions of minutes. So it's a very unique asset. And it's hardly -- it's very difficult and it's not cost effective to replicate. Like the simple of it is it's very difficult to [ write ] code a telephony network. So that's a unique asset for us.

And our platform is, therefore, a natural bedrock for AI. The other thing that we get asked a lot is what about point AI solutions from other companies and start-ups. And I think our differentiation there is that unlike point AI solutions that have to plug into somebody else's telephony network, our AI is built directly on top of our communications layer. And that is helping us. It helps kind of with the seamless nature of the services. There is no latency. There is preservation of context and the handoffs are a lot easier.

So overall, look, we think we are different -- we are positioned uniquely in this AI transition. And we do not think AI will completely disintermediate voice. We think it raises the value of voice by making every interaction more automated, intelligent and creating better outcomes for our customers.

So, one of the most amazing things about the company is the expense discipline you brought to the company or the most amazing things about you becoming CFO. You guys not too long ago, were burning 15% of revenue in cash per year, just 3, 4 years ago. Now you're 20% of revenue now is free cash flow. I don't think the Street fully recognizes that yet. But I mean, can the trends continue here on -- and that's after stock-based comp, by the way, the way we measure it. Is there more operating improvements to come?

Yes, absolutely. So thank you for the call out on that. Look, we are very proud of the improvements we've made. We were, call it, a 10% operating margin company. We've more than doubled over the last 2 to -- 3 to 4 years, call it. And the recent quarter and -- where we've guided to is another proof point of that, right? We are -- on a quarter-by-quarter, on a yearly basis, we are consistently showing improvements in operating margins. And I think one important thing to kind of note is that these margin expansion trends you are seeing are structural. When you look at our base, we have a scaled recurring revenue model. We have this large base.

ARPUs are generally strong. Net retention rates are stable. We have industry-leading gross margins at 80%. So every dollar of revenue that we are adding is resulting in $0.80 of gross margins. And below the gross margin line, like our fixed cost base does not need to increase in the same proportion. So there is embedded operating leverage in the model. Revenue growth is consistently outpacing expense growth. And on top of that, we are just being disciplined on costs, right? There's a lot of discipline around hiring, offshoring, vendor consolidation. And frankly, just as we are selling AI to our customers, we are also using AI internally to make things more efficient.

And to your other point, look, we are also looking at operating margin expansion in conjunction with SBC, free cash flow and free cash flow per share. So SBC, again, we've been very disciplined in terms of new share grants, and we are consistently bringing that down by about 200 basis points or so. And that's resulting in our GAAP profitability growing faster than non-GAAP now. And we've laid out a target of reaching 20% of GAAP profitability in 2 to 3 years, which is 1 year ahead of our original target. And the other important thing is operating margin is also translating well into free cash flow, like we are producing over $600 million of free cash flow, which is expected for this year. And that is allowing us to, frankly, be a lot of optionality in terms of investing back in the business and be disciplined on capital allocation.

So again, the net-net is what I want to leave you with is more room -- there is obviously more room for margin expansion. We haven't laid out long-term targets, but I certainly expect the direction of travel to be up and to the right. Again, our focus is on finishing this year. And as we draw the plan for next years and the next few years, we always make investment decisions. So we'll come out with specific targets. But my expectation is the journey will continue in terms of expanding margins, expanding free cash flow, expanding GAAP operating margins and reducing SBC.

Well, not to put words in Vaibhav's voice presentation here, but I was beating them up quite a bit just 3 years ago when sales and marketing expenses were 45% of revenue. We're down to 37% this last quarter. I personally think there's more room with that number, but we've already seen amazing improvement there in large part because I think you were in agreement with me at the time. And we're not looking for you to give us new guidance here on the call, but for what it's worth, I think there is amazing opportunity there.

So I guess lastly, and probably most importantly, you had a bunch of -- you had some headwinds here lately from COVID on the revenue growth. Now you have all these new products that are going to, I think, enable ARPU and maybe just enable more share gains. Do you think you can get back to double-digit revenue growth longer term and the timing on that?

Yes. Again, look, I'll be careful in not giving long-term guidance here, but we are working very hard to execute. I think you should not think of the 4% to 5% or the 5% to 6% as a structural cap on the growth rate of the business. I think we are still in the early innings of a very large opportunity. And look, we are doing -- we are working hard. We are doing everything we can from our standpoint. And again, it comes back to -- I'll wrap it up with 4 points, Tim, that will kind of answer your question. But we have a large, durable kind of communications platform, which is our core, continues to be mission-critical. We will do everything or we are doing everything to preserve that base, and that's reflected in our strong net retention rate. That also is a unique asset, gives us an opportunity to kind of land and expand into that space.

Number two is on top of that core, the portfolio of AI products is expanding. Again, we are early in these products, and we are seeing very encouraging signs. So we are working hard to kind of improve what these products can do and expand the go-to-market reach on these products. And we also have a differentiated advantage in terms of our global voice infrastructure, the data, the product breadth and the go-to-market reach. So all of this positions us well in the new kind of AI era. And last but not the least, we are translating all this business strength into a high-quality financial model, right, expanding margins, free cash flow, disciplined capital allocation. So the key takeaway is there's a powerful flywheel. There's a durable recurring base, which funds innovation. AI is expanding that growth opportunity.

Operating leverage will improve margins and stronger free cash flows will enable us to have the capacity to reinvest and return capital to shareholders. And I think that's how we are delivering like $7 again in free cash flow per share, but we are expected to deliver that for this year, which is one of the highest in our peer set. And look, from our standpoint, we are focusing on continuing to execute and let performance translate into long-term shareholder value and valuations will catch up.

Vaibhav, I think that's a good note to end it on. Great job as usual. Thanks for your support, and thanks for all the hard work, and I hope it continues.

Yes. Thank you. Thank you for your kind words.

Good day, and welcome to the RingCentral Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Steven Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Second Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO.

Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call.

If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings release.

Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the financial results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. We delivered another strong quarter, exceeding the high end of guidance across all key metrics. Total revenue, subscription revenue and both GAAP and non-GAAP operating margins surpassed expectations. .

Free cash flow generation also remains strong, and we now expect to deliver more than $7 per share for the full year. Given our quarterly performance and our confidence in the longer-term sustainability of our operating model and free cash flow profile, I'm excited to announce that our Board has approved an increase to our quarterly dividend to $0.125 per quarter per share.

We are also making meaningful progress towards our medium-term target of reducing SBC to a range of 3% to 4% of total revenue. Our disciplined focus on profitability has put us ahead of schedule on GAAP operating margin, and we now expect to reach our 20% target within 2 to 3 years.

A year ahead of schedule. We also remain on track to reduce gross debt to $1 billion by this year-end. This performance reflects a multiyear effort to strengthen our financial profile while transforming the company into an agentic voice AI leader.

RingCentral is becoming an intelligence layer where AI agents and human agents work together to manage customer interactions end-to-end for better business outcomes. We believe the market opportunity is large, spanning UCaaS, CCaaS and conversational AI, totaling more than 150 billion.

This is based on estimates from IDC and Gartner. Further, we believe that the convergence of these disparate markets into a broader category of AI-powered customer engagement plays to our strengths and that we are well positioned to address this shift with 1 of the industry's broadest AI-powered customer engagement portfolio.

We are investing over $0.25 billion annually in R&D to expand our portfolio, deepen our moat and accelerate innovation. Voice is at the center of this transformation. It remains the primary way customers engage with businesses through both human-to-human conversations and increasingly interactions between people and AI agents.

Our carrier-grade platform serves approximately 600,000 businesses across 45 countries and support international numbers in nearly 100 countries. It carries roughly 40 billion voice minutes annually and more than $3 billion text messages. both growing faster than our user base. Adding to our moat are billions of recorded and transcribed conversations that reside on our platform.

This gives us invaluable learnings in delivering AI native solutions that are best tailored to address our customers' needs. This wealth of data combined with our infrastructure, scale, reliability and decades of operating experience creates a high barrier to entry.

In addition, the branch of our product portfolio gives us the ability to cover all aspects of customer to business interactions, including person to person, person to informal contact center agent person to a dedicated contact center agent and of course, increasingly person to an AI agent.

It is this ability to freely intermix AI and human agents while having both learn from the other that gives RingCentral a sustainable structural advantage. Unlike many AI point solutions that depend on third-party telephony or contact center stacks, RingCentral agenetic voice AI is built on our own global business voice network that can't be replicated.

It also integrates closely with our well-established cloud-native product portfolio. This matters because most businesses want a single platform that can support, connect and orchestrate across every customer interaction, whether to a human or an AI agent. This constitutes a clear competitive advantage for RingCentral.

This advantage translates into strong adoption, broader portfolio penetration and meaningful customer expansion. We're seeing the demand across every part of our go-to-market engine, direct channel and GSP with customers and partners increasingly leaning in to adopt AI across the entire platform.

Numbers don't lie. ARR from customers who utilize at least 1 of our native paid AI products now represent approximately 13% of ARR, having doubled year-over-year. These customers have net retention well above 100% and meaningfully higher ARPU than the rest of our base.

This momentum spans our entire AI portfolio. we ended Q2 with more than 16,000 paying air or AI reception with customers, which is up 400% year-over-year. At our AI conversation expert has more than 6,300 customers, growing more than 70% year-over-year.

More broadly, ARR from our AI-led new products grew nearly 60% during the first half of the year. These new products also help us increase wallet share. One example is a large U.S. automotive dealership group with approximately 30,000 employees.

Beginning with Ring in 2024, the later expanded into Ring CX and AI quality management and more recently rolled out AIR and Call Queues across its dealerships. This has more than doubled their ARR over the last several months. Our new customer engagement solution, or CEB is another standout.

CEB adds lightweight contact center capabilities to RingEX, such as Call Queues, Shared SMS Inbox and Analytics. CEB now serves more than 9,600 customers and has grown more than 80% sequentially. Our progress on product innovation wouldn't be possible without transforming ourselves into an AI-native company.

This quarter, most of our product and technology employees in partnership with OpenAI executed an AI-native project with over 99% success rate. This marks a major milestone towards RingCentral becoming an AI-native company. We'd like to thank OpenAI for their guidance and support in making this happen.

Another core strength in moat is our differentiated go-to-market, which includes direct sales over 16,000 channel partners and resellers and global service providers. Our AI and new products are resonating with channel partners.

In fact, about half of our AI ARR originated from the channel. Partners investing in AI services and outcomes are winning, and we are building out programs around that momentum. We also have 16 leading global service providers in our network, and they remain an important part of our go-to-market strategy.

These partners are increasingly bringing our AI products to the market. Recent wins include BT, selling RingCX and AI quality management to one of the U.K.'s largest electricity and gas brokers. And Vodafone U.K. recently deploying AI-powered RingEX at PwC, one of the big four consulting firms.

To truly build on our momentum I am delighted to welcome NICE to our family of strategic resellers. Today, RingCentral and NICE announced an extension and expansion of our partnership, whereby NICE will begin marketing and selling RingEX in combination with CXone.

While RingCentral continues to offer NICE CXone to our customers. We now have a symmetrical mutually reinforcing partnership that brings together two market leaders to deliver the future of AI-powered customer and employee experiences to businesses of all sizes.

Also, in an effort to streamline customer experience and to better align with our respective strategic directions moving forward, we have recently restructured our relationship with Avaya. While RingCentral will remain Avaya's exclusive multi-tenant cloud UCaaS offering, existing Avaya cloud office customers and partners will transition to the RingCentral platform and brand directly.

We see this restructuring as a win-win for in RingCentral, Avaya and most importantly, for ACO customers and partners alike. We look forward to continue to serve the ACO community under the RingCentral brand and working with them directly.

Last, but by far not least, this progress would not be possible without our outstanding people. I am delighted to announce that RingCentral was recently made to times list of America's best companies for 2026, recognizing employee satisfaction, financial performance and sustainability over a few year period.

This important award recognizes the passion of our employees, the trust of our customers and our focus on culture, innovation and execution. I could not be more excited about the role ahead's.

With that, I'll turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone. As Vlad said, RingCentral is uniquely positioned as the most complete customer engagement platform with a genetic voice AI woven across the portfolio. This quarter, we saw customers accelerate their adoption of RingCentral AI. For example, BGM Group, a national post-acute health care organization deployed our full in RingCentral AI portfolio, AIR, AVA ACE on top of RingEX.

AIR recovered 45% of their calls previously lost to abandonment. AVA eliminated manual mutating, ACE delivered the core visibility and coaching to help them improve their customer introductions. They're now rolling out AI solutions to every department across the company.

This example highlights the flywheel effect of more calls captured less time spent on manual work and more insights that make each interaction better than the last. Now let me hand back our AI portfolio further. AIR, our AI receptionist, handle inbound voice call and text messages, deploys in minutes and works with businesses of any size.

This quarter, we enhanced AIR with new SPAM blocking filters and lead capture that collects information at the right moment and syncss with Salesforce, HubSpot and Zoho. Customers are seeing the impact of using AIR.

Based on a recent survey, AIR customers reduced miss-call rate from an average of 20% to close to 0. For example, GTR Insurance, a family-owned insurance business says they are no longer buried in 50 calls a day and AIR is saving them $6,000 a month.

That's time and money we are putting back into growing their small business. For customers with more complex use cases. Air Pro enables businesses to build purpose-built agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing.

This quarter, we advanced our AI agent to handle multiple intents, retain context across conversations and ask targeted follow-up questions to improve accuracy. We're excited about the traction with Air Pro since launching just a few months ago in early access.

One example is a leading BPO achieved a containment rate of above 85% with no live agent transfers after using AIR Pro together with their CRM integration. Another example, is a health care customer, which added Air Pro and ACE for integrated scheduling and customized lead qualification.

The deployment succeeded quickly, and they're already expanding Air Pro to new use cases. That kind of rapid time to value is exactly what we're seeing across our portfolio.

ACE, our conversation expert, give sales, marketing and compliance leaders, complete visibility across every call automating reviews, replacing manual evaluations and feeding conversation intelligence directly into their CRM and ticketing systems.

In the last quarter, we saw a record ACE adoption with the number of calls processed jumping to double digits quarter-over-quarter. An example of a customer with this past quarter is one of the nation's large health care workforce providers, which purchased nearly 700 licenses of ACE to improve the nursing placement conversation rate and enhance the recruitment, training and coaching.

ceb, our customer engagement bundle solution is also scaling fast with a healthy attach of our AI products. A recent customer win in the financial services firm, that chose CEB, attached with ACE to manage inbound calls and SMS with automation, AI support agent quality and to have full visibility into call queue volume with a robust analytics.

This example underscores the growing attach motion of AI CEB. We continue to invest in strengthening our Air Pro offering with RingCX. We've added autonomous outreach enabling AI to proactively initiate conversations on its own. And while human judgment is needed intelligent handsoff transfer full context to a live agent seamlessly.

The market is taking noticed. This quarter, both Aragon Research and Nucleus Research, naming RingCX, a leader in their respective contact center reports. Recognizing our AI investment workforce engagement capabilities and embedded contact center experiences.

We are proud of this industry recognition and our ability to give customers powerful right-sized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve. Our unwavering commitment to innovation and well differentiated go-to-market, we're in a strong position to drive AI first customer engagement at scale.

With that, I'll hand it off to Vaibhav.

Thank you, Kira, and good afternoon, everyone. Q2 was another solid quarter with all key metrics above the high end of our guidance. Our results reflect RingCentral's strong position in a growing market, durable TAM, well-established competitive moat and rapidly emerging AI portfolio that is increasingly contributing to our performance.

We continue to strengthen our financial profile through disciplined execution, driving profitable growth, expanding GAAP and non-GAAP margins and free cash flow reducing SBC and executing a balanced capital allocation strategy across innovation, debt reduction, buybacks and dividends.

As Vlad mentioned, given our strong operating performance, demonstrable traction of our AI and AI-led products and our confidence in the long-term free cash flow generation, we are pleased to announce that our Board has approved an increase in the quarterly dividend to $0.125 per share.

Together, these actions position RingCentral to deliver durable, profitable growth, strengthen our balance sheet, enhance capital returns and drive sustained long-term shareholder value creation. Now let me turn to our second quarter results.

Total revenue was approximately $657 million up 5.9% year-over-year, and subscription revenue was approximately $634 million, up 5.8% year-over-year. Both came in above the high end of our guidance reflecting the durability of our core business and increasing traction from our AI-led products.

Customer trends remained healthy, including steady new customer additions and improving monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers.

As Vlad mentioned, our AI-led new products are still early, but they continue to gain traction. Combined with the durability of our core business, they are improving the quality of our growth by increasing the ARPU and net retention while also expanding our long-term opportunity by increasing the TAM we are addressing.

Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached 23.4%, up nearly 90 basis points year-over-year and again above the high end of guidance.

We believe our margin expansion trend is sustainable and supported by multiple structural drivers such as scale benefits of our recurring revenue model, increasing contributions from our AI products disciplined hiring, expanded use of lower-cost locations, vendor consolidation, broader internal adoption of AI and continued focus on our highest return products and go-to-market motions.

SBC as a percentage of revenue declined approximately 150 basis points year-over-year to 9% in Q2. We remain on track for SBC to be approximately 9% of revenue in 2026, down 180 basis points from '25. This continued improvement reflects our disciplined approach to equity management.

The combination of stronger non-GAAP margin and lower SBC drove GAAP operating margins of 7.7% improving by more than 170 basis points year-over-year in Q2. As Vlad mentioned, we believe that we are ahead of schedule in reaching our target of 20% GAAP operating profit now expecting to accomplish this milestone in the next 2 to 3 years.

Turning to free cash flow. We generated $180 million of free cash flow in the quarter, up 25% year-over-year. This reflects strong operating performance, continued efficiency gains and improved working capital, including certain onetime benefits from customers and partner prepayments and continued discipline around vendor spend.

Our recurring revenue model, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. Given our first half performance, we are raising our full year free cash flow outlook to $620 million at the midpoint, over 23% of revenue.

Importantly, we believe the durability of our recurring revenue base with growing contributions from AI products, structural margin expansion, disciplined capital allocation and continued reduction in SBC provides a strong foundation for sustained free cash flow generation over time. As a result, free cash flow and free cash flow per share remains central to how we manage the business.

Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we reduced overall debt by approximately $85 million and lowered net leverage to 1.5x.

Together in the first half of 2026, we have reduced our gross debt by about $130 million. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. We Important to note is that we have no maturities until 2030, and we maintained $355 million of undrawn credit capacity.

We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.2 million shares using approximately $94 million. At the end of Q2, we had approximately $326 million remaining under our repurchase authorization. Diluted share count declined 6% year-over-year to approximately 87 million shares.

The durability of our free cash flow enables this balanced approach and gives us confidence in our ability to continue investing in innovation, strengthening the balance sheet and returning capital to shareholders over time.

With that, let me turn to Guidance. For fiscal 2026, we are raising subscription revenue to be at $2.55 billion to $2.561 billion, representing growth of 5.1% to 5.5%, raising total revenue to be at $2.635 billion to $2.646 billion representing growth of 4.8% to 5.2%.

Raising GAAP operating margin to be from 9% to 9.7%, expanding 460 basis points year-on-year. Non-GAAP operating margin of approximately 23.6% to 24%, raising free cash flow by approximately $20 million to $615 million to $625 million up 17% year-over-year. SBC in the range of $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue.

Fully diluted share count of 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.96 to $5.10 up 15% year-over-year. This results in free cash flow per share of $7.07 to $7.23 for the year, up 23% year-over-year.

For Q3 '26, we expect subscription revenue of $643 million to $649 million, total revenue of $664 million to $670 million, GAAP operating margin of 7.2% to 8.6%, up 310 basis points year-over-year. Non-GAAP operating margin of 23.5% to 24%, up 100 basis points year-over-year.

Non-GAAP EPS of $1.25 to $1.30, up 13% year-over-year. SBC in the range of $63 million to $67 million, improving 60 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million shares, lower by 6% year-over-year. In closing, Q2 was another strong proof point of the durability and the efficiency of the RingCentral model.

We exceeded the high end of guidance across all key metrics, expanded both GAAP and non-GAAP profitability, generated strong free cash flow, reduce debt, return capital to shareholders including increasing the dividend and continue to reduce dilution.

At the same time, we are investing in innovation and seeing early AI traction contribute to our growth profile and revenue quality. With free cash flow per share now expected to exceed $7 this year, we believe RingCentral is well positioned to continue compounding shareholder value. With that, let's open the call for questions.

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

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

Yes. Elizabeth, Vlad here, and thank you for the question. Look, I would answer it this way. AirPro, AVA, ACE, it's all part of our transformative transformation towards an AI-led company.

And look, we predate AI native. That's obviously a fact of life. But we are turning ourselves into a company that thinks and operates like an AI-native company. and including our recent announcement was open AI.

So -- but to the point of your question, AIR various flavors of AIR including AirPro, that is the new UCaaS and CCaaS, how we see it. AI is rapidly becoming an integral part of the offering, okay? We are -- to your financial part of your question, we're absolutely able to charge extra dollars for it at a good margin.

And for the simple reason that combined solution is, it basically saves customer time and money. It saves on human agents, but it also empowers remaining human agents and make them more productive. And what makes RingCentral quite unique in the industry and with our approach in our various modes is the fact that we are able to power both human agents and AI agents and make them work close together while in the way of learning from each other.

So our AI, and we're in a unique position to do this. Our AI is able to learn from human agents, both in real time as well as from literally billions upon billions of recordings that are already sitting on our platform. Okay?

And similarly, our human agents are also able to learn from AI, sometimes in real time based on all of the new data that's now being generated by our AI agents. So in a nutshell, that is the promise of AIR and frankly, even more so of AirPro which has deeper intelligence and deeper integrations.

And that's what we call this flywheel, which is really a virtuous circle, if you think about it. Everything just becomes stronger together. So moving forward, we strongly, strongly believe that AI is going to be a major tailwind for us as a company, both growth-wise and margin-wise. Unlike the [bear case], hopefully that is dissipating now that somehow AI is going to mean less business for Ring.

We're seeing exactly the opposite. It means more business for Ring.

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

Yes. I mean, look, that is the idea. I mean, hopefully, is exactly what you say. NICE is a well-known enterprise player. We have as you all know, a multiyear partnership with them, and it went to various phases.

If nothing else, as you've been seeing over the last a year or so, the partnership has been strengthening. And with this current latest announcement, I don't know what other proof points you need that things are live and well between the two companies.

But market positioning wise, our RingCentral Contact Center powered by NICE, just because of the nature of most of our business, most of it has been in the mid-market. At least certainly as far as number of logos are concerned.

But even though overall is business, I mean, we have some very large accounts we won with RCCs. But again, majority is more mid. NICE incontact on their own volition, they are a pure enterprise company. They have very, very large accounts. They're one of the basically two undisputed industry leaders in high-end enterprise CCaaS.

And this is just a great testament to the fact that they are now also seeing that UCaaS and CCaaS are stronger together; not just in the mid-market, but also in the enterprise. So we're super excited. And hope that there will become a meaningful new channel for us in this very, very important segment. And I think as the press release and you read Scott's quote and my quote, all of this becomes stronger with AI, their AI assets, our AI assets, there is much of it is complementary to each other, okay?

So I will always be of the opinion that providing a customer of any size with a unified solution with single throat to choke that is a customer-friendly gesture that is what customers want. And now more customers will be exposed to it. So I'm super excited about this.

The next question will come from Siti Panigrahi with Mizuho.

Vlad, as you're seeing AI picking up momentum. How do you see your AI, your product sets in the AI evolve? And how do you see the TAM expanding for RingCentral? And specifically, how do you see your customer spend evolving?

Are you seeing more that to increase, decrease? Or where do you see that incremental spend will come from customer base?

Let me answer it this way. Again, just looking at the numbers that, as we all know, don't lie, what do we see? We see more of our customers buy AI from us, okay? I want to say not -- and I'm being very specific here, not just use AI because many people will claim AI, but they're just giving stuff away.

We're also giving lots of lots of staff away in AI, but the stuff that is differentiated where we have moat around, that's the stuff we charge for. So just concentrating on that portion of the customer base that is buying AI products from RingCentral, and these are -- I really want to stress this.

These are our natively developed products. Not third party were not OEMing for this calculation, okay? So a number of customers that's using at least one paid AI product from RingCentral has doubled year-over-year. It's about 13% of revenue which is, give or take, $300 million, if I can do it on my head.

Yes. Okay. So that is a substantial business. And what else do we know about this business? It is also more sticky. So the net retention for this cohort is over 100%, okay, which is really good news. So to be blunt, when people say, "Hey, SaaS is going down and Ring in particular, is a melting ice cube, you know what, not so much not so much because AI and AI affected revenue is growing.

It's, again, doubling with meaningful numbers already, and retention is over 100%. Moving forward, we're optimistic we'll be more of the same, okay? Our AI products are only getting better. We are spending $250-plus million per year on innovation. More and more is going towards AI. We are on the map now, AI natives and foundational model people like OpenAI are taking notice.

This is why they're showcasing their relationship with us perhaps. And by the way, want to reexpress my thank you to OpenAI and the team in working with us. It was an amazing eye-opening project.

But I'll tell you what, RingCentral now has over 2,000 -- well over 2,000 people who have completed a native AI project. I don't know how many other companies in the industry or in general, can claim that.

So we will be accelerating, okay? We'll be doing more product for more customers. And again, going back to my answer to a little bit this question. I just want to reiterate where we have natural moat, of course, our network and our presence and our channel and our GSPs, all of that but also very importantly, the fact that we have this portfolio that can do people and AI agents altogether and the people part of it goes all the way from a high-end contact center down to a -- to a customer engagement application with maybe a few folks talking to their customers.

So for as long, this is a core belief in the core bet. For as long as consumers are calling or testing their business providers of any type, we'll be fine and I do believe we'll only be stronger.

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

Thank you for the question,. So in terms of capital allocation, look, there's no structural change. It's around having a balanced and disciplined approach and it's centered around improving free cash flow per share.

And as you rightly called out, we are generating high-quality and free cash flow now, which gives us the flexibility to deploy capital across multiple priorities. The priority is investing in growth, which Vlad just talked about investing in innovation, particularly take advantage of the massive AI opportunity in front of us.

Secondly, in terms of the balance sheet strength and profile. Our leverage is relatively in a sustainable level. We are continuing to pay down debt and remain committed to bringing down gross debt to $1 million by the end of the year.

And thirdly, it's about returning additional capital through a combination of buybacks and dividends. At current stock levels, buybacks remains an attractive opportunity. We continue to buyback stock like we did in Q2. We are lowering our share count, which is now at 2019 levels and given the strength of our free cash flow, our Board authorized an increase in our quarterly dividend.

It is a reflection of the confidence in our durable growth profile and long-term sustainability of our free cash flow. And your last comment, it's not coming at the expense of growth. In fact, it's the opposite. I would say it's an outcome of driving durable growth and strong free cash flows.

And it provides more predictable returns to our shareholders. So net-net, look, we are a compounding free cash flow model, built on a durable recurring revenue base with a growing AI portfolio and consistent cash generation. And we are focused on allocating capital in a way that drives long-term shareholder value.

The next question will come from Tim Horan with Oppenheimer.

Two questions, one for you, Vlad, and one for you, Vaibhav. But Vlad, it seems like AI is transforming business phone line utility, and I think usefulness. For existing customers that are using it, are you seeing an increase or an acceleration of the minutes per month that they use it or how they use it both on wired and wireless.

And are you starting to win new customers because of AI? And do you think this might accelerate the migration to the cloud on-prem for the industry?

Yes, really good question. So yes, to all of the above and more. Firstly, as far as the usage is concerned, we're seeing minutes usage increasing across the platform, and that's ahead of our revenue growth or seat growth, okay?

So that means deeper engagement just across the whole network. That's with as well as without AI. And it's phone calls, and text messages. Everything is growing meaningfully faster. And I have to say that many people don't realize that we are becoming quite a sizable provider of business SMS, and that is growing strong double digit for us, okay?

Also a pretty meaningful base already. So that's one. Now within AI, with AIR in particular, AIR ends up connecting more calls. So there is just less dropped calls. Why? Because people at this point are not too keen on leaving voice mail.

And AIR is specifically optimized for ideally resolving the call right there and then. So that's not a dropped call. But if it cannot -- and the only reason it cannot is that the customer hasn't taught it how to. Customer has the tools to teach.

So we are working with them to try to get more and more deflection. But at the very least, it's able to figure out who to direct a calls to from a live agent perspective. So that is absolutely -- that's kind of the bottoms-up view on why AIR customers are using -- in the end, they're using more minutes, which in the end good for our business.

It's just a deeper engagement. And I think your last question was, is AI helping sell us new products? 100%, I mean, we easily half of our new sales include AI, easily half of channel sales includes AI, easily half of AI sales come of the channel, right?

So they're kind of multiple sides of the same coin. And -- but I tell you what, I really do believe that if you were to fast forward a bit, I don't know, are we talking a year or 2, maybe less. I don't know. But I think the entire definition of UCaaS and CCaaS will need to include AI.

I don't -- the days of just a siloed, hey, let's just connect a person to another person or a person to a group, those days are numbered, and we recognize this. And we believe we will be one of the winners, hopefully, one of the major winners of this movement as we are able to embed AI at every stage of a consumer business interaction, starting with before human during human and after a human is a processing a call transcript or recording and making it all work together.

And that's unique position and this unique flywheel that I keep talking about.

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

Thank the question, Tim. So look, we've done a lot of work over the years around free cash flow expansion and have driven improvements over the years. And that remains a key focus and central to how we manage the business.

Drivers of free cash flow expansion are twofold. It's improving profitability coupled with working capital efficiency. In Q2, we had both -- we've been improving margins quarter-over-quarter, year-over-year and we got some working capital improvement benefits from customer prepayments.

Overall, for the year, we are raising FY '26 guide by about $20 million, to reflect, again, both operating margin expansion and working capital efficiencies. The one thing that's important here, Tim, is that this expansion is structural in the sense that we have a scaled revenue model with strong ARPUs, net retention rates and gross margins.

So that creates an embedded operating leverage in the model where revenue growth is outpacing expense growth and again, that's supported by our discipline in cost management around hiring. And as Vlad indicated earlier, increasing use of AI within the company and free cash flow per share is growing faster.

So again, overall, there will be quarterly volatility in terms of the trend, but there are multiple structural drivers to drive that free cash flow. And overall, we feel good and confident about the long-term sustainability and improvements in both operating margins and free cash flow.

And this is one of the primary reasons why our Board approved a dividend, an increase in the dividend, if you will. Again, it ties back into the confidence around the durability of our growth profile as well as the long-term sustainability and durability of the free cash flow profile.

The next question will come from Brian Peterson with Raymond James.

Congrats on the strong cash flow number. So Vlad, I wanted to follow up on your comments on the AI attach rates. I know you mentioned they're 50% of net new. I'm curious if that differs by segment, if maybe SMB is adopting faster and enterprise is taking a more wait-and-see approach. We just would love to understand how that adoption looks across the different segments.

Yes. Look, we generally tend to not break things up by segment, as you know. But holistically, look, smaller businesses are faster to adopt decision-making is faster, it's more streamlined, there are less committees, just selection process is simpler.

So yes, I mean, because these products are early I would say that they tend to lean smaller for us, which, by the way, is another source of strength, right, because quite a few -- not quite -- it's not such a large field, but some of the better known AI natives, they just concentrate that market and then the price, and that's just great.

But U.S. economy is 40% small, not even SMBs are small. So there is something to be said about that too. But there is adoption throughout. I mean we have a large logos. We have smaller logos, our 7-digit TCV deals. Again, majority, at least 50% are using AI.

We see AI as again, becoming more and more Just an integral part of core requirements. It's just kind of like mobile. It's not -- we have a hard time selling much product if we do not have smartphone support. And people used to ask about it, and I think I gave similar answer back then. And AI is becoming that.

It's just becoming a table stake that you have to have and those who are good at it and those who have a moat and the differentiated approach we'll win, and we'll win big.

And Vaibhav, maybe a follow-up just in terms of the dividend increase. I'd love to understand why now. I know you guys have been deploying capital in multiple different ways, but curious what led to that decision to raise the dividend?

Thank you, Brian, for the question. So look, again, it comes back to my previous comment around we are generating a high-quality durable free cash flows, and we've guided to around $600 million so that allows us to deploy capital across multiple priorities.

Again, we are investing in growth. We are delevering. We are buying back stock and dividends is just another way to return capital to shareholders in a more predictable way.

I want to add to that. Look, I think there is a core belief here that AI will not only help us accelerate our sales but will also, in the end, be margin accretive. And a simple reason for that is that we are able to move now meaningfully faster with our product development cycle.

Again, I refer you to the OpenAI study we just published. But it's even beyond just R&D or just product and tech, it's across the org.

Everyone is becoming more efficient. Okay? So we will either be able to accomplish a lot more which is what we're hoping to do or at very least become more efficient in what we are already accomplishing. So yes, we feel good and strong about our outlook with on numerous fronts, including cash flows.

And this is one way to return capital to shareholders. We've been a public company for 13 years now. And we understand that this is -- it's not too early.

The next question will come from Andrew King with Rosenblatt Securities.

Really nice quarter. I just wanted to ask a little bit more explicitly. What -- can you just give us a little bit more detail the drivers of the beat? And then within that, Kira, you called out some really nice product wins during the call. Can you just give us any more color as the momentum of new products?

Yes. Andrew, thanks for the question. So on new products, what's driving this is -- let me just give you an example of the latest product that we -- one of the latest that we introduced, our customer engagement business solution. That's a good one.

That's off to a great start. As you can see, almost 10,000 customers just launched -- having launched at the end of last year. And the reason this is resonating with customers, is that it is -- it fills an unmet -- need that hasn't been met before, where we have an informal contact center that where employees handle calls, handle text, but they're not dedicated agents.

So they have high volume of call queues, SMS. They need deep analytics. And they don't need a complex contact center or don't need the contact center at all, but kind of a little bit more advanced than a typical phone product. And so that's what's resonating and it's from -- we built a product that is easy to adopt, manage and it's natural for new customers and also our existing customers are expanding with it.

And its natural attractions are AI products such as AIR and ACE because on these inbound queues, you have the need to be able to handle these in efficient way when people cannot pick up the call or in front of some queues that don't need that need to authenticate and reroute and answer questions that previously had to be managed by people or a little more complex questions.

And on ACE to be able to analyze what the people actually say, how does that work? And again, these are usually not really involve contact centers. These are relatively -- they're simpler. And so all of our products work together there, and there's the flywheel that Vlad talks about that becomes a product flywheel and a customer value flywheel.

And as to the point, I think your first question was AIR. Well, AIR is unique in that it is really easy to deploy. It's really easy to use and businesses of all sizes have this need of having to be able to answer and handle calls. If you're a small business and you miss a call, this is your business that is struggling.

And I've given those examples in prepared remarks in the script, that basically point to small businesses not being able -- improving their business materially small numbers, but for small businesses very material. And for large businesses, the numbers get compounded.

And so that is not very typical for most IVA type products where we take out the complexity, and we can get value to customers literally in minutes and days of deployment.

Great. And then if I could just squeeze one more in there quickly. Could you just give us an idea of how you're balancing your R&D investments between delivering more AI products and versus delivering more vertical-specific packages to try and replicate the success that you've seen within health care?

So some of it, as we talk about AI helping us build AI products. So that certainly is a big accelerator. And we're seeing good success in health care. And as we're seeing good success in health care, our platform allows us to scale vertical solutions with our AI products. And so I -- for example, we have this BPO that actually handles a multitude of cases because it's a BPO, the number of use cases that it handles is not vertical specific in one vertical.

It has a number that deal was, for example, enrollment in schools and enrollment calendar handling for them, filling out job applications openings, handling of information and use cases that are quite diverse. And so our platform has really adapted doing that. And expect us to roll out additional specific templates for verticals where we traditionally do well, which includes financial services, insurance, ultimately, retail and so on.

The final question will come from James Fish with Piper Sandler.

I appreciate the questions here. It's -- is there a way to think about now that AI has become over 10% of ARR, how much of an impact it is having the gross margin? Because a subscription gross margin did come in a little bit lighter than what we were looking for, and I'm guessing it has a lot to do with that. And then I just have a quick follow-up.

Maybe I'll take the first part of the question. And look, I just want to make sure we're using the same just for clarification purposes, it is revenue from customers with at least one paying AI product that is now over 10% of the revenue, like we've disclosed 13% we have not yet talked about just pure AI revenue and partially for the reason that, that may not even be that relevant that indicative because our goal is to embed AI across the entire portfolio, okay?

So we will be moving forward, most likely differentiating less and less between pure AI revenue and AI affected revenue with latter really is how we run the business. Okay?

Because that is exhibiting the exact patterns just we want to see, which is better engagement, better stickiness, better ARPUs. So certainly from a top line perspective, it's a great tailwind.

From the margin perspective, look, we've been able to hold our own so far. We're judicious we are doing quite a bit in the way of optimization and model shopping, if you will, so right tool for the right task. And that is a big part of the effort.

And they know that there is certain inherent dangers as well, tokens are not inexpensive and they are not -- but I mean, so far, at least, we've been able to maintain margin -- a healthy margin on our paid AI. Anything to add?

Yes. So I think a couple of things to add, Jim. So gross margins are still at above 80%. So they are still healthy -- as Vlad said, ARPUs continue to hold steady. In the core business, we get the benefits of our multi-tenant SaaS platform. On AI itself, the margins continue to be strong within that cohort of customers that Vlad articulated, we are seeing better ARPUs and NRR net retention rate.

Now keep in mind that these new products are still ramping. So we will get more efficiencies over time. And again, look, there will be some volatility or variability quarter-over-quarter. Overall, from a gross margin standpoint, our expectation is that it will remain at around 8%.

Got it. And just on my follow-up. Obviously, the NICE expansion and extension is good to see. But any update on sort of how to think about where RingCX powered by Ring stops versus NICE powered by CXone starts? Is there any update to that? And how was customer penetration on that product this quarter?

Yes, without drawing a bright line because there is no bright line, but CX is generally more of a mid-market product so far. There are some notable exceptions. We have some very, very large customers on CX as well.

But I would say there's still more of an aberration. If you need deep custom routing. If you need very, very deep human facing analytics, CXone is an industry leader, and there is a reason for that.

If you need quicker, faster, less expensive deployment, a lot less professional service. And you know a little bit sort of newer products, and feel wise maybe then RingCX would be the one to go with. I think it's great that we are now able to offer both.

And obviously, NICE is now able to offer in RingEX into their customer base. And it's just another tool in the toolbox. You never have enough.

This will conclude our question-and-answer session as well as conference call. Thank you for attending today's presentation. You may now disconnect.

All right. Good morning, everyone. So welcome here to day 2 Mizuho Technology Conference. We're fortunate to have RingCentral and representing Vaibhav Agarwal, CFO; and Devang Shah, Senior VP, Strategic Finance and Operations. Welcome to the conference.

Thank you for having us here.

All right. I think we should just maybe you can give a quick intro, both of you who are here, you can, but just about quick brief on the RingCentral, but more important, Vaibhav, you took over CFO in August last year. And you can talk about the progress you guys made and fantastic job stock moved from what, $20, low $20s, mid-$20s to now close to $40. So why don't you kick off with that?

Yes. Thank you for inviting us. Always good to come to New York City, especially at this time. I think the weather is still nice. And I feel the optimism, I experienced the optimism around the Knicks winning the NBA title firsthand. So that was good. So look, I mean, it's an interesting question about my CFO role. Actually, my son who's a rising freshman was asking me this question yesterday. He was like, Daddy, what is it that you exactly do?

So I was explaining to him, look, my job is for the company to have enough money, raise money and then make wise decisions with the use of the money whether it's coming out with cool products that customers would want and having a sales force that can sell these products. So in a lot of ways, I feel like my role is very similar at RingCentral, right, which is I've been at the company for 10 years. I've seen the company evolve through multiple phases of growth and scale.

And frankly, over the years, it's given me a very unique perspective on both the operating levers in the business by working with all the cross-functional leaders as well as the financial framework to drive long-term shareholder value. So in a way, getting into the CFO seat was kind of a natural step for me. And really since last year, what I've been focused on is disciplined execution. And I think my framework that I've communicated on multiple earnings calls has been to drive and optimize free cash flow per share as a North Star Metric for us, and we've made meaningful strides there.

And really, I feel that's a comprehensive metric because it encompasses driving durable growth, both from our core as well as our AI products, improving margins and free cash flow and being smart about how we are allocating the capital. So I feel the company is at a really interesting intersection now with AI, and we have a very, very exciting product portfolio to be able to address a lot of new use cases. So couldn't be excited to be the CFO at Ring at this point.

I think -- well, let's cover the most important topic next is that AI disruption. That's a question everybody thinking about in the software sector. So could you give an overview of like RingCentral differentiation and why AI is more of an opportunity versus a threat to RingCentral business?

Yes. Fantastic question and one that we get asked like often and almost every day. So I believe we are in a unique position, and we have a competitive moat. And the reason for that is several reasons. Number one is Ring is an acknowledged leader in business voice communications. We built a $2.5 billion business over the last 20 years by making human connections simpler and more reliable and easy.

We have built a carrier-grade network, again, over the last 20 years that is feature-rich, that is reliable and that is global. And we have about 600,000 customers. It's been trusted with over 8 million users, and we are carrying tens of billions of minutes and billions of SMS messages on the platform. So it's kind of not easy. It's very hard to replicate that, and it will not be cost effective. So we believe that our platform is a bedrock for applying AI or Agentic voice AI as we call it. So that's point number one.

Point number two is voice continues to be a key mode of communication. And voice is going strong. We see traffic on our platform go up consistently. It's, in fact, kind of outpacing user growth. So voice is going strong. We are strong in voice. And when consumers are calling on their providers, they are generally calling or texting and those calls or text messages are going through the RingCentral platform. So that gives us the ability to be at the top of the funnel. And we are almost a front door wherein we can apply AI from the get-go at the very beginning and then during and after the call. So that's number two.

Number three is over the last 18 months, we've launched a portfolio of our AI products, AIR, AVA and ACE, the 3As as we call it, to be able to address those use cases and drive ROI for our customers. And lastly, we have a large base, as I indicated, 600,000 customers. We are investing meaningful sums of money in R&D. We are spending over $0.25 billion in R&D, a lot of which -- most of which is going in the new AI products. And we have a differentiated go-to-market motion.

So I think net-net, I think it's the platform, the customer engagement platform that we've built, the voice traffic that is going through the platform; our AI product portfolio, which is, by the way, showing good early traction in terms of numbers and having a unique differentiated go-to-market motion.

Maybe digging into that voice AI traction, Devang, I know you guys talked about and launched 3As like AIR, AVA and ACE.

Yes.

Yes. Okay. So those 3 last 12, 8 months -- 18 months, right? Can you talk about the traction you're getting there and also the monetization mechanism for those products?

Yes. So we launched the 3As, as we call it, AIR, AVA and ACE over the last, say, 18 months. And for us, this has been a great time to be launching these products as the demand for AI is increasing. They are all built to meet different needs of our customers. So we think of it as a customer journey when somebody calls in, they need AI to help them at the start of the call in order to, say, deflect calls or answer the calls before they actually get to a person. And that is where AIR comes in.

AIR kicks in before the call actually reaches the customer. And they answer simple basic questions as well as make certain tasks like if they want to schedule a meeting, change their appointments, it can do things like that. It's integrated with multiple calendars. AIR, we have a pricing model as usage-based. And so as people use more AIR, we can charge them more. That's how it is.

AVA is -- think of it as a copilot, which helps these customers navigate through the product, and it can help them answer questions. It can help the actual agent answer questions, basic questions as well as detailed questions in either if they are selling something or in a support setting. AVA, we offer it with our products, and it adds tremendous value to our products. It increases the stickiness, and we see that when customers are using our AI products, they are a lot more stickier.

And ACE comes in after the call is over, and it generates insights and helps customers understand what the product was -- what the customer call was, and it helps populate their internal databases with information, which they can use as insights. And then AIR picks that up and learns from it so that next time when a call comes in on a similar way, AIR is a lot more intelligent in answering those questions.

Okay. That's helpful. But going back to the core UC side, right, how do you frame the current market opportunity? What are the kind of trends you are seeing there? And do you see still opportunity migrating from on-prem market?

Yes. Look, our core business is growing generally in line with the market, and it's fairly durable. And the durability comes from several different things. Number one, voice continues to be mission-critical for a lot of customers, especially in verticals. So we are seeing...

You can't do white coding of voice?

You cannot do white coding of a telephone line.

Telephone line, yes.

Yes, of a telephony network or platform. So that's number one. It remains mission-critical, and that's why we are trusted by 600,000 customers, 8 million users, et cetera. I mean it's a recurring revenue model that we have in the core business. There is strong retention metrics with monthly net retention rates of greater than 99%. So it's a cash-generating machine for us. So that's point number one.

Point number two is, look, it's a natural bedrock to my prior comment on which customers are applying agentic voice AI. So we are able to sell our AI products on top of RingEX, which is our core product. In terms of the TAM, the TAM continues to be tens of billions of dollars in terms of revenue and is still growing.

And in terms of the opportunity, the opportunity is coming from -- there's a large runway in terms of on-prem to cloud migrations. There's still hundreds of millions of seats globally that are out there that will, at some point, transition from on-prem to the cloud because to be able to use the power of AI, you generally need to be on a cloud solution. And in fact, on this past earnings call, we had a number of examples of notable customer wins wherein customers move from on-prem to the cloud, biggest ones being Coca-Cola, the third largest bottler in the United States.

There's a Fortune 500 insurance company that moved. And then a name that a lot of people in New York would associate with is the New York Mets. They moved from an on-prem solution to a cloud-native -- to the RingCentral cloud solution. And I think there's a common kind of a theme across all these migrations. It's number one, companies want to modernize their communication stack, so they are moving from on-prem to the cloud. Number two, they want the ease of deployment and flexibility of change, which we offer. And number three, a lot of these customers buy our AI product portfolio along with the core RingEX product. So I think overall, the core is going strong. It's a durable business. It's a cash-generating business for us, and it helps us layer on incremental AI products on top of it.

That's helpful. Just to add to the CCaaS, you also have contact center solution along with that. And you guys talked about RingCX and I think that's Customer Engagement Bundle, CEB there. So how does that fit into your core market? And what kind of traction you're seeing there?

Yes. So we recently released the CEB. And with that now, the way we think about it is we have customer engagement solutions at every spectrum for every type of our customer and which is a meaningful differentiator for us compared to our competitors. The CEB is a solution which was designed mostly for RingCentral customers. We have a huge demand within our base for CEB. CEB, think of it as a lightweight contact center that small businesses generally do not have large IT departments. And so they need something which is easy to deploy and it can quickly address some basic things like time in queue and things like that.

So CEB was released in November of last year. And in just 1 quarter or 1.5 quarter, we have had over 5,000 customers sign up for it, which is like a huge success, and we see that scaling further. On the other spectrum, RingCX is for somebody who needs a full contact center, and it is to address much more complex solutions. And we can now have customers from all end of the spectrum. And just to add to that, one more thing. All the 3As we talked about it, they work with both CCaaS as well as UCaaS. So RingCX as well as CEB, not just EX, and they amplify these solutions. So when calls are coming in, the flywheel of 3As goes in action, and it helps the customers address a lot of these needs.

And then switching to the area, I think last year, you highlighted small business and GSP, that cohort of customer, that's the areas of strength, and that's growing double digits with strong unit economics you guys talked about. So how have those cohorts fared so far in 2026? And what makes them as strong for RingCentral?

Yes. So there is steady performance across those cohorts. So what we had said last quarter was our small business and the global service partner business, which also kind of tends to skew towards the small customer base. Both are growing in double digits with very strong unit economics. So that trend has continued in Q1. So why do we see that trend in that cohort?

From a small business standpoint, look, there is very strong product market fit. Voice continues to be a predominant mode of communication for B2C interactions. We see traffic going up. Our new products, the AI products are faring really well, and the ARPUs continue to be strong. So those are the reasons we see success in SB. In terms of our GSP practice, look, these are strategic relationships with carriers such as AT&T and Vodafone and Charter, the household names. So these are strategic relationships, and we've cultivated these over a number of years. We've also kind of optimized these motions in terms of there's a level of integration that needs to be done, both from a product standpoint as well as operationally. So we've kind of optimized these motions, and we know how to kind of kind of run these at scale.

And also, there's a very strong product market fit in the sense that the carriers are now -- they are wanting to kind of introduce an AI product portfolio to their customer base, which is where there is a natural product fit that happens. So I think those are some of the reasons we are seeing successes in those two cohorts.

Okay. And other topic is the AI product, you say ARR from the customer who utilized at least one paid AI product. You talked about that's doubled year-over-year. And now I think it's 10% of the total ARR. So why is that an important metric that you track and as you drive this new product adoption? And what feedback are you hearing from customers in terms of uptake?

Yes. I think there's a few key reasons why we are using that as a metric internally and externally. So if you look at the evolution of Ring, we are moving or we have moved from a single product seat-based model to a multiproduct portfolio with different -- with differing kind of monetization models. So we believe that this metric kind of captures and it's a clear proof point of adoption of the AI products, both within the base as well as with the new customers. So it's indicating that customers are not only just trying the product, but they are buying -- like we are able to monetize and these customers are paying for these products. So that's number one.

Number two is we also want to look at the economics and the customer behavior within this cohort. And what we clearly see is improvements in ARPUs and net retention rate. So AI is making the base more sticky and the customers are buying more products and they're staying on the platform longer.

And number three is, look, AI is additive. That's the important takeaway from AI is that AI products for us are additive to our core products. So it's because of those two or three reasons that we believe that this is an important metric for us to track.

Okay. Another topic is on the enterprise side, you talked about some pricing pressure this year from that COVID era contract. Did that play out largely as expected in Q1? Or should we expect those headwinds begin to fade in 2027? And does that provide an opportunity for you to improve growth from this year as you're going up for renewal?

Yes. So look, it's playing out as expected. What we had called out in the last quarter and I think the quarter before is that we are seeing lapping of COVID contracts into 2026 and early 2027, wherein there is price rationalization. So it's playing out as expected. We are going through those contracts through the end of this year into early next year.

Having said that, look, overall blended ARPUs even in the enterprise space are strong because the headwind that's created from the COVID contracts is being partially offset with the new AI products. Customers are now buying more products. They're signing up for longer durations. So that's helping overall blended ARPUs. And again, while we are not guiding for next year, look, not having this headwind would be a beneficial factor for next year.

Okay. And Devang, we talked about like how RingCentral making all the transition from migrating customers to the cloud, now selling seats to even maybe a greater focus on revenue per customer with AI inclusion usage-based products there. So how is RingCentral navigating from a go-to-market perspective? You build the product? How are you changing the go-to-market side? And how is the financially, now quarterly execution perspective, how you are [indiscernible] and doing?

Yes. So as Vaibhav said, we have multiple price models over here. And I'll tell you, last 18 months or so since we have released this product, it's been a really exciting time to be at RingCentral as we pivot from a cloud company to agentic voice AI communications company. So we have -- the customers are demanding different things at different stages. Many customers want simplicity. They want to know what they're going to pay at the end of the month and some customers want usage-based pricing. And so we are offering both type of products or type of pricing mechanisms in our products. AIR, as I mentioned, is usage-based. ACE is per seat, EX and CX are per seats. We are experimenting with the usage base over there based on customer demands. And as customer needs evolve, our models will evolve, too. But rest assured, we are looking at pricing very, very closely and pricing falls squarely in my domain. So I'm very close to that.

As it comes to GTM, as Vaibhav was saying, it's a key differentiator for us. We have multiple GSP partners, and we have over 16,000 channel partners, plus we have a direct sales force. So we use all 3 of these to go-to-market. The pricing models have to be simple enough so that all these different people, our distributors are able to understand them. They can communicate it to their sellers who in turn sell to the customers. And so our pricing models are designed to be very simple for their sales force to understand and deploy. But yes, we look at pricing every single day, and we think about it a lot and we are evolving as their needs evolve.

Now going back to the growth, of course, COVID was beneficial for you and all your peers as well and growth kind of decelerated. But lately, Vaibhav, I think after Q1, you raised your [indiscernible] product subscription growth 5% or so. So what are the growth drivers? How do you stack rank that opportunity at this point? And what gives you that confidence to raise even after Q1?

Yes. No, that's a great question. So there's a few things there. One, we had a strong Q1, wherein we came in at the high-end of our guidance. And as you saw, the growth rates were relatively consistent with the growth rates we saw over the last 5 quarters. We guided Q2 in a similar range. So I think we are seeing stabilization in the revenue growth rate. And from a driver perspective, look, to my earlier point, our core business is durable, recurring revenue model, strong net retention rates, and it's providing us with an opportunity to sell our new AI products into that base and to our new customers.

So the core is durable, recurring, layering in on top is the -- are the AI products and as Devang mentioned, we are seeing strong traction by we are adding customers both within the base as well as there are new logos that we are acquiring at a consistent clip. So overall, when you kind of put the two together, I think that gives us confidence in the long-term durability of our growth model. Net-net, you look at it, we have a large customer base. The customer base is fairly diversified, and it's a recurring revenue model. So that gives us confidence in the long-term durability of growth.

Okay. Now that we have CFO, we have to dig into the expense side of it. You have done a phenomenal job in terms of expanding margin when growth started coming down. So one question I was getting first is on the AI side, when you use internal AI, how are you looking at the headcount or even some of the expenses? Like how are you seeing the efficiency and productivity there? And basically, what gives you that -- what are the drivers for success in expanding the margin?

Yes. No, thank you for the acknowledgment on that. I'm really proud of the margin expansion that we've driven over the last, call it, 3 to 4 years, we've doubled our operating margin profile from 12% close to 24% that we've guided to this year. So -- and Q1 was another proof point of that. I mean that margin expansion trajectory is continuing. We raised our guidance for 2026. So look, in terms of the drivers, I feel that we have a structural -- like the margin expansion is structural in the sense, again, it comes back to we have a recurring business model. We have strong overall blended ARPUs. Net retention rates are strong. Our gross margins are at 80% -- close to 80%, which is industry-leading.

Number two, there is operating leverage in the business. So our revenue growth is consistently outpacing expense growth. And that is supported, frankly, by disciplined cost management with -- we are disciplined in terms of our hiring. We are offshoring to get the benefits of lower cost locations. There is a lot of vendor consolidation that's happening. And then like you mentioned, there is increasing use of AI across the board within the company that's leading to efficiencies.

We also look at margin expansion in the context of SBC reduction, which has been a big focus area for the management team and conversion of operating margin into free cash flow and free cash flow per share. So we made a lot of strides in terms of curtailing our new stock grants. That's resulting in our SBC going down and we've guided to a long-term -- or medium-term target of 3% to 4%, which is 500 basis points reduction.

GAAP operating margins are now growing faster than non-GAAP predominantly because of SBC. And our conversion into free cash flow has improved over time. Now the delta between operating margin and free cash flow has narrowed quite a bit. And from a free cash flow per share standpoint, we are approaching $7 this year, and it's growing even faster than free cash flow at 17%. So I think overall, it's been a lot of work in terms of being disciplined and taking -- getting the benefit of the leverage that's embedded in the business. And because of those factors, I feel really confident in the long-term sustainability and the durability of both margins and free cash flows.

Yes. Another thing you guided, I think, a GAAP operating margin 20% in next 3, 4 years. You talked about one of the SBC reduction. Are you expecting also other operating leverage to continue to hit that 20% GAAP margin?

Yes, absolutely. It will come from a combination of further efficiencies in the business and lower SBC and intangible amortization over time. Look, we've been expanding margins by, call it, 100 basis points -- 100 to 150 basis points. My expectation is that operating margins will continue to improve from here, so that will be a driver. SBC is going to come down. So between the two, we feel fairly confident in our ability to drive towards the 20% GAAP operating margin target.

Okay. I think the other topic we keep getting capital allocation. That's one of the big focus for RingCentral. I mean you not only reduced debt, you also repurchase shares, even you announced the first dividend as well, all these things. So how do you balance the three in the context of your free cash flow generation?

Yes. Look, we -- again, it comes back to having a disciplined and balanced framework that we have. The over level goal is to maximize free cash flow per share. So the component parts are we talked about the improvements in free cash flow. Again, free cash flow over the last 3 to 4 years have like 6x, like we went from $100 million to $600 million that we've guided to. So again, very pleased with the progress that we've made there and gives us a lot of optionality. I think from there, from a capital allocation standpoint, the #1 priority is always to invest money back into the business and particularly within AI and innovation. So to my earlier point, we are spending about $250 million in R&D, majority of which is going into AI. So that's, call it, 4 to 5 points of margins that is being reinvested back into the business.

Number two from there is to strengthen the balance sheet. Look, our leverage levels, our debt-to-market cap is at a healthy and sustainable level. But we've laid out a target of bringing gross debt down to $1 billion by the end of 2026, and we remain on track to achieve that. Then from there, we look to return additional capital in the form of buybacks and dividends. And from a buyback perspective, at current stock levels, we believe it still remains an attractive opportunity. We want to offset the dilution that's created by employee stock vesting, and then we remain opportunistic after that. And then we paid out our inaugural dividend this past quarter. And that really reflects the confidence that we have in the long-term sustainability of our free cash flows.

So look, overall, I think the goal for me is it's a balanced and a disciplined approach with all of these three or four components. And the metrics that we have laid out, we largely remain on track to kind of achieve that in terms of debt reduction by the end of 2026.

Okay. I think we can take a pause here and see if there are any questions from the audience.

Vaibhav, thank you for educating us on how you're thinking about it, and congrats on the continued progress. I believe that you're amongst a handful of companies that have quietly pulled the financial discipline and kept innovating. As you look to the forward trajectory of RingCentral, how do you think about TAM? What are the opportunities that sort of like lie ahead?

Yes. Thank you, and thank you for the acknowledgment there. Look, the TAM continues to remain very large. So the TAM is kind of broken up into two or three different pieces. The core business, which is our UCaaS business is -- I think Gartner has projected or IDC projected it at, call it, in $20 billion of revenue. There are still hundreds of millions of seats that are on-prem waiting to be converted to the cloud. So there is a large opportunity there.

The whole UCaaS market or industry is relatively underpenetrated. It's probably, what, 30 -- maybe less than 30% penetrated. So there's a long runway there. And our expectation is that with AI coming into the fold, there should be an acceleration in terms of those migrations because to be able to get the power of AI, you need to be on a cloud-based solution. So that's one aspect of the TAM. The second aspect to the TAM is the customer engagement platform that Devang briefly touched on. So that market, again, is in the tens of billions of dollars. It's growing in, call it, high single digits to low double digits. So that's another big portion of the TAM.

And then there is this TAM that, again, Gartner, IDC have projected, which is really large, is about $65 billion around conversational intelligence. So the overall TAM and the market is by different accounts is greater than $150 billion and is growing. So look, the opportunity ahead of us is immense where we are focused on is creating a comprehensive customer engagement platform with AI at its core so that we can meet customers based on their use cases because customer use cases are changing very rapidly. Their needs are changing rapidly. They are experimenting.

So we want to have a complete platform with all different product sets with AI at its core so that we can meet customer needs, be able to address use cases and drive kind of meaningful ROI for our customers. And that's where we, frankly, have been focused on. And you look at our product portfolio, I think the pace of innovation has been very, very impressive. We've come out with so many new products in the last 12 to 18 months. And while they are early, we are seeing a lot of good early traction on these products.

So overall, we are super excited. We are very excited. We are all very focused on. The mantra at RingCentral is execution, execution, execution. Stay focused, come out with a product set that will meet customer needs, have the right go-to-market motions and then execute based on that and keep the financial discipline.

Any other question?

You've done a great job injecting AI into your product set, understanding customers' needs. I'm wondering from an internal standpoint in your use of AI for efficiency, revenue lift, other opportunities. Just how are you baking AI into the day-to-day? And where are you in that journey internally?

Yes. So there are -- look, we are selling our AI products to the customer base. So it starts with dogfooding those products internally, and we are using those products internally across the board. So examples of those are -- and Devang -- he used to head marketing at some point. So we are using AI to develop branding and content within our AI teams. Now our content can be created in a matter of hours versus days, and we don't need like external agencies, for example. And maybe you can expand on that later. So that's one example.

Within our sales organization, we are using our -- all of our products, AIR, ACE, AVA. Again, it's to drive efficiencies. It's to enable the sellers to be more productive. In the past, enterprise sellers would have to build RFPs. They're building all these PowerPoints. Now we don't need to do that anymore. AI helps generate customer content at a fairly fast speed. So it's driving efficiencies there. In terms of our customer support organization, again, they are using all three of our products along with RingCX, used to answer -- agents are answering customer calls.

There's call deflection and containment that's happening in terms of the calls that are coming in. And then we've also started using AI within our back-office functions, finance, legal. And I think it's resulting in productivities across the board. And that's frankly resulting in some of the operating margin expansion that we are seeing. We are nearly not hiring as many people as we used to before. People are able to deliver a lot more and people are being more -- people who are there at the company are being more productive and more efficient.

With that, I'll wrap up this and Vaibhav and Devang, thank you for joining us.

Good day, and welcome to the RingCentral First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded.

I'd now like to turn the conference over to [ Al Petrie ], Investor Relations for Ring Energy. Please go ahead.

Good afternoon, and welcome to RingCentral's First Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO.

Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of 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 presentation, which you can find under the Financial Results section at ir.ringcentral.com.

With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. We are off to a strong start to the year as we delivered another solid quarter with total revenue at the high end of our guidance. Importantly, we are also making meaningful progress in the quality of our operating model. We delivered record GAAP and non-GAAP operating margins, reduced stock-based compensation, paid down debt and returned capital to shareholders, including our first ever dividend. These are important milestones and reflect the business that is becoming more efficient, more profitable and more durable over time.

As to free cash flows, we now expect approximately $600 million of free cash flow this year, which is approaching $7 per share that we believe is among the best in our peer group. Moving forward, we plan to continue to reduce SBC with a path towards our medium-term target of 3% to 4% of revenue. And we are steadily building toward our goal of 20% GAAP operating margin in the next 3 to 4 years. Our strong financial performance is rooted in operational discipline that is underpinned by our unwavering commitment to innovation and a strong competitive position. As one of the original cloud-native SaaS providers, we revolutionized customer communications by taking it from on-prem legacy infrastructure to the multi-tenant cloud. On the strength of that innovation, we've built a $2.7 billion ARR business that is growing, generating a healthy amount of cash and is returning value to shareholders in a meaningful way.

RingCentral's original success was rooted in the convergence of broadband, mobility and cloud computing. We leveraged these megatrends to transform how hundreds of thousands of businesses and millions of users worldwide communicate with their customers. Today, we're at the start of an even bigger innovation namely AI and specifically the rise of Agentic voice AI. AI builds on top of all the world-class assets that RingCentral has created over the years. It plays directly to our strengths. With our robust platform, massive amounts of rich data, omnichannel communication capabilities and global GTM and innovation at scale, we are well positioned to leverage AI as a key driver of our long-term growth and profitability.

While Agentic AI is very powerful and will be transformational to how businesses interact with consumers, our core belief is that it won't replace all humans. AI can and will do a lot and it will make remaining humans in the loop more effective. RingCentral's secret sauce is to deliver Agentic voice AI experiences at every stage of consumer-to-business interactions, while enabling businesses to get human agents involved at the right time. RingCentral's differentiated approach is to make both AI agents and human agents smarter by working together seamlessly, resulting in better customer outcomes and greater cost efficiencies. This hybrid human-in-the-loop model is where RingCentral excels.

More specifically, our ability to orchestrate AI and human interactions at scale on a single platform across voice, text and video and do this at a global scale with industry-leading reliability, security and quality of service. This is our structural advantage and a defensible competitive moat.

RingCentral processes tens of billions of minutes and billions of calls and messages each year. As the front door to consumer to business interactions at scale, we are uniquely positioned to deploy AI across every stage of the journey before, during and after human involvement. We offer a modern end-to-end customer engagement platform spanning all consumer-to-business interactions. Our portfolio includes RingEX for Cloud PBX, RingCX and RingCentral Workforce Engagement Management or RingWEM for full features contact centers and our recently introduced Customer Engagement Bundle or CEB for informal contact center capabilities. We embed Agentic voice AI across our entire platform. Our Agentic voice AI portfolio or RCAI is currently comprised of AI receptionist or AIR and AIR PRO, which automate customer interactions from the get-go, AI Virtual Assistant or AVA, which assist the human agent in real time and AI Conversation Experts or ACE, for deep conversational analysis and coaching.

Overall, we are good at helping businesses connect with more customers, resolve issues faster and more cost effectively, capture more leads and make remaining human agents more effective. Adoption of our AI product portfolio is strong. Customers using our AI adopt more products, spend more with us and stay longer, driving higher ARPU and net retention well above 100%. ARR from customers who utilize at least one of our [ Face ] AI products, which we refer to as our key AI utilizing customers has more than doubled year-over-year and is growing in double digits sequentially with favorable ARPU and retention metrics. Kira and Vaibhav will provide more details.

In summary, I'd like to leave you with these 4 takeaways. First, RingCentral has a deep and defensible moat in an expanding market. We have built a carrier-grade communications platform with the scale, reliability and trust required for mission-critical customer interactions. As AI expands the scope of customer engagement, we believe that our market opportunity is only getting larger, and we are uniquely positioned to capture it. We are currently investing over [ $0.25 billion ] per year in innovation with a meaningful and increasing portion dedicated to RCAI. This is another sustainable competitive advantage, and we're confident in our ability to keep investing in innovation while continuing to further improve our operating metrics moving forward.

Second, we are at the front door and top of the funnel for consumer-to-business communications. We sit where interactions begin, where customer intent is first expressed and where routing and resolution decisions are made. This gives us access to the real-time context and workflow intelligence that are increasingly valuable in the AI era.

Third, we have a complete customer engagement platform powered by RCAI. This allows us to bring together AI agents and human agents on a single platform across voice, messaging and video. This is delivering real value for customers, and we are already seeing solid early adoption, growing monetization, higher ARPU and strong retention across our RCAI utilizing customer base. Important to note is that all of our RCAI and customer engagement products are fully owned by RingCentral with attendant benefits to control over the road map, time to market and owner economics. We believe this to be another important competitive moat.

And fourth, we're delivering strong financial performance. We're improving non-GAAP and GAAP profitability, reducing SBC, generating meaningful free cash flow and free cash flow per share that is among the best-in-class and returning capital to shareholders via buybacks and dividends. Our results speak for themselves, and we could not be more excited about the road ahead.

With this, let me turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone. Vlad laid out our vision, a complete customer engagement platform built on a hybrid model of AI and humans working together, delivering seamless customer experiences and better business outcomes. Here's an example of this vision becoming reality. Meet Cartelligent, a California-based automotive broker, deployed our entire RCA portfolio, AIR, AVA and ACE. Previously, their high-value leads were being routed to an answering service where many calls were dropped.

With AIR, they decreased lead abandonment to 0, connecting 100% of live leads during business hours and achieved an 85% lead to sign-up target. AVA eliminated manual note taking. ACE delivered visibility and coaching to keep improving. As the result of all 3 ACE working together with human in the loop, they achieved a 9.85 out of 10 customer satisfaction score. Let me unpack these solutions further.

AI Receptionist, or AIR, is designed for front office workers who demand it just works, deployable in minutes, no developers required, built for businesses of any size. AIR can now receive customer inquiries over voice and text messages. AIR is also integrated into call queues, handling overflow and missed calls to improve responsiveness without adding operational overhead. The market is responding well. We ended Q1 with more than 11,800 paying AIR customers, up more than 40% quarter-over-quarter.

For customers requiring more complex configurable use cases, we recently introduced AIR PRO. With AIR PRO, customers can create multitude of fit-to-purpose agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing. Users simply describe what they need their AI agents to do. AIR PRO builds and deploys it, executing multistep workflows.

We already have our first paying customers with health care emerging as a natural early fit given AIR PRO ability to address rich workflows while maintaining ease of deployment. One example is a federally qualified health center that was already running RingEX, RingCX and ACE. They added AIR PRO to handle real-time shuttle routing for patients. The agent recognizes the collar's location, here and time and live shuttle status to guide patients to the right pickup point. It sounds simple. The underlying workflow is not. That's exactly the point. AIR PRO makes complex orchestration effortless for the customer and for the business. And once the conversation ends, ACE takes over.

ACE now has more than 5,200 customers, up 85% year-over-year. Sales, marketing and compliance leaders use it to automate interruption reviews, connect conversation intelligence into their CRM and ticketing systems and replace mail evaluations with complete visibility across every call. Take [ ATB ], the largest financial institution in Canada. They added RingEX seats and ACE to eliminate the time lost on manual analysis, a strong example of AI and humans working together. With human agents handling customer interactions, ACE delivers the post-call analysis, surfacing sentiment, gaps and next steps, giving supervisors a clear picture of every conversation, scoring agents and the coaching data to continuously improve human agent performance.

As Vlad mentioned, we have an extensive R&D spend with a wave of new innovations opening up new use cases and expanding our TAM. These investments are leading to tangible results. Last week, we introduced branded messaging via Reach Communication Services, also known as RCS, delivering a verified business identity directly into customers' native messaging app. This pairs up with enterprise branded calling, which displays a company's name and logo on outbound calls, driving higher answer rates from the first moment of contact. We also expanded support for SMS notifications with local numbers to 190 countries, so businesses can engage their customers wherever they are with the same reliability they expect from RingCentral.

Building upon our hybrid model of AI and humans working together, SMS is an important customer engagement channel for both. Customer Engagement Bundle or CEB is our latest product introduction, and it is off to a strong start. CEB already has more than 5,000 customers with nearly 40% attach rate of our paid AI products. CEB brings informal contact center capabilities to RingEX, including contact center grade [ focus ] and SMS shared inboxes.

One example of a customer using these capabilities is Worldwide Steel Buildings, a Missouri-based company already using RingEX and ACE. They added CEB to manage queues, eliminate missed inquiries and now get a complete view into every interaction, all on one platform. Importantly, CEB is now available for Microsoft Teams, embedding voice, call queues, SMS inbox, intelligent routing and analytics inside Teams, effectively turning Teams into an informal contact center. As to formal contact centers, RingEX now has more than 1,700 customers, up over 70% year-over-year with more than half utilizing AI. For example, [ Excelsior Orthopedics ] in Amherst, New York was struggling with a 22% call abandonment rate and hold times averaging 3 minutes. With RingCX and ACE Quality Management, they cut abandonment to 8% and reduced wait times tenfold down to just 3 minutes. Together, CEB and RingCX give customers powerful rightsized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve.

The combination of our RingEX, RingCX and AI portfolio, robust platform, omnichannel capabilities is fueling ongoing migrations from on-prem to cloud. For example, this quarter, Coca-Cola United, the third largest Coca-Cola bottler in the U.S. with 60 locations is migrating thousands of seats to RingEX. A large Fortune 500 insurance company replaced their on-prem system and is further expanding RingCentral enterprise-wide deployment with tens of thousands of RingEX seats. The [ New York Maps ] are replacing a decade-old on-prem system with RingEX, RingCX and our call queues booster. A major Internet and streaming provider added RingEX to their existing RingCX deployment, along with AI capabilities, including ACE to drive greater operational efficiency. [ Casa ], an iconic consumer electronics company, consolidated their legacy systems onto RingEX and RingCX and added ACE quality management to automatically score calls and improve visibility across every customer interaction.

Our innovations continue to be well received by the channel and [ RGSP ] partner community, in particular. Multiple GSPs partners are now extending their offerings to include our AI products. Cox Communications recently began deploying our native AI-powered contact center to their customer base. And this quarter, TELUS and Spectrum business have also started bringing our AI portfolio to their customers, expanding our reach and reinforcing platform's value at scale.

In summary, we're delivering significant value to businesses and the industry analysts are recognizing this. This quarter, we were named a leader in both the Inaugural 2026 IDC Marketscape for Worldwide Communications engagement platforms and the 2026 Omdia Universe for customer engagement platforms. From serving SMBs to enterprise and addressing simple to complex needs and with our unwavering commitment to innovation and a well-differentiated GTM, we're in a strong position to deliver a modern, complete AI-first customer engagement platform at scale.

And with that, I will turn it over to Vaibhav.

Thank you, Kira, and good afternoon, everyone. We started 2026 with another solid quarter and delivered against all the commitments we laid out entering the year. Q1 reflected continued consistency in our execution and further strengthening of our financial profile.

Let me turn to our first quarter results. Starting with growth. Total revenue was approximately $644 million, up 5.3% year-over-year and at the upper end of our guidance. Subscription revenue was approximately $623 million, up 5.6% year-over-year. Customer trends remained healthy, including steady new customer additions and monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers.

As Vlad noted, we are seeing encouraging early momentum in our AI-led new products. Customers using at least one AI product now represent more than 10% of the base, have doubled year-over-year and are growing in double digits sequentially. Within these cohorts, we see stronger ARPU and net retention rates above 100%. Our growth profile remains durable and newer products are increasingly contributing to both expansion and overall revenue quality.

Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached approximately 23%, up 110 basis points year-over-year and at the high end of guidance. We continue to view this margin expansion as structural. It is being driven by the underlying leverage in a high recurring revenue model at scale, combined with disciplined hiring, expanded offshoring, vendor consolidation, greater internal use of AI and continued focus on our highest return go-to-market and products.

SBC as a percentage of revenue declined approximately 400 basis points year-over-year to 9% in Q1. For the full year, we now expect SBC to be approximately 9% of revenue in 2026, down from approximately 11% in 2025. This continued improvement reflects our disciplined approach to equity management and gives us confidence in our path forward toward a steady-state level of 3% to 4% in the medium term. The combination of stronger non-GAAP margin and lower SBC drove a record GAAP operating margin of 7.8%, improving by more than 600 basis points year-over-year in Q1. For the full year, we now expect GAAP operating margin to improve from 4.8% in 2025 to more than 9% in 2026. That is a meaningful step forward and reinforces our confidence in reaching our target of 20% over the next 3 to 4 years.

Turning to cash flow. We generated more than $140 million of free cash flow in the quarter, up 8% year-over-year. This reflects strong operating performance, continued efficiency gains and improvements in working capital. We generated free cash flow per share of $1.62, up 15.4% year-over-year. Recurring revenue, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. As a result, we are now raising our full year free cash flow outlook to approximately $600 million or a 13% improvement year-over-year.

Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we addressed the $609 million convertible maturity by refinancing it with the undrawn Term Loan A. We reduced overall debt by approximately $46 million and lowered net leverage to 1.6x. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. Importantly, we now have no maturities until 2030, and we maintained $355 million of undrawn credit capacity.

We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.5 million shares for $81 million. At the end of Q1, we had approximately [ $418 million ] remaining under our repurchase authorization. The diluted share count declined 6% year-over-year to approximately 87 million shares, and we paid our first quarterly dividend of $0.075 per share during the quarter.

With that, let me turn to guidance. For fiscal 2026, we are raising subscription revenue to be $2.54 billion to $2.56 billion, representing growth of 4.7% to 5.5%, raising total revenue to be $2.62 billion to $2.64 billion, representing growth of 4.2% to 5%, raising GAAP operating margin to 8.9% to 9.6%, expanding 450 basis points year-over-year, raising non-GAAP operating margin to 23.3% to 23.7%, expanding 100 basis points year-over-year, raising free cash flow to $590 million to $605 million, up 13% year-over-year. SBC in the range of approximately $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.85 to $5.01, up 13% year-over-year. This results in free cash flow per share of $6.78 to $6.99 for the year, up 18% year-over-year.

For Q2 2026, we expect subscription revenue of approximately $628 million to $633 million. Total revenue of approximately $648 million to $653 million. GAAP operating margin of 6.6% to 7.6%, up 110 basis points year-over-year. Non-GAAP operating margin of approximately 23% to 23.2%, up 50 basis points year-over-year. Non-GAAP EPS of $1.15 to $1.17, up 10% year-over-year. SBC in the range of approximately $58 million to $62 million, improving 130 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 87 million shares, lower by 6% year-over-year.

In closing, Vlad has stated 4 key takeaways, namely deep and defensible moat in an expanding market, RingCentral as the front door and the top of the funnel for consumer-to-business interactions, complete customer engagement platform powered by RCAI and strong financial performance. To double-click on the last point, we have an efficient business at scale and a durable compounding free cash flow model. With approaching $600 million of expected free cash flow in 2026, we have the flexibility to reinvest for growth, strengthen the balance sheet, all while returning capital to shareholders. And I couldn't be more excited about the opportunities ahead.

With that, let's open the call for questions.

[Operator Instructions] Today's first question comes from Tim Horan at Oppenheimer.

Great quarter, and congratulations on expanding the margins and creating a lot of new products. Vlad, you kind of -- well, you invented the UCaaS industry and had great vision there. Can you talk about where this new AI hybrid agent communications industry will be 5 or 10 years from now? How pervasive will AI be in voice communications? Can you talk about maybe any new products and services we'll see? And how rapidly are AI models improving at this point? How rapidly are your services improving as you see it even right now?

Yes. Great. Tim, you're too kind but thank you. Look, I'll go right to left. How fast are things improving? Speed of light, I don't know. These models are getting progressively better, progressively more independent. They are absolutely changing the way things are done across everything. And we -- RingCentral, we are actually in a very interesting position to where we are both very heavy users of AI internally and spending quite a bit of attention and effort on that, but as well as, of course, providing frontline customer-facing AI tools. And some of these AI tools are designed to basically get the human out of the loop and some of them are specifically designed to enhance human productivity.

So to the first part of your question, what we see moving forward, I don't know, 10 years is a long time, but say, for the foreseeable future, basically more or less a hybrid world. What I mean by hybrid is some interactions are best handled by AI. That will only increase and AI will become more and more powerful. But we still very much see room for a human in the loop. And this comes in where, look, I mean, AI, at least for the foreseeable future, is probably not going to be able to address each and every inquiry.

And you know what, I'll give you a simple example. And sometimes people oversee this. There are things that AI will not be allowed to do legally, okay? For example, AI is probably not going to be in a good position to provide medical advice if it is on behalf of a licensed medical provider. So for the foreseeable future, we don't see AI being licensed as a practicing physician or someone who can do prescriptions and so forth. And where it all comes together is that, let's say, you have a customer inquiry or a patient inquiry coming into a medical provider and AI answers whatever it can and it can look quite a lot and can answer billing questions, it can set up appointments. It can maybe even read your test results without commenting. But at some point in time, you well may want to ask for some specific advice and AI then has to connect you to an actual human being.

And this is why when we talk about our AI portfolio, we talk about AI before a human gets involved, AI while a human is involved and then AI after either an AI agent or a human agent is done with the call. So then we have AI processing recordings and transcripts, getting learnings from that. And then the extreme and amazing power of all of this, it gets all right back in. So next call, both AI agents and human agents can be smarter, more productive, more efficient. So that may be a little bit longer answer maybe, but we think that world is going to be neither all AI nor all human, but a bit of both. And where we, RingCentral are just very fortunate to find ourselves is we are one of a very, very small handful of providers that can actually serve both needs of the same platform.

Because if you think about it, you have legacy providers, especially some of the on-prem legacy providers to this day that can bring no AI basically. And then you have lots of start-ups, but they cannot really connect to a human. They have to integrate with third parties. RingCentral, we are able to serve both needs, okay? So single platform, single invoice, single SLA, single bill, all kinds of efficiencies and cost savings across the board. And we are able to, again, field this complete, well-integrated hybrid human agent, AI agent portfolio. So that's what we're banking on.

Our next question today comes from Catharine Trebnick at Rosenblatt.

I really appreciate it. Nice quarter. So I have 2 questions, and I'll be brief with them. One is, it looks like you've really stabilized your revenue growth, roughly 5% in the last several quarters and full year guide implies at the same range, same dance. So you cited AI ARR more than doubled year-over-year, now approaching 10% of total ARR. RingCX is gaining traction. You've got Mitel, Avaya pipeline. So can you explain to me where you think the business is going to break decisively above 5%?

I'll take a stab. Catharine, a really good question. Look, one is thank you for noticing. Yes, I mean, we -- numbers speak for themselves. I don't need to really cite them. So look, we're a large company. We're still growing. We are growing steadily to restate what you all are extremely well aware of right now is we have made a major pivot towards profitability, including GAAP profitability and free cash flow and free cash flow per share. We're very proud that all of the positive changes that we were able to effect, and we really are pretty close to best-in-class at this point on [ FCF ] basis.

And as far as growth is concerned, look, we have meaningful portions of the portfolio going in double -- strong double and in triple digits and in certain cases, double or triple digits sequentially, okay? And I can tell you that when I was IPO-ing this company back in 2013, if you were to take our AI portfolio or our customer engagement portfolio, we'd be independent publicly traded companies just based on that, probably worth more than RingCentral was worth at the time of our IPO back then, right? So we absolutely have these green shoots. But it is a $2.6 billion business. Industry is going through transformation. We are certainly seeing price rationalization, especially at the high end. And as we discussed before, we're still lapping some -- we still have some COVID lapping contracts even to this day. So they are being repriced as they come up for renewals.

But look, I think future is bright. Future is bright. We are hitting on all cylinders. Eventually, our AI-led products -- and by the way, all of our products are AI-led given the growth vectors and given size of the market that we're seeing, we are very, very confident that we have a lot of room to grow. There is still -- obviously, there is execution. Nobody -- we're not taking anything for granted here. But there is a market. We have a strong team. We're spending $250 million plus on R&D alone. We have a differentiated channel, literally tens of thousands of feet on the street between our direct sales force and partners and global service providers that's unique in the industry. We're in a good position. I think we're in a good position to continue delivering shareholder value, which is in our book is a combination of growth and shareholder -- returning value to shareholders in other ways as well.

And our next question today comes from Siti Panigrahi with Mizuho.

This is Sameer calling in for Siti. I was just wondering, as you make investments in the AI initiatives, how do you balance growth and margin priorities in those? And how does that square off against your overall 20% GAAP operating margin targets? And if you can share like a glide path or kind of like your view into how are you going to achieve those targets, that would be great.

Yes. Thank you, Sameer, for the question. So look, from an operating margin standpoint, we are very pleased with the trajectory that we've been on for the last 3 to 4 years. We've doubled our operating margins from, call it, 12.5% to almost 23%, 24% now. And Q1 was another proof point of that. I mean we ended the quarter with record operating margin, and we are raising our guide for the full year, further expanding margins now by 100 basis points. And we are doing this while we are investing in innovation.

So let's call it the power of and, which is we are growing, investing in innovation and expanding margins and free cash flows at the same time. And the margin expansion is structural. We have -- Vlad talked about a large recurring base. We have a $2.5 billion recurring revenue model, ARPUs are strong, net retention rate is strong, gross margins are high. So that gives us leverage. There is embedded operating leverage in the model wherein our revenue growth continues to outpace expense growth. And it's also driven by disciplined cost management. So we are disciplined in terms of hiring and offshoring vendor consolidation, increasingly using AI within the company. So the margin drivers are structural.

We are also looking at operating margins in the context of reducing SBC, GAAP profitability and free cash flow and free cash flow per share. So as you saw, we further reduced SBC this quarter. Our trajectory for this year is going to take down SBC by 200 basis points, and we have outlined the long-term outlook -- sorry, a medium-term outlook of 3% to 4%. So we are well on our way to doing that.

As a result, GAAP operating margins are growing faster. In Q1, we are expanding GAAP operating margins by almost 600 basis points. So we ended the quarter at nearly 8%. And this year, we'll be close to 9.5%, doubling year-over-year. So that puts us on a trajectory to get to our GAAP operating margin target of 20% as well. And then these structural improvements, reduction in SBC is also converting into free cash flow and eventually free cash flow per share which we guided to close to $7. And again, as Vlad noted, it's the best in our peer group. So overall, we feel good about how we've guided. We have structural drivers in terms of our recurring revenue model. We have a large base that is very sticky. We have a diversified customer base and an improving GAAP and non-GAAP operating margin profile. So overall, we feel good about where we are.

I just want to add -- that's right. Thank you, Vaibhav. But I just want to add at a very high level. I think maybe the question behind the question is, hey, isn't AI good for growth, but eating margins? And we don't think that that's the case necessarily. Customers are willing to pay for AI, if it's good AI. And again, we have this natural very deep moat with our ability to deliver both AI and human to human at scale globally, okay? And there are -- and we have lots and lots of really smart engineers. And one of their tasks is to optimize AI in human speak, use the right model for the right job. It's all just a tool set. But with what we're seeing out there in the foundational AI community or ecosystem, and just how fast what used to be a state-of-the-art is no longer the very state-of-the-art, but it's still very, very good. And very soon, a matter of months, it becomes open source anyway.

There is just a lot happening. We don't think that AI is going to commoditize or become free or virtually free. But for now, we've been able to keep approximately the same gross margins even for our RCAI products. And we're hoping and also working hard that that's going to continue. And then everything else that Vaibhav said, we are confident that we will be able to continue growth, continue more AI, which means more stickiness, better ARPU, better ARPUs as well and importantly, continuing our margin expansion and cash flow generation. Fingers crossed.

Our next question today comes from Brian Peterson at Raymond James.

This is John on for Brian. I wanted to ask on the free cash flow. Really strong quarter of free cash flow, raised the outlook here. But I think if we look at the trajectory and the potential run rate, it suggests you guys are on path to generate cumulatively like multiple billion dollars of free cash flow over the next several years. So first, am I thinking about the trajectory of free cash flow right as we move forward? And then maybe talk about how you're prioritizing the deployment of capital? And then I have a quick follow-up.

Yes. Thank you, John, for the question. Look, again, we are very pleased with the trajectory we have been on. So we now have a consistent track record of expanding free cash flows over the years. 3 to 4 years back, we were a sub-$100 million free cash flow generating company, and we've guided to $600 million. So that's a 6x improvement. And Q1 was another proof point, strong free cash flow, free cash flow per share, raising the guide for the full year, all while again, investing in innovation. And again, the free cash flow that we are driving is because of the structural drivers that I outlined in the previous question.

And the other important point to note is that the quality of free cash flows is also improving for us. It's -- our operating margins are converting very closely into free cash flow now due to working capital efficiency. And again, while we are not providing targets beyond 2026, the $600 million of free cash flow gives us a lot of optionality in terms of capital allocation. And I've outlined a disciplined approach there, which is investing in or reinvesting dollars back into the business to fuel innovation. And again, Vlad talked about the traction that we are seeing with our AI products. So we are balancing expansion, free cash flow expansion with investing in growth. We've outlined a target of reaching $1 billion of gross debt by the end of 2026. So that's a second use of cash wherein we are continuing to delever the balance sheet, and we are on our path to doing that.

And then at these valuation levels, buybacks remains an attractive opportunity, and we are returning cash in the form of buybacks, which we executed in Q1. We have another approximately $400 million outstanding in terms of our authorization. And we paid our inaugural dividend this quarter, which we expect to continue to do.

So overall, I think takeaway is multiple structural drivers, again, to drive free cash flow, both because of the operating leverage and the discipline that we have in terms of costs. And look, we are becoming a compounding free cash flow story that's built on a very durable operating foundation because of the large base that we have built, our recurring customer base and our growing portfolio of AI products.

Okay. That was really good color there. And then on GSPs, I did want to ask, it's been a really good growth vector for you guys. I think it's been growing above the sort of the company average there. You guys have been expanding the product set. So can you maybe talk about the early receptivity you're seeing from GSPs around your newer solutions? Maybe what's contemplated in the guidance from GSPs? And maybe talk about like medium-term targets of where that can go to with the new solutions.

We see good receptivity. I think we even mentioned some of this in the prepared remarks. We're seeing multiple GSPs lining up and now expanding their footprint with us by reselling some or all of our RCAI products. So directionally, we are very, very pleased. It is, of course, very, very early. We are not in a position to change the guide at this point. I would say that they're performing -- it's early. They're performing as expected at this point. And look, our history with GSPs is that they're a wonderful amplifier, but -- and we're the starter engine. We still have to get it working right and tune just right with our direct customers. Fortunately, we have lots of them as well. And then we take this playbook with the GSPs. And then, of course, they have their massive brands and massive networks that they can use to amplify. So I would think that overall, GSP, RCAI in GSP story is probably not so much for this year, but '27, '28 from that.

And our next question today comes from Michael Funk at Bank of America.

Two for you, Vlad. First, wondering how you see the pricing model changing over time with AI? And then also AI related, just wondering if you could talk a little bit about the barriers to competition in AI. What's going to prevent other AI solutions from decoupling your own AI and becoming a competitive threat, whether integration or capability?

Well, again, taking the second question first is nothing prevents them except that they don't have this global network that's processing lots of tens of billions of minutes per year and billions of calls and billions of SMS stacks. And we continue our leadership in the UCaaS space, and we are making major inroads in the CCaaS space, now both ended with AI. So this is what gives us a pretty strong footing I think competitively. And again, what my answer to the very first question on this call was that in the world of hybrid, it's very hard to see any start-up do -- be able to replicate what we have when the job is to get AI agents and human agents on the same platform without getting third parties involved. And that's a huge, huge, huge competitive advantage we feel that we can come in with a turnkey Swiss Army knight solution and say, tell customer, look, right tool for the right job and you only get a deal with us.

And if nothing else, it gives us pricing power and flexibility because we also don't have any third parties to pay to. And by the way, I do want to double-click. When we talk about RCAI, this is our native AI, okay? So we're not paying -- we're consuming tokens, of course, and we're paying foundational LLMs, but we're not -- when we talk about -- these are not products, third-party products that we sell, okay? Okay. So that's the second part of the question.

Sorry, repeat the first one, please?

Pricing model.

Yes, pricing model. Yes. Look, people talk about this a lot. I can tell you what we're seeing. We're seeing, again, more of a hybrid combination model. I think people initially got all excited about, well, it's all going to be outcomes-based. I don't -- not really personally aware of too many people who are actually truly pricing outcomes. If anything, people are pricing usage. But I tell you more and more what's coming into focus into Vogue are these hybrid approaches to where there is some minimal commitment the company makes, whether it be seat-based or some other measure whatever. In our case, maybe minutes consumed or questions answered or something like that. But people need some predictability on both sides of the equation. Customers need some predictability and frankly, providers do as well. And this is what we started out with.

So when you look at our, for example, AIR portfolio, it is spiking is very simple. You get -- it's still a monthly subscription plan. You get certain allocation of minutes. So unit of measurement is minutes here. And if you're all with that allocation, you upgrade into the next year or you buy another basket of minutes. What we find with our customers is that a business model that resonates is good for smaller customers because it gives them predictability. And this also works for larger customers because they really have enough analytics to know exactly what they're using. So frankly, for them, it doesn't matter. You can price per seat, per minute. for enterprise, like everybody knows what they're consuming. We know our costs. They need -- they understand their spend. It's all open book anyway. So again, short answer, still hybrid and right tool for the job, depending on...

And our final question today comes from Elizabeth Porter at Morgan Stanley.

This is Jamie on for Elizabeth. Great to see the continued momentum that you're seeing with the AIR solution and realizing that it's still super early days for the PRO variant. Just curious how you view the opportunity to maybe upsell some of those existing customers to the PRO tier.

It's existing customers of both AIR and also about AIR are both opportunities to upsell AIR RPO Pro. AIR fundamentally is a preconfigured fit-to-purpose agent, very easy to deploy, reception can deployed, meant to do very simple tasks, answer questions, route calls, book appointments. AIR PRO comes to studio and has ability to do much more complex workflows, complex tasks, and they complement each other. So we're right now in the process with AIR PRO being an early access program open to select customers and seeing those customers actually with AIR also buy into AIR PRO Pro for different use cases, work in tandem, work together. So generally, the 2 products will be sold in parallel out there and one can talk to another as well.

Thank you. That does conclude today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

All right. Good morning, everyone. Thank you for joining us here at the Morgan Stanley TMT Conference. My name is Jamie Reynolds, and I'm here on behalf of Elizabeth Porter.

Today, I'm very pleased to have with us RingCentral's CEO and Founder, Vlad Shmunis; President and COO, Kira Makagon; and CFO, Vaibhav Agarwal.

But before we begin, some important disclosures. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please direct them to your Morgan Stanley sales representative.

With that, let's get started. So Vlad, maybe to kick things off, as you frame RingCentral 3.0 and Agentic voice AI, what do you want RingCentral to best be known for over the next 3 to 5 years? And what does winning look like? And what are 2 to 3 milestones over the next 12 to 24 months that would validate this platform shift?

Great. Well, first, thank you for having us. Good to be here. It's exactly what you say. We'd like to be known as an Agentic voice AI leader. We think we're in the most natural position to get there and to keep that mental and there are a few reasons, I'm sure we'll go into it. But at the highest level, we are the gatekeeper as consumers are contacting their business providers. They are calling or texting them. And we are the first line of defense. We're the ones picking up the phone or fielding the text message. We have -- we are rapidly turning into an AI company not just AI first, we are already AI first, but AI, 10% of our revenues is already coming from customers that use at least one of our paid AI products, which we have a full portfolio of at this point and we expect that 10% to increase as a percentage of the base over time. It already has doubled year-over-year with our last disclosure. And we also think that this creates a wonderful wedge and a new motion for us to further accelerate on-prem to cloud migrations. There is still a lot of left to do there as well as start using it with other communications systems even outside of our direct base.

Just to dig into that a little bit more and specifically on the Agentic voice AI. How would you frame RingCentral's durable moat? And what are the most credible threats when we think about large platform vendors maybe embedding AI as a feature or some of the fast-moving startups that we see in the space?

Yes. Our natural moat is the fact that we are running one of the world's largest and certainly most reliable and highest quality B2B voice networks. That's our moat. There are other providers, large and small, who are doing AI and doing wonderful work there. Vast majority of them do not -- are not in this gatekeeper position. They don't have what we do is billions of calls and tens of billions of minutes of traffic coming through the platforms and we have over 0.5 million customers. We have over 8 million end users. So these are very large bases that we're dealing with, and they are growing. And again, just to reiterate when a consumer and most of us are also consumers, but when the consumer grows up a business, there is no startup in the world that's in a position to field that call like we do and even some of the larger companies and some of the better known names, they make up systems of record. They may have some applications siloed, they verticalize or whatever, that's all wonderful, but when the first call comes in, that's the first opportunity to deploy AI and we are right there with the full AI portfolio. And by the way, $0.25 billion in annual R&D spend to fortify and extend and grow the portfolio.

Got it. And you touched on this a little bit in one of the earlier answers. But as we think about the core UCaaS business, how would you characterize the remaining growth runway ahead? What will matter most from here? Is it cloud migrations, share gains or expanding wallet share with existing customers?

It all of the above. Growth is growth. We are -- I can tell you, we're differentiating less and less between what you would think of core UCaaS or CCaaS and AI because AI is everywhere. AI is not an add-on. It's not a nice to have. We would be rapidly on our way of getting -- going out of business for AI but with AI, but with AI, we're here to stay. We are already largely an AI company. I think this realization is sort of beginning to take route that AI is truly the very best tailwind we have ever had as a company.

Got it. That's super helpful. And then, Kira, to get you into the discussion. You recently announced an open AI partnership with the GPT 5.2 integration. I guess what changes in the product road map over the next 12 months as a result of this? And what are the clearest customer-facing differentiation that this enables?

So this partnership is really about sort of think of it putting one of the top-performing LLM models together with the best in what Vlad just described, a platform for handling real-time voice interactions. So this together, this gives us our Agentic voice AI platform capabilities, which we work with OpenAI, and we are fundamentally also model agnostic. OpenAI, their 5.2 frontier model is high performance. It enables us when we handle voice conversations augmented by AI to have low latency, have high accuracy and a cost performance module component of that, that's super important as that ultimately translates into how we perform on margin. Having said that, we are model agnostic. We work with other models as well. And what we do is we find fit-to-purpose best model for the given problem at hand to solve. There is no future for RingCentral without AI. Vlad just elaborated on that. So that means that our road map for the next 24 months or the next 5 years, it's AI first and AI first means that continue close relationships with LLM model providers, continue to evolve that and continue to provide more value to our customers in the form of our products.

Got it. And so then when we think about the 3 As portfolio between AIR, AVA and ACE, what's the intended customer journey, adoption of these solutions as point products or an integrated suite with a clear land and expand motion? I guess what's the most common entry point you're seeing today and what's the next best cross-sell?

Yes. Great question. So AIR stands for AI receptionist, AVA for AI assistant and ACE for AI expert or conversational expert. And they work together. That's number one. At the top, it's the journey of the customer is they come in, they call, the call gets handled by AIR, potentially for more involved conversation it gets passed to a human being. This is where AVA come in to assist during the call. And then the analysis of these calls, including quality reviews, proactive management with management who looks at calls being handled. And then the feedback loop, very important that feedback loop back into both AIR and AVA. So what you have is not just parts, but the sum of the parts, flywheel effect where they add up to more than each individual part and there the value to our customers. And we have a number of customers now today showing proof real points in real business outcomes using AIR, AVA, and ACE together such that they're showing better -- first of all, they can handle all incoming calls, no missed calls that was there. They can answer questions, perform routine tasks that translates ultimately into better customer management and ultimately revenue. Everybody cares about revenue. And to monitor the quality of that revenue so they can do better, this is where ACE comes in. And with that, they get a better performing business overall.

Got it. And so then turning to RingCX specifically, and Vlad, feel free to jump in as well. Where are you winning today? What product gaps are you prioritizing next? And how does RingCX fit in alongside your partnership with NICE?

Yes. At a high level, I'll let Kira answer the second part of the question. Maybe I'll take the first and the third. So at a high level, for a number of years, we've been proving the case that there is a very large and fruitful opportunity with businesses who prefer to have UCaaS and CCaaS from the same provider. By the way, this day and age, it's UCaaS and CCaaS both tied with the same AI. It's very importantly. But if you think about it, you take any business, if they have a dedicated contact center, that's fine, but they probably have more employees who are not contact center agents. So why not have a system which -- or why not go to a portfolio, which can serve both regular rank and file as well as dedicated contact center agents, which, by the way, is exactly how on-prem leaders have been selling for decades. Your Cisco, your Avayas, your Mitels, they all have on-prem versions of UC and CC working together, okay?

And we continue seeing that use case. Now that we have our own tech with RingCX, it's always a lot easier for us to control the road map to be able to commit and deliver on customer requests. And of course, economics is better. We don't have to rev share and price point is also can be very aggressive.

What it does with the NICE relationship it is still complementary because we're not positioning RingCX as a stand-alone very high-end contact center where NICE contact is a leader, bundles basically 2 leaders as a world scale. And there is the following. We have a base. Base is stable, growing slightly. But our future is more with CX in the mid-market and below. In high-end enterprise, it's wonderful to have that product. Product feature set, Kira.

The feature set is that it handles from simple cases to more complex cases. CX scales very well across -- from small to very large customers. And where we're really -- we now have a full portfolio. We have CX, we have WFM for workforce management, and we have all of the AI. And there's really today no contact center without AI. So AI permeates every aspect of our CX product. And the future is really tied into more AI-enabled routing, more AI-enabled workforce management, more quality control and more proactive assistance such that really imagine the future where CX is really a proactive product, not a reactive product, kind of let's leave it at that. Working together with both across the entire portfolio. The fact that EX and CX work together is super important because in any organization today, you've got contact centers, but you've also got back office people.

Got it. And so then with the traction that you're seeing with RingCX, like how does that split out between your existing customers and net new customers?

It's about 50-50. That's about -- that's what it's been, and that's what we're seeing. So in terms of reporting kind of where we're selling CX. And I would add to that, that our large deals today are what we measure, we close something 1 million TCV deals. Over half of them have CX attached to them. And those companies also adapt our AI portfolio as well.

Super helpful. And so then shifting to the go-to-market side. You successfully built a very large channel and GSP ecosystem that now represents, I think, over 10% of ARR is growing faster than the company overall. I guess with half of these GSPs enabled to sell the expanded product portfolio, how is the revenue mix between partner-led and direct business evolving? And as you scale AI product adoption across the GSP base, what are the key enablers or requirements to accelerate the velocity of the attach rates of AI solutions through the carrier channel?

So with the carrier channel, we're very proud of the network that we've built and the relationship that we've built. I think almost all of them at this point are taking on our AI products and some of it we've disclosed publicly, AT&T, TELUS, Vodafone previously. And -- but we're not disclosing just yet exactly what the breakout. The uptake is great, but we always -- the new products, we will always first take it to our direct channels and directly control our channel partners, where you know what the numbers are, it's $100 million now in ARR at the end of the last quarter. But we anticipate as we continue to mature AI presence of our AI products within the GSP channels, we'll start disclosing those numbers, but not just yet.

Got it. And then Vaibhav, would you be able to speak to how the unit economics differ between your direct and GSP-led deals?

Yes. From a GSP perspective, look, it's a unique motion. As Kira mentioned, it's highly differentiated. And what it gives us is -- puts like hundreds of thousands of boots on the ground for us to -- for the product to be able to reach the customers. I think from a unit economics, it's a highly profitable motion. We've publicly disclosed that, that motion is growing in double digits from a growth perspective. And from a time to payback, which is a measure of unit economics, it's under an 18-month payback period for us. So highly profitable motion.

Got it. And so then on AI monetization, can you walk us through the approach to pricing, whether it be minute bundles per conversation, per seat or some sort of hybrid? And how should investors think about unit economics as usage scales?

Yes. So great question. So our -- in our AI pricing, we are very deliberate. And we are pricing products based on the value that's being delivered and the customer use cases that are being addressed. So AIR, as an example that Kira talked about is at the top of the funnel. It addresses phone calls as they are coming in or interactions in terms of when you make a call, AIR picks up the phone and the agent is able to do -- take actions such as answer basic questions, book appointments, et cetera. So it's priced on a usage-based model. So the revenue directly scales with the number of minutes that the customers are using on the product. So that's an example of how -- of usage-based pricing with AI.

Overall, Vlad talked about the early traction that we are seeing in AI. We've reached $100 million of ARR. 10% of the base is now using at least one of the AI products. So overall, AI is additive for us. It's in addition to the core products that customers are buying and therefore, is expected to be accretive.

I think from a customer standpoint, what we are seeing in that cohort of customers that are using one AI, there's an uplift in both ARPUs and net retention rates. So that helps kind of with margins. And then from a gross margin standpoint, as these products scale and as we get past the initial infrastructure spend, I mean, these products are all expected to be accretive to gross margins.

So I think the way to think of -- I think there's 3 key takeaways. One, AI is additive. Adoption is growing and the attach is growing. And from a customer standpoint, the wallet share will increase. And from an infrastructure gross margin standpoint, as these products scale, it will be accretive to gross margins, and these will all result in -- these will be levers for long-term margin expansion.

Great. And then Kira, going back to you, are there verticals where voice AI is consistently seeing faster adoption and maybe clearer ROI, thinking about some of the golden verticals you've spoken to like health care and financial services? And I guess, how far are you willing to go towards building out your vertical-specific capabilities versus maybe a broader horizontal approach?

So you've said it, we've traditionally done really well in the golden verticals, health care, financial services, SLED, retail. Why have we done well? Because those are the businesses that require high intensity of B2B interactions and then B2B2C that we support on our platform. And they are mission-critical. They need to be reliable and they have a lot of compliance requirements, especially health care, financial services, SLED, et cetera. But our products are largely horizontal, but we do have go-to-market motions that are vertical-specific in health care and financial services and SLED. We'll continue to strengthen those. And we'll continue to add capabilities to the product that make us specifically attractive to specific verticals, such as financial services, health care, et cetera, especially with AI that enables us to do quite a bit of contextual work within the product that is vertical specific.

Great. And so then Vlad, just as we think about demand right now, what are the signals you're watching in terms of sales cycles, pipeline, conversion rates, renewal conversations? And what are they telling you as we start out 2026?

I'll let Kira answer that, maybe.

So demand is very strong for AI, I would say it that way. And like I think like we said at the beginning, there is -- the future of RingCentral is a company that is an AI company. This Agentic voice portfolio that we have, Agentic Voice AI portfolio is all about AI first and every aspect of our product portfolio now has AI. We talk about 10% of our customers using at least one product, but we have a much wider adoption of AI that is actually not monetizable today such as our AVA product is permeates across our EX and CX products such as sample taking notes, et cetera. So we're seeing customers now going from being cautious to being sort of leaning in and saying, let me help me understand what you have because I know you've got it, we've heard you got it or even if we haven't heard you got it. We have these needs. So the shift in the customer behavior has taken place. We position ourselves today and how we think of ourselves and certainly how we train our sales forces is it's about transformation. We're enabling transformation. We're a lot more than enabling communication. It's enabling transformation, enabling businesses to become more efficient, to produce better ROI on investment with us even because of the capabilities that we've put into the portfolio and this integrated approach to go-to-market.

Great. And so with customers leaning in maybe more aggressively, is it fair to assume that these sales cycles are maybe shorter than what you've seen historically? Or can you speak any noticeable improvement in win rates that you've seen as you've rolled out these new products across the portfolio?

I would say that customers behave like a horse. Larger customers are going to take their time. They're going to test it. They're going to kick the tires. I wish there was a way for large customers to have AI train them to move faster. Maybe that's still something that we'll come up with, but across the cohorts, behavior seems to be more or less similar to what we've seen in the past with now remembering that now they're buying more. So the good thing is they're buying a lot more of our portfolio with a similar behavior and timing patterns and similar ROI.

Just maybe one thing to add. We are relatively early stages, but still of a new -- net new motion for us, which is product-led growth. So as more and more of our customer base is actually using our app and not traditional phone, that gives us really good opportunity. And some people are asking even, okay, well, take me through this journey. Okay, you've got -- I have a customer, UCaaS or CCaaS, how do I know about AIR, for example? Well, how you know about AIR -- is that in the app, in-app? It says, you know what? Here is. Maybe you don't know about it, maybe they go check it out. So we're also tracking that. But look at a high level, we do have a bit of an execution machine we built over the last couple of decades. It's functional. It's getting more and more efficient. By the way, AI is making -- AI is used very heavily throughout the company, every function, including GTM, okay? So it's helping us identify opportunities within the base, outside of the base, the way that we are triaging, which leads go to which sales groups, which can be handled automatically. We're not that far from having full AI agents do some business development for us. So all of those are happening and also being tracked. And Kira is looking at a very, very complicated dashboard, which is why she personally it's hard to replace with AI at this point.

Some super great color on how you're using AI internally. Maybe to just unpack that a little bit more. What are some of the biggest changes you're pursuing from that perspective in 2026 compared to sort of what you've got in motion in 2025?

We have lots and lots of things in motion. So directionally or holistically, if you think about it, our AI addresses what happens before a human picks up a call, while human picks up a call, if they do, after that call is completed, if it's recorded, it gets post processed. And results of that then get fed right back into the agent. So kind of make it real, let's say, you call in and AIR picks up and you ask a question and AIR does not know the answer, okay? It patches you into a human agent. That human agent happens to know the answer, of course, gets recorded. ACE picks it up, says, here is something new. I can feed it right back into AIR and AVA. So Nest go around, I don't need to pick up, okay? And this is why this whole AI trend is super good for us because it lends itself to outcome-based and usage-based pricing, which is many people are asking for.

So we figure that we have kind of the general scaffolding together. We can do a lot more at each and every stage before, during and after. And of course, we're doing quite a bit of work, early work, but still in verticalization. So as we double down on retail or financial services or health care or what have you, there are opportunities for deeper integrations, more specific workflows, just custom knowledge basis. Again, we are in a good position because of the size of the network as we have learnings across the network. So we have our hands full. Good news is we are spending $250 million a year, and more and more of it is going towards AI, and that's a unique asset.

Super helpful. That's probably a good segue into some of the more model-specific questions. So Vaibhav, you've guided to meaningfully higher GAAP operating margins for 2026, I think, calling for about 430 basis points of increase at the midpoint to around 9%. You've also outlined a longer-term target of 20% GAAP operating margins over the next 3 to 4 years. What are the biggest levers to get there in terms of stock-based comp reduction, operating leverage, gross margin improvement? And what are the biggest risks to that trajectory?

Absolutely, yes. So I think there will be 2 big drivers of the GAAP operating margin improvements. The first one is just improvements in margin. There's a lot of operating leverage in the model. Our fixed costs don't need to grow in line with revenues. And we've consistently now demonstrated a sustainable margin improvement profile over the years. Revenue is consistently outpacing expense growth. So that's point number 1. Point number 2 is we are being very disciplined in terms of our spending, whether it's headcount, vendors. We are increasingly using AI within the organization that's causing efficiencies. So across the board, we are very disciplined. So that, in addition to operating leverage is creating margin improvements. And this year, we've again guided to non-GAAP operating margin improvements, which I expect will continue.

The second thing is we also look at operating margins in conjunction with SBC. So reducing SBC has been a top priority for us, and we've now gotten SBC from 20 points about 3 years ago to under 10%. And our long-term target is 3 to 4 points. Again, SBC remains a key retention tool for employees. So we'll continue to use it as a means of incentivizing employees and aligning their interests with the shareholder interest, but we are being very disciplined there as well. So we are hiring in lower-cost locations. We are disciplined in terms of how much grants we are giving out. We are also shifting meaningful portions of compensation from stock to cash. So people are getting paid. It's -- the payments are being done in cash instead of stock. So if you think of the journey from here to 3 to 4 points, so that will be a meaningful driver of GAAP operating margins. And overall, GAAP operating margins from here on will grow faster than non-GAAP operating margins.

Got it. And so then you've also guided to $590 million in free cash flow for 2026. I think that represents about 11% growth and maybe a 21% free cash flow margin. You've also driven a really impressive track record over the past few years, getting that free cash flow generation up from around $100 million to the $530 million in fiscal 2025. But for 2026, can you just walk us through some of the drivers for the free cash flow guidance and some of the key underlying assumptions?

Yes. So again, the levers for free cash flow expansion are similar in the sense that operating margin improvements are flowing through into free cash flow. So one of the things that we've done is our quality of free cash flow conversion from operating margin has consistently improved. So the operating leverage in the business, disciplined spending and working capital improvements is resulting in us approaching about $600 million in free cash flow. And the beauty of having $600 million of free cash flow is that it gives us optionality from a capital allocation perspective. And Vlad talked about the $250 million of R&D spend, majority of which is going into AI. So that's an example of investing the money back in the growth and innovation. We are consistently paying down debt. We are buying back stock. And this quarter, we introduced our first ever quarterly dividend as a strategic enhancement to our capital allocation profile.

Got it. So a lot of flexibility from the capital allocation perspective. I guess just how should we think about what conditions would cause you to lean harder into one bucket, whether it's organic reinvestment, maybe growing the dividend, accelerating share repurchase or potentially some sort of tuck-in acquisition?

Yes. Look, I think the approach that we follow is a balanced one and a disciplined one. So the first use of cash always is investing back into the business organically or inorganically. We have done some acquisitions in the past, like we completed Community WFM, which was complementary to our product portfolio, kind of made sense from an ROI standpoint. So we invested money in acquiring assets that were complementary to our product road map.

So first use always invest back in the business. Number two, strengthening the balance sheet, paying down debt. So we have been on that trajectory. We've been paying down debt, and we've outlined that we'll be -- we -- our desire is to be investment grade by the end of the year. So that's the second use of cash. And then from there, we are returning additional capital in the form of buybacks on which we are being opportunistic. It depends on market conditions and where stock prices are at, et cetera. But we have a $500 million authorization remaining, which we expect to execute on over time. And then we added the dividend.

Great. We are out of time. Vlad, Kira, Vaibhav, thank you so much for joining us, and thank you to the audience as well.

Thank you.

Thank you.

Thank you.

Good afternoon, and welcome to the RingCentral Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steven Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and Chief Operating Officer; and Vaibhav Agarwal, Chief Financial Officer.

Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of 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 presentation, which you can find under the financial results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. Before I begin, let me work with welcome Mahmoud ElAssir to our Board of Directors. As Senior Vice President and Chief Technology Officer at UnitedHealth Group, Mahmoud leads technology infrastructure, platforms and services, including corporate systems. Previously, Mahmoud held senior leadership roles at Google and Verizon, where he led major AI and cloud network and platform transformation initiatives, powering global enterprise and consumer services. Mahmoud brings deep expertise in AI native platforms, cloud infrastructure, real-time data systems, security and large-scale product engineering. This perspective will be invaluable as we scale RingCentral through the next phase of our AI-led evolution.

Moving on to the results. We had a strong Q4 capping a solid 2025, in which we met or exceeded all our key operating metrics. Total revenue for the year grew nearly 5% and subscription revenue grew just over 5.5%. Of particular note, we generated record free cash flow of more than $0.5 billion, up 32% versus 2024. This translates to over $5.80 of free cash flow per share in 2025.

I am also pleased with the progress we have made in meaningfully reducing the value of new shares granted by over 35% year-over-year. Managing SBC is a key priority. Our steady-state SBC target is 3% to 4% of annual revenue as we expect to achieve it in the next 3 to 4 years. Improving profitability, combined with the reduction in SBC translated to our full year of positive GAAP operating margin. We achieved nearly 5% GAAP operating margin in 2025, which we expect to approximately double in 2026. We are targeting to achieve approximately 20% GAAP operating margin in the next 3 to 4 years. With this in mind, we are now in a position to expand and diversify our overall capital allocation strategy.

I'm happy to share that, today, we announced our first-ever quarterly dividend of $0.075 per share. We believe that these strong results are not an aberration but an early sign of good things yet to come, as RingCentral transforms itself into an agentic voice AI company. Here is why.

RingCentral is an acknowledged leader in cloud-based business communications. We have built a $2.5 billion business from scratch by making human connections simpler, cheaper and more reliable. Our global platform is carrier grade, secure and regulatory compliant. It is trusted by 0.5 million businesses and over 8 million end users worldwide and supports tens of billions of minutes and billions of calls and SMS messages annually.

Critical technical requirements are low latency and bullet-proof reliability, with the system designed to avoid any downtime even during maintenance windows. Scratchy voice or worse, no dial tone are simply not acceptable. With a multibillion-dollar cumulative investment and thousands of highly specialized real-time communication specialists, expanding and improving our cloud-native platform over the last 2 decades, this asset is a strong differentiator as the world gets transformed by AI.

Simply put, RingCentral's investment and know-how serve a mission-critical need, and they're very hard and likely not cost effective to replicate. Far from being outdated by forthcoming AI agents, RingCentral's platform is a natural bedrock for emerging agentic voice AI.

Looking forward, consumers communicate with their providers predominantly via voice and text, and these interactions are growing. When a consumer calls or texts their business provider, it can be answered by a human or AI agent. In either case, it is RingCentral's platform that makes this interaction possible. And as workflows gradually incorporate more AI agents, RingCentral is in a strong position to provide additional value by incorporating agentic voice AI at the very top of the B2C communications funnel.

At the recent Investor Product Day, I laid out our vision for RingCentral 3.0, whereby RingCentral is well on its way to transforming itself into a leading agentic voice AI platform. With agentic voice AI, we are now in a position to not only make connections but also to add significant value to those interactions themselves, before, during and after every call or text messaging, thus, enabling businesses to answer more calls more efficiently, garner more leads and process more inquiries at a higher quality. This makes our service substantially stickier and more valuable to our customers as we are able to answer questions, provide insights and analyze conversations for better customer experience and outcomes.

While it is still early, recent results are encouraging. Firstly, our pure AI ARR revenues have almost tripled year-over-year and has contributed significantly toward us meeting our stated goal of $100 million ARR from new products in 2025. We but even more importantly, ARR from customers who utilize at least 1 of our monetized AI products, which we refer to as RCAI utilizing customers, has now more than doubled year-over-year and is now approaching 10% of our overall ARR.

With new logo acquisitions, AI attach rate is meaningfully higher, making it a long-term tailwind. Importantly, our RCAI utilizing customers average significantly better ARPU, and they're stickier with net retention rate exceeding 100%. This is another strong tailwind.

Looking forward, I could not be more excited about 2026 and beyond. We are leveraging a scaled, cloud native, real-time communications global platform and are able to spend over $250 million on innovation annually. AI is a natural tailwind to our business. The majority of this ongoing investment is now directed towards our new AI-led product portfolio.

Our investments are showing good early results. Our brand is strong. Competitive moat is wide and increasing, and our GTM is well established and differentiated. We are embedding intelligence across every interaction and creating new monetization and differentiation opportunities to further widen our moat and increase wallet share.

Our financial performance is strong and improving, allowing us multiple avenues to return capital to our shareholders. With a proven team and the rapidly expanding portion of our revenue attributable to AI, we are in a unique position to revolutionize business communications yet again, now through AI.

With that, I'll turn it over to Kira.

Thank you, Vlad. Let me now expand on a few points. Agentic voice AI is our strategic priority that is delivering clear ROI. RCAI utilizing customers are driving tangible value. They have higher usage, increased spend and stronger retention. As Vlad highlighted, approximately 10% of our ARR now comes from customers using at least one AI product and that adoption more than doubled over the last year. AI is driving structural improvements, making every customer more valuable.

Our AI solutions, AIR, AVA and ACE, deliver measurable outcomes at every stage of a conversation, before, during and after, respectively. Each plays a distinct role in driving automation, productivity and insights. Built upon our proven mission-critical communications platform, our agentic voice AI portfolio extends a durable moat grounded in scale, reliability and over 2 decades of customer trust.

Our AI Receptionist, or AIR, is a virtual receptionist that ensures businesses never miss an important call or lead. It can handle multiple calls simultaneously, is multilingual and is able to answer questions, schedule appointments and meetings, and route calls. AIR is easy to set up with no professional services required in most cases. As a matter of fact, we have proof points of AIR being set up by human receptionists who are not technically savvy. AIR is our fastest-growing agentic voice AI offering and it is helping us capture greater wallet share from our customers.

In Q4, AIR customer count reached 8,300, up 44% sequentially, with customers adding usage-based minute bundles to drive more efficient front-office operations, higher call intake and ultimately, more revenue. With a usage-based model, AIR revenue scales directly with our customers' business activity and is not subject to potential reduction in seat counts.

If and when a call is connected to a human, that is where our AI Virtual Assistant, or AVA, steps in to assist in real time. AVA captures notes and surfaces recommendations, accelerating workflows for our RingEX and RingCX customers.

After the call, our AI Conversation Expert, or ACE, closes the loop, analyzing every recorded interaction for insights that improve coaching, quality and performance across the organization. ACE has been well received with customer count now exceeding 4,800, up 144% year-over-year. Together, AIR, AVA and ACE create a layer of intelligence at every point of interaction, automating upfront, assisting in the moment and analyzing for ongoing improvement, helping customers drive better performance, stronger customer experiences and more informed decision-making.

Let me now provide some real-world examples. A large multi-specialty health care provider in Tennessee deployed AIR in Q4 to address persistent challenges with long wait times, inefficient routing and schedule appointments with integrated SMS. After a 3-month trial, which enabled them to route 100% of incoming calls properly, they expanded AIR minutes from 30,000 to 0.5 million minutes per quarter.

Destination Pet, a nationwide premium pet care provider, purchased RingEX and AIR in Q2 2025, and shortly after in Q4, they added ACE. They are leveraging AIR and ACE across 180-plus locations to capture every call and monitor call quality across every site, demonstrating that tangible ROA customers look to drive as they expand adoption of our AI portfolio.

PM Pediatrics, largest specialized pediatric urgent care provider in United States, is leveraging AIR, AVA and ACE to enable faster routing, higher first contact resolution and richer patient engagement across their 80-plus locations.

In particular, AIR is enabling them to handle 30% more patient calls. This integrated AI approach modernizes operations, reduces friction and enhances patient experience. The key point is that AIR, AVA and ACE are designed to automate, assist and analyze across the entire conversation journey. With RingCentral sitting at the very top of the B2C funnel and serving hundreds of thousands of businesses and millions of end users globally, we now have tangible early proof points of our ability to deliver significant customer value via agentic voice AI. The compounding flywheel of AIR, AVA and ACE is building upon the strength of our carrier-grade secure global business communications platform and sets us apart from point solutions contributing to ARPU extension and higher retention.

In November, alongside our agentic voice AI suite, we introduced Customer Engagement Bundle, or CEB for EX. CEB is a purpose-built solution for businesses with non-dedicated agents who don't need the complexity of a full-scale contact center. Just months after launch, we crossed 1,000 customers, confirming strong demand. CEB is also quickly becoming another vector for RingCentral agentic voice AI growth.

For customers with dedicated agents that require formal contact centers, RingCX provides an AI-powered customer experience suite, including WEM. Momentum with RingCX remains strong with adoption by more than 1,500 customers, nearly doubling year-over-year, while revenue and ARR also more than doubled. In Q4, over half of our $1 million-plus TCV deals included RingCX, and more than 50% of overall RingCX deals included AI.

For example, Patient Connect, a specialized health care call center and scheduling provider, uses RingCX with AVA agent assist the surface patient insights, cutting handle times by 50%. They also use ACE quality management to replace time-consuming spot checks of call recordings, reducing escalations by 40%. Patient Connect reflects a broader pattern. Our agentic voice AI is delivering transformative results across customers of all sizes and industries, ourselves included.

RingCentral customer support runs the full RingCX suite with WEM and agentic voice AI, resolving more interactions upfront, cutting queue volumes by over 50%, accelerating resolution times and elevating customer experiences. This is reflected in our latest Gartner Peer Insights ranking, where service and support scored a new high, placing us in the top tier of communications members.

In summary, we're executing on our agentic voice AI vision, where AIR, AVA and ACE create an intelligence layer across every conversation. RCAI utilizing customers spend more, stay longer and represent a growing share of our business. This sets RingCentral up for durable growth, expanding profitability and meaningful long-term value creation.

With that, I will hand it over to Vaibhav now.

Thank you, Kira, and good afternoon, everyone. As Vlad noted in his comments, we have a durable TAM, well-established competitive moat, a rapidly emerging agentic voice AI portfolio and a well-established GTM. Our AI, while early, is making a meaningfully positive impact on our performance and is already contributing to all key financial metrics. Let me provide more details on our performance and outlook.

Q4 was a strong finish to a good year, reflecting our strong position in a growing market and disciplined execution across the board. Over the course of 2025, we meaningfully strengthened our financial profile across all key metrics. Our business is robust, growing and poised to further benefit from agentic voice AI. We believe we are well positioned to continue strengthening our balance sheet and enhancing capital returns, thus, positioning the company for sustained long-term value creation.

As Vlad noted, in 2025, we surpassed $2.5 billion in revenue, achieved $100 million in ARR from new products, delivered record free cash flow of over $0.5 billion, achieved full year GAAP profitability, reduced net leverage in SBC and returned our absolute share count to 2019 levels. These milestones enabled us to drive record free cash flow per share while continuing to invest in innovation at a world-class level.

Based on our strong financial performance and outlook that I will be sharing with you shortly, I am now incredibly excited to announce our first ever quarterly dividend of $0.075 per share. This strategic enhancement to our capital return strategy is reflective of our confidence in the future of our business and our ability to drive long-term cash flows. More details of this dividend are available in our press release.

Turning to Q4. Subscription revenue was $622 million, up 5.5% year-over-year; and total revenue was $644 million, up 4.8%, both in line with guidance. Our core business remained durable in Q4 with stable monthly net retention rates above 99%. Within our customer cohorts, small business and global service provider business totaling over $1.1 billion in ARR, both grew in double digits with strong unit economics. As Vlad indicated, a key metric moving forward is performance from customers using at least one of our AI products. We refer to these as RCAI utilizing customers. This is currently approaching 10% of our overall ARR, more than doubling year-over-year. As these RCAI utilizing customers come from all cohorts, this metric better reflects how we manage our business. We plan to report on our progress with RCAI utilizing customers periodically instead of previously disclosed cohort-based metrics.

Moving to profitability. Q4 subscription gross margin remained above 80%. Non-GAAP operating margin reached 22.8%, up more than 140 basis points year-over-year, driven by operating leverage and improved sales and marketing efficiency. Our disciplined approach to equity management resulted in an SBC reduction by over 300 basis points as a percentage of revenue year-over-year. This contributed to us delivering GAAP operating margin of 6.6%, up about 4 points year-over-year and GAAP EPS of $0.26. Non-GAAP EPS increased more than 20% to $1.18, above the high end of our guidance.

In Q4, we generated $126 million of free cash flow, up 13% year-over-year. During the quarter, we also repurchased approximately 5 million shares for $135 million. For the full year 2025, subscription revenue grew 5.6% to $2.43 billion, and total revenue increased 4.8% to $2.52 billion. Subscription gross margin was 80.5%, and non-GAAP operating margin improved 150 basis points to 22.5% or $566 million of operating profit. Revenue growth again outpaced operating expense growth, reflecting disciplined hiring, expanded offshoring, vendor consolidation, increased internal use of AI and investments in higher return products and go-to-market [ motion ].

Our strong operating performance, combined with working capital improvements, drove a record $530 million in free cash flow, up 32% year-over-year, representing a 21% margin. New equity grants declined 36% to approximately $160 million or 6% of revenue, driving a 340 basis points reduction in SBC as a percent of revenue. As a result, we achieved a full year of GAAP operating profitability with GAAP operating margin of 4.8% and GAAP EPS of $0.48. Non-GAAP EPS grew 18% to $4.36, above the high end of guidance. Weighted average fully diluted shares were approximately 91 million. Free cash flow per share increased 36% to $5.81. Expanding free cash flow per share as well as our GAAP profitability remain core priorities.

Turning to our balance sheet. We reduced debt by more than $275 million, ending the year at 1.7x net leverage. We have $955 million of undrawn credit facility, which we expect to use to address the $609 million convertible maturity in March 2026. After that, we have no maturities until 2030. We also used $334 million towards repurchase of shares in 2025.

Before I get into specific guidance for Q1 and 2026, let me highlight a few key pillars that are foundational to our long-term strategy. First, we remain committed to investing in durable growth rooted in world-class ongoing innovation. We are spending over $250 million in innovation with the majority going towards our new AI-led products.

Second, improving GAAP and non-GAAP profitability and free cash flow. We expect free cash flow of $590 million in 2026 at the midpoint. As Vlad noted, we also expect GAAP operating margins of 9% in 2026 at the midpoint with a goal of reaching 20% over the next 3 to 4 years.

Third, we remain focused on reducing SBC to drive improvements in EPS and free cash flow per share. We expect annual grants in dollars to decline further to approximately $150 million in 2026 with further reductions over time. Our goal is to reach a steady state of 3% to 4% SBC as a percentage of revenue over the next 3 to 4 years.

Fourth, continued deleveraging with a near-term goal of achieving investment-grade credit rating. To that end, we remain committed to reducing our gross debt to $1 billion by the end of 2026.

Fifth, returning additional capital in the form of dividends and share buybacks. On the latter note, our Board has approved a $250 million increase in our share repurchase plan, bringing the total authorization to $500 million.

With that context, let me turn over to guidance. For the full year 2026, we expect subscription revenue growth of 4.5% to 5.5%; total revenue growth of 4% to 5%, GAAP operating margin of 8.6% to 9.6%, expanding approximately 430 basis points at the midpoint; non-GAAP operating margin of 23% to 23.5%, expanding approximately 75 basis points at the midpoint; free cash flow of $580 million to $600 million, up 11% at the midpoint; SBC of $240 million to $250 million, down about 2 points to approximately 9% of revenue at the midpoint; in-year new stock grants of $145 million to $155 million; free cash flow per share of $6.67 to $6.94, up 17% at the midpoint based on 86.5 million to 87 million shares; non-GAAP EPS of $4.76 to $4.97, up 11% at the midpoint.

For Q1 '26, we expect subscription revenue of $622 million to $625 million; total revenue of $640 million to $645 million; GAAP operating margin of 7.1% to 8.2%; non-GAAP operating margin of 22.8% to 22.9%, up approximately 100 basis points year-over-year; non-GAAP EPS of $1.16 to $1.19; SBC of $60 million to $65 million.

In closing, I would like to thank our customers and employees for a strong 2025, and now we look forward to another strong year of execution with agentic voice AI, providing a durable tailwind to our business. With that, we will open the call for questions.

[Operator Instructions] The first question today is from Brian Peterson with Raymond James.

Congrats on that above consensus free cash flow outlook for '26. Just maybe double-clicking on that and with that cash flow, I'd love to understand what are your capital allocation priorities as we think about 2026 and beyond and maybe the longer-term strategy with the opportunity, both for debt payback or the dividends. Would love to get more perspective there.

Thanks, Brian, for the question. So yes, on free cash flows, we are super proud of what we've accomplished over the last 5 years -- sorry, the last 3 years. If you look at our trajectory, we've gone from $100 million to $500 million in free cash flow, and this year, at the midpoint, we are guiding to $590 million, so up 11% year-over-year. So we are super happy with the progress there.

Now with those levels of free cash flows and the consistency with how we are producing them, we have a lot of optionality in terms of our capital allocation priorities. So clearly, the first priority is investing in the growth of the business. So as you read probably in the transcript, we are spending over $0.25 billion of R&D spend, majority of which is going in our AI-led products. So think of that as 4% to 5% of margin that's getting invested in growth.

From there, we are looking to strengthen the balance sheet by reducing our leverage to being investment grade. So we remain committed to bringing our gross debt down to $1 billion by the end of 2026. And also as a reminder for people, we have a $609 million convert that's coming due in March, and we expect to refi that with the undrawn Term Loan A facilities. So once we pay down the debt, there is no debt maturities until 2030. So net-net, we've taken care of any near-term debt maturities.

After deleveraging, we are returning additional capital through a balanced combination of buybacks and super excited to announce our first quarterly dividend. So we repurchased about $300 million of stock. Our Board has authorized an incremental $250 million, which takes our available share repurchase balance to $500 million, and we've lowered share count to 2019 levels.

And dividends will just complement share buybacks. It's an incremental way of returning capital to our shareholders. And the reason we are very excited about that and the reason we initiated it now is because of the confidence that we have in our business as well as the strong free cash flows that we are generating. So overall, look, with our recurring revenue model as well as growing portfolio of AI products and improving profitability profile, we feel comfortable in our capital allocation strategy.

Great to hear. And maybe just following up. I would love to understand how you would characterize the demand environment versus enterprise, mid-market, SMB. Any color you can kind of share on the various customer segments?

Repeat the question, please.

Yes, Vlad. I'm just going to get some perspective on what you're seeing in terms of demand. Kind of enterprise, mid-market, SMB, just by customer size, what are you seeing in the environment out there?

Yes. You know what, great question. So demand actually continues very strong across all segments. And we're doing well with new logos, and we're actually doing pretty well with upsells as well across all segments.

We are seeing more pricing pressure in the enterprise than in SMB and in particular, in small business, where contracts are shorter duration, and we don't have any COVID lapping contracts at this point in those segments. Because of that, they are doing -- they are -- specifically the small business, is growing in double digits and have actually accelerated year-over-year. By the way, this was not always the case. Okay? So that seems to be very much an area of strength.

And as a reminder, between small business and global service providers, in total, there is a bit over $1 billion, closer to $1.1 billion of combined revenue, and that's growing in double digits and performing well above the Rule of 40, if it were standalone. So we are seeing that.

With enterprise, there are still pricing pressures, still mostly having to do with COVID lapping contracts. And I think as we've indicated on some of the past calls, we expect for that headwind to subside over this current year, so entering '27 with a clean slate from that perspective.

The next question is from Siti Panigrahi with Mizuho.

Great. I want to dig into a little bit on your profitability. That's impressive, seeing the GAAP profitability and the target for further expansion. So Vaibhav, could you talk about the levers that you're seeing to get there? Is it more like gross margin expansion with your own product mix or you're expecting some kind of operating leverage on any particular line? And also in the same context, where do you see this stock-based compensation to come down in next few years?

Yes. Thank you, Siti, for the question. So let me unpack maybe the three-part question that you had. So relative to operating margins, again, if you look at our trajectory over the last 3 years, we've doubled operating margins from 12% to 24%. So -- and this year, we are also guiding to a 75 basis point expansion, and we are expanding margins while we are continuing to invest in innovation.

So where that expansion is coming from is a few areas. Number one, as you mentioned, our gross margins continue to be strong at above 80%. Number two, we are very disciplined in terms of spend. And we also have operating leverage in our business, so we've been consistently driving revenue growth, which is outpacing expense growth. And then in terms of our spend, we are really disciplined in terms of our hiring practices. We are offshoring. There is a lot of vendor consolidation. And then Kira talked about this in her script, that we have increasing use of AI internally. So all of that is driving operating margin expansion.

Now operating margin for us has a broader definition. We also look at it in the context of SBC reduction as well as conversion into free cash flow and free cash flow per share. So we are continuously driving reductions in SBC. We are disciplined in terms of our brand practices. So if you'll see from our guide, we are going from almost 11% of SBC to 9%. So there's a 200 basis points improvement and over the longer term -- in the medium term, I apologize, we have laid out a target of SBC being 3% to 4% in the next 3 to 4 years. So I think that's point #1.

Point #2 is we also look at operating margin in the context of free cash flow conversion. So if you go back a few years, there was a delta between our operating margins and free cash flow, and that has come down pretty significantly. So now the quality of the operating margin conversion is pretty high, and we've guided to $590 million this year or up 11%. So net-net, overall, look, we have a lot of operating leverage in our model, and we can always drive higher margins, but we are balancing that expansion in margins with reinvestment in innovation and growth.

Overall, from a long-term perspective, we feel comfortable with the long-term sustainability of both operating margins and free cash flows because there are a number of structural drivers. And we have a scaled revenue model, which produces recurring revenue and as high net retention rates as Vlad indicated. We have embedded operating leverage in the model, and we are being very disciplined in terms of how we are deploying that cash. So overall, we believe we have a strong foundation to continue to keep improving both operating margin as well as free cash flows.

Okay. That's helpful. And then a quick follow-up on AIR that grew 8,000 customer plus. So that's pretty good. But what's the average contract value for those AIR customers? Are you seeing the ARPU for AI-related customer different? I mean, anything, changes? How does compare that versus non-AI customer? Basically, I'm trying to understand if you're seeing any kind of meaningful dollar expense and [ per seat ] with AI.

Yes. I'll take that. Vaibhav can add additional details. Okay. I'll start with your last question. Are we seeing lift? Absolutely. We already said that -- so here are a few things I really want people to appreciate. So one is we have achieved a $100 million ARR exit rate with new products, which we said 2 years ago, we had 0 revenue. We said would at the $100 million, we have achieved that. So that's check.

We also said that AI -- pure AI comprises a meaningful portion of that. Okay? And just as a reminder, our new product initiatives include our 3 AI products, AIR, AVA and ACE, as well as contact center, which is RingCX. Okay? So AIR, AVA and ACE together are contributing to that $100 million. But even more importantly -- and this is a new metric that we have put out there and that would urge people to be judging us on that moving forward. And that is a percentage of overall revenue that comes from customers that utilize at least one of our paid AI products.

Now why say paid? Because almost all of our customers are utilizing some AI in their portfolio. Okay? But a subset is paying for AI. So this is the dollars, AI dollars, paid AI dollars that comprised the $100 million. But they pull together, at this point, almost 10% of our ARR, so in the $250 million range to date. Okay? So it has a direct impact but a much more stronger and $0.25 billion like indirect impact, both in ARR and also very importantly, it is showing significantly better retention. And our overall is pretty good, world class, we think. But now it is showing net retention substantially above 100% across the board. That includes small business. So I hope I answered that question.

Your next question is from Elizabeth Porter with Morgan Stanley.

This is Jamie on for Elizabeth. Would be great to just get a sense on how you're seeing the different uptake of AI across different go-to-market channels, maybe like thinking about the GSP space or sort of verticals, whether it's enterprise versus SMB.

Kira, you want to take that?

Yes. Sure. So Jamie, the uptake has been good across segments on direct and channel. I would say that AIR -- where we launched our -- so we have 3 products, AIR, AVA, ACE, and AIR is having particularly a good uptake in the smaller customers as it's really easy to set up and especially in the small business, where it's -- they're pressed for just pure resources to be able to take incoming calls, for example. That's been like a lifesaver for customers, being able to go from anywhere in improved lead taking to all the way that translates to real revenue.

Our AVA product particularly sells well with our mid-sized customers and ACE across the board. This is the product that does a post-call analysis. In terms of -- and a similar direct end channel, and I would say that on the GSP side, we announced last quarter AT&T is taking it to market. Now we've got TELUS taking it to markets. We've got other GSPs taking our AI products to market, so seeing very consistent and repeated uptake on AI products with the GSP constituency as well.

And in terms of the results, we spoke a little bit on the -- during the script with real numbers that support why customers are using it, and it goes from essentially improving their revenue profile to be able to expand, to be able to monitor quality, to be able to achieve their strategic goals such as, for example, one of the customers that we quoted achieving their rating classification, so they can take in and attract more providers.

Next question is from Andrew King with Rosenblatt.

Just wanted to get some extra color on how you might have adjusted your partner program in order to reflect the company's new AI priorities?

Really, really good question. Look, we have a well-established and a well-differentiated partner network. We have a pretty good understanding of which partners cater to what audiences. We also know what our golden verticals are, and a couple that really stick out at this point is health care and financial services. And then there is also SLED, which is doing very well for us as well. So at a high level, we are going with those partners, and I would say that, that would be tip of the spear for us. Over time, we believe that AI will be utilized across the board and adding values in all verticals, but this is the one that come to mind first.

Also, GSPs generally tend to -- their user bases tend to be SMB in their own right, and this is another testament how well our AI and AIR, in particular, is playing in SMB, is that not only is it doing well for us but also most of our GSP partners have now lined up and is deployed or will be deploying shortly. So it's [indiscernible].

Congrats on the strong performance.

[Operator Instructions] The next question is from Ryan MacWilliams with Wells Fargo.

This is [ Cyrus ] on for Ryan. With the recent announced integration with OpenAI's like 5.2 voice model, what are OpenAI's models bringing specifically to the Ring platform that are enhancing your voice offering?

Well, we -- in the press release, we clearly spoke about 5.2 model. Generally, I would say that we are -- we utilize the models that make the most sense for the transaction that is being analyzed and most cost effective. So we always test all the models. 5.2 is the latest model and shows very good results. So we look for accuracy. We look for latency. We look for things to optimize during essentially processing and apply what's best in that particular scenario. And I should add to that as well that we -- the platform generally is model agnostic, and so we also utilize other models as they're applicable to specific needs of what's being processed at the time, whether it's a real-time transaction or post processing transaction. So different models apply and there -- we always do arbitrage between the models.

This concludes our question-and-answer session. I would like to turn the conference back over to Steven Horwitz for any closing remarks.

Thank you, everyone, for joining us today. We look forward to seeing you next quarter and also seeing you at Enterprise Connect in March. Please contact the Investor Relations at [email protected] if you'd like to attend. I will be also sending out an invitation soon. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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

Good to be here.

Great.

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

Yes. So RingCentral is a global communications provider. We are about $2.5 billion in revenue. And we have 500,000 customers of all sizes that use our products across our communication portfolio that includes UCaaS and CCaaS and our AI portfolio. We are profitable. We are throwing about $500 million worth of cash on an annual basis, expanding margin.

And it's important to note that voice is mission-critical, and we sit at the very tippy top of that voice pyramid. And from there, all communications flow. And it's mission-critical from business to communication -- business-to-consumer communication. And that's also important to note because it's often UCaaS is thought of people to people within the company. And what we're seeing is our platform, whether it's UC or CC, is used for business to consumer.

We pioneered 25 years ago, this migration of cloud to cloud, from on-prem to cloud. Our first product was a PBX replacement from on-prem to cloud. And we -- what we did is we democratized access to cloud communications. We made it simple, we made it affordable, and we made it ubiquitously available on any device. And we called this RingCentral 1.0. That was the initial product that RingCentral took to market.

We then introduced a multiproduct portfolio. We called it RingCentral 2.0, where we added to our phone product, contact center product, integrated it. We actually defined that category of integration between CC and UC. And we made it multimodel, including media messaging and other digital channels.

And now we're embarking on what we call RingCentral 3.0. RingCentral 3.0 is about agentic voice AI. We are a voice-first platform. And like I said, we sit at the tippy top of that communication. And that puts us in an excellent position to leverage the power of AI across our product portfolio. And what does that do? That makes experiences much better, cost reduction, efficiency. It provides business intelligence behind our communication. That is our 3.0 portfolio. So moving from cloud PBX to really a cloud agentic voice AI platform across all our modalities.

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

Our minutes are growing at an accelerated rate. We are processing tens of billions of minutes per year, and we're processing over 1 billion SMSs per year, which is sort of tied in some way to our communication platform and the way people communicate. The reason voice is mission critical is that, that's the preferred, the most ubiquitous way that people want to communicate.

And for businesses of any size, that's also really important, whether you're a small business, a midsized business or a very large business, what is the most natural way of communicating, you want to call the business and say, even really simple things on the road, what are your business hours? So today, we can supplement that with AI. And that's where sort of -- that's where the flow starts. So we're definitely believers and our 500,000 customer base and growing supports that. Voice is absolutely the way that is a preferred choice of communication for many of the business-to-consumer communication conversations.

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

Yes. We made a mark for ourselves in our reliability, in our security. And I think we're unmatched. I can confidently say that today. We actually coined this term called trust innovation partnership. So trust comes from our ability to provide reliable service and voice being mission-critical is super important.

Then we've always innovated at a rapid pace. We defined -- we have a history of these markets first. And previously to taking this job and a couple of other jobs in between, for a decade, I run our innovation organization. So I was behind innovating very rapidly and defining these categories. And so we have full confidence that we can continue to define the market in a differentiated way with a differentiated portfolio.

And then what makes us really also unique is our partnerships. We have over 15 partnerships with global service providers. We have thousands of channel partners that we -- that take us to market. That footprint and that reach not only provides us access, it also provides us with partnerships that refine and help us innovate in the product in a differentiated way.

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

Yes. This is sort of the favorite part of this conversation is the 3 As. We call them AIR, AVA, ACE and they stand for -- AIR stands for pre-conversation interaction, AVA for during the interaction -- during the conversation, Copilot and ACE is what summarizes and analyzes conversations and provides that close feedback loop. So to give you an example of AIR, AIR stands for AI receptionist. And to give you an example how -- what that does is it essentially fields calls coming into the business. It can answer routine questions. It can transfer calls. It can make appointments.

And as an example, customers are always a great validation of what it does. I'm going to use a regional health facility called Access Mental Health. They trained -- they have the receptionist trained, a virtual receptionist. Now what does a real receptionist cost, more than $40 a month. AIR starts at $40 a month. That's the starting price. So they were able to do that. And they were able to field a lot more calls and take a lot more inquiries. And with that, they were able to grow their business, acquire businesses and so grow their revenue for small business by like almost $2 million very rapidly. I mean that's huge ROI.

Now let me look at -- let me then take you to AVA, which is the Copilot part of the AAA portfolio. And every conversation on RingCentral, whether it's in UC or CC part of the portfolio, is -- has the ability to be transcribed, listened to, analyzed for basically day-to-day conversations. One of our customers, Detroit Pistons, a known sports team. They use AVA to essentially transcribe their strategy meetings and transcribe their conversations.

And with that, they can then deposit the summaries of those conversations, the notes into their CRM systems and be able to feedback on that and not take the time from the conversation to take notes. Imagine every salesperson out there that's sitting on a phone trying to take notes, trying to do a disposition, and that's immediate productivity right there.

And then in the contact center environment, I'd like to use this -- we have this large outsourcer, [indiscernible]. They're a contact center -- outsourcing contact center. That means they take a lot of calls and the agents have -- need to be trained, need to be listened to. They need to be onboarded and supervisors need to have visibility. That provides that capability. That's our AVA, the Copilot.

And to wrap it all up, ACE is the business intelligence and quality management. And again, for customers of any size, it will analyze all your conversations, provide you this business insights. And for individual agents or salespeople or anybody who is actually using this to communicate in a meeting or in a phone conversation, it will provide you with ranking, scoring of every conversation and analysis conversation, scoring of all the agents, so you can help improve and see full business picture.

And so in terms of kind of what does it produce by way of outcomes, RE Medical, which is -- it's a firm that puts together deterrence with doctors, very important there to be able to monitor quality of those conversations and understand the insights behind those conversations. They use ACE to be able to analyze hundreds of thousands of conversations per year, over 1 million per year. They used to be able to do 300 a month, that kind of...

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

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

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

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

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

Yes. It's a competitive market. And it's a market, however, that still has a huge opportunity in front of it because there are still millions of seats out there of on-prem systems that have not been migrated. And while it may not be growing as rapid a pace as it was growing 5 years ago, it's still growing and it's still meaningful. And those systems are moving both in UC and CC spaces, so both from on-prem to cloud.

And I don't think you can think any more of the UCaaS space or CCaaS space as a stand-alone space. I think we need to think about them as spaces that combine that with AI innovation that fits side by side or in front of them, which we bring to the market, and that changes the equation of how customers buy. Customers come to us and they don't want to just buy a communication system from us anymore. They want to buy a transformation system from us.

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

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

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

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

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

Yes. So first, we have been on this path, as you mentioned, of expanding margins. Our margins have gone from a little over 10% a few years back to now 22.5%, what we guided. So we have doubled our margins. The margin expansion has come because of primarily 3 growth levers or 3 levers. One is we have reduced redundancies in our business. There are more things we are working on, but we have reduced redundancies. We have rationalized vendors and spending. So -- and that continues to be there, which will keep on happening.

And then the third most important thing is we have leveraged AI and driven AI deep into all parts of our businesses. For example, in R&D, we are talking about all this innovation. A lot of our coding and QA work, all of that is done now using AI. We are seeing massive efficiencies over there. At least 25% of our work is now all done on AI.

And then we have instituted a program internally, which is called RC on RC, so -- which is where we are leveraging our own AI products as well as RingCX internally in all departments, specifically sales contact centers and support contact centers. And because of this, we are seeing massive improvement in call handle times, average time to transfer calls and things like that. So we are seeing benefits of ROI from just using our own AI products.

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

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

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

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

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

Yes. So our new products, which include RingCX, we -- 2 years ago, we said we'd be $100 million in ARR starting from almost nothing. We're confident we're going to exit the year with $100 million plus in ARR. That acceleration pace is triple-digit growth right there. And that is the platform, which opens up for us a huge aperture. The market out there, the TAM according to IDC, Gartner of what customer engagement and AI bring together is something like a $60 billion TAM. And we ourselves believe to be -- believe we're in an excellent position to be able to take advantage of that. Why?

Because of our installed base of 500 customers because we are the tippy-toe of this mission-critical voice pyramid and because we're innovating faster than ever before, there's not that many companies out there that can put in $0.25 billion in revenue and our ecosystem of distribution. All that together puts us in a position of taking advantage of that emerging market and nobody really knows the size of it, the numbers keep on going up. And that is our growth vector.

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

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

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

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

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

It's a great question. And I would say the demise of agents is largely exaggerated. Just like there was -- a couple of years ago, this demise of voice is largely exaggerated. Having said that, of course, AI makes -- supplements what agents do, what people do, what you and I do or what agents do. It doesn't matter what your role is, it supplements it. So we largely think of our products as augmenting people, making them more efficient, more productive, making their work more delightful and improving customer experiences.

And if we improve customer experiences for them, ultimately, that's clear ROI there. And that's how we make money. There are situations where people will be eliminated. I gave you an example of an AI receptionist. You don't need two, you need one, but you still need one that the other one could be AI.

But somewhere at the end of the day, a human ultimately is going to handle the customer in more involved use cases. A number of use cases can be offloaded to purely AI. So again, while some positions and some interactions are being eliminated, we're not really seeing that the agents or people will go away.

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

It goes back to our principles of trust innovation partnership. We are -- our reliability and scalability is super important. That creates trust, and that has been one of our key lasting differentiators in the market that to date is unmatched regardless of who the competitor is.

The rapid pace of innovation allows us to partner with our customers and the trust innovation partnership. And this works -- all of it works in tandem to be able to produce differentiated competitive products via that route of investment in innovation, understanding customer trends and leveraging them, like jumping on that as a market first and then ability to go to market and refine it with a large ecosystem of partners. Those things work in tandem, and that was what gives us confidence. Yes, I mean, it's a battle out there. It always is, but it always was.

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

Well, for us, look, at the end of the day, our core business remains stable. We think of our business in 3 big blocks where small business, which is 1 to 99 seats, that business is growing double digits. And we expect to continue to grow at that rate. The GSPs, which Kira talked about, we have 15 of them. That business is also growing double digits. And these GSPs, we have expanded our partnerships with them recently, and they will be taking on NPIs and new products that we have introduced, and we expect them to grow.

And the enterprise side of the business over there, we -- that still -- there is a large amount of on-prem base, which is migrating to cloud. And over there, where we find a lot of people are on Teams and in Teams environment. And over there, we continue to lead with our RingCentral's integration into Teams, and we see our MAUs growing over 40% year-over-year. So net-net, between all of these things, we expect to continue to grow at market share rate, which is in about mid-single digits.

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

Thank you.

Thank you.

Perfect. Hello, everyone, and I hope you're enjoying day 1 of the UBS Tech Conference. For those in the audience that don't know me, my name is Taylor McGinnis, and I head up the application SMID SaaS space here at UBS. And so before we dive into our session with RingCentral, I just want to let you all know that if you have a question, you should be able to ask within the app. And then I'll leave a few minutes at the end to answer any questions.

So with that, today, we have Vlad, who's the CEO and Founder of RingCentral. And then we also have Vaibhav, who's CFO. So thank you guys both for being here today.

Thank you for having us.

Of course. Vlad, maybe a great place to start is over the last few years, RingCentral has embarked on a significant transformation. So you started in the unified communications space. You've been evolving the product to encompass customer experience in the contact center, more recently, artificial intelligence. So maybe you can just give the audience an update on where you are in that transition? Is 2026 going to be the breakout year for some of these emerging products. And pic initiatives you and the team are putting in place to chase after a lot of these broader growth opportunities?

Great. Wonderful question. For the record, we only got 27 minutes left. I have a very long answer. We probably have more questions. Yes. Look, RingCentral, we are one of the original SaaS companies. The company is over 25 years old. I'm the founder. So we started out by moving business communications from on-prem to the cloud, okay? We call it RingCentral 1.2. We were rather successful coming up from approximately 0 revenue to approximately $2.5 billion in revenue in that amount of time.

RingCentral 2.0, as we view it, is when we went to become a multiproduct portfolio company. So that's when we stopped viewing ourselves as a single product or service provider and more as a platform with multiple apps and now engaging into customer engagement, aka, the contact center, video, video events, messaging. So that's RingCentral 2.0. And it contributed to our growth, and our success and really set us up for where we are now, which is RingCentral 3.0.

3.0 is one that's going to overshadow everything we've done prior. And this is where we are not just making it easier for people to communicate more devices, more locations, cheaper, more self-service. But we're fundamentally changing how they communicate. So now 3.0 is about embedding AI into human interaction. Some of it will be replacing humans. But a lot of it, and certainly, that's where the industry and where we are now is less about replacing maybe just yet and a lot more about enhancing.

So we've introduced a not 1 or 2 but 3 products just recently, the 3 As we call them, AIR for AI receptionist, AVA for AI virtual assistant and ACE AI conversation expert. And between these 3, we cover every stage of an interaction. Before the call, AIR during the call, AVA and after the call ACE. And it's super early, but these products are growing in triple digits, not annually, but sequentially. So gives us every confidence that your question is '26 is going to be a breakout year. Yes, so will '27 over '28. There is a lot to cover here. We believe that we are extremely well positioned to be one of the main beneficiaries of this AI revolution.

Perfect. So let's dive in a little bit more on the 3 As that you mentioned. So AIR, AVA and ACE. Could you talk about -- it's early days, but in terms of where you're seeing the most customer interest, which of those 3 products. And then two, as you think about the evolution of adoption and monetization, what does that look like potentially in the coming years?

Sure. As far as share numbers are concerned, numbers of accounts, it's AIR. We are well over 5,000 accounts as of our last announcement. We're well over whatever we've announced back then now. We're signing up multiple hundreds of accounts per week. And it's just beginning, and the big guns haven't really spoken yet. One of the big guns, for example, is AT&T., that started shipping and they now have multiple hundreds of accounts, if not more than that.

Most GSP, global service providers, which is a unique GTM, we have in addition to direct and regular channel. Most of them are picking up at least some of these. I can tell you that there is a lot of excitement about AIR in particular, because it is so easy to relate to, okay? It simply gets you to where -- it replaces and augment really more augments and replace its reception, human receptions, and it can answer a number of questions, directions, work hours, price list like that, anything you can scrape from your website or your knowledge base as a customer of ours. It can direct calls, it can set up appointments for you.

People don't realize how many calls they are actually missing with the best of intentions, people simply don't like leaving voice mail anymore. So what does they do they hang up? So that means missed leads, missed cases. We have a -- one of our customers is a health care clinics. And serious stuff. People have a breakdown and they need to get through. And if there is no one to pick up that phone, it's not a good situation from media perspective, okay?

And AIR sort to resolve that because simple questions can answer and less simple questions, it can actually get through or near to get through. And this one company, it's a small company, but they're saying $1.7 million in annual recurring business for them once they deployed AIR, and it allows them to expand and buy a new business.

So hopefully, more of that. This is just one little example. So numbers-wise AIR. It's very, very early. And in all fairness, a lot of what AIR does is embedded in some of the higher tiers anyway. We have this wonderful customer, some of you may have heard of Detroit business. They love it, okay? They're using. They get lots of traffic, people who call business for whatever reason. And they get it to document and annotate calls, okay?

ACE, it's really quality management and sales training, and it's skewing more upmarket, but popular with financial institutions. I have to say we rank, we use all 3 products ourselves as well. We've got several thousand-plus people in the company, about 2,000 strong contact center, call center of our own. We have AIR in front. We have ACE in the back training agents and AVA for anything in between. So there is definite traction. And again, we are very well positioned because with all of the talk, maybe it's fading now a little bit that, wow, voice is going away and who is using voice anymore and all I do is I'm on Teams or Zoom or something.

Yes, maybe B2B and even that by far, not 100%. But B2C, it's all voice. Voice and some text, some SMS. And we're the leaders there. We have market share. We're doing some of the numbers to share what, 1 billion calls a month, that's 3 billion minutes a month, so over 30 million annually, 1 billion SMSs a year. Everything is growing at or even above our growth rate as a company. And the trends are only getting stronger. And with this [ Metrigy ], we're just uniquely positioned to deploy AI at every stage of a transaction of a workflow. not too many companies can claim that.

Yes. That was a great background on the competitive differentiation, and I'd love to dive into that a little bit deeper. So in terms of the competitors that RingCentral runs into frequently on the AI side, what does that look like? There's a number of players in the space. You have CRM players trying to offer some solutions in the space. There's contact players entering it, other -- you see competitors. So who do you see more most frequently? And how is RingCentral trying to position itself in this industry?

Look, CRMs are great. We use the CRM. They don't answer calls or text, that's the thing. So we didn't run into them that much, at least not yet. So again, a consumer calls a business, sales force is not going to pick up that call, we will. Now certainly, especially for larger enterprises, of course, there is going to be handover and of course, we'll work with agent force or whichever Agentic cloud will -- there are protocols for that and all of that. And we do that. But again, we are in the first position.

To your question, who do we see? The start-ups, sometimes we see, but the thing is, they don't have the traffic. They don't have the presence. So anecdotally yeah. I mean, usual suspects, there is Microsoft and the copilot but that's very specific. There is no AIR equivalent anywhere. There is not a scaled-up competitor with an AIR like products that we know of. I mean we see Microsoft, we see some Cisco, we see some Zoom. It's a very large market, but we also all have basis to cater to a business to protect. And certainly, our customers are choosing our product predominantly.

I have to say that a new motion for us has been PLG, product-led growth. So 50% of AIR deployments are actually our existing customers going online without our intervention and just signing up for a trial. And yes working great, and we're certainly going to promote it more and more. So again, early days, but strong will get stronger. Hopefully, we'll continue to be one of them.

Perfect. Vaibhav, over to you. So you've set a goal of achieving $100 million in ARR from these emerging products. So could you break down what that $100 million could potentially look like across these individual products? And then just any additional color in terms of the growth trends you're seeing by product as well too, I think, would be helpful for the audience.

Yes, of course. So of the $100 million, the biggest proportion right now or the biggest portion is RingCX, which Vlad talked about and followed by ACE and AIR. And just to remind people, the new products are very new. Like RingCX was introduced less than 2 years ago. And within 2 years, we have over 1,300 customers growing 150% year-over-year. So that's pretty impressive.

AIR, we've added close to 6,000 accounts actually in the last reported number within a matter of a few months. And as Vlad indicated, it's continuing to grow. So I think the pace of innovation has been really impressive. I think we as a company, we are -- the genesis of RingCentral has been innovation, particularly around product. So very pleased with the results, and that's the breakdown.

In terms of the trend, look, it's a little under 5% of overall ARR now based on the last guidance we had provided. So we went from 0 in '23 to $50 million in '24, and we've guided to over $100 million by the end of this year. So again, the numbers speak for themselves. It's a pretty impressive trajectory. And it's a little under 5% as of now. I think our next goal and Vlad had articulated that at our product is to be approximately 10% of our revenues in 2027.

Perfect. And then in terms of the remaining 95, 90% going into next year, it still sounds like a lot of the core business is in the RingEX business. So could you give a little bit of an update in terms of the performance of that business, the underlying demand trends that you're seeing what the catalyst of that business look like going forward? So is it really a function of improvement of demand environment? Are there any interesting initiatives that you guys have underway to spark further growth in that business? How should we think about the underlying drivers there?

Yes. Look, it is a model ship. It's a $2 billion business, that's growing. It has been growing more in line with the market, certainly not underperforming. Market has slowed down. There's no doubt because it's maturing. It's -- it went through its growth but, let's say. But there's still tons of opportunities there. There is still a lot and lots on-prem left. People don't realize how much on-prem is still left and there is a lot. People like Cisco, people like Avaya, they're still sitting content of millions of on-prem heat. So every heat migrate to the cloud over time. But it doesn't need to be every seat to move a needle on our 8 million. So there is that driver.

Also, there is -- the way that we look at it is now more as the platform, more of the share of wallet. So to grow UCaaS -- you don't really grow you UCaaS. You grow your revenue as a company. You grow ARPU, you grow ARPA and the direction we are taking is not just concentrating on net new bear minimum seat but enhanced seats, seats with AIR, AVA, ACE with CX, and we're having huge touches, okay? So new customers are taking AIR a alot new customers are taking RingCX a lot. So it all really works together. It's much more symbiotic, I would say.

One little example is we have recently introduced something called customer service bundle, okay? And this is going to this idea that when people, maybe historically would think of UC and CCS 2 distinct Ireland and with very little overlap. But there is this new area called customer engagement which is in between. It's for lightweight informal contact centers to where you have a 10, 20, 30 person business, and not really a dedicated coal room, but people in business still behaving like agents when customers close coming into them, okay?

So by that count -- so there are a few features that are -- telltale signs use of [indiscernible] in particular. And the third of our calls are going through [indiscernible]. So by that count, if you count a number of individuals involved, it's over a million -- well over 1 million, call it nondedicated agent, okay? So we actually have a product now aiming and getting trade specifically for that community. That's going extremely well.

Again, we just introduced it last month, but we're talking about explosive growth at this point. And again, it presents us with an opportunity for net new logos as well as for upselling into the base. So I hope we answered the question.

Perfect. We've talked a lot about the growth trajectory that you're seeing by product, but I'd love to touch on the growth trajectories that you're seeing by customer segment. So there's been a big focus down market. You've seen a nice reacceleration in the business back up to double-digit growth. I think there's some more challenging dynamics happening in the enterprise space. So could you just talk through what demand trends you're seeing amongst those 2 customer bases, how RingCentral is trying to position the company and how you think about those customer segments going forward.

Look, demand remains strong. Sure, SMB is now growing in double digits, and Enterprise is not. I have to say, though, that used to not always be the case. And hopefully, we'll get Enterprise back up there as well. With Enterprise, really what we're doing is we're fighting harder comps. We're still adding tons and tons of new business. We're adding lots of new logos. We're having very healthy upsell into the base. Our logo retention is as good as it's ever been.

We are dealing with lapping COVID contracts at this point. And it may seem like ancient history, but it really is not. And we were signing long-term contracts during COVID at higher prices for more ships because people were just buying, buying, buying, buying. And it's now reverting back to normal. This trend -- or the situation will normalize next year. By the end of '26, we should be done with those COVID contracts. There is a new normal, which, by the way, is the same as the old normal was before COVID. So we just came back to that. And so it's going to be easier comps moving forward.

And then we also had this situation with NICE inContact where we were reselling -- were and are reselling their technology under our brand. We built a sizable business on it. And they were going through some management changes on their side, new CEO, all of that. So there was a bit of uncertainty in the market. And frankly, our channel dried up there. So we kept the base, but new leads were drying up. The contracts have since been renewed the. I would say, very, very good relationship between the companies, again, at this point, a lot of opportunities together, but it takes a long time to refill their channel. So again, we're fighting a harder comp, which should if nothing else normalize next year or after next year and maybe even as the new pipe gets refilled.

And then meanwhile, on the tailwind side, we have this new product, and we have RingCX, our own contact center maturing and becoming more powerful. So it's going to be hunting more and more upmarket as well as our AI portfolio and their ACE, in particular, used to be called RingSense, that's hunting upmarket with dedicated call centers, with dedicated sales teams, that's what is explaining. So we're pretty optimistic actually.

Yes. And on that latter point that you made, so you talked about there's been a little bit of a mix shift from the NICE partnership then to your newer CX offering. And I think that has had a little bit of an impact to ARPU because I think the RingCX offering is lower ARPU than what you see with the NICE partnership. So could you talk about how you see that evolving over time? And are we largely through the impact that, that might be having to growth? And how do you think about that going into next year and beyond?

So it's a true statement, but I have to say -- so firstly, even just apples-to-apples, yes, it's an impact on the top line growth. But the bottom line, I mean, we have owner economics on CX and not on inContact. So what falls down to the bottom line is same or better with CX. So let's not forget that.

Moving forward, look, the CX is getting stronger, and the partnership has been renewed. So we feel we can cover the entire gamut now from very small contact centers. Very, very small ones we do with the customer engagement bundle, okay? Then a little bit more formulized, more formed, we have CX and that's going into multiple hundreds of seats. And we think we'll be 500 to 1,000 seats. We have some examples even above that even now, which we are one of them, by the way, okay? And a company called Genpact, which is one of the largest BPOs in the world is the CX customer now, they have like thousands, thousands, but those are still few and far between.

But again, between CX moving up, CC, which is inContact based, again, being in the field and the multiyear extension of the contract, and AI coming in and helping all of it, and with AIR in particular, not currently, it's aiding receptionists. Moving forward, it will be aiding agents and eventually replacing agents. Again, we think we're pretty well positioned. We're putting our dollars where our mouth is, dollars to the tune of $0.25 billion a year is our R&D budget. Over half of it is already going to new products. Hopefully, we're here next year, same time, I hope it's going to be meaningfully more than $0.5 billion.

Perfect. And I'd love to shift gears to the free cash flow improvement in profitability, which has been a bright spot in the RingCentral story. So Vaibhav, maybe you could just talk about the runway that's still left there and the opportunities for continued leverage both on the free cash flow side and also on the EBIT margin side.

Absolutely. Yes. So we are very proud of the improvements or the expansion we've delivered in both free cash flow and operating margin. Look, it's been a story of discipline and we are very maniacal about revenue growth exceeding operating expenses growth. So that's been a large part of the driver of free cash flow expansion. I mean, over the last 3 years, we've gone from $100 million of free cash flow to over $525 million, which is where we guided this past quarter.

So it's -- the improvements are coming from 2 or 3 places. There's operating leverage in the business. So we are growing as a company and at 80% gross margins, a lot of it is dropping to the bottom line. There continues to be discipline in terms of spending. So we are very disciplined in terms of our headcount hiring. We are doing a lot of vendor consolidation. We are offshoring to low-cost locations.

And as Vlad alluded to earlier, there's increasing use of AI within the company. I think he coined the term ring on ring. So we are using AI extensively. It's early on, but it's being used across multiple departments from R&D to customer support to sales. So that's driving operating margins up and that's flowing through to free cash flows.

The second point there is we've also done a lot of work around working capital improvement. So the quality of the conversion from operating margins to free cash flow has been improving. There used to be a bigger gap, I would say, 5 to 6 points gap 2, 3 years ago. We've now kind of shortened that, and we have a point or so of difference. So that's point #2.

Point #3 is we are also looking at free cash flow in conjunction with reduction of SBC and share count over time. So the metric we look at overall is free cash flow per share and free cash flow per share expansion. So we are taking steps to improve free cash flow, reduce SBC, reduce share count, which is now at 2020 levels. So based on the last guidance, we are now at $5.70 of free cash flow per share, which both from a dollar standpoint as well as from a growth profile standpoint is best-in-class. And the business model that we have around -- the recurring model that we have with the diversified customer base across [ SP ] enterprise and the growing portfolio of AI products gives us confidence that we'll be able to sustain that in the future.

Perfect. And I'd love to talk a little bit about the investments in AI and then also how you're using AI internally. I think you've made comments in the past that the big focus of R&D today is going into your AI product. So one, can you talk about that, how that is being allocated internally? And then secondly, you mentioned using AI, right, as an area to save costs and improve efficiency. So maybe you can give some examples of the initiatives that are underway there.

Sure. So as far as R&D dollars, I guess, I'll take it in that order. Look, all of R&D is becoming more efficient across the board. Certainly, we're not unique in that, but I don't feel that we are particularly behind anyone either. We got about 2,000 engineers, and they are required by mandate to use AI or else look for another job. The vast majority of them are choosing to use AI, I can tell you that. There is some resistance because it's new, but culturally, kind of -- they all understand that, that's the future. So this resistance is not very -- they're not dug in, okay?

And well, proof is in the pudding. We are able to innovate at a rate that we never have been, okay? We are introducing multiple new products per year, if not per quarter. Just the pace of innovation, the number of features being released is multiples of what it used to be. We're hearing some very crazy numbers internally, 70% improvement. I don't know. I want to be a little bit careful. What I can tell you is that we are not growing engineering headcount and yet pace of acceleration is improving and just look at our announcement, okay? And there will be more of that to come.

As far as use it internally, it's really across the board. We use it -- certainly, like you said, ring on ring, AIR in front of our contact center, ACE behind our contact center, that's already the reality. Our agents are being assisted with AIR, being trained and quality managed with the help of ACE. Using our own products, we were able to move to our own WFO. Let's not forget, we've added that to the portfolio recently. And we did this in a number of weeks. Our prior experience with the prior vendor was a number of months. So that's a step function change.

We use it in marketing. We use it in search engine optimization. We use it in sales literally across the board. And absolutely not about using it for earnings scripts and for Analyst Days because it makes sense, okay? So it's just a new tool. And if you use it right, only good news will come.

Perfect. So that makes Steven's job easier. So I'm sure he's excited about that, that use of AI. Maybe a last question for both of you. We're wrapping up 2025 headed into 2026. So Vlad, first for you, what are you hearing in terms of customer conversations? What are your customers' spending plans potentially looking like going into next year versus what we saw this year? And then Vaibhav for you, curious on capital allocation and how you're thinking about that strategy headed into 2027?

Yes. Look, obviously, there is still some uncertainty on the macro side. Nobody is immune. Our customers are not immune. We're not immune. And certainty it does not mean no business or less business [indiscernible]. Some of these technologies we're bringing in they are disruptive technology. AIR is disruptive. I don't want the economy to go bad, but if somebody is laying off people, then certainly, it's easier to replace receptionists with AIR and vice versa.

In small business, the backbone of the economy, 40% of the U.S. economy is SMB and it's been proving itself over and over and over again, it will continue to do so. And again, we are -- this is really maybe one takeaway. When all said and done, we are one of the very, very few mission-critical apps out there. If you're in business, you have to have customers and if you have customers, you have to communicate with them. You have to provide means for them to communicate with you. As long as the business stays as a business, they need a solution like us. So that's what we're hearing. So maybe sometimes it grows a little faster, sometimes a little slower, but it's always growing and it always presents an opportunity to upsell.

And then from a capital allocation perspective, look, our goal is to optimize free cash flow per share by investing in the business, growing revenues, paying down debt and buying back stock. So the beauty of having $525 million of free cash flow is it opens up optionality. So the first use of cash always is putting it back in the business in innovation and growth. And case in point, Vlad talked about over half of our $0.25 billion going in innovation. So that's about 5 points of margin that we are investing back in the business.

We are opportunistic about M&A, we acquired CommunityWFM because that was a product gap in our CX portfolio. So again, we look at M&A. We are also deleveraging and strengthening the balance sheet. So if you look at our leverage profile, we went from over 4x to under 2x over the last 3 years. We've addressed our near-term convert maturities, and we've also made a commitment to reduce our gross debt to $1 billion by 2026, which will put us very close to investment grade at that point.

And then last but not the least, buybacks represents an attractive opportunity at the current stock price level. So we bought back $200 million worth of shares. We have $385 million left from a Board authorization standpoint, which we'll continue to execute on. So overall, big picture, the idea is continue to optimize the business for free cash flow, pay down debt, reduce share count, which is now, by the way, at 2020 levels with the goal of improving free cash flow per share and expanding that over time.

Perfect. Well, we'll leave that there. Thank you all for joining and let's give Vlad and Vaibhav a round of applause.

Thank you.

Thank you.

Perfect.

So I'm Ryan MacWilliams, SMID-cap software analyst here at Wells Fargo here for the ninth Annual Wells Fargo TMT Conference. With me today from RingCentral is CFO, Vaibhav Agarwal. Vaibhav, thanks for being here.

Thank you. Thanks for inviting us here.

And the joke I was making is like I feel like we should just open the back doors, I mean we can do like Ocean View fireside.

View is fantastic. This is my first time at the Wells Fargo conference as CFO. The view is just amazing. The attendance is just great. Happy to be here.

This should have been a part of my pitch to come over. It's like, yes, bring the whole family. So anyway, I'm glad that we're able to do this. Look, we know each other for a long time, and we've been around different environments for UCaaS. And 2020, 2021 was an amazing time and a lot has changed from our product. And technology standpoint. But maybe just to start off, like for those maybe revisiting RingCentral or just trying to look at the story for the first time, can you just talk about this year for RingCentral and kind of what led up to the most recent earnings?

Yes, absolutely. I think 2025 so far has been a really good year for us on multiple different fronts. We, in our Q3 earnings came out at -- all the metrics came in from a revenue standpoint at the top end of the guidance. We had record operating margins. We continued with free cash flow expansion and more importantly, free cash flow per share expansion while reducing SBC debt and continuing to buy back stock. So from a financial standpoint, it was a great quarter, on track to finish the year kind of in line with where we guided.

From a business standpoint, there's lots of excitement. I think the fundamentals remain strong. On the core UCaaS side, we are continuing to grow. We are the market leader with a steady 20% market share. We are operating at scale with over 0.5 million customers that we serve, 8 million digital lines and tens of billions of minutes of traffic that's flowing through the platform.

The excitement continues. We recently concluded our Product Day. And Vlad, our Founder and CEO, laid out the vision for our Agentic voice AI product portfolio. So I'll highly encourage everybody to go through the presentation and the webcast on our website. But Vlad laid out the vision for the -- and the product portfolio, and that's very exciting for us. The proof is in the numbers. These products are already out in the market. We are monetizing them. We are on track to exceed $100 million in new products within a matter of 2 years, which is a great accomplishment for us.

And then kind of as you go down our business -- our small business continues to do well. We have a very unique and differentiated GSP practice, which is growing in the double digits and has strong profitability higher than the corporate average. We raised our free cash flows to over $525 million. We reduced SBC, which is now closer to 10% of revenues.

And then from a capital allocation standpoint, we've done a lot of work over the years. Our leverage ratios are -- on debt are now under 2x. We've committed to reducing our gross debt to $1 billion by the end of 2026, which will get us closer to being investment grade. We continue to buy back stock, reduce share count, which is now at 2020 levels.

So both from a business standpoint as well as a financial standpoint, there's lots to be excited about, a lot to look forward to. And what gives us or gives me the confidence is 3 things. It's our recurring business model. It's our diversified and large customer base and our exciting suite of AI portfolio products.

I remember in an earnings call a few quarters ago, Vlad really drove on the point that RingCentral is a multiproduct company now and how that's important in a number of ways in terms of your go-to-market or even just to go back to your existing customers and try to upsell new things. As we think about like RingCentral in 2026, you have a really fast-growing AI portion. It seems like stability more on the UCaaS side. I guess like how do you think RingCentral starts to change? Or what do you think starts to become more of a theme for you guys next year?

Yes. It comes back to the AI product portfolio and the vision that Vlad laid out. Look, for us, voice continues to be mission-critical. When we look at, especially in our B2C verticals, voice continues to be a predominant mode of communication. Case in point, when you have to call your physician's office, you are calling, you're not videoing. You're calling a plumber, you're calling your credit union, you're calling your bank, you are calling them. You're not -- or texting them, you're not videoing them.

So there are a lot of use cases and voice and text usage on our platform continues to grow. We have 30 billion minutes flowing through the platform, 10 billion calls. We have 1 billion SMS traffic flowing through the platform. So that puts us in a very, very unique and a differentiated position to apply AI. So a lot of people asked at the Product Day, how are you differentiated? So the way we are differentiated is we are simply top of the funnel. We feel the first call when a consumer calls on their provider, they happen to call or text their provider. And in many cases, that goes through our platform.

So we are in the best position to apply AI from the get-go. And during the -- every life cycle of the conversation, whether it's before, during or after. And that's where our product portfolio and as Vlad coined the name 3 is AIR, AVA and ACE comes into play. It's applying AI at every phase of the consumer interaction. And again, a point of differentiation for us also is we are investing materially in innovation. The pace of innovation has been very rapid.

The pace at which we've come out with these new products in 2025 has been super exciting. We have over 2,000 engineers. We have over 2,000 direct sales force. So overall, I feel we have the core competency in terms of people, engineering as well as GTM talent. We have the right product portfolio, and then we have the right processes in terms of our unique and differentiated go-to-market motions to take these products to the market.

Yes. And voice is mission-critical for many of your smaller customers. So they're not going to trust the new start-ups with something like voice when -- like the voice AI thing is fancy and people want to use it, but like we got to -- we get the call to book the appointments and do our normal course of business first. With that in mind, I think folks kind of always underestimate the resiliency of like the voice market. And I think you mentioned that like voice minutes are growing year-over-year. So that what you're seeing like you're still seeing phone calls on RingCentral platform do well or growing on a year-over-year basis because you hear so much about like how things like chat or voice AI is going to impact voice minutes.

Yes, voice -- to my earlier comment, voice continues to be mission-critical, especially in B2C communications. So I would say about half of our business comes from -- we coined this term called the golden verticals, and those are health care, financial services, retail, professional and consumer services. So these are industries, again, where voice continues to be the primary mode of communication. Some of the examples I gave out earlier -- and in addition to the volume of the usage, the usage is growing on the platform. And that just is the most richest and the purest form of data that's available and the most ripe on which you can put AI to drive more revenues for customers and to drive more efficiencies for our customers.

I love that. That's where I wanted to go next. I mean those are highly regulated use cases, and I think you definitely have strong barriers to entry there and long-term relationships with those customers. On the AIR products and some of the other new products you mentioned, I was surprised to hear that half of the new -- or half of the customers using those products are new logos. And that seems like almost counterintuitive to me because I expected it to be like, oh, you're a long-time RingCentral customer, makes it easy upsell. So what do you think is resonating with bringing new customers on to RingCentral with those products?

Yes, we are seeing strong demand for the products, including AIR and ACE. And the demand is coming on both sides. There is demand in our installed base, which we happen to have a large installed base, and it's coming from new customers as well. So when we make a new sale now, we offer the full suite of products to our customers. And what's really driving the demand is the ROI is very, very clear. Like take AIR as an example, what does AIR do? AIR is fielding the calls. When you are calling your physician's office, before a human gets involved, AIR is picking up the call. It's answering basic questions. It's getting you leads, it's setting up appointment. So it's doing those types of things.

Now a human agent can only work a certain number of hours a day. It can only field as many calls during the day. AIR is working 24/7. And it's replacing a human agent, which could be $3,000 to $5,000 a month with a product that is in the tens of dollars a month. So the ROI from a financial standpoint is very clear. And then it's allowing customers to drive more revenues. So case in point, I think you attended our product Day, there was a customer on the panel, and she was running -- she is running a mental health clinic.

The use case for AIR for them was there are thousands of calls coming into the system every day. With the human receptionist, they're just not able to field all the calls. With AIR now, there are fewer missed calls and what that is resulting in is higher patient intake. And as a result of that, with patient intakes going up, and I think there was a number of 60%, they are able to generate about $1.7 million of more revenue annually. So for that business, that's a big -- kind of big deal, generating that amount of revenue that can be reinvested back in the business.

There was another example I think we had given out on earnings of a customer, again, in the health care space, wherein they are using AIR for appointment setting. So their CSAT score has now gone up substantially as a result of them being able to set appointments in a timely manner. So I think overall, to summarize, the ROI is very clear. It's resulting in more efficiencies for our customers. It's resulting in more top line dollars. So overall, the value proposition just works.

Absolutely. Yes. And your first example, like trying to staff like a light contact center for that use case would be really expensive and it would be difficult to schedule where you have a 24/7 agent, right, that can handle any amount of capacity. I was initially surprised because when I think about like setting up a voice AI agent, that seems more technologically complex, right, that like an SMB customer or a new customer to RingCentral might be capable of.

But I was surprised when I was demoing AIR that you can just put in your company website and what you do and then it instantly populates like a voice IVA, but we may consider like IVR router, but instantly for the AI agent. So it seems like setup times can be pretty fast even for small businesses for the AI agent.

Yes. I think that's the beauty of the product. It's very easy to deploy, simple to use, and there is practically no intense implementation, if you will. Customers are able to do it by themselves. They don't need to either use our professional services or outside professional services. So that's the other kind of benefit of the product.

And I think that makes more sense to me than like trying to tie like an API into your knowledge base and like come out with like your own voice -- do-it-yourself voice agent than buying it from a vendor like RingCentral. Just for folks that might be newer to the story, can you just go -- you went over AIR great, just AVA and ACE in terms of new products?

Yes. So AVA stands for AI virtual assistant. So think of it as a Copilot. So AIR fields the initial call. If for whatever reason, AIR needs to transfer the call to a human, what AVA does is during the conversation, it takes notes, it takes action items. It can take certain actions on your behalf like scheduling meetings, et cetera, from a ring -- from a UCaaS standpoint. And from a contact center standpoint, in addition to that, you have functionalities such as agent assist and supervisor assist. So in simple words, it will help the agents and supervisors on a real-time basis.

And we had another customer on the panel from Detroit Pistons, which is a customer of ours. And they talked about using AI note taking as a game changer during their strategy sessions. So you don't need a scribe, you don't need people to be taking notes and comparing notes. AI is doing that automatically for you, which is embedded in our AVA product.

Now once the call -- once the human interaction finishes, the ACE product comes into play. So ACE stands for AI Conversational Expert. It's a conversational intelligence product. And the simple way that I describe it is in the prior kind of world before AI, if you were in a contact center and you were getting, let's say, 0.5 million calls as a supervisor, you could only kind of listen to a sample of 5% or 10% of the calls. Now with AI and with our ACE product, you can review 100% of the calls.

And there was a customer example we gave wherein historically, the customer was listening to 300 calls, and now they're listening to like hundreds of thousands of calls. And it's giving you conversational intelligence, it's giving you sentiment analysis, it's giving you call scoring so that you get better insights and you kind of get better intelligence on how the calls went. And the beauty of all of these products is these products are all working in tandem with each other. So they're all kind of sharing information and the idea is to drive better outcomes as the models kind of mature over time.

And that's super additive if you're a contact center manager or if you're like the team that does the analysis on your inbound call volumes? Folks may know, but I worked in the contact center in college, and I got one call created a month, right? So of the 25 to 30 calls I did a day, and I always got 90 scores on the call, so I never pitched the survey at the end. So -- but now you can either pitch a survey at the end with AI or you can do the recaps on your own.

So it makes sense that like now through accessing these voice or data streams, you can build a lot more products off there. So it seems like the development for RingCentral has increased a lot over the last 6 months or to a year. Like when you think about AI internally, we've been asking each company so far on the fireside. Is there a way you guys are utilizing internally either in R&D to build products faster or even in finance?

Yes, there is an increasing use of AI across the board within the company. And -- that's been partially a driver of our operating margin expansion as well. Yes, it's early on, but it's -- we are increasingly using AI across functions. So in R&D, it's used for code development and quality assurance. Within our sales organization, we are using ACE. So now 100% of our account executives and sellers are now trained on AI. So what that has resulted in is better efficiency, better productivity, and we are seeing 10% more quotas.

So eventually, it will -- if quotas go up, what it means is you don't need to hire more sellers. You're doing more with less. Within our customer support organization, they are using all the products now. So they are on RingCX, they are on AIR, they're using AVA and ACE. And some of the metrics that we are looking at is 15% average handling times going down. So meaning the agents are able to answer customer questions faster. And with AIR, we are able to deflect about 20% of the calls. So AIR is -- there's 20% deflection rate from AIR.

So overall, we are a large contact center organization ourselves. So we have about 2,000 agents, which we migrated on all of these products and WFM, which we recently acquired. So overall, it's driving more efficiencies, and we have not added customer support agents over the last year or so. So overall, these are all examples of how we are doing more with less and also how we are driving better customer outcomes by answering questions faster, being more accurate and training our agents and sales force.

And just tying into how these new products can fit into like your existing customer base and the growth that you've seen. So as you think about like the ARPUs across UCaaS and contact center, like those have slightly changed over the year. But at this point, as you think about like some higher-priced SKUs for some of the new products you mentioned, like how does like these help ARPU across your customer base?

Yes. So these are all products that are separately monetized. These are all separate SKUs and being separately monetized. So RingCX, as an example, sells for $65 a seat. But when you tack on ACE and AVA as an example, the ARPUs are going up to almost $100 a seat. AIR is a separately priced product. We charge about $40 a seat for the first 100 minutes and then it becomes usage-based after that. And ACE is being separately priced at $60 a user per month.

So net-net point being that I think there'll be 3 impacts of new products. A, it gives us the ability to cross-sell into our customer base. So we are getting a bigger wallet share of the customer. Secondly, it helps us get an uplift on ARPUs. Now again, these products are in their early innings. But as these products scale, it will help grow ARPUs. And number three, when you become a multiproduct company and when you are selling multiple products into the base, the base becomes stickier and net retention gets better.

And as you think about like your GSP ecosystem, and that's been a big advantage for RingCentral in the past. How are they starting to adopt some of these new products? I know it's early, and I think many of the classic UCaaS channel partners are going to take some time to get their hands around AI, but some of the AT&T commentary around the new products is interesting. So how is that developing so far?

Yes. We are super excited about that. So look, we have a very unique and a differentiated go-to-market motion, which I believe is a competitive moat for us. We have over 2,000 direct sellers. We have over 15,000 channel partners, and we have 15 global carriers with the likes of AT&T, Charter, Cox, Vodafone and others. So when you put all of these together, these equate to kind of more than 100,000 kind of feet on the street, if you will. So there's a lot of advantages that we have in terms of the go-to-market reach.

And the GSPs are particularly exciting because more than half of our GSPs are now enabled to sell new products. AT&T was the latest addition, which we announced at earnings. And the reason we are excited is just the reach. Like they have hundreds of thousands of customers in their base to which they can resell the product. So you can have all the good products in the world, but you need to have the reach to be able to sell them. So GSPs give us that unique advantage, and it will help us just expand and get the products in the hands of a lot of customers.

Yes. And they know how to deploy RingCentral for years. So it takes a long time to train the trainers, as I call it. But look, we have a CFO on stage, so I have to ask...

Financial question.

You know it was coming. Just how long it was going to be. So just on the free cash flow, you raised your outlook for the year, now 21% margin. I guess like what are some of the things that you feel better now at this point versus the start of the year?

Yes. I think one of the north star for me as a CFO is driving free cash flow per share expansion. I think I'm looking at that as the Uber metric for us and for external shareholders. And free cash flow per share has 3 components. So number one is the growth. So we talked about growth. And certainly, the new products, the new AI products, the usage and the adoption on the platform is driving the growth. So that's going to contribute to free cash flow.

The second kind of component of that is operating margins. And we've done a tremendous amount of work over the last 3 years. We've doubled our operating margins. We've like 5x our free cash flow. And that has come as a result of a lot of discipline. Like we are maniacal about revenue growth outpacing expense growth or OpEx growth. And the way that's coming is we are very disciplined in terms of our hiring. We are hiring in offshore locations, low-cost locations. There's a lot of vendor consolidation. I talked about AI getting implemented within RingCentral. So all of those things are helping kind of expand operating margins.

The quality of the free cash flow is also going up with working capital improvements. And then the last thing we also look at is, which is the third leg of the stool is SBC and share count. So we've done tons of work to rationalize our SBC expense, which is now at roughly 11% of revenues. Stock continues to be a key way we incentivize our employees. So we'll continue to use it, but we are very thoughtful in terms of the use of stock as a means of compensation.

And then from a capital allocation standpoint, we've been paying down our debt. We've been buying back stock and now our stock count is back at the 2020 levels. So when you put the 3 components together of revenue growth, operating margin expansion and reducing share count, our free cash flow per share has been growing at 35%. We are producing $5.70 per share, which when I looked at it last, was best-in-class amongst our peers, both from an absolute dollar as well as a growth rate standpoint.

Excellent. And you beat me to my next question, but just for consistency or maybe if investors are newer to the story, I would love to hear if you could double-click on both your buyback and then how you feel about -- I mean you've done a tremendous amount of debt payback over the last couple of years, but how that is currently?

Yes. Look, from a capital allocation standpoint, the idea is to optimize the business for free cash flow, which is what we are doing. We raised our guidance to $525 million. Now from there, the first use of cash always is investing back in the business. Case in point, we talked about our R&D spend is over $0.25 billion, a majority of which -- over half of which is going into the new products with a greater proportion going to AI. So that's about 4, 5 points of margin that we are reinvesting back in the business versus taking it to the bottom line.

We are also opportunistic about M&A. So we recently acquired CommunityWFM to accelerate our product portfolio with the product. So we are opportunistic with M&A. And from there, we look at debt paydown. So we've -- you're right, we've paid down a lot of debt. We brought our leverage down from 4x to now under 2x over the last 3 years. We have a convert coming to you in March, and we've addressed that proactively. And we further committed to bringing our gross debt down to $1 billion by the end of 2026, at which point, our leverage would be under 1.5x, very close to investment grade.

We then also buy back stock. I believe, at the current valuation levels, buying back stock is an attractive use of cash. So we bought back $200 million of stock this year. We have about $385 million remaining on our authorization, which we'll continue to execute. And so the overall kind of Uber level point again comes back to improving free cash flow, paying down our debt, strengthening the balance sheet, putting money back in the business to continue to grow and reducing share count with buybacks. A combination of all of that will result in free cash flow per share growth.

Excellent. And just on the competitive landscape, I mean, we've seen people kind of come in and out of this market and focus from larger and smaller vendors, become more prevalent and less prevalent in the last couple of years. Anything to call out there? Any opportunities you think are to take share or maybe some stability overall in the market with a better macro?

Look, I think there's a couple of points. On the UCaaS side, we continue to hold our market share. We are the market leader with a steady 20% market share based on revenues. And these are reports not published by us, but published by Synergy and industry research analysts. So we continue to hold our own. We are continuing to grow. We are adding seats at a decent clip, and we continue to capture the on-prem to the cloud migration as well as the migration from subscale cloud players on the UCaaS side.

I think on the contact center side, RingCX is playing particularly well. We've added over 1,000 customers in a matter of a couple of years or under a couple of years, and that's been pretty staggering. I think that's been the fastest addition, I think that Vlad talks about on a contact center solution.

And then when it comes to AI, look, we are uniquely differentiated in Agentic voice AI. There was an interesting statistic that Gartner published wherein it said that 90% of Agentic AI fails because it's not associated with the platform. And the differentiation we have is that we've built a very large, reliable and a feature-rich platform over the course of our history with so many -- with over 0.5 million customers and 8 million digital lines. So we are at a different size and scale when it comes to -- you talked about start-ups, like we just have a scale advantage.

I mean we have the network, we have the platform to be able to deliver solutions at scale. And therefore, you are seeing that manifest itself in the numbers. Like the -- we have now over 6,000 customers on AIR within a matter of a few months. We have 4,300 customers on ACE as an example. So just the scale, the depth and being able to invest $0.25 billion in innovation, having 2,000 engineers, 2,000 salespeople and having the large and differentiated go-to-market motions is all helping create that differentiation.

Yes. And you've built out a platform to handle some of the most complicated like Cisco call manager digital transformations that -- I think that's -- it's a good point made on Gartner, like people need a platform because no matter how good a voice AI agent is, like you're still going to want to have failover to a human agent, no matter what. So I think like that's kind of the missing piece that we forget about is like there's a lot of attention around voice AI agents, right? But like you still need to talk to a human when things go wrong.

So you need the foundation of the traffic, you need the foundation of customers, you need the roots as Vlad called it on the Product Day.

And so the one thing I thought about over the last couple of years is like people don't wake up every day like let's change from on-prem to the cloud, right? Mission-critical digital transformation can take a number of months, and it's just not something you want to do every year. There are some customers you talk to, it feels like they're like we're set on on-prem forever. But does AI start to change that calculus as you're sitting there, you're like, okay, we know we need transcription. We know we need to tie these things into our CRM. Like we need to get more insights from our voice calls that people are more coming around to like, okay, as I think about like where I could start my AI journey, like this might actually make more sense now to start shifting like a lot of these workloads to the cloud.

Yes, absolutely. I think the on-prem solutions just don't enable you to use AI. I mean they're rigid, they're inflexible. And I think for you as a customer to be able to use the power of AI, which is becoming a must to have rather than a good to have at this point, I think you've got to transition. So I think our expectation is that those migrations should continue and should continue at an accelerated pace.

And that's just what I want my work life, right? How many investor calls that I wish I note from. But for those in the room, it's time obviously to say thanks to RingCentral for being here. Really appreciate the time.

Thank you. Thanks for having me.

All right. Good morning, New York, and good morning, good afternoon and good evening to everybody listening to us on the webcast. Thank you for joining us today. So hopefully, you get a chance to take a look at our safe harbor statement. You've seen it before, I'm sure, with our many, many earnings calls and these presentations. So just keep this in mind as we go through the comments today as well as when you're watching the replay of this, okay? All right. So today, we're going to cover a number of topics.

We're going to be talking about, obviously, the corporate strategy and overall approach to how we're incorporating AI. Then we're going to get a little bit deeper into the innovation we're bringing forth with that strategy and how it goes into the products. We will show you -- discuss many of the products and show you them that we're going to move on, and you're going to get a chance to hear from our customers, from our channel partners and from our global service providers. And then we're going to finish up and do some Q&A.

So the -- before we bring up Vlad, I just -- as many of you know, I'm relatively new here at RingCentral. I've been here for just a couple of weeks. And I spent some time -- actually, many of you covered Coupa software. I was there. And so it's good to see some familiar faces. The question that I've been getting asked is why did you join RingCentral? Why? Because I'm an investor like you, I'm investing my time, my career in joining RingCentral.

And I was thinking back to my time at Coupa, where some of the most common questions I was getting was how is your free cash flow? How is your operating margin? How is -- are you focusing on stock-based comp, GAAP EPS, all of the things that RingCentral is excelling at right now. I was getting those questions all the time. So I think there's a big opportunity here for investors. And obviously, I'm not going to talk about valuation, but I think we have -- there's an opportunity. I'm excited to be a big part of it. So without further ado, I'm going to welcome Vladimir Shmunis on to the stage.

Great. Thank you, Steve. So I'm somewhat less news than Steve here. Great to see everyone. Thank you for making time on your very busy day. We'll try to make it worth your while, obviously. So again, I'm Vlad Shmunis, Founder, Chairman and CEO of RingCentral. This is my fourth time at the exchange. I think this is the first time we're so close to Thanksgiving. So our RingCentral Orange is mission appropriate at this point. Okay. So without further ado, look, so voice.

So sometimes we hear that who needs voice, business voice is dead, and it's all going to be video, messaging and other means. Voice is what makes us human. That is the official definition of human race, it happens to be that we speak and no other animal does. It's far, far from dead. As a matter of fact, and we'll show you some hard data, we are seeing more voice, not less voice. We're seeing more voice on our network as a whole, more voice per customer, per user, et cetera. Voice is actually going through renaissance at this point, which is, believe it or not, being fueled by AI.

So the other thing we hear sometimes is AI is going to eat voice, not so much. Voice is actually the new UI for human-to-human interactions. And clearly, with our leadership position in business voice, we're extremely well positioned to leverage and extend this trend. The rest of this presentation and day will be to share our experiences and our direction here with you. So RingCentral, for those of you new to the story, we happen to be a global leader in business voice. We are actually the original company who took business phone or business PBX into the cloud. And many people still think of RingCentral as a phone, which we are.

We do have the world's best phone for business. We strongly believe that. But we're not in the phone business. We're in the business of customer engagement. And this is very important for people to realize. The connections that we make in the end, we are in business of connecting people to people. But these are not necessarily one-on-one connections, me calling Steven, but in many cases and growing the number of cases, it's consumers calling or texting their brands via RingCentral. That is customer engagement. We'll talk a bit more about that.

So this customer engagement that we had a pretty heavy hand in establishing as a category, it's now being revolutionized via agentic voice AI, okay? And what makes RingCentral in a unique position to lead this next phase of really what is next technological revolution is the fact that we have very deep roots. We'll talk about those in a second. We have one of the world's largest and most robust networks. Very importantly, are the people. We have about 7,000 associates in the company as a whole, of which 2,000 are technical people, engineers, laser-focused on innovation in business voice, in customer engagement and now with agentic voice AI.

We are here to stay. We're here to win. Okay. Look, numbers don't lie. We remain a strong leader in business voice by revenue, okay? This is a third-party slide from an industry analyst called Synergy Research. They're considered to be the ultimate expert in these types of matters. And as you can see, RingCentral continues to dominate. Our market share is approximately 20%. And it's -- sometimes some people try to catch up a bit, but then it generally stabilizes. With AI, we believe our leadership position will be further fortified, okay?

We truly see RingCentral. You saw our opening slide. We truly see RingCentral as a voice of your business. This is how we position ourselves to our very large customer base. And again, numbers are not lying. The market tends to agree with that. Okay. So why is voice so important and will remain important? It's for one simple reason. People call on their brands. People call on their business service providers. If you -- this one is maybe a little bit hard to read. But if you see our top verticals, they include health care, financial services, retail, personal and consumer services, transportation, et cetera.

And if you think about it, what do you do when you need to contact your dentist. You tend to call their office, at least I do. You tend to call your credit union. You tend to call your local pizza joint for delivery, okay? These trends are here to stay. And we have 500,000 businesses, 0.5 million businesses and about 8 million users on our system that are leveraging this -- that are leveraging and addressing this need. Okay. I promise to say a few words about route. So here is our route system, okay?

So RingCentral started a bit over quarter century ago. That's a long time. But we started out by building a robust foundation. So we've built -- invented and built strictly speaking, what is to this day, one of the world's largest, most reliable and feature-rich business networks -- business communications networks or platforms, which again, this case remains to be to this day. We started out -- this is a bit of ancient history. We started out with a product called RingCentral Office. We now call it RingEX for employee engagement.

This product was very well received. And starting literally from scratch, we have built now a business, as many of you know, we're a bit over $2.5 billion in revenue, starting from 0, that seems an okay position to be in. We are printing over $0.5 billion in free cash flow. Steven alluded to some financial metrics. This is a product day, so I'm not going to go there very deep. But if you look at our numbers, our free cash flow growth, free cash flow per share, management of SBC, all of them have really been on a tear and growing in strong double digits or better. Okay.

Back to the product. So we're processing tens of billions of voice minutes per year, and this is growing, okay? We are processing over 1 billion voice calls and 0.25 billion of SMS texts every month. Again, from what we can tell, this is world scale. And again, I really want to impress you with how robust our core solution is. But having said all of this, this was then. That was then, okay? So RingCentral 2.0, okay? This was a few years ago when we realized the need to -- an opportunity to transform ourselves into a multiproduct portfolio company.

So what we did is we extended our RingEX, our business phone with a full digital collaboration suite. So that would be video messaging, hybrid events. And very importantly, we've introduced our very own dedicated AI-led, AI-first contact center solution, which we call RingCX. You will hear a lot more about RingCX here, here some customers, partners and the senior management team that's responsible for this product is here to answer any questions during the break. Okay. A few more words about employees and customers.

So -- sometimes people think that these are silos that there is employee-to-employer communication. That's on the left here. Yes. So that's personal calls, okay? And then there are dedicated contact centers, your 800-FLOWERS or United Airlines, those are the examples people usually come up with. And sometimes people think that the two shall never meet, that they are different solutions. You've got UC, UCaaS and CCaaS. Well, it so happens that situation is not so simple, okay? As you can see, according to IDC, there is -- and we see this firsthand, there is a very clear need for lightweight or hybrid contact centers, okay?

And the difference between this use case and the dedicated contact center is just that. You have employees in your office, doing whatever creative work, selling, et cetera. But when the customer calls, they get to pick up the phone. So there is this overlap. So this is where people are still talking to consumers directly, but they have other work responsibilities. So the reality is that there is this new area that's emerging called Customer Engagement. And today, we've introduced our first customer engagement bundle, which addresses specifically this use case.

So this is where you have, call it, a lightweight contact center with consumers calling a business. So they're not calling a business person by name. They're calling into a business and this call or text is being fielded by one of the personnel, okay? So between RingEX, our new customer engagement bundle, which is basically a tier of RingEX. And RingCX, we now have complete solution from very, very small to very, very large. Okay. Again, numbers don't lie.

So if you look at use of RingEX in these lightweight contact centers, over 1/3 of our inbound calls are -- and again, we're talking billions here. Over 1/3 of our inbound calls are for this use case. We have another measure we look at is, so how many people are actually engaged? How many of these non-dedicated contact center agents are using our platform? Well, it happens to be well over 1 million. So this could make us one of the largest contact center providers in the world through the cloud.

But again, in fairness with the caveat that these are not your traditional dedicated contact centers, which are in the end addressed by CX. Okay. So on that note, CX. So CX is about a year old, okay? And I believe it was the fastest CX or contact center product to reach 1,000 customers in individual accounts like in history. So now we have a bit over 1,000, 1,350 accounts, a little bit over that, and triple-digit growth year-over-year. So we're pretty happy with that. Having said that, we're just scratching the surface. There is still a lot of on-prem left. And over time, this -- and over time, most of the seats will end up in the cloud.

With RingCX, we're absolutely taking market share with market growing in low to mid-double digits, call it, teens and with RingCX being in strong triple digits. Okay. So we've talked about 2.0, but that's not what we're here to talk about really. We're talking about RingCentral 3.0, okay? So what is RingCentral 3.0? So this 3 keeps on giving. Based on this platform, based on all of our experience with serving customer engagement needs from very small to medium to large to very large, we believe we are in a very unique position to lead this next phase in technology revolution. It's not evolution, it's revolution at this point, okay?

So this week, we've introduced our agentic voice AI suite, which is comprised of the three As: AIR, AVA and ACE. What is AIR? It's an AI receptionist that answers your call before a human gets involved. What is AVA? It's an AI virtual assistant that monitors the call and provides useful hints and in certain cases, performs actions during a human-to-human interaction, okay? If you will, AVA is a form of a copilot. AIR is a form of an IVA, okay? And ACE, which we used to call RingSense, but now with some additions and enhancements, it's more than just making sense of Rings. It stands for AI communication -- AI conversation expert, ACE, okay?

So this is where transcripts are being processed and analyzed for things like emotion, successful completion of a customer requests and other learnings that can be shared with an organization. Many people talk about AI, and it simply doesn't make sense to be in tech anymore and not want to have AI agents as part of your solution. What makes RingCentral uniquely positioned is, we simply happen to be most upstream, okay?

So when people initiate a business transaction, again, they tend to call or they tend to text. And in that, they will, in many cases, hit RingEX or RingCX, okay? So Ring is answering the phone. Therefore, we are in a unique position to apply AI at the very get-go, which is exactly what we're doing with AIR as well as throughout the life cycle. Now clearly, every business provider -- business service provider will have their own AI. We are not going to do it all. But once we process what -- and we can address whatever we are addressing, then we are transferring to Salesforce ServiceNow, whomever it is, then we're transferring to specialists. But the first interaction, we're just in a good position to capture that.

Okay. So again, I already mentioned, we have AI for now every phase of a transaction. And we will go into a lot more depth in the next few hours and let you experience and see how it works in real life.

Okay. Here's a super interesting point. It's a virtuous circle. Everything is working together. AIR answers your phone, AVA aids during the conversation, ACE analyzes these learnings, the analysis are being fed back into AIR, back into AVA and then back into ACE. So the system is self-learning, self-modifying. And in the end, it's about generating progressively better outcomes for our customers.

Our strong core belief is that a happy customer is a loyal customer and being that we have now transitioned ourselves or are transitioning more precisely from a just a transactional services provider into now a data repository, we think that this is what is going to fuel the next phase of our development as a company.

Okay. Progress, again, numbers, not lying. Our new product portfolio is a little bit better than doubling year-over-year. There is quite a bit of action and energy in the field with many companies being funded and pretty nice valuations, certainly more power to them. But I don't think too many can boast this type of success, okay, to get from 0 to $100 million in 2 years, from $50 million to over $100 million plus in 1 year. We feel pretty good about it.

Yes, it is still under 5% of our $2.5 billion revenue, but we absolutely have our sights on these new products, which are growing in triple digits, sometimes in triple digits sequentially. We have strong conviction that we will be at least 10% of our revenues within a couple of years and hopefully better than that. So this is our future here.

Nothing is for free. And we are fortunate to be able to spend approximately $0.5 billion on product and tech every year. And majority of that spend is now dedicated to our AI-first portfolio. This is significant. Frankly, we think it's hard to match by many, if not most start-ups. And we are absolutely intent on keeping our laser focus on applying all of this energy to this one very important area of AI-led customer engagement.

Okay. Routes to Market. You can have the best product in the world if 3 falling in the forest back to my 3 analogy. If nobody knows about it, it's probably not going to succeed. If you don't have a good product and you're screaming at the top of your lungs, you're also not going to succeed. But here, we happen to have both together.

So we have a direct sales force, about 2,000 people strong, okay? It just so happens we have 2,000 engineers, 2,000 salespeople, okay, for whatever reason. But very importantly, we've talked over years about trust innovation. So we've talked a bit about trust today, reliability, innovation, rest of this presentation, partnerships. Partnerships are key to RingCentral. And with that in mind, we've built a network of channel partners over 16,000 strong. So these are individual businesses. As far as feet on the street, it's over 100,000. That's unique in the industry.

Very importantly, we have this unique and absolutely differentiated channel via global service providers. So as you can see, some of the logos here are household names, AT&T, British Telecom, Charter Communications, Cox, Vodafone, et cetera. This list is growing. And very importantly, and I think it's an industry first that we know, many of these people are now picking up our multiproduct portfolio, including some of our newest products, for example AIR. In particular, we have just announced -- or more precisely, AT&T just announced that they're picking up AIR, putting it through their rather significant channel. We could not be happier than that -- could not be happier with that. And we think that this thing can go places with people like AT&T and a number of others reselling.

Okay. Last, by far, far not least, team, okay? So like I say, about 7,000 people in the company with deep experience in our chosen field. This is our management team. And look, frankly, sometimes we hear, well, management turnover, some people came and went. That is true, but the core has stayed. If we actually went through this exercise. So if you add tenures of just the folks on this slide, it happens to be 150 years. That's a lot.

Original architect of our technology is still with the company. He's sitting right there somewhere. You can raise your hand [indiscernible]. So if you have questions, that's him. Head of Engineering is here also for over 25 years. Kira has been with us for over 12 years and has led our product, our marketing and is now leading all day-to-day operations, so on and so forth, I don't need to bore you. Very importantly, we have a very deep bench with our 2,000 engineers, some of them literally going back decades. We're extremely fortunate in having this workforce in this powerhouse. And we truly believe that this field is our tools at this point.

So without further ado -- with a little bit further ado, why? So why? Why? In the end, this is NYSE, and it is about dollars and cents. And there's lots and lots of dollars still to be had, okay? So in the bottom left here, you see the current markets that we are playing in, right? So that's, of course, UCaaS, still and not insignificant, approximately $30 billion market. It CCaaS, not that far behind at over $20 billion. Revenue intelligence. So ACE is a bit of a player in that.

But all of this is going to be dwarfed by the emerging AI for customer experience and engagement. And this is estimated, I think it's a Gartner slide. It's estimated at $65 billion. Added all together, $150 billion, we're $2.5. We think we have a bit of open space still ahead of us. So again, this is my fourth time here at the exchange, hopefully, by far, not the last.

And now [indiscernible], now that I've practiced [indiscernible] without further ado, here is Kira.

Thank you, Vlad. And hello, and thank you all for being here. I couldn't be more excited for the time that we're in. Vlad just described an incredible future for us for RingCentral, an incredible TAM that we're all staring at and are here to take advantage of.

And -- let me start with our vision, summarizing everything that Vlad just covered. Our vision is that of building one Agentic Voice AI platform, where voice is really the springboard for all modalities of communication so that we basically unify in our conversation AI technology, every phase of the conversation and capture every moment, every insight, so that what we achieve out of that are outcomes. And that is really the value that we bring to our customers.

Voice is, which is the most ubiquitous. It is the natural way that people communicate. Voice is the new UI, voice is most expressive. Voice is what we do better than anybody else, voice in the cloud. We are the clear leader and have deep roots and a growing ecosystem, and that will continues to grow.

So with that, very early in the year, I actually outlined these 3 strategic priorities for us, which encompass our execution journey. One is continue to build upon our leadership with voice and now continue to build upon that with agentic voice AI, truly agentic. Second is grow our addressable market, grow our TAM, and it's led by our product, RingCX, which came into existence as part of RingCentral 2.0 and is now part of RingCentral 3.0 with a growing ecosystem of AI modules around it.

And then finally, look, we're all going through a time of transformation. Every aspect of our company, every product, everything that we do is being transformed. And this is really what everybody is going through. We will show you how we run RingCentral on RingCentral and how we do what we do with doing more for less and more efficiently. And that is just the beginning of our journey as the company itself transforms with AI.

So to sum up, how we're leading the future of voice -- of agentic voice AI and what are the stages, just summarizing where we are. We're in 3.0. And the 3.0, we're innovating faster than we've ever been, and we've always been a fast innovator. I even told ourselves that we have a history of market first. So yet, we're making the history of market first once again with RingCentral 3.0.

We made a number of announcements on Monday. And let me just summarize them all in one place. AIR, product that rolled out at the beginning of the year, a lot more enhancements, a lot more value for our customers. AI Virtual Assistant, your copilot that basically is your assistance throughout your journey as a user, whether you're an employee of an employee, an agent and any job that you are, if you're using our product, then you have AVA that assists you. ACE that analyzes, summarizes and coaches you as well.

RingWEM, which is the new addition to the suite, which is the combination of all of the quality management modules, including now our acquisition from CommunityWFM that builds up a suite of performance management for customer support agents, for example. And Vlad explained what customer engagement bundle is, which is really our formalization of capabilities for informal contact center or contact center light users.

These new products, and they are all new products considering our history and considering how deep we go with our RingEX product, how deep our roots are, are growing extremely rapidly. Like look at the growth of AIR, look at the trajectory right here from essentially launching it in controlled availability in February to today having 5,800 customers and customers continue to sign up and customers continue to buy more of AIR, because it just does so much more for any one individual business, the enablement of never having to miss a call of now being able to set appointments whether these are, by the way, appointments, phone appointment, a video appointment, any kind of appointment that you can set.

Doing things like contextual transfer. If AIR for some reason, cannot answer a call, then the AIR will transfer with context to a human being, and we'll show you more of how that works. And finally, look, every business wants to make money. So now with AIR, it's possible to capture lease. So no opportunity ever goes missed. And this is the test -- I mean, the customers are really the proof of that this thing is working.

RingCX, Vlad mentioned rapid growth now at over 1,300 customers growing rapidly and innovating rapidly from a base product that does contact center management to adding a lot more AI so that, that contact center, the modern contact center is managed in the most efficient way. And some of the problems in contact centers that people have to solve is agent churn. That is a big problem. How do you solve this? You help the agent, you help the manager, you help the supervisor to basically coach them, monitor them and make the shifts operate more effectively. There are still a lot of human agents there assisted by virtual agents, and that is what this combination of the modules that we rolled out put together achieves.

ACE, AI conversation expert, also rapid growth. Look at that kind of -- we like -- we call them the charts up and to the right. And when products -- newly introduced products do up and to the right, that means that customers like this [Technical Difficulty] we do this with our customers, and we have some of our channel partners in the audience, ask them how ACE helps them in their business. We're turning data into insights, data into outcomes, helping businesses beyond communications, helping businesses run their businesses better.

And so let me just give you a couple of examples. Nothing -- again, nothing is a better testimonial to what we do than actually our customers. And nothing is better, especially to you people here in finance -- in financial industry, numbers speak volumes, right? So here's an example of a customer. This is a Fortune 500 insurance company that adopted [Technical Difficulty] they have enabled thousands of independent agents of this insurance conglomerate with RingCentral, starting with only '23 with a full RingEX rollout, then expanding that RingEX rollout based on the success of RingEX rollout, and this is typical of our customers.

Our customers often start with an initial deployment of the product and then extend it. They expand it as they adapted [Technical Difficulty] for this customer of $6.8 million ultimately was achieved with adding RingEX and AI attached to RingEX that we will show you today in the demo.

And the thing that is important here is beyond sort of rolling out these products. What's important is how we're transforming their business. We're transforming their customer experiences. And this is the value that RingCentral brings to our customers. The value in the transformation from being sort of in a dungeon with a PBX in somewhere in the basement or a customer engagement system being somewhere in the basement to this, which is a live system, which learns and adopts.

And here's another example. This is a national casual restaurant chain that's growing very rapidly. These guys are adding 100 restaurants in a quarter or something like that, very rapid growth. They now have 900 throughout the country, and maybe that number now is higher.

Again, they started with purchasing RingEX as their base core cloud phone system. They then expanded their RingEX deployment, getting to 1.5 uplift. And then we can see a 10x uplift to becoming a fairly sizable customer as they deployed it throughout all of their stores as they were bringing up stores online, every store -- sorry, every restaurant runs RingCentral and it runs RingCX. It runs ACE, it drives the quality management, and they continue to expand.

And what's wonderful about this is that when we ask them, okay, so what's the value created? Better customer experience, certainly. But what is the actual value created? Can you try to quantify it? This is the number that's not coming from us. That's the number that's coming from them, 250% overall ROI with our products. This is why customers buy our products, and this is why we do what we do.

Another example, this is a regional tire & auto service retailer. What's wonderful about these customers, this is what runs -- these are examples of what runs America. This is the companies and businesses that we all engage with every day. This is not just a cloud brand, like a big brand sort of in the sky. These are real businesses. And these real businesses need to solve day-to-day real business problems that we experience every day.

And because of how many customers that we have, I'm sure that when you experience -- when you contact these businesses for customer support or any of the interactions and if it's a business running on RingCentral, hopefully, the experience is delightful. And that's what we try to do is make the sort of common American businesses delightful.

So this tire company, again, started with RingEX, which is often a case for our products because that is our base and core product and what we're most known for. And then again, expanded with RingCX, ACE. And here, you see a 3x uplift in their total spend with us. And it so happens that it coincides with that their revenue rose 50% in that same time. So we'd like to believe that we're helping that company grow and delight their customers. And this is a good example of all these customers that I'm giving to you -- that I'm showing you of how our technology comes together for real growth for real outcomes.

And then finally, this is a relatively small customer. This is an industrial equipment small business provider. They started and they purchased RingEX and purchased it for their needs. They're a small shop. 5,000, okay, well, they actually showed me 5,000. Well, because, first of all, we have a lot of small businesses running on RingCentral. And together, small businesses comprise a big chunk of our revenue as a company because America runs on small businesses because the world runs on small businesses. But what are we doing for these small businesses?

Now with AIR, for example, we can increase wallet share for us. So we're doubling here going from 5,000 to 10,000. And the customer has now been able to never miss a call, be able to not have to hire extra front office receptionist, having to have all of the communication that comes through the front office, analyzed without actually having a human having to answer that call. And these guys get a lot of calls. Within a short period of time, they've actually extended AIR usage several times. And we love customers like that because this is solving, again, real problems with real outcomes. And while it has big words like AI around it, the real thing is this is AI helping humans run their businesses.

So I talked earlier mentioned that we will tell you exactly how we use RingCentral. And this is an example of what we call RingCentral on RingCentral. We wouldn't be doing justice to our products if we weren't customer 0, and we're always customer 0 with all our products.

So I'll show you just a couple of stats here. For sales, and this is Akshay's organization right there. He's sitting in the audience, amazing stat. Once they deployed ACE to all of the customer reps in North America, they were able to achieve a 10% quota increase for those using the product. That's like humongous, right? That -- it means that these reps are working more efficiently and that actually doesn't have to hire as many as the business is growing.

In customer support, which actually also runs RingCX plus AVA plus AIR. So what does it do? With ACE -- I'm sorry, with AVA for quality management now within our customer support with Agent Assist, we're able to cut down average handle time for customer support by 15%. Again, what does that mean? That actually means beyond efficiency, customer delight because if customers' questions can be addressed faster with more accuracy, that creates customer loyalty and that's what we want as RingCentral for our customers, and that's what our customers want for their customers, obviously.

With AIR, which is a relatively simple product, the beauty of it that it's very, very easy to install. It's very, very easy to change. It's very easy to adapt to the evolving needs of any business. And here at RingCentral, we have customers who call us on a number of what we call queues. So we were able to take the 20% of that volume already and put it on AIR. And that means that any call that comes in into that queue is answered by AIR. And again, for us, that [Technical Difficulty] and then combining sales and customer support, we were able to quickly deploy our RingWEM, which is a new module based on the acquisition of CommunityWFM and the rest of our AI quality management tools for agent performance to our 2,000 agents throughout our company, being able to score 100% of their interactions. All of that is just in a couple of weeks.

There are, I guarantee you, not that many products in workforce engagement management that can be deployed to this size of a contact center in a matter of weeks. And again, that speaks to our values, RingCentral simplicity, ease of use, ease of deployment, ease of administration. [Audio Gap] the whole agentic voice AI voice platform is put together. This is a combination of all our products put together.

And without further ado, I will pass it on to John to actually show you how. Thank you.

Good morning, everybody. My name is John Finch. I head up Product Marketing here at RingCentral. I like to say that I have 6 years of service. I've been at RingCentral earlier in my career, spent some time in some other places and have come back, and I'm really proud of the things that we're going to show you today.

Everything has been about innovation and driving that innovation into the market for further success. And I sort of have the fun part of the presentation, if I may, because we've done a lot of great things with regards to these products, and they're really showcasing well in terms of how our customers are adopting them and using them to change the way that they do business and see the value of AI.

So if we think about the value of artificial intelligence and how that seeds into what we do from an AI agentic business communications portfolio, it's really about the outcomes. Customers aren't buying products that have AI inserted in them for the sake of it, right? They're doing things to never miss a call, to book appointments, to capture leads, to provide customer service 24/7, to gain productivity, to improve and tighten business operations, staff efficiency -- efficiently, sorry, as well as understand CSAT, customer satisfaction across the board. These are tangible things that businesses are looking for us to give them the ROI and understand how AI is helping them.

As Vlad and Kira also talked a lot about, we have a view of this of before, during and after the conversation. And I think this is a great way to showcase each of these products that we announced in the last couple of days, and really kind of show you exactly how the day in the life of, number one, a lightweight or formal contact center or customer engagement solution with RingEX will operate as well as number two, a formalized contact center and how that works where you're staffing agents and ensuring that customer engagement is happening inside of an organization.

Before I do that, though, let's have a little fun. I'm going to show you a video that we've put out there as we're having fun in introducing AIR into the marketplace. And I got to say this thing is pretty good. So let me show you.

[Presentation]

Pretty good. Let's see a round of applause for that one. I mean we've been having a lot of fun with AIR, and it's been having a lot of fun with us in the market as well. I mean, significant adoption, as you saw from Kira and Vlad, and we're continuing to innovate. Let's talk a little bit more about AIR.

Air has been around since the beginning of the year. We did preannouncements on this product, and we've never seen something in the marketplace like this. The adoption of a product so significant that's AI and voice first is phenomenal. Each quarter, we've continued to innovate on this product. And the innovations continue to grow in its skill set and its abilities to answer questions and drive intelligent interactions across customers, so that businesses of all sizes never miss an opportunity and never miss a call. And this doesn't just now work with RingCentral's phone system. This works across any phone system. That's significant.

Second daily to that, we've added some new things around calendar and booking appointments. Vlad mentioned calling into the dentist. I think most of us still do that. And that ability for this digital worker with the skill to book an appointment on behalf of a receptionist that could do other work inside the dental office, while that appointment is completely booked on calendars with Microsoft and Google, and soon to be many others, provides them with the real tools necessary to not have to staff that front desk to do that menial kind of work.

In addition to missing calls, being able to capture the leads that are coming in, document those inside the knowledge base and even push those to a CRM are very important. So it provides businesses of all sizes that ability to actually handle those incoming opportunities.

Next, let's talk about the contextual handoff. Kira mentioned that, and you'll see this in the demo. It's pretty cool because it actually provides the ability for AIR to handle an interaction up to a certain point, and then pass all that context off to the human being who will take that call and continue the conversation intelligently. No more of this, let me repeat myself 1,000 times and create frustration that many of us have had throughout the years.

And finally, video, a dynamic RCV link that is sent via text message or an SMS message to a customer or a patient to actually invoke a live video conference on the spot on the mobile device. So as you all know, with our video, you don't have to download anything. You can use a web interactive tool. This provides that link and you can drive right from the app.

Let's take a look at AVA and how easy it is to set up -- sorry, AIR, how easy it is to set up.

[Presentation]

So that's the setup. That's how easy that is. Less than a couple of seconds to actually really set that up. And the ability for this solution, as Vlad had mentioned, to continue to learn and grow and perform better is all in the hands of the humans behind this.

So the information that goes into the knowledge base, the FAQs, the website and other inputs that are made into the product as well as its ability to continue to grow over time and understand more, and you to be able to operationalize and optimize that solution continuously with the reporting and analytics that are on top of that is a significant value add to anybody in any business. If you don't even have that time to optimize, it's going to continue to do better work for you, the more it interacts with your customers.

Let's take a look at what this looks like as a call-in from an actual call in to AIR.

[Presentation]

There is the text message at the top and it's opened and the link and the information about the scheduled appointment. And now it's being transferred to a live agent. So what we're going to see on the next screen is the information that comes across to the agent who picks up the call. All the context and information and the agent's ability to leverage and utilize their tools, their AI tools like AIR and AVA to then pick up the conversation and continue the dialogue and solve the customer's issue. So pretty amazing, right?

The impact of AIR has been pretty significant. These are just a representative of three different companies that have utilized and leveraged AIR with some significant results. They've been providing these customers with the outcomes and improvements on their business operations every day. Obviously, with 5,800 customers that we have today in the market using this product, we've got a significant bunch more that you can find on our website.

But Access Integrated Health uses AIR to increase their patient intake, and they've seen an uptick of about 60% and increasing their revenue from utilizing AIR by $1.7 million. That's pretty good for an organization of that size. Televero Health has seen direct increase in customer satisfaction of 97% by utilizing AIR. They're not letting phone calls go on the wayside or ring no answer or going to a call queue or no one may answer that for a lengthy period of time. So that satisfaction has gone up significantly.

And West Virginia 211 has the ability now to take 100-plus locations and effectively route 40,000 annual calls to the right locations inside that organization, so in West Virginia. So pretty significant results, and we're seeing this across the board as AIR continues its momentum in the market.

If you want, you can take a picture of Natalie, who is our Agentic Air solution, and you can interact with her on your own. It's very great demo. You can call 1-844-5 try AIR, if you remember that. And you can interact. She'll tell you everything and anything that you want about herself, and you can even challenge her. I challenge you to challenge her and see if she'll go off base. I promise you she won't.

Now let's talk about AVA. So we had great reception in terms of AVA in the marketplace as we launched this on Monday. And I think we have a lot more great things with her to come. In terms of being a virtual assistant across the board, right now, think of her as providing the notes and summaries for meetings and calls and chats. She's her copilot working alongside of you in your day-to-day inside RingCentral RingEX.

She drives real-time insights. She drives prompts and information to help you to uncover the use of all of the products across the portfolio. So she's going to guide you through setup. She's going to guide you through discovery of information, and she's going to jump right to the areas for an administrator that are typically difficult to find or perceived, difficult to find. And it automates the setup of those administrative tasks as well, like changing time zones, business hours, other things.

So she's not just across voice, she's also across video, she'll be across contact center and she'll be across the entire portfolio. And as we continue to release because what we announced on Monday was an early adopter sign-up program, we will continue to innovate upon her capabilities to really be proven in the market and significantly up-level RingCentral's users' experience across the board.

So let's take a look at what AVA does.

[Presentation]

So you saw here some very basic components, right? But I think as we go forward, you're going to start to see more and more of how AVA is going to interact across the board. So remember, video conferencing, meetings, events, contact center and the full portfolio of capabilities that we have across the board. So super excited about this. Stay tuned for more to come. This is definitely a flagship capability from RingCentral.

Now let's talk about ACE. ACE is pretty cool. ACE is the new name for what we once called RingSense. And it really is taking and unlocking the data behind what your organization has to surface information on business insights. So I will start out with what's new today, and then I'll back into a little bit about the product that's been out for a couple of years because it has been out for a couple of years, and it's an amazing product all in all.

What we have now that's new are those items I have listed there, which is the ability to surface key business insights to spot churn and potential risks with organization -- with customers that you have and track cancellations and friction that might be going on. What ACE has always been able to do is act as a universal solution to help improve the performance of teams or organizations or business divisions inside your organization like sales or an informal lightweight contact center solution or customer engagement solution to be able to coach those people to do better, to be able to perform better, to provide better customer service, to sell more faster.

And all of the information that's transcribed during these conversations is also uploaded into a CRM, if necessary. So all those customer conversations across the board can be taken and put into the CRM for the record of the organization. Additionally, analyzing customer sentiment, as Vlad mentioned as well, a huge component, how is the customer feeling, how can you react to that? All of these key triggers go into overall performance improvement across the organization.

What we announced on Monday is something called Insights. And what insights does is it takes this intelligence at this level and brings it to the business to make strategic business decisions. That's enormous. It provides the organization with those analytics, so they can look at their organization, look at the competitors, look at what customers are saying about new product launches, look at information about what's being communicated across organizationally, across teams, and it gives the organization at any level, executive on down, the ability to see the data, listen to conversations and react as a business, key elements in driving the success and leveraging and utilizing AI to do that.

Let's take a look.

[Presentation]

And at the end here, what you see are summarizations, but you are able to -- what's not coming up is you're able to interact with this, just like you would ChatGPT or any other AI tool to be able to ask specific questions. And it's going to provide you with feedback and information and blurbs as well as links to that information, so you can go listen to calls, view the dashboards and create your own intensive insight search into the product and into the areas of your business.

So we've had a significant impact, obviously, since this product has been in the market for quite some time. Obviously, Insights is brand new. We have a number of customers in beta right now with us. But these are some of the customers that are currently using RingSense now called ACE.

Endeavor Capital is one of them. They're increasing sales performance by using ACE. REE Medical has realized about a 300x increase in monthly call audits. So being able to go in and auto score conversations to improve sales performance. It's pretty huge. And then Brookstone Windows has also been able to analyze 100% automatically of its customer engagement calls, both inbound and outbound calls and improve those quality of those engagements. So you can see a lot of customers are using it already to leverage and utilize improvement of their business overall. And with Insights, we can see there's a whole lot more that customers will be able to do. So stay tuned for more customer references on what the new Insights product will provide.

Now let's jump back a little bit and talk about RingEX. So obviously, on the tree of life, I'll call it, that Vlad had brought up, RingEX was the beginning for us. It is our business -- AI business phone system. It's the core. It's the PBX in the cloud. We've had great success with this product.

And what we announced just today with a press release that went out is we announced the customer engagement bundle. So for lightweight or informal contact center solutions across the organization, those are individuals inside the organization who have other day jobs. They could be an accounting. They could just be with the front desk person; they could be anywhere inside the organization. When a call comes in for customer service or sales, they're able to answer those incoming calls.

And so on top of this, this is a bundle that provides, number one, call queues, which is the ability for these calls to come in and the organization to set up a queue based on specific needs. So one could be customer service, one could be sales, one could be name your favorite department and bring those all the way across to be able to have people answer those as they're able to within their day job.

In addition to that, we've provided some contact center type functionality that provides ultimate contact center solution on top of this. And what this is, is wait time and positioning queue. And this functionality is if an individual calls in and is in wait for a queue or an agent to pick up, they will get an estimated wait time, and they will also have the ability to hang up and have the solution call them back and they'll never leave their position in queue. Most of us who have had engagements with large contact centers have realized this experience. You probably all remember it.

But now for informal contact centers, for every organization, for those 1.2 million that Vlad talked about, they have this solution as well. Additionally, there's an SMS inbox solution. Many of our small businesses leverage and utilize SMS or messaging more frequently sometimes than voice or as equally. So we see communications both inbound and outbound with SMS messaging for obviously, confirmation of appointments, for promotions, for other things, we all get them.

This is a shared inbox that provides the capability for the organization to manage all of those communications. The ability to do that is significant because these smaller organizations needed one place to do that management, and it provides their ability for queues and other elements to come together and provide that informal contact center capability.

On top of this is reporting and analytics, a necessary component to running an effective contact center solution. And it's not about analytics after the fact. It really is about analytics in real-time as well as after the fact. So having all of these features and functionalities inside of an informal lightweight contact center solution, we call customer engagement bundle.

Also of note, all of our customers that currently have RingEX can leverage and utilize what we call boosters. They can add independently these solutions to their existing RingEX from RingCentral. So they don't have to go to the tier, which is an encompassing of all of these features for a price, but they can go and add boosters to certain users that they'd like to add that are already part of the RingCentral solution.

Let me show you what this looks like. This is a short video.

[Presentation]

So what you just saw there was the full bundle, the full suite of capabilities. It includes all the AI solutions we've been talking about up to this point today, including RingEX, AIR and ACE, call queues and SMS messaging. So all these features and functionalities lead to an AI-first customer engagement solution end-to-end for our customers now in RingEX.

One of my favorite areas is customer engagement, obviously. And customer service has been a very important component for RingCentral. It is, as Vlad said, one of the fastest-growing new native contact center solutions in the industry. We ascertained more customers in one first year than any of our competitors ever did. This doesn't come without a ton of work and thinking about how the solution works end-to-end to provide a formal contact center.

And the industry has been around for a long time. But for us to come out with a solution that is native as part of the RingCentral suite of solutions that provides 20-plus digital channels and includes voice, it's simple and easy to deploy, as Vlad said, and it's also priced just right. This adoption comes together and provides some great success.

Now the one thing that makes this product significantly unique is that it is AI-first. And so every stage of the customer journey that we've gone through already, which I've gray out here, AI receptionist, we saw that at the front door answering the interactions that come in. We use this in an informal contact center type solution, which you see with AVA, being there to help and assist the informal agent and the employee. And then we saw ACE with business intelligence. And all of this is part of RingEX.

Now let's talk about CX. But since we've already gone through AIR and what she can do at the front door at the beginning of the conversation to handle the interaction before it ever gets to human, let's talk about AVA Agent Assist and AVA Supervisor Assist during the call, what that does for an agent and how it helps to improve customer satisfaction and then after the call, let's talk about what ACE and the part of ACE that is Workforce Engagement Management, which we also launched on Monday and how that all works. So let me break this down.

First, with RingCX AVA Agent Assist. This is a solution that provides agents with real-time guidance. It's pulling information and providing it to the agent with the right information at that right moment. So it's not a flood of information. It's not a script. It's not something where they're going to have to go and dig for the information, have long pauses with a customer on the line. They are able to see that information on the right-hand side, and I'm going to show you a demo right away that's listening contextually to the conversation, pulling information out from the knowledge base or other integrations that exist within the solution to provide that agent with the right information in real-time.

It significantly improves customer satisfaction. We continue to see the adoption of our customers using this and requiring this in RFPs and other conversations that our sales teams are having at small, medium businesses and larger businesses that we utilize and sell RingCX to, and it's reducing handle times and increasing customer satisfaction overall.

AVA Supervisor Assist is also pretty amazing. This is a solution that provides a supervisor the ability to save an interaction before it becomes a problem. AI at the forefront of this solution allows a supervisor to have a dashboard of every single agent in their mix. They will be identifying each of these callers as they're on live calls or live interactions with the ability to notice if there's sentiment or other components of the conversation that are driving this to potentially going south.

It will signal that information on the dashboard and the supervisor can click on that interaction and bring that information up and see a transcript in real-time of the call, a note summary up to that point during the call and be able to listen, whisper and barge into the conversation where necessary. It ultimately saves interactions, customer interactions in the formal contact center before they ever become a problem.

And finally, RingWEM or Workforce Engagement Management. We've done a lot with this. It's become a very robust solution that provides what we've announced a year ago, which is quality management and the ability to score every single interaction that happens with an agent and automate a scorecard behind that, and it's a quality management process that exists in the contact center world for many, many years.

But what we've done with this is -- we've improved it by automating it fully with AI to provide a solution holistically where AI will do this for you for a supervisor, send this information to the agent, and you'll see this in the demo because I know it's a lot. And it will automatically provide a score for the agent for improvement activities. This is how you drive customer satisfaction, improvement in learning, along with what you saw with Agent Assist.

Secondarily, interaction analytics. This is part of ACE, and this provides the ability for any contact center to understand customer satisfaction or CSAT at any moment. Only AI can do that. Most of the time, getting to a CSAT score was very difficult. And as Kira mentioned in her slides, our support organization actually is utilizing and leveraging this to improve customer satisfaction. We're seeing those gains, as Kira mentioned in her talk. And finally, workforce management. We made an acquisition in September of a company called Community WFM, and this rounded out our suite, which we now call RingWEM. This is a competitive component in the marketplace for us. It differentiates us holistically. We now compete with the likes of some very large contact center providers that are out there. We are a force to be reckoned with. Let me show you what this end-to-end solution looks like across the before, during and after experience of a contact center.

[Presentation]

That is RingCX. We're proud of the customers that we've attained. There's been significant impact across these organizations from saving 10 hours per week in what was once a manual process of coaching and scoring interactions to saving those 10 hours is huge in any size organization, especially a formal contact center where you have 50, 100, 200, 1000s, 10,000s of agents. San Diego Symphony leverages RingCX to improve call abandon rates and really have seen an improvement in how people are buying tickets and decreasing hold times by 95%. It's really an effective solution across the board that provides them with that overall capability that we just saw. And Novatek is leveraging ACE or what we call AI quality management to automate the coaching as well. And they've seen a 20% improvement in customer service interactions on a daily basis.

So if you think about the number of agents that are answering that and the revenue associated with the Symphony, that is a very big deal for them. So we've had quite a conversation, and I want to thank you all. We've talked a lot about what we're doing today in terms of the leadership that we have in Agentic voice AI. Additionally, we covered what Kira and I represented in terms of the AI announcements with AIR, AVA and ACE. And I also introduce to you the CE bundle and the details, customer engagement bundle for RingEX as well as our new RingWEM or Workforce Engagement Management. That's all I have for you right now. What I would like to do is let you know that we have a 10-minute break. So feel free to run around, use the restrooms, and then we're going to come back in here and pick up. Thanks, everybody.

[Break]

Thanks, everybody. Everybody, if we can take a seat, we're going to get started with the second part of our big show here. So that was pretty impressive, right? It's amazing what I can put together in 2 weeks, right?

No. Obviously, a huge thanks to our corporate marketing team and such for putting everything together. It was -- it's fantastic to be able to share all this with you. So now we're going to -- as we said earlier, we're going to go ahead and get started with giving you more insight by talking to some customers, some channel partners and some global service providers. So with that, I go to introduce Akshay, our go-to-market guru, if you can join us on stage.

Good morning. I'm thrilled to be here today. Just by way of introductions. I'm Akshay Srivastava, and I have the privilege of leading RingCentral's go-to-market organization, bringing together direct sales, channel sales, professional services, customer retention and most recently, our customer support organization. Now when I told my wife and my daughter that I was taking on customer support for RingCentral, my 16-year-old's first reaction was so dad, you really can't hide from all the customers you sold to. And I said, yes, that's kind of the point. We're bringing it all together in service to the best customer experience.

Look, I've been with RingCentral for a little over 6 years at this point. I've worked in a variety of functions across the company in service to improving customer experience, partner experience, growing our revenue base. And that's been incredible. It's been incredible to see how the company has evolved and how our customers and partners are evolving with us. And as we evolved into RingCentral 3.0 that Vlad spoke about, the next chapter will require us to transform our go-to-market organization.

It is all going to come down to customer experience. We're going to have to organize around the end-to-end customer experience, and we're going to have to do it with our amazing products and our AI innovation. We are 3,000-plus folks in my organization at RingCentral. Every single person is at present using our NPI products, our new products and every single person is using RingCentral's AI products. We are operating at scale within RingCentral using all of our products. And we're doing this in close partnership with our customers, our channel as well as our GSPs, or global service providers, that Homayoun will cover later.

We have over 0.5 million customers that we're proudly serving today. We have over 16,000 channel partners that we work with. And all of this is happening globally. Our global reach is helping us accelerate our innovation and get our products out there better and faster than ever before. Now today, you will hear from the people who are making all this real. You will hear from our customers. You will hear from our channel partners and you will hear from one of our newest global service providers that Homayoun will introduce later.

To start us off, Denise Lund from IDC will be coming on with our customers. From Envision Radiology we have Andrew Benson, Liesl Perez from Axis Health, and we have Paul Rapier from the Detroit Pistons. What's interesting about all of these customers, number one, diverse set of industries. It talks about that reach, that diversity in industry and vertical that we provide as a company. And secondly, all of these customers are using RingCentral's multiproduct portfolio, and all of them are using our AI to better improve their customers' experiences. So without further ado, please welcome Denise, Andrew, Lisa and Paul.

Good morning, everyone. Welcome to the RingCentral customer panel discussion. I'm Denise Lund, Research Vice President at IDC covering worldwide unified communications and telephony. Today, we're exploring how integrated employee and customer engagement solutions are redefining business communications. The 3 amazing panelists we have here today will talk to how the accumulation, combination and integration of all of the RingCentral solutions are working for them in each of their industry verticals. Before we get started, we'll -- in the topics, we'll go through a brief introduction. So start at this end.

I'm Andrew Benson. I'm the Chief Innovation Officer for Envision Radiology. We own and operate 60 outpatient imaging centers across 6 different states.

My name is Liesl Leary-Perez. I am the Co-Founder and Chief Growth Officer for Axis Integrated Mental Health. We are both Colorado Biz Magazine's Top Startup of the Year and also Denver Business Journal's top philanthropist or one of the top philanthropists.

I'm Paul Rapier. I oversee the IT department as VP of IT for the Detroit Pistons.

Thank you. So let's get started. We'll start by first looking at an IDC conceptual graphic that really sets the stage for what we'll discuss today on the panel. The headline here is that integrated employee and customer engagement solutions are defining and redefining the future of unified communications. What this means in reality for our businesses here today are that organizations are no longer treating employee collaboration, employee productivity as separate from their customer engagement activities. These aren't silos in the organizations here, and that's thanks to the solutions they have at play.

IDC's research points out that this integration isn't just a technical evolution. It's a real tangible growth opportunity for all of the companies we have here and how they run their businesses and what their futures are. Businesses can create more seamless experiences as AI wraps around the employee communications solutions and the customer experience solutions and the newer, very exciting opportunity of the integrated unified communications and customer experience modules and solutions. With this, businesses have improved outcomes, positioned themselves for success in today's highly competitive market.

This slide here is an IDC graphic from our research that really highlights the importance of thinking holistically about communications with AI, and AI is really included throughout. It's not just underneath or up above all of these solutions. It's really woven throughout. And that's a very great point for our conversation today. The last thing I wanted to share before we dive into the discussion topics, the market outlook that IDC sees is impressive. In 2024, the unified communications customer engagement market generated just $350 million, which is notable, but just $350 million.

And it's projected to grow at a remarkable 41% CAGR by the end of the forecast period you see here, reaching $2 billion in 2029. And that's just one piece of this massive market opportunity. The rapid expansion that you see in the CAGR highlights the increasing demand for solutions that unify the communication channels, streamline the workflows that we'll hear more about today and deliver better experiences for both employees and customers. So as we dive into the discussion, I encourage our panelists here in the audience to consider not only the technological advancements, but also the strategic opportunities that each of our panelists have experienced and lived in their verticals.

So let's -- thank you for joining us. Let's get started. We'll start with our Detroit Pistons. You're using practically the entire RingCentral portfolio from EX to CX and to events and AI receptionists. Can you talk a bit about how bringing these products together has changed the way your teams work, how they serve customers?

Yes. I mean, originally, our journey with RingCentral started 6 or 7 years ago, 7, I believe. The goal there was to help us transition from our headquarters in Auburn Hills down to Detroit, closer to our new arena. It allowed us to take our on-premise phone system and communicate with our fans from anywhere, whether it be at the arena, at the headquarters, or around the road. It started there. And as we have grown with RingCentral, keep adding products and all of those products are integrated well together and allow us to just stay connect to all of our customers. So regardless where we are and just keep adding whether it be like an event or an AI-driven sales call, or just a meeting all from the same app.

Thank you. Thank you. What about the transforming customer experience, I think we're going to want to lean into what's the biggest difference that you've seen, Andrew, at your -- within your company, in your customer interactions since you've rolled out RingCX?

Yes. RingCX has been transformational. We really struggle from a call center standpoint. And then when we adopted a RingCX, we really solved a lot of problems right away. It's so easy. It's so simple. I think John highlighted a lot of things on the page, but it really is that easy. You don't need a big IT department that's managing it. You have the people that do it every day that are running that.

So we've really been able to give a lot of autonomy to our leadership to run their teams. And so with RingCX, whether that's setting up special call queues, or routing, or the various different options, everything that we have done has resulted in lower abandoned rates, better agent handle times. We're seeing better agent utilization. And then all of that to say that our patients are happier.

We have extremely high patient experience satisfaction scores. That starts with that first phone call because in healthcare, still a lot of phone calls. So we set the stage upfront with RingCX, teeing up the information to our agents. They have a good patient experience upfront, and that sets the stage for a great patient experience all through the life cycle of their journey with us.

What about the inbound and outbound and abandon rates and so forth? Can you tell us a little more about that? I know that's super important.

Yes. So we take about 12,000 total calls a day between inbound and outbound. Abandon rates are consistently under 1%. Handle times again are low on our outbound reach, most agents are achieving anywhere from 120 to 140 outbound calls a day. And then on the inbound, again, it's maybe a 4-minute average handle time, 3.5 minute average handle time, but our agents are on the phone, 65% to 70% of their day. So we're getting maximum performance from our agents with high patient satisfaction.

That's great news. Yes. That's good. And I guess lastly, we'll kind of spread the conversation around here and move to Liesl. But one last question for you. In terms of hiring and onboarding and training folks coming on to your organization, how are you finding that your RingCentral solution is helping you, Andrew?

Yes. We'll move -- Liesl, please. Thank you.

I think the ease of use is actually one of the things that's the best part about RingCentral. And especially because for small business owners like myself, and especially in healthcare. Most of us didn't get into this business to run a call center. That's not our bread and butter. We're certainly not good at IT. That's not the point. And so one of the parts about RingCentral that's made it so easy that training the AI has not been the biggest challenge that I thought it would be. And in fact, it was so easy to use that our receptionist was the one who actually went and started training AIR. And I think you have that same type of experience.

When you think about the technology companies that have scaled the most like Zoom or Canva. It's because it was that easy to use that anybody could do it, that it got wide adoption. And I was happy to see that our employees are happier because it's taken a lot of the tedious parts out of their workload out of the equation, they can actually focus more on training the AI and making it better and better.

And I think that goes to what Paul is saying, really, when it comes together, those employees in the back, right. Desks are able to work better because your front customer-facing employees can.

For sure.

Maybe one comment on AIR about how easy it is to set up AIR. Like we had an executive assistant and a receptionist setup AIR for the company. It's not IT personnel. It is who's your experts that's dealing with those phone calls every day and having them actually do the setup themselves, which I think is still empowering to give them that ability.

Yes. And to be able to have the self-confidence, right, build after all that, this technology is really usable, and it works well together and so forth. That's great. So can we talk a little bit more about RingSense and then in RingCX plus RingSense? Do you want to talk a little more about that?

Yes, I can take that. I think so RingCX and RingSense all, it's now ACE. You guys changed on this. So RingSense and RingCX is like this magical combination. I think RingCX has really empowered us to have high performance, like I shared with our agent performance. But then when you combine that with all of the insights that come out of the RingSense data, we now understand not only how are we performing from a number standpoint, we understand how we're performing from a satisfaction sentiment, all this analysis that we would never do without AI.

And all of a sudden, these tools are available as like, oh, 100% of our calls are being analyzed. 100% of our calls are being scored. And then we've actually been able to create customized scorecards per call type to analyze those costs. So 100% QA. I mean, we were lucky to do 5 calls QA per person in a month with human staff. And so we just freed up all that human capital to go focus on other things, and have a tremendously better experience from an overall performance. I guess it's really just been a life-changing addition to our RingCX platform.

And that's clear, right? We all have experience with health care organizations in our daily lives. So it's clear we can see that value. And the Detroit Pistons, are you also seeing that in your industry with the Ring products?

Yes. We deployed RingSense. I think we're probably early adopters earlier this year. We had it integrated with our CRM. It was saving all of our sales agents' hours of time, capturing their notes, but more than that capturing the entire call transcript and then uploading that to our CRM.

Right now, we are in the middle of -- still working on our CRM transition. So we haven't got that working the way it was, but we're looking forward to that continued benefit as soon as we get that deployed. But also the managers like Andrew mentioned, helping them identify sentiment analysis and he's helping them identify calls that need the most coaching, just better service our customers and our agents.

I know that for my study of the industry, it's a unique time right now with this suite of Ring products is that they can apply to each different industry without too much strain, right, on your IT and so forth, your office staff. So that's great. So let's shift gears a bit and Liesl, we'll start with you this time.

I know you've been seeing some quite impressive outcomes with AIR. What kind of difference has AI receptionist made in your day-to-day operations?

It's made a huge impact. I think one of the things that we were most impressed with was the fact that there's two kinds of people who call into my clinic. There's your average patient who just wants to get their ADHD meds and needs to get their appointment with their providers so they can be monitored, and they really don't need to have a whole conversation. And then there's the desperate mom who just wants to see there's their kid, or their spouse or whoever smile again. And those people need time to talk to someone to help navigate that entire journey of mental health, insurance, how much is in costs, what are even the options.

I have been with both of those people on the same day. Not -- a true story. And so when I start thinking about AIR, I start thinking, really, the biggest impact it's made is that it's allowed us to scale impact and empathy to people who really need to talk to somebody. And allow all of our other calls to just -- I can see how many text messages are sent every single day with the link to schedule because you can schedule online. The biggest aha moment for me having come from high tech for most of my career was that people don't schedule online for doctors' appointments.

Even if they can, they still call in and want to talk to the front desk. So for me, being able to just see all of the checks that go out with the online scheduling link has been impactful and has made us far more efficient, which means we can take more new patients, and because they need that conversation and that reassurance that, yes, we can do something more than meds. Doesn't just have to be another pill. We can actually -- we're not just going to help you reduce your symptoms, we can actually help you go into remission. And that's a conversation that is not ever going to happen through AI. But what AI lets us do is prioritize those conversations quickly.

That's really great. And Liesl, you had something unique, right, where you've worked on other tools and then come back to the RingCentral tools. And I found that to be a really interesting twist.

Yes, I think -- well, I have an interesting background because I spent 9 years in generative AI, and I understood how to train AI. Most small business owners like me will not know how to do that. And so -- and because of that, I have AI in pretty much every part of my mental health business. I have AI charting. I have AI in our CRM, answering questions. So whenever I've had to train an AI, not the easiest. Not my favorite part of the job, a lot of other platforms you have to do the question and answer. Each FAQ at a time, it is painful. And you don't -- you have to really think about what is it that the patient is asking for. I mean that's where RingSense is actually really, really helpful. It gives you a great idea of what to do.

But with AIR, it was -- it's like a great beginner AI, right? If you're going to start -- because I actually went out and bolted a bunch of other things onto it afterwards, but it was the -- it's the core platform that manages all the other communications that we -- and we have very specialized needs being in mental health, being in healthcare, EHRs are crazy. But because it was so easy to train, as I said, our receptionist did it essentially. And it's really helped our front desk team become the growth and innovation center for the company. I always say you don't want a crappy chess player like me, training your AI if you're trying to create an AI that can do chess. You want like a Kasparov, you want some Russian Grandmaster doing it.

And -- but for us, the grandmasters are the front desk. They're the first point of contact for a patient. They're the person who's going to see that patient go through their transformation, they're the friendly face. They know what needs to happen to scale that impact. And so the fact that it was so easy to train and that the experts were the ones training AI receptionist, that's what really has sold it for me.

Yes. And Paul, I know you mentioned when we were chatting that you've had a similar experience setting up AIR and working with kind of that balance of non deep AI and AI and so forth. Yes.

When it comes to AIR. Right now, we AIR deployed to our help desk, or IT help desk which actually built out. We also built out AIR 4, our main ticket sales number. It has not been deployed yet. Still waiting on approvals on that, but I'm hoping to transition that to the people who actually answer the phone as well because I agree. I think I mean, it's amazingly easy to set up. But once we get that deployed, I look forward to them adding more insights based on the questions that they get that are most common and taking that lift off of the contact center.

That's really great. And Andrew, what are you experiencing with this?

So one of the interesting things about AIR is that when you try to sit down and to Liesl's point, put all the information into it to handle calls correctly, you very quickly realize where you have a lack of standardization or a lack of understanding of your process. And so adding that AI step into even setting it up, illuminates all these potential gaps and you start to realize, well, how are people actually answering the phone? What is going on here? And then for us, if you can go back to RingSense and you can say, okay, let's look at all of these calls that have happened and how they've been handled. And then how do I move that into the AI receptionist.

There's a lot of aha moments like, oh, we're not consistent here. We're not standardized there. Look at these ways that we're doing this differently. And then it forces us as a business to say, okay, well, we really have to create consistency. And so we use that data to then go back to AIR and say, how are we going to have this call answered? How are we going to have this call triaged? How are we going to respond to this in a certain way? And so it's really highlighted process gaps and that forced us to convert those things to say how are we going to solve this and then that's how we do that with AIR.

That's great. I'm sure employees and customers appreciate improvements in processes, yes. Well, all the qualitative and process and operational benefits. So let's talk about [indiscernible]. Have you all been seeing in action with RingSense? Are there -- some examples each of you could share where you've experienced real results from the AI? Thinking time saved or better insights we've talked about, but time save, measurable ROIs, those tangible proof points that everyone here would love to learn about.

Yes. So I can get started because one of the challenges we had was trying to book appointments. Small business as many are and just answering the phone and getting people scheduled can take a long time. And again, the big aha moment from me was like, oh my God, people actually call to make appointments. They don't just book it on their phone, which I had never even really thought about.

And so what I had figured out essentially is that by implementing AIR, we [indiscernible] about 40% more intakes every single week than we were when we were just answering the phone with people. And I take -- I think because people just didn't abandon the process, they were like, oh, they didn't answer the phones, so I'm not going to book, or I'll book with a competitor even worse. And so that actually helped us when I calculated out LTV at the low end, not even at the high end because you don't necessarily know what every customer is going to do.

But we are generating about $1.6 million more in revenue because just simply because we are now able to book more intakes. It's probably more than that, in all honesty, but it's hard to know. And it's also helped us make the justification for doing our first acquisition. We actually bought a competitor because we have the confidence to say we can fill you up pretty quick. No problem. Don't even have a question about that anymore. And obviously, that extra money helps cover those expenses in buying a competitor. But those are real results that came from...

And your system actually broke, right? The processes because the amount of calls?

Yes, I did a burst test where I said, okay, let's see how many people we can get in? And we have a -- you can get in within a 7-day guarantee and we're past that now. So I had to turn off marketing. But in the experiment of doubling the number of calls we were getting per week, I did notice that AIR is taking about 30% of our calls. I mean -- so that's 14 hours that no person needed to touch the call and that person would serve -- or yes, about 70% of those calls are going directly to -- it's transferring it to the person that needs to transfer to. It could be billing. It could be prior authorization, it could be -- I just need to leave a message for my provider. But yes, that's a huge amount.

It started off at 24%. So about 1/4 of our calls were being handled by AI. Now it's -- I'm seeing a steady rise over time. So as more people become used to it, and there's a bit of a learning curve for patients. Because they're -- again, they're used to like I just want to talk to my doctor and it's like, you can't do that.

Yes. That's good. It sounds like they keep coming back. So that's great news. Andrew, what about in your case, the API lookup and what kind of benefits changeable results has your organization experienced?

Yes. So we have RingCX is hooked up into our practice management system. So when a phone call comes in, we look up the phone number, and we pulled back any patients to potentially match to that so we can present that information to the end user. But not only that, but we route those calls to special cues. So for us, being in multiple states, multiple just from an types, different complexity, we can intelligently route calls to the right people. So not only do we have better efficiency in terms of our performance, but we're trying to get mostly patients to the best person to take care of them. So through that look up into our system, we can say, oh, this is a really complex case. Let me get this to my best scheduler.

Or I look up and I say, this is my most simple case. Let me get to that to my new hire. And so it's kind of interesting we can actually protect our new hires to be successful faster by shielding them from these complex cases. And at the same time, if you give a complex case to a new person, they're probably going to screw it up, and then the person on the other end of the line is going to be unhappy. So I think it's exponential in terms of customer satisfaction, but also employee satisfaction.

And it's so hard to overstate the importance of consistency across all of that. And Paul, I wonder if you can talk to some of the benefits of that integrated solution on your end?

Yes. I mean from an AIR perspective, like I mentioned earlier, we don't have it fully deployed to our main contact center, but it is on our help desk. And it's answering a lot of basic questions that we get in our ticketing system, just to kind of take that off of my team. But yes, I mean we're continuing to build out AIR for our main contact center number, and I look forward to those kind of results because being able to move calls based on what they're looking to buy or -- and then filter that based on who it's going to, like whether it's a new hire or a senior person. I mean that's going to be amazing. But yes, in RingSense I mean that's what we've been running the longest, right?

The time saved there is really just capturing the notes in that transcript of that call and making sure that it gets applied to the correct CRM record. That has just been huge for us.

Yes.

Maybe could I add a point on that. So there's lots of numbers flying around, but there's a lot of like just some objective human element of this, too. And employee satisfaction is high, but I would say our supervisor and leadership teams have seen the most impact from all these different solutions, especially with RingSense, now ACE. Having 100% scoring, we actually have some of our agents every week, they evaluate how they perform. So we've actually put some autonomy back into the frontline staff hands to say, go look at how you're performing. Go review performance, identify where you can have improvement.

And so it shifted a lot of that burden off the leadership team. And so now the leadership team is focused on outcomes, accountability, expectations, performance, and they're not stuck dealing with all of these more menial mundane tasks, we freed them up to focus on things that are going to make an impact to the business. So I'm really excited about the insights thing, John, like can't wait to get like that's going to be huge. And so by having our leadership team spend their time focused on insights, rather than focus on all these other smaller ROI efforts, I think that, again, is going to be -- I've said the word before but transformational for our business.

Yes. And if I just want to add on that. We've got Paul here, who is in IT, and that's your background. And my background is in marketing. And I don't know for any marketers out there, but how many of you have been like, I'd love to do that, but I don't want to talk to IT. That sounds really hard. But the fact of the matter is we can collaborate more now because it's like, okay, I know this is what the customer needs, and now I know how to actually implement it because it's easy. It's easier to understand, and that makes -- and so then you can again shift more work on insights and executing it faster.

And I think everybody -- I mean, I know from my experience is everybody's validated more and where they want to grow as -- in their careers. So I think we've got those softer sides to it.

We'll wrap up here because we'll be pulled off the stage soon. Looking ahead, the future of AI and CX. We're looking to hear from everyone about where you think your business is headed, your individual business or your industry sector, what do you see as the biggest opportunity to keep expanding AI and automation and how do you see RingCentral playing a role in that. Start with...

Well, I mean, RingCentral has already been helping us innovate in all communication spaces over the last 7 years. So I just look forward to all these new products that I learned about today even. But I think like every other organization out there, we want AI and like every department and every section of our business to help improve efficiencies and processes for both employees and the applications. So yes, I just look forward to everything growing.

Right, Liesl?

So I was actually texting my ops director when you were talking about the lightweight customer call center, and I said, guess what we're doing next week. So that's really exciting. I think there's a huge opportunity. I had worked at TTEC at one point. I had called all of our competitors when I was looking to enter -- to create a call center.

The nature of mental health, however, prohibits really trying to outsource this to another country. And so for me, we're going to be using AI really to be there more for the individual and scale personalization to the moment, not just the demographic.

Great. Andrew?

Yes, I look forward to growing together. When I think about RingCentral, I think there's exceptional products that's paired with exceptional people. And I get really excited about growing together and taking healthcare forward. I think healthcare is always so far behind. And I think especially in customer experience, across patient experience, how can we drag the industry forward to say this is the future today that we can take advantage of?

So I look forward to faster calls, faster resolution, faster schedule times, everything that's fast. In healthcare, you need answers now. And I think that starts and ends with communication, right, from the very first interaction to the results that you get. And I think the before, during, after, RingCentral hits all of those marks. And so I think it's us figuring out how do we align at every one of those touch points and make sure that we're maximizing the performance for our patients and for our employees.

That's great. Now I want to thank our panelists for joining us today. It's been a great discussion. I know that from my perspective at IDC, I've been studying this unified communications, employee engagement, customer engagement market for quite some time, well over a decade there, but in the industry well over a few decades, and it's moving fast. It really is a fast time, RingCentral is right in the sweet spot of where we see a lot of innovation and where our panelists are seeing real results. So thank you.

All right. Huge thanks to Denise, Liesl, Paul and Andrew. No greater validation for all this innovation, than from our customers themselves.

Next up, I'll be welcoming on stage Zeus Kerravala, leading industry analyst along with 2 of our key channel partners, Joe Rittenhouse from Converged Technology Professionals, also known as CT Pros. And Mike Schoenholz from ARG.

What's interesting in working very closely with Joe and Mike is, obviously, it's been a long relationship with them. They've been with us for several years. But I talked earlier about customers and partners evolving with our product portfolio set. And this is a great example because both of them are now adopting the full stack of RingCentral's products.

Besides the business side of the relationship, and we love doing business with them because they do a lot of business with us. I think what really draws us to working so well with these two fine gentlemen, and some of our other channel partners as well, is just a great amount of customer empathy that they bring. They truly care when things are not right. I will get text and calls very, very quickly. And we together will get on it, and we will make sure that the customers are situated well. And I think that's what we really look for in a partnership.

And the other thing that both of them bring is a great amount of candor and input into both our go-to-market models as well as our product road maps. The energy that they bring and the input that they bring makes us better as a company, and so very, very proud to be working with both these individuals. Please welcome Zeus, Michael and Joe.

Okay. Well, they made Denise stand, but I'm going to sit.

All right, you guys get up here.

While they're getting set, I'll just do a quick and run myself. I actually overlapped with Denise. We were both at Yankee Group at the same time. And so I'm a long-time industry analyst. I'm an independent one. I don't go as deep into the numbers and things as Denise does. But I tend to cover a lot of emerging technologies and trying to understand how it affects a lot of infrastructure and things that this is certainly part of it.

This is a space I've looked at for a long time. And I'm excited to talk to you guys. And I don't know you as well, Michael, but I certainly know Joe, and it's funny to listen to Akshay introduce you how you've evolved your businesses. I first met Joe at a Mitel event, [indiscernible]. So that just shows how this industry has changed. And so just before we get into the questions, a quick intro on yourselves. Mike, why don't we start with you?

Yes. I'm Mike Schoenholz, I'm the CEO of ARG. ARG is an IT consulting company. We help customers make thoughtful business decisions and then we support those decisions. After the sale, we represent hundreds of technology companies like RingCentral. We'll do 2,000 RFPs, 8,000 engagements, resolve tens of thousands of tickets on behalf of our customers. I recently heard from my team that there was a new CIO at a longtime customer of ours. We came in and presented the relationship that we had and bottomed through some of the archives of decisions that they had made in the past that he goes. So you guys are kind of like my longest tenured employee. And we said, yes, kind of, yes.

Well, if you do the job right, you should be. And Joe?

Thanks for having me. Joe Rittenhouse, CEO of Converged Technology professionals. We focus primarily in UCaaS and CCaaS deployments and consulting, and that's now become Agentic-AI consulting as well. So it's a budding business. We're focused narrowly on what we do, and we only work with the Gartner Magic Quadrant leaders.

Yes. And I'm going to start this off talking about a little bit of Wall Street sentiment. I know I've talked to a number of you in the audience and just to complete my bio, I guess, I came out of Wall Street, was an IT pro at a Wall Street firm. So I kept a lot of those contacts. And I do interact with a lot of primarily buy-side firms but also some sell-side firms. So if you want to hit me on my LinkedIn and talk about the space after, let me know.

Now it's interesting, the -- we came out of the pandemic. All these companies were riding high. The bear case thesis on this market right now is that AI is going to just tear the heart out of the market and kill all the seats. The bull thesis would be that it drives utilization up, right? And so even though we might see a net decline in the number of, say, contact centers, you should see an increase in utilization because of AI. And so I'm curious, from your own business today, what are you seeing? Where -- what's the truth there?

Yes. So we're certainly more on the bull side. It's consistently about 35% of the new projects that we get engaged in. We haven't seen a drop-off in that. If anything, we've seen an increase from our historical engagement on CX and contact center, where, again, those were 3, 4 years ago, really what you would define as an agent in a contact center. And today, we're seeing that definition change pretty drastically.

Tell another story a few years ago, one of the members of my sales team came to me and said, they talked to the CIO, and we're in the middle of going through a renewal. And he said to the salesperson, he goes, what number did you call me on? And he goes, called you on yourself. He goes, right, what do I need these seats for anymore? And I'd actually argue that way of thinking is dead, not voice, just because all the capability that you heard here from this morning is not capable. You can't take advantage of it. And we heard from 3 panelists just a moment ago, increased C stat, increased revenue impact, better reporting, better analytics, better insights to drive the business. None of that's possible without the voice. So we're seeing a big uplift in leading indicators, and we're seeing consistent growth across the business.

And Joe, how is your business done?

It's crazy. It's a great business.

Dark here when I first met it.

But I think in general, there's a lot of appetite. And I think what we saw traditionally through the pandemic was we just have to get to the cloud. And we have to get to the cloud, and that was the destination, okay, we got to the cloud. You have your end user training effectively and everything is working properly. But now what we're seeing from this Agentic and all these AI tools and everything that's coming there is the C-suite is actively engaged and they're setting business strategy and understanding of like what's the pragmatic approach of how do we get there?

How do we -- and where we're starting is kind of what they talked about at the pistons, like start small, like start small and go fast, fail fast. But you can do -- you can solve for areas that you weren't traditionally solving for before. So password resets within IT or FAQ questions for HR, like getting that sentiment, getting your organization comfortable with these bots and then slowly figuring out what that maturity path is as you deploy it, but the innovation that's coming behind it, it's wild. And you do -- and the voice component of it is like not just sentiment analysis, but SMS and just being a critical transport. It's like water, and it's a precious transport that you need to really understand what it does.

Yes. And actually, you brought up C-suite, and so I have that question later, but I'll bring it up now. When I -- between an IT Pro and doing this, I was actually at a VAR. And historically, this stuff has been sold to communications professionals, contact center buyers like that. I know in the prep call, we all talked about how the buying center for this is changing, right? It's not just your traditional telecom sale anymore, CEOs and CIOs and Chief Experience Officers and Chief AI Officer, they're all interested in this now.

And when I think about the early days of Ring, the value prop, Vlad and I talked about this, right? It's a lot of like-for-like replacements, right? Just let's get off-prem and go to the cloud. You talked about that. But today, it seems like this is a much more strategic area of purchase than it has been before. Any thoughts on that, Joe?

Yes. I think it's really understanding with the different businesses that almost everybody has a sense of fear of missing out, right? And so there's a couple of acronyms there of like FOMO, but it's moving fast. We have budget. We got to go, go, go, go. You dump it to IT and IT is like, well, I don't want to screw it up. And I'm not sure really how to execute this. And so just seeing kind of that evolution of like we are pulling in different departments and being kind of a liaison to the IT team to say like, we need to go have some discovery with this unit, this leader.

We need to go have some discovery with this business unit and really just kind of compartmentalize of like how can these different tools work. It's not a broad application that you just pull off the shelf. It's uniquely built to fulfill the needs of those individuals. And so the C-suite engagement for us has expanded tenfold, but the execution on it is the most important piece, and that's what RingCentral is doing a great job of.

How about you, Mike? And what's the C-suite looking for today, which makes that buying so it was even just a few years ago?

Yes. So I don't know that who's touch -- most IT budgets aren't growing. In fact, most of the time, when we walk in, they are saying they're staying the same or they're going down slightly, but they're shifting a larger percentage of those IT budgets to things like AI because everybody is asked to do more with less and increase productivity. What we're seeing more often than not is IT might be leading the conversation, but there's an entire education that has to happen internally. And as you start to develop the use cases, you have to start bringing in different lines of business, different stakeholders. And this isn't just the C-suite. These are the people actually doing the jobs.

We heard that today is the most appropriate person to train an AI receptionist is the receptionist. It's not. So we've got a customer they're in the big machine parts. They do green machines and yellow machines. They're in the farming and big industrial machines. First step there was IT-led just overall education. So they brought everybody in and just said, what is the art of the possible? What is some of the things that these tools can do and accomplish. Then we sat down with that team and just said, okay, no dumb ideas. Just literally like what are some of the things that you can do, not just to gain efficiency, which has a cap, but also gain productivity, improve customer experience.

If you think about the way that their customers interact with them, they've got seasonality out in the field. They also have people like me who bought a zero-turn radius lawn mower in the same line as the person who has to get the seat out of the ground. So they've got some seasonality in their business. Understanding how their customers interact was a huge, huge component, and you had to bring in cross stakeholders into the room to start talking about identifying those use cases, the minimum viable products to generate the ROI. So we're seeing it expand significantly and not just in the C-suite, not just in the technical resources, but all the way down.

Yes. And so there's no doubt that AI is really, I think, going to be the transformational effect on this industry, bigger than cloud was. And everyone's got some interest in it. I'm curious, though, start with you, Mike. What's the motivation for customers today as they look at AI? Is it cutting headcount? Is it trying to improve customer experience? Is it trying to improve sales? Like what are they looking at today? They can't do all of it at once, right? And so what's the near-term...

I think it's a little bit of everything. I think everybody is trying to get to the holy grail, which is increase revenue and increase productivity. I can give multiple examples. We're working with a health care organization right now where they've defined ROI for every 20,000 MRIs they do, they got to hire 4 more people to process through those. So they're leveraging AI in the way that they ultimately process those where they're now looking out ahead and saying, okay, we could do a like-for-like replacement of the existing system or we can start impacting the productivity of the existing resources and get more for less. Now does that mean there's going to be less agents or less seats to sell? No. There's going to be more capability in the hands of the employees that are there so that they can be more productive as they go.

Yes. And do you think about that thread, right? Because that is one of the concerns I know investors have. is the impact to the number of seats, right? And so what do you see there? Like -- because every conversation I've had, nobody can hire enough people.

Correct, right? And so I think there's a bunch -- there's so much here. There are so many narratives like it's impacting business. But I think when we were first kind of going into it, and it hasn't been that long, right? But there was a general sentiment of like I can reduce FTE counts, I can do this, I can do that. But a lot of the organizations we get through these deployments, they're not reducing the FTE counts. They're finding the ROI in other areas and soft areas that they weren't aware of. And so like we talked about it of like the organizations that are having success with this is having a human-in-the-loop type methodology of how much more can we do efficiently to then try to get to that end user.

And so we're not seeing like a big headcount like repurposing people. There's efficiencies and we're giving confidence back to these people with the coaching and the intelligence, their confidence is coming out, which is providing a better user experience. But some of the other things that you're seeing is like just uptime and ramp time for these organizations, especially within contact centers, almost every contact center deals with some sort of turnover or some sort of attrition, and it's ever changing and it's always.

50%, 60%, 70% in some cases.

Yes, right. In some industries, that's ridiculous. But even in the really strong contact center organizations that have good deployments, they're still dealing with turnover and that capital is a lot. But with these tools that are coming in, now you can ramp agents faster, they can be more assimilated to the product faster and you have real-time coaching that a supervisor never could do at that scale. And so it's every business is finding alternative soft costs that they didn't know what was there. So starting these engagements with these customers, we sit with them is you don't need a grandiose budget and you don't need a grandiose plan. Let's just -- to your point, what's the art of the possible? Tell me what you want to accomplish, and we'll tell you how we can start, start small and then execute.

I'll just add one more thing there because I think it depends on how you define a contact center agent and where that capability now exists within the technology stack. So we work with a super regional bank. We get 600 locations. And super regional, in their branches, they've got branch employees that are cross-trained across all their product sets, but they're pretty -- they've got high points and low points in the day, beginning of the day, launch where they get waves. Otherwise, there's many of those hours are sitting idle. So being able to go do campaigns, TCPA compliant, being able to get those calls then routed back into that branch and essentially make those branch employees in their downtown contact center agents, adding all the capability that used to be simply reserved for a dedicated contact center, outbound, inbound contact center, drastically changes. Now those now weren't contact center agents 2 years ago. Now they're contact center agents.

Yes. Well, that's one of the things that really excites me about this and Vlad and Finch both talked about the informal contact center use case.

100%.

Right? And so by building more automation in, by building more AI in, you can take capabilities that were historically reserved for formal contact centers and deliver them to schools and things like that, right? And so...

About that opportunity. 100 contact center agents to now 2,600. Yes, totally different opportunity.

Yes. And so how are you seeing that, Joe, the informal use case? Because you've got a pretty wide mix of customers, big and small.

Yes. So like we're seeing it from all over the place. But to your point, like schools, when we're looking at like strategic verticals and looking at our government facilities or health care. Health care is an easy use case. Finserv is an easy use case. And there's low-hanging fruit almost across every business. But some of the stuff that I'm seeing of just within large government or large school districts of we have a demographic that has 50 different dialects as they speak. And we have someone that has to try to answer that call. And you go through that, it's a painful process.

If you do that without AI, though.

But you can't, right? So you're using translation services, a horrible experience, you finally get through it and they call the wrong place, they need to get to the lunch lady. And you got to transfer that call and they have to go through that experience again. Like just -- there's so many use cases that are just popping up of like automation and how can you be efficient and provide that better use case. It's -- every business has an opportunity.

And it's really just sitting down and saying like where are your pain points. But again, going back as a leadership perspective within these organizations, this data is now consumable. You can understand what it's doing. You have a dashboard to your business that you never had before. And so this becomes a really critical piece of data that's going to continue to be fine-tuned and you're going to continue to adjust.

Yes. And so to me, that blending of UC, CC and for that informal contact center takes what -- when you think back to the UC space a few years ago, we were friend in the commodity, right? And now there's just a lot more value built into that, not just for the contact center agents but for employees. And so now we're pivoting back to value-driven selling versus just who's got the cheapest product, right?

Yes. It's all about value, right? And it's easy to equate the value. And again, it doesn't take a robust project to start. It doesn't take a large PSO. It's just understanding like how do you define success? What's the criteria? Let's start small. But once that inertia momentum starts going, that crawl, walk, run attitude, like off you go.

Yes. The other trend that I want to touch on, and it was one of the first things Vlad brought up is the voice renaissance that's going on, right? And so I've read a lot of stuff in the media voice is going away. And when you think about just the way you interact with brands, a lot of what you do initially is self-service, but then somewhere along the lines to kick back the voice. I actually think that just from just a usability standpoint, voice is the interface we're all built with or born with, right? And so we don't talk to things today because the interface because the experience has been kind of bad. But now with these Agentic tools, it's gotten so much better, right? And so...

And there's a preference to talk to bots...

So what's your thoughts on the whole concept of the voice renaissance coming?

Yes. I think just in general, it's not going anywhere. It's just becoming more robust. These tools that are layering on, on top of these voice platforms like what we're seeing here is just giving you so much more capability that you need those interactions. And if you want a human in the loop, then you have a human in the loop. And if the customer prefers a bot interaction, then we have a bot interaction. And it's really about meeting the customer where they're at in their journey, and understanding like the tools can adapt to where you're at. But I think Mike will agree is that like there's not one use case that's like exactly the same. Every business is different, and they all have different initiatives, and they're all being applied differently.

I'll give you an internal use case. We've got 30-plus years of data on our customers. Like I said, we've got an expectation archive of every decision they've made, maybe even from CIO to CIO. We've got lots of trouble ticket data. We've got thousands of RFPs and pricing requests that we've done. We've got matrices comparing actual customer sentiment requirements against the marketplace. So one of our challenges is like how do we get that data out in front of customers faster and how do we allow them to learn from their peers.

Well, without the voice, we've now fully integrated all the voice capability, transcription recording. We've built custom GPTs that are referencing our data set, prior work product, prior proposals. We're then matching that sentiment analysis in real time. So I can say I've had 6 calls with Vlad. Vlad has prioritized through his sentiment, these 5 or 6 things. He's mentioned it multiple times. There's inflection in his voice. He's very excited about it. He's talked about his team and the benefits of the organization.

But here's what Vlad didn't do. In other organizations in his vertical and market segment and size that have had the same kinds of requirements that he's saying he had, he didn't mention these 3 things, but all of his peers did, star, you might want to ask Vlad if these are important to his organizations or make sure that they're scoped and price, so you can give him the alternative approach to what he's already thinking about. So just that without that sentiment, without the voice, without the transcription service, you lose something, right? You just lose something.

Well, the other thing, too, with the AI now, voice historically has been dark data. Companies really had no ability to do any kind of analytics on it, unless they had a human manually transcribe things, and you did that in health care and things. But for the most part, your retailer wouldn't transcribe every inbound customer call, right? But now you can.

Well, to your point, it's like you're only as good as your last engagement, and there was an awful lot of manual effort that went into creating those documents, sourcing the last best conversation or best project that you did. So a byproduct of all this additional productivity and client value is efficiency. It just goes faster.

All right. So let's say we've convinced everybody that the market is going to be there, mostly of voice renaissance. And now let's talk about RingCentral specifically, right? And how do you see them positioned right now? And how -- and this unified stack that they've built with workforce management, engagement management, quality management, UC, CC together, how much does that matter?

Yes. It matters enormously. I mean having access to the data and the insights across the platform is critical. I think where we've appreciated Ring's evolution is they're not just an innovator, but they're a collaborator. It allows us and even the examples that I've given today, it's like we started in one place, and we're able to grow use case by use case and bring it to them. We had dinner with Joe last night. I mean, he gave a great example with AIR. Once we get to the point we can start going, hey, customers like you who tune their AI receptionist in this way will start to increase customer set, decrease call drops, they more effectively route for some outcome across industry. Those data and insights across a unified platform are really, really valuable to customers.

Yes. I think what we're seeing is...

I use the word Frankenstein back there.

Yes. That's where I was going to go with this is there's a lot of start-ups that are just popping into the market, and they have like all this whizbang tools, and it looks really elegant. But like understanding architecture is the most important thing. And that's kind of where we start with the customers. And we have customers that come to us and say, "Hey, our C-suite bought this AI tool. Can you help us put it in?" No. Like understanding the architecture, understanding a platform, how there's different data sets that can be inherent in that platform.

And we talk about it all the time is it doesn't seem to be a good strategy to build a Frankenstein, just bolt-on technologies and bolt-on technologies and everybody's disparage AI tools. You need a singular platform that's processing this. And that goes back to the conversation why voice is so important. But the platform and the innovation that's happening here, the acquisition of the WFM, the robust launch of RCX, the evolution of RingSense, like just even for where it came out, it wasn't that long ago and look what we're looking at today.

Agentic tools and agentic tools embedded within the platform are a significant strategic opportunity. And that's what's transforming our industry right now. And so the portfolio that they have, the go-to-market approach that they have and they can clearly identify it. Oh, by the way, it works and RingCentral has been known for innovation and execution. They're just really well positioned in the market over pretty much everybody else in the Magic Quadrant is still trying to figure it out.

Yes. And it's something for your investors to think about, too, because you're going to hear a lot of the same rhetoric from a lot of the different companies in the space ask them, right, that who their WFM is from, who their quality management from. The expression I've used is good data leads to good insights, right? And we know that.

And -- but silos of data lead to fragmented insights. And so if you're partnering in this area and this you Frankenstein this system together, you're not getting the value of that unified data set, and that is going to give you fragmented insights. And I think that's really -- I think that's going to be one of the next big changes in this industry to see. I think a lot of the contact center pure plays have largely relied on partnerships for a lot of their kind of adjacent functions. And I think that winds up becoming Achilles heel down the road.

Yes. And they're missing some core functionality just again in...

So when you think about -- like you work with a number of companies. And when you -- and I'm sure you hear this, we have this AI, we have that AI. How do you really evaluate the quality of one AI versus another AI?

A little bit of trial and error along the way. I mean, luckily, we've gotten to see across 4,000 customers and lots of both deployments that have gone really well and deployments that haven't gone so well. I mean we're engaged in the community as well. So we're pulling on each other's here every once in a while saying, "Hey, how did this work? Did you -- have you deployed the solution? What do you think?" But it really starts at the beginning, understanding the customers' requirements, documenting and putting on paper, establishing KPIs for what they've defined as success, understanding where they are at current state, really processing through different approaches that might be available to them.

By the way, do nothing is an approach that we should talk about the strengths and weaknesses to so we can establish that as not the path forward right out of the gate. So we just believe assumptions drive conclusions. So if we can document really good assumptions, then that will help our job when we go out to this vast marketplace. And again, there's more ways to deploy IT today than there were 6 months, 12 months ago. So really documentation, conversations, stakeholder engagement, making sure you got it document as best as you can.

What was the question again?

Well, just when you -- as you deal with all these different companies, how are you trying to evaluate one vendor is the ad versus another? Like how do you actually should demonstrate that it's better. And I'll give you just a data point from a survey I did. I asked people like, would you switch vendors if they had demonstrated better AI and like over 80% said yes. But getting to that point where you can demonstrate it is difficult, right?

Yes, getting to the point where you -- it's really kind of what Mike said is like the devils in the details. And so discovery, discovery, discovery, like our job and our business has transformed to be considerably more consultative than it was turning a screw driver and putting in a solution and giving you training. And so it's really just understanding of like what do you want to achieve, how do you document it and how do we define success. But we're seeing a ton of failure across the market in general.

I think like the latest Gartner report said there was like 90% failure rate of Agentic AI deployments because they're not platform-based. And you have to go standardize on an LLM or you have to go standardize on a speech-to-text engine. And you hear that in your sales process, but the customers are so wowed by the art of AI that when you get into the devil and the details later in the process, it's kind of like, oh, -- what do you mean? I got to have them. But that's where some of these platforms are really kind of taking over, and that's why RingCentral is really well positioned.

All right. We got 2 minutes left. So one question left for each. ESPNs sit start and cut, right? And so if you think about that from a RingCentral perspective, what are they doing well, right? And let's just do sit and start, I guess. So where are we and what would you like to see them do more of? And we'll start with you.

Yes, sure. I think they're hunting in the right direction on all of the new product releases. I think that's really thoughtful. It's really well done. I was really impressed with the presentations from this morning. I think you've gotten voice of customer in your product road map and the things that you're seeing individually in your technology stack, we're hearing across our customer base. So I think they're listening to their customers extraordinarily well and innovating in the right place.

Yes. I think that's -- where you're seeing execution, right? And so execution, there's a message here. It's not just marketing fluff, like these are real business use cases. These are real customers are here. This is stuff that is really in production. There's a good part of even those that are in the Magic Quadrant that have a lot of fluff and they can't have these stories. And so I think what are they doing really well is they understand the market. They're executing very well.

But I think also on the back end of like what it means for us as a partner, what Akshay and Brannon and the whole team is doing of like the alignment and how we're sharing best practices and saying, I just had this crazy engagement. You'll never believe what they told me, and just sharing that and just like -- and having more stories because all this stuff is coming to you so new. And you have a lot of brilliant minds out there that are running their business, but they all have a different perspective and they all have different needs. And these use cases are just -- some of them are just mind blowing.

Yes. And not to pick on Gartner. I think that MQ needs a bit of a rewrite though because it doesn't take into account a lot of the emerging technologies. I do think -- and again, from an investment thesis perspective, this industry is, like I said, largely lived on replacement of on-prem devices, for which there's still a lot of, right? I mean that alone is a pretty massive TAM. But what I find interesting about this market is for the first time really in my career, communications is being looked at as something that can really, really transform a company, right?

It's not just pick up the phone and answer it. It's become more proactive, be able to anticipate customer needs better, be able to personalize better, right? And so historically, when we just had agents just answering inbound calls, they didn't have the data to do that. Now there's so much data with which to look at. The hard part is just trying to figure out what it is you want to look at. And I think the opportunity for Ring and actually, for the partners to me has just never been better.

Yes. It's a great opportunity, and there's a lot of momentum ahead.

Well, dinners on you. All right. We are at zeros here. We are. And so a round of applause for Joe and Mike here.

Thank you, Zeus. Masterfully done as always. Michael and Joe, thanks to you as well. I think you're seeing a theme here. I think what's interesting is when you get the customer validation and the partner validation, it sort of creates this network effect where you've got 2 parties now advocating for your products. And you take that with the engineering scale and product scale that -- which we're developing and you multiply that with the 16,000 partners that we have, the possibilities are endless.

Now earlier in my presentation, I talked about the global service providers and the great acceleration and momentum that we're seeing in that area and Homayoun will be on shortly. And joining him will be Jeremy, who is the Senior Vice President of Customer Experience and Operations at Cox Communications, our newest global services provider. So please welcome Homayoun first. Thank you.

Okay. Hello, everybody, and I'm told that I have 15 minutes, so I'll try to wrap it up. Thank you for being here. It's an exciting day for us for you to be here at this event and everyone who's maybe listening to us or watching remotely. So first and foremost, let me just explain global service providers, there are thousands of service providers out there. And my team and I, we have built this unique relationship and partnership with them. And this is based on the trust of working with them over 40 years. And therefore, what we have done over the time has actually helped us to be here. There is no one else that can actually build a partnership with service providers without actually selling them a product. It's one thing to go and sell product.

But here, what we're doing is a true partnership. It's a partnership that we both are putting the best that we have to make this a huge success. You heard from the earnings, you heard from Vlad, Kira and Vaibhav. The service providers growth is double digit. So in our industry, in this industry of UCaaS, and keep in mind, they have not launched any of our NPIs. Double-digit growth in UCaaS, where market is not growing in double digit. Now of course, starting now, as you heard, with one of our partners, AT&T, they have launched RCX, they have launched AIR and they have launched ACE. So this is huge.

We're going to repeat the same thing and continue to launch the NPIs with the 15 service providers, and we are expanding and adding more service providers coming up in the future. Now I have the pleasure of having one of our latest partner that joined us at the beginning of this year, launched the product. So I'm going to ask Jeremy to join me on stage, and I'm going to play a video that they actually put together for their market and its advertising that they have been running since we launched. So with that, let's watch the video.

[Presentation]

I love that commercial for you guys.

So Jeremy, thank you for being here. And as you all know, Cox Communication is a trusted name, been around. And I'm sure later on, you can ask questions. Of course, one of the things that is in industry, there's a merger going on with Charter. Of course, we cannot ask any questions regarding that. But the combined company would be the largest MSO cable company in the world.

With that, perhaps an introduction, Jeremy.

Thank you, Homayoun. And just a quick intro over 35 years. So Jeremy Bye, Senior Vice President of our Customer Experience and Operations, but covered really all operations for our commercial business unit for Cox Communications. I've been in the industry for over 35 years, started out with Verizon for over a decade and have been with Cox for over 20 years now, covering from sales -- sales operations, sales engineering to network engineering, operation, field services, construction, really have done it all across our business at Cox. And been there from the beginning when we were really just out of the gate to now we're over a $3.5 billion business unit sitting within our Cox Communications unit as well. Always overperform the industry. I would say we're always the top-performing commercial unit across all MSOs, overperforming in our market share in all of those areas. So we're really looking forward to grow together with RingCentral.

Yes. 100%. So I have 4 questions for Jeremy, which I assume we're thinking what questions you might have. So we'll see if we can match your questions. And of course, you guys can ask questions later. First one is what value RingCentral has brought to Cox with this partnership?

So great question. I think for us, first, I'll just give you a broader picture of where we started off. We launched in Q1 of this year, and RingCentral really fit a real strategic need within our product portfolio. I have to say -- so I am also responsible for our -- all of our products in development and life cycle for our commercial division as well. So one, we've got a huge base of customers. We're almost 400,000 customers in our base. So we are differentiated by our kind of position with our customers as their trusted technology partner. That's really what differentiates us in the business and why we have overperformed and have such a large base of customers.

And I think what we felt we really needed was to have a true best-in-class. And we've launched UCaaS. We're hot on our heels. We're going to launch our -- the CCaaS CX in here early next year. But we really needed that best-in-class solution, which is an omnichannel solution for our customers, which is really next-generation communications and collaboration -- cloud collaboration service. So that was the kind of big picture view as the big value point for Cox business.

I think I also wanted to start off with a quick -- just story because our sales folks are always lobbying the product division, hey, we need this, we need that. They have -- there's been a long-term pent-up demand, I would say, to bring Ring on within our product portfolio. We're very selective with our partners. And just to start off, we've been incredibly happy with the level of cooperation, collaboration and partnership with Ring, so to start that off. To kick off earlier this year, we have over 1,000 sales professionals. And I've never seen the level of excitement that we had from our sales folks, like we literally had people, and this is not an exaggeration, skipping down the hallway at the level of excitement that they had to go sell this into their base, but also drive net new customers.

So to go back to our big rocks of the value drivers for us, one, we've seen it really help us on our net new growth. It's been a great driver for us to drive net new customers. We already had a really sizable base. But to drive net new, I think, was a fantastic driver for us. It really has been our biggest focus as we have started off for the first several quarters. We're also seeing a lot of strong demand from our base of customers who really are sitting on a lot of our legacy voice platforms today. And they have this need not only for a unified collab solution that sits in the cloud, but the demand for a lot of the AI features are high. And I think even from our small business customers, our base is from small business through a lot of medium, more tech heavy or you can go from law firms to regional banks to very large regional hospital networks or universities, local, regional, state government or some of our biggest customers down to school systems. So a lot of broad coverage there.

But the ability to integrate and have the really, I think, mature back-end ecosystem to plug into our customers' existing CRM and their own management and IT ecosystem is a tremendous benefit. It makes it very easy for us to sell in. The customer experience has been great. So that's what I see a lot of it is the demand has really helped us overall. Another area that is me responsible for all of our operations, it has streamlined our operations internally. So we have had some very complex voice platforms that are our legacy platforms that we sell today.

We have been able to shrink our onboarding and installation interval. And if you haven't seen it already, we can turn up customers on same day and allow customers to plug and play into their existing handsets and units, which is a really easy and fast turn up. Customer self-service onboarding. A lot -- we used to take probably 1 to 2 weeks is the fastest for some of our older legacy platforms. We can do that in days now, and that's a great selling point for our small business, especially. So a lot of good.

That's fantastic. So with the launch of AI, I think the question that I think the audience would have is that how do you see expectation for your financial as you continue to expand your financial stability, enhancing it as well as differentiation that the market is expecting from Cox?

I mean, for us, I can't get into too much of our financials. But I would say we're very happy with our margins on the product where we are -- not only can be very competitive in the market. So we're driving value for our customers really, we can drive this at a price point that's more competitive than some of our legacy platforms. So there's a value there, not -- customers are getting more for their money, which I think is a great story overall. I think for us, it's about the combination of the 2. It's the net new growth that we can drive into our current markets and convince pull customers over, but it's also our ability to sell into our large base. So I think that's the biggest drivers for the value for us. But hopefully, that...

Yes, for sure. So just for the audience to know, Cox Enterprise has been around for a very long time. They have family-owned and there are many divisions within Cox. Of course, the ones that we are right now talking about is Cox Communication. But anyone who has been a customer of Cox Communication, and I used to be one myself, that really the customer first and customer satisfaction is super critical to the Cox family. And that has been the trend for all of the Cox services up to this point, the question of as you launch more AI with the same level of service with the customer first, it's going to continue. Is this a culture that you guys are going to take it and enhance it and move it forward?

Well, one, thank you, Homayoun, for saying that. I think me being our leader of customer experience, I am fully ingrained in that. It's been a long-term journey. And I think it's been mentioned a few times about voice renaissance. I would say a lot of what I'm seeing, especially with our AI features, it's a customer experience renaissance because I don't know about you, but I -- maybe chatbots are great, but they are hard to work with. I mean I can type fast with my thumbs, but I can speak a lot faster than I can type with my thumbs on my phone. And I think our ability to get to the answer faster. I love some of the points. I'm just kind of driving it off of some of the great stuff that John shared earlier. But lead capture and a lot of those areas, I think, are going to really resonate with our customers.

But back to just some of the customer experience points. I think for us, I will take it more from a global service provider perspective. We've been able to improve our customer experience from -- over our legacy products by leveraging RingCentral. And remember, this is from a service provider perspective. Our automation and our platforms, we have really large and pretty significant investments in our legacy platforms and automation. But the integration that we were able to really successfully deploy has helped us go faster. So I also own all of our national fulfillment organization, which is a very large employee FTE-heavy organization. I see efficiencies in my own organization with the speed that I've been able to fulfill our services with Ring versus some of our legacy voice products.

So I'm driving efficiency within my own organization, so I can drive my own ability to maintain our margins and speed our services for our customers. A lot of great positive feedback from our customers on the simplicity, the self-serve kind of tutorials and the setup, not only a lot of great support. I mean we've got great professional support for onboarding for our customers from Ring Direct. But the self-serve aspects, I think, are really next level and have helped us I think, made a strategic transformation in our own kind of leap forward in our voice portfolio. It's full collab, so don't get me wrong on that. But the ability to serve our customers better and more efficiently has been a great point that I've seen for our own operations.

And since we have 3 minutes, last question as far as what expectation do you have for partners such as RingCentral as you continue moving forward with your vision and the strategy?

So great question. I think for us, one, we being a trusted service provider, we take very seriously. We invest heavily in our Infosec area. And I would say, responsible use of AI. We're integrating AI through a lot of our own and we've heard from third parties, we may be kind of actually further ahead than almost all the other MSOs. But we had to at our scale, like we had to be early adopters. We moved quickly. And hopefully, we'll bring that to the new business as well.

But I think making sure we've seen really tight and I would say, very collaborative work with our Infosec teams to make sure we're secure, keep everything private. We cover a lot of industries, including health care and large regional banks. And so you have to make sure everything you're doing is secure. But one, we've been very happy. My CISO and I are good friends, and she wants to make sure we keep it all of that way. So...

Wonderful.

Have seen really good stuff there.

Thank you. I appreciate it. Thank you for your partnership. Thanks for being here.

And so we're going to do a quick Q&A. I'm, of course, I forget my boss, right? That's a good idea. But -- so we are running a little bit over time. So if we're going to have time for about 2 or 3 questions. Please do for the webcast -- people watching on the webcast and for the replay, do state your name and where you're from, if you don't mind. If you forget to state your name, we're going to assume you were skipping work just because you couldn't miss the RingCentral event.

All right. Can we come up here to Tim, please?

Great sessions. Incredible improvement to the products, incredible ROIC for the customers, and it seems like it's relatively easy to provision. So when do we really get a real acceleration of adoption of these products? What does it kind of take to do so?

Yes. These products are going at speed as is. Again, triple-digit growth sequentially is -- I don't know if there is a quadruple there, but this is as fast as I've seen. But we have a very large ship to accelerate here, no turnaround, just accelerate. And these new products are already contributing multiple points of growth. And obviously, this community, certainly, everyone inside is laser focused as to when do we reaccelerate growth overall. We are extremely well aware of that. We do -- I don't know if we're doing all we can, but certainly, we're doing all we can think of to make that happen. It's just a matter of time for AIR and the rest of the A and RingCX and WEM and all of that for all of this to elevate the entire ship, it will happen eventually, yes.

And I think I already mentioned and I want to make sure that it was heard. Our next goal, our goal for new products for this year was $100 million in ARR. We will exceed that. Our next goal is 10% of revenue overall as a company. With keeping in mind that the company is growing, okay? And we believe that we can accomplish this within 2 years at this point. So once we get there, we will set our next goal. But these new initiatives, they seem they feel to me that they have every potential of becoming multibillion-dollar businesses. And you've heard from analysts and you've heard from partners, there is just so much ahead of us, so much still left to be conquered. And we really feel we have the portfolio and the team to deliver. But having said all of that, just please be patient a little bit.

Ryan MacWilliams from Wells Fargo. For AI receptionists, it seems like a logical upsell for RingCentral. For the 5,800 AIR customers you already have, how should we think about what percentage of them are upsell versus net new customers for Ring? And then maybe for Vaibhav as well, how should we think about balancing profitability in the years ahead with increased product velocity?

Yes. Thank you, Ryan, for the question. So in terms of the composition of the new products, particularly AIR, I would say it's around 50-50, wherein half of it is going into the base. The other half is kind of going along with the new sales that we are making. So every new sale of RingCX that we are making, we offer AIR to our customers. So half of that is coming through that. I guess in terms of the trade-off between near-term profitability and long-term growth, look, we'll continue to expand margins. We now have a track record of expanding margins over the last 4 to 5 years.

Over the last couple of years, we've been expanding margins at 100 to 200 basis points. I think the trajectory will go in the upper right. By how much, we will provide official guidance in February because we are making investments in these new products, both on the product side as well as the GTM side. Because as Vlad indicated in his presentation in that bubble chart, the opportunity is very large. So we want to be thoughtful about making the right investments optimized for long-term growth while we are expanding margins.

Andrew King from Rosenblatt Securities. Just as we've seen AI adoption increase, we've seen a real resurgence of the SMB market. Can you just talk to any habits and specifically buying habits that you're seeing within the SMB? And then also off of that, in the recent couple of quarters, we've sort of seen the shine come off of Microsoft. Can you just talk to any attach rate differences that we've seen there in the last few quarters?

Our experience with the SMB is very much in line with what you've talked about in terms of the trends. Look, I think SMBs are changing in how they communicate with the world. We're seeing new modalities. Vlad alluded to SMS as a major adoption point. We're seeing a lot of that happen in our base. What we're also observing is that they're very, very deeply interested in our multiproduct portfolio, including AI. These SMB sales tend to be super fast in terms of the close rates.

Conventional thinking says SMBs are very cost focused and maybe they would be reticent to spend more, but we're actually seeing the opposite where our deal sizes are increasing as are the deals themselves on the SMB side of the house. Microsoft, we continue to see through our direct routing, we continue to see healthy attach rates on the Microsoft side of the house. They're certainly a key partner of ours. So we have not seen any differences on that front.

Yes. We get this SMB question fairly regularly, Certainly, every time there is any sort of stress in the economy overall. Look, core belief is the fact, small business is a backbone of this economy. 40% of economy is small business, and that's a worldwide phenomenon. They are the most resilient because why? There's nowhere else to go. If they are out of business, they don't get to feed their families, and that's a good incentive. Small business is a Rule of 40 business for us and is growing in double digits. For that matter, GSPs is also a Rule of 40 business for RingCentral and is also growing in double digits. Interestingly enough, it's not 100% by a long shot.

But I would say an easy majority, maybe a super majority, if you will, of GSP sales are also into small businesses in its own right. So we're taking this very, very seriously. We are by no means stepping away from enterprise. But I have to say with our new product portfolio, AIR, et cetera, many people from the panel have noted ease of use, ease of deployment, and it's a game changer for small business because as people already noted, there is simply no support. It is self-service. It is the reception that's getting to configure the auto receptionist. So I love that quote. I'm going to use it liberally moving forward. So yes, hopefully, that answers.

Peter Levine with Evercore. I mean 2 questions. One is if you think about some of the conversations with your customers that we heard, there's essentially there's new buyers within the organization buying this technology, but there's also a sense from IT from what I see that there's consolidation. You're buying everything from one vendor. So from your perspective, thinking about accelerating growth, expanding portfolio, like what is the go-to-market change in terms of who you're selling into? Like how do you kind of -- if you think about the AI, like does that change who the buyer is for you guys? And how are you kind of evolving your sales cycle or your internal reps for that?

And then one for can you maybe help us understand the pricing model for AI? I know ACE, AIR is, I think, more usage and then AVA. Just walk us through like how you're pricing it, what the pushback has been from customers, how you've evolved and maybe over the next 12 to 24 months, like where do you see the pricing model for AI go?

Let me -- Peter, let me try to take this one at a time. So first is the buyer. The buyer is still largely IT from the CIO to the next level. And you've heard from some customers here and partners how they think of buying solutions like ours today. And what's changing is how they engage with the rest of the organization during the buying process. So for example, there are roles now with an organization, especially larger organizations that have transformation officers.

And the CIO will now work very closely with the transformation officer because as I described in my examples and you heard from John and the customers, they're perceiving now and adopting RingCentral and our solutions not only to enable in a traditional way communication, but to enable a change in business processes. And whether this is a small business like Access Mental Health, where they need to enable a receptionist and the receptionist has to be comfortable, which actually has always been the case with the phone system. Because the receptionist has always been a major buyer in businesses where receptions have key roles.

But across the organization, the fact that now from a business intelligence perspective, a business person needs to evaluate whether this is helpful or not, and this is helpful. And so there's actually more pressure on the CIOs to include the rest of the organization in the consideration process. But also the speed of deployment is key. So during these buy decisions, it's not like, oh my God, I'm going to buy this and now it's going to take me whatever amount of time to deploy it. I want to buy it. I want to be -- enable my communication needs, and I need to have it be providing insights, transformation, and I want the results tomorrow. So that's that.

In terms of pricing, so AIR is priced at -- for $100 based -- you get a package and $100 -- I'm sorry, 100 minutes worth of AIR with that and the base price is $39 today. And it comes in multiple forms. If you buy it as a stand-alone product, which is available today, you can attach it to any other PBX or any other phone system, then it's $59 or you can just buy a single package of phone system and AIR and that's $69. All of that is available on our website. AVA today is -- it's a Copilot assist technology. In early availability, it's available as part of the product. So you get AVA with the product. We're not charging anything extra for AVA today, and because we view that as sort of as an essential part of making products more usable, driving adoption, driving discoverability, sort of driving user acceptance and delight in its basic form.

Now AVA as an agent assist in contact center, that is being attached to ACX product, and that I believe is $25. Am I right? Jim is saying yes, $25, okay? And there's a number of modules like that, that range between $25 and $15. A combination package of AVA in contact center scenario was ACE becomes something that helps you manage quality, and you can buy that on a stand-alone basis for contact center, you can attach it at $30. Am I getting the price right? Yes, approximately. Okay, $30 or $35. And then WEM package today together consists of a number of modules as we're rolling out new tiers in -- and a little more intricate, you can buy all of these as bundles.

So bundles that attach themselves on a stand-alone basis or a full tier, as we call it, so that, for example, you can buy RingCX score at $65 and the price will go up and the more -- the higher the price, the more you get in the package of these AVAs and ACEs attached. So basically, you can have an a la carte or you can have it as a full package. Together, it will go from $65, for example, for CX to $145.

So I just wanted to add. So look, we've got lots of products. Many of them are new. Pricing is evolving. Kudos to care for remembering all of the details. But I think the big picture I want people to understand is this. Firstly, vast majority of what we do, people are willing to pay for. Therefore, we are planning to charge for it. Pricing is evolving. A question we get asked regularly, especially from the investment community, is our take on seat-based pricing versus outcome-based pricing. And I maybe want to address that here. So our core products are seat-based. Our new products are combination. They are not seat-based but account-based with overage. We think it's a healthy model. It's a model that people are used to because that is how in our industry, toll-free minutes were consumed for decades, and it seems to be resonating.

I also want to point out that when we're counting all of these tens of dollars, we are in the end, allowing people to save thousands -- hundreds of thousands, and we've heard today millions of dollars by via investments of dozens or hundreds of dollars. So that's a game changer. So that, I think, is a big picture. As things go on and the industry matures, I think pricing models will normalize. And again, just given how much savings we are allowing people to experience and enjoy with our offerings, we do feel or at least I feel that even our pricing itself is upwardly mobile.

I'd like to add something from a different angle. You heard from Jeremy how selective service providers are in picking partners. It takes anywhere from 9 to 12 months to sign a contract with a service provider, just like an enterprise because they are an enterprise that you're getting into. But once you get through that contract, which is very complicated, and that's why I reach out and ask help from John and his team on the legal side because you got to have expertise on how to be able to get to a point that you sign that contract.

But once you're there, then now launching new product, it becomes that much easier because if you do not have a contract and they don't trust the vendors or they don't easily bring you in. But once you are brought in, you are in for good, assuming that you deliver on what you promise. So I think that's the other way to look at it, 15 partners, now we're launching NPIs with them, which is something we haven't done until now. And this is going to be the new vector of growth because that contract is in place.

All right. Thank you, everybody. We hope you enjoy the day. We're really proud of being able to talk about how we're leading the voice renaissance here with our AI innovation. So thank you all for coming. I believe there is going to be some demos in the back as well as maybe even some grab-and-go food. So thank you.

I just want to add, again, I just want to double down. thank you. So thank you all for coming for sure. Huge thank you to all of the panelists for taking time out of their busy schedules. A number of them had to actually travel here. So deeply appreciated. I can say very, very sincerely, I have personally learned a lot from those sessions. It's obviously extremely heartwarming to see users and partners and satisfied users and partners. But I don't know, my takeaway, we should do it more often. We don't need to wait another 25 years. We will learn a lot. So again, thank you, and enjoy the rest of the day.

Good afternoon, and welcome to the RingCentral Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Steven Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Third Quarter 2025 Earnings Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and Chief Operating Officer; and Vaibhav Agarwal, CFO.

Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call.

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 presentation, which you can find in the financial results section at ir.ringcentral.com.

With that, I'll turn the call over to Vlad.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining our third quarter earnings conference call. Let me begin by welcoming the talented people from community WFM to the RingCentral family. We have now added AI-driven workforce engagement management capabilities that strengthen our RingCX contact center solution. This also lays the foundation for a new stand-alone product line. We delivered another strong quarter in Q3 with subscription revenue growth at 6% year-over-year. These results reflect continued execution in our core business coupled with strong progress from our AI-led new product portfolio.

In fact, our pure AI ARR is growing in strong double-digit rate sequentially. While also making meaningful contributions to overall ARR from these AI-enabled customers. Importantly, we are also delivering expanding margins meaningfully lower stock-based compensation and generating strong free cash flows. This strong performance is rooted in our leadership in voice the most mission-critical mode of communication for businesses.

While voice continues to be an important means of intercompany communications, it is critical for consumers engaging with businesses or B2C. This is particularly true in our top verticals, such as health care, financial services, retail and professional services.

Revenue from these verticals represent over half of our entire business. As the -- proof point, overall voice usage on our platform remains robust and is growing in double digits. In short, voice remains a critical modality for business communications as Cisco's result in loss revenues, missed opportunities or worse.

RingCentral has built a $2.5 billion business from ground up by providing a robust global secure and reliable voice first cloud communications platform that is trusted by over copper million businesses with stance of billions of minutes of annual use.

RingCentral has been at the forefront of moving business communications to the cloud. If you think about our initial offering as RingCentral 1.0, it was about enabling digital transformation for businesses worldwide by transitioning their business communications from on-prem to the cloud. By leveraging our voice first, global secure and reliable cloud business communications platform, we have built a strong leadership position over the last 2 decades. This remains to be the case to this day.

In the next phase of our journey, which I called RingCentral 2.0, we built on this foundation to become a multiproduct platform provider. Many customers prefer to purchase both their business communications and contact center solutions from the same vendor. Increasingly, organizations also need seamless interaction between contact center agents and other company employees to resolve customer increase. RingCentral has purpose-built solutions to meet these needs.

There are situations where consumer inquiries are handled by employees who are not dedicated contact center agents. To support these scenarios, we enhanced RingCX with coke analytics and other contact center-like functions. This has been extremely well received with over 1/3 of our overall inbound traffic now being consumed by such informal contact center use.

As for dedicated customer engagement needs, we've introduced our own native AI first contact center solution, RingCX, it is a fully integrated offering that intuitive to use, easy to deploy and is infused with AI from the start. This product has been well received with strong traction and double-digit growth.

And now we are entering the era of RingCentral 3.0. We are eating rapidly with the majority of our $0.25 billion annual spend on innovation is now being dedicated to our new AI-led products. We are now expanding and extending our platform by adding a host of voice first AI agents as well as infusing AI across our entire product portfolio for a better customer experience and engagement.

Why are we well positioned to win in this new AI era? RingCentral is the first point of contact between businesses and their consumers. This puts us in a unique position to deploy AI agents from the get-go, thus giving us a natural advantage as we lead the shift to intelligent business communications via a genetic voice AI.

To double-click our genetic AI product portfolio covers every phase of the customer journey before, during and after an interaction. Before the interaction, our AI Receptionist or AIR can -- inbound calls, route them intelligently and automate routine interactions before they reach a humor. Since launch, AIR has seen strong early traction and is growing rapidly.

For during the interaction, today, we announced our new AI Virtual Assistant or AIVA. AIVA is an AI agent that helps employees and agents in real time, servicing insights, summarizing key points and automating tasks to enhance productivity. And for -- after the conversation, our AI Conversation Exert or ACE, formerly known as RingSense, analyzes calls, extract insights and provide actionable intelligence, is growing at a healthy double-digit pace and is helping customers understand and improve their customer experiences.

Together, these AI-driven solutions AIR, AIVA and ACE complement Ragic and RingCX and are already contributing meaningfully to growth. We're investing significantly with over 50% of our approximately $250 million R&D spend now focused on our new product portfolio. And we remain on track to exceed the $100 million in ARR from new products by the end of 2025.

Adoption of our new AI-led products is broad-based across various customer cohorts from small businesses to large enterprises. Our GST partners are also beginning to sell these new offerings, expanding our reach and accelerating adoption. Importantly, we have recently expanded our partnership with AT&T which began offering air to their customers, highlighting our shared commitment to intelligent communications experiences. Our small business and GSP businesses together now represent over $1 billion in ARR and continue to grow in double digits. With strong unit economics and increasing adoption of our AI portfolio.

In summary, we are executing well across the board. Our core voice platform remains durable and mission-critical, and we are expanding into new high-growth markets through RingCX and our AI-led product suite. We've evolved from a UCaaS leader into a multiproduct AI-powered communications platform with multiple growth levers. We are excited about the road ahead as we enter the era of genetic voice AI, driving smarter, more efficient communications for our customers and sustainable profitable growth for our shareholders.

I want to thank our employees for their dedication and focus on driving innovation and our customers for trusting us to be the voice of their business. With the tenure and talented management team in place, a strong commitment to innovation and the loyal and growing customer and partner base, we are well positioned for this next phase of our AI-led evolution.

With that, I'll turn the call over to Kira to tell you more. Thank you.

Thank you, Vlad. I'm looking forward to meeting many of you at our investor product briefing on Wednesday. It's a great opportunity for you to see our AI portfolio in action.

I'll start by giving you an update on my strategic priorities. First, build upon our leadership in business voice with a genetic voice AI. As Vlad noted, RingCentral is uniquely positioned here. Voice is mission-critical, and at a -- vicious source of business intelligence. We're turning voice data into insights that elevate customer experiences, automate work and drive faster outcomes. I'm proud of how quickly we're executing against our agentic AI road map, delivering value throughout the entire conversation before, during and after.

Before the conversation, we are seeing fast adoption of RingCentral AI receptionist or AIR. Since our launch earlier this year, we now have more than 5,800 paying customers and over 80% increase quarter-over-quarter. AIR ensures businesses never miss a call or an opportunity. And today, we rolled out new features in air including bleed capture, enhanced appointment settings and contextual handover. We're thrilled to see that AIR is having a material impact on our customers' businesses.

For example, with AIR, Televera Health now answers 100% of their calls and achieved a 15% increase in monthly appointment volume was in just a few first month of deployment. This resulted in a $200,000 uplift in monthly revenue, providing meaningful ROI. During the conversation, today, we unveiled RingCentral's next-generation AI virtual assistant or.

For example, turning to logistics, a leading freight and logistics provider is saving 30 seconds to administer a call by using AI to capture real-time notes and action items from every customer interaction. This frees up their salespeople to focus on building relationships and driving new business for after the conversation, AI conversation expert or ACE, formerly known as incense unifies customer and employee conversations into 1 powerful analytics dashboard. We now have more than 4,300 customers using it up from approximately 3,600 customers, reflecting sequential solid growth.

Our customers are using it to collect their agents and improve efficiency. For example, Modest a point-of-sale cloud software company is using ACE to gain clear visibility into customer sentiment, behavior patterns and emerging trends, insights that they did not have before. ACE enables them to turn voice data into business outcomes. AIR, AVA and ACE together with our core RingCX and RingCX products create a fully integrated agentic voice AI workflow before, during and after every interaction. This is the power of our unified AI first platform.

The second priority, expand them through our multiproduct portfolio. We're seeing strong traction with RingCX. Customers value its simplicity, omnichannel flexibility, seamless integration with RingCX and a rich set of AI capabilities. As Vlad said, this product is enjoying double-digit sequential growth and makes up nearly half of our $1 million-plus TCV deals this quarter. The strong land and expand motion of IFRS 3 RingCX with RingDX is demonstrating our ability to increase our share of wallet.

A good example of an expansion deal is one of Canada's largest insurance companies who was already using RX and chose to add NCS with various AI modules. Together, these solutions are expected to improve outbound performance, reduce agent turnover and ultimately contribute to their revenue growth as they transform their contact center operations.

Today, we also announced the integration of Community WFM into our workforce engagement management suite, a major step towards in helping organizations optimize contact center performance by harnessing AI across 3 key pillars: Asian performance, customer sentiment and operational planning, we're empowering smarter more efficient operations. These capabilities are available as add-ons for the core ACX package and now included in the new CX advanced and ultra packages.

In parallel, we are expanding our core UCaaS offering. As Rod said, a meaningful portion of RingCX inbound coal minutes and SMS usage are used for customer engagement. To capitalize on this, we are introducing new paid add-ons, for enhanced coals and advanced SMS. And we're bringing together Index and these errands in 1 simple integrated package called Customer Engagement bundle. This expansion opens a new growth avenue and extend our total addressable market.

Now on to my third priority. We're harnessing AI across our organization to work smarter, move faster and do more with less. While we're using a number of third-party tools to improve efficiency across all departments, we're particularly happy with adoption and internal use of our own products within our company. We call it in Central and in Central.

Let me give you some examples. First, we were able to transition our 2,000-plus customer support agents to CX and now have deployed community WFM for Workforce Engagement management to this entire organization in just a few short weeks. With AI quality management, we're driving faster resolution through our automated coaching with nearly 100% of calls being scored. Combined with an agent and supervisors capabilities, we're reducing average candle time by 15%. In sales, ACE has improved sales rep performance and customer satisfaction. ACE is now cautious 100% of our prospect partner and customer calls in North America. This dropped sales quota attainment by 10%. These operational gains are translating into greater scalability, workforce efficiency, better customer experiences and improved margins.

In summary, our multiproduct AI strategy is working. We're delivering measurable customer value, expanding our market opportunity and improving profitability. I'm incredibly proud of our teams and excited for what's next.

With that, I'll hand it over to Vaibhav.

Thank you, Kira, and good afternoon, everyone. Q3 was another solid quarter with disciplined execution across key metrics and the 3 priorities I outlined last quarter. First, driving sustainable, profitable growth while investing in new product innovation; second, expanding margins and free cash flow through disciplined cost management. Third, executing on capital allocation strategy focused on investing in innovation, paying down debt, returning capital through share repurchases and reducing stock-based compensation and dilution. Together, these priorities are aimed at expanding free cash flow per share and positioning RingCentral for durable long-term value creation.

With that, let me turn to our third quarter performance. Starting with growth. Total revenue was $639 million, up 5% year-over-year and at the high end of our guidance. Subscription revenue grew 6% to $616 million, reflecting the durability of our core business and increasing traction from our AI-led products.

As Vlad highlighted, we have multiple growth levers across the business. We delivered continued growth in our core business with healthy new customer adds and stable over 99% monthly net retention rates. As to our AI-led new products, we are growing in strong double digits sequentially, putting us well on track to exceed $100 million in ARR by year-end.

In keeping with our philosophy of profitable growth, we drove record margins and free cash flow per share. This was made possible as we continue to drive efficiencies with hiring discipline, extended use of offshoring vendor consolidation and increasing use of AI internally.

Subscription gross margin remained strong at about 81%. Operating margin was 22.8% up 180 basis points year-over-year and above the high end of our guidance. Sales and marketing expense as a percent of revenue improved 140 basis points, driven by ongoing go-to-market efficiencies. Non-GAAP EPS increased 19% to $1.13 per diluted share.

Reducing SBC remains a key focus. Through the first 3 quarters of 2025, new share grants declined year-over-year as we are able to achieve more with less with offshoring and use of AI. As a result of this, we are updating our 2025 SBC outlook to 11% of revenue, a 350 basis points improvement year-over-year.

Our annual grants this year are expected to be about $150 million or 6% of revenue. which we expect to further improve upon in the years ahead. We expect SBC as a percent of revenue to trend lower to these levels over time as the older grants roll off. With the reduction in SBC and improved profitability, we delivered another quarter of positive GAAP operating and net income, which we expect to continue.

Moving to free cash flow. We generated $130 million of free cash flow in Q3, up 23% year-over-year. This reflects ongoing efficiency gains and disciplined working capital management. As a result, we are raising our full year free cash flow outlook again to be between $525 million and $530 million, which represents over 30% year-over-year growth and a free cash flow margin of 21%.

Lower SVC, coupled with our share repurchase program is driving a meaningful reduction in share count. We now expect fully diluted share count for 2025 to be approximately 92 million shares, returning to 2020 levels. We are optimistic of driving this further down in the years ahead. We now expect 2025 free cash flow of over $570 per share, which is an increase of about 35% year-over-year. We are delivering strong and compounding free cash flow per share and driving long-term shareholder value.

Moving to capital allocation. Following the framework I outlined earlier, year-to-date, we have paid down $275 million of debt and repurchased $200 million of stock. We also acquired community WFM which is consistent with our strategy of accelerating innovation by adding capabilities that enhance our product portfolio.

During the quarter, we expanded and extended our credit agreement. The facility now totals $1.26 billion, of which $955 million remains undrawn. This refinancing was a proactive step to address our 609 million convertible notes due in March 2026. The refinancing maintains our current leverage profile and extends all debt maturities until 2030.

Following our earlier upgrades from Fitch Ratings and Moody's, S&P has also upgraded our ratings, recognizing our improving leverage and free cash flow profile. Going forward, we remain committed to reducing gross debt to $1 billion by the end of 2026. We also view share repurchases as an attractive use of cash at current valuation levels.

In Q3, we repurchased 3.9 million shares for $117 million with $384 million remaining under the current authorization.

Moving to guidance. For the fourth quarter, we expect subscription revenue of $618 million to $626 million, total revenue of $638 million to $646 million. Non-GAAP operating margin of 22.8%, up approximately 145 basis points year-over-year. Non-GAAP EPS of $1.12 to $1.15 based on approximately 90 million fully diluted shares.

Share-based compensation range of $64 million to $69 million. As a result, we expect our full year 2025 to be subscription revenue growth year-over-year of approximately 5.5% to 6% and total revenue growth year-over-year of approximately 4.5% to 5%, operating margin at approximately 22.5%, raising non-GAAP EPS to $4.29 to $4.33 per diluted share, improving share-based compensation range to $275 million to $280 million, raising free cash flow per share to approximately $5.71 to $5.79 per diluted share based on approximately 92 million shares.

Let me conclude with 3 key takeaways. First, we delivered another quarter of profitable growth with revenue at the high end margins reaching record levels and expected annualized free cash flow growth of over 30% year-over-year. Second, we are scaling our AI-led products, which are well on track to exceed $100 million in ARR by year-end. Third, we are delivering on our capital allocation strategy. We are on track to generate well over $500 million in annual free cash flow, resulting in more than $5.70 in free cash flow, which is best in class among the peer group.

We are looking forward to meeting many of you at our investor product briefing on Wednesday at the NYSE.

With that, let me open up the call for questions.

[Operator Instructions]. Our first question today is from Kash Rangan with Goldman Sachs.

Thank you very much, Jim. This may be the last time for me on our -- earnings conference call. I want to say it's been great working with you Vlad and the team. You've been resilient, you pivoted the company hard during the downturn. We went for profitability and also steered the ship once again, not from a financial standpoint, but from a technological standpoint to be ready for the AI world ahead. We will you really well in that journey ahead, and you've been once again validating the view that you're a very resilient leader and a very resilient company.

Vlad, as you look ahead, I mean the product discussion certainly is thoughtful, but it also represents a lot of rebranding change, et cetera, et cetera, and assure the term RingCentral 3.0 being thrown about. So as you project ahead, if a customer, a large Fortune 500 customer were to buy into your vision of RingCentral 3.0 and were to implement our full family and portfolio of products under the 3.0 banner, what are the business benefits that Fortune 500 company would stand the benefit that they couldn't get with RingCentral 1.0 or 2.0. That's it for me and best wishes for the team.

Yes. Yes, firstly, thank you very much for your very kind work. And obviously, very, very sorry to understand that this might be our last call with us. However, never say never, never is a long time. So who knows? In any case, certainly wish you and your very best in this next chapter of your life.

To your question, RingSense 3.0 is a very, very big deal. It is taking voice communications that is truly the most ubiquitous most commonly used means of consumers, reaching their business providers, service providers, brands, whichever way you want to look at it and establish and contact. So when you are reaching out to your doctor, you're probably calling me may be increasingly texting, okay? Same applies to your financial adviser. Same applies to your architect -- a business service provider. Your mechanic and so forth.

And with voice as a global leader in voice and increasingly tax communications, RingCentral is uniquely positioned to deploy AI at the very onset of every consumer to business interaction. We process tens of billions of minutes on our platform annually. And billions of text messages, okay? And for each and every one of those with a genetic. And at this point, we're really pivoting hard to agent voice, we are in a great position to enhance human-to-human interactions throughout the entire life cycle of a transaction and that includes offering assistance and AI agent before a human picks up the phone. So we call it air AI receptionist, during the call, and we call it AIVA virtual assistant that, if you will, is our version of a copilot. And lastly, by far not leastly, is the expert, conversation expert, which we'll call ACE. So this is where, after a call and in a contact center use, we have -- most of the calls are being recorded and transcribed.

This gives us an opportunity to analyze or enable our customers to analyze these goals at a deeper level, understanding color intent sentiment providing all kinds of deep analytics and very importantly, feeding all of this data and knowledge right back into the cycle. So through ACE, both air and AIVA become smarter and more powerful with increased use. So this is a watershed moment. It is on par for us with creation of the cloud itself that, as you know, we had a bit to do with and we have actually pioneered use of cloud in business voice and PBX in the cloud.

And now with advent of AI and our application of identic AI to voice and text, this gives us the ability to not only move these interactions and transactions to the cloud, but to also deeply enhance the experience for both colors, which is really a population of this world as well as parties being called, which is the entire global business community. So could not be more excited

The next question is from Elizabeth Porter with Morgan Stanley.

I wanted to follow up on the strength in your global service provider partnerships. Can you speak to which products are gaining the most traction and the durability of that growth? Are the GSP contribution becoming kind of more reoccurring and predictable or are they somewhat concentrated in the new deployments. And then just as a follow-up, as does partner scale, how should we think about the revenue mix and margin implications versus the direct sales?

Great. No, great question. Look, I believe we've disclosed that our GSP business is already a bit over 10% of our revenues. I think we also disclosed that it is a tailwind for our growth overall. So that entire SP segment is growing in double digits, which is higher than a company overall. Predictability wise, it is as predictable as the rest of our business because it is SaaS. It is cloud and all recurrent revenue just like our direct business is, okay?

What we've been seeing lately is -- and we were frankly pleasantly surprised is how readily the are adopting our new product portfolio. So they started out with Ring, which was really our first major product after our original flagship RingCX product. But now what we now call the 3A, which is a AA and AC, there is definite energy with GSP picking we announced just now is that our biggest and oldest GSV partner, which is AT&T is now adopting and deploying air on their version of RingCentral. So that's a big deal, okay?

And look, it's very, very early. But given the success and learnings that we are seeing with air internally -- not internal, but in our direct business, we are quite optimistic that this will be now also will apply to AT&T and their scale as well as to a number of other service providers.

Just to add to the profitability point, we have disclosed that GSPs from a -- one of the metrics we look at is time to breakeven. And from a time to breakeven standpoint, they are under 18 months. So they -- in addition to growth, they are also demonstrating strong unit economics.

The next question is from Brian Peterson with Raymond James.

So really nice job on free cash flow again this quarter. I guess, as we think about the durability of that metric going forward, is there anything that you guys can share in terms of long-term drivers or long-term targets? Would appreciate any context there.

Yes. Thanks, Brian, for the question. This is Vaibhav. I'll address that. So thanks for the call out on the free cash flow expansion. Look, we've done a lot of work over the last couple of years and very proud of what we have delivered. As you saw, we raised our free cash flow outlook today for the rest of the year at over $525 million or 30% of growth. When you look at the last 2 to 3 years, we've driven a 5x expansion. So we've gone from $100 million to $500 million. So we have a track record now of a number of years of driving expansion. Where is the expansion coming from? It's a concerted effort and a disciplined approach that we are taking in rightsizing the cost base. We are very disciplined when it comes to hiring, there is offshoring that we are using vendor consolidation and there's increasing use of AI internally. So net-net, long story short, we are doing more business. So that's point number one. And I expect that, that will continue as we look ahead.

Point number 2 is from quality of a free cash flow standpoint. We are also making meaningful improvements. What I mean with that is trading margins are now converging with free cash flows, and that's a result of working capital efficiencies. So we've taken a number of steps there.

And point number 3 is we look at free cash flow also in conjunction with SBC as a driver of free cash flow per share growth. So again, we've taken a number of steps. We are bringing in a lot of discipline around new share grants as a result of which SBC is going down, and that when combined with share buybacks is resulting in share count going down.

So overall, the net-net result of all of this is our free cash flow per share, which for 2025 is almost at over $5.70 is growing faster, and it's best in the period as -- so overall, we believe there is more to be had here. And we have a strong foundation with our recurring business model and our diversified customer base that will give us an anchor to sustain and improve free cash flows over time.

I would actually like to add to that. That is, of course, all exactly right. But taking -- looking at it from the other side, from the product side. And here, I'm preempting a little bit. Some of the information we'll be sharing on Wednesday during our analyst product Day. But as a product person, I am always keenly interested in actual usage of the platform because core belief is that if people are using your product, then you will be, as a provider, we will be able to derive value from it. And if people are using the product less then no amount of financial engineering or price increases or anything, you cannot counteract that trend if you're dealing with the falling life.

And to be blunt, we hear sometimes think that the whole market is a lifeline our market. and that voice is going away and that video and other means of communications are taking over. And what we see is that nothing could be further from the shore, okay? Our usage onto platform is increasing, and it's actually increasing ahead of our revenue.

So people are using more -- they are placing more coals on our platform. They're doing more tax and utilizing or consuming more voice minutes, okay? And this is what gives us a great amount of confidence that our margins will actually continue improving because our core belief is that our costs will be rising slower than our revenues in the scheme of things.

We are able to utilize cost efficiencies. We're using AI heavily internally, definitely being able to achieve a lot more with less and for as long as we see increasing usage of our platform. We have every reason to believe that free cash flow will follow. And again, with continued financial flow per share will follow and will be rising as well. We think quite likely this will be even ahead of revenue growth, which we also project to be continuing. So we think that we are perhaps at an early phase of an as a virtuous cycle here.

Next question is from Siti Panigrahi with Mizuho.

I just have 2 quick questions. Starting with the contact center momentum. How are you seeing the train following your renewal partnership with NICE and both in the market and bring momentum on the down market. And a quick follow-up for Bev. How are you thinking about your capital allocation framework given that you have to pay back pay down some of the debt? And how should we think about the buyback going forward?

Great. So I guess I'll take the first one. So look, so you mentioned CX and NICE. And as you all know, we were happy to report last quarter that we've extended the resale agreement was nice. So that's in place. The user installed base that we have with NICE is stable. We see in upsells. We are reeducating the channel on the fact that this partnership is alive and well. because there was quite a bit of fat from joint competitors. So that is being addressed. But these are longer sales cycles. And we see some positive movement, but certainly not at the level where it used to be at the peak.

Having said that, quite a bit of that lag is being picked up by RingCX, which is a lighter weight product, less expensive product but also a lot easier to deploy. And we are showing very strong growth with that product with double-digit growth sequentially, which is a lot to be said for a product that's in strong tens of millions of dollars and still double-digit sequential growth. So we feel very, very good about that. We also think that with our introduction of our new Agentic Voice/AI family. Again, AIR, AIVA and ACE all of them are applicable to Ring CF as well as doing EX. So that's a very important point.

Our agent cloud covers both EX and CX, okay? So we think that, that will be a further accelerator. And I also already mentioned a number of important GSPs are picking up the entire portfolio, including CF. So we're quite optimistic. We also know what customer and partner requests are. We have enough of a history with this product now. And whatever people are asking for is on our immediate road map.

And I want to mention, we have dollars in annual spend on R&D. That's not insignificant. Majority of that spend is now dedicated towards new products, which is RingCX, AIR, AIVA and ACE. And the fact also is that we're using quite a bit of AI for code development. we're seeing some amazing results being able to, in certain cases, develop by factors faster that using traditional methods.

So expect rapid innovation, okay? We have introduced more products this year than at any point, more new products than at any point in our 20-plus-year history. And I'm not going to say that we'll be introducing new products every quarter that probably will get to confusing if nothing cells, but now expect quick iteration and quick improvements in what we have. And look, we really believe that we have a unique suite addressing needs of consumers contacting their business service providers. And we expect to go wide and deep on that.