Greetings, welcome to RingCentral's second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Thomas, Senior Director of Investor Relations. Please go ahead.
Thank you. Good afternoon, welcome to RingCentral's second quarter 2018 earnings conference call. I'm Paul Thomas, RingCentral's Senior Director of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Dave Sipes, Chief Operating Officer, and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Dave, and Mitesh, followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call.
I encourage you to visit our investor relations website at ir.ringcentral.com to access our earnings release, slide deck, our non-GAAP to GAAP reconciliations, our periodic SEC reports, a webcast replay of today's call, and to learn more about RingCentral. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in the slide deck posted on our investor relations website. In addition, we'd like to invite you to tune in on Wednesday, September 5th, when we will be celebrating the fifth anniversary of RingCentral's IPO by ringing the closing bell at the New York Stock Exchange. With that, let me turn the call over to Vlad.
Good afternoon, thank you for joining our second quarter earnings conference call. As Paul mentioned, today we're celebrating our 20th quarterly report as a public company. We are proud of our unbroken record of meeting and exceeding investors' expectations for this entire stretch. Q2 was no exception. We had an outstanding quarter. This was led by continuing strength in our mid-market and enterprise business and momentum with our channel partners. I'll begin by covering some of the key highlights of the quarter. First, total revenues for the second quarter grew to $161 million. This is a 34% increase year-over-year, up from 30% in the year-ago quarter. This was above the high end of our guidance range. Second, our core subscription business, excluding AT&T, continued its strong performance. Core subscription revenue grew 37% year-over-year, up from 32% in the same quarter last year.
Third, mid-market and enterprise business showed excellent results. We defined mid-market and enterprise as 50 seats or greater. This grew 80% year over year and is now a $237 million business. Our enterprise business, defined as customers with $100,000 or more in annual recurring revenue or ARR, grew over 110% year over year. It is now over $120 million. Fourth, we saw strong performance in Europe. We won a number of large deals in the U.K. and France. We are pleased with the momentum we're seeing in the region. Finally, our channel partners continue to deliver impressive growth. This quarter, our channel business grew over 100% year over year to $139 million. We're seeing more of our partners choose to lead with RingCentral solutions. Cloud is winning, and RingCentral is winning in the cloud.
Cloud is winning because legacy phone systems designed for fixed locations and supporting voice-only communications no longer meet needs of modern mobile and distributed workforces. RingCentral, in our view, is winning in the cloud because of our relentless focus on innovation. This investment drives new, well-differentiated capabilities that bolster our industry leadership. Our investment in innovation resonates with our customers. Customers choose RingCentral as much more than legacy landline voice replacement. We share data at our recent Investor Day on our platform capabilities that influenced the purchasing decision of our top 15 customers. Mobility, team messaging, video, contact center, and open platform were all critical considerations. This is the most important aspect of our strategy. Our industry-leading cloud communication solutions allow businesses to completely reimagine their internal and external communications and workflows. Numbers speak for themselves.
While voice usage grew a healthy 40% year over year in 2017, the other modes of communication like team messaging, video, and third-party API calls all grew at over 100% year over year. This quarter, the story continued. Our largest wins in the quarter were again influenced by customers wanting an integrated solution that offers mobility, team messaging, video, contact center, open platform, and more. Our Chief Operating Officer, Dave Sipes, will add more color to this and some of my other preceding comments. Our technology leadership and differentiation is being similarly recognized by leading industry analysts and associations. As we mentioned in our press release, we won several awards recently.
This includes recognition of Glip as a team messaging industry leader because of its mobile-first design, best-in-class user experience, and ability to serve as a digital communications hub to increase workforce productivity, as well as the recognition of our open platform for technical innovation, adoption, and reception by the developer community. We are continuing to invest and widen the moat between us and the rest of the field. With a growing lead in the cloud communication industry and the large under-penetrated market opportunity ahead, RingCentral is well-positioned to achieve our goal of exceeding $1 billion in revenue in 2020. Now for some color, I will turn the call over to our Chief Operating Officer, Dave Sipes.
Thank you, Vlad. We are pleased with the results of the quarter and the momentum we saw in our mid-market enterprise business. Our sales growth is being fueled by our growing scale, as well as our expertise and maturity across all of our sales channels. In our enterprise segment, we continue to densify across the major metros or NFL cities, and we are expanding internationally. Additionally, our enterprise segment efficiencies are improving even as we are scaling the team. Mitesh will go into more detail on that point later. Earlier, Vlad mentioned the numerous reasons customers choose RingCentral. Let me walk through just a few customer win examples from our second quarter. I'll highlight the critical capabilities that help secure these wins, like ease of deployment, integrated contact center, video, mobility, global reach, and team messaging. As we continue penetration of enterprise accounts, well-known referenceable customers are key.
For example, last year we announced a win with Extra Space Storage, the second-largest operator of self-storage properties in the U.S. Subsequently, this quarter we won Public Storage, the world's largest owner and operator of self-storage facilities and a Global 2000 business. Public Storage was using a legacy system that was struggling to meet the needs of their modern-day workforce, and they were facing significant reliability issues with that system. Public Storage chose RingCentral because of its recognized industry leadership, strong channel relationships, and proven capability to professionally deploy across thousands of locations. Public Storage has more than 2,300 U.S. locations across 38 states. The legacy system they were using had taken 12 months to deploy across all of their locations. Now compare that to their RingCentral deployment.
Using a combination of RingCentral capabilities and a key channel partner, we deployed across all of their 2,300 locations in just two and a half weeks. Another example of an enterprise win was in healthcare, where we were selected by One Medical, a leader in technology-enabled primary care. One Medical chose RingCentral for its integrated multimodal communications, contact center capabilities, and our open platform. With our open platform APIs, One Medical plans to integrate our communication platform directly with their electronic medical record system. When fully deployed, One Medical will have a combined 1,400 seats of RingCentral Office and Contact Center. In education, we won a significant deal with Southern New Hampshire University. They chose RingCentral because of our video meetings and our powerful administrative capabilities. When fully deployed, they will have over 2,500 seats of RingCentral Office. As Vlad mentioned, we had a strong quarter in Europe.
For example, this quarter we won our first one million-plus total contract value deal in France. CIRCOM, a professional association of public service television in Europe. They chose RingCentral for our global and mobile capabilities and our ability to deploy rapidly. CIRCOM will have over 2,000 seats of RingCentral Office when fully deployed. In the U.K., we won an important deal with Luxfer Holdings, a globally highly engineered advanced materials company. Luxfer selected RingCentral because of our global reach, unified platform, and professional service capabilities. Luxfer plans to deploy over 900 seats in the U.S., U.K., and the Czech Republic. Our channel partners contributed significantly to our success in these large opportunities. This is a result of our investment in the channel across the globe. For example, of the six wins I just mentioned, five were won with channel partners.
I'll cover some of our land and expand deals in the quarter. First up, Internet Brands, a leader in online advertising and e-commerce websites, has been a long-time customer of RingCentral. Internet Brands had over 1,600 seats combined of RingCentral Office and RingCentral Contact Center and had broadly deployed our Glip team messaging. This quarter, they signed an expansion agreement to increase the deployment to 3,600 seats. Another example is Brinker International, owners of Chili's and Maggiano's restaurants. Brinker originally deployed RingCentral Office across their restaurant locations. This quarter, they expanded their deployment by adding RingCentral Office and RingCentral Contact Center to their headquarters location. Brinker now has over 6,000 seats deployed on RingCentral. Hand-in-hand with our outstanding sales performance goes our unwavering commitment to customer success. This underpinned our strong retention and upsell results, as will be further shared by Mitesh.
We had an impressive quarter with significant new wins and expansion from existing customers, both domestically and internationally. Our enterprise penetration continues at a rapid pace and is supported with strong weighted pipeline growth that has more than doubled year-over-year, along with our growing enterprise sales team. We're committed to innovation and customer success, and we believe that we're well-positioned to win the substantial market opportunity in front of us. Finally, excitement is building for our third annual user conference show, ConnectCentral, that will be held in San Francisco on November 12th through the 14th. I hope you will join us there. For some color on the financials, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv.
Thanks, Dave, good afternoon, everyone. Before I begin discussing RingCentral's results, I'd like to ask you to refer to the slide deck posted on our IR website. This provides the key points of our call today, as well as supplemental information. We adopted ASC 606 as of January 1, 2018, under the full retrospective method. We have provided comparative numbers for the respective periods of 2017 in the slide deck and press 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 press release and in the slide deck. Let's move on to the results. We had a great second quarter. Once again, all our key financial metrics beat the high end of our guidance.
This was led by our mid-market and enterprise business, supported by our strong performance with channel partners. Our subscription revenue grew 32% year-over-year to $146 million, up from 29% a year ago. Normalizing for AT&T, our core subscription revenue grew 37%, up from 32% a year ago. Total ARR grew to $630 million, up 32% year-over-year, and ARR for RingCentral Office grew to $548 million, up 37% year-over-year. Our performance again was led by robust growth in mid-market and enterprise business. It was up 80% year-over-year with ARR of over $235 million. Our enterprise business of over $120 million, growing in triple digits, represented over half this business. Channel partners once again continued their rapid expansion this quarter. ARR from our channel partner business was over $135 million and grew more than 100% year-over-year.
Overall, our second quarter top-line growth dynamics were strong. This is only half the story. At our investor day in June, we articulated our philosophy of profitable growth. To grow efficiently, we focused on a few core elements of the SaaS model. These were one-time metrics to give investors a deeper appreciation of our business. We would like to recap these one more time with our Q2 performance to reinforce the elements of the model. Let me start with growth economics and its two key elements. The first is the cost of acquiring a customer or cost to book. The second is net retention, which includes upsells to existing customers. In Q2, both of these SaaS key metrics trended up year over year. First, our mid-market and enterprise business cost to book continued to improve.
An increasing number of enterprise reps are becoming more experienced. The productivity of our experienced reps is improving. Second, our mid-market and enterprise net retention improved nicely year over year. These improving economics enable us to invest more in growth while expanding the bottom line. This drives a virtuous cycle of profitable growth. Moving on to our Q2 financials. The second quarter was strong across revenue and margins. Total revenue increased 34% to $161 million. Subscription gross margin was 82.6%, up 120 basis points year over year. Operating margin was 8.8%, up 180 basis points year over year, resulting from our strong top line and leverage in our cost of goods sold and G&A. We ended the quarter with $567 million in cash, an increase of $12 million from Q1. Now, let's turn to our outlook. We are raising our 2018 guidance.
We expect subscription revenue to be between $595 million and $600 million for an annual growth of 28%-29%. Excluding the impact of AT&T, we expect core subscription revenue to grow 34%-35%. The relative impact of AT&T on our overall growth will begin to abate in 2019 as our revenue base increases and AT&T comparisons normalize. We expect total revenue of between $649 million and $656 million for an annual growth of 29%-30%. We expect non-GAAP operating margins of 8.2%-8.4%. This is consistent with our objective of delivering 75 to 100 basis points of expansion annually. We expect non-GAAP EPS of $0.66 to $0.70 based on 86 million fully diluted shares.
The difference between GAAP and non-GAAP EPS is expected to include the following: $0.81 of stock-based compensation, $0.19 of amortization of debt discount relating to our convert. $0.06 of amortization of acquired intangibles. We do not forecast any effects of currency remeasurement, which could be a significant reconciling item between GAAP and non-GAAP EPS because it is difficult to predict and subject to constant change. Now for our third quarter guidance. In the third quarter, we expect subscription revenue to be between $152 million and $154 million for an annual growth of 27%-28%. We expect our core subscription revenue to grow 33%-34%. We expect total revenue between $165 million and $168 million for an annual growth of 27%-29%. We expect non-GAAP operating margin of 8%-8.2%.
We expect non-GAAP EPS of $0.15-$0.17 based on 86 million fully diluted shares. The difference between GAAP and non-GAAP EPS is expected to include the following: $0.22 of stock-based compensation, $0.06 of amortization of debt discount, and $0.02 of amortization of acquired intangibles. Again, we do not forecast any effects of currency remeasurement. All our guidance details are available in our press release and our earnings deck. In summary, we are pleased with the performance of our business in terms of both our growth rate and underlying economics to deliver that growth. To reiterate our message from our analyst day, given the size of the opportunity ahead of us, our bias is toward growth. With compelling growth economics, we are confident of also delivering operating margin expansion.
Within that context, the Rule of 40, which is a sum of total revenue growth and operating margin, is a high bar that we have set our sights on. In fact, we are tracking above 40% so far this year and are confident to exceed this target while also exceeding $1 billion in revenue in 2020. With that, let me turn the call to the operator for Q&A.
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Our first question comes from the line of Bhavan Suri with William Blair. Please proceed with your question.
Hey, Vlad and Mitesh. Thanks, everybody. Congratulations. Nice job there. I just wanted to first touch, maybe Mitesh can jump in here. You've done a great job sort of moving up the enterprise. You've talked about sort of becoming much more, not even just mid-market, but enterprise-based business. I guess a little more on just what drove that. Mitesh, any metrics, I know you provided some, but maybe some metrics, maybe even potentially more financial color on the enterprise performance, that would be really helpful. Thank you.
Sure, Bhavan. Yeah, the enterprise business did perform really solid this quarter. It was north of $120 million business, grew in triple digits, and now it represents half of our overall mid-market and enterprise business, so pretty solid performance. I would say, three or four things come to mind in terms of the color you asked. Number 1 is, the enterprise market is in a very different phase now than it was a year ago. All these enterprises are asking to see a UCaaS solution to be at least in the mix while they're evaluating their next phase of solutions, and especially that's coming through the channel. That's point 1. The demand is there. It's in full mode now.
2nd is not a core metric, and we've not given this metric in a couple of quarters, but our $1 million TCVs we signed this quarter were a record. As you know, in Q4, we signed 15 deals, which was seasonally strong. This quarter, it surpassed even that metric. We actually did sign our largest TCV deal in the history of RingCentral. That gives you some color. Within the TCV deals, about 70% of those new deals over $1 million TCV were new logos, so totally new business. That's point number 2. Point number 3, I'd say, is the productivity itself. We are seeing our experienced reps being more productive. Their quotas are going up. They are booking more, and overall channel itself is more ramped. For us, it's just not about growth at all costs.
It's profitable growth, and that's how we can sustain a long-term operating model for the company. Lastly, as Vlad mentioned, that we have multiple on-ramps into communications, and it's an integrated product, which is actually helping our deals as customers are looking to deploy a unified suite across the board. You look, net-net, I think we are in early phases here, and these are the four factors that led to a strong performance there.
Thanks. Hey, guys. Thanks for taking my questions, and congratulations on continued good results. Mitesh, in your prepared remarks, you were talking about one-time metrics provided at the Analyst Day. One of those seems to be net new bookings growth, which has accelerated nicely and was very strong as you think, I guess, 1Q. Can you please provide us some color, at least on the quarter in terms of bookings trends qualitatively and how those bookings are going to translate into future revenue?
Yes, we did provide this net new bookings at the Analyst Day as a one-time metric to give investors an appreciation of our underlying business drivers. It's important to note that to look at these metrics not on a quarterly basis, but over a longer period of time, because as we move toward the enterprise segment, the bookings are lumpy, they are volatile, there is linearity, and that basically causes a lumpiness in our revenue, rev rec, the timing of rev rec, deployment cycle. It's important to look at it on a more sustained basis. That said, to answer your question, we did have a very strong bookings quarter this quarter, and you can actually see the results of that manifest itself in our core revenue, subscription revenue up about 37%, which was up from a year ago of 32%.
We did see acceleration in that. I would point you to, if you're looking at a long-term driver or long-term metrics for the business, I'd point you to the most sustainable or steady metric, which is the be all end all, which is ARR. Our office ARR did grow at 37% this quarter, steady from last quarter, and office represents mostly almost 90% of the business. I think overall, I think we are very pleased with the business, and you saw the bookings translate to ARR, which led to about 37% growth this time for office.
As a follow-up in that context, as you guys go upmarket, what trends are you seeing in average revenue ARPU per user?
Sure, Nikolai. We are seeing our ARPU hold steady in all segments. Despite there's some noise out there that there's price compression and people are giving away deals, we are not seeing that. Our ARPU is holding steady, and that basically is a phenomenon of the fact that we are able to provide a lot of differentiation to the customers and provide different integration points with our overall platform. We are not seeing that yet. Our ARPU is holding steady.
Thank you.
Our next question comes from the line of George Sutton with Craig-Hallum. Please proceed with your question.
Thank you. I was encouraged that you called out Europe specifically with some attractive wins. It seems to me that's a little more embryonic in terms of an opportunity. Can you talk about your go-to-market strategy, both direct and channel in Europe?
Sure. As Dave said, we continue to invest aggressively into the U.K. and across Europe now into France. Europe has brought, over the last four quarters, has brought multiple million-dollar TCV deals. We've had some consistency and growth in that. We saw the win with CIRCOM in France and Luxfer in the U.K. this quarter. We've expanded our enterprise teams across the region to capitalize on that.
One of the things you didn't call out as a differentiator in some of these deals was video. I'm curious with your Zoom relationship, if we think forward three to four quarters when 5G starts to become more prominent, should we start to hear about that as more of a differentiator?
Hi, George. This is Vlad. Very interesting question. We'll have to see. It's a multi-part question here. As you know, Zoom's becoming very strong and definitely an emerging leader in video and web conferencing. They do particularly differentiate in call it lower bandwidth environments, which anything but Wi-Fi. We'd see probably even better performance out of Zoom once 5G becomes more prevalent. We think we're in a good spot there. Definitely it's helping us win accounts.
Thanks, guys. Nice job.
Thank you.
Our next question comes from the line of Terry Tillman with SunTrust. Please proceed with your question.
Hey, guys. Congrats. Hey, Vlad, Dave, Mitesh, and Paul, hopefully I got everybody there. I had two questions. First question is, Mitesh, I appreciate your commentary on profitable growth. The last couple of quarters, the level of upside has been more notable. In fact, this quarter, I think it was record upside, if I just look at dollar value of upside. Is there anything that's changing in terms of your interest in operating leverage or a balance of operating leverage versus investing for growth? Just trying to understand what's been more notable upside dynamics lately.
Sure, Terry. It was a very strong quarter across the board. Last two quarters, all of the chips have been falling our way. That has been a trend which we are seeing. Now we are moving into the enterprise segment and mid-market, so it can be lumpy from quarter to quarter. Keep the expectations low. Don't just keep on extrapolating the speed. On a more serious note, in terms of profitable growth, we are seeing couple of key trends for all of the key SaaS metrics, which is our cost to book is coming down in the mid-market enterprise segment. Customers are staying longer, which you can see in a lower growth churn, and customers are buying more. Our upsell as a percentage of new bookings was about more than 40%. Again, we didn't say it in the call, but it was more than 40%.
Given these growth economics and growth dynamics, the bias would be, Terry, to invest in GTM and innovation and double down there. Quite frankly, we were not able to deploy all the money we would have liked to this quarter in a thoughtful manner. I think the bent going forward is to be biased towards growth. That said, we will show operating margin expansion the way we've discussed of about 75-100 basis points annually. That remains sacred for us. That said, given the economics of what we're seeing, we are going to be just turning on all the spigots here.
My follow-up question just relates to the platform innovations that you've put in place in the past and the richness of the API platform. What I'm curious about is where are we in uptake? Any kind of statistics on average number of integrations, do you see anything in terms of higher net retention from customers that are more fully leveraging platform for integrated workflows? Thanks, again, great job on the quarter.
Yeah, thank you. Vlad here. I'll start with the second part of the question as far as better net retention. The platform is used primarily by enterprise customers, we have pretty much a perfect record there anyways. It's a little bit hard to improve on that, frankly. It is a bit of a two-way street, obviously. These customers do choose us because of the platform, which is fully differentiated. As you know, we are the only scaled up provider with an apps gallery. I think we've been forthcoming with the information that we have many hundreds of apps, well over 10,000 developers. A little bit of a self-selective, but yeah, in any case, we are not seeing gross churn in the enterprise segment as is, certainly none of the platform customers. Sorry, the first part of the question is on sort of what level of penetration.
I think what we shared is that out of the top 15 accounts, we are seeing platform use as measured by number of API calls growing in triple digits as opposed to our voice use, which is growing around 40% year-over-year. Definitely major outpaced-ment on the platform side.
Our next question comes to the line with John DiFucci with Jefferies. Please proceed with your question.
Thank you. I'll echo the comments here, guys. It's nice to see this, especially for such a long time, and it's almost like it's consistent. That's really hard to do. I think I have a couple questions, and I think Dave Sipes might be the person to answer these, or maybe Vlad Shmunis would join in or even Mitesh Dhruv. Dave Sipes, I think you said the pipeline more than doubled year over year. I guess I'm just curious. We can just be thinking, okay, pipeline's doubling, things are doubling, are there any changes you can share with us to the characteristics of that pipeline? The sales cycle, I would think, has been elongated because you're moving into larger customers, the deal size, close rates. Anything that you can share beyond that 1 metric that it's doubled?
We talked about the enterprise, we're penetrating that market now starting to come, as Vlad Shmunis mentioned, require UCaaS, as Mitesh Dhruv mentioned earlier. The sales cycles, I think it's a little too early to call to say if they're accelerating, we have had a number of deals where they've come in, and they've selected us on a much more urgent basis as we've built credibility in the space, and we have the scale and coverage to assist those. You saw some of that, like Public Storage was 1 of those this quarter, but it was 1 of several. However, if I had to be conservative, I'd say sales cycles are still about 6-9 months on the enterprise side. We're seeing kind of normal behavior there, but an expansion of the market as more customers are looking to select UCaaS.
Okay. Okay, great. Thank you. I guess I'm just curious, I think Mitesh Dhruv said that an increasing number of enterprise reps are contributing meaningfully. I think you said at your last Analyst Day back in June that less than half of your dedicated enterprise sales reps were fully ramped. I was wondering if you can, since you sort of indicated it's getting better, could you give us any update on that, where you believe that is right now, and even maybe for comparison a year ago so we can sort of think about that?
Sure, John . It's been only 2 months since the Analyst Day, less than 2 months. Not much has changed since then in the last 2 months. It's still trending about the same. I will give you another data point, which is if you look at the growth rate in the enterprise sales reps we have, that clip of growth is much slower than our overall ARR growth rate you saw in the enterprise. That sort of gives you a sense of productivity there.
Okay, great. Nice job, guys. Thank you.
Our next question comes from the line of Matt Niknam with Stifel. Please proceed with your question.
Yes, hi. Thanks for taking my question. I guess I wanted to dig in a little bit more on the success and growth of the channel overall. Maybe if you could help us just understand how much of that is bringing new partners into the fold versus having continued success with existing partners, really investing more around the RingCentral Office here. Maybe just continued expansion deals from channel partners.
Yeah, Dave Sipes. Obviously, the channel's growing at over 100% again in the quarter. It's been a fabulous performance by the team. We bring in hundreds of new partners every quarter. We had a record quarter in this quarter. We continue to penetrate some of our largest partners through education of their organizations and their sales representatives, as well as building on a reputation. We're finding that partners are selecting us because of the quality of our product and our ability to professionally deploy through professional services implementation and customer support. I think that's creating a snowball effect of why these partners are coming to us.
Looking at your overall trend, improving on the cost to book, is that being influenced as well by the channel partners, or is that really just a factor of the continued improvement on the sales efficiency side?
Yeah. Both factors lead to the cost to book. The channel is a lower cost to book because you don't really have to spend the marketing dollars to acquire these customers. It's a hot bed of leads we get. The second part, again, is our cost to book is coming down because of the efficiencies we are seeing in the direct sales force side being more productive.
All right, great. Thank you.
Thanks, Ben.
Our next question comes from the line of Heather Bellini with Goldman Sachs. Please proceed with your question.
Thanks. This is Mark Grant on for Heather. Just on competition, we saw some consolidation announced recently in the collaboration space. You clearly had some nice wins in the quarter. Can you just give us an update on what you're seeing generally in the competitive landscape and what you think the impacts might be going forward as the competitive space continues to evolve?
Yeah. I think a couple of things there in that, in the UCaaS space, we continue to have a market-leading competitive position. We haven't seen significant changes in the competitive environment within UCaaS. We have consistently high win rates, and that continued in the quarter. The legacy vendors have been talking about cloud but still are selling legacy services. A little bit of the consolidation you mentioned, you may be referring to the team messaging space, pure play space. Some people are trying to bulk up and compete with Microsoft Teams, where we've taken a different approach in combining business communications with team messaging as well as video and contact center. We believe that's a winning combination in the market, and we don't see that consolidation as impacting the landscape in UCaaS.
Great. That's helpful. Thank you.
Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.
Thanks, I'll echo my congratulations on the strong quarter. Mitesh, maybe one for you. You hit on the up-market a bit. You mentioned that the net revenue retention improved. Any color you could add on that in some of the factors driving that improvement?
Sure, Brian. This up-market net retention metric, we don't give it out every quarter. It's meant to be an annual metric, but since you've asked, it was, again, stable over 130%, again this quarter. In terms of the drivers for that, there are three drivers, I feel. Number one is the shift to up-market in the customer mix, which provides a natural tailwind to our churn rate, the gross churn rate, because of lower business mortality and the barriers to exit for these customers is higher. That's number one. Second is the upsell and land and expand. As Dave and Vlad were mentioning in their remarks, we don't really do a wall-to-wall deployment initially. We give an example of Internet Brands this quarter, where it went from about 1,000 users to about 3,000 users. You can see how that plays out for net retention.
The third one really is sort of, which is evolving, is the cross-sell bucket, where we are selling more products into the install base. Brinker, which is the owner of Maggiano's Little Italy and Chili's, we saw that, where this quarter we are deploying a contact center solution for them, and there's upside in the headquarters now, which is getting deployed with some more video conferencing, whatnot. I think these three vectors, the customer mix, land and expand, cross-sell, is leading to a very nice tailwind in terms of net retention.
Maybe just a follow-up on that, Mitesh. Obviously, it kind of relates to the Public Storage win, but a two-and-a-half week deployment, that's a lot quicker than I would have expected for a company of that size. As you guys have a lot of momentum in the enterprise and then with channel partners, how should we average implementation timelines for a lot of these customers? Thanks, guys.
Yeah. The question is implementation, normally we'll see implementation occur in 60 to 90 days at a major enterprise organization. With the one exception being sometimes distributed retail, which may phase in with the assistance of the target's IT organization, sometimes that can go six or nine months. With Public Storage, they were in a situation where they wanted to move very quickly. They leveraged us, we leveraged our partner, and we created a model quickly that they could roll out super rapidly across their entire organization. We have the ability to move even faster than most of our target companies can. That's where you see that performance. It's very different than what the legacy environment has been and how that could deploy globally.
Our next question comes from the line of Kash Rangan with Bank of America, Merrill Lynch. Please proceed with your question.
Hi, [inaudible] , again, from Bank of America. Thank you so much. Congratulations, guys, on the wonderful results and the enterprise traction. Two questions, one of a broad question, last question for you. As you see the pockets of automation in our industry, you got a UCaaS pocket where you guys are clearly leading, then you got a collaboration pocket where you got the likes of Slack, and then you got the content pocket, the likes of Dropbox, and so on and so forth. As we evolve and the way we do work changes, the way we do work today is different from what we did 10 years back, 20 years back, for those that have been around that long.
How do you see the evolution of our industry, your industry, to accommodate how work gets done in the next five, 10 years, which is probably going to be very different? Do you, in other words, see these worlds converging or these pockets remaining pretty discreet? A second, more tactical question. With the rise of enterprise, I'm curious how you're planning to grow your systems integrator practice to avoid potential pitfalls as you scale this business, because the quality of implementation at large enterprises will often dictate the flow of the pipeline in future years. That's it for me. Thank you so much.
Yeah, great. No, wonderful questions. Okay, doing them in order this time. As far as how is work going to be evolving, well, look, it's always in use, right? It's called digital transformation. We're just a part of that. Yes, it's true, we are leading in a very large and very under-penetrated segment, but like you say, it really is all the same of part of the same train. People are doing more work on the road. People are relying on their mobile devices more and more. Very importantly to us and our particular differentiator is, there are quite a few apps. There is a glut of apps and services out there.
Where RingCentral differentiates is we are actually taking the position that less is more. We are, for example, the only UCaaS provider out there with a fully integrated team messaging and collaboration as part of our suite, as well as world-class video. Okay? We would see more of that trend playing out. It's clearly been working for us, especially as of late, as people are beginning to see value in RingCentral in not just as a plain legacy voice replacement. There is a lot of value there, too, don't get me wrong, but specifically in replacing and consolidating their video and web conferencing systems, their contact center, et cetera. I think we shared on the Analyst Day. We shared two things. Firstly, we said that use of non-voice features of RingCentral is growing in triple digits. I already mentioned this a little earlier today.
While use of voice is 40%, still healthy growth, the other one is growing in triple digits. We also said that out of top 15 accounts, there is not a single one we have that uses only voice. Everyone uses a multitude of these modalities that we provide, and we see that ratio growing. We'll see more of the same. There will be more. I don't know if it's going to be necessarily vendor consolidation, but I would say that we have clearly demonstrated that one can provide a world-class solution in voice, in video, in contact center, and very important in team messaging. We'll just continue along those lines. Sorry, the second part of the question is, again, what?
The professional services.
Yeah. Dave maybe provide more detail, but at a high level, one of the very major benefits of the cloud is that it is substantially easier to deploy. With Public Storage, for example, which in the end is a major brand, a Global 2000 company, to be able to deploy them in a few short weeks, simply not possible with a legacy solution. We are definitely seeing that there is much less need for a true systems integrator. I'm not saying that there is no place under the sun for them, but there is just much less need. We're certainly doing everything we can to make deployments as easy as possible and as much self-service as possible. Dave, maybe add a little bit more color.
Yeah. On the professional services, we've expanded that significantly. We've done in the field The deployments in over 30 countries now. We've taken a model that is both probably half internal resources as well as half partner resources. We've been training partners to continue to deliver this for us. As we get into larger enterprise and more complex products with contact center and things like our Pulse product that creates integration and workflow changes, I think there'll be more opportunities for partners, and potentially system integrators to help us in that pursuit.
Our next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.
Sorry. Hi, it's Eugene Anderson on for Meta Marshall. Thanks for taking my question. Could you comment on the productivity you are seeing with some of your newer channel partners? Are their productivity trending at a similar rate that you have been seeing with some of your more experienced partners? With that, how do you think about the opportunity to bring on additional channel partners? Will you be focusing on particular verticals or how are you identifying them? Thanks.
Yeah. Productivity is strong. We've focused on some national partners more recently this year, their ability to educate their sales forces is high, and they're able to swing product quickly on productivity. We've also seen some of our largest partners continue to perform at rapid rates. Our largest partner last year has already exceeded their goal in the first half of this year from what they did last year. We're seeing productivity ramp both with existing and with new partners. We've also improved our ability to educate on board and bring those partners to fruition. I think we've improved the entire ecosystem, the RingCentral ecosystem for partners.
Okay. Maybe just a broader market question. In terms of the incremental customer wins or customer opportunities you might be seeing there, are you seeing any broader changes in terms of what are the inflections there? Is it new cloud initiatives by customers or is equipment aging out? Just any broader commentary would be helpful. Thanks so much.
Yeah. It's the digitalization of the enterprise and the movement to move all applications to cloud, I think is a broad mega trend that's helping in the transition of this category to the cloud. We're still single digits penetrated, there's still a long ways to go. As people have moved productivity suites to the cloud, have moved other applications to the cloud, there's a desire to take all their applications and get the IT organization into being business process-oriented and less infrastructure management-oriented.
Thanks so much.
Our next question comes to the line of Sterling Auty with J.P. Morgan. Please proceed with your question.
Yeah, thanks. Hi, guys. Wanted to follow up on an earlier question around France and U.K. I'm just curious, is there any structural differences in terms of the channel in those markets, and what have you done to capitalize on it?
The channel tends to be stronger outside of the U.S., so we see importance to invest in the channel infrastructure there. Now, the nice thing is we've built that infrastructure in the U.S. by being a mix of direct and channel. We're still a mix of direct and channel in those markets, but it will slant a little more channel than direct. Those channel partners are bringing organizations they've worked with for a long time, and so they bring a trusted relationship in introducing them to the RingCentral product.
Got it. Then one follow-up, Mitesh, for you. Noticed that I think DSOs jumped three or four days. Is that an indication of linearity in the quarter or perhaps just more international revenue being added to the mix?
It's the former, Sterling. As we are moving to the mid-market enterprises, it usually tends to be more of a back-end quarter.
Got it. Thank you.
Our next question comes from the line of Zach Turcotte with Dougherty. Please proceed with your question.
Hey, thanks, guys. Zach on for Catharine Trebnick. Just two quick ones on collaborative contact center. First, I'm wondering if you have any metrics or KPIs specifically related to contact center. Second, just the importance of your channel partners and the role they play in your sales of contact center. Thanks.
Contact center, we've said, is influencing in our largest deals. We see it in over 50% of our largest deals. It's important as we move into mid-market and enterprise. You see it both in the initial deal. If it's not in the initial deal, it's an opportunity for follow-on deal. We're educating our channel, and they're starting to bring us deals that maybe Contact center leaning versus UCaaS leaning because they know there's the cross-sell opportunity between the products over time.
Our next question comes to the line of Michael Latimore with Northland Capital Markets. Please proceed with your question.
Hey, great. Thanks. Great quarter. Just two ones here. You obviously replaced a lot of on-premise legacy systems. Are you seeing any increasing trends towards replacing other cloud providers, including some of the telco-based services here in terms of the mix or the pipeline?
Telco-based services, as in obviously business communications, we do replace all the product categories we provide with video suppliers, with messaging suppliers, with UCaaS, PBX suppliers, and contact center providers. We don't do ISP services, obviously. Any of the core applications, business communication applications, we do.
I guess, I meant, when you're winning in the mid- market, in particular, are you replacing third party or other UCaaS providers as opposed to on-premise? Are you seeing more opportunities to replace other cloud providers, UCaaS providers?
We do have displacements of other cloud providers, just because of the sheer numbers and the way the math works, the vast majority is replacing legacy systems today.
Yep. On the international side of things, I guess obviously growing quickly. I don't have a sense of whether that's 10% of bookings, 20%. Any general ballpark on what % of bookings are coming from the international markets at this point?
Sure, Mike. International is sub 10% of revenue, is the way to think about it. The bigger angle on international is, it is more the global office deployment we have, wherein we have turned on the technology for U.S. and U.K. and now Australian multinationals to turn on their global offices and have seats across the globe. That's one. Now we are doubling down with GTM in those countries. It's a bit of a different spin on international. To answer your question more sort of technically, it's less than 10% of revenue.
I think you said you had the largest deal in the company history in the quarter. Can you give seat count or anything like that?
Details around the deal of the largest history, is that the question?
Yeah. You said you had the largest one in your history in the quarter.
Yeah.
The seat count or something like that?
We're not going to give you a seat count, but I'll give you some color. It's a large company where we had both contact center and PBX. In terms of sales cycle, this was one of the deals which fell in fairly quickly. You know how Dave was saying with Public Storage, it was fairly quick sales cycle. This was one of the other ones where the sales cycle was really quick because of our brand recognition and the referenceability we have with the CIOs. Yeah, it's a step in the right direction there.
Okay. Thanks.
Our next question comes to the line of William Power with Robert W. Baird. Please proceed with your question.
Hey, guys. Thanks for taking the question. This is Charlie Ehrlich on for Will Power. Could you talk a little bit about the opportunity you see in targeting the true enterprises or the Forbes Global 2000? What are some of the things you might be doing to target those customers specifically? Would you say you're more or less confident now versus, say, six months ago, that those customers will start adopting full cloud solutions in a more meaningful way in the near to medium-term? Thanks.
Yeah. Hi, Vlad Shmunis here. I'll take the last part of the question, which is, are we more or less confident? We were always confident. Now we have tangible proof points and we see no reason why every Forbes Global 2000 enterprise wouldn't eventually end up in the cloud, with the one exception that in certain geographies there are regulatory barriers. For the regulatory barriers, we fully believe it's simply a matter of when, not if. As far as what we're seeing on the ground today, maybe Dave Sipes can address.
Yeah, it's definitely we're seeing that movement now. We're seeing the Forbes Global 2000 look at UCaaS. Public Storage is a Forbes Global 2000 company, so that's one win we have there. We've also built a dedicated sales team focused on these named accounts.
Great. Thanks, guys. Congrats on the quarter.
Ladies and gentlemen, we have reached the end of our question and answer session, as well as our conference. Thank you for joining RingCentral's 2018 earnings call. You may now disconnect.