Greetings, and welcome to the RingCentral First 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host.
Thank you. Good afternoon and welcome to RingCentral's Q1 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 David 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 and 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. With that, let me turn the call over to Vlad.
Good afternoon and thank you for joining our Q1 earnings conference call. 1st quarter results were excellent. Q1 showed outstanding revenue growth, operating profit and EPS performance. Our core subscription business accelerated as mid market and enterprise customers continue to adapt our industry leading cloud communication solution. Our channel partners delivered another strong quarter of growth.
And we're at the stage for continued growth by announcing innovative new products. Let me begin by covering some of
the key highlights of the
quarter. First, total revenues for the Q1 grew to $150,000,000 This is a 34% year over year increase, up from 30% in the year ago quarter and above the high end of our guidance range. 2nd, our core subscription business, excluding AT and T, accelerated even faster. In Q1, our core subscription revenues of $125,000,000 grew 37% year over year, up from 32% in the Q1 of last year. 3rd, our mid market and enterprise business had another outstanding quarter.
We define mid market and enterprise as 50 seats or greater. This is now an over $200,000,000 business that grew 77% year over year. Now for something really exciting. Last quarter, we introduced a new enterprise business metric. We define enterprises as customers with $100,000 or more in annual recurrent revenue or ARR.
This quarter, our enterprise business ARR crossed $100,000,000 and it grew more than 110% year over year. It is clear that the cloud is winning and RingCentral is winning in the cloud. Legacy players' struggles are mounting. They are consolidating. They are going private.
Legacy systems simply cannot effectively meet the modern communication and collaboration needs of mobile and globally distributed workforce. Nor was this more apparent than at Last Enterprise Connect, the leading conference for enterprise communications and collaboration. We believe many of you who attended the conference would have noticed that RingCentral has the most extensive presence at the show. This year at Enterprise Connect, just as last year, legacy players gave live service to the cloud. However, their solutions are still tethered in their on premise history.
While the competition talks about the cloud, we continue to deliver. This quarter, we launched 3 new innovative products: RingCentral Collaborative Contact Center, RingCentral Pulse and Collaborative Meetings. RingCentral Collaborative Contact Center is a differentiated solution that synchronizes contact center agent groups with GlipT. RigCentral Pulse provides intelligent service bots that monitor critical call center metrics in real time. It sends automated alerts and notifications directly to Glip's team.
This enables agents and supervisors to communicate and collaborate across their organization in real time to resolve customer issues efficiently. Finally, RingCentral Collaborative Meetings deliver integrated team messaging and video conferencing to enable a well differentiated and productive meeting experience. Innovations like these further reinforce our industry leadership position. There are only a handful of scaled up pure play cloud companies in the market and we're the clear leader. Last year, RingCentral grew twice as fast as a number 2 company in our space on a business that is nearly twice as large.
I am pleased with our Q1 results. Our core business strengthened. We extended our leadership position in the cloud with excellent traction in the mid market and enterprise business. And we enhanced our platform with new and innovative solutions. The future looks bright.
We're still in the early stages of this $50,000,000,000 plus opportunity. And as the industry leader, RingCentral is in prime position to benefit as the on premise market continues its transition to the cloud. With a great start to this year, we're well on our way to our $1,000,000,000 target by 2020. Now for some color, I will turn the call over to our Chief Operating Officer, Dave Stipe.
Thank you, Vlad. We definitely had great results across our business. This was led by mid market and enterprise customers. In our enterprise business, we saw triple digit year over year growth and crossed the $100,000,000 milestone in ARR. The keys to our growth have been the investments we are making in our technology platform, the field enterprise sales force and the channel partner network.
We continue to expand our channel reach this quarter by signing up additional partners, including another major Avaya reseller. Our global expansion continues as well. In this quarter, we opened a new sales office in Australia, where we already signed new channel partners. Our success begins with our commitment to innovation. Our market leading product suite helped us close numerous significant deals in the quarter.
Let me give you some color on just a few of our wins. For example, Citizen, a global watch manufacturer and distributor, was using multiple communication and contact center systems to manage their business. The company wanted to unify this to a single cloud platform. They chose to deploy our integrated RingCentral Office and RingCentral Contact Center solution. A key differentiator for us this win was our recently announced collaborative contact center featuring our innovative RingCentral Pulse technology.
We won this with a channel partner and replaced 2 legacy vendors and 1 cloud vendor. This quarter, one of our most significant wins came from Corporate Travel Management North America, a leading corporate travel management services company. They chose RingCentral for its best in class communication and contact center on a unified platform with unified support. Our integrated team messaging capability sets us apart in the marketplace. It was key to an enterprise win with a leading company in the education space.
They chose RingCentral and plans to standardize on Glip as a primary communication application for seamless integration of voice, video and messaging capabilities. This is just one example. We saw many customers across all segments who cite our integrated team messaging and communication solution as a key decision factor for choosing RingCentral. Our expanding global coverage continues to be a compelling differentiator for us as well. This quarter, a large financial services organization was looking to transition off multiple legacy providers across multiple countries.
They chose RingCentral for a global coverage, which greatly simplifies multi country deployments, eliminating the need for multiple carriers and hardware deployments to manage. Their initial deployment will cover 4 countries with future potential to expand more. Another key differentiator is our open developer platform. This quarter, Procore, a provider of applications for the construction industry, needed a solution that would span globally across their business and would easily integrate with their other cloud applications. They chose RingCentral because of our integrations with Google G Suite and Okta and our Global Office capabilities.
This deal was also won with a channel partner. And many of our enterprise customers are just beginning with us. While they initially deploy RingCentral in a few offices or a region, they typically have a much larger employee base. Over 40% of our new business comes from existing customers. For example, Assured Partners is a fast growing national insurance agency with numerous offices across the country.
They had multiple legacy systems, which were complicated to manage. We won this account with a leading channel partner. They started with about 500 seats of RingCentral across a few offices. The users liked the expanded capabilities of the RingCentral solution. Additionally, administrators were impressed with the significant benefits of centrally deploying and managing the solution.
This quarter, Assured Partners decided to standardize on RingCentral across their organization and contracted to add an additional 4,000 seats. In summary, we are differentiated on our integrated communication collaboration and contact center platform, our global coverage and our open developer ecosystem. Our market leading product suite helped us win significant deals from new customers as well as from existing customers. We are committed to innovation and customer success and we believe that we are well positioned to expand our lead in the industry. Now for some color on the financials, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv.
Thanks, Dave, and good afternoon, everyone. Before I begin with the results, I want to ask that you refer to the slide deck posted on our IR website that provides the key points in our call today and some supplemental information. We have adopted 606 starting Jan 1, 2018, under the full retrospective method and have provided comparative numbers for comparable periods for 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.
With that, let's move on to the results. We had a solid start to 2018 with all our key financial metrics beating the high end of our guidance. Our performance was driven by our mid market and enterprise customers and continuing momentum with our reseller partners. Our core subscription revenue growth accelerated and we translated that momentum into strong profitability. In Q1, our subscription revenue grew 32% year over year to $137,000,000 up from 30% a year ago.
Normalizing for AT and T, our core subscription revenue grew 37%, up from 32% a year ago and up from 36% last quarter. For more historical data on our core growth trends, see our earnings slide deck. Total annualized exit recurring subscriptions or ARR grew to $589,000,000 up 31% year over year and 8% sequentially, up from 6% sequential growth in Q4. ARR for RingCentral Office grew to $509,000,000 up 37% year over year and 9% sequentially. Our mid market and enterprise business led the way again.
It is now over a $200,000,000 business and grew 77% year over year. Our Enerbaerts business represented half of this business, over $100,000,000 growing in triple digits. Mid market and enterprise business also contributed over 50% of new sales for RingCentral Office, up from 40% last year. Our channel partners delivered another outstanding quarter of growth. ARR from our channel partner business is now over $115,000,000 business and it grew nearly 100% year over year.
Our focus on mid market and enterprise customers and our working with channel partners yields many benefits. 1st, lower churn. Mid market and enterprise customers have less than half the gross churn rate of small business customers. In addition, customers acquired through a channel partner also have less than half of the gross churn of customers then purchased direct. These trends brought record load churn in Q1.
2nd, these customers seed our land and expand pipeline. Typically, customers begin transitioning to cloud communications by purchasing RingCentral for just a portion of their employees and not all products. This presents a significant opportunity to upsell as adoption of cloud communication grows within the customers' business. Once again, over 40% of our new office business came from existing customers. The combination of these positive indicators drove robust net retention in Q1.
Moving on to the financials. Q1 was strong across revenue and margins. Total revenue for the Q1 increased 34% to 150,000,000 Subscription gross margin was a record 82.8%, up 140 basis points year over year. I would note that we benefited from some one time cash up payments totaling a little less than a point. Operating margin was 8.6 percent resulting from our strong top line and gross margin performance.
We ended the quarter with $555,000,000 in cash, an increase of $374,000,000 from Q4. This increase reflects the net proceeds from our 0% convertible debt offering recently. Now for an update on AT and T. Last quarter, we announced that we would transition all offices in hand by AT and T customers to a direct billing and account relationship with RingCentral. The customer transition is progressing.
It is early in the process, but for the customers that have migrated, we are seeing high levels of customer satisfaction. For guidance purposes, however, we continue to make conservative assumptions that factor in normalized churn as well as potential incremental churn from migration. Consistent with last year, we continue to assume no new incremental business from these customers. Turning to our outlook. We are increasing our 2018 outlook driven by strong Q1 results and the benefits that will carry throughout the year.
We expect subscription revenue between $588,000,000 $594,000,000 for an annual growth rate of 26% to 28%. Excluding the impact of AT and T, we expect core subscription revenue to grow 32% to 34%. The relative impact of AT and T on our overall growth will begin to abate in 2019 as our revenue base gets larger and AT and T compares normalize. We expect total revenue between $638,000,000 $647,000,000 for an annual growth rate of 27% to 28%. We expect non GAAP operating margin of 8.1% to 8.3%.
We expect non GAAP EPS of $0.61 to $0.65 based on 86,000,000 fully diluted shares. The difference between GAAP and non GAAP EPS is expected to include $0.83 of stock based compensation, dollars 0.19 of amortization of debt discount relating to our convert and $0.06 of amortization of acquired intangibles. We do not forecast any effects of currency re measurement, 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 Q2 guidance. In the second quarter, we expect subscription revenue between $142,500,000 $143,500,000 for an annual growth rate of 28% to 29%.
We expect our core subscription revenue to grow 34% to 35%. We expect total revenue between $154,500,000 $156,500,000 for an annual growth of 29% to 31%. We expect non GAAP operating margin of 7.5% to 8%. We expect non GAAP EPS of $0.14 to $0.16 based on 85,000,000 fully diluted shares. The difference between GAAP and non GAAP EPS is expected to include $0.21 of stock based compensation, dollars 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. You can find all our guidance details in our press release and our earnings deck. In summary, we are pleased with the performance of our business, led by traction in the mid market, enterprise and channel and expect a solid year ahead. Finally, we are excited to invite you to our RingCentral Investor Day in New York on Thursday, June 14. Please join us as we outline the state of our business today and where it's headed tomorrow.
You'll hear updates on strategy, innovation and vision for the future. You'll also hear directly from RingCentral customers and partners. We look forward to seeing you there. With that, let me turn the call to the operator for Q and A.
Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Kash Rangan from Bank of America. Please proceed with your question.
Hi, guys. Thanks for taking my question. Congratulations on a spectacular start for the year. One question for you, Vlad and one for you, Mitesh. One for you, Vlad.
You've seen a lot of changes to your competitive landscape. Mitel went private at the same time Avaya Merchant Bankruptcy, if they're now a public company. What does this pose in terms of a change or not so much of a change for RingCentral's strategic position and your ability to continue to win business? And one for you, Mitesh. We've rarely seen the company beat earnings by this kind of magnitude.
I wonder what we should make of this beat as it pertains to investors' perception of operating leverage for the company in the future? Thank you so much.
Great. Hi, Kash. Yes. So, no, great question. Short answer is we haven't seen much change in the competitive landscape with the Avaya bankruptcy and then the emergence and the vital news.
And it really has to do in our minds with the fact that none of these machinations really change the fact that neither is really a cloud provider. And we continue seeing very high win rates against both. These are, call it, 75%, 80% range. And at least for now, we are not seeing any change in those rates to the negative for us. We don't see any strengthening for those 2 particular companies or frankly anyone else in the field.
I mean our numbers continue speaking for themselves.
Yes. Hi, Kash. It's Mitesh. And to answer your question on leverage here, so yes, it was a strong quarter. Most of the dominoes fell our way this quarter.
We did beat the Street estimates by about $5 ish million on top line and about $2,500,000 $2,600,000 on the fell through the bottom line. And so the upside flow through from the revenue beat was north of 50%. That really sort of speaks to the leverage or the inherent leverage in
the business
model where treat this 50% incremental revenue margin as a proxy for your installed base recurring margin. And so the playbook is going to be similar with the way we have been executing in the past, which is we will be thoughtfully deploying this upside over the course of the year in adding capacity to our GTM and our innovation. And then that will further fuel the growth. So it's a virtuous cycle here. And that basically led us to raise our revenue guidance, operating margin guidance and the operating profit dollars over and beyond the beat in Q1.
Congrats guys. Thank you so much for taking my question.
Our next question comes from the line of Sivan Suri from William Blair. Please proceed with your question.
Hey, guys. Congratulations on just echo cash there. Nicely done there. I guess, Mitesh, first, I just wanted to touch a little bit on your upmarket metrics. Last quarter, you provided sort of that net retention rate for the upmarket business was 130%.
Just some color on that and sort of the drivers behind that? And then I've got
a quick one for Vlad. Sure, Bhavan.
So on the upmarket metric, yes, we did not provide this exact number this quarter. It was not meant to be a quarterly metric. But since you asked the question, yes, the number was over 130% again, the net expansion rate. And the drivers are sort of twofold. One is we did experience record low churn, gross churn, and we saw one of our strongest quarter for upsell into the existing installed base.
Now just addressing both those in the same order on the lowest gross churn, which was the record low churn we saw was because of 2 things. 1 is organic low churn in each segment along with the mix shift. This mix shift also is driving positive churn for us because 40% of our ARR and about half our bookings comes from the upmarket segment. So that's one on the churn. On the upmarket side, the theme on the upsell side, the theme we are seeing from customers is that people customers want to reduce the number of disparate solution or discrete solutions into 1 unified application And they're simplifying the IT stack for business communications for higher productivity and lower costs.
And so what we are seeing as a result is customers adding more seats domestically, more seats globally and they're also adding more products to the portfolio. So if you just take one example in the last quarter is PAC Dental, which we've had the 4th quarter in a row of upsell in that with that customer, the seat count now is north of 5,000 and the total potential seats for PAG Dental is more than almost like 2x of that, so 10,000 call it. And they have really adopted a slew of our products and they're adding more seats. So you're seeing a combination of all these factors resulting into high net expansion rates.
Got it. That's helpful. And then maybe one for Vlad here. So when you look at the partner channel, you obviously have a team of guys that go out there and sort of recruit partners. But you've also started to see an inflow of partners saying, hey, we want to partner with you because our customers are looking for sort of a flexible cloud solution.
Has there been any change in that? Have you seen
sort of more partners coming to you? Has there been sort of any change in that trend or inflection in that trend from the partner sort of acquisition side? Yes. Hi,
Bhavan. So, our CEO Dave Sipes is here. So, he can maybe provide a little bit more color.
But I'll just say at
the high level, we certainly are seeing market come to us more than in the past. And that applies across the board, both direct business as well as indirect in Zevars. It's really now most folks are recognizing that cloud is here to stay, that if you are a VAR if you're an enterprise, you have to be to consider a cloud solution. Obviously, we are well positioned there. And if you are a VAR, your customers are asking to be presented cloud alternatives and we are the undisputed leader.
So I think at a high level, yes. Dave, if
you can add to that.
Yes. This is Dave Sipes. And our largest channel show that we were at a month ago, channel partners show,
that one
of the biggest themes was that for all the partners, Unified Communications as a Service has become probably their number one focused product. So we are seeing a shift in the market as the customers are shifting that they are looking to that this is their number one selling aspect going to market and that we are benefiting from that as we are signing on new partners and ramping up our current partners that we signed.
Got it. Thanks guys. Appreciate it. Congrats.
Our next question comes from the line of George Sutton from Craig Hallum. Please proceed with your question.
Thank you. This question is probably best directed at Dave. With growth rates accelerating, your win rates, it sounds like remain the same at least against the competitors you talked about before. That would suggest that your funnel is substantially larger. And I just wondered if you can give us a picture into the funnel relative to how that has been built over the past couple of quarters clearly in an accelerating
way? Yes. I think as we've made a focus on mid market and enterprise and we see that shift in the
a
$100,000,000 business growing at 77% year over year. We still see and as far as pipeline, we measure that out 6 to 9 months ahead of time and track the growth in that ahead of the growth that we're putting in the market from a sales perspective. We still see a lot of opportunity to continue growing that very aggressively, both and we talked about covering major cities, but there's further saturation of major cities as well as looking at even larger segments of 10,000 plus employee bases and international growth with our U. K. Market.
So all of those are creating we see the opportunity to continue to expand, and we are. There's also we're getting 40% of our new business from the existing base as they as Mitesh mentioned, as they're adding new users domestically, internationally and on new products.
Perfect. One other question relative to your collaborative meetings offering. You are offering that on a standalone basis in addition to other ways, but it surprises me a little to see it as a standalone offering. I wondered, is that meant to fuel additional pipeline for the future? Is that part of the logic?
It is. And it's a collaborative meetings that combines Galip and team messaging collaboration with meetings. It allows organizations that we've seen in the marketplace, sometimes they'll move that product first to the cloud and then later the PBX. And we wanted to make sure that we could satisfy that desire for them. And it allows us to get into those accounts and then utilize cross sell across the integrated product suite by then selling PBX and contact center.
Understand. Perfect. Thank you.
Our next question comes from the line of Jonathan Kim from Goldman Sachs. Please proceed with your question.
Hi, guys. It's actually Heather. I wanted to ask 2 questions. You mentioned that 40% of your business comes from partners. Can you share with us how the partner network's been expanding in terms of like feet on the street or number of partners?
And also, are you starting to see some of the larger SI partners build practice groups? And then I just had a follow-up. Thank you.
Hey, Heather, it's Mitesh. So one clarification, what we mentioned is that 40% of our business came from upsell into existing customers. But that said, so that metric is a little bit we did not disclose that channel contribution. We did say on the partner side that our partner ARR was or north of $115,000,000 business growing close to 100%. So that's the metric that we gave out.
In terms of
the your question was on the ramp of the channel partners and
the build out. I think, look, it is in the early stages of ramp. We are signing up partners for Avaya and Cisco, and we are seeing a lot of traction within capturing the installed base for the legacy players currently. And then more there's more deeper efforts within the channel partners to further fuel the fire there.
Okay, great. And then just the follow-up was related to, obviously, your mid market and enterprise ARR build looks very strong. I'm just wondering, you were just talking about the sales footprint ramp that you've seen. Is there any data you could share with us about the pace of that sales footprint ramp in the last fiscal year? And give us a sense of what you expect it to ramp at in comparison this fiscal year?
Thank
you. Sure. I'll take that as well, Heather. So we don't exactly give out the sales exactly the sales headcount and ramp. But what I will tell you is that our sales headcount capacity in the mid market and enterprise is growing slightly slower than the 77% growth rate we've had.
And that as a result of productivity gains we are seeing from that segment, as these segments mature, we are seeing the benefit of our tailwinds from incremental ramped the overall ramp sales force.
Okay, great. Thank you.
Our next question comes from the line of Terry Tillman from Raymond James. Please proceed with your
question. Hey, good afternoon, gentlemen, and I'll echo the congratulations on the quarter. I guess maybe Mitesh, first question for you is just related to an update on metrics or guideposts as it relates to the Global Office business. I'm assuming that's ARPU accretive, but just anything that some more color on Global Office and how that's trending?
Sure, Terry. We've not given that color in a while, so it's a timely question. We have about 1,000 customers on Global Office now. And the good thing about Global Office is this is an entry or a key for us to win multinational accounts in the U. S.
And the U. K. The other factoid on Global Office, which is interesting is that for every one Global Office user we have across the globe, they actually pull in 4 to 5 new seats for the headquartered customer. So if there's one customer or employee in France, there'll be about 4 or 5 employees in the U. S.
So that's sort of a reverse pull through we are seeing for Global Office. In terms of our footprint on Global Office, we cover about 37 countries. The footprint covers that, which is a significant portion of the GDP. And what we are doing, that's on the technology side. And on the go to market side, what we are doing is with our usual deliberate and methodical approach, we are doubling down on certain geographies where like Europe and Australia, where we are now building out our go to market presence in terms of direct sales force and channel partners.
Awesome. Thanks for the factoids on that. I guess, I don't know if this would who this would be for, but I'll just throw it out there. So all the color you provide is helpful in terms of the upmarket business in total. Then kind of peeling back the onion, it looks like obviously the enterprise business growing well over 100% on ARR.
Our calculations would say the mid market is like 50% to 60% growth and hopefully I'm right there directionally. But I'm curious with the 2 growth opportunities in both those segments and there is probably a different kind of sales motion or GTM. How you all think going forward about incremental investments, how much will you apply to enterprise to go after that versus mid market? Just would love an update on how you think about splitting up those investments between the 2.
Yes. So I think the question
is do you have to go after the mid market or enterprise more aggressively? They're both large growth factors for us. The enterprise is even more greenfield as more customers are now opening up and moving to cloud. So you would see incrementally faster investment in the enterprise over the mid market like you've seen, but both are achieving growth rates that are well above the corporate growth rate and provide acceleration opportunities for us.
Thank you.
Our next question comes from the line of Meta Marshall from Morgan Stanley. Please proceed with your question.
Hi, it's U. G. Anderson on for Meta. Thanks so much for taking my question. I think most of them have been answered, but maybe one on AT and T.
I understand you're being pretty conservative on your assumptions there as they make those transitions. But how should we think about incremental business there? And like what is the opportunity set that you're seeing there? And maybe what is the company doing?
Sure, Yuji. It's Mitesh. So yes, AT and T, you're right. We are still dialing in very conservative assumptions, which is a normalized churn rate plus one time churn as well as no incremental business. Look, what I will tell you is we are in a relatively early stages of the innings here.
The migration is progressing well. And for the customers that have migrated, we are seeing very high level of satisfaction from those customers, because they are now able to choose from a set of portfolio which they did not have access to before. So far so good. But again, it's 1 quarter. So I would not 3 fourth of the year is left.
So I would just keep the estimates very conservative. So because you don't know what you don't know.
Okay. Got it. And then maybe a quick one on just the product roadmap. I appreciate some of the new stuff that you have out there now. So looking forward, what is the view on continue to build things internally versus perhaps going out to the market and buying something?
Thanks so much.
Yes. Vlad here. Yes, I'll take this one.
Look, we are a technology first company
where we were founded by a team of engineers and we retained our product orientation from day 1 until now. So majority of what we have now as part of our portfolio is our native technology. And we like it that way very much because it actually is a very good differentiator from some other folks in the market where, to be blunt, they don't own their stacks and that creates issues and competitive disadvantage for them. So, we continue out investing our direct competition. We tend to out invest the next company in the space by about 2 to 1.
We've been doing this for a number of years now. So I think cumulative GAAP now is maybe approaching triple digits, dollars 100,000,000 or so and growing.
So having said all of
that, look, we can't do it all. There are lots and lots of good companies, younger companies, good ideas out there. We're always on the lookout. As you know, we had one acquisition so far. It was immensely successful for us, that's Glip.
It provided a very clear differentiation. It's winning us major accounts, brands that frankly would be harder for us to get we didn't have it. So, given that success, we are looking, but we are and we're open, but we're prudent. And I can tell you that people are calling on us pretty regularly these days. And as you can see, we haven't pulled the trigger yet.
Not to say that we will not. We do want to expand and extend and enhance the portfolio, but again in a very prudent manner and something that will be moving the needle if we can find it like Cliff did for us.
Our next question comes from the line of Brian Peterson from Raymond James. Please proceed with your question.
Thanks, gentlemen, and congrats on the quarter. So I don't know who wants to take this one, but I wanted to hit on pricing in the enterprise market. Clearly, that's been really strong. Is there anything you guys can say qualitatively about how price per seat or price per user trends have been in that market?
Sure, Brian. So ARPU trends are strong across the board. We saw a flat to up ARPU across all segments. On enterprise specifically, we also saw ARPU holding steady. And again, as we've mentioned before, when we go and win larger accounts, there is of course pricing pressure and we do give concessions to larger customers than smaller.
But at the same time, given the differentiation in the SKUs we have, larger customers are adopting the higher SKUs, especially with Glip and some of the advanced open API and platform capabilities that's driving the overall SKUs up. So net net yes, pricing is flat to up, yes.
Good to hear. And maybe one more for you, Mitesh. Just on the deferred revenue, that's been increasing pretty steadily over the last few quarters. Any help on what's driving that? And how should we be modeling that going forward?
Sure, Brian. Yes, deferred revenue has been cooking up a little bit over the last couple of quarters. And if you sort of exhale the impact of 606, it grew over 40% this quarter, which is sort of a leading indicator in a sense that for enterprise a proxy for enterprise segment. Now not every customer prepays us annually, which sort of drives the deferred revenue up, but we are seeing an expanded portion of our customers trying to pay or who want to pay us upfront because these guys are enterprise customers. So that's sort of being the driver for the deferred revenue perking up.
In terms of modeling, I would say, model conservatively. But because but no, being tongue in cheek here, but I would say there would be a steady acceleration, I would say, over the course of multiple years where this metric will start working up and show up in the operating cash flow over time.
Understood. Thanks, Hitesh.
Our next question comes from the line of Sterling Auty from JPMorgan. Please proceed with your question.
Yes, thanks. Hi, guys.
So relative to the growth in revenue that you showed for the mid and enterprise customers, I was wondering if you could give us a characterization, what was the growth in the number of customers? And what I'm trying to get at is just wondering how much of the growth in that business is coming from the expansion as you've gone deeper in some of these bigger and bigger accounts versus how much of the growth is still coming from adding new logos within that part of the business?
Sure, Sterling. I'll take that. It's Mitesh. So the one metric we did give out, I'll answer it a different way, which is our actually, 2 ways I'll answer it. One is so both metrics, new logos are very healthy, going at the healthy clip, along with we had did have a record almost like a record quarter for upsells into the installed base.
We did say that about 40% of our business came from upsells into the installed base. And the net retention from our entire installed base in the upmarket was north of 130%. So if you put these together, what you're seeing is sort of a 2 pronged approach, wherein we are landing bigger and bigger logos. And when we are landing these logos, it's not wall to wall. So and they do give us the we do get a chance to go to the world multiple times.
So you're seeing the benefit of both those vectors playing into this quarter.
All right, great. And then on the solutions that you announced at Enterprise Connect in terms of the new solution, What portion of those are based on partner technology where there might be a revenue share? But just as important, which ones have kind of partner relationships where maybe you get exposure to their channels and maybe even more reach into the customer base?
Yes. Enterprise Connect, we announced collaborative meetings. We announced Pulse. Pulse, for example, is technology based on our own stack that allows us to integrate the contact center experience with the team messaging and collaboration experience by identifying key metrics and creating notifications into the broader organization. We also announced collaborative contact center, which does agent synchronization of teams with collaboration teams.
And the last one we announced was RingCentral Collaborative Meetings, which we discussed earlier. In the contact center, Juans, I think your question is, are we able to tap a broader distribution to deliver those solutions against. And there, we do have both channel partners and direct and that are selling contact center solutions. And with the uniqueness uniqueness that you can't achieve anywhere else and drives new business to us.
I will maybe add to that
a little bit, Vlad here. So yes, so what Dave said, of course. But I just want to point out that at this point in time, we have the only fully integrated communications as in cloud PBX, collaboration, Glip, contact center and state of the art VDI meetings
all under one umbrella. And while it's true
that we do use 3rd parties for some of this, obviously, majority is the trunk of the tree, which is we think is the hardest lift is communications piece. That's entirely ours as well as the collaboration piece. But in any case, we are the only ones that are able to offer this type of product today. So you can probably imagine that in as much as our providers, our suppliers are running into opportunities that require an integrated solution, there is only one place to go, which is RingCentral. And one example of that is with
the Pulse and contact center was influential aspect in Citizen Watch becoming a RingCentral customer.
That makes sense. Thank you.
Our next question comes from the line of Will Power from Robert W. Baird. Please proceed with your question.
Yes, great. Thanks.
Yes, maybe just coming back
to the contact center commentary. I know, Dave, in your prepared remarks, you alluded to the fact that was a key part of some of the enterprise wins. Maybe just any updated color as to contact center revenue, what the growth rate looks like? And just how important is that to enterprise versus bid market? Is that a key selling piece and do you feel good about the pieces you have there now?
Yes. Contact center is it's become because the buyers view it as there's many buyers that want an integrated solution, both Contact Center and UCaaS, it becomes a critical element for many enterprise deals. We talked about corporate travel management, very large deal, over 500 contact center seats. And these are becoming more and more common in our largest deals and are probably more likely than not to be included in our largest deals as we move forward.
Okay. All right. And then Mitesh, I just I want to ask you a question too.
I mean, it's great to see that operating margin expansion. I guess, if I look at the full year guidance, it implies I think it sits down more than 1 in Q1. I just wanted to kind of understand is that just conservatism or is that just a function of wanting to invest in some of these growth areas through the balance of the year?
No. If you look at the operating margin and operating profit, well, we actually took up the operating margin and actually the operating profit more than we beat in Q1. So despite so we will actually invest all the upside or at least part of it of the upside thoughtfully and go to market and further fuel the fire for growth and innovation. But despite that, we are actually raising the operating profit guidance for the full year more than the Q1 beat. So actually, it is a virtuous cycle and
I feel we feel pretty good about that.
Okay. All right. Thanks.
Our next question comes from the line of Catharine Trebnick from Dougherty and Company. Please proceed with your question.
Yes. Thank you for taking my question and congratulations on the quarter. Mine is around the APIs. Could you discuss where your or give us more background on where you view your leadership is in this area? And then how important is this to landing new enterprise accounts?
Thanks. Just more background on your philosophy and where you are in that. Thank you.
Yes. The open platform is
something we've been investing in for several years. It's more than doubling year over year. It's unique in the marketplace, obviously against legacy solutions, but even amongst all cloud solutions. We have over 10,000 developers now on the platform, 1,000 certified apps and the only one in the marketplace with an app gallery that you can see on the RingCentral site, over 140 apps in the app gallery that become critical for linking enterprise business workflows with communications in the organization. And we see that it becomes a key requirement in the vast majority of our deals, of our large deals.
So it's something that's catching on in the marketplace. Obviously, you can see it in the app gallery, but it becomes a critical decision factor for new accounts also.
All right. Thank you.
Our next question comes from the line of Brian Schwartz from Oppenheimer. Please proceed with your question.
Yes. Hi. Thanks for taking my questions this afternoon. I got one question and I'll follow-up for Mitesh.
One question I just wanted
to ask you on the solutions side. Didn't hear too much commentary on the industry solutions, but certainly commentary was very positive on the upselling motion for during the quarter. So just wondering if you can give an update on how the industry solutions, how their performance fared?
Hey, Brian, just to clarify, when you say industry solutions, what exactly does that mean? Your vertical solutions for the enterprise mid market segment, the healthcare financial services? Yes. So if you look at, we are targeting certain verticals like retail is pretty strong for us, financial FinServ is very strong for us, the tech sector is very strong for us. And at this time, we saw very similar results across all these verticals.
And we are doubling down on the sales segmentation over time, which will affect some of these verticals even more.
Thank you. And then, Mitesh, following up with you here. Question is just thinking about the leverage in the business and really just thinking about more the leverage within the infrastructure of the operations. Certainly understand the mix shift is great economics and there's leverage there. But are you doing anything internally there or are there opportunities that you see for efficiency as you scale the infrastructure?
Yes, sure. So we have been if you look at you've been following the stock for a long time, Brian. So you know when we went public, our gross margin profile was sort of mid-60s. Our subscription margin profile now is, call it, 83% plus or minus. So we have been seeing enormous benefits of scale over time.
You can only go up to 100%. And so we are there at 80% to 83%, which is best in class SaaS companies. If you now exclude the transportation layer of the business, our gross margin or the pro form a gross margin on the subscription line item would be close to 85%, 86%. So I think we are there best in class. Yes, can we eke out some more efficiencies over time?
For sure. But keep in mind, over time in gross margin, it's a story of puts and takes here, right. We also are going to be building out our infrastructure over time to grow even faster over time. So that will also have a neutralizing effect, that's 1. And number 2, as contact center takes share, that has a lower gross margin profile.
So if you net it out, I would hold the gross margin sort of steady over time.
Thank you.
Our next question comes from the line of Jonathan Kie from Summit Insights Group. Please proceed with your question. Great.
Thanks for taking my questions and I'll add my kudos to the core for the quarter results. I have two questions. One is more strategic, the other one is housekeeping. And Vlad kind of started touching on it, but didn't answer the question that I have directly. Relative to your collaborative contact center, it sounds like you're going to be pushing that more than your inContact solution going forward?
Or is that just still a very viable option in terms of what your sales force are going to be pushing out in terms of direct efforts. I guess I'm trying to see how that fits with your inContact partnership.
Yes. So I think the question is on
the collaborative contact center, which we mentioned earlier and announced last quarter. The Collaborative Contact Center is our current contact center solution that we partner with. It but it incorporates or, the team messaging and collaboration. So it's really bringing an integrated suite together and allowing that team messaging collaboration to be accessible by agents as well as elements of that contact center being accessible to the broader organization. So it's really an enhancement of our current relationship and an enhancement of that product.
So that's how we continue to differentiate our offering and provide this interest that customers really have in the integrated suite across all our products. We see this combination happening more and more with team messaging, PBX, video and web meetings and contact center.
Okay. All right. That was helpful. Clarifies in terms of the role and, yes, how the previous partnership plays in terms of what you're offering now. The other question I have is just more housekeeping.
I guess it's a reflection in terms of the traction that you're getting with the mid market and enterprise. Can you update us in terms of the number of 7 figure deals that you had for the quarter? And then also like the contact centers as a percentage of mid market enterprise new business? Sure. Who did that?
No worries. We can we did not, but I can take a shot at that. 7 figure deals, we've actually flagged and signaled that we are, Jonathan, moving away from the 7 figure deal because it's a choppy metric. And we actually gave a more relevant metric, which is our ARR metric for enterprise. And that ARR metric was $100,000,000 business, grew triple digits.
But to sort of give you color on the TCV deals, we saw no slowdown in these deals, even despite the Q1 seasonality. So that's one. And in terms of the contact center, we've not given the exact percentage out for the mid market, but it's sort of maybe in the high teens of bookings is the way to think about it.
Okay, great. Yes, that's what I have the last couple of quarters too. All right, thanks a lot guys. And again, congrats on the quarter.
Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to management for closing remarks.
Thank you all for joining, and I hope to see all of you at our Analyst Day on June 14 in New York. Thanks a lot.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.