Greetings. Welcome to the Alcatel Lucent Enterprise and RingCentral Strategic Partnership Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.
At this time, I'll turn the conference over to Ryan Goodman. Ryan, please go ahead.
Thank you. Earlier today, RingCentral announced that it will become the exclusive provider of UCaaS Solutions to Alcatel Lucent Enterprise. Joining me today from RingCentral, we have Vlad Shmunis, Founder, Chairman and CEO Anand Aswan, President and Chief Operating Officer and Mitesh Dhruv, Chief Financial Officer. Also joining from Alcatel Lucent Enterprise, we have Nicolas Brunel, President of ALE International Roop Mooney Glanert, Executive Vice President, Global Sales and Marketing and Musa Zaiddaud, Executive Vice President, Cloud Communications Business Division. Some of our discussions and responses to your questions will contain forward looking statements, including statements regarding the new partnership between RingCentral and Alcatel Lucent Enterprise and its potential results and benefits and the potential size of the UCaaS market opportunity.
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 slide deck on the strategic partnership with Alcatel Lucent Enterprise, a webcast replay of today's call and to learn more about RingCentral.
Unless otherwise indicated, all financial measures that are discussed on this call are non GAAP with year over year comparisons. With that, I'll turn the call over to Anand. Good
morning and thank you for joining us. We are excited to announce the strategic partnership between Alcatel Lucent Enterprise and RingCentral. I am also delighted to introduce and welcome Nicolas Brunel, President of ALE International. Nicolas, thank you for joining us today and welcome to the RingCentral family. Now for the big announcement of the day.
RingCentral will be the exclusive UCaaS provider for Altice Lucent Enterprise to address the needs of its customer base of over $40,000,000 to transition to cloud collaboration solutions. Alcatel Lucent Enterprise is a leading communications infrastructure and solutions company with a strong presence in Europe and beyond. And as part of the agreement, we will jointly introduce Rainbow Office powered by RingCentral, which is expected to be available in the Q1 of 2021. To make the migration seamless and easy for Alcatel Lucent Enterprises customers, we will be jointly developing automated migration tools as well as endpoint compatibilities. This partnership was driven by the huge opportunity to accelerate Alker to Lucent Enterprises' transformation to the cloud business with a world class UCaaS solution.
This need was further accelerated by COVID-nineteen. Needless to say, the partnership provides RingCentral the opportunity to address the needs of this different and complementary international customer base. In short, it's a huge win win for Alker to loosen enterprise, their customers and RingCentral. Now it's my absolute pleasure to turn the call over to my dear friend, Nicolas, for some additional perspective.
Thank you, Anand, and thank you all, and good afternoon from Paris. I am with Richemie Glanard, Executive Vice President, Global Sales and Marketing and Lucille Jacques, Executive Vice President, Cloud Communications Business Division that will be pleased to answer your questions later on. This is as President of EL International that I'll begin by providing a brief background on our company, followed by some additional thoughts on today's announcement. Our Catalyst Enterprise is a leading provider of communication, cloud collaboration and network solutions. We have over 100 years of experience in delivering customized technology to enterprise customers.
Our UC on premise customer base of over 40,000,000 spans over 100 countries with a strong market presence in Europe. We are also a UC leader in France. Aker Television Enterprise has been experiencing strong customer demand for end to end UCaaS solution and daily traffic. The ongoing COVID-nineteen pandemic accelerated the necessity for business to migrate from on premise communication systems to the cloud to enable their employees to work from anywhere. In RingCentral, we have a great partner who is a recognized leader in U.
K. S. RingCentral has a leading technology platform, global delivery capabilities and a large ecosystem of developers. With this strategic partnership, Alcatalysson Enterprise will be able to strengthen its position to meet the needs of our customers to modernize and transform their business communications. We are excited to expand our Randle portfolio with Randle Office powered by RingCentral.
This new offer complements the already wide portfolio of communications and cloud solutions for Alcatalysts and its partners and customers. This partnership will allow Alcatalysts and Enterprise to develop and accelerate on rainbow cloud strategy by focusing on development on our vertical differentiation, especially for CPaaS, private cloud and customized solutions. Grenbo Office leverages RingCentral's unified solution, combining team messaging, video meetings and cloud PubX. This provides our customers and prospects with a single global platform to manage their entire communication footprint. The transition from on premise to cloud communications will be cost effective as our customers can leverage their existing investments in anchor Teleficient Enterprise endpoints.
Additionally, the automated migration tools will reduce the complexity of this transition.
As a result,
Alpek Talison Enterprise can offer our partners and customers both public and private UCaaS as well as customized and vertical solutions to suite all their businesses. As for our community of over 2,900 channel partners, we believe Rainbow Office powered by RingCentral provides them an industry leading UCaaS solution and will enable them to build a strong recurring revenue based business. We are excited as the opportunity heads. And with that, I'll turn the call to Leb.
Thank you, Nicolas. We are very excited that Alcatel Lucent Enterprise chose to select RingCentral as your strategic partner, and we look forward to working together to streamline cloud communications transformation for your customer base. Cloud transformation of business communications platforms has become a priority as companies adapt to a work from anywhere environment. COVID-nineteen is having a transformative impact on how businesses communicate and has caused a structural shift to cloud communications adoption. We saw early signs of this strength in Q2 with strong business momentum along with an expanding pipeline.
As we look out longer term, we are uniquely positioned to benefit from this structural tailwind for years to come. In addition to having the industry leading message, video, phone or MVP global platform, we have passed out a distinct advantage with our unique distribution strategy of joining forces with key strategic partners. Each of our partnerships is complementary. Each partner brings a distinct installed base across diverse geographies. These strategic partnerships significantly expand our go to market reach across the globe by leveraging a combination of our industry leading technology with the strong brand loyalty and customer relationships of our partners that have spanned decades.
Joining go to market forces with these partners as well as providing a seamless cloud migration experience gives our partners a strong competitive advantage to meet the needs of their customers. RingCentral has become the clear platform of choice for this once in a generation industry transformation. This tangible market opportunity for cloud communications migration consists of over 400,000,000 users. Our partnerships put us in a pole position to address the cloud transformation needs of 180,000,000 of these users. Counter this with RingCentral's current installed base of just over 2,000,000 users and you will understand why I'm so excited about the long runway ahead of us.
As these partnerships ramp, we believe we'll be able to drive durable growth for many years ahead. We're excited to have Alcatel Lucent Enterprise join our partner ecosystem. Nicolas, thank you for joining us today for this exciting announcement. With that, let me turn the call back to Ryan.
Thank you, Vlad. We'd now like to open the call up for Q and A. As a reminder, joining us today from the RingCentral team, we have Vlad, Anand and Mitesh. And from the Alcatel Lucent Enterprise team, we have Nicolas Bernal, President of ALE International Roop Mooney Glynnert, Executive Vice President, Global Sales and Marketing and Musa Zagdub, Executive Vice President, Cloud Communications and Business Division. With that, I'll turn the call over to the operator.
Thank you. At this time, we'll now be conducting a question and answer session. Thank you. And our first question is coming from the line of George Sutton with Craig Hallum.
Thank you and congratulations on what looks to be a very logical partnership. My question is directed at either Nicola or Root. I'm curious if you could just explain the uniqueness of your customer base, the markets that you serve. I certainly know of Alcatel Lucent is very strong in France, but if you could broaden the discussion on the geographies and then also the types of customers that you serve, that would be very helpful.
Okay. So this is Rukhini Gajaj speaking. So at Alcatel Lucent Enterprise, we serve customers globally. We pride ourselves in serving verticals, so predominantly public and smart cities from a governance perspective. We are also very active in transportation, health care, education and hospitality.
And we bring the breath of breath when it comes to connectivity. So meaning networking, communication, on prem and cloud based services. So we do have presence in more than 100 countries as mentioned by Nicolas. And we do that indirectly with a very large ecosystem of partners that we have very loyal to us and serving those customers and integrating our solution on the customer side.
One other question, if I could. Will this be replacing an existing cloud offering or will this be a new cloud offering that you're taking your customers?
This will be complementary, but I would give the floor to my colleague Musa in charge of cloud communications. Musa?
Okay. Yes, good morning, good afternoon, everybody. Clearly, here what we are going to do is that we are going to provide rainbow office in all countries where we will be present clearly with one unique UCaaS offering. And in these countries where we
are the current
cloud provided from Eili, it will be replaced clearly in those countries. We're not having 2 offers. We'll have only 1, which is which will be the rainbow office offer there.
Our next question is from the line of Terry Tillman with Truist Securities. Please proceed with your question.
Yes, congratulations Vlad, Anand, Mitesh and the Alcatel Lucent team. Mitesh, my question is for you. Just given this opportunity, how do we think over the next 5 years that the monetization opportunity and how it could potentially ramp in terms of speed expansion through this relationship? And then related to that, how we think about it from a revenue perspective and how that will flow through the model? Thank you.
Sure, Terry. So if you look at the growth rate over the next 5 years, it's going to be a layered approach. It's going to be driven by 2 key elements. Number 1 is the baseline existing business we have today. And number 2 is, as you mentioned, the layering on of all the partnerships we have.
So let's start with the baseline first. So right now, we have about a little over 2,000,000 seats on the platform, which continue to grow very nicely above the overall market rate. And we do expect that trend to continue because that's what we are seeing here. Now you layer on the strategic partnerships of Avaya, Atos Unify and now Alcatel Lucent Enterprise, we do have a unique call option or competitive advantage to get 180 on premise 1,000,000 on premise seats. So as these partnerships ramp on the partnership side, even if you were to assume conservatively a low single digit attach rate on this $180,000,000 aggregate opportunity of seat transition over the next 5 years, the seat numbers get pretty big pretty fast versus what we have now, which is very, very underpenetrated.
So now if you tie it all together, the combination of our baseline growth, which we are growing nicely, and then you layer on the new partnerships, even without making any heroic assumptions here at RingCentral, it gives us a lot of confidence for a long, durable compounding growth story over time. And as it relates to your question on the growth rates, it doesn't take much to move the needle when you put it all together.
Thank you.
Yes.
The next question is from the line of Bhavan Suri with William Blair. Please proceed with your questions.
Hey, guys. Can you hear me okay? Yes.
Yes.
Great. Congratulations. I'll echo my congrats. This is a nice partnership on both sides of the equation. And certainly, Mitesh, you mentioned 180,000,000 seats is a big deal.
I want to touch on 2 quick things. 1, on the $100,000,000 you gave sort of this payment or deal amount. Just some color on what does that imply from a fee perspective and a relationship perspective? Just love to get a little more color on what about that $100,000,000 And then a quick follow-up.
Sure. So I'll take that. Yes, so we mentioned in the press release contractually, the $100,000,000 is for, I would say, 3 things: exclusivity to migrate the seats a minimum commitment from ALE and a prepayment from RingCentral side. So if you look at the nuts and bolts of the contract, given the large installed base, ALE felt comfortable to assign a portion of that as minimum commitment because it's we're targeting 40,000,000 seats here. So a portion of that is a minimum commitment from their side.
As a reciprocal, we have given some 3 tenants to migrate those seats. So it's a sort of a win win for both parties in that sense how sort of money is changing hands. But that's more from a contractual answer. If you look at from a strategic point of view of what we're getting for the 100,000,000 dollars it's I'll keep it simple, right? It's reach and scale.
ALE has a presence in 100 countries, and it's going to be a very cost efficient way for us to build a presence in those countries. It lowers our cost of acquisition and it's a pretty damn good return on ROI. And I feel that it's a pretty good use of efficient use of shareholder capital. So that's the way we think about it.
Got it. Got it. And so I'd like to just push a little further on the economics here and the synergies. So obviously, ALE gets a cloud based solution that's complementary. You guys get the seats, but I'd love to dig into the economics.
Is the $100,000,000 a little like what happened with some of your other partnerships? Should we all think of it as a prepayment on sales commissions? And then some sense of the economics of the deal, whose paper, etcetera, some color would be great there. Thank you.
Right, right. So yes, a portion of it, Bhavan, is going to be for prepay. Another portion is for the minimum commitment, which ALA has given. So it's a dual it's 2 things into 1. We've not broken down the exact specific on how much the prepayment is versus the other part, but you can just imagine there is we do feel comfortable prepaying for a lot of seats here given the opportunity.
And in terms of the economics of the deal, it's very similar to the other agreements at the surface level where, yes, ALE will be sort of a master agent for the other channel partners. And it will be on our paper, but it could be billed on behalf of ALE. And that's the way the relationship is going to work.
Got it. Thanks and congrats everybody.
Of course. Thank you.
Next question comes from the line of Brian Peterson with Raymond James. Please proceed with your questions.
Hi, everyone. Thanks for taking the question. So clearly, there's a lot of growth opportunity here. Mitesh, I know we've had some comments on prior calls on the margin expansion, but if we're really looking at kind of 90x the seat opportunity, does that actually warrant maybe keeping margins flat or going the other way? I'm just maybe thinking about what investments are needed to kind of ramp a lot of these opportunities up and how we should think about that for the next few years?
Thank you.
Yes. No, I think it's a fair one. And it again comes down, Brian, to unit economics, right? So if you look at the inherent cost structure, it's very accretive to our overall margin structure because we have a lower upfront cost of acquisition and a much higher lifetime value of customers given the lower churn dynamics in these partnerships. And once the partnerships ramp, it's going to be very, very accretive to margins.
Initially, yes, there is some investments obviously to put these partnerships take these partnerships off the ground. If you look at the 2020 guidance on margin, we had already contemplated these investments in our guidance. So if you look at if you strip it out, our profile our margin profile is even higher organically. And that sort of speaks to this power of these partnerships where it's you get scale and reach at a lower cost of acquisition.
Understood. And Mitesh, maybe one follow-up and pardon me because I haven't had any coffee yet. But you referenced 40,000,000 customers. I just want to make sure customers and users in that case are the same number. So we should think of about 40,000,000 users.
Exactly, 40,000,000.
That's right.
Got it.
Got
it. Thank you.
Yes.
Our next question is from the line of Samad Samana with Jefferies. Please proceed with your question.
Hi, good morning. Thanks for taking my questions. This is clearly another exciting announcement. Maybe one for the Alcatel Lucent team. You maybe give us a little bit more insight into the base, what the average customer size looks like and or maybe what the mix is based on 5,000 plus employee organizations versus under 5,000 employee organizations?
And just maybe what the age or duration is in terms of the last time customers have upgraded and what that cycle the upgrade cycle
So basically, today, we overall cover a wide size in terms of installed base. We are in the market of what we call the SMB that we do qualify as being below 250 seats and we have customers above 250 seats. The split of our installed base in that domain is about 60% in the SME space and 40% in the M and A space. We are with Essential looking at addressing this entire market share.
Great. That's really helpful. And then maybe a follow-up for Mitesh. I know the economics question, but if I could just maybe get a sense of for the $100,000,000 that the portion that represents minimum seats, is it what's the time horizon for that minimum? Is it expected to be a minimum commitment for 2021?
Or is it a minimum commitment over the course of the partnership? Maybe just help us understand when that minimum is set for?
Right. Hey, Samad. Good morning. So the minimum commitment is over the life of the contract with some milestones throughout the contract.
Okay, great. Very helpful. And thanks again for taking my questions. I'll pass it on to the next person.
You bet.
Next question is from the line of Catharine Trebnick with Colliers. Please proceed with your question.
Colliers. So it seems like to me with these latest partnerships that you all are really looking at Microsoft as your primary competitor. So you could put a finer point or more color around that thought and who you is that really your intended goal? And is that and that's the question. Thanks.
This is Vlad. Let me maybe take that at a high level and other people, Vivek can jump in. Look, this is not about Microsoft. Of course, Microsoft is there. Microsoft is both a competitor as well as a partner, especially given the latest announcement of indefinitely delaying the phone part of Microsoft Teams.
But I really want to be very careful here. This is not about Microsoft. It's about converting 40,000,000 users out of the worldwide installed base of 400,000,000 users. It's about putting us in a poor position to move this community to the cloud. And given our other partnerships in place, we now have a clear shot of converting upwards of 180,000,000 users.
So that's almost half of the installed worldwide installed population converting that to the cloud. We would not be surprised if some, maybe many of these accounts will end up sharing with Microsoft because many of them may some of them may be running Teams. But certainly, as far as PBX replacement is concerned and real time communications in general, We feel that RingCentral has a much differentiated technology, world class, world best according to many industry analysts. And this is why Alcatel Lucent Enterprise is choosing has chose us as their partner moving forward. And we believe that this is exactly why our other strategics, namely Atos and Orion have made a similar decision.
So I hope this helps.
Thanks for answering that and congratulations, Catherine.
Our next question is from the line of Sterling Auty with JPMorgan. Please proceed with your question.
Hi, this is Drew on for Sterling. Two quick questions from me. First, how long is the agreement? And secondly, how modern is Alcatel's customer base in the sense as how easy are they to
Mitesh. I'll take sort of both of them and Nicolas can chime in. So the contract is a multiyear contract. That's the amount that's the level of detail we've given, but you can sort of figure it's multiyear. And in terms of the installed base, I think the way I'd characterize it is, Arkel and Lucent Enterprise, they have good relationships and visibility into a lot of their seats, almost all their seats.
And I think we feel very good about penetrating their installed base over time. Nicolas, if you want to add anything, please go ahead.
No, correct, Mitesh. Just to add on what you were saying, we have a very low yield installed base. The renewal, I would say, of this installed base is a rotating element over a period of time. And we have very strong partners taking care of those customers and basically being the trusted advisors in terms of what to implement next. And yes, we are envisioning to convert a number of those customers during the duration of the contract.
Got it. Thank you.
Next question is coming from the line of Matt Van Vliet with BTIG.
Hey, guys. Thanks for taking my question. Maybe just thinking about this in the broader RingCentral portfolio here, but they talked about 100 countries that they're serving now with the well over 2,000 partners. Curious how that overlaps from a geographic expansion or reach for you compared to what you've built out organically? And then also with some of the key markets that whether it's Avaya or Atos, have opened up for you, across the world and maybe what this brings, either more strength
or? Vlad, again, let me just maybe take it at the high level again. Look, these partnerships are mostly about converting existing installed bases to the cloud and namely to a residential cloud office solution. So from that perspective, each and every one is complementary with Avaya's 100,000,000 seats and Atos and ALE having approximately 40,000,000 seats each, those are the world installed bases. So we're working with these 3 strategic partners individually with going after those bases.
Now as Anand and Nicolas, I think, already mentioned, we are going over and above simply providing our UK solution. There will be migration tools that are partner specific. There are endpoints that each of our strategic partners currently have in the field. So this, of course, will be supported based on the differentiated individual versions of this technology. Now as far as geographies are concerned, yes, of course, there is some overlap.
But again, the user bases are distinct. In many cases, channel partners are distinct. And overall, the net is we see this as being almost purely competitive with usually a little overlap.
No, the only thing I was going to say is, Alrik, Nicolas should jump in. Alrik, the Alrik, also here in this instance brings in a lot of differentiation like they have a new transformational approach to their customers. They bring in CPaaS, collaboration, hybrid cloud and vertical focus like innovations across, I think, Rukmini said earlier, education, transportation, healthcare, hospitality and so on. So that's a unique differentiation and across their customer base, which makes a difference as well.
Great. And then maybe one quick follow-up on at least the time to development and some of the commingled resources that you're going to have here. How much of this is able to leverage on what you've already been doing with some of these other partnerships knowing where some of the maybe the pain points are or some of the more complex areas of developing these migration tools? And is this going to be sort of more readily and more broadly available from the start? I know the timeline looks to be a pretty quick turnaround here.
So congrats on that.
Yes. This is yes, go ahead please.
Yes. I was just going to say, yes, I mean, you learn from every partnership, right? So that's why we expect the first product to be out towards the end of Q1 2021 launching in 8 countries across Europe. So and obviously, along with that, just sort of right after that, we expect the automated migration tools, the endpoint compatibility, all of that to be available. We obviously learn from every partnership we do and we become quicker and better and faster.
I just
wanted to maybe quickly add to that I'll just address the technology assets from an Essentials perspective. By having these partnerships and having multiples of these partnerships, we do feel that it provides for an additional differentiation and an additional moat to our technology because our ability to go with core brands while fully satisfying each partners, both brand values as well as other assets having to deal with, again, their endpoints, the way that on prem PBSs, whatever data is contained in them, IVR keys, messaging, etcetera. So this is all part of our migration tool strategy. Sitting here today was simply not aware of anyone else having had exposure to these assets and having developed a platform that allows for fairly streamlined adoption as we onboard every partner. This just loops back, links back to what Alan just said where every motion, of course, is we leverage all of the learnings, but also all of the technology that we have developed.
There's a lot of technology in our ability to provide a co branded differentiated solution that meets expectations of both the installed customer base as well as modern companies who are wanting to complete the digital transformation and move their unified communications to the cloud.
Thank you. Our next question is from the line of Jonathan Kees with Summit Redstone. Please proceed with your question.
Hi, great. Thanks for taking my questions and I'll add my congrats.
I guess I just have a
couple of clarification questions if I can here. I heard this is UCaaS, that's pretty clear so what this agreement this partnership is for. And then it sounds like video is included, and I'm assuming this is RingCentral's video in analytics. This doesn't include CCaaS? And yes, that's first clarification.
And second question is, how does this impact the current RingCentral go to market team in Europe? Are they told now to just focus on non ALE premise customers? Or are they going to be working in collaboration with ALE's sales force? Thanks.
Yes, I'll take that. This is Anand. So first clarification, you're right. It includes the video is RingCentral's video and the current construct doesn't include CCaaS. And in terms of existing direct sales force for go to market, right now, the enterprise footprint for Alcatalysts and Enterprise is very complementary to us.
So what we have done as RingCentral really well, I feel best in class in the industry, is how we have defined the rules of engagement, which are designed very specifically to promote channel harmony on how we work and our partners work with our strategic partners and their channel partners. So what it does is it makes sure that there's no significant channel conflicts and quick resolutions happen. And so we feel very good about our channel program and how it actually brings everyone together in a fairly complementary working capacity. And that's been working for us really well. So that's and we expect that to continue with how we work with our capabilities in the enterprise.
Great. Sounds good. Good luck, guys. Thanks.
Our next question is from the line of Jeff Kvaal with Wolfe Research. Please proceed with your question.
Thank you very much. This is a question perhaps for Nicola on the AOE side.
We don't necessarily always have
a chance to speak to people who are on the ground in regions outside
of the U. S. So could you help
us understand a little bit about the color behind your comment about the pandemic tailwind
and how you feel like that pandemic has changed your the tenor of your conversations with your customers over the
past 6 months? Thank you.
Hi, Ken. Thank you for the question. So indeed, the pending change in the sense that it made accelerating the reflection about remote working for a number of companies and we have seen the need to add more capability to business continuity capabilities for the enterprise. Adding RingCentral in our portfolio allows us to have a larger offer going on top of all the rates that we do propose, Of course, on time solution, but also feedback capabilities, vertical solutions that helps to address those specific needs. The addition of Rainbow Office OR by RingCentral allows us to add on top also the traffic dimension, the video like it was presented in the previous thing all embedded in one single thing.
So really helping this support of the enterprises that they do need to build the future, connected to their business processes and with again our vertical approach in the different verticals that we're mentioning earlier allows us to really differentiate on the market.
Okay. Would you say that is there any way to quantify how much of an uptick in activity perhaps you've seen during the pandemic?
We are not commenting on that dimension, but clearly we have seen a real boost for all the remote capabilities of our solutions and also about all what is protection of employees. So also on-site, we have seen growth of solutions like, for example, isolated worker, which was to ensure distance between people, we ended up with people working isolated in enterprises. So we saw all those elements that have been impacted by the pandemic situation to grow in terms of needs because also really an impact on the business.
Thank you very much.
Thank you. At this time, this will conclude today's conference. You may now disconnect your lines at this time, and we thank you for your participation, and have a wonderful day.