Okay, first time for that. Anyway, guys, thank you all for coming to the RingCentral presentation. If you don't know me, I'm Mike Funk, one of the SMID Cap software analysts here at Bank of America. Really pleased to have our speakers here today. I'm sure most of you all know Vlad, one of the early pioneers, really visionaries in the space. You know, real pleasure to have you here. Also, Vaibhav, the Deputy CFO at RingCentral. Once again, thank you both for coming.
Thank you.
Thank you for having us.
Yeah, of course. If you don't mind, I would kind of kick right off with the questions. You know, RingCentral is marketing itself today as a, you know, voice-first, multi-product AI company. I want to better understand what that means exactly and how it affects your go-to-market strategy.
Yeah. Yeah. For those of you new to the story, we are one of the original players and a leader to this day in business communications, severe as a cloud. We are born as a cloud company. I'm the original founder. We started with a nice round number of zero. We are now a $2.5 billion revenue business, growing in mid-single digits with in excess of $500 million of free cash flow annually. That just summarizes the last 25 years of that. How did we get there is we're leading in business voice. Business voice also happens to include business text, a bit of business fax to this day, some video meetings, et cetera. It is voice-led in our case. We have been defining and leading in this market for literally a quarter century. Then this thing happened called AI.
We were early with AI. We started acquiring in that space either pre or early into COVID. This gives us a good, you know, five years or so at this point. We have recently changed into a multi-product portfolio company. We have added a contact center product for the SMB market. It's called RingCX. We have added a number of products in the AI space, all of them monetizable and currently being monetized. They cover all aspects of a customer-provider interaction pre, during, and after a call. Okay? In the pre-call space, we have a brand new product called RingCentral AIR. Stands for AI Receptionist. Strictly speaking, it's in controlled availability still to this day, but it's soon going to go general availability.
It actually replaces a human receptionist, which is, you know, actually unique for anyone in the space to have this capability deeply integrated with the base product, okay, with the core product. We have something called AI Assistant for during call, okay? Think of it as a copilot and RingSense for after call. We have it available for both RingEX, which is our employee interaction platform, which is also our original product, just renamed, and RingCX, which is our new contact center product. We have been busy. We had numerous new product introductions last year, first time in our quarter century history. All of our products are either AI-led, AI-first, or just pure AI like AIR.
Now, it's a great segue then as well. You mentioned earlier, I think, you know, 25 years and, you know, being one of the first really in the UCaaS space. And I've been covering communications for a similar amount of time. I wanted to touch on TAM and how you think about expanding your TAM through whether it's adding RingCX or AI products like you mentioned earlier. To kind of frame it, I've always thought about the enterprise communications market of being roughly kind of a $100 billion plus or minus market, right? The products that may have shifted over time within that TAM, but the size of the market remained relatively the same. If that framework is correct, how do you think about expanding your own addressable market?
Or is it more of that, you know, you're trying to add more products to, you know, to maintain more stable spending with customers over time where the market remains relatively the same, but you're just trying to maintain market position? Maybe help, you know, address that view the market may have.
Yeah. Look, I mean, we started out by moving PBX seats to the cloud. And that's your $100 billion opportunity, which is still, you know, under-penetrated even after all this time. We have a 20% share, which is the leading share and holding our position in cloud telephony, cloud business telephony, okay? But we're at $2.5 billion, you know? This is as far as paying seats are concerned. This is independent research from Synergy, okay? Then you have, you know, a well-known place. You know, you have Microsoft, you have Zoom. They actually have smaller bases as far as number of seats are concerned, which are specific telephony seats. But you add all of us together, we are, you know, about 20 million seats maybe altogether. And that was a long tail, okay?
There still is a lot of room even as the original market. But, you know, it is a relatively slow process. Still moving from on-prem to the cloud, but slower than, you know, one would like. Having said that now, now we are expanding into other TAMs. There is a contact center TAM. It's generally sort of being somewhat smaller than UCaaS or than UC, I should say. It is faster moving currently. It's also a slowing market, especially because of AI with AI coming in and replacing or having or threatening to replace human agents with AI agents, okay? That's kind of this middle category for us. It's still a strong tailwind for us because we are gaining share. We're holding our share in UCaaS. We're gaining share in CCaaS. You know, the great new opportunities with AI and agentic flows.
When consumers contact their providers, they mostly do it via voice. This shows no signs of abating. You know, you still tend to, you know, call or maybe text your doctor's office or, you know, your financial advisor or what have you.
It's still the primary means of communication.
It's still the primary means of communication by far, which is a bit different from enterprise where obviously video and meetings are taking more route. There is still a very, very large opportunity there, okay? When people place this call or text, who is answering the phone? We are answering the phone. This puts us in a very unique position to deliver agentic workflows into this, you know, giant TAM. This TAM is measured in, you know, tens of billions according, you know, according to Gartner and others.
Of course.
But it's very, very early, all right? So, you know, we said that our new products, which include all of our AI portfolio plus our RingCX, we said that it's going to be at a $100 million run rate ARR by end of this year. We're well on our way to do that. I guess Salesforce just announced that they're at $100 million. Well, they're a few turns larger than we are. It just shows just how early it is for everyone. Again, our position is differentiated. We're the ones answering the phone. We're the ones fielding this text. We're the ones with this global network behind us and understanding what actually happens on our network, on this network, you know, when customers actually utilize it.
You're the disruptor as well in the industry.
We're an absolute disruptor. We will be absolutely disrupting the contact center industry. Us and, you know, many others. This is disrupting itself. I mean, all of the providers, you know, Genesys, inContact, you know, Five9, they're all talking the same thing. Where we're differentiated is we have the PBX angle that they do not, okay? That's a giant market. In the CC space, we are, yeah, we're actually the number four provider by revenue if you include our NiCE and inContact relationship. Our new product is filling this very important niche of smaller contact centers. By the way, as AI takes more hold, one would think that more and more contact centers will be deploying less humans, which again plays into our strengths.
I want to get your thoughts on that in a minute. Just sticking with contacts or AI in general, I mean, the thesis that, you know, technology catalyzes change, meaning that AI could actually be making contacts and operators think more about switching providers, right, as they think about AI and the potential. We've heard from some of the larger CCaaS companies you mentioned that AI has impacted their own sales cycle, indicating it's causing some pause in decision making about re-signing or renewing contracts. Are you seeing that in your own business? Maybe you're seeing churn increase or, you know, more funneling opportunities for your own business or people looking to switch to a RingCX because of AI?
Yeah. Look, we do not have that many contact center seats to protect. I can absolutely see how a pure play contact center, especially, you know, in upper segments, will be feeling this uncertainty, you know, do I need to sign up for more seats when I can as well, you know, replace with AI? I can tell there is a sizable company in our own, right? And we, you know, we have well over 1,000 agents, you know, humans, you know, supporting our platform. We are not growing that workforce anymore. You know, we are not shrinking it yet, but we are not growing. We are kind of in the same camp, you know, you can see the other side of it. The vast majority of our business is person-to-person communications. What AI does, it actually gets more calls to be connected, not less calls, more calls, okay?
Because rather than just leaving voicemail, you know, which many people do not even want to leave voicemail anymore, you know, just hang up, instead it will engage you and either answer your question. I am describing our AIR product now. You know, it will engage you, either answer your question directly or in the end direct you to the right person without, you know, having to go to voicemail because the receptionist was not there to pick it up. We are actually seeing exactly the opposite. We are seeing stronger traffic patterns. We are seeing better retention, better share of wallet. I think that was part of your question.
Yeah, it was.
As we are going from a pure play telephony into multi-product, which absolutely includes and now is being led by AI, we see both new opportunities, so larger TAM or TAMs plural, as well as better share of wallet from the base.
You mentioned earlier AI disrupting the human contact center agent. You primarily serve the mid-market with RingCX, not targeting large enterprises, right? Are the SMBs more willing to go, you know, all in on AI and replace the human agents than the larger enterprises? I guess, you know, how does it impact your revenue opportunity longer term if they are willing to just completely, you know, disrupt or displace the human agents faster?
We do not see that. We have heard this rhetoric. We currently do not see that. I mean, we will see what the future brings. I can tell you that many small businesses I talk to, like personally, they are saying that it is actually exactly the opposite because this is how they differentiate, is the human angle. They are actually saying, no, no, no, we want people to talk to people, but can it be AI assisted? We are not getting much pushback, actually a great amount of take for our new AIR product because we are not positioning it, we will replace your agents. We are positioning it, hey, your receptionist, this human person, you know, you have got like one off. And, you know, if he or she is busy on the phone with someone else, what are you going to do? You know?
We will pick up the phone, but then AI will figure out the connectivity part, you know? With larger enterprises, again, which we are an example of, actually there is more savings to be had. You know, the agents are a bit more impersonal too. Look, it is not just support agents, it is sales agents as well. Everyone can be augmented and made more productive with AI. The AI is redefining itself every quarter or so this year.
Yeah, of course.
What makes us, we believe, in a very interesting position is the fact that we have this, you know, very sizable, very differentiated network. We have our brand and, you know, Google and Amazon and OpenAI, you know, they keep, you know, iterating on the base engine, on, you know, on the foundational model, which is getting exponentially better, you know. As far as deployment in actual use cases and actually putting it in front of the end consumer, you know, we're not absolutely unique. There are other large networks out there, but we're one of them.
You are a trusted partner as well. They already know RingCentral.
We know, yeah. I mean, we're known as a voice leader, you know, over the last quarter century.
I wanted to shift gears a bit because I've always viewed your partnerships as a differentiator. You know, obviously large global partners that you've established over time. I was sitting down with AT&T two weeks ago with John Stankey, actually. He told me one thing I thought was really interesting, that they were leaning back into SMB after years of deprioritizing that market, maybe not paying attention to it. They've decided that, you know, leaning in and growing that part of the market is really important to them. It made me think about RingCentral when he said it because you have a partnership with AT&T. Specifically, you know, are you seeing any impact in your business through that partnership and AT&T's decision to lean back in?
Maybe more broadly, you know, how important are your partners today in your, you know, customer acquisition, growth additions? Where is the opportunity?
Yeah, we speak of TIP or Trust Innovation Partnerships, so peaceful partnerships. Absolutely uniquely important. We have over 16,000 channel partners. And that's individual organizations. So that's like 100,000 +, you know, feet on the street. Where we have an absolutely differentiated presence is with global service providers, of which AT&T is one of and happens to be our longest running relationship. It is completely symbiotic because what John is saying is exactly right. They happen to be AT&T, but many, if not most, service providers, they're tending to, you know, to smaller businesses. They all would love to get their share of the enterprise. There are just fewer accounts to be had.
Of course.
You know, small business is a backbone. It's a backbone of this economy, 40%+, you know, according to, you know, census. It is certainly a backbone of every Western economy I can think of. I strongly suspect that if it gets outside the Western economies, it's even more pronounced, you know? They need all of this technology and all of this innovation that service providers themselves are not delivering. You know, they're delivering networks, they're delivering connectivity, they have their brand names, you know, but not core tech, not high tech. That's where we come in. And we have, you know, about what, a dozen or so, you know, we'd urge people to go to our investor site and, you know, we actually list them. But it's AT&T and British Telecom and Vodafone and Telus from Canada.
We used to have two out of the large MSPs in the U.S., which is chartered POCs. I say used to because now they're emerging, which is good for us, you know, because now there will be a yet larger footprint and, you know, more uniform motion for us. That's millions and millions and millions of seats that they already have, like each of them already has, that, you know, many of those were running on BroadSoft of old. Cisco acquired BroadSoft. That product firstly was not cloud, was not really, was not and is not being innovated on.
Very legacy end-of-life technology, right?
That is what we see. That is what they are seeing. And, you know, I do not know, Cisco, whatever, I do not want to speak for them. But we find that, you know, we find that we get our fair share or maybe more in that market. We are the only other provider, you know, with like a repeatable motion there. We keep signing up new providers and delivering new technologies. What is very, very interesting, and it was not obvious to us initially, is that all of them are either signed up or signing up for basically our entire new product portfolio. Okay? I think that is going to be, look, it is early. I do not want to sort of overheat expectations here.
Of course.
We're pretty enthusiastic about it.
Okay. You sound very positive about it. I want to talk about the competitive environment for a moment. When I first started covering you, one thing I highlighted was I felt that your more complete product portfolio was also a strength. I think it still is. Since that time, you've seen, you know, Zoom launch their own contact center offering as well. You know, NiCE is now offering, you know, Voice, maybe a slimmed down, scaled down version of that. You know, it's a real convergence, I think, of offerings and, you know, maybe not completely similar products, but you're competing for the same customers in a way. You know, what are you seeing with competitive intensity? How does RingCentral continue to differentiate itself versus those competitors over time? Is it going to be the market focus, the size of customer?
Is it going to be, you know, is it going to be price, product portfolio, partnerships? You know, how do you think strategically about that within that construct?
Yeah, I'll give you a multifaceted answer, I guess. One is, you know, I'm sure I've been speaking over years and I believe this. Look, numbers don't lie. Again, go to our investor site, look at our market share, right? You can see that everyone is holding, everyone is holding their market share about steady, with the long tail being a net loser, okay? We're holding our 20% and, you know, Zoom's about half of that. Microsoft for paying seats is super hard to get. Yes or yeses, but there are some with belows. There is Cisco. Cisco actually has been picking up a bit lately, but we don't expect this to continue because they're just converting their own on-prem base into their own Webex calling. We very rarely see them in head-to-head, you know, competition.
Sure.
In the UCaaS space, I think, you know, it's pretty well settled what it is. Net loser, like I say, are smaller companies. I think they'll find it harder and harder to compete. Fortunately, we're not one of those. In CCaaS, you say Zoom launched their own. Zoom actually launched theirs before we did ours.
Yeah.
From what we can tell, we're growing a bit faster. I think they've announced 1,000 accounts a couple of years into, you know, into their life cycle. We did that within a year, okay? We think we're extremely well positioned in a smaller contact center space with our native product, just more natural to us. I mean, Zoom is still coming in more from the video side of things, at least historically, you know? In the upper end of the market, you mentioned NICE. We happen to have a long-term relationship with them as well. We've built a very successful joint product, which we sell on our paper, called RingCentral Contact Center, but it's powered by NiCE, but it's closely integrated with RingEX. It's a unique proposition in the market.
Best in class UCaaS plus best in class or one of the two best in class CCaaS closely tied together. You mentioned they have their own UCaaS. They do not. They have partnered with a very small company. I do not know. You will have to, you know, we never see them. I can tell you that with the change of management on NiCE's side, there was a change of CEOs. Relationship has been substantially improved. We are optimistic that this product will continue staying in the market because it is unique. You know, people who want an enterprise-grade PBX in the cloud combined with enterprise-grade contact center also in the cloud, just like they used to buy from Avaya and Cisco now through the cloud, there is only one thing like that in the universe. That is this product, RingCentral Contact Center. It is a $300 million-plus business.
We had a hiccup in the relationship. It's being patched up now.
Okay. I wanted to stay on NiCE for one minute. Maybe I've learned two more after that. You mentioned the change in management. You've also had a change in growth, at least in the cloud piece of their business, you know, and having projected more, you know, more high teens. And now it's been maybe falling a little short of that in the interim for various reasons. Has that impacted your revenue growth as well, just given that partnership and the Voice component that you were contributing? Are there maybe ways to offset that headwind if it has in fact been weighing on growth?
It absolutely has been weighing on our growth and on their growth. You know, our way was to, you know, do more CX. You know, we were successful in getting the same double digits. I mean, CX is double digits too, but it's quarter over quarter, you know? We'll continue that motion. It was also very clear to us from day one that it is more of an SMB product. We never said to fully replicate what NiCE has or what Genesys has because they're there already. They have a head start and it's super hard. We just saw this opportunity in the down market while keeping the NiCE relationship intact. I think that, you know, I mean, there is a CEO change and kind of philosophy change maybe a bit. Also, they're seeing the numbers. Like we're seeing numbers.
They're seeing these numbers. These seeds that we used to get, they're not going to NiCE. They're not going anywhere, you know? They're just sitting on prem because there is nowhere to go. I strongly believe it's mutually beneficial to continue the relationship because they know where I stand on this. It feels like there is reciprocity at this point.
To your point, you felt the management change maybe renewed or improved that relationship, so greater opportunity in the future.
I mean, we didn't know. I mean, you guys and you guy, but yeah, he seems to be much more business-oriented, I would say, less emotion.
Sure. That's good. That's good to hear.
Yeah.
You know, I want to stay with an idea about, you know, product portfolio and strategy and competitiveness and, you know, your thoughts and if you can meet all of your goals organically or maybe if there's opportunity or even necessity to something inorganic, right? You mentioned certain smaller long-tail companies and portfolios and technologies out there. So what is your thought on that?
There's no necessity. We're a large, healthy company. We're able to meet all of our obligations. We're on record as saying that we'll be bringing our gross debt down to under $1 billion by the end of next year. See how things play out, but we will at least meet that. Let's say that. You know, we're spending $250 million on R&D. That's a lot of money. With that, we're able to innovate rapidly. Having said that, always opportunistically looking, always opportunistically open. Some assets are priced more reasonably than others. You know, we're not trying to bottom, you know, scrape, but we also don't want to buy something at, you know, 40 times revenues, which is what some of these other assets are trading at. I think we're in a kind of okay, you know, Goldilocks spot maybe, you know?
We have done acquisitions and they've been largely successful. All of them have been tech and acqui-hire type acquisitions.
Likely not buying a subscriber base, which can be messy and seen from others that can be challenging with the churn. I think I have time for one more question and, you know, really important to investors, I think, probably to yourself as well being the founder and large shareholder. You mentioned that you're delivering, you've addressed a lot of the expense in the base. You know, you're already investing pretty strongly in R&D. You know, how do you think about kind of prioritizing and returning capital to shareholders or making the value in your stock more evident maybe for investors that don't see it today at the very attractive free cash flow yield?
I do not know what else to do but to keep on executing, you know?
Maybe you institute a material dividend or, you know, large share participation, anything to kind of return capital to shareholders, maybe to refocus investors on the value?
Yeah, look, all of this is under consideration. You know, your bank and every other bank is suggesting things.
Everyone has ideas.
Everyone has ideas, but I can't say that they're all that different on ideas. Look, we got this debt we need to pay down. You know, do we pay it down to zero? We're already two turns, 2x, you know? Like to bring it down to 1x. We'll see what happens. 2x is investment grade. 1x is, you know, A plus plus, whatever. Let us get there. We are buying back shares. We were able to bring our share count down last year. I forget the year ago as well.
Yeah.
Okay? That is, we think, very healthy. That is a form of returning capital. Dividends is an absolutely very interesting, you know, question. I would absolutely not rule it out, you know? I just, you know, I would like, I know that I, we and I have made a commitment to bring gross debt down to below $1 billion. I would like to do that.
Quick yes or no question. You know, pretty stable business model, growing top line, strong margin, strong free cash flow, could probably handle more leverage as a private company. You know, would being private ever make sense given what the valuation is? Even if it's cheaper, is that something you would consider through an MBO or an LBO?
Sure.
Okay. Great.
Yeah.
That was it. Thank you, guys.
My thanks.
That was all the time.
Thank you.
Glad to have you.