Right. Excellent to see the entire team here. Thank you so much for spending your time with us. Thank you for joining us as well. Vlad, you always get the same question from me at the start of this conference. I think we've been doing this for four years in a row: 2022, 2023, 2024, five, five years. Four years, sorry.
I think that's a year.
Ten years, yeah. I don't ask you the same question all the time, but this time, fourth year in a row. What does RingCentral look like four to five years from now?
Same answer. We're still around.
Yeah, OK.
We're still in the lead on business voice. Nobody gets to ask anymore if AI is going to kill us, AI is going to make us, remake us. You know, we're a large, healthy, growing, profitable company.
you expand, if you don't mind, on the AI piece? That is the debate right now. You know where I stand on the debate. I'd love to understand, as a Founder and CEO of the company, why are you so deeply convicted that AI is not just not going to kill you, but is going to, if I could paraphrase, rejuvenate the company. Why are you so confident that it will be the case?
I mean, it is now.
Yeah.
I mean, we're seeing this firsthand. I never saw any rationale for AI killing us. If anything, maybe for traditional contact center companies, your agents are going to go away because virtual agents are going to take over. That's a maybe. Even that's probably a little premature. For us, look, we're making people connect. We're making people connect to their service providers, to businesses. Humans are going to be involved. AI can make these interactions a lot more proficient, a lot more valuable, both for the consumer and the service provider. We are the ones most upstream in those B2B2C interactions. People call their businesses, people text their businesses, and we are the dominant provider in that. What we're able to do is we're able to add value before a human picks up, sometimes instead of.
Interestingly enough, with our new products, with RingCentral AIR in particular, we're actually seeing more human-to-human connections for those accounts where it's deployed.
Why is that, Vlad?
Why is it? Because basically, people hate to leave voicemails. It's not a thing.
When was the last time anybody left a voicemail?
That's one good question. Here's another question. When was the last time that you, you know, you picked up, that you called someone, there was no one to talk to, and you hung up rather than leaving voicemails? See, that's the thing, people just hang up. All right. That's really bad for a business because it could be a lead, it could be a customer that needs an upsell or just has a question. It's just not good for a business. AI makes those connections better. It doesn't make them go away. It can answer simpler questions, you know, directions, set up appointments, your price list, work hours, things like that it does fine. You don't need a human for that. Once it gets deeper, at least for the foreseeable future, you still need to talk to someone.
AI can make that connection happen in a lot more seamless way than without it. OK, leave me a message, don't call, you know, we'll call you. We're seeing that. In the CX space, it's actually the same. We're a user ourselves, right? We have AI fielding our calls for the company. Our agents are more productive, you know. They're able to answer more questions, move more product, if you will. They're not going away.
Kira, let's move to you. What are your mandates, key mandates in the years ahead? How has your job changed at the company?
In the last year, it changed significantly.
Yes.
Now, having the CEO position, it's about creating profitable growth. It's making us do more with less, like basically we're enabling our customers to do. That comes to creating more products faster, innovating faster with the help of AI, by the way, and maintaining and improving our margins and stabilizing and accelerating our top line. I think the numbers are kind of speaking for themselves.
Sure.
AI plays a critical role in that.
I think the target was $100 million in exit ARR for the new products in 2025. How significant is the AI component of it? How confident do you feel as somebody running products that you feel it's challenging anybody?
We're very comfortable with the target.
We're optimistic we'll exceed it. You know, leave that announcement for another day. It would not be happening without AI. The largest product by volume there is RingCentral Contact Center, which is a contact center product.
It is an AI-first contact center, and the rest of the portfolio is just pure AI.
Yeah.
AIR, RingCentral, AI agents, like that. Even those are just the parts that we're monetizing. There is a lot of AI in the core product that we're not monetizing directly, that is just, you know, leading to better user experience.
Got it. Vaibhav, you're the new Chief Financial Officer of the company. You've been at the company for a long time. What is your agenda? What is the ask that the executive team has made of you? What's your mandate ahead?
Yeah, thank you. Thanks for the, and this is my first Communicopia Conference.
Welcome.
CFO, so thrilled to be here and very excited about what lies ahead for RingCentral. Look, from my mandate standpoint, I talked about it on the earnings call. It's driving the long-term success of the business, creating a compounding durable business. It comes down to three core principles in my mind. The first is, as Kira said, driving profitable growth. We have multiple growth drivers ahead of us in the business. We have a leadership position in UCaaS, and now we are building upon that with strong momentum in our CCaaS and AI-led products. Number two is continuing to drive expansion in operating margins, driving free cash flows higher, and reducing stock-based compensation. The third thing is being disciplined and balanced in our capital allocation approach so that we are driving returns for our shareholders.
With over $500 million in free cash flow, we have the ability to pay down debt. We are buying back stock and while investing in innovation. At the end of it, long-term success to me would mean creating a compounding durable business that's returning cash to shareholders.
Kira mentioned that, and Vlad, you too, that there's a prospect of potentially accelerating revenue growth rate. If that opportunity were to present to yourself, how do you still grow margins while still accelerating top line?
Yeah, there's always a balance in the SaaS model between near-term profitability and long-term growth. We are trying to balance the two. It's about profitable growth and optimizing for the long-term economics of the business. My approach, and frankly, our approach as a management team, is to drive margins and drive free cash flow up with operating discipline in the business. What that does is it provides financial degrees of freedom to invest back in the business. For example, Vlad's talked about investing $250 million of R&D investments with a significant and growing share going to AI-led products. That's an example of how we are using the dollars to fuel the long-term growth of the business. Similarly, we are investing in our go-to-market partnerships with GSPs, wherein we are seeing double-digit growth.
These are all examples of where we are optimizing, making smart investment decisions to optimize the long-term growth of the business.
Got it. Vlad, back to you. We're 3,000 customers for RingCentral AIR, that is AI receptionist. What is the opportunity you're batting for? Why does RingCentral win in this opportunity for AIR?
Why we win, that kind of went a little bit already. Again, we're the ones fielding those calls. We're the ones upstream. It simply makes sense. Many people talk about AI. You know, actual touchpoints are maybe sometimes a little bit harder to understand, at least for me. Without, it's very obvious. You know, AI answers your call or fields your text message. AI is there to assist during a call as you're talking to a human person. AI is there to process the transcript after the call to tell you what went wrong, what went right, opportunities to improve, like that. OK, that's why it is. We also have, you know, a name and a reputation and a well-developed channel and a unique set of service provider relationships, which are all extremely helpful in deploying these innovations at scale.
Right.
Having said that, look, we have 500,000 accounts. Only 3,000, as of our last disclosure, are AIR enabled. For the base alone, I would say the target would be 500,000. You know, it's an account-based product for now. It's not yet seat-based. Our latest announcement, we call it AIR Everywhere, is to take it outside of the base and actually make the same agent, a receptionist, work with any other phone system, all right, or phone solution provider, even your cell phone directly, OK? We actually have carrier partners who are interested in specifically deploying it like that, like literally having AIR field your even personal phone calls. The sky's the limit, you know, how many people, you know, that's the population of the world.
What is the pricing since you're unbundling it and selling it separately?
Too cheap. Right now, the price for a standalone RingCentral AIR or AIR Everywhere is priced at $59 starting price. It's still early. That's per account. You start with an account, you get 100 minutes with that.
It's a consumption model.
It's like an account model. Yes, you get that many.
You get an allocation.
You get an allocation, then you can buy more.
OK, so $59.
The same model as ChatGPT itself, for example.
OK, got it.
You pay $800, you get a certain number of units. You're over them, you know, you win.
Got it. Who is providing the infrastructure? How are you building this? Is it running on AWS or Azure? What's the hyperscaler who is helping you with this?
Yeah, it runs on AWS. It somewhat runs on GCP. That's the, you know, we have a mix of infrastructure behind it and also a mix of large language models that sit behind it. We're optimizing for best cost and best performance.
Got it. Let's talk about CX. Vlad, you talked about CX. It's in that $100 million pile of revenues that is the target for exiting 2025. We've talked about contact center for some time. You actually started off saying that contact center is one area where you might see some AI impact. If you net out the AI impact against the white space that is available to you, what would be the reason somebody would switch out of a legacy solution and go with RingCentral?
Legacy solutions in the contact center are still on-prem, being legacy.
They would go to cloud. The first decision is, hey, do you want to stay on-prem or go cloud? As someone who has followed and really made the cloud, in particular, I don't need to sell the cloud to you. Cloud is the future. Nobody is buying on-prem. It's all going to the cloud for new business, and renewals are in the cloud. Why CX today? The answer is because it works with EX. People know and trust our PBX voice, which, by the way, our PBX voice in itself is, I don't think too many people understand this. It is used by smaller contact centers a lot outside of CX. It has kind of the basic ingredients. It has some scheduling, some queues, some analytics and reporting like that, right? CX in particular, that's a true contact center, dedicated contact center product.
We've always been on record saying, look, there is a large segment of the buying community that wants to buy PBX and contact center or EX and CX from the same vendor. One throw to choke, no finger pointing, closer integration, single invoice, like that. Today is the primary reason. As people are getting more and more comfortable with CX being a viable standalone product, we hope we'll be seeing more standalone business as well. Still, our main value prop is still the integration. By the way, for that same reason, our integration with NICE Contact has been very successful. Now with the new renewed relationship, we're pretty optimistic about what that can do because that plays well at the high end of the market. CX plays well at the low end. Between the two of them, they cover the whole gamut.
Is it a different product at the high end of the market with NICE?
That's what I'm saying.
Yeah.
That's the one, yeah. NICE, yeah. The RingCentral Contact Center powered by NICE.
They're two different SKUs, one with the.
Oh, there are two different SKUs.
Yeah, got it.
Addressing different segments.
Yeah. What does the renewal of the partnership mean? I mean, is it, why did you even have to renew it? Is it because the first agreement was a finite time horizon? You had to do it. It's not because NICE tried to do something on their own and failed and decided to renew with the.
I don't know whether they tried or not tried, you know, but it's not our first renewal with them. The relationship, I think, is about 10 years old.
It predates NICE itself because it was an inContact relationship.
Yeah.
There were some trepidations and maybe some confusion in the marketplace. Hey, you got CX, and they announced some deal with some other company. In the end, what we were saying all along, there are clear swim lanes. You had a smaller contact center or maybe some larger contact centers, but kind of more specific needs. CX is just fine for that. If you want the Rolls Royce of the industry, every bell and whistle imaginable, every reference case imaginable, there is no better partner than NICE and Contact. We're the only ones with a seamless integration with them. That product always made sense. We built a $300 million business on it. It was growing in double digits until it just stopped when all of the streamers started floating around. We're hoping that it will be restarted.
I know you mentioned your target is to reaccelerate, but that's not part of the guidance. What are the things, Vlad, if you take a step back, if the business were to reaccelerate at some point next year, what are the things that will have contributed to it hypothetically? NICE being one.
Look, it's really a change from a single product company to a multi-product portfolio. You know, we are able, with the new products, we're able to grab a larger piece of the wallet, OK? We're also able to attract the type of a customer that before were hard for us to get to. RingCentral AIR Everywhere is a clear example of that. It's very, very new. We only have a few accounts, so I don't want to get too far ahead of my skis. The product is specifically designed to work with other phone systems, OK, or other contact centers, whether they're on-prem or cloud. We have about $0.25 billion we're investing into R&D annually, and a very meaningful portion of it, and growing, I think as Vaibhav said, is already going towards CX and AI. They're delving more into AI, OK? We expect to be a major player.
$250 million in research and development. That's a lot of money. Is that purely AI or core incremental?
That's the entire budget.
Some of it is to just keep the core product.
Lights on, yeah.
You know, keep the lights on.
Yeah.
The not keep the lights on is AI. You can do it this way.
Let's talk about how you're using AI coding assistants or coding LLMs to get leverage. What is it that is realistic of a scenario? Can you really have code assistants do the job of an engineer? Or you look at me and say, Kash, you know, come on, you're a software guy. That's ridiculous, right? Where are you in that spectrum of unlocking productivity for your developers with AI?
You know.
In that $250 million budget.
In the journey, very promising. On some of the projects, we're seeing 20% improvement in productivity. That's substantial.
That's number of codes, not lines of code generated per.
Yeah, number of use cases.
Yeah.
Not number of use cases, number of lines of code that's being produced. We're seeing much faster on-ramp of new engineers, which is very important because new engineers start, they usually make a lot of mistakes. They take time to onboard. Now that time is condensed from months to weeks with much better quality. In the area of even things like being able to translate Figma designs to code, so basically a tool that generated where you model UI, we can do that now.
That's Dev Mode, right?
Yeah, Dev Mode, exactly. I think we talked about that.
Yeah.
That's another example that's very meaningful. In an area of QA, definitely huge improvement. I think there's actually now an emerging category that's called QA automation near AI. We're actually seeing that. Across the board, it's meaningful productivity. It's not just in development, right? It's in marketing, it's in sales productivity, and actually, throughout the company where AI tools are being deployed. Of course, in our own contact center where we use our own software, our own CX is deployed, RingCentral Contact Center is deployed in our contact center. With all of the AI modules, we're seeing, for example, up to today, between 10% and 20% reduction in average call handling time because agents are assisted by AI tools that help them handle questions. Supervisors are assisted with tools that allow them to evaluate agents and be able to make agents that are less effective more effective. All of those things are very real for us.
Got it. It's an existential debate about users' seats going away because of AI. When you, Vlad, look at your customer base, what are some of the patterns you're seeing? Of course, you've got all kinds of job professions represented in your customer base. It's not just developers and customer support people. What are you seeing in your customer base? Also, are you using SaaS applications internally within the company? How does AI affect the use of SaaS or augment or kill? What are your perspectives? One is an outside perspective. One is more of an inside perspective.
Everything I describe, it augments. We see that within how we use AI tools, whether this is, you know, salespeople selling something in our contact center, in our old call center, salespeople calling customers. The sequences for BDRs are now laid out by AI, you know, who to call, what to say, etc. There is still a human being that actually interacts out there. That is a typical flow right there where SaaS is augmented by AI. The same for the products that we sell. With RingCentral AIR, it's the front of the conversation. It's, frankly, a better experience, probably a more affordable experience, and with a better outcome. That is sent, then ultimately, there's a transfer to a human being if that needs to happen. It's the same with everything I described before where it's human-assisted.
The interesting thing about, I think, the seats, we don't have a huge CX install base. We're sort of being very opportunistic. If you actually think about all AI seats for the vendors, it's a better deal, right? Because it's a higher price. AI is expensive. For the businesses, it's a good thing because it's set up with a human being. If it costs you $250 a month, it's still a good deal because, you know, agents cost more. If it is AI-assisted, it's still a good deal because an agent is more productive.
Yeah.
In the meantime, we're making money either way, whether it's AI-assisted or direct digitally handled.
Got it. One for you, Vaibhav. How do you price and package? What is your involvement as a CFO in pricing, pricing integrity? How much room do you have as a CFO to extract more economics from the business?
I would say very involved, I think, at every stage. One of the key areas that we are looking at is, A, maintaining and improving our gross margins and, B, the effectiveness of our sales and marketing spend. On both of those areas, I get pretty involved in terms of approving the pricing, looking at various different pricing models that are evolving. I am very involved with deal economics, making sure that we are utilizing the dollar, getting the best possible ROI. We are in a situation where oftentimes we say no to deals where certain deals don't meet our contribution thresholds. We are saying no to transactions and to deals.
Got it. Vlad, one for you. We're set for another year of solid margin leverage. How are you balancing the investments? You talked about $250 million in research and development. Does it ever come up that you need to balance the investment needed in the business versus driving more margin leverage, which is something the company has done really well? Does this priority change at all in 2026?
Like Vaibhav said, it's about profitable growth.
My core belief is that if you stifle innovation, you will have neither growth nor profits. We're not going to do that. Is $250 million the right number? It happens to be the number we're at now. We'd like to spend more. There is also AI, and people are getting to be more proficient. We think it's a healthy level. It's about 10%, call it, which is kind of in the ballpark. I do believe that there are efficiencies to be had elsewhere, and we're working hard on those. We had 4X expansion in free cash flow over four years. I don't think that another 4X in four years is realistic. I certainly don't think that zero is the right answer either. I believe that there will be continual leverage that we can extract. Stay tuned for the next guide. We're at scale. We should be profitable.
We should be returning dollars to shareholders one way or another, and that's the plan.
Anybody wants to jump in with a question or two? Just raise your hand. Maybe two more. We already talked about this. The future drivers of growth, if you were to stack rank, what's number one most important, number two, number three to help you reaccelerate?
Innovation, you know. I mean, my core belief, again, I'm a product guy. We have to deliver new quality products at scale. Frankly, if we can do that, the rest will probably take care of itself. If you were to start delineating, next one down, I think, would be the channel. Channel is large, you know. Our go-to-market efficiency, starting with marketing efficiency, in how we manage and organize our internal sales force, how we run the outside channel, relationships with service providers that are reselling us. I would say that's number two. Number three is just internal discipline. Very important. We continue on major reductions in stock-based compensation. Stock-based compensation, and I would very much urge people to look not at the top line stock-based compensation that's getting published, but at grants in a year that we're doing now. That is where the whole thing is trending.
It's quite healthy. It's already meaningfully below our growth rate, what we're granting in a year. That's going to continue. All of this together, to me, translates into one number, which is free cash flow. That's been a bit of a hockey stick for us. Hopefully, we'll continue, especially with Vaibhav as well as the company.
Got it. Yes, go ahead.
Can you talk about just how you see AI agents progress over, let's say, the next couple of years? What are the areas that they can kind of deflect more customer service calls? Which areas are basically very, like, basically no-goes for AI agents?
I don't think there are any no-goes. AI agents do well. You know, they're as good as the data that you feed them. If a company, or say our customer, is able to articulate and well define the question set that their customers are asking, then AI is quite capable of understanding user intent and providing the right answer out of that universe, OK? It's a heavy lift, you know, because many of these questions that customers are asking are one-offs. That's where humans, you know, still have a role to play.
Unless there are any other questions, why don't we wrap it up just a couple of minutes earlier? I ran out of my questions. You guys did a great job giving good, concise answers and not stonewalling. I appreciate the directness and the openness of the conversation here. To our clients, it's just day one. We got three more days of software, technology, internet. Hang around. I hope you learn a lot and go back with great, actionable investment insights. Thank you so much. Thank you again, Vlad, Kira, and Vaibhav for coming.
Thank you.
Thank you.
Wonderful.
Thanks for having us.
Thank you.