You guys okay? Great. Okay, we can jump in, people can join as they, as they do. So I'm, I'm Kurt Simon. I'm a Vice Chairman on the investment banking side, at Goldman, and it's my pleasure to interview our folks here, and I've known you for, I don't know, 15 or 20 years?
Something like that.
So, thrilled with your, your new opportunity, but, I'm glad. Thanks for being here, and certainly you as well. It's great to have you guys. And maybe, Vlad, we'll start with you. You're obviously founder, emerging now, you know, kind of entering a new role here as exec chairman. You know, walk us through a little bit about, you know, thoughts on timing and, and really in that new role, some of your key objectives and how you're gonna define that role going forward.
Yeah, no, great. Again, thanks for having us. And, yeah, look, so the new role, so first, there is still a role. It's a full-time role. It's not a CEO anymore, but it is the full-time exec chair. And, the idea is to let me concentrate more on innovation, which is all of strategic direction of the company, technology-wise, you know, product delivery, you know, innovation at large. And, you know, especially now that we're entering this new phase of another major innovation cycle, forming, which is AI.
Yeah.
The company was founded on proliferation of reliable and reasonably priced broadband plus mobility, which led to distributed workforces, enabled globalization, and it served us well, really well, for over 20 years, yeah? Thus, we built this $2.2 and growing business model. There is a new wave coming, which is AI and large level models, and it's going to revolutionize things. We're going to be one of the beneficiaries as well as one of the contributors to that wave, just like we have been with the original two waves, and, you know, that's where I ended up really contributing to, you know, SaaS. You know, we're one of the very first, you know, pure play SaaS players.
Same thing here. So this is where I'm going to be spending my time. You know, Tarek, I was very fortunate to have met him about a year ago through Sonalee, they've worked together before at HP. Tarek's been on our board for about a year. But, you know, our board members and our board members, and Tarek has been very active and closely involved with the day-to-day operations of the company. He was a member of key committees and a very prominent and vocal member, I should say, of both comp committee and the audit committee, which is the most important one in the company, as well as various, you know, sporadic committees that will perform on as-needed basis.
So this was a great opportunity to learn about each other, get comfortable with each other, at least from my side. I got comfortable, I guess.
We'll get to that.
We'll see. We'll see what he has to say, you know?
Yeah.
We just felt that skill sets were incredibly complementary. Okay. Look, as far as why now, you know, why not now? Yeah.
Yeah.
But look, the company is large. The company is, I don't want to say at scale, because we're still growing, and we're hoping to continue our growth and to continue it for a long time, even of this, you know, pretty large number of $2.2 billion. But look, I mean, we're hitting our 10-year anniversary as a public company. We'll be ringing the bell at the New York Stock Exchange, I think next Wednesday, December 13th
. And so, you know, so a little bit of a date like that. But really, most importantly, it was about, you know, industry getting to a certain place, where.
Not just the industry, but technology, to where, you know, I could be concentrating on this new wave of innovation, while at the same time, finding someone like Tarek, who just fit in very, very uniquely.
Yeah, I mean, let me put it this, liberating us to you to focus on-
Yeah.
Yeah, short answer.
Yeah.
And I said, I've had the pleasure of knowing Tarek for a long time, but... and I think we'd all agree, CEO succession is maybe the most important function of a board. But give us a sense for your... And you obviously knew him because he was on the board, but just what you thought, what attributes he brought with him, you thought would make him the ideal CEO here and your successor.
Right. Well, well, again, I want to stress, yes, successor is CEO-
Yes, is CEO.
But not successor as owner of the company anymore.
Exactly.
From that perspective, you know? But look, I already touched on some of these. So, how do I say it? You know, I'm a startup guy. I think I'm a relatively successful startup guy, you know, people starting with zero and bringing, you know, to this $200 billion level. You know, I'm not unique, but, you know, it's not a huge club. But the thing is, RingCentral is the largest company I've ever worked with, you know, by a long shot, but, you know. And, you know, Tarek is coming in from a number of businesses, you know, HP, prior to the Sprint. Right, you know, he'll, he'll, he'll. I'm sure he will go into his own background, but these are businesses in the tens of billions of dollars.
Where I just have never operated at that scale, and we really haven't had people senior enough in the company who have been, you know, in the C-suite at companies that were not, you know, in the single-digit billions like we are, but in the tens of billions, which in the end is what our aspiration is. And look, for those of you familiar with our history, yes, we have had people from larger companies, no one at that level, no one at the C level. No one, you know, responsible for, you know, driving operational efficiencies and strategy, and that technical vision, you know, as embodied, you know, through, you know, call it inspired acquisitions. We just haven't had anybody like Tarek, you know?
So, like I say, you know, no pressure, Tarek, but, you know, it just seems that we're at a level in the place in our evolution, where we need a really seasoned, really smart operator. And, you know, seasoned is not maybe that hard to get, smart is super hard, you know? So, here we are.
Sure.
That's why Tarek. Look, the fact that he's been on the board for a year, everyone knew him. I can tell you, it was a very short conversation, you know, is, when, you know, it became, you know, known that Tarek is open to, you know, consider, you know, joining as the CEO, you know, it was pretty unanimous, pretty quick.
We'll turn to you. Congratulations. You said this is day 10?
It is, Kurt. Thank you.
Okay. So let's hear from your perspective, 'cause it's a great opportunity, but, and obviously, being on the board probably helps a little bit in terms of the transition and in terms of you and the company, but walk us through a little bit your thought process, and looking forward here, next 12 or 18 months, you know, what some of your key priorities are.
Well, thank you. And thank you for having us, Kurt. It's really a pleasure to be here, and I, I'd like to start by saying I was deeply honored when Vlad considered me to be the second CEO of RingCentral ever. And, you know, it's an incredible success that RingCentral has demonstrated over the past 20 years, right? In a few days, we'll be in New York celebrating the tenth year of the listing of RingCentral, and that speaks wonders. And also, for those of you who follow the SaaS industry, there are very few companies who break through the $100 million ARR mark, fewer who break through the $500 million ARR mark, and only a handful who are over the $1 billion, and we are north of $2 billion.
And so, when I looked at this, this opportunity, I said, "It's, it's amazing," number one, and, also on the same level of, consideration, was, my relationship with Vlad. He said, "I am a startup guy." That's what he said. I am not a startup guy. That is what I will say, and I've been operating in a much larger companies, as he has observed, and, we felt two things: A, we're very complementary to one another. B, I think we also get along, and that's very, very important because we have, different backgrounds, very different backgrounds, but we have, very similar values, and that's at the heart of the relationship that needs to exist between a exec chairman and a, and a CEO.
So, having said that, and recognizing the success of RingCentral, my priority is to take RingCentral to the next level by driving growth. And to do so, we've got to focus on innovation, and that will be where Vlad will be in the driving seat, and I will be his close partner. And then also, as that innovation comes to fruition with new products, some of which you have seen, such as RingCX and RingSense, that we announced back in August, take that innovation and gear up the entire operation of the company to drive higher levels of sales with sophisticated marketing and also having a very different relationship with our customers post-sale.
That's where I will apply most of my energy, is in making sure that the operation execution, capability is taken to the next level to scale the business, beyond the $2 billion mark and where we are at. And we'll do so by really focusing on our core. Our core market for RingCentral has always been the mid-market. We've been incredibly successful there with a high-quality product, and then from there, we will branch off into more specific, verticals with very differentiated solutions. And the reason why we position the story that way is because the market has changed with the advent of Microsoft Teams and larger players. We've got to be clear about our source of strength, which is the mid-market, and also where Microsoft is, not compete with them directly, but more so complement them.
In fact, we do have a very successful offer called RingCentral for Microsoft Teams, and that way, we can actually play across the entire food chain. Product innovation at the heart of the priority to drive growth, coupled with real rigorous operational management of the company to drive growth in the core and selected verticals, is what I would like you to take away.
All right. Ten days into it, first impressions, how different is the CFO role from your CEO role?
I have to tell you, CFO is completely overrated. I'm sorry.
Certainly with you next on this one.
Exactly.
It's much more exciting to be a CEO than a CFO. No, I love it now.
But it's gotta be... I mean, I assume it's gotta be different, right? People say it's a lonely, you know, it's a lonely job because... you know, obviously the buck stops with you, but have you noticed a difference in terms of roles, responsibilities, et cetera?
Yes, there is undoubtedly a difference, and I was a CEO before, and what I loved about that is, you know, the relationship I had to have with my CFO was absolutely critical, right? My job is to take some calculated risks, and my CFO's job is to keep me on the safe side of the risk equation. But at the same time, you said it right, it is lonely when you're the CEO at the top, and, I'm delighted that I have a partner, and I'm delighted that I have the company with two partner-
Actually, two partners.
I have two partners.
Yeah.
And so which makes the conversation very rich, and we are, I think the three of us, I would say we have one thing in common, is that we are we love to discuss and debate stuff. And so I think we do that passionately, and you know, I do believe that there's merit to that because it's when you are passionate around problem-solving, then you find lots of interesting and creative solutions.
Sonalee, maybe a question for you. You've known him as long as anyone. Like, what do you think the attributes he'll bring to the table are gonna make Ring a great success and him be a great CEO here?
Yeah. So, how long do you have? The list is long.
You have 21 minutes.
Yeah. So look, I think Tarek brings an incredible strategic lens to almost anything he does. And I've seen that in practice. And you can also, you know, go back and look at his track record. You know, I think having that strategic lens on top of unbelievable operational rigor and discipline, you know, some of you may or may not know this, but certainly when he was at HPE, when I worked with Tarek, he was our CFO, but strategy also reported up into him. And he also ran the day-to-day business operationally, and it was an extremely complex business. And it's amazing to see somebody who has that kind of operational rigor and problem-solving ability to take a very complex situation and bring it down into very simple terms, and then make decisions accordingly, and act quickly and act boldly.
I think we will really benefit from that. The other great thing about Tarek is, you know, he's great at collaboration, and I think for the next phase of Ring, as we think about driving sustainable, healthy growth, profitable growth and efficient growth, he will draw on all parts of the organization in order to achieve that. And, you know, as you said, we've already had some really interesting debates internally, but I'm excited about driving growth with Tarek, but then also improving the efficiency of this, you know, huge $2.2 billion business that we've created. I think taking all of that into account, you know, it's going to be a really exciting time to be at RingCentral.
No, no, no doubt. Let's talk about growth. TAM, 400 million plus legacy PBX seats out there?
Very much so, yeah.
What do you think about how quickly that Tam, those legacy seats can convert here?
Legacy seats are there for the taking, and we've been very successful at doing so and converting those seats to the cloud phone, as we've done under Vlad and the partnerships that were executed there with Avaya and Mitel and other players. I think that is still there. I think those partnerships are being rebooted right now. Obviously, in the case of Avaya, they just came out of bankruptcy, so we are having you know an Avaya 2.0 partnership, so to speak. But there are also lots of different things that we need to think about because the cloud phone and everything we do in UCaaS and CCaaS can be positioned beyond the traditional players, right?
So there is the next level of partnerships that we can turbocharge with a lot of different companies in the software space, a lot of SaaS companies, the usual suspects you can think about. And we will do so. I think this will give us the ability to grow profitably and efficiently to Sonalee's point earlier on, and I look forward to it. There is, in that 400 million seats, if you really think about the potential to tap, there's a lot.
But there's substitution of those 400 million seats with this new model as well, and so we'll have to be very clear about how do we affect that migration of those seats or have opportunities within those customers, when we let those, those old phones in the cupboard, die because it's a sunk cost, and we have to think about that as well. And so there is a ton of opportunity to access those customers, whether you migrate that old phone to the new phone or sell new products to those customers, is really where the attention will be. But there is a lot of potential here, and this is why I joined RingCentral. I mean, I think, you know, the...
If you make a personal bet as a CEO, it's because you see some opportunity for growth, and you want to realize the potential. That's what gives me a buzz and excitement every morning, and I look forward to that.
Competitive dynamics. Give us a sense for, you know, what's out there competitively and some of the, you know, sustainable competitive advantage you guys have.
So it's lively out there. I think, you know, if you think about us and, and I think what you look at when you look at our share price curve, and, and you think about what it actually is implying, is I think it's a little bit too extreme in the way of thinking about RingCentral and growth prospects. I mean, essentially, for many of the players that operate in our space, the world is saying or the share price are saying, Microsoft is gonna eat you all. I don't believe this is the case. Rarely ever, you have a very categorical statement in industry that is manifesting itself in a very black and white fashion. There's always, the reality is more nuanced. I think we have our core space, and we're very strong there.
We do see people wanting to enter our space, but it's not that easy.
Part of the reality is the quality of our product. Quality matters, right? I mean, we've been operating at five nines of availability. Microsoft itself is at three nines availability, right? That, that for customers who really think about our solution as being critical to their business, mission critical to their business, it counts a lot. And then also, you could see other players that are coming in that are trying to get from the bottom end of the spectrum into our space. It's hard for them because they don't have the scale, right? And so, I feel pretty good about competing. I love to compete personally, it doesn't scare me at all. As long as we are really differentiated, and we continue to innovate, which we will, I think we have a great way to out-compete the pack.
Well, you mentioned AI up front. I think, just about every meeting we've had in this conference is, you know, AI has been a big topic. You mentioned how well-positioned you are, and it could be a big winner here. You want to talk a little bit about what you're doing in AI, and how it's gonna, you know, fundamentally transform the opportunity here going forward?
Yeah. Well, what are we not doing in AI, in AI? Let's start with that.
Yeah.
We're not developing our own models. You know, we feel that there are much larger players that are taking care of that. What we are doing is we're tuning those models, given the data that we have and given the patterns that we see with our user base, and we are infusing AI into our entire product portfolio. We had an industry analyst day 3-4 weeks ago where we presented that vision. I think you'll be hearing more about it, but fundamentally and without a whiteboard behind me, but fundamentally, you can think of intelligence now permeating the entire stack. So name that we have is RingSense, okay? And what is RingSense? It's really quality management and conversation intelligence that we are applying to all aspects of communication.
So what are the aspects? All modalities, okay? Our phone traffic, which is obviously just as the trunk of the tree that we are, you know, as we're growing here. We are fundamentally, you know, still mostly a PBX in the cloud at this point. So if you think of phone conversations with customer's permission, you know, because always customer-
Mm-hmm
data, we need to be, to remember that. But those conversations that are legally recorded can now be legally analyzed for the customer's benefit. What does analyze mean? It's anything from emotion detection to aggregation across, you know, sort of topic selection, summaries, highlights over time, task generation, calendaring, all of this. So when we have a phone conversation, usually there are outcomes. And what do people do today? They try to remember, they jot things down, whatever. You never need to, you know, it's truly paperless now. It can be truly paperless. You can generate all of these insights using tuned up AI models.
And by the way, it's not just tuning them, it's also hosting them so that, you know, there is no exposure to improper use of data, you know? So that's the core value of the company as well, okay? And you can now have all of these, you know, generated insights now available to customers, to managers within those companies, et cetera. Now, what I said now, apply the same thing to messaging, okay? Apply the same thing to video, to webinars, to events. Very importantly, to the contact center. So what about the contact center? People talk about, you know, IVAs, intelligent voice assistants or chatbots, okay? But that's just one application, yeah. There are very clear applications where artificial intelligence is not replacing the agent.
Yes, it will replace some agents, of course, but there are also these cases where it's not replacing the agent, but augmenting the agent.
Yeah, making them better, more efficient, smart, yeah.
Better, more efficient, you know, directives to the agent, you know, kind of man-machine interaction-
Yeah
I f you will, you know? That's now customer focused. And look, there are many companies in this space, and sometimes we hear, well, you know, why Ring, okay? And the simple answer, why Ring, right, and if there is one takeaway for this room, that I suggest is, why Ring is, in the end, we are the largest pure play PBX in the world, still today. You hear all kinds of numbers, and people are blowing all types of smoke, but if you're looking at paid seats, where people are actually valuing the product, okay? Not giveaway seats, not, okay, you know, I am-- I have this other suite, and, "Oh, okay, here is this phone seat that nobody ever turns on." Turned on seats, we, we don't have any seats that are not turned on.
When we say, you know, I think the last number we've disclosed was 5 million seats. I can tell you it's now meaningfully higher than that. We just haven't publicly stated what the number is. But, they're all paying customers. They're all, or majority of them are using customers, and, you know, they're loyal customers. Our retention rates are still world-class. Even, you know, with all of the trepidations of COVID and, you know, down cycle in business and so forth. Not our business, but business in general. So that's our right to win, yeah, is, we make these technologies available into our user base. We have our brand values, which are well differentiated.
A lot of it has to do with trust, which is reliability, which is security, which is working well with the partnership community. Okay, so we talk about trust, innovation, and partnership, partnerships, TIP, okay? And, you know, there's only one essential, okay? So, when people buy essential, they assume it will stay up. And now, as we are expanding into these adjacencies, like the contact center, like more video, like AI as part of the portfolio, but also, well, as both adding to existing products as well as standalone applications, like, for instance, for sales, for example, which is a standalone app. We expect the same brand values to apply there. And we think, we think it will hunt again, because in the end, people want to sleep well at night.
They need to know that when they're buying a tool, and they have whatever, we put the ability to know other than that, right? So when they're buying a tool, that it will work, it will not let them down, and that, you know, you get what you pay for. We think we're pretty well unique in that, in that positioning. Like Tarek said, look, stock market does what it does, and we think that it overshot a little bit at this particular point in time. But look, when we were, you know, worth 20x what we're worth now, it also probably overshot at that time. So maybe somewhere in the middle is where it, is, is where things sit better.
But think about when you, when you founded the company and the cloud opportunity.
Yes.
versus today and the AI, AI opportunity. How would you dimensionalize those two opportunities? Is this a much bigger opportunity today?
AI, yeah, look, AI is, look again, look, first of analysis-
Mm-hmm.
-super early, right? There are all kinds of regulatory-
But cloud was early when you-
Cloud was not early. Cloud did not exist.
Right.
Like, we didn't know the word cloud.
Yeah.
We did not know the word tech, you know?
Right.
We knew that we didn't need to do software on a laptop or a computer anymore-
Right.
But we could do it on a server.
Yeah.
Sitting somewhere. Okay? And one of the early candidates for the server location was my own garage, which my wife had a few things to say about it. Okay, so we didn't quite end up with that. But look, it's as early in AI. Now, look, there is more realization now, you know, and people already got burned, including some of the very strong and used to be successful companies who were incumbent in the business phone space, who did not catch on to this wave of the cloud. And I think people are a lot more careful now, saying, "No, no, no, no, no, AI, you know, we're going to do something about it." But I tell you, there is a difference between saying you're doing something about it, or you will do something about it, and actually doing something about it.
If you look at the space we're in, look, there are the smaller companies that, you know, so always lead with tech. But from scaled up players, you know, it's, it's not a very long list. I'm not saying we're completely unique.
Mm-hmm.
But, you know, for somebody at our scale to fully embrace AI like this... And look, don't forget, we have what? 2,000 engineers. We can apply a reasonable number of them towards this new technology. It's just not a luxury that, you know, most companies have.
Exactly.
I view it just, I know, I'm sorry, I'm running on here, but I view it a little bit like you have a, you know, a new startup, which happens to be profitable, it happens to have a budget of $2.2 billion per year. Now let's see what we can do with that. Which is why we did this change, but to your first question, and which is why it's something I feel I can play with and maybe-
Anything you want to add to that?
Yeah, I think, I think what Vlad has illustrated very clearly is, you know, there is this view that unfortunately, we're being a bit victim of that our business is going away because machines are going to replace men in every call center and every phone conversation. It's not true. I don't— we don't believe it's true. I think that statement is way too categorical. And I think as he has demonstrated, there's tons of opportunity to infuse AI in everything we do to make our offer be much more about enhancing customer productivity, as opposed to be a means to reduce cost. And that's where the value is.
Mm-hmm.
It's a different level of value for the customer, and by applying the science and the know-how of 2,000 engineers, we can make our customers more successful in their own right. What I love about my opportunity here is to drive a very different level of customer engagement, and that starts by having a very, very strong focus and understanding about customer segmentation. This is something that is really very important to me. I've applied deep marketing customer segmentation concepts in many situations. When you do that with a level of science, particularly in a mid-market where you have such a variety in companies who may have 20 employees to-...
100 employees to 2,500, 5,000 employees, you have to apply real rigorous customer segmentation to guide your innovation, to make customers more successful and more productive, and make money in the process. I mean, the opportunity for us is, is tremendous if we're able to innovate the way Vlad described it and take that innovation, push it through our operation to drive sustainable level of healthy growth, and then in doing so, of course, getting to a point where we can drive further operating leverage with some of the on extracting efficiencies in the process, right? So there's the opportunities ahead of us is, is real and very big, and we look forward to demonstrating that to you.
You mentioned partnerships. NICE inContact has been a great success. Talk a little about what's made that so successful, and importantly, how you think about the, your, your standalone products versus what, you know, versus those products. Are they competitive, complementary?
Largely complementary.
Yeah.
Some overlap, but largely complementary. NICE inContact partnership, why it's worked and continues to work so well, is that you have two industry leaders, now, and still to this day, uniquely available, tied together with a close integration. Not completely seamless, but, you know, pretty close. Very importantly, single throat to choke, which is our throat, so it's our paper, it's our customer service, it's our, you know, deployment, our PSAT, professional services. PF, sorry, not PSAT. And it just doesn't exist elsewhere, okay? But where there's an opportunity is in understanding that NICE inContact, they're really an enterprise provider. They address very large contact centers. That is their legacy. They're coming in, you know, from workflow management, which is sort of almost by definition, an enterprise product, okay?
There is a very large world out there that mid-market and below go to SMB. With NICE inContact, we've had some success, but a little bit of a square peg in a round hole. A little bit too bulky, too expensive, too hard to deploy, and just that's too much. You know, you don't always need all of this complexity. This is where RingCX comes in. It's firstly 100% our native technology. It is leveraging those two acquisitions we've done right before COVID that were both successful companies in their own right. Now, we've integrated, so one was an omni-channel company, the other one was a voice-only company. We integrated. Sorry, not omni-channel. One was a digital channel company, and now we have an omni-channel product, which is main checkbox to check here.
Look, it's super early, but you know, in those smaller deployments, where we're talking tens of agents and not hundreds of agents, it's you know, it's it's a show of the right size. Super early, but very good traction so far and stay tuned.
Well, maybe one last question. We talk about sustainable growth, but also profitability, right? And as CFO, Sonalee, how do you think about, you know, the trade-offs between growth and profitability, on a go-forward basis?
Yeah, so I'm gonna quote my new boss: we can have both, growth and continued profitability. So look, we've come a long way. I think since I joined, when I arrived, our operating margins were about 12%. This year, we've guided to at least 18.5%, and exiting even higher than that. I think as we look forward, you know, don't expect the same quantum of improvement over that period. But look, there is inherent operating leverage in the model that's really beginning to shine through. Tarek, I know, will bring a lot of discipline around efficient growth and customer acquisition costs. So some of the actions that we've taken in 2023 will continue to bear fruit in 2024.
There's more goodness to come there, just possibly not at the same rate.
Great. Well, thank you. Congratulations, on your, you know, on your new role, and,
Thank you.
you as well, and
Thanks.
Thank you for being here today.
Thank you for having us.
Thank you.
Thank you very much.
All right. Thanks for awesome.
What's the closing?