U.S. Markets closed

Edited Transcript of RNG earnings conference call or presentation 6-May-19 9:00pm GMT

Q1 2019 RingCentral Inc Earnings Call

San Mateo May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of RingCentral Inc earnings conference call or presentation Monday, May 6, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David D. Sipes

RingCentral, Inc. - COO

* Mitesh Dhruv

RingCentral, Inc. - CFO

* Ryan Goodman

RingCentral, Inc. - Director of IR

* Vladimir G. Shmunis

RingCentral, Inc. - Co-Founder, Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Brian Christopher Peterson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Brian Jeffrey Schwartz

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Catharine Anne Trebnick

Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Data & Internet Protocol Networking

* Charles Erlikh

Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst

* Dmitry G. Netis

Stephens Inc., Research Division - MD of Equity Capital Markets & Senior Research Analyst

* Heather Anne Bellini

Goldman Sachs Group Inc., Research Division - MD & Analyst

* Jason Michael Kreyer

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Matthew Alan Stotler

William Blair & Company L.L.C., Research Division - Associate

* Matthew David Van Vliet

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Meta A. Marshall

Morgan Stanley, Research Division - VP

* Michael James Turrin

Deutsche Bank AG, Research Division - Research Analyst

* Nandan Girish Amladi

Guggenheim Securities, LLC - Director of Technology, Media & Telecom equity research practice

* Nikolay Ivanov Beliov

BofA Merrill Lynch, Research Division - VP

* Sahil Sharma

JP Morgan Chase & Co, Research Division - Research Analyst

* Terrell Frederick Tillman

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings, and welcome to the RingCentral First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ryan Goodman, Investor Relations.

--------------------------------------------------------------------------------

Ryan Goodman, RingCentral, Inc. - Director of IR [2]

--------------------------------------------------------------------------------

Thank you. Good afternoon, and welcome to RingCentral's First Quarter 2019 Earnings Conference Call. I am Ryan Goodman, RingCentral's Head of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; David Sipes, Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, David and Mitesh followed by Q&A.

Some of our discussions and responses to your questions will contain forward-looking statements. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call.

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide deck, our non-GAAP to GAAP reconciliations, our periodic SEC reports, the webcast replay of today's call and to learn more about RingCentral. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck.

With that, let me turn the call over to Vlad.

--------------------------------------------------------------------------------

Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [3]

--------------------------------------------------------------------------------

Good afternoon, and thank you for joining our first quarter earnings conference call. We're pleased with the first quarter as we continue leading in the $50 billion unified communications-as-a-service market. Revenue, operating margin and non-GAAP EPS all met or exceeded the high end of our guidance. Mid-market and enterprise continue to lead the growth helped by strong contributions from channel partners.

We are also pleased with our targeted vertical market initiatives, which in this quarter contributed multiple 7-figure TCV wins. I'm particularly excited to announce that in the first quarter we secured our largest seat count win ever. This is a 45,000-seat win with Waitrose & Partners, a leading U.K. retailer. Let me cover some of the key metrics for Q1.

First, total revenues grew to $201 million. This is a 34% increase year-over-year and above the high end of our guidance range. Second, mid-market and enterprise business continue to be a key driver for our performance. We define mid-market and enterprise as $25,000 or higher in annual recurring revenue or ARR. This grew 70% year-over-year and is now a $346 million business. Enterprise defined as customers with $100,000 or more in ARR nearly doubled year-over-year to $200 million. Third, our channel ARR grew 75% year-over-year to $203 million. Fourth, our targeted verticals industry program contributed over 40% of 7-digit TCV wins last quarter. It is clear that the cloud is winning, and RingCentral is winning in the cloud.

RingCentral is a leading, pure cloud, unified communications-as-a-service platform. We've invested hundreds of millions of dollars over many years into our core cloud PBX technology. That is at the heart of our solution. We further differentiate with our global footprint open platform now used by over 20,000 developers and integrated team messaging, video conferencing and contact center. To that end, we recently executed multi-year extensions of our agreements with recognized industry leaders in cloud-based video conferencing and contact center.

We continue to rapidly innovate as we look to widen the gap between us and our competitors. In Q1, we had 3 key technology announcements. One, we announced RingCentral Persist, a new solution that enables enterprise customers to maintain communication services in case of an Internet failure at their location. Persist adds additional resiliency to RingCentral's high availability delivery infrastructure for the most demanding customer environments. An early adopter is the state-of-the-art Chase Center sports and entertainment complex, the new home of world champion Golden State Warriors scheduled to open in September 2019.

Two, we introduced RingCentral Embeddable. It enables developers to embed voice and SMS messaging into our customers' business applications with just a few lines of code. We already have over 200 companies in industries such as retail, health care and insurance use RingCentral Embeddable.

And three, we extended our open platform to help customers meet compliance and regulatory requirements. For example, customers from industries such as oil and gas, real estate and health care use our new APIs to address their specific data retention needs. More recently, we announced the integration of RingCentral Engage Digital with Google Dialogflow. With this integration, RingCentral Engage digital customers can leverage the machine learning and AI capabilities of Google Dialogflow. This enables them to deploy chatbot virtual agents to manage automated digital customer interactions. Our industry leading cloud communications and collaboration solution combined with our world-class customer support is clearly resonating with customers. We are well positioned to achieve our goal of exceeding $1 billion in revenue in 2020.

Now for some color, I will turn the call over to our Chief Operating Officer, Dave Sipes.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [4]

--------------------------------------------------------------------------------

Thank you, Vlad. Our continued success in the market is driven by the breadth and depth of our cloud platform, our rapid product innovation and continued expansion of our global go-to-market capabilities. Let me now expand.

Our unified communications and collaboration platform continues to be a key differentiator against legacy and cloud competitors. Key to our success is our proven ability to transition customers from legacy on-premise systems like Cisco and Avaya to RingCentral Office and Contact Center. Enterprise-grade voice through the cloud is an absolute prerequisite for these migrations, and while voice is a dominant form of communications amongst our customers, a majority of our top wins continue to cite our unification of other modalities such as video and messaging as well as our open platform and global footprint as reasons for choosing RingCentral.

Let me start with an example of our open platform differentiation. It was noted as a critical influencing factor in over 80% of our million-dollar TCV wins in the first quarter. The open platform enables our customers to easily integrate RingCentral with their CRM systems as well as other business applications to integrate enterprise workflows.

As a case in point, our 45,000-seat win in the U.K. is a great example of how we are able to deliver on unique custom workflow requirements. Waitrose & Partners, a leading U.K. retailer, has a strategic deployment of multifunctional devices across their business aimed at improving staff efficiency and customer service. RingCentral's communication platform will play an integral role in supporting their team of 45,000 employees by ensuring they are more efficient in the future and can, therefore, provide an even better service for their customers.

Euralis in Europe is another example of a win driven by the strength of our platform in mobility, global reach and simplicity. Euralis is a leading France-based agricultural cooperative that supports about 12,000 farms across Europe. Our platform delivered on their requirements for mobility, coverage across 20 countries in Europe and deep integrations with Google products. This is more than a 3,000-seat office and contact center win, replacing multiple legacy on-premise vendors.

Our leading product offering is complemented by a strong go-to-market strategy. Areas of focus on the GTM front include our targeted vertical industry initiative, land-and-expand and channel growth. On last quarter's earnings call, we highlighted our vertical marketing initiatives focused on education, health care and financial markets. In Q1, we continue to make progress in all these verticals. Education was a particularly strong vertical as we built on our success with Columbia University, which chose us last quarter for integrated enterprise-grade voice, video and messaging capabilities. In Q1, we signed Texas Christian University, or TCU, where we secured a win for more than 3,000 seats. TCU needed a mobile-first solution as well as an open platform to easily integrate with Microsoft and other applications. We have built multiple wins at other major universities such as Baylor Medical for example. Having large referenceable higher education customers like Columbia and TCU continues to strengthen our position in this key vertical.

In financial services, we saw meaningful expansion with a Fortune 500 insurance company. This customer started with a pilot in Q1 of last year. The customer wanted to modernize its communications infrastructure across more than 500 independently owned field offices. Mobility was a key focus combined with strict compliance requirements. We're pleased to report this customer is now over 3,000 seats.

Land and expand continues to be a key part of our go-to-market strategy for both seat expansion and product cross-sell. Let me highlight a couple of notable examples. Our recent seat expansion with Panda Express restaurants, a leading national restaurant chain, demonstrates success of our land-and-expand strategy well. After experiencing our high reliability, voice quality, ease-of-use and analytics firsthand, in Q1, they agreed to approximately triple their deployment to over 1,000 locations. We've seen similar results in the past with other leading restaurant chains' expansions such as Chili's and Red Lobster. For example, where product cross-sells fueled significant land and expand, recall that, in Q4, we secured a 1,000-seat contact center win with a large cloud applications provider. In the first quarter, we expanded this deal to include more than 5,000 office seats. The customer was facing challenges with its legacy PBX system in terms of reliability, integration capability and analytics. Our contact center relationship opened the door, and our leading mobile-first open platform secured this win.

Last but not least, our channel execution remained solid. We expanded our channel network by about 25% year-over-year. We also recently announced a partnership with PCM, a leading technology solutions provider. Channel accounted for over 70% of our million-dollar TCV wins, including the 45,000-seat win at Waitrose & Partners and the win at TCU. We're also proud to have CRN award us a 5-star rating in its 2019 Partner Program Guide.

To wrap up, I'll give a brief update on RingCentral Engage, our digital customer engagement solution. This quarter, M1, a large telco operator in Singapore chose to complement their traditional voice-centric contact center with RingCentral Engage Digital. Our broad digital channel support, ability to evolve with future needs and speed to deploy were all key to securing this win. In summary, our product innovation and GTM efforts are bearing fruit, and our land-and-expand strategy is creating sustainable long-term tailwinds to growth. With this momentum, we look forward to extending our market leadership in 2019 and years beyond.

Now for the financials, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [5]

--------------------------------------------------------------------------------

Thanks, Dave, and good afternoon, everyone. We are pleased with our results on all key financial metrics. Total ARR grew to $777 million, up 32% year-over-year, and ARR for RingCentral Office grew to $649 million, up 36% year-over-year. Key drivers continue to be mid-market and enterprise with strong contribution from channel partners.

Mid-market and enterprise ARR grew to $346 million, up 70% year-over-year. As we discussed last quarter, we have moved to a dollar-based metric to provide more transparency to investors, reflecting our expanding product portfolio. We continue focusing on mid-market and enterprise customers as they deliver higher lifetime value deals with lower churn and better land-and-expand potential.

In Q1, mid-market enterprise contributed around 60% of new bookings. This is up from over 50% last year. As for land-and-expand, we again saw solid performance in new bookings from our existing customers. This represented over 40% of the new business mix in the quarter, consistent with recent trends. Channel partners again made a significant contribution to our growth. Channel ARR is now over $200 million, up 75% year-over-year.

Quick update on AT&T. While these are still early days, we are pleased with progress to date. Teams are working well together, and we see good initial traction in the field. We are still not baking in any meaningful contribution in 2019, but we expect AT&T to be a long-term growth driver.

Upmarket and channels led to strong financial performance in the quarter. Total revenue grew 34% to $201 million, which included an unexpected small benefit in other revenue driven by timing of professional services. Subscription revenue grew 33% to $183 million. Subscription non-GAAP gross margin was 82%, consistent with our expectations. This includes puts and takes from scale and contact center growth and is a reasonable target to assume plus or minus. Non-GAAP operating margin of 8.1% was at the high end of our guidance, and non-GAAP EPS of $0.17 was above the high end of our guidance.

Now let's turn to our outlook. We are raising our 2019 guidance. We expect total revenue to be between $862 million and $866 million for an annual growth of 28% to 29%. We expect non-GAAP EPS of $0.71 to $0.75. In summary, we are pleased with our performance led by traction in mid-market, enterprise and the channel. Looking ahead, we are well positioned in the $50 billion UCaaS market. We expect to continue taking market share from legacy on-premise vendors and further distance ourselves from cloud competitors. We expect channel and upmarket tailwinds to continue, bolstered by an expanding international footprint and our targeted vertical go-to-market programs.

Now with that, let me turn the call to the operator for Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Michael Turrin with Deutsche Bank.

--------------------------------------------------------------------------------

Michael James Turrin, Deutsche Bank AG, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Mitesh, we've seen signs of large deal activity continuing to ramp. This quarter, you announced your largest deal ever, a 45,000-seat international win. Can you maybe help us understand how that deal shows up in ARR? And any additional color you're able to add around that transaction is also appreciated.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [3]

--------------------------------------------------------------------------------

Sure, sure, Michael. So yes, we are very pleased with the Waitrose deal this quarter, which is 45,000 seats. For all our U.S.-centric friends here, so Waitrose is a grocery chain -- high-end grocery chain in the U.K., and the parent company is John Lewis. So the -- Waitrose is a multi-year, multi-million-dollar deal. Just like Columbia we had last quarter, only a partial value of the overall deal shows up in ARR, which is reflected in the way the deployment gets staged. And Waitrose, to add other color to your question, Michael, Waitrose is a unique deal for 3 reasons: One is size; second is geo; and third is technology requirements. In terms of size, obviously, it was the largest seat count win we've had. In terms of geo, it's international deal from U.K., which is our growth vector. And from a technology requirements point of view, this was a Glip and team messaging-led deal, which tied in collaboration, mobility and most importantly, an open platform to integrate very, very customized workflows. So overall, I think Waitrose is a potential lighthouse deal for us. It's a very well-known brand in the U.K., and this deal demonstrates our ability to handle large-scale and highly customized deployments with use cases spanning much beyond voice.

--------------------------------------------------------------------------------

Michael James Turrin, Deutsche Bank AG, Research Division - Research Analyst [4]

--------------------------------------------------------------------------------

That's great. And then on the Zoom partnership, we fielded some investor questions on that topic more recently. It looks like that relationship's now set to extend out for multiple years. Can you talk more about that extension as well as the Zoom partnership in terms of RingCentral's open platform vision? That's all for me. Great start to the year, guys.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [5]

--------------------------------------------------------------------------------

Sure, thanks. This is Dave Sipes. Yes, we're happy to announce the multi-year extension with the Zoom partnership today. They've been a key partner in our best-of-breed platform strategy that's resonating with customers as we're displacing legacy PBX systems such as Cisco and Avaya. And we see customers like Columbia who are adapting all components of our platform and deploying that across their organization. So overall, it's been very good.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Our next question comes from the line of Brian Peterson with Raymond James.

--------------------------------------------------------------------------------

Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [7]

--------------------------------------------------------------------------------

So Mitesh, maybe just one for you. Just thinking about your momentum in the upmarket. Anything you can share in terms of the financial details on that in terms of ACV, deal sizes, new logo, land and expand? Just looking for more color there.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [8]

--------------------------------------------------------------------------------

Sure, Brian. So 3-part question from you on large mid-market and enterprise deals, deal size, new logo, ACV and then land and expand. So let's start with the deal size. Overall, within the mid-market and enterprise, deal sizes are getting larger year-over-year as we expand further upmarket and the overall market goes to the cloud. Now in terms of new logos, new logo growth was very strong in the $1 million TCV deals. Over 70% of the deals over $1 million were new logos, which then subsequently drive land and expand or upsell, which leads me to the next point on upsell where 40% of our new bookings came from existing customers.

Dave did give in his prepared remarks a couple of examples of land and expand. One was Panda Express, which is top 200 in Forbes private companies. They will triple the deployments to 1,000 seats and then another Fortune 500 insurance company, which started really small for us, and now it's 3,000 seats. But the most important kicker there is the potential for this deal is over 20,000 seats. So it's a 7x runway in front of us. So clearly, what's happening is we are seeing new customers coming to RingCentral. Larger customers are adopting RingCentral, and existing customers of RingCentral are ramping up their deployments, which basically led to our overall growth rate of 95% in the enterprise segment.

--------------------------------------------------------------------------------

Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [9]

--------------------------------------------------------------------------------

Got it. I'll keep my follow-up to one part, but just maybe thinking about a similar question. But as we think about the overall price per seat or price per user economics as you guys move up into the enterprise, what have the trends been there? And how should we think about that trend going forward?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [10]

--------------------------------------------------------------------------------

Sure, Brian. So on ARPU, ARPU has been very flat and steady over the last couple of quarters. What we are seeing is puts and takes. As we go to the enterprise, yes, there is absolutely some discounting happening, but the enterprise do take up the most highest SKU mostly because of the open platform. Plus, we have Contact Center now that's also helping the ARPUs.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Our next question comes from the line of Terry Tillman with SunTrust.

--------------------------------------------------------------------------------

Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Can you hear me, okay?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [13]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

First, congrats on the quarter. I guess the first question, maybe you can talk about Zoom. And with the updated or extension in the contractual arrangement, what happened to the economics of the relationship? Can you talk about maybe any update or changes to the economics of the relationship? And then I have a follow-up.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [15]

--------------------------------------------------------------------------------

Sure, Terry. So no material change to the economics with the Zoom partnership. As you know, our relationship with Zoom runs long and deep, both in terms of people and technology, in that order actually. And today's partnership announcement extension cements that positioning further where our customers will enjoy the best-of-breed approach as we together take on the massive shift to cloud PBX in this $50 billion market.

--------------------------------------------------------------------------------

Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Okay. And maybe a follow-up question. I don't know if this is for Dave Sipes or not. But on the vertical focus, and you've telegraphed this and you mentioned some of the early verticals that you're focused on, I guess, expectation-wise, how should we think about further expansion in additional verticals in '19 or '20? Or is it more to really try to deepen both product and GTM for the existing vertical efforts?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [17]

--------------------------------------------------------------------------------

Yes. We've talked about the verticals that contributed 40% of our $1 million deals in the quarter, and they continue to be strong quarter-over-quarter. We've focused in financial services, health care, education and also retail, and we will continue to double down on those categories through increased focus on our dedicated account executives, principals as well as some of the certifications that we have in these areas such as FINRA, HIPAA and especially around integrations into our platform that are vertical-specific integrations. Vlad talked about some compliance elements as well as we have examples like Canvas that we've done with Columbia, and we see an opportunity to expand across those verticals in-depth integrations that are useful, specific help these organizations integrate into their enterprise workflows.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Our next question comes from the line of George Sutton with Craig-Hallum.

--------------------------------------------------------------------------------

Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

--------------------------------------------------------------------------------

Jason here for George. Mitesh, earlier, you gave some commentary just on the multi-year rollout for the Waitrose deal. Just wondering if you can give you any general comments on what kind of implementation time lines you're seeing on enterprise deals and then maybe how those have changed from -- changed over the course of the last year.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [20]

--------------------------------------------------------------------------------

Yes, sure. On implementation, look, it's not really a heavy lift for us. For example, other customers we've seen like Public Storage, we were able to deploy multiple thousands of locations like 45 days. So it's more the rollout is predicated more on it's more customer driven where they wanted to make it more methodical and more deliberate. So no real changes to the implementation cycle there, but our customers are pretty deliberate in the way they roll out their deployments.

--------------------------------------------------------------------------------

Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [21]

--------------------------------------------------------------------------------

Okay. Just a follow-up then. You've made a lot of strides in the channel over the last year. Any sense on what your market share is through channel partners? Do you think you can continue to take share there in the channel?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [22]

--------------------------------------------------------------------------------

We've had a successful run and continue to in channel both across master agents and national partners. We've been developing our program for numerous years and developing those relationships. I still think it's earlier in those developed before they become more mature, and so we're getting both an increase. We talked about increase in the number of about 25% year-over-year, but the MRR is growing even faster as we penetrate some of the largest partner accounts in the category. So I feel like with the 75% increase in ARR and channel year-over-year, we're obviously continuing to be partner of choice in that channel.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Our next question comes from the line of Bhavan Suri with William Blair.

--------------------------------------------------------------------------------

Matthew Alan Stotler, William Blair & Company L.L.C., Research Division - Associate [24]

--------------------------------------------------------------------------------

This is Matt Stotler on for Bhavan. Great quarter, guys. Appreciate you taking the questions. Just had a couple more on the vertical sales effort. You gave the contribution of $1 million-plus deals. I would love if you can give any more color like to understand kind of the total revenue contribution that you're seeing from the total vertical sales initiatives, both overall and kind of how you think about those on a per vertical basis. And then I have a follow-up.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [25]

--------------------------------------------------------------------------------

Sure, sure, Matt. So a question on further dissecting verticals in terms of revenue color and investments we are making. So look, early days but verticals are a growth vector. But as Dave said, about 40% of our large deals over $1 million came from this vertical focus. And in terms of the investments we are making, it's both on the go-to-market side, as Dave said, with specialized industry experts and marketing programs but also more importantly on the product side with all these deep integrations we have. So as my wife would ask me what have you done for me lately, so what do we have to show for this, what we have is multiple, what we call, look-alike deals this quarter with these investments we are making. One is we had TCU and Baylor following Columbia in education. We also had Panda following Red Lobster and Chili's in the retail space. And we had multiple, multiple health care wins following One Medical and ChenMed in the health care space. So early -- it's early days for us, but this vertical strategy is coming along very nicely.

--------------------------------------------------------------------------------

Matthew Alan Stotler, William Blair & Company L.L.C., Research Division - Associate [26]

--------------------------------------------------------------------------------

That's helpful. And then just one quick follow-up. Can you give us a sense of, I guess, what number or portion of your sales reps are focused on these specific vertical efforts and what kind of growth rate you're expecting in these reps over the next 12 to 18 months?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [27]

--------------------------------------------------------------------------------

Yes, sure, Matt. So look, it's a fraction of our overall sales force, but we -- I will tell you that we are ramping the vertical-specific sales force faster than our overall sales force. And I think you should expect to see more proof points in these vertical segments going forward.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Our next question comes from the line of Nikolay Beliov with Bank of America.

--------------------------------------------------------------------------------

Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [29]

--------------------------------------------------------------------------------

It's a 2-part question. The first part is for Vlad and Dave. Were you surprised that you guys won your largest deal ever internationally? And is there an incentive to maybe possibly accelerate international plans? And as a follow-up to Mitesh, Mitesh, can you please give us some color on international revenues contribution as part of the mix and expectations going forward?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [30]

--------------------------------------------------------------------------------

Sure. Let me start with the second part as Vlad and Dave frame their thoughts here. I'll give you the boring financial details, and they'll give you the more sizzling points on the strategy. So on the boring stuff, international still sub-10% of our revenue, but again, it's emerging and growing faster than our overall business. Second point is 20% of our large $1 million-plus deals came from international including Waitrose. And I'm going to push out this name, Euralis from France. And again, the third point is Engage Digital is also opening doors for us internationally. As consumers are adopting this whole digital transformation rapidly to interact with businesses, Dimelo is a derivative play on that trend. And we saw a large Singapore carrier this time adopt Engage. So look, overall, it's early days for international for us. I'm going to have Dave and Vlad gave you the color on what you asked for.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [31]

--------------------------------------------------------------------------------

Yes. And on the international, we've -- I'm not being surprised anymore as we've had consistent $1 million wins coming out of our U.K. operation. We had last quarter with TechnologyOne in Australia. We had Euralis, which has been multiple out of France. And if you think about some of the benefits we bring with mobility, open platform and global, a lot of these organizations have even more needs for global as they span across multiple countries like Euralis did in agriculture. So we see the same benefits we bring to our customers here apply to our international customers, and I think that's why you're seeing these types of successes around the world.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Our next question comes from the line of Samad Samana with Jefferies.

--------------------------------------------------------------------------------

Unidentified Analyst, [33]

--------------------------------------------------------------------------------

This is [Anum Amil] on for Samad. A couple of questions for me if I may. I guess the first one is there have been -- this year, you've got multiple tailwinds going into the year. You've got the partners. You've got the international going for you, the Dimelo and Engage in the verticals strategy. So if you had to really -- if you could relay these out for us with respect to their size and importance to you for growth in 2019 or give us some more color into it.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [34]

--------------------------------------------------------------------------------

We've always talked about the growth strategy opportunities being the push into the larger enterprises, the expansion internationally and the growth of our indirect channels. So we think we see benefits on all those as well as the verticalization strategy. So I think they're all important to the organization. They all support each other in many ways. So I'm not sure how to rank them for you, but we see them all as great benefits going forward.

--------------------------------------------------------------------------------

Unidentified Analyst, [35]

--------------------------------------------------------------------------------

Okay. And I guess the second one was on Dimelo, the Engage product. And given the success that you're having, any kind of change in your expectations of how meaningful win this product kind of becomes very -- more meaningful for you going forward? And that's it for me.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [36]

--------------------------------------------------------------------------------

Yes. It's a new category overall with customer digital engagement of younger generations engaging with large consumer brands. We've had many successes, which has been very encouraging and lately with M1 out of Singapore. So we see this as a great opportunity. We think it's probably a many multi-year ramp as that type of behavior takes over, and we do see organizations wanting to have both voice and digital engagement with their consumers. So it's something that the enterprises are welcoming as that behavior is bubbling up from the consumers. So it'll be -- come across over many years, but it is something that is going to be a long-term trend in the industry.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Our next question comes from the line of Heather Bellini with Goldman Sachs.

--------------------------------------------------------------------------------

Heather Anne Bellini, Goldman Sachs Group Inc., Research Division - MD & Analyst [38]

--------------------------------------------------------------------------------

Great. I had a couple of quick ones. Just was wondering if you could share with us how integral the recent acquisitions had been to expanding your deal sizes and cross-sell. And how do we think about Connect First and Dimelo, in particular, helping to drive those? And then another question was related to enterprise sales head count growth. Was just wondering if you could share with us just a rough ballpark maybe how much it grew in fiscal '18 and how are you thinking about expanding that in fiscal '19. And I guess, the last one, Mitesh, would just be related to RingCentral Engage. It looks like that's been very successful in helping with cross-sell. But I know it's relatively new, so just wondering if there's anything more you could share there.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [39]

--------------------------------------------------------------------------------

Sure, Heather. So thanks for packing in 17 questions in your single sentence. So nice job on that. Okay. And let me try to remember. And I will apologize if I may ask you to repeat. The first one is Connect First and Dimelo. Look, both these acquisitions are, in terms of revenue contribution, they are immaterial because they were mostly product technology tuck-ins. That said, the focus this year is really trying to really integrate both these into the fabric of RingCentral, and in the next year or 2, we could see more upsell, cross-sell opportunities from both these acquisitions. Dimelo, definitely because of the geographic separation there across the pond, we are seeing more deals there from that side internationally along with the fact that Dimelo resides -- can reside very elegantly alongside the overall contact centers, which are voice centric. So that's helping a lot.

In terms of the second question for your enterprise sales force, look, the way to think about, Heather, the sales force ramp is that the overall ramp for the enterprise will be lower than our overall ARR growth because we are seeing the segment mature. More reps are getting ramped, and we are seeing productivity benefits from those reps. So that's the way to think about it. I'm not sure if I missed any question from you there.

--------------------------------------------------------------------------------

Heather Anne Bellini, Goldman Sachs Group Inc., Research Division - MD & Analyst [40]

--------------------------------------------------------------------------------

No, that's great. And just the last one, any commentary regarding RingCentral Engage? I know it's relatively new. But anything you could share with us there?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [41]

--------------------------------------------------------------------------------

Yes, sure. On RingCentral Engage, which is the Dimelo acquisition, again, this is a derivative play, as I mentioned, on the younger generation consumers engaging with businesses with different modes, social media, whatnot. We did announce a deal this quarter from Singapore, a telco called M1, which is -- which has multiple social channels like Facebook, whatnot, along with their contact center. So I think it's opening more doors for us internationally.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Our next question comes from the line of Nandan Amladi with Guggenheim Partners.

--------------------------------------------------------------------------------

Nandan Girish Amladi, Guggenheim Securities, LLC - Director of Technology, Media & Telecom equity research practice [43]

--------------------------------------------------------------------------------

So the question for Mitesh, there was a comment earlier on you becoming a partner of choice. Can you talk about what's happening with the channel economics more broadly? The partners that you've spoken to have said that you've had a fairly consistent program, but there's obviously a lot going on, a lot of flux in the partner community. So could you talk about what the dynamics are in the channel?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [44]

--------------------------------------------------------------------------------

Sure, Nandan. Yes. So overall channel, look, if you look at the large deals over $1 million, about 70% of those deals came from the channel. And we are doing well in the channel because of, as you mentioned, the strong and proven technology platform, which enables our partners to win large deals like this 45,000-seat win in the U.K., Waitrose, came from a partner. So did TCU, which was also a $1 million deal. And I hate to say it this way, but competitors with weaker platforms, the only way they respond is with pricing and more SPIFFs. And this is not a new trend. We've been seeing this trend for a while, but the reality is you cannot buy the channel with a subpar product.

The channel partners totally get that and take a long-term view because, for them, it's about the long-term relationship with the customer by selling them the best products. If you look at the lifetime value or lifetime overall of a customer, it's about 100 months or so, at least 10 years. And so 1 or 2 months of additional SPIFFs, they don't really quite move the needle. Now that said, we are competitive with our channel pricing and SPIFFs we give the channel. And along with that, we -- if you look at the economic model, the cumulative profit dollars for the channel are accretive to our business, and then they are -- and are better than the direct business, so which has overall led to channel being a key driver for us with a business of $200 million and a growth rate of 75%.

--------------------------------------------------------------------------------

Nandan Girish Amladi, Guggenheim Securities, LLC - Director of Technology, Media & Telecom equity research practice [45]

--------------------------------------------------------------------------------

And a quick follow-up on the product side either for Dave or Vlad. The Embeddable product that you've come up with, how -- obviously, it's intended for web integration. But what is the target market? And who will you compete with?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [46]

--------------------------------------------------------------------------------

Yes. So the Embeddable is something that we saw as we opened up our APIs and platforms, often a typical integration maybe with a CRM application. And this created a UI for that integration that allows both calling, meetings, scheduling, things of that sort. And instead of creating redundancy in that -- in our developer network, we're able to package that together into the Embeddable to make the CRM integration. As you know, there's obviously some large cloud player, but there is a very fragmented field beyond that. And helping to customize our product into each of these organizations' key CRMs is critical. So the Embeddable is very useful in doing that in a quick and efficient way for those customers.

--------------------------------------------------------------------------------

Nandan Girish Amladi, Guggenheim Securities, LLC - Director of Technology, Media & Telecom equity research practice [47]

--------------------------------------------------------------------------------

And the revenue model?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [48]

--------------------------------------------------------------------------------

We include access to the API platform and our additions pricing. So it's included in some, not all. And it creates encouragement for the large enterprise to go with our larger additions.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Our next question comes from the line of Meta Marshall with Morgan Stanley.

--------------------------------------------------------------------------------

Meta A. Marshall, Morgan Stanley, Research Division - VP [50]

--------------------------------------------------------------------------------

First question, just given everything else has kind of been asked, on the commercial business, that's still a low single-digit growth business for you. Is that something that you think could be kind of low single-digit growth for years to come? Or are we kind of reaching maximum penetration there? And then I think on the contact center side, whether you gave it or not, I'm not sure, but just the attach rate of contact center to deals in the quarter. That's it for me.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [51]

--------------------------------------------------------------------------------

Sure, Meta. So for small SMB business, which is the way you said commercial, we don't use that term, but I think you meant SMB, it's actually growing in the teens. This grew at about 14%, 15% this quarter as well. So we feel that we can sustainably hold that line, call it, mid-teens, plus or minus couple of points over the years to come. I don't think it's saturated. I think people are seeing differentiation there as well. So that's point #1. And in terms of contact center attach, it's still a sub-10% business for us growing fairly rapidly. Also, it's helping us pull in -- like the [numbers] pull in. It used to be UCaaS pulling in contact center. This go around, we saw a very large technology company in the HR space that had contact center seats last quarter of 1,000 seats pull in a 5,000-seat UC win for us. So I think it's helping us win both ways.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

Our next question comes from the line of Charlie Erlikh with Robert W. Baird.

--------------------------------------------------------------------------------

Charles Erlikh, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [53]

--------------------------------------------------------------------------------

Just wanted to ask about win rates. Obviously, very strong results and momentum again. Just very impressive, and you're clearly winning your fair share of deals. So just wanted to ask what the win rates actually look like versus other pure cloud competitors when you're going head to head for the same customers. And has that win rate increased over time or remained pretty steady?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [54]

--------------------------------------------------------------------------------

We remain healthy win rates. We track those across those -- our sales teams and organizations. And we have -- with the strength of the product and strength of the channel, we're able to maintain very healthy stable win rates.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Our next question comes from the line of Sterling Auty with JPMorgan.

--------------------------------------------------------------------------------

Sahil Sharma, JP Morgan Chase & Co, Research Division - Research Analyst [56]

--------------------------------------------------------------------------------

This is actually Sahil on for Sterling. Congratulations on the quarter. So the small and medium business here growth rates slowed down a little bit in the quarter after stabilizing in the last quarter. So anything to read into that? Any more color on why that was?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [57]

--------------------------------------------------------------------------------

Well, there are -- when you say small and medium, what segments are you referring to? Let me just give you -- so our mid-market and enterprise grew 70%, and our implied SMB was 14%, 15%. So just to clarify, what segment are you referring to?

--------------------------------------------------------------------------------

Sahil Sharma, JP Morgan Chase & Co, Research Division - Research Analyst [58]

--------------------------------------------------------------------------------

The -- I'm not talking about the revenue. I'm talking about the ARR, the enterprise and mid-market. Yes.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [59]

--------------------------------------------------------------------------------

Nothing to read there. We had a very strong quarter there. We grew mid-market and enterprise at 70%, and I think we saw really good traction, especially on the enterprise side, with multiple $1 million TCV wins and 95% growth. So I think we saw very strong results there.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

Our next question comes from the line of Dmitry Netis with Stephens.

--------------------------------------------------------------------------------

Dmitry G. Netis, Stephens Inc., Research Division - MD of Equity Capital Markets & Senior Research Analyst [61]

--------------------------------------------------------------------------------

Back to the channel real quick, and then I'll have a follow-up if you allow me. On the channel, with regard to AT&T, you guys are sort of talking it down for 2019, yet you still think this is going to be a viable partnership going forward. What's going on there? Just sort of trying to double click on that. This seems to be a territory they've been selling your product for many years. That's been a relationship that's you've had for 5-plus years, right? What is taking so long to get this thing ramped back up?

--------------------------------------------------------------------------------

Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [62]

--------------------------------------------------------------------------------

Yes, Dmitry, Vlad here. Good to hear from you. Yes, it's all goodness. But just to be clear, I don't know you're a little bit newer to our story. The relationship with AT&T has been severed and reestablished recently. We had a reunited party last fall. So it's very, very new with the cycle, and all we can say is that we could not be happier with the results so far. Now we always want more, of course, but our organizations are working extremely well together. And when we had much lesser involvement from their management team versus what we have now, we were still -- we were a very different company and not at that time really perceived as an enterprise alternative to Cisco and Avaya. Even back then, we were able to deliver, what, a $50-plus million recurring revenue business, which there are lots of SaaS companies out there would be happy to take that for their entire business. So what I can say is that, at this point, we're engaged at the right levels, heating on all cylinders. But as with any SaaS business, it takes time to build up to critical mass, but it's going well.

--------------------------------------------------------------------------------

Dmitry G. Netis, Stephens Inc., Research Division - MD of Equity Capital Markets & Senior Research Analyst [63]

--------------------------------------------------------------------------------

Yes, appreciate it. If I may ask you since you're answering my questions, on the RingCentral Persist, I perceive that as a very interesting product. Is this part of your strategy to tackle kind of the vertical markets, maybe some large premise deployments, a bit of a Trojan horse maybe? And if so, what do you think the potential opportunity there is as far as the attach rate of some of the deals that could probably use that RingCentral Persist?

--------------------------------------------------------------------------------

Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [64]

--------------------------------------------------------------------------------

Yes. I don't know about the Trojan horse angle here. I mean there's nothing we're hiding inside. It's really very straightforward. Look, we are here to address our customers' needs, okay? For vast, vast, vast majority of our customers, if you're a cloud solution, it's just fine, and clearly, that's where the whole thing is going with a few particular customers, and we've highlighted the new Chase Sports Center. It is vitally important to not lose connectivity even if there is full network outage. I mean that's really the one use case where still cloud, to be clear, cloud will still persist, okay? So the issue is not whether or not our cloud will stay up. I don't think that there is any doubt in anybody's mind to that, but the question is, well, okay, what happens if the center itself goes down for whatever reason. From those of you from the West Coast, a PG&E failure, a electricity wire lost for whatever reason. And that's where Persist comes in, and that's where we felt it was prudent to extend our offering with a small piece of on-prem technology that actually addresses that very use case. To be clear, it's not the way that the system is designed to operate day to day. It is strictly a backup as a safety for sure case. That's all it is.

--------------------------------------------------------------------------------

Dmitry G. Netis, Stephens Inc., Research Division - MD of Equity Capital Markets & Senior Research Analyst [65]

--------------------------------------------------------------------------------

Yes, that makes total sense especially for large enterprises that's looking for back up. You want to have that safety there, so very good. And then finally, just throw one last one for Mitesh on the model front. As far as the margins, the gross margin side of the equation, I think they were a little bit light. What should be the go rate? And what sort of caused the margins to decline in the quarter? Was there anything licensing related, channel related? Anything you point to, Mitesh, would be helpful.

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [66]

--------------------------------------------------------------------------------

Sure, Dmitry. So on the gross margin, we've always expected gross margin -- even in my prior call, I did call out we expect gross margins to be in the 82% zip code, plus or minus. That's exactly where we landed, so nothing unusual there. As I've mentioned earlier, which I'll just recap again, puts and takes on gross margin, one is that we are seeing benefits of scale of fixed cost and telco leverage. And on the -- that's helping the margins. On the other side, there is contact center, which is a lower gross margin, but it's very, very strategically important to us. It's a growth vector helping ARPUs, whatnot. So I think longer term, I think 82% gross margin, subscription gross margin, plus or minus, is the way to go.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

Our next question comes from the line of Brian Schwartz with Oppenheimer.

--------------------------------------------------------------------------------

Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [68]

--------------------------------------------------------------------------------

I've got 2 kind of on the same topic here for Dave, got to do with the megadeal that you won, the 45,000. The first question is can you provide if you have any color into the competition of that deal? I know it's partner-led. I'm just curious if you're seeing if there's a different set of competitors as you get to those size businesses. And then the second question that I had here is really about the future. If the partner channel continued as it's been doing in dragging the business up into larger and larger businesses, do you think that you would need to add some sort of sales or services overlay team to help the partner channel with all the integration specifications and work that tends to be more extensive as you get into the highest end of the market in the world?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [69]

--------------------------------------------------------------------------------

So yes. In the Waitrose partners, it was a great win. It was really predicated on kind of our mobility, our platform capabilities. We're able to put our application into a device that those employees were around those stores and able to communicate quickly and easily as well as get on and off key cues in those locations. Competitor there was Cisco, and that was -- and I think that's what we expect in these large deals that we're going to be competing against Cisco or Avaya typically as we replace their legacy systems.

As far as providing capabilities and skills to the channel as they sell, we do today and we continue to expand to help them close key accounts as well as deploy and implement, and we work closely with our partners to provide that education or product expertise especially as the product portfolio and capabilities continue to expand. So we'll continue to do that as well as work with bringing key partners on for key deployment implementation of this partner. So we like to work with our partners both ways on that.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

Our next question comes from the line of Matt Van Vliet with Stifel.

--------------------------------------------------------------------------------

Matthew David Van Vliet, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [71]

--------------------------------------------------------------------------------

I guess just quickly on the international business and I guess the strategy there for growth, do you feel like channel partners helping lead that from a majority standpoint is going to continue to be the primary strategy? Or more localized investments from a direct sales perspective, could we see those start to tick up in certain regions or in certain geographies? And maybe on the specific side, are you seeing any progress on the BT group ramp-up?

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [72]

--------------------------------------------------------------------------------

Our international markets resemble our U.S. market in that we do both -- we have direct capabilities as well as channel partner capabilities. We do think it's important to help enable those partners across those regions with some of the expertise we've developed in selling this over a decade. So I expect that model to continue. As far as our other service provider partners, we continue to have strong relationship and good success with both BT and TELUS.

--------------------------------------------------------------------------------

Matthew David Van Vliet, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [73]

--------------------------------------------------------------------------------

And as a follow-up, Mitesh, on the margin side, is there any reason that your progress on expanding free cash flow margin shouldn't continue to mirror the operating side? Or are there any sort of step function investments from either CapEx or even capitalized software that could impact that in the next couple quarters?

--------------------------------------------------------------------------------

Mitesh Dhruv, RingCentral, Inc. - CFO [74]

--------------------------------------------------------------------------------

No, our CapEx is pretty stable. It's very incremental. So yes, it should move sort of in lock function there. Now over time, what's going to happen is -- again, this is a -- if you take a longer-term view on the model, our enterprise customers tend to pay upfront annually. And as that is happening, we have about teens type percent paying annually now of our customer base. This is up from about 10-ish percent a couple of years ago. Now as that tends to start ramping up over time, I think we'll see some expansion in the free cash flow margin and dollars over time. But again, it's early days, but I think there's an upside bias to the free cash flow numbers there.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

Our next question comes from the line of Catharine Trebnick with Dougherty & Company.

--------------------------------------------------------------------------------

Catharine Anne Trebnick, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Data & Internet Protocol Networking [76]

--------------------------------------------------------------------------------

Back to you, Dave Sipes. You had noticed that it was 25% increase in the number of channel partners that you had year-over-year. Could you give us a little background on are they more regional? Are they more international? Are they more master agents, et cetera. And just give more background on that statistics.

--------------------------------------------------------------------------------

David D. Sipes, RingCentral, Inc. - COO [77]

--------------------------------------------------------------------------------

Yes. So we're adding partners both domestically and internationally along with the business growth. We started on this journey a long time ago and continue to push into -- I think the key is we're pushing into the largest resellers and national partners and getting greater education as well as penetration within the largest accounts. And that's helping drive an even faster growth than you see in the growth of the partner network, but -- and we're still early in that phase. We still have -- only been, on average, within a couple of years into those relationships with those partners.

--------------------------------------------------------------------------------

Catharine Anne Trebnick, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Data & Internet Protocol Networking [78]

--------------------------------------------------------------------------------

So with -- I'll take it on the post-call.

--------------------------------------------------------------------------------

Operator [79]

--------------------------------------------------------------------------------

Ladies and gentlemen, we have reached the end of the question-and-answer session, and this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.