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Edited Transcript of RNG earnings conference call or presentation 5-Nov-18 10:00pm GMT

Q3 2018 RingCentral Inc Earnings Call

San Mateo Nov 19, 2018 (Thomson StreetEvents) -- Edited Transcript of RingCentral Inc earnings conference call or presentation Monday, November 5, 2018 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David D. Sipes

RingCentral, Inc. - COO

* Mitesh Dhruv

RingCentral, Inc. - CFO

* Paul B. Thomas

RingCentral, Inc. - Senior Director of IR

* Vladimir G. Shmunis

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

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Conference Call Participants

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* Bhavanmit Singh Suri

William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media, and Communications

* 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

* George Frederick Sutton

Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst

* Heather Anne Bellini

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

* Jonathan Allan Kees

Summit Insights Group, L.L.C - MD & Senior Analyst

* 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

* Nikolay Ivanov Beliov

BofA Merrill Lynch, Research Division - VP

* Samad Saleem Samana

Jefferies LLC, Research Division - Equity Analyst

* Sterling Auty

JP Morgan Chase & Co, Research Division - Senior Analyst

* Terrell Frederick Tillman

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

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Presentation

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Operator [1]

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Greetings, and welcome to RingCentral Third Quarter 2018 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, Paul Thomas. Please go ahead.

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Paul B. Thomas, RingCentral, Inc. - Senior Director of IR [2]

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Thank you. Good afternoon, and welcome to RingCentral's Third Quarter 2018 Earnings Conference Call. I am Paul Thomas, RingCentral's Senior Director of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Dave Sipes, Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Dave 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, a 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.

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

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

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Good afternoon, and thank you for joining our third quarter earnings conference call.

Third quarter results were excellent. Revenue growth, non-GAAP operating margin and EPS came in, in, at or above the higher end of our guidance ranges. Our core subscription performance, led by our mid-market and enterprise business and momentum with our channel partners, continues to be strong. And we expanded our product portfolio and TAM with the acquisition of Dimelo, a leading B2C digital customer engagement platform.

Let me begin by covering some of the key highlights of the quarter. First, total revenues for the third quarter grew $274 million. This is a 33% increase year-over-year, above the high end of our guidance range.

Second, our core subscription business, normalizing for the legacy AT&T base, continued to outperform. Core subscription revenue grew 38% year-over-year, up from 34% in the same quarter last year.

Third, mid-market and enterprise business continued to lead the way. We define mid-market and enterprise as 50 seats or greater. This grew 75% year-over-year and is now a $270 million annualized business. Our enterprise business, defined as customers with $100,000 or more in annual recurring revenue, or ARR, grew over 100% year-over-year. By itself, this business is now over $145 million.

Fourth, momentum with channel partners continues. In the third quarter, our channel business grew over 90% year-over-year to over $160 million.

Fifth, we again saw outstanding performance internationally with several large deals in the U.K. and our first million-dollar-plus TCV deal in Australia.

Finally, this quarter, we extended our relationships with both AT&T and BT. AT&T agreed to reengage with RingCentral and has restarted selling Office@Hand, which is based on the RingCentral platform. AT&T plans to sell the solution through direct and indirect sales channels to enterprises and to vertical sectors like financial services, health care and government. As to BT, they opened up their mid-market and enterprise customers to RingCentral solutions. Their mobile-first solution, which has been rebranded as BT Cloud Work, provides the key communications capabilities enterprise need to engage customers, drive greater workforce productivity and enhance mobility.

We're winning because legacy solutions simply cannot meet the needs of modern mobile and distributed workforces. Our success is rooted in our deep commitment to technology, product excellence and customer satisfaction. This is being clearly recognized by customers and experts alike. It is clear that the cloud is winning, and RingCentral is winning in the cloud.

According to Gartner, by 2021, 90% of IT leaders will not purchase new premises-based UC infrastructure, up from 50% today. And we are proud to share that for the fourth consecutive year, Gartner has recognized RingCentral as the leader in the Magic Quadrant for unified communications as a service. In the Magic Quadrant, RingCentral is now positioned furthest within the Leaders Quadrant for completeness of vision and ability to execute. In recognizing our leadership, Gartner stated that the RingCentral UCaaS offering is strong across the board, UCaaS features and capabilities, project management, sales and operations.

Not resting on our laurels, we're always looking to strategically expand our product portfolio, enhance the value we deliver to our customers and to expand our TAM. Our first technology acquisition 3 years ago was a team messaging and collaboration platform, Glip. It allowed us to enable internal team communications via means beyond voice. This acquisition has been a resounding success and is helping us win key enterprise accounts.

This quarter, we are excited to announce the acquisition of Dimelo, a leading cloud-based digital customer engagement platform. Dimelo enables external customer communications via nonvoice channels. There's still an emerging need of large brands to connect with their customers via multiple digital channels, including messaging, in-app messaging, social media, live chat, e-mail and community forums. Dimelo is deployed by leading global organizations such as Allianz, AXA, BNP Paribas, ENGIE, Orange and Telenor, spanning multiple industries, including telecom, financial services, insurance and retail.

The successes of this quarter are still just the beginning. We are in the early innings of what we expect will be a massive shift of all business communications to the cloud. RingCentral is in the lead. We aim to extend our leadership position with continued investment in product and technology innovation, enterprise sales and channel relationships. With a widening gap and moat between us and our competitors, we believe that 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.

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

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Thank you, Vlad. It was a great quarter, and we're pleased with the continuing momentum in our mid-market and enterprise business. We continue to build on our mid-market and enterprise momentum by expanding both our direct sales presence and channel partnerships across the U.S. as well as internationally in Europe and Asia. Channel continues to be an important part of our enterprise success. This quarter, over 80% of our top 20 largest deals came through our channel partner network.

Let me walk you through just a few customer win examples from our third quarter. We have highlighted in the past that enterprise businesses with large workforces dispersed across a significant number of retail locations are well suited to benefit from RingCentral. This quarter, we have a new major win with Munro, a leading automotive services company. With RingCentral, Munro can centrally manage their thousands of locations. In addition, they plan to adopt our team collaboration capabilities, Glip, across both their corporate and retail locations.

Also this quarter, Intersection, the smart cities technology and media company, chose RingCentral to power communications on over 1,500 digital kiosks that are transforming urban environments such as Link in New York City. This has the potential to grow globally as Intersection enters new markets across the world.

Our open platform continues to grow rapidly and is a key factor in many purchasing decisions. CRM applications are among our most popular integrations. For example, this quarter, RingCentral signed the Tampa Bay Buccaneers. The Bucs are replacing a legacy Avaya system and chose RingCentral for its ability to easily integrate with their cloud CRM system. This is the third NFL entity to choose RingCentral.

Internationally, we continue to expand the capabilities of RingCentral Global Office. This quarter, we added 2 more countries with native dialing experience, Hungary and Croatia, bringing the total to 39 countries. In the U.K., we had a marquee win with the Financial Times, one of the oldest and most distinguished business publications in the world. The Financial Times is digitally transforming the way their staff work, embracing mobile and collaborative technologies. After an extensive market analysis, Financial Times chose to partner with RingCentral to deliver enterprise-grade cloud communication and collaboration solution to over 2,000 of their staff across the globe.

In Australia, we have made rapid progress in a short period of time. Recall that in Q1 of this year, we announced that we had opened our first sales office in the region. This quarter, we are pleased to share that we signed our first million-dollar-plus TCV contract with TechnologyOne, one of the largest enterprise software vendors in Australia. They selected RingCentral for our user experience, quality of service reporting and global capabilities.

In addition to these sizable, new logo wins, we continue to expand with our existing enterprise customers. For example, Red Lobster started with around 200 seats last year. This quarter, they added 2,000 seats, with the potential to add more as they roll out RingCentral to all their North American locations. RingCentral solution improved the performance of Red Lobster's to-go ordering process while reducing system cost compared with the legacy solution.

In summary, it's a great quarter. We are seeing the momentum of our prior wins, drive significant new wins and expansion from existing customers. We are gaining traction, both domestically and internationally, as we continue to build our direct and channel presence globally. We continue to believe we are well positioned to win the significant market opportunity in front of us.

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

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

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Thanks, Dave, and good afternoon, everyone. Before I begin discussing RingCentral's results, I'd ask you to refer to the slide deck posted on our IR website. This provides the key points of our call today as well as supplemental information.

We adopted ASC 606 as of Jan 1, 2018, under the retrospective method. We have provided comparative numbers for the respective period of 2017 in the slide deck and press release. 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 press release and the slide deck.

With that, let's move on to the results. We had an outstanding third quarter. All our key financial metrics came in at or above the high end of our guidance. This was led by continued strength in our mid-market and enterprise business, supported by channel partners.

In the third quarter, our subscription revenue grew 32% year-over-year to $158 million, up from 30% a year ago. Our core subscription revenue, normalized for the legacy AT&T base, grew 38%, up from 34% a year ago. Total ARR grew to $674 million, up 31% year-over-year. And ARR for RingCentral Office grew to $592 million, up 36% year-over-year. Our performance again was led by robust growth in mid-market and enterprise business. It was up 75% year-over-year, with ARR of $270 million. Our enterprise business of over $145 million, growing in triple digits year-over-year, represented over half of this business. As it relates to new sales, the share of mid-market and enterprise business was over 60% for RingCentral Office, up from over 50% a year ago. Channel partners, again, made a significant contribution to our growth. ARR from our channel partners was over $160 million and grew more than 90% year-over-year.

In addition to our third quarter financial results, I also want to share some encouraging long-term trends. We are seeing multiple benefits because of our focus on mid-market and enterprise customers and working with our channel partners.

First, lower churn. In the third quarter, we saw record-low gross churn. Mid-market and enterprise customers have less than half the gross churn rate of small business customers. In addition, customers acquired through channel partners have less than half the gross churn of customers who purchased directly.

Second, growth through land-and-expand. Typically, customers begin transitioning to cloud communications by purchasing a subset of our product portfolio for just a portion of their employees. This presents a significant opportunity to cross-sell and upsell.

Recall, at our Investor Day, we shared that we were only about 15% penetrated in our mid-market and enterprise customers. Leveraging this opportunity, once again, this quarter, over 40% of our new office business came from existing customers. The combination of lower gross churn and robust land-and-expand drove strong net retention in Q3.

Now moving on to our Q3 financials. Total revenue increased 33% to $174 million, above the high end of our guidance range. Subscription gross margin was 83.1%, up 130 basis points year-over-year. Operating margin was 8.2%, at the high end of our guidance range. We ended the quarter with $577 million in cash, an increase of $10 million from Q2. We closed the acquisition of Dimelo in late October. The acquisition is not estimated to have any significant impact on FY '18.

Before turning to our outlook, I want to share color on 2 points. First, taxes. Given our recent non-GAAP profitability, we will be introducing a non-GAAP tax rate in fiscal '19. The rate is expected to be in the range of 22% to 24%. We determined this by applying an average long-term expected tax rate. Note that we do not expect to pay any cash taxes given our carryforward losses.

Second, disclosures relating to core revenue. With the return of AT&T as a partner, we want to ensure that the metrics we disclose continue to offer insight into the fundamentals of our business performance. We will continue disclosing the core revenue metric through the end of this year for comparative purposes and will share our plans for 2019 during our next earnings call.

Now let's turn to our outlook. We are raising our 2018 guidance. We expect software subscription revenue to be between $606 million to $608 million for an annual growth of 30% to 31%. We expect core subscription revenue to grow 36% for the year. We expect total revenue to be between $664 million and $667 million for an annual growth rate of about 32%. We expect non-GAAP operating margins of 8.4%, up 90 basis points year-over-year, consistent with our earlier guidance of delivering 75 to 100 basis points of expansion. We expect non-GAAP EPS of $0.71 to $0.73 based on 86 million fully diluted shares. The difference between GAAP and non-GAAP EPS is expected to include the following: $0.81 of stock-based compensation, $0.20 of amortization of debt discount relating to our convert and $0.09 of amortization of acquired intangibles and acquisition-related expenses. We do not forecast any effects of currency remeasurement, which could be a significant reconciling item between GAAP and non-GAAP EPS, because it is difficult to predict and subject to constant change.

Now for our fourth quarter guidance. We expect subscription revenue to be between $165 million and $167 million for an annual growth of 27% to 28%. We expect core subscription revenue to grow 33% to 34%. We expect total revenue to be between $179 million and $182 million for an annual growth of 27% to 29%. We expect non-GAAP operating margin of 7.9% to 8.1%. We expect non-GAAP EPS of $0.17 to $0.19 based on 87 million fully diluted shares. The difference between GAAP and non-GAAP EPS is expected to include the following: $0.22 of stock-based compensation, $0.06 of amortization of debt discount and $0.02 of amortization of acquired intangibles. Again, we do not forecast any effects of currency remeasurement. All our guidance details are available in our press release and our earnings deck.

In summary, we had a strong third quarter, both financially and strategically, seeding several long-term drivers. Our core business continues to perform well, reaching 38% year-over-year growth. We had significant new customer wins, both domestically and internationally. We had record-low churn and robust net retention. We reestablished our relationship with AT&T and expanded our engagement with BT. We extended our lead over the competition and, again, were recognized by Gartner as a UCaaS Magic Quadrant Leader. And we completed an important strategic acquisition, Dimelo, expanding our TAM in the B2C customer digital engagement market.

With that as a backdrop, we are confident we will achieve our goal of exceeding both the rule of 40 and $1 billion in revenue in 2020.

Finally, a brief reminder that our third annual user conference, ConnectCentral, is happening next week in San Francisco on November 12 to 14. Space is limited, so please reach out to our IR team if you'd like to attend. We hope to see you there.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from the line of Terry Tillman with Raymond James.

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Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [2]

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Hopefully you can hear me okay. I've got some background noise. But first, congratulations on the quarter. Great set of results. Mitesh, I wanted to ask specifically as it relates to the enterprise business. It's, at the scale it is now, still seeing the triple-digit growth. I'd like, if you could, some more details on maybe some of the drivers kind of that is driving that triple-digit growth at this much higher level now of revenue.

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

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Sure, Terry. Yes, it was a good quarter, good performance from our enterprise segment, as you said. It's $145 million business, growing very nicely, still over 100%. So I'll provide color in 2 ways. One is the large deals we saw and then what it means in terms of land-and-expand. So in terms of large deals, this third quarter, it being albeit a seasonally slow quarter, we saw a record number of deals over $1 million. It was up from Q2 last quarter and from Q4 of last year. So seasonally slow quarter, but it actually outpaced the momentum for both last quarter and seasonally strong Q4. What is interesting is that within that, if you bust it out even further, 80% of those new deals were new logos. So that provides a land-and-expand opportunity in the future. So that's on the new logo side. Now if you look at the expansion side, we had shared at the Analyst Day that only about 15-ish percent, Terry, in our mid-market and enterprise installed base is penetrated. So that itself gives us a lot of headroom to grow just within that installed base. One example we gave in this quarter was Red Lobster, where we saw a 10x increase in the seats, from 200 seats to 2,000 seats this year versus last year. So that's just one example of -- and there are many more like that in terms of land-and-expand. So just to give -- to summarize, landing record number of new logos with expansion potential, which then drives future business, lends itself to a very durable growth story in the future.

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Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [4]

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That's great. And, I guess, my follow-up question, and I'm not sure who this is for, so I'll just -- I'll throw it out there, I'll bomb you, because, again, I think I got some really loud background noise. With Dimelo, I mean, I get it in terms of it's a large market, customer engagement, messaging, conversational messaging, et cetera. It's a high growth area. But how are you all going to attack that market? And are there synergy opportunities, maybe some things you've been doing on kind of vertical selling and retail or financial services? But I'm just trying to understand the go-to-market on that. It seems like a big growth opportunity, but it feels like it's a little bit different that kind of knowledge worker productivity and things of that nature that you focus on.

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

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Sure. On Dimelo, we're seeing a way to expand customer engagement for our customers in addition to voice-centric contact center solutions and adding digital-focused agents as the new employee -- the new consumer generation is using messaging in-app, social, to much greater extent, to connect with businesses. And this allows companies that have large engagement or large brands, typically, consumer-facing brands that are engaging with customers in high volumes to centralize that activity through administrative portal. We've -- and moved -- and often becomes their first opportunity to move to the cloud as they've been on some of the largest legacy systems historically. Our customers have been very receptive and in initial discussions with them at adding this type of capability. And we think it's a way to add nonvoice capabilities to our current offering as we see that growing over time. For verticals, we see this as penetrated historically, large telecoms, financial services, large brands that are dealing with a lot of consumers. And that gives us additional vertical capabilities to align with where we've been successful historically with health care and financial services.

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Operator [6]

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

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

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Congrats on the solid results this quarter. So, Mitesh, maybe I'll start with you. So if we think beyond the fourth quarter guidance, how should we think about the balance of growth versus margin expansion going forward? Any light you can shed on that?

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

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Sure, Brian. So let's start with growth first, and then we'll double-click on growth with growth economics, the investments we are making, and then we'll wrap up with margin and then we'll dive into longer term for fiscal '19 beyond fourth quarter. So if you look at the growth itself, it was a strong quarter across the board for -- the core growth rate was 38%, ex AT&T. And if you look at how qualitatively we performed, we did break up further from the back in terms of competition. If you look at Gartner's results, we further were up into the right. So that's growth. But what's as important, or if not, more important, growth economics will drive the growth with cost to book and then retention, and we saw improvements in both those measures. So if you look at cost to book, where mid-market and enterprise cost to book was down or lower year-to-date versus last year, so we are seeing some sales cycle shortening at the margin, given the improvements and awareness of the cloud space with the larger enterprises. So cost to book is coming down. And on retention, customers are staying longer, and they are buying more. So with the growth and growth economics working, the -- with the biases to keep investing and further separating from the back to capture this unbounded story here, and so we will be investing in our go-to-market segment with pipeline generation, demand gen, brand, and then also on a product road map, product portfolio to further separate the lead on innovation. But having said all of that, to wrap up with margin, we will show operating margin expansion the way we've been doing previously, and we'll be growing in a fiscally disciplined manner to drive shareholder value, just the way best-in-class companies do. So that's sort of the overall backdrop for growth versus margin trade-off. If you look at beyond the fourth quarter for fiscal '19, we aren't going to give out specifics on '19. We'll have to wait for the fourth quarter guidance. But I do want to highlight the fact that as you guys do your models, look at sequential trends, the way we have been in the past, and model accordingly, so that's one. But overall, we feel really good about the long-term prospects of the business here, and we have some long-term drivers, which are new in place. And I think that's -- that will help the long-term potential growth of the company.

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

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And just following up. Obviously, there's some good news with some carrier partnerships this quarter versus maybe what we talked about previously. It sounds like there's much more an enterprise focus there. I'm curious, has that helped your enterprise business already in the third quarter? And when should we see that as a real accelerant to the enterprise ARR?

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David D. Sipes, RingCentral, Inc. - COO [10]

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Yes, this is Dave Sipes. So we were happy to announce about the AT&T expansion, the BT expansion into their -- and BT into their corporate segments and major account segments that's up to 1,000 employees and then major accounts is over 1,000 employees segment as being the preferential UCaaS provider in that sector. And with AT&T, it's expanding the relationship. Those are still very early. We've had very good receptivity with AT&T sellers. As we've been able to roll it out, we still have significant enablement that will go on with some sellers that this is new to them. Some that have been with us for a long time or have been with AT&T for a long time, they're able to sell immediately. But I would say it's still at the very early stages. But we've been very happy with the receptivity and enthusiasm that we're seeing.

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Operator [11]

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

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Meta A. Marshall, Morgan Stanley, Research Division - VP [12]

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First, I just wanted to kind of ask a question on what you're seeing on sales cycles. I know the past couple of quarters, you had some examples of very quick wins. But just overall what you're seeing as far as kind of in the mid-market, how long it's taking to achieve sales. And then second, the gross margin was -- on the subscription, was obviously extremely impressive this quarter. And just wondering how to think of the progression of that or how we should think about how high kind of subscription gross margins can get since we're kind of above where your targets were.

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David D. Sipes, RingCentral, Inc. - COO [13]

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Meta, this is Dave. I shall do the sales cycle, and I'll then hand it over to Mitesh for the margin question. On the sales cycles, we've talked about it being 6 to 9 months. That may be shortening at the lower end to maybe 4 to 9 months. In some instances, we do have instances like TechnologyOne, which is a $1 million deal. We announced in Australia of being under 2 months in sales cycle. So there are examples of very large deals that come in quickly. But overall, we still see that kind of similar trend with maybe a slight improvement.

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Mitesh Dhruv, RingCentral, Inc. - CFO [14]

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Meta, on the gross margin side, yes, so gross margin, there are 2 dynamics going on. One is, underlying, we are seeing scale take over where we are seeing our fixed cost spread over a larger base. So you're seeing scale in that. We are also seeing our scale-in or cost reduction in our telco costs. So those two are helping the COGS and the gross margin. The offset is our contact center business, which is inherently a lower gross margin business. If you add the 2 together, again, this quarter, we did punch over 83%. But as contact center takes share over the long run, in the next year or so, I would model gross margin around an 82% ZIP Code, plus or minus. That's the way to think about gross margins. Still a very -- still very healthy over 80%, but there'll be some pressure on -- with the contact center. So that's the way I would model it.

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Operator [15]

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

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media, and Communications [16]

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Maybe I'll start out on sort of the international business here. You've had some really nice, large international deals throughout the last couple of quarters. I guess, Mitesh, maybe I'll direct it to you for us, and I have 1 follow-up for Mr. Sipes there. But I just have to understand what the drivers are and sort of how you're expanding or what the plans are for expansion side of the U.S. and sort of how do you see the trajectory of that business over the next, say, 3 to 5 years. I just want to understand maybe mix and things like that and then what the drivers are.

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Mitesh Dhruv, RingCentral, Inc. - CFO [17]

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Sure, Bhavan. So international remains an interesting vector of growth for us. It's in the very, very early stages, but it remains a key growth future driver, which will be layered on to our story in the upcoming years. So I'll give you color in 3 dimensions. I'll start with the performance of international. Then we'll talk about the investments we're making, as you asked. And then we'll tie it in with the recent BT expansion and the Dimelo acquisition. Just starting with the performance on the international side about -- if you look at the -- all the deals we had over $1 million, 20% of those deals came in through the international markets, in the U.K. and in Australia. And the story is just the same playbook. Large companies are ripping out their Cisco and Avaya boxes to go to the cloud. So that's what we are seeing. Two, we had 2 deals this quarter, TechnologyOne in Australia and Financial Times, both marquee names in the U.K. So we are seeing some momentum there. And why are they choosing us? They're choosing us for 2 simple things. One is the global capabilities we have to stamp out countries across the globe. And second is our open platform, because more and more enterprises want to gather other applications to their core communication stack. So that's on the performance. So given the early success, we are going to be doubling down and investing in the international markets in brand, in both the direct and the indirect channels, and that will all take hold and ramp next year very nicely. So that remains a future driver for us. And the third point on BT and Dimelo, they are both, again, new, emerging, long-term drivers for us. Again, as Sipes mentioned earlier and we mentioned in the call, we expanded our relationship with BT with -- to open up their -- our solution to their enterprise and mid-market accounts, which was not done before. So that remains a vector. And Dimelo's acquisition gives us a good start in France, because most of the success has been in Europe or in France. So that gives us something to start with. So hopefully, we'll be able to cross-sell in other international geographies.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media, and Communications [18]

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Got it, got it. That's really helpful, Mitesh. I guess maybe one for the broader group there, David. Mitesh, maybe you can jump in here. There's always this build versus buy philosophical question that exists, and your approach so far clearly seems to have been resonating. These are correct ones given sort of the card market position. But how do you think about it? Because, obviously, you've made some acquisition, but you've also done some organic investments and growing internationally. As you think about product set, I'd love to sense philosophically how you think about build versus buy and sort of the strategic benefits of either one.

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Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [19]

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Yes, Vlad here. Maybe I'll take this one. Well, look, to be clear, so with Dimelo, yes, we've acquired a French company here, and certainly, they have a very nice foothold there with great accounts like Allianz and Orange and a few others. But we don't use them as a French play or U play. It's -- we view them as a global play. The digital channel engagement platforms that they provide is needed by enterprises and, in particular, by brands across the globe. So this is just to clarify that. But to your question, okay, well, when do we build versus buy? Look, we've had a very consistent message over time. We are about -- it's not really about build versus buy for us. It's about how do we deliver the best user experience, the best value and the stickiest, most engaging products that we can. If we can buy to plug up a gap or 2, then we will. And this is our second acquisition now. As I think most of you know, our first acquisition, Glip, was very, very successful, has differentiated us in a very meaningful way. To this day, we are the only scaled-up provider with full UCaaS, full cloud phone system as well as key messaging and collaboration all on the same platform and now all seamlessly integrated in the same app. So that's been really great for us. One is loss of enterprise accounts, including many of our 7-digit TCV accounts, came through that. And I have to say, it's very early with Dimelo, but we are optimistic. The announcement has been well received by the analyst community. I can share that we've had some -- let's put it this way. We have not had any negative customer feedback on this, and people are intrigued. So yes, moving forward, as if and when we can find other nuggets of advanced, world-class efforts that we can acquire, we will. Whatever we cannot acquire, we'll develop. We'll develop. And as a reminder, we are -- with our scale now and our growth, our commitment to technology and R&D really dwarfs -- at this point, dwarfs the next guy down the line by like a factor of 4 now. So we expect that those continued efforts will continue bearing fruit.

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Operator [20]

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

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [21]

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Vlad, let me follow up on that last question with a little bit more of a direct question relative to both video and contact center, 2 areas where the trends are obviously around acquisitions and having them fully integrated. Is that a goal of yours? Or do we read the continued increase in R&D as, really, you are going to pursue some of these things via an internal build?

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Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [22]

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Yes. Look -- yes, no, I appreciate the more pointed question here, but it's pretty much the same answer. So-- but let's build again on Dimelo. The thing with Dimelo is that even though it was a -- not a huge company, actually, a fairly small company, but in our judgment, they had -- and frankly, in many other people's judgments, it would involve their customers and even companies like Apple who selected them as one of the very early integration partners for Apple Business Chat. So that's a big deal. So what the team was able to demonstrate is a very high-end, polished digital customer engagement capability, which is really second to none. And this is why people have been continuously selecting them over much better established companies, for example, like Genesys, who have some of the similar capabilities but not nearly as polished. So we felt this was a little bit of a diamond, and so we've integrated. As -- so as to your question (inaudible), so what's next? As far as the contact center is concerned, Dimelo is a contact center, to be clear. It does not have the voice capability, but it has every other capability. And as Dave already mentioned, we believe that the world is moving to at least augment voice with digital channels. But more and more people probably will be using less voice and more nonvoice, messaging, in-app messaging, social media and the like of that, texting. So anyway, that is definitely our foray into the contact center space. We do expect to continue working within contact, nice, close as we have been, therefore, have a very differentiated product. And look, I'll just have to say, we'll have to see what the future brings. Eventually, we do see RingCentral offering world-class, industry-leading, and, hopefully, in time, Magic Quadrant-leading as well, technologies in voice contact center as well as nonvoice. So that one is a perfect side. Yes. And with video, you know what, similar answer. We'll provide best available experience in partnerships if we have to through its position if we can or our own development if -- as necessary. But for now, we are very, very happy with the relationship there.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [23]

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You pointed out a Glip-related win. Just curious, can you give us a sense of how broadly that is getting adopted?

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David D. Sipes, RingCentral, Inc. - COO [24]

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Yes. We're seeing Glip adoption very strong in our large accounts. It's become part of our standard implementation process. It's also been standard in our presales activities. We've been very happy with the adoption we're seeing there across some of these biggest accounts. And it's really -- it's a product we bought 3.5 years ago, but we've kept improving it. And it's gotten to the point where it's a world-class solution that we're proud of.

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Operator [25]

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

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Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [26]

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Mitesh, to start off, a question for you. Just a little bit more puts and takes on net retention rate in the mid-market and enterprise and how that translates into sales and marketing efficiency, which have been increasing when you look at incremental sales and marketing dollar producing incremental subscription revenue that's been getting better.

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

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Sure, Nikolay. So if you look at the net retention, it's driven by 2 things: our gross churn and then upsell. And so let's start with the first one, gross churn. We did see record-low gross churn this quarter. If you look at our office business, the gross churn was up 10% annually. So it was the lowest we've ever had. And it's basically -- as you know, it's driven by, in large part, the move to mid-market and enterprise customers, because, naturally, the business mortality is lower, and it's stickier. That's on the gross churn. On the upsell, again, we saw very strong upsell quarter this time as customers bought more seats and bought more products like contact center, Global Office and some of the video capabilities. So 1 example we shared was Red Lobster earlier, but again, there are several others like Avery Dennison, which is a total potential customer of 20,000 seats, again, tripled its footprint from last year to this year to close to 2,000 users this time. So combining both the gross churn and upsell led to a very strong net retention quarter that it was about 130% again for the mid-market and enterprise segment. And as this flywheel keeps on turning, it leads to a higher productivity in the business model as we march to $1 billion in revenue.

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Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [28]

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And, Mitesh, my follow-up, how that ties into improving sales and marketing efficiency.

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Mitesh Dhruv, RingCentral, Inc. - CFO [29]

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Yes. Look, exactly. So that -- it's a virtuous circle, right? We have got lower churn, more upsells and then our cost to book is coming down, even though we are moving to the enterprise segment. So these 3 factors combined is very, very accretive for the business model. Now what we don't see from the outside in is that we've been taking all that money and then further reinvesting it into pipeline, into demand gen, into a brand. So over the next year or so, we'll hold sales and marketing as a percent of revenue flat or slightly up, but underlying, we will, maybe at the next Analyst Day, further show you how the unit economics have been further improving. So that's the way to think about it.

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Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [30]

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Got it. One quick question for you. One thing that we're hearing from your partners is that you've done a pretty good job surrounding your call center OEM relationship with additional tools that's resonating with customers. And if you can just refresh us -- refresh our memory what they are and the types of use cases they drive. And how does it drive with Dimelo? Would a call center customer also maybe acquire Dimelo for whatever reasons? Or just trying to like get some clarity on the use cases between the existing call center solution in light of the enhancement versus Dimelo.

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

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Yes. And this is Dave Sipes. I think the question is, how have we surrounded the contact center with additional capabilities? Well, Glip has been core to that and surrounding agents and spreading information out across the entire organization, not just keeping it in the contact center. To that end, we announced Pulse, which creates smart alerting within the contact center and notifies back out through Glip into the rest of the organization. We also do standardization or synchronization of contact center teams with team messaging teams. All of those capabilities are definitely fruitful opportunities for the new Dimelo product as we've looked to enable those digital agents to also have access to the entire company as well as experts within the company. So those are things that we're considering. So stay tuned as we announce new integrations with that product.

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Operator [32]

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Our next question comes from the line of John DiFucci with Jefferies.

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Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [33]

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This is Samad Samana here for John. A couple of questions, if I could. First, very nice strength in the enterprise and mid-market. I was wondering, as you think about the growth there, could you maybe help us test out the growth in average deal size versus the growth in units? Just trying to get an idea of what the bigger contributor to that very strong performance is on the enterprise and mid-market side of the business. And then I have a follow-up question.

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Mitesh Dhruv, RingCentral, Inc. - CFO [34]

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Sure, Samad. I think the average -- I think you're seeing both. It's a mix. The deal size is getting larger and as well as we are seeing a pickup in units. So you're seeing -- and that's where -- if you look at the ARR we published for the mid-market and enterprise segment, which is $270 million business, that actually takes into account -- it normalizes for all of that. So you don't have to then try and divide by the deal size or deal duration. It's all normalized for that.

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Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [35]

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Great. That's helpful. And then maybe one for Dave Sipes. On the -- congrats on the first million-dollar-plus deal in Australia. I guess, could you help us understand maybe how penetrated UCaaS is in that market and compared to North America and EMEA and any potential competitive advantages that RingCentral has as it tries to penetrate that market?

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

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Sure. I think UCaaS is still new across all these markets. We know legacy has the dominant share today, but it's shrinking in size over time. In Australia, there's been a big push on fiber roll for the whole country that's helped ancillary services like UCaaS. And so we're seeing great reception when we went into that market. We've been in there with our channel team less than 4 months. We've already signed up 50 partners in that market and helped contribute to the TechnologyOne win. But the receptivity is very high, so we've been encouraged with the expansion there.

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Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [37]

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And, Mitesh, maybe just one housekeeping question. On that fourth quarter guidance, is there any contribution baked in from Dimelo? I know it's not especially material, but is there any revenue from Dimelo and the new part of the AT&T deals, the incremental part of the AT&T expansion?

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Mitesh Dhruv, RingCentral, Inc. - CFO [38]

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Sure, Samad. So both are totally insignificant. On Dimelo, it's a very small company. It's more of an acquihire. So nothing significant there. And on AT&T, again, we just signed the contract in September. So it takes a long time for recurring revenue base to build. So not material at all. But that said, both deals -- what you said is both deals are very, very interesting long-term drivers of the business. And we expect over the next couple of years, both will contribute pretty meaningfully, hopefully, aspirationally, to this -- to our growth vectors.

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Operator [39]

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

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

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I just wanted to follow up on a couple other comments that you had in your prepared remarks. You talked about the success you're having with the partner community. I was just wondering if you can help us think about the percentage of your enterprise deals that partners are driving now and kind of maybe what that looked like a year ago. And then also, how much larger would you say your lands are now versus a year ago in these large partner-led deals? And, I guess, the last metric, Mitesh, would just be, you guys talked about lower churn, I'm just wondering if you could share with us kind of the delta between the enterprise customer churn and the rest of the population.

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David D. Sipes, RingCentral, Inc. - COO [41]

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Sure. So this is David. So on the -- I think 1 question there was the enterprise and how its channel contributing to the enterprise. I think we're seeing it in over about 70% of the enterprise business. We've been able to continue to grow the channel strongly. We had a record number of new partners signed. Even quarter-over-quarter, it's up almost 25%. We've been able to sign a couple very large partners, for example, like PCM, which is a national partner, which is a large Cisco dealer, which is over $2 billion in annual revenue and 800 direct sellers; as well as second one, AGC, which is a large global Avaya partner. So those have helped as we've moved into enterprise to add the resellers, the partners that have been more enterprise-focused over time. And so that's where you're seeing the positive contribution. I'll hand it to Mitesh on the margin question.

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Mitesh Dhruv, RingCentral, Inc. - CFO [42]

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Sure. I'll just clarify one thing. What Dave meant to say is that the 70% is of the new deals we signed, not of the total base. So just -- I'm sure you picked up on that, but just wanted to clarify that to set the script straight. In terms of the churn, Heather, the delta is pretty sizable, where the gross churn for the mid-market and enterprises is less than half the churn -- gross churn of the SMB side. If you just look at the enterprise side, I don't think we've lost a single account. So it's almost like 0. But if you combine the mid-market and enterprise, it's a sub-5% annual gross churn rate. And then the other SMBs, over 10%. So that's the way to think about it.

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Operator [43]

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

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [44]

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Can you talk a little bit about how you're dividing up the new resources that you're bringing onboard, given the success that you're having in the mid-market and enterprise versus what resources are still going towards the more traditional lower end? So in other words, how are you dividing up the hiring specifically and sales marketing and R&D?

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David D. Sipes, RingCentral, Inc. - COO [45]

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Yes, this is David Sipes. We continue to expand the upper ends as we feel them both strategic as expanding into that category as well as having lower churn and longer net life of those revenues. So we have been expanding the upmarket teams, and we do that at a rapid pace as we grow new business and new pipe into that channel -- into the segments.

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Mitesh Dhruv, RingCentral, Inc. - CFO [46]

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Yes, Sterling, just to add on to what Dave said. Exactly what he said, but also what's happening is, as you know, the SMB segment is very, very efficient for us, and it's a machine for us to generate profitability. And we are taking all those dollars, as we had highlighted at the Investor Day, and refunneling those dollars into the enterprise pipe. So that's what is happening under the hood.

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Operator [47]

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Our next question comes from the line of Michael Turrin with Deutsche Bank.

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Michael James Turrin, Deutsche Bank AG, Research Division - Research Analyst [48]

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Core subscription revenue growth actually accelerated on a tougher comp to 38% growth. Wondering if you can just walk through some of the key factors driving that strength. Is there any commentary you're able to add around either ramped reps or underlying productivity trends you're seeing?

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Mitesh Dhruv, RingCentral, Inc. - CFO [49]

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Sure, Michael. So yes, core revenue did accelerate at 38%. I would -- please do not extrapolate that because, soon, we'll be at 70% in that rate. So don't set the expectation there. Yes, it was a tough comp, but a couple of things here. It was a broad-based trend. And I'll point out to 1 or 2 or 3 factors that led to that. First is, again, the enterprise and the mid-market segment, that growth rate was over 75% on a base of $270 million-ish. So about 1/4 or 30% of our Office business is coming from the enterprise and mid-market side. That provides, obviously, a natural tailwind to the overall growth rate. That's one. And second is in terms of the ramp, we are seeing a little bit more of our enterprise sales folks being ramped. So that is providing a natural, again, second tailwind to the productivity there. So that, again, we saw that phenomenon as well. So both those together led to the 38% growth rate uptick.

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Michael James Turrin, Deutsche Bank AG, Research Division - Research Analyst [50]

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Okay, that's helpful. And then just going back to the churn comments quickly. You're seeing record lows in gross churn. Mitesh, I'm just wondering how much room for improvement there still exists, in your view, in aggregate as you continue this move upmarket and into the channel?

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

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Yes. No, it's a good one, Michael. So look, if you look at the churn, as Heather asked, if you look at the upper end of the segments, the churn is sub-5% annually. And at the SMB side, it's a little bit over 10%. Now as the mix shift continues towards the upper end, it's a mix shift issue or it's a mix shift dynamic. Over 60% of our new business is coming from the upper end. So as the mix takes hold, even -- shifts even more to the upper side, you can see maybe 1 point or so, 1 point or 2 points over time, of an improvement just because of the mix shift. And hopefully, we'll be performing organically better in the SMB side as well. So I think you cannot expect churn to just -- ask them to totally go to 0, but there are a couple of points of tailwinds there over the next couple of years.

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Operator [52]

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(Operator Instructions)

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

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Catharine Anne Trebnick, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Data & Internet Protocol Networking [53]

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Mine is on resellers. Is there any way you could tell us how the top maybe 3 performed year-over-year this year versus a year ago? And anything different you did to support sales enablement or new portals or any type of pricing to help stimulate the growth from that segment?

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Mitesh Dhruv, RingCentral, Inc. - CFO [54]

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Sure, Catharine. It's Mitesh. So nothing different in terms of sales enablement. We all are trying to do the same thing, and it's a pretty formulaic equation there. I think what we've been hearing, at least from the channel partners, is, again, it's about the product that's driving it and the ease-of-use and the way our global capabilities are is what's really driving the momentum in the channel side. And if you look at the contribution from channel partners, it's been very consistent year-over-year.

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Operator [55]

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

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Matthew David Van Vliet, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [56]

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I guess, as you look out towards 2019 and even your 2020 revenue target, where do you feel like you're at in terms of sales coverage from your quota-carrying reps maybe in the U.S. versus how much more growth you need internationally? And then how should we think about the mix of increasing sales and marketing spending going to sales productivity enhancements versus marketing versus overall headcount growth?

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David D. Sipes, RingCentral, Inc. - COO [57]

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Yes. I think the question is, how do we see expansion of those upmarket teams? And we continue to still see a lot of opportunity domestically. There's huge demands internationally also. So we carefully try to measure the best bang for the buck and where we expand the team, but we do see opportunities across the board to continue to expand that team.

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Operator [58]

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

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [59]

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It's Brian Schwartz. This question is either for Vlad, David or Mitesh. So Dimelo is one of the preferred vendors for Apple Business Chat, and that's great. And I believe it also can provide messaging on a Facebook Messenger and WeChat, too. Just curious to hear your high-level thoughts on Google's next-gen SMS platform for, first, Android platform. I think they call it the Rich Communication System. And is the Dimelo technology set up to quickly enter that messaging channel opportunity in the future?

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Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [60]

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Yes. Brian, Vlad. So first, just to clarify. We hope that Dimelo will become one of Apple's leading partners or providers, but for now, they've been -- just to clarify what I said is they've been chosen as one of the very early integration partners. So we'll have to see how things develop. But obviously, it's not a bad place to start from. Look, as to Google, there is nothing -- the thing we most liked about the Dimelo platform is it's actually channel-agnostic. So what this means is that, really, the smart of it is in the queuing engine and ability to direct messages from any digital channel to the most appropriate agent and keep track of all of the threads in a same manner, okay? So they already integrate with a wide range of providers where messages can be originating from. And some of the bigger names now, Apple, WhatsApp, we certainly -- Facebook, for that matter, we certainly expect them that as new technology becomes available, we'll absolutely expect to be within the first echelon of available integration. And as you all know, we have a pretty special relationship with Google. One of our board members is a very senior executive there. So I would be very surprised if somehow Google's integration is lacking with us.

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Operator [61]

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Our next question comes from the line of Will Power with Robert W. Baird.

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Charles Erlikh, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [62]

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This is actually Charlie Erlikh on for Will. Just had a quick one on the competitive environment. Any changes overall from your perspective? And how are you thinking about some of these new entrants like Google and Zoom and also Avaya as they push more towards the cloud?

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Vladimir G. Shmunis, RingCentral, Inc. - Co-Founder, Chairman & CEO [63]

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Yes. Maybe I'll take. Well, look, it's a really great question, because what we see so far is a little bit of the repeat like we saw with Microsoft and Cisco a couple of years ago, whereby there were all of the announcements and media and all of that, but the products haven't materialized. And as a matter of fact, they still haven't materialized to this day. And what we hear is that, for example, if a couple of years ago, people were always asking, "Okay, well, what about Microsoft? What about Cisco?" Now people are asking like you are, "Okay. Well, what about Zoom? What about Google?" The truth of the matter is none of these companies, and that includes still to this day Microsoft and Cisco and Avaya and some of these new entrants, they really don't have a fully featured UCaaS product. But some of them like with the Google, they just announced a -- they made an announcement a few months ago. We haven't heard back since. Zoom has pretty much stated that they will be mostly competing with Skype, Skype for Business. I think they even mentioned that on the call or the user conference saying that for higher-end high requirements enterprise implementations, they point people in our direction. Look, it's a very, very heavy lift as we found out the hard way, and whereas there is a wide mount, and we have one of the probably world's largest, dedicated teams on this -- and that includes any vendor you can think of. So yes. I mean, we'll have to see how it all develops, but just -- the way we look at it, very large market, very underpenetrated and willing to lead. We're doing everything we can from this side, and I can assure you to stay in that lead and improve the gap.

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Operator [64]

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Our next question comes from the line of Jonathan Kees with Summit Insights Group.

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Jonathan Allan Kees, Summit Insights Group, L.L.C - MD & Senior Analyst [65]

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Even though I have a couple of strategic questions, I'll make mine easy. It's more like -- it'll be more housekeeping. My question is more on the -- I didn't quite catch it. Did you go over the number of 7-figure deals that you had, 7-digit TCVs and then the number that were also included to contact center?

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

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Sure, Jonathan. So we gave some color on that. We said that the Q3 deals for million-dollar TCV was a record this quarter. In a seasonally slow quarter, we did have more deals than last quarter and versus the strongest quarter we had, which is seasonally strong Q4. And those deals did include contact center as well. So what we saw in the million-dollar TCV deals was pretty interesting dynamics. We saw more than 70% come to the channel. We saw a mix of contact center. We saw international. And we saw some -- a mix of vertical. So it was a really, really broad-based strength in the million-dollar TCV side. And also, overall, if you look at the enterprise segment and the overall business of close to $150 million, it was a very, very broad-based trend across verticals, across channel. And so hopefully, this momentum is here to stay.

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Operator [67]

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Ladies and gentlemen, we have reached the end of our question-and-answer session. And this does conclude today's third quarter earnings call. Thank you for joining. You may now disconnect.