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Edited Transcript of RNG.N earnings conference call or presentation 9-Nov-20 10:00pm GMT

·56 min read

Q3 2020 RingCentral Inc Earnings Call San Mateo Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of RingCentral Inc earnings conference call or presentation Monday, November 9, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anand Eswaran RingCentral, Inc. - President & COO * Mitesh Dhruv RingCentral, Inc. - CFO * Ryan Goodman RingCentral, Inc. - Director of IR * Vladimir G. Shmunis RingCentral, Inc. - Founder, Chairman & CEO ================================================================================ Conference Call Participants ================================================================================ * 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 * Catharine Anne Trebnick Colliers Securities LLC, Research Division - VP & Senior Research Analyst * George Frederick Sutton Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst * George Kurosawa * Jonathan Allan Kees Summit Insights Group, L.L.C - MD & Senior Application Software Analyst * Matthew David VanVliet BTIG, LLC, Research Division - VP & Application Software Analyst * Meta A. Marshall Morgan Stanley, Research Division - VP * Michael James Turrin Wells Fargo Securities, LLC, Research Division - Senior Analyst * Nikolay Ivanov Beliov BofA Merrill Lynch, Research Division - VP * Peter Marc Levine Evercore ISI Institutional Equities, Research Division - Analyst * Richard Frank Valera Needham & Company, LLC, Research Division - Senior Analyst * Ryan Boyer Koontz Rosenblatt Securities Inc., Research Division - MD & Senior Research Analyst * Samad Saleem Samana Jefferies LLC, Research Division - Equity Analyst * Sitikantha Panigrahi Mizuho Securities USA LLC, Research Division - MD * Sterling Auty JPMorgan Chase & Co, Research Division - Senior Analyst * Taylor Anne McGinnis Deutsche Bank AG, Research Division - Research Associate * Terrell Frederick Tillman Truist Securities, Inc., Research Division - Research Analyst * William Verity Power Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings and welcome to RingCentral's Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Goodman, Head of Investor Relations. Thank you. You may begin. -------------------------------------------------------------------------------- Ryan Goodman, RingCentral, Inc. - Director of IR [2] -------------------------------------------------------------------------------- Thank you. Good afternoon and welcome to RingCentral's Third Quarter 2020 Earnings Conference Call. I'm Ryan Goodman, RingCentral's Head of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Anand Eswaran, President and Chief Operating Officer; and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Anand and Mitesh, followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements, including our fourth quarter and full year 2020 financial outlook and our assumptions underlying that outlook. 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. In particular, our business is currently being impacted by the COVID-19 pandemic. The extent of its continued impact on our business will depend on several factors, including the severity, duration and extent of the pandemic as well as actions taken by governments, businesses and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. 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. I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide deck, our GAAP to non-GAAP reconciliations, our periodic SEC reports, a webcast replay of today's call and to learn more about RingCentral. For certain forward-looking items, 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. -------------------------------------------------------------------------------- Vladimir G. Shmunis, RingCentral, Inc. - Founder, Chairman & CEO [3] -------------------------------------------------------------------------------- Good afternoon and thank you for joining our third quarter earnings conference call. We hope all of you are safe and in good health. I would like to start this call with a warm welcome to our newest Board member, Ms. Mignon Clyburn. Mignon was an FCC Commissioner for 9 years but was committed to closing the digital divide. Prior to her federal appointment, Ms. Clyburn served 11 years on the Public Service Commission of South Carolina. Now to RingCentral. With a substantial part of the global workforce continuing to work from home, we see that cloud communication solutions are becoming a core tenet of business continuity. RingCentral's importance to all customers for their communication and collaboration needs continues to increase. Leveraging these megatrends, we delivered a solid third quarter. We saw continued strong adoption of RingCentral as our customers are going through their digital transformation journeys. And the numbers are there to prove it. For Q3, total ARR grew 34% year-over-year to $1.2 billion. Customer mindshare grew at the level we have not seen before, with record new logo business up over 60% year-over-year. Additionally, we see pipeline expanding and macro-related redemption metrics continuing to stabilize. Anand and Mitesh will provide more details. Underpinning these trends is the customers' clear need for a complete communication solution that combines all major means in which people communicate, message, video and phone or what we refer to as MVP. Individually, each mode, message, video and phone, is important, but seamless integration across these 3 modalities is what makes RingCentral a standout in the enterprise cloud communications space. RingCentral MVP transforms transactional codes, messages and meetings into a persistent system of record and engagement for all of enterprise's external and internal communications teams. And RingCentral does so elegantly and effectively as is evidenced by our recent recognition from the prestigious Academy of Interactive and Visual Arts. We are proud and humbled to have won a W3 Gold award in the General Website Applications-Services category and 2 W3 Silver awards for Best Visual Appeal - Experience and Best Digital Appeal - Utility. But superior user interface is just the beginning. It is the strength of our well-proven brought in the cloud platform that enables us to win with Five9 reliability, world-class global coverage, deep-feature capabilities and an open platform. Building on these strengths, our innovation philosophy continues to accelerate. On the video side, last quarter, we released over 70 new and innovative features, including additional security controls, waiting rooms, [filtered] viewing mode, in-meeting device switching, network quality indicators and the dark mode, amongst others. We continue to rapidly innovate and have a rich road map ahead. We also enhanced our open platform with fully integrated high-volume SMS capabilities. This enables our customers to use the RingCentral platform for SMS order notifications and appointment reminders without need for third-party CPaaS solutions. And importantly, we announced expansion of RingCentral Global Office across 6 continents and broadened our European platform presence to now include Germany with local data residency. This will allow us to better serve large international customers. COVID has been a tailwind for us as legacy on-premise solutions are now simply inaccessible by most employees. But let's look at that. In the post-COVID world, we don't expect things to go all the way back to the way they were at the end of 2019. Businesses are already planning for a hybrid world where part of the workforce will continue to work from home for the foreseeable future. RingCentral is uniquely positioned to address this new world of work via differentiated ecosystem of strategic partnerships with major on-premise system vendors as well as a number of leading global carriers. To that end, we have some exciting updates that Anand will share with you shortly. In conclusion, our business has never been stronger, and we see tailwinds continuing. Our well-differentiated global, secure, reliable MVP platform and the unique ecosystem of strategic relationships give us preferential access to over 180 million users worldwide for nearly half of the on-premise PBX installed base. The cloud is winning, and RingCentral is winning in the cloud. And we believe the best is yet to come. Stay tuned for additional exciting announcements on both the technology and go-to-market front. With that, I'd like to wish everyone a healthy and safe holiday season. And I will now turn the call over to our President and Chief Operating Officer, Anand Eswaran. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [4] -------------------------------------------------------------------------------- Thank you, Vlad. Good afternoon, everyone. Operationally, Q3 was a very strong quarter. We are seeing strength across all customer segments. We have strong momentum with new logo wins and upsell across our unified communications and customer engagement portfolio. Let me begin with a few highlights. First, channel continues to be a key driver of our upmarket success. Channel ARR increased 59% year-over-year to $419 million. Second, our carrier partners delivered strong results that exceeded our expectations. Third, for strategic partnerships, we are pleased with early success and the way Avaya and Office are ramping on sales enablement and joint pipeline building. I'd also like to warmly welcome Alcatel-Lucent Enterprise as a new strategic partner. Fourth, our unified experience, MVP, proved to be an important differentiator for our top customer wins. Of our top million-dollar-plus TCV wins in Q3, roughly half cited integrated video, messaging and phone as the key influencing factor in their decision to go with RingCentral. And fifth, we are seeing great return on our investments in innovation and geographic expansion. Our open platform ecosystem and global reach position us to uniquely serve the needs of large international companies. Let me just dive into the details. First, channel. Our strong presence in the channel community provides us valuable customer mindshare at scale, and our channel network continues to grow at a record pace. One example of a standout channel win in Q3 is with Cornerstone OnDemand, a global leader in people development solutions. Cornerstone needed to replace legacy on-premise systems with a global unified communications platform. Our high-reliability open platform and complete MVP solution enables this customer to deploy in central globally across 20 countries and over 2,500 users and, additionally, provided them with significant savings. Second, our key carrier partners. TELUS had a strong quarter with new logos and upsell. We are expanding our partnership to include new market segments and products, including contact center. For AT&T, we continue to see strong performance, with new business up triple digits year-over-year, led by expansion into our market. This acceleration is a direct result of RingCentral becoming AT&T's lead UCaaS solution in late last year. Building upon this success, I'm excited to share that earlier today, we announced an expanded partnership with British Telecom. Under the new agreement, cloud work provided by RingCentral will be a lead UCaaS and CCaaS offering for BT business and public sector customers. On strategic partnerships, let me start with Avaya. We continued our ACO rollout with ramping customer wins, partner sales participation and geographic coverage. Over half of our Q3 ACO new business came from upmarket customers. We are seeing robust ACO pipeline growth, and we are pleased to see some of the larger ACO wins in Q3 coming from targeted verticals like health care and education. With Atos, Unify Office by RingCentral was launched in August, in 7 European countries. We are particularly pleased to see large-scale early wins, including an 8-figure TCV deal in the first month of launch. And we are delighted to have Atos choosing Unify Office by RingCentral as its go-forward solution, starting with 30,000 users across 20 countries. Our partner ecosystem provides us with a unique go-to-market mode, and our differentiated family of integrated UCaaS and CCaaS solutions creates lasting customer value. A great example of an integrated UCaaS and CCaaS win was with Heartland Dental, one of the nation's largest dental support organizations. This long-time RingCentral customer expanded to 10,000 UCaaS users and added its first 200 contact center users in Q3. By adding RingCentral contact center, Heartland Dental will be able to do end-to-end analytics of patient calls from the contact center to their local offices. We also had a large win for Engage Digital, RingCentral's digital customer contact center platform with CNAM, a French government organization that manages national health care branches. Importantly, CNAM is also planning to use RingCentral Video or RCV. That, in conjunction with Engage Digital, will provide CNAM with an innovated platform to connect with policyholders and health care professionals. Examples above and many others illustrate the importance of a global solution to our customers. A big differentiator for RingCentral Global Office, which is now available in 6 continents, is full local regulatory compliance and security. This was key to a large Q3 win with a multinational software company. Since first piloting RingCentral in 2019, this customer has expanded to 16,000 UCaaS users and over 1,300 contact center agents across 40 countries. Along with global expansion, another key initiative at RingCentral is meeting the needs of key verticals such as health care and education. As already mentioned, an important win in health care, and let me now share one in education. In Q3, we secured a 6,000-user win with the University of Tennessee, Knoxville. Our industry-leading unified MVP solution and mobile-first platform were all critical to meeting the needs of this university. In addition, the integrations we have developed with the Canvas Learning Management System as part of our vertical market initiative was an important differentiator. While we have talked about our unique distribution network, global reach and an extensive feature set, it all starts with trust. Trust is the first principle at RingCentral. And in the current environment, reliable, secure, trusted communication are paramount. We are humbled that RingCentral solution has played an important part in helping COVID contract tracing in the U.K. I am incredibly proud of our accomplishments this quarter. We are scaling the business effectively with vision and discipline, with a large market at an inflection point, the strength of our brand, technology platform and unique partnerships gives us confidence in our future. And now for the financials, I will turn the call over to our Chief Financial Officer, Mitesh Dhruv. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [5] -------------------------------------------------------------------------------- Thanks, Anand, and good afternoon, everyone. Q3 was a standout quarter on multiple fronts. Here are some key highlights. First, overall subscription revenue grew 33% year-over-year, accelerating from 32% in Q2. Second, non-GAAP operating margin of over 10% was up about 1 point year-over-year, and non-GAAP operating cash flow margin of 15% expanded 350 basis points year-over-year. This speaks to our philosophy of profitable growth and demonstrates the inherent leverage in our business model. Third, ARR, for our flagship UCaaS solution, RingCentral Office, grew 36% year-over-year to $1.1 billion. And finally, mid-market and enterprise customers had another strong quarter, with ARR up 49% year-over-year to over $600 million. Key drivers for these strong results include strong momentum in enterprise with new logo wins and upsells; stabilizing COVID-related churn trends across the business; and contributions from our strategic partnerships boding well for the long-term growth and margin opportunity. Starting with our enterprise momentum. Our business from new customers grew triple digits year-over-year, a significant acceleration from recent quarters. Contact center is seeing a strong attach rate with our larger UCaaS wins and is an important driver of growth. Our structural shift upmarket is essential in fueling our continued land and expand strategy for years ahead. Case in point, new bookings from existing customers accounted for over 40% of upmarket bookings, demonstrating growing mindshare within the base. Along with strong new business, we also saw our overall COVID-driven churn stabilized at similar levels to Q2 and was better than we had contemplated in our guidance. As to our partnerships, we are pleased to see early contributions from Avaya and Atos as well as strong results from our carrier partners, most notably from AT&T. As more users from these partners come online throughout next year, we expect strong incremental contributions. These will, of course, first show up in ARR before meaningfully contributing to subscription revenue in ensuing quarters. Momentum from Q3 continuing into Q4 and the building structural tailwinds give us confidence to deliver a strong finish to 2020. As an early read, Q4 is off to a good start with a robust new logo momentum, along with continued strong pipeline generation and a healthy coverage ratio. With that, we are raising our annual guidance for 2020. We are increasing our subscription revenue growth to 31%, up from 28% previously. We expect other nonrecurring revenue growth of 10% to 12%, reflecting customer engagement shift from desktop phones to RingCentral apps on laptop and mobile devices. We are increasing our total revenue growth to 29%, up from 26% to 27% previously. We expect non-GAAP operating margin of 9.7%, which is at the top end of our prior range. We are increasing our non-GAAP EPS to $0.96, up from $0.92 to $0.94 previously. In summary, we are seeing multiple catalysts for our profitable growth to continue long term. Macro indicators for churn and retention are stabilizing. We are forging long-term relationships with our customers. Our diversified go-to-market strategy is bearing fruit, with early important wins from Avaya and Atos. AT&T and TELUS are showing solid new business growth. BT is further doubling down with the RingCentral as a lead offering. Alcatel-Lucent Enterprise is on track to ship early next year, and further international expansion remains to be unlocked, especially with the help of our strategic partners. Also, expect to hear about additional new initiatives on both the product and on the go-to-market front that further expands our already diversified growth vectors. Businesses are now shifting focus from stopgap fixes to long-term solutions that require platforms that enable productive work-from-anywhere workforces that will persist in a post-pandemic environment. And RingCentral is at the forefront of the journey. We are still in the early innings of the RingCentral story, and we are confident in our ability to thrive in this $50 billion-plus UCaaS market. 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 Terrell Tillman with Truist. -------------------------------------------------------------------------------- Terrell Frederick Tillman, Truist Securities, Inc., Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Congrats on the quarter. Maybe, Mitesh, first question for you just relates to the traction and the -- this kind of programmatic approach moving upmarket. Maybe a little bit more financial color in terms of the million dollar deals in the quarter and how are you thinking about fourth quarter in terms of exposure to large million-dollar-plus deals. And then I have a follow-up. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [3] -------------------------------------------------------------------------------- Sure, Terry. So yes, so question on how million-dollar deals are doing in Q3 and how Q4 is shaping up. So let's start with Q3 first. I'll touch upon a couple of areas. So for million-dollar deals in terms of the dimensions of the deal itself, so the average size of the deals and the duration, we saw an increase on both these dimensions sequentially. That's one. And the strength was broad-based in terms of where the deals came from. So 80% of these transactions were new logos. A channel accounted for more than 60% of these deals. And in these deals, half of these deals had contact center -- an element of contact center in them. So across the board, very broad strength. In terms of Q4, how it's shaping up, if you look ahead, look, the first month of Q4, we've -- it was a -- it's a fast start. We've built -- we've booked about twice the number of million-dollar deals compared to what we had in the first month of Q3. And in terms of the deal size as well, the total value of all these deals in the first month is up about 4 to 5x more than the total value we booked in the first month of Q3. So all in all, we are seeing this momentum continue into Q4. So overall, I feel that this whole structural shift of RingCentral being a work-from-anywhere play is turning out to be a good catalyst for us. -------------------------------------------------------------------------------- Terrell Frederick Tillman, Truist Securities, Inc., Research Division - Research Analyst [4] -------------------------------------------------------------------------------- That's great. That's great color. And just a follow-up. I don't know if this is for Vlad or Anand. But like if you just do the simple math, which I'm good at simple math, I mean, you all have several million-plus users. I don't know if you've given any update or would think about giving us an update. But now you have access to 180 million users potentially with these strategic partnerships. I'm trying to understand kind of how captive of an audience that is, what's their propensity to stick with their existing partner and use the RingCentral-powered product maybe versus going in a different direction. What kind of signals -- I know it's early still, but what kind of signals are you seeing around the stickiness of those relationships, those partners have in order to kind of keep them as a customer as opposed to going to some other cloud platform? And congrats again. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [5] -------------------------------------------------------------------------------- No, that's a great question. This is Anand, and I'll take the question. Great to talk to everyone here. So we feel pretty good about the stickiness across our partners. In fact, if I were to tell you what were the top 3 highlights for me in Q3, one of it I would have started with partners across Avaya, across Atos, across AT&T, BT, TELUS. And we are seeing record growth with our carrier partners on new customer acquisitions. We are seeing record growth on upselling. And we are seeing great momentum across all the fundamentals with -- whether it be pipeline, whether it be large deals, whether it be our transactions quarter-on-quarter with Avaya and Atos. So net of it, my answer to your question is our fundamental stellars we feel pretty good about our strategic partners, our carrier partners, taking us to the next level on our joint partnership. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from the line of Bhavan Suri with William Blair. -------------------------------------------------------------------------------- Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [7] -------------------------------------------------------------------------------- And let me echo Terry, nice job there. Let me start off maybe with a contradict to Terry's question, which was upmarket. Let me go the other direction because you had amazing upmarkets doing really fantastic. But if I do the math, too, the SMB market actually looked like it grew really, really well, really great strength in the SMB. Again, you're not a SMB company. But Mitesh, just some color on what's driving that both from a go-to-market perspective and financially, around the sort of the reacceleration, what I gather in the SMB space. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [8] -------------------------------------------------------------------------------- Sure, Bhavan. Yes, we did see strength across the board. And yes, you're right. SMB did perk up and did show an acceleration again in the third quarter. So to set the table, compares were definitely easier from last year, if you look at last year. And -- but that said, despite the compares, a couple of things are happening under the hood. So I touch upon 3 or 4 dimensions here. The first one is that we are seeing very strong traction in e-commerce. That's one. Second is the recent branding we've done and RingCentral becoming a name of work-from-anywhere is taking off. The third dimension is contribution from Avaya and AT&T and some of our other carrier partners. And the fourth one is churn. Macro trends are stabilizing. So all these 4 things came together for a perfect storm for SMB to take off. Now if you look at what it means is that it's a stronger motion in SMB with a lower CAC. And this highly profitable SMB business is now helping fuel the higher lifetime value upmarket business. So it's starting to create a virtuous cycle more and more for us. -------------------------------------------------------------------------------- Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [9] -------------------------------------------------------------------------------- Yes. Yes, the churn and the stabilization is huge. It has a good impact. Totally get it. Totally good to hear. And my follow-up, maybe for Anand or Vlad. You touched on sort of some tailwinds from coronavirus, but you're not benefiting the way someone like a Zoom is, right? There is some benefit from work from home, but the way I think about it is the sale that RingCentral has is much more of a centralized sale. You have to replace PBXs, you have to replace stuff that's sitting at people's facilities. And so I would think of the vaccine almost as a tailwind and more people are not going to go to work full time, that sort of move back the office to focus on more traditional initiatives would be a tailwind. Am I thinking about that right? Or is that sort of not going to play at home? I'm thinking about -- I'd love to get sort of your thoughts on that idea that if people do start going back to the office, maybe start thinking about more traditional implementations and projects and ripping up these old phone systems that's going to benefit you in that trend vis-à-vis COVID where that people may have been reticent to do that. Just trying to understand how you guys are thinking about it and what you're seeing in the pipeline. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [10] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Vladimir G. Shmunis, RingCentral, Inc. - Founder, Chairman & CEO [11] -------------------------------------------------------------------------------- Anand, let me take this maybe, and you can add details. Now look, fantastic question, obviously, very timely. And look, as you all know, RingCentral grew nicely before COVID. We are growing nicely during COVID, and we fully expect to grow nicely after COVID. And just to set a stage, look, we are not -- I'm not pointing fingers at anyone, so please don't take it that way. But we are not a flash-in-the-pan kind of stock of the day, just riding this one event. We are not a work-from-home service. We're work-from-anywhere service. When I went on the road, exactly 7 years ago, 7 years and 1 month, for our IPO road show, that was the message then, which was work from anywhere. Mobile workforces, global workforces, distributed workforces and major megatrend of mobility and widely available and affordable broadband. And all of those are still in place, only more so. And you can argue that with advance of some very near to technological advances like 5G, for example, for example, both mobility and broadband will get yet another shot in the arm. So -- and look, at the high level, what good for the world is [differential]. We are here to solve real problems, and we are in -- as much as we hope, vaccine works, and we hope the world will be opening up. For sure, it will present additional opportunities as budgets will be hopefully becoming a little bit more relaxed. And the one thing we have clearly seen is that work-from-anywhere really works, okay? And even in our prepared remarks, there is a core belief that even with the vaccine and hopefully just total eradication of this virus, many people are more productive working from home, not being in the office. So that will remain. But I'll tell you what, even those people who are in the office, call it, the 100% pre-COVID world, cloud was still taking over. Cloud was still winning, RingCentral was still winning in the cloud. All of our core partnerships were executed before COVID. The underlying foundation is still here, I would say, even more so. It still makes no sense to write up either an on-prem system or a hybrid system. And again, we really see more and more of a hybrid reality that will be coming due. It just makes no sense to do that with traditional legacy hardware. And I have to say, RingCentral, as of now, is uniquely positioned to penetrate into this 400 million plus, I would say plus 400 million to maybe even a little bit more, 500 million installed base of on-prem users because we do have preferential access, and this is putting it lightly, 280 million of those 400 million or so. So as I said, you brought it up, we feel pretty good about it. Anand, I don't know if you want to add anything or Mitesh. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [12] -------------------------------------------------------------------------------- No, you said it all. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question comes from the line of Sterling Auty with JPMorgan. -------------------------------------------------------------------------------- Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- Just one question from my side. Just wondering if you could qualitatively describe to us where are we in the ramp of contribution from the partnerships: Avaya, Atos and Alcatel-Lucent. And where -- which quarter do you think we're at, kind of, fully ramped, full contribution, getting the full benefit from all of those partnerships? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [15] -------------------------------------------------------------------------------- Yes. I'll take that, Sterling. Which quarter we'll be, we are in the very, very early innings. So with ACO and Atos, even though we saw some good traction in Q2 and Q3, it is far -- I mean, we are just really literally getting started. And I don't think it's going to be any 1 quarter that'll serve as an inflection point as such. It's going to be more a flywheel that will keep on going. To just link back to what Vlad said, for 180 million seats, right now, we are sitting over, call it, roughly 2.5 million, 3 million seats. There's a long journey ahead. And the way it's going to layer on, right, Sterling, it's going to start first to show up in ARR. And then over subsequent ensuing quarters, it will be ratably reflected in the subscription revenue. So it's going to be a multiyear compounding growth journey for us. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- 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 [17] -------------------------------------------------------------------------------- Congrats on a strong quarter. So first one for me, I know you guys didn't guide to 2021, but we're going to get the question. Any high-level thoughts on how you're thinking about next year? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [18] -------------------------------------------------------------------------------- Yes. I'll take that. Sure, Brian. So yes, we've not provided specific guidance for 2021, which is how we do it. We provide it in the February quarter. We do have a lot of things to be excited about going forward for our durable growth. So I'll touch upon, I would say, 3, 4 points. So the first one, on the customer front, right, the relevancy of UCaaS is now front and center. We saw an increased customer mindshare with our new logos up over 60%. Vlad touched upon the go-to-market partnerships where Avaya and Atos are ramping, which I mentioned to Sterling. ALE will ship next year. And all our carrier partners are strengthening with AT&T, BT and TELUS. So that's point 2. Third one, on international, it's an opportunity ahead of us that's just beginning to be unlocked with our mix just over 10%. And the fourth point, I'd say, on the tech front, our pace of innovation is continuing. And then we are quickly becoming a one-stop shop for all modes of tightly integrated communications. And so overall, I feel, we feel very good about how we are going to end the year and setting us up for a very good visibility into 2021. -------------------------------------------------------------------------------- Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [19] -------------------------------------------------------------------------------- That's good color. And maybe one follow-up. Obviously, the AT&T results were really strong this quarter. You mentioned the BT expansion. As you're looking to expand into new markets, how should we think about the opportunity to potentially expand the carrier relationships going forward? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [20] -------------------------------------------------------------------------------- That's a good question. And I would say the expansion is twofold. One is there's an opportunity to expand with the relationships we have today, which is AT&T, BT and TELUS. As you can see, we're already expanding across geographies and across portfolios with AT&T, with BT and with TELUS. So that's one vector, which you will see happen. And the other vector you will see happen is adding new logos as well, and that's going to be the road map of the journey ahead for us. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next question comes from the line of Michael Turrin with Wells Fargo. -------------------------------------------------------------------------------- Michael James Turrin, Wells Fargo Securities, LLC, Research Division - Senior Analyst [22] -------------------------------------------------------------------------------- You're showing acceleration here, some of the partnerships you've struck with the likes of Avaya and Atos that certainly grabbed the attention of the industry. Mitesh, you just answered a question there, but is there anything else you're able to provide to help us understand how much those partnerships may have contributed to results here in the quarter? And anything else we should be thinking about going forward as well there in terms of time line, whether it's added functionality or expansion into new regions that's yet to come? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [23] -------------------------------------------------------------------------------- Yes. All of the above. And I will say, look, with ACO, we are very happy with the progress, the way the business ramp, right? We saw positive momentum in the number of transactions with the customers, the seats we won, and more importantly, Michael, in the pipeline we are seeing right now. That's part 1 on ACO. Part 2 on the ACO is if you look at the upmarket deals, we had several upmarket deals, including multiple million-dollar TCV wins from Avaya itself. So that's on Avaya. Atos is -- I don't want to jinx it, but we just shipped in Q3 the product. And right out the gate, we had an 8-figure deal in the first month of shipping. So the promise of international expansion, along with upmarket, is happening for Atos. And look, what's happened is in terms of the acceleration, it was strength, of course, in ACO and Atos, but it was really strength across the board for all -- from all our GTM motions. So I think as these partnerships, along with Alcatel-Lucent, start to ramp next year, we'll be able to see a sustained subscription revenue growth for years to come, I feel. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Our next question comes from the line of George Sutton with Craig-Hallum. -------------------------------------------------------------------------------- George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [25] -------------------------------------------------------------------------------- Mitesh, you mentioned that you're becoming more and more a one-stop shop. And I wondered if you could quantify that a little bit in the sense of the same customer growth number. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [26] -------------------------------------------------------------------------------- Yes. Sure. We saw one-stop shop being, I was saying -- so I'll do it in 2 dimensions. Let me answer your question first. So we saw very good net retention from all our customer base. It was very steady and churn stabilizing. That's part 1. Part 2, we're also seeing, George, customers buying multiple products from us in terms of the contact center. We saw in our million-dollar TCV deal, about 40% or 50% had an attached rate to contact center. So that's part 2. And in terms of -- I will just link back -- link to the technology part here, what we -- what I meant as a one-stop shop in the previous response is just from UCaaS to CCaaS, with the customer experience to this newly launched SMS programming, we have the [CPaaS] and then the video product, which is ramping. So that's where -- what I meant by a one-stop shop, where, call it, like a Salesforce.com, end-to-end for a customer journey -------------------------------------------------------------------------------- George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [27] -------------------------------------------------------------------------------- Got you. So relative to BT, obviously, that's been a relationship for a few years. Could you just give us a specific sense of what's new with this relationship now? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [28] -------------------------------------------------------------------------------- Absolutely. So with BT, what we have announced is that cloud work provided by RingCentral, which is our joint product, will be a lead UCaaS and a lead CCaaS offer for BT business and public sectors. So one, we are doubling down on our partnership; two, we are expanding the scope of our partnership with contact center; three, we are going significantly upmarket. So we are going across their market segments as well. So this is going to be a strong partnership for the next years to come. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Our next question comes from the line of Nikolay Beliov with Bank of America. -------------------------------------------------------------------------------- Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [30] -------------------------------------------------------------------------------- My first question is for both Vlad and Anand. Can you please comment on, number one, how integration with Microsoft Teams is going, and is Microsoft Teams become an effectively go-to-market channel for RingCentral? And secondly, what win rates are you seeing against Zoom Phone, and how often do you run into Zoom Phone in the marketplace? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [31] -------------------------------------------------------------------------------- Yes. No, it's a good question. So as far as Microsoft Teams, yes, I mean, we announced the direct routing to Microsoft Teams last quarter. The pipeline is building solidly, and we feel pretty bullish about tapping it into the Microsoft installed base because this gives them the access they have strive for a best-in-class enterprise-grade cloud phone system. So we feel pretty good about that. Now when we talk about Zoom Phone, I'll say this. We don't -- these are not metrics -- as in how many views of these are not metrics we have generally shared in the quarter. But I'll tell you this, which is, one, I tell you that we have expanded our UCaaS market share in Q3. So that's the first thing we'll tell you. The second thing we'll tell you is we've added substantially more seats than the numbers you've seen from Zoom Phone, substantially more. And to double-click or add more color to it, obviously, all of our seats are paid seats. And our ARPU is -- continues to be pretty sticky at this point in time, very steady. So based on where we are, I mean, we have a tech mode, which we feel we are widening every quarter on the phone. We have a go-to-market mode, especially with the access to the 180 million plus seats of the 400 million plus people and users on-prem, we feel our go-to-market mode is pretty wide. We have an ecosystem mode with 5,000 integrations and 50,000 developers. So net of things, we feel we are extending the lead every quarter. -------------------------------------------------------------------------------- Nikolay Ivanov Beliov, BofA Merrill Lynch, Research Division - VP [32] -------------------------------------------------------------------------------- And my second question is for Mitesh. Mitesh, if you can help us please tie in a few pieces, some of the metrics to disclose today together. So total ARR you accelerated to 34% and 33%. You have a robust pipeline. Business from new customers is up 60%, enterprise logos up triple digit, average deal sizes for the large deals. The first month of Q4 is much better than the first month of Q3. So what could get in the way of ARR not continuing to reaccelerate into Q4 and next year? And is that expectation at this point based on AT&T growing triple digits and other partnerships? Maybe you can help us with the timing between pipeline, ARR and subscription revenues and how that's going to progress over the next few quarters. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [33] -------------------------------------------------------------------------------- Yes. Sure. You packed in a lot there. So I would say this, Nikolay, structurally, we are seeing a lot of tailwinds, including the pipeline building and Q4 off to a good start. We always are prudent in the way we set our guidance and -- because you don't really know what you don't know, what could derail you. But from an overall fundamental point of view, I think we are -- we feel really good about where we are in this journey to transfer all these on-prem seats to cloud. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of Samad Samana with Jefferies. -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [35] -------------------------------------------------------------------------------- So I know the company mentioned that the MVP platform at 50% of million-dollar-plus deals had customer citing the integrated suite. I'm curious if what type of attach rates you're seeing for RingCentral Video and if there's any notable call out on ARPU for customers that are attaching the full platform versus maybe ARPU a year ago when you didn't have your own video offering. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [36] -------------------------------------------------------------------------------- So the way we look at it is we do not sell the product unbundled. We sell RingCentral Office, which contains all modes of communications. So Video is attached to 100% of our -- I think Vlad called out in his prepared remarks greater than 60% growth in new customer acquisitions. Every one of them basically comes with message, video and phone, which is the way we look at persistent collaboration. So every one of them has it. We've had substantial growth in usage quarter-over-quarter, year-over-year, across all 3 modes. And that's probably what I would say. I'll transition it to Mitesh if he wants to make a comment on ARPU. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [37] -------------------------------------------------------------------------------- No. I think you said it right in the previous Q&A, Anand. But Samad, ARPU has been holding very flat and steady. So no trends to call out an ARPU, except the fact that despite all this competitive rhetoric you hear, we've been holding our own in terms of ARPU, and it's -- where we are able to demonstrate value with our customers with a solid product. -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [38] -------------------------------------------------------------------------------- That's good to hear. And then maybe just a follow-up on the SMS service. I think a lot of people are pretty excited about that. I'm curious how we should think about the pricing model for that. And is that a preview for adding more CPaaS-like features into the platform and just pushing forward? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [39] -------------------------------------------------------------------------------- Yes. So end of the day, for us, this is all about customer ask on what features do they need next. And the high-volume SMS launch, I mean, this was a big deal because, as you know, I mean, when you get notifications from your dentist for an appointment reminder, it comes from a weird unknown number. And so essentially, what this was about was a huge customer ask of using the ability to use their business identity to actually send an SMS. And so it's tightly integrated into our application, into our platform. And you can expect us to actually have platform, open ecosystem and integrations have been a key feature for what we do. So you should expect us to go further down on this path in the near future. -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [40] -------------------------------------------------------------------------------- Great. Congrats on the really good results. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Our next question comes from the line of Meta Marshall with Morgan Stanley. -------------------------------------------------------------------------------- Meta A. Marshall, Morgan Stanley, Research Division - VP [42] -------------------------------------------------------------------------------- I just wanted to get a sense on the sales cycles that you're seeing with some of the partnerships and whether they're kind of similar times to what you would have seen normally and just how you judge how much of the new partnerships pipeline is kind of substitutional versus additive. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [43] -------------------------------------------------------------------------------- Yes. I mean we are looking at it as most of the pipeline from the new partnerships as additive. That was the entire reason why we -- we are basically extending our customer reach through these partnerships. As I look at pipeline, the pipeline, the sales velocity we see and the close rates we see from these new partnerships are all pretty much consistent with what we expected to see and what we see in our direct business and the work we do with the channel anyway. So it's fairly consistent. And that's what is exciting about us, which is we are able to extend the reach through Avaya, through Atos into new countries, new geographies and new customer segments. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Our next question comes from the line of Taylor McGinnis with Deutsche Bank. -------------------------------------------------------------------------------- Taylor Anne McGinnis, Deutsche Bank AG, Research Division - Research Associate [45] -------------------------------------------------------------------------------- Congrats on the quarter. So it sounds like large deal activity is really strong so far in 4Q. Yet when I look at the subscription revenue guide at the high end, it's only 28%, which is slightly higher than, I guess, what we saw the last 2 quarters. So I understand that it takes time for this to flow into revenue. But maybe can you talk about some of the assumptions embedded in the guide and how we should think about this activity falling into revenue over time? and maybe on that, I'm curious how much of the guide is driven by stabilizing macro trends versus starting to see some of these strategic partnerships or large deal activity materialize in the revenue. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [46] -------------------------------------------------------------------------------- Taylor, it's Mitesh. Actually, my line dropped off. Can you summarize your question again for me? -------------------------------------------------------------------------------- Taylor Anne McGinnis, Deutsche Bank AG, Research Division - Research Associate [47] -------------------------------------------------------------------------------- Yes. It was just -- you talked a lot about in the beginning of the call about seeing good large deal activity in 4Q. Yet, the subscription guide is only slightly higher. So at the high end 28%, in like the mid-20s that we saw the last 2 quarters. So I'm just curious, could you maybe talk about like some of the assumptions embedded in the guide and how much that might be stabilizing macro trends versus starting to see some of these strategic partnerships or large deal activity fall into revenue? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [48] -------------------------------------------------------------------------------- Yes. Look, on the guidance, we always have taken a prudent stance on our guide. So this quarter's guide is no different. We are seeing tailwinds from all sides, and macro is stabilizing. So it's hard to -- for me to quantify exactly each and every assumption we've made there. But needless to say that we feel really good about ending the year very strongly, including Q4. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Our next question comes from the line of Will Power with Baird. -------------------------------------------------------------------------------- William Verity Power, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [50] -------------------------------------------------------------------------------- Congratulations on the strong results. I kind of want to come back to the strong growth you're seeing from new customers, up over 60% year-over-year. It seems like a really nice kind of leading indicator. I just wanted to get a little more color as to what you think is driving that. How much of that's the new partnerships, distribution broadly? Is there COVID pulling in there? Maybe just a little more color on the key drivers of that new customer acceleration of growth. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [51] -------------------------------------------------------------------------------- Yes. And this goes back to the previous question, which Vlad answered. Essentially, the transition to the cloud has always been driven by one simple thing, which is the mobile and the distributed workforce. And so all COVID has done is it's sort of shine a light on the limitations on on-premise infrastructures. So now businesses are realizing that they need to basically get on to the whole work-from-home transitioning to work-from-anywhere, which is what we've always talked about is here to stay. And so businesses are realizing that they need to get going on a cloud communication solution. So while COVID has sort of helped to shine a light, I think this is a structural help, which we will see for RingCentral going forward, and that's what is resulting in this extremely strong new customer acquisition. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Our next question comes from the line of Ryan Koontz with Rosenblatt Securities. -------------------------------------------------------------------------------- Ryan Boyer Koontz, Rosenblatt Securities Inc., Research Division - MD & Senior Research Analyst [53] -------------------------------------------------------------------------------- Just a question on continued great progress there on go-to-market. The question is do you have any concerns about oversaturation of these channels at all in terms of the way they compete, and how you get strategically aligned with channel partners that are trying to compete on a global basis? Appreciate the comments. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [54] -------------------------------------------------------------------------------- My macro answer to that is no because if you go back to what we are doing in these partnerships, we are converting the installed base to a cloud-based communications platform, which is RingCentral. And so the first step is the installed base is the installed base, which is different and distinct for each of these strategic partners we have. And given where the world is, 10 million, 11 million, 12 million users on the cloud and 400 million plus on-prem, I think we have a long runway before we probably will use a word like oversaturation at this point in time. And then add the other vectors of the carrier partners and then add our channel partners, which Mitesh called out how we've had a very strong channel partner influenced the quarter growing 60%, so add the channel partners as well, that strength continues. Now I feel pretty good about a long runway of continuing the momentum. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- Our next question comes from the line of Alex Kurtz with KeyBanc. -------------------------------------------------------------------------------- George Kurosawa, [56] -------------------------------------------------------------------------------- This is George Kurosawa on for Alex. I know it's still early days, but do you guys have any sense and early read on the Alcatel pipeline and if there are any implications for growth in the second half of '21? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [57] -------------------------------------------------------------------------------- I'll answer the first part of that. And so what I would say is I think Mitesh called this out in his script as well, which is our new business from existing customers, especially as you look at upmarket in Q3, it was 40% of the total upmarket business. And so that should tell you the trends we are seeing. And that is the opportunity, the installed base as everyone basically creates work-from-anywhere solution for all of their employees. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [58] -------------------------------------------------------------------------------- Yes. And in terms of the Alcatel pipeline, I think that's what your question was for second half of '21, look, it takes about 3 to 6 months after the product is shipped to -- for the partnership to start showing fruition. So think about ALE being another vector getting layered on in the second half, at least on the ARR side, and then continuing momentum into '22, from ALE. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Our next question comes from the line of Siti Panigrahi with Mizuho. -------------------------------------------------------------------------------- Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [60] -------------------------------------------------------------------------------- Mitesh, right now, you're seeing a huge opportunity for growth, and you're investing in distribution capacity as well. So I want to ask you, how are you looking at balancing between growth and profitability going forward? I mean what's the framework you're looking at in near term and long term? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [61] -------------------------------------------------------------------------------- Sure, Siti, and welcome to the debut RingCentral call for you. So thanks for picking up coverage here. Overall, it's been the same balance, right? It's profitable growth for us. And if you look at what that means in terms of the business model, our inherent recurring margins on deals or global business is north of 30%. If you now layer on partnerships like Alcatel, Avaya, Atos, that further expands the operating margin profile of the company because it's higher CAC -- higher LTV at a lower CAC. The third part you layer on is our own products like Video, which will further help the gross margin profile when we all -- when we migrate our users to our own platform. So all the dimensions, all in all, will lead to a steady-state margin of 35% to 40% for RingCentral. Now what's happening is, for example, SMB right now is at that scale, and we are reinvesting these dollars into the future of the business, the future of growth, so overall, we'll be showing 40 to 50 basis points of operating margin expansion. That's the way we've been doing it for multiple years. But under the hood, there's a lot more inherent profit dollars that's getting reinvested. -------------------------------------------------------------------------------- Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [62] -------------------------------------------------------------------------------- That's good. And quick follow-up on the international opportunity. I think right now, it's single digit, high single-digit percentage, broadly. But when do you think it'll be significant enough for you to call out in terms of like growth contribution? -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [63] -------------------------------------------------------------------------------- Yes. So international is a key lever, right, if you look at a business our size, over $1 billion. Usually, the international mix is much higher. This is an opportunity for us. So overall, I think in the future, in the next year or couple of years, especially as our other partners ramp, international mix will start to change. Right now, it's above 10% of our revenue. And over time, at the right point, we'll start calling out markers as we hit certain milestones. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Our next question comes from the line of Rich Valera with Needham. -------------------------------------------------------------------------------- Richard Frank Valera, Needham & Company, LLC, Research Division - Senior Analyst [65] -------------------------------------------------------------------------------- Great progress on the channel, obviously. I had a question on your direct sales force. First, Mitesh, I think last quarter you said you hadn't baked in any productivity gains into your forecast. And I'm guessing since things were as strong as they were, that maybe you saw some. And secondly, just wanted to get your sense of the significance of your direct sales force and how much that's going to be scaling up going forward versus your channel initiatives and what that balance might be going forward. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [66] -------------------------------------------------------------------------------- Yes. So I'll take that. And this is what I'd tell you. Again, these are not metrics we specifically publish. But as I look at the direct sales force, we had meaningful uptake on more sales fundamentals. Whether it is sales velocity, close rates, sales rep productivity and percent of reps who actually obtain their quotas, we had meaningful uptick across all of them. And the second thing I would say, as it relates to your second question is I never look at it as direct versus partners because we basically -- one of the things which has made RingCentral the company it is, is harmony across all channels. And the reps work hand-in-hand with the other strategic partners. And so it's never versus. It's always basically helping our partners accomplish their full potential. So that's the way we look at it, which is why these multiple routes to market all come together meaningfully without much conflict. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- Our next question comes from the line of Peter Levine with Evercore ISI. -------------------------------------------------------------------------------- Peter Marc Levine, Evercore ISI Institutional Equities, Research Division - Analyst [68] -------------------------------------------------------------------------------- Congrats on a great quarter. So when you're going after these bigger deals, can you give us some idea how your customers are having to make decisions about maybe taking budgets from other areas and giving it to you or where they're pulling it from? I mean obviously, the environment we're in, at least the uncertainty of some of these factors, will kind of stay with us for some time. And clearly, you're taking a lot here, but would love some color around that. Congrats on the quarter. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [69] -------------------------------------------------------------------------------- Absolutely. That's a great question. I think the way I look at it, as we engage with our customers, these -- this is what I see. The first thing I see is business communications has become an existential priority. It was always important. But with the pandemic and with the need to suddenly transition your entire workforce to be remote, and in this instance, from home, I think many companies were caught off-guard. So business communications transitioning in on-premise infrastructure to the cloud has bubbled up to be a #1, #2, #3 priority. That's the first thing. And when that happens, redeployment of resources and investments have to happen in line with that. This has become a Board conversation, not just an IT conversation. That's the first thing I see. The second thing I see is people are not just solving for today, which is everybody is remote. People are now actually taking a step back and solving for where the puck is going, which is very soon, hopefully, the pandemic will end, people will come back to the office, not in the same way. There'll still be people working remotely and people in the office. So people are starting to solve for that, which is where the persistence of communications -- we've always talked about MVP, message, video, phone, coming together, that's the persistence of communications and collaborations, which allows employee productivity to get to the next level. We are solving for that. And so those are the 2 instances why we feel we are getting the traction we are as a company with our customers. -------------------------------------------------------------------------------- Operator [70] -------------------------------------------------------------------------------- Our next question comes from the line of Jonathan Kees with Summit Redstone. -------------------------------------------------------------------------------- Jonathan Allan Kees, Summit Insights Group, L.L.C - MD & Senior Application Software Analyst [71] -------------------------------------------------------------------------------- Great. Just wanted to ask you, I guess, more of the competitive environment. I know you've kind of touched on there, and there is references to -- you're making -- you have greater market share, and that makes sense. Your growth rate is certainly substantially greater than your peers, even against flash-in-the-pan peers there who are making noise about their UCaaS solution. I guess I wanted to get -- double-click on that further. And just in terms of your cloud peers, are you seeing the same ones? Are you seeing new entries? What is your win rate like against your cloud peers? And have you won against an embedded cloud space versus the premise space? Just more details on that. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [72] -------------------------------------------------------------------------------- Yes. That's a great question. Actually, we see our win rates uptick slightly ever more against the cloud peers as well. And it goes back to 2 or 3 simple things, which is enterprise grade matters. So we have been working to extend our enterprise feature depth, our geographic expansion. And so those 2 things matter a lot. That's one. The second thing I would say is, again, I just talked about the persistence of communication and collaboration with message, video, phone, all modes coming together, that matters. And that's very important. The third thing, which we haven't talked about much on this call, is the differentiation with contact center. That's one more reason why we see better win rates against some of these cloud peers in addition to the on-premise vendors. The fourth thing I'd again call out is the strength of the open platform and ecosystem, 5,000 integrations and 50,000 developers in our ecosystem. And finally, we are one of, if not the only, company to basically continue our path of reliability and Five9s from an SLA standpoint. So bringing all of that together, we feel that we've only seen an uptick and continued progress in our win rates. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Our next question comes from the line of Matt VanVliet with BTIG. -------------------------------------------------------------------------------- Matthew David VanVliet, BTIG, LLC, Research Division - VP & Application Software Analyst [74] -------------------------------------------------------------------------------- I guess just wanted to dig in a little bit in terms of what you guys are seeing from wallet share of your existing customers; the 2020 cohort that you've signed this year, signing up for kind of a larger project initially; how upsell has been against [resell]; and how much of your own CPaaS, or I guess, SMS and video projects do you feel like is helping you expand more into that potential wallet share. -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [75] -------------------------------------------------------------------------------- Yes. No, it's a great question. The first thing was always -- it's the full life cycle, right? It's the Genius of the AND. So acquisition matters. And that's one of the first things we shared with you, the greater than 60% growth in new customer acquisitions. Once you get new customers, then creating value for them so they actually then go through the next cycle, which is upsell. And for us, that's the beauty of our product portfolio, upsell happens in many dimensions. There's upsell where they're extending their footprint just for the same UCaaS solution across the customers. And that's where I shared a number, which is new business from existing customers, for example, in the upmarket was almost 40% this quarter. So that's great. The other vector is basically UCaaS customers upselling and extending further into CCaaS customer experience. And that's where we actually bring in everything from our partnership with InContact to our own products, Engage Voice and Engage Digital, because we are able to thread all of them together to create a digital-first contact center experience for the customers. So there's that as well. And then thirdly, obviously, we are -- the progress we have made on all modes of communication, message, video and phone, I mean, video, we launched 70-plus features in just the last 3 months across a whole bunch of things, from security to waiting rooms and so on and so forth, the quality. And so I think all of them are coming together to actually make this a meaningful mode as customers consider what their right communications and collaborations platform needs to look like. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- Our final question comes from the line of Catharine Trebnick with [Colliers]. -------------------------------------------------------------------------------- Catharine Anne Trebnick, Colliers Securities LLC, Research Division - VP & Senior Research Analyst [77] -------------------------------------------------------------------------------- My question is you said you didn't see much of a change in the sales cycle, but are you seeing a change in how things are procured, especially more expansion aligned through e-commerce sites, more digital marketing maybe driving the sale? -------------------------------------------------------------------------------- Anand Eswaran, RingCentral, Inc. - President & COO [78] -------------------------------------------------------------------------------- Absolutely. That's a great question. Actually, even on the sales cycle, what I said was, actually, we see meaningful uptick across all the sales fundamentals. Our velocity is steady -- is in steady acceleration. Pipe is meaningfully up and expanded from last year. So that's one side of it. The other side of it is you're absolutely right, Catharine, which is we saw an explosion on e-commerce. This is what Mitesh referred to. And we have also seen an uptick on e-commerce and going further up from a market segment standpoint as well. So companies are making quicker buying decisions. And we also see engagement with lines of business as they think about what the right engagement platform needs to be for their employees. So we are seeing digital channels increase in prominence. We are seeing lines of business increase in prominence as well. And then finally, we are seeing verticals asking for help to make sure that we can actually help nonprofits engage differently. We can help hospitals and health care workers engage differently. So that's the last thing we are seeing. So across the board, that's where we feel RingCentral is positioned so well to make a difference across verticals, across these multiple channels and across all market segments. -------------------------------------------------------------------------------- Mitesh Dhruv, RingCentral, Inc. - CFO [79] -------------------------------------------------------------------------------- The only thing I would add, Catharine, to what Anand said is I did not use the word explosion, he did. But I guess COOs and CEOs are entitled to use such words, not CFOs. -------------------------------------------------------------------------------- Operator [80] -------------------------------------------------------------------------------- And with that, this concludes today's question-and-answer session as well as today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.