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RingCentral Inc (RNG) Q2 2019 Earnings Call Transcript

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RingCentral Inc  (NYSE: RNG)
Q2 2019 Earnings Call
Jul. 29, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, welcome to the RingCentral Second Quarter 2019 Earnings Conference Call. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I would now like to turn the conference over to your host, Ryan Goodman, Head of Investor Relations. Mr. Goodman, you may begin.

Ryan Goodman -- Head of Investor Relations

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

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

I encourage you to visit our Investor Relations website at ir.ringcentral.com to access our earnings release, slide deck, our non-GAAP to GAAP reconciliations, our periodic SEC reports, 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.

Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck.

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

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Good afternoon and thank you for joining our second quarterly earnings conference call. We had a strong second quarter, and we extended our leadership in the $50 billion unified communications as a service market. Revenue, operating margin, and non-GAAP EPS all exceeded the high-end of our guidance. Mid-market and enterprise continued to lead the growth, with strong contributions from our channel partners. We are also pleased with the early results of our targeted vertical market initiatives, which again contributed multiple seven-figure TCV wins during the quarter. While not a regular quarterly metric, I'm pleased to note that we achieved a key milestone in Q2.

Namely, we closed a record number of 30 TCV wins of over $1 million, which is up over 60% year-over-year. This included a full enterprisewide footprint win with a Fortune 1000 multi-national software company.

Let me cover some of the key metrics for Q2. First, total revenues grew to $215 million. This is a 34% increase year-over-year, and is above the high-end of our guidance range. Second, mid-market and enterprise continued to be a key driver of our performance. We define mid-market and enterprise as $25,000 or more in annual recurring revenue, or ARR.

This grew 66% year-over-year and is now a $386 million business. Enterprise, defined as customers with $100,000 or more in ARR, grew 88% year-over-year to $230 million. Third, our channel ARR grew 69% year-over-year to $235 million.

Cloud transformation in the unified communications market is gaining momentum, especially within the Enterprise segment. More and more enterprise customers are seeing the value of replacing legacy systems with a unified cloud-based solution. We don't believe on-premise technology can compete with the cloud in addressing needs of modern mobile and distributed workforces.

RingCentral also continues to hold a leadership position among the cloud providers. We have invested hundreds of millions of dollars and over a decade in our platform, establishing a deep moat versus our competitors. We believe with our continual commitment to investment in innovation, the gap between ourselves and legacy and other cloud providers will only continue to widen.

RingCentral's key differentiator is our mobile-first integrated voice, video, team messaging, and contact center solution with an open platform and a strong global footprint. We provide our Global Office solution in over 40 countries. Our unique open platform ecosystem continues to expand to now over 23,000 developers and over 2,500 certified app integrations, both up over 60% year-over-year.

And we are seeing enterprise customers increasingly select RingCentral for our differentiated capabilities that deliver enterprise grade voice, video, team messaging, and contact center on a single open platform. Of our seven-digit TCV wins last quarter, about 50% cited team messaging as a key influencing factor in the decision to go with RingCentral. 60% of these large deals also included contact center wins.

In addition, I am pleased to announce two industry awards further validating RingCentral's leadership. First, RingCentral ranked first in IHS Markit 2019 Unified Communications as a Service North American Scorecard for the third consecutive year. The report highlighted RingCentral's mid-market and enterprise segment growth, global expansion, and leading growth in its installed base.

Second, RingCentral ranked the highest for growth and innovation in the new 2019 Frost & Sullivan UCaaS Radar Report. This report highlighted a number of key RingCentral strengths, which included mobility, Global Office, and a flexible cloud platform. It is clear the cloud is winning, and RingCentral is winning in the cloud.

We are now within striking distance of achieving our goal of exceeding $1 billion in revenue in 2020. More importantly, we are excited about the long-term journey beyond that. With a $50 billion market ahead, we are still in the early innings of cloud transformation of the business communications industry. We aim to extend our leadership position with continued investment in technology, innovation, enterprise sales, and relentless focus on the customer.

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

David D. Sipes -- Chief Operating Officer

Thank you, Vlad. Q2 was a great quarter demonstrating our strength in the mid-market, enterprise markets on both product and GTM capabilities. First, our integrated platform for voice, video, team messaging, and contact center, combined with global reach, mobility, and open APIs, are driving the enterprise market to RingCentral. A great example of our success with unified platform is the enterprisewide over 10,000 seat win with a Fortune 1000 multi-national software company.

This customer was facing a replacement cycle for its legacy contact center, but also decided to push ahead and modernize its legacy PBX system. Our deep integrations with Google, Salesforce.com and ServiceNow and the ability to have custom workflow integrations were key differentiators.

Additionally, the global reach of our platform and our integrated contact center portfolio were critical. Another example where global reach helped secure in over 5,000 seat win is with Lumentum, which was won with a channel partner. Lumentum is a designer and manufacturer of optical and photonic products enabling optical networking and laser applications.

Their fast growing global workforce needed a single solution. They were using multiple modalities of communication with a mix of on-premise and point application. We subsumed all of these with a unified user experience for voice, video, and team messaging. We're seeing enterprise traction also increasing in traditional industries, particularly in markets where we've delivered lighthouse wins in recent quarters.

Following last quarter's win at Waitrose & Partners, this quarter we secured a 5,000 seat win with C&S Wholesale Grocers. C&S is the largest wholesale grocery supply company in the US and number 10 on the Forbes 100 Private Company list. C&S needed to modernize a sprawl of legacy on-premise equipment from multiple vendors. Our ability to deliver a mobile-first unified solution was a key to this win. The customer will leverage our cloud solution across corporate offices, wholesale warehouses, and its growing remote workforce.

Second, our strategic GTM initiatives have been a key to our success. We continue to focus on our targeted vertical industry initiative, international expansion, channel, and land and expand. In our targeted vertical industry initiative, following last quarter's Fortune 500 insurance company win, we secured a 1,000 plus seat win with Higginbotham Insurance, a provider of insurance and financial services. The Company found itself with multiple legacy providers across multiple communication modalities. Our unified platform provided scalability, speed of deployment, and ease of use that the customer required.

In international markets, we continue to expand and see strong contributions from channel. We're pleased to announce that we recently signed a win for about 2,000 seats with a well-known UK-based global lifestyle brand. We look forward to helping this customer modernize their legacy on-premise systems with our global and mobile-first solution.

Land and expand continues to be a key part of our mid-market and enterprise go-to-market strategy. A great example of this is public storage, a win we first secured a year ago for a 2,000 plus location deployment. We are pleased to announce that the customer is now going to deploy our contact center and workforce optimization solutions.

Let me also give you a brief update on RingCentral Engage Digital, our digital customer engagement platform. We secured our first US based Engage Digital win in the quarter with one of the largest regional airlines in the US. The customer will use Engage for their crew support across multiple digital channels. This is a new use case for Engage and we're excited to see customers finding new ways to leverage our digital engagement platform.

We also continue to see success of Engage Digital with telco operators. In Q2, VodafoneZiggo, a major telco in the Netherlands selected Engage Digital to support their customers across various digital channels.

Before I turn it over to Mitesh, let me take a moment to share a few leadership appointments. As we look to the next phase past the first $1 billion in revenue and graduate into a multi-product company, we look for opportunities to strengthen the team with senior executives with a proven track record in enterprise software.

First, I'm pleased to announce that Will Moxley will be joining RingCentral in a newly created position of Chief Product Officer. Will joins us after 13 years at Salesforce.com in product management. His most recent roles included Executive Vice President, Marketing Cloud and Senior Vice President, Sales Cloud.

On the go-to-market side, I'm excited to announce that Carson Hostetter has been promoted to SVP of Field Sales. Carson will report to me as I continue to oversee all of RingCentral global sales and marketing. Carson has been with the Company for over three years as our VP of Enterprise Sales, a role in which he built our enterprise business from scratch to $230 million in ARR. Carson has also been instrumental in securing our key lighthouse account wins such as Columbia and Waitrose & Partners. Prior to RingCentral, Carson was VP of Sales at Avaya where he ran $1 billion business.

Ryan Azus, who previously served as EVP of Sales will be transitioning from the Company. Ryan was part of the RingCentral family for over nine years, and we wish him and his family well.

In summary, Q2 was a great quarter. Our unified platform and global GTM efforts are driving strong success in mid-market and enterprise. With this momentum, we look forward to extending our market leadership in 2019 and beyond.

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

Mitesh Dhruv -- Chief Financial Officer

Thank, Dave, and good afternoon everyone. We are pleased with our results on all key financial metrics. Total ARR were $831 million, up 32% year-over-year and ARR for RingCentral office grew $749 million, up 37% year-over-year. Key drivers continue to be mid-market and enterprise with strong contribution from channel partners. Mid-market and enterprise ARR grew to $386 million, up 66% year-over-year.

The continued focusing on mid-market enterprise customer as they deliver higher lifetime value with lower churn as well as better land and expand potential. In Q2, mid-market and enterprise yet again contributed around 60% of new bookings. Driven by this continued shift of market, office growth churn hit a record low and we yet again saw solid performance in new bookings from our existing customers.

And to the channel, we had a record bookings quarter driving significant contribution to our growth. Channel ARR came in at $235 million, up 69% year-over-year. Up market and channel led to a strong financial performance in the quarter. Total revenue grew 34% to $215 million, which included a one-time small benefit from a patent settlements in other revenue.

Subscription revenue grew 33% to $195 million. Subscription non-GAAP gross margin was 82% consistent with our guidance. Non-GAAP operating margin of 9.5% and EPS of $0.21 were both well ahead of our guidance driven primarily by the revenue upside.

Now let's turn to our outlook. We are raising our 2019 guidance. We expect total revenue to be between $874 million and $877 million for an annual growth of 30%. We are also raising our non-GAAP EPS to $0.77 to $0.79. In summary, we are pleased with our performance and outlook. We witnessed solid traction in the enterprise segment with a record number of $1 million plus TCV deals and are optimistic about future results.

Looking ahead, we are well positioned in the $50 billion UCaaS market as a leading provider of cloud communications solutions. We uniquely integrate voice, video, team messaging and contact center with an open platform and a global footprint. We expect to continue taking market share from legacy on-premise vendors and further distance ourselves from cloud competition as we further solidify our market leading position.

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

Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Bhavan Suri, William Blair. Please proceed with your question.

Bhavan Suri -- William Blair -- Analyst

Thank you, guys. Can you hear me, OK.

David D. Sipes -- Chief Operating Officer

Yes.

Bhavan Suri -- William Blair -- Analyst

Great. Thanks for taking my questions and very nice job, both in the top line and on the leverage side here. I guess my first question is for Vlad. Vlad, you and David, also mentioned, you live in sort of the striking distance with billion dollars. I guess as you think about that and you think about through the next three to five years. What do you think the next set of steps are? Where do you see the company in three to five years from a bigger picture perspective? What sort of the next target you'd like to share with us?

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Yes, thank you, hi, Bhavan, and thank you for the kind of start of this. Look, it's -- we continue to be playing and leading in this incredibly large $50 billion plot in very much under penetrated market. So, as we grow and we are now within striking distance over the billion dollar goal, which is a nice little milestone, but clearly the one of goal might be on that.

So, we will continue doubling down on our product and product leadership. We do foresee expanding our portfolio and deepening as companies do as they get to our scale. And I just know that, as you know, we need to do anything, call it, revolutionary to continue this march, but we are very much hoping to continue our growth and going into multiple billions of dollars of revenue in sort of somewhat foreseeable future. So, I would say more or to say -- if I may say, more up into the right as we have been.

Bhavan Suri -- William Blair -- Analyst

That's great. Thanks Vlad. I mean a quick follow-up for Mitesh here. You guys have been really consistent, deep by x percent raise by [Indecipherable] this quarter actually was surprised to be about the strong net than usual [Indecipherable]. Just were there any specific drivers driving upside, just want some clarity there? Thank you.

Mitesh Dhruv -- Chief Financial Officer

Sure, Bhavan. So just to double click on the drivers for the bid, right, is your question, correct?

Bhavan Suri -- William Blair -- Analyst

Just go ahead.

Mitesh Dhruv -- Chief Financial Officer

Yes, that's fine. I wanted to make sure I captured you because your voice came in a little bit muffled. This quarter you know a lot of the ships did fall our way. But to add color on some specific items, there were about, I would say, four or five items that did specifically fall our way. First one is the mid-market enterprise growth. We did have a record number of deals, 30 deals, over $1 million TCV, flowing our way this quarter, that's number one.

Within that, overall in the mid-market and enterprise, more deals came in, but also the deal sizes got larger. We are seeing this new green shoot trend where customers are now more comfortable having to deploy to the entire footprint, customer footprint. That's a new trend we are seeing. So, we will see if it -- how long this last, but it's a new thing that we are witnessing.

The third one is. We did see a strong product pull-through from the contact center. We did have a record contact center quarter. About 60% of our million dollar TCV deals didn't have a contact center pull-through, so that actually out of our way. Channel, again was a key driver for us. Sequentially, we did see channel bookings go up 25% quarter-over-quarter, which was very strong. And in now $1 million deals, about 70% of the deals had a channel component.

And the last but not the least AT&T did perform better than our expectations. So, if you just added all up, we have multiple growth drivers at any given time and not every driver needs to work, but this time more drivers work than not, so I think that's what you are seeing as a result this perfect combination.

Bhavan Suri -- William Blair -- Analyst

Got it. Very helpful. Thank you guys. And again, really nice to [Indecipherable]. Thank you.

David D. Sipes -- Chief Operating Officer

Thank you, Bhavan.

Operator

Our next question comes from Brian Peterson, Raymond James. Please proceed with your question.

Brian Peterson -- Raymond James -- Analyst

Hi, gentleman and thanks for taking the questions. So a lot of big deals that you announced, just curious maybe one for Dave. Any help on changes in sale cycles? And is that driving any improvement we're seeing this quarter?

David D. Sipes -- Chief Operating Officer

Yeah. So, we did see varied lines in sales cycles, but we have had lot of our deals coming in six to nine months timeframe. I would say it's pretty consistent over time, but we are getting greater recognition in the market. And Vlad talked about the recognition we've got from the analysts with IHS Markit and with Frost & Sullivan. And so that's helping in the recognition, our product is superior in the marketplace. And I think that ultimately leads to shorter sales cycles.

Brian Peterson -- Raymond James -- Analyst

And maybe similar a thought process for before Mitesh, anything on the sales efficiency side that you would point to that this driving the results? Thanks, guys.

Mitesh Dhruv -- Chief Financial Officer

Yes, sure. I mean, as Dave said, I just double click on the sale cycle and sales efficiency. We saw a very similar sales efficiency despite as moving up market where the sales cycles are typically longer. So, we were able to offset some of the impact. And there about two or three things that should help with that. The first one is. We do have a larger percentage of our enterprise reps ramped. So that overall productivity is helping for the entire segment.

Second is, we have built our brand and reversibility. So, we did have a lot of what we call lookalike customers where we did highlight the grocery chain, following Waitrose. But we also had this UK luxury lifestyle brand was following GUESS and John Varvatos. So when that starts to happen, it does help the sales efficiency.

And the last part, I would say is our churn, gross churn hit a record low. And that to those three trends put together, our greetings virtuous circle, which help us free up more dollars to invest in the future.

Brian Peterson -- Raymond James -- Analyst

Great. Thanks Mitesh.

Mitesh Dhruv -- Chief Financial Officer

Yeah, sure.

Operator

Our next question is from Kash Rangan, Bank of America Merrill Lynch. Please proceed with your question.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Hi, thank you very much. One for Mitesh and one for Vlad. First one for Mitesh. Can you tell us what percentage of the $30 million plus TCV deals are your ARR? And I have a follow-up for Vlad. Thank you.

Mitesh Dhruv -- Chief Financial Officer

Sure, Kash. So if you -- the way we record ARR is, the two thoughts that come to mind. One is not really -- we record in our ARR, the users that are provisioned. So if you look at, there is a top deals for the last three quarter, let's say Columbia, Waitrose, and this the large tech deal we announced. It's combined only about, call it, sub 30% shows up in the ARR, which means that there's a lot more future commitment from these contracts that will show up in future ARR. So that sort of building block number one.

Building block number two in the same deals is. These large deals also have land large deal like that, that also a lot of large expansion potential. So this time in the Uber large deals over $1 million, we had 70% were new logos, which will then help us with more expansion potential in the future. So when you combine these two vectors, there is a lot of visibility and durability that the growth will see because of these two phenomenon.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Wonderful. Very articulate. And Vlad question for you. One member of your executive team had taught me a long time back that in order to be a really large and successful company in SaaS, you've got to have a multi-product strategy because that expands your time and your sustainability of growth rate. Can you offer your perspective on how you see RingCentral through that lens? If you agree with that lens, which I'm sure you do, and congratulations gentlemen on a spectacular quarter. This is fantastic to watch.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Thank you so much Kash. Yes -- no, it excludes that is. Look, we have a solution that is defined by any mode -- business communication, any mode, any device anywhere. So, one would look at any mode part, if we already have in our suite a set of functionalities that you know in some other cases may exist as stand-alone product, but we choose to bundle it all together and to deliver it as an integrated solution, but that is also best-in-class.

We think it's a winning strategy obviously numbers speak for themselves. We know that's what the customers want. So, frankly, we want to stay with this. We want to continue deepening our differentiation across all of these modalities which are voice, messaging and media. Obviously, we have the context and the products as well. We have older platform as well. So as we grow, we see more depth, more depth. We do think we have a winning recipe and clearly reaching the market at this point, we want to widen them out and we want to make it an even easier choice for our customers to select Ring over anything else.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Very clear. Thank you so much.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Thank you.

Operator

Our next question is from Samad Samana, Jefferies. Please proceed with your question.

Samad Samana -- Jefferies. -- Analyst

Hi. Good afternoon. Thanks for taking my questions. A couple if you will allow me. Just on the new Chief Product Officer, I'm curious if you think that there is going to any change in the Company's R&D philosophy whether that's in terms of spending or how you are allocating dollars on new product innovation versus extending out into additional features? Maybe just what would the driver behind creating that role? And then I have a follow up question for Mitesh.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Yeah. So, what's the driver? Look, the driver is to up level the team. And look, we have a very, very good team, and this team has got us here and continues to perform, but as we touch on and hopefully soon we'll crossover the $1 billion barrier, it's not a barrier a milestone. But, we scale beyond that, we really do want to have people in the Company with that type of experience and what better place to look for than that are more successful and by far the largest GAAP in revenue company in the space is a SaaS place, which is Salesforce.com

And with Will Moxley, in particular, he's led product for both Sales Cloud and Marketing Cloud, which are the synergies success stories in the SaaS space. So you know, even just myself couldn't be happier with this situation and with selection and we're selecting that. And look, as far as what changed, again we just need to continue executing. We do have the market. We do have the customer demand.

So, we just need to get more efficient. We need to get more customer-ready in particular more enterprise ready and again, what better example to learn from than Salesforce.com and their breakaway sell cloud products. So, I would say, overall look for quality over quantity, so say quantity maybe a little better as we grow, but even better quality and even more enterprise readiness and friendliness.

Samad Samana -- Jefferies. -- Analyst

That's very helpful and then Mitesh maybe just one follow-up for you. The first half of the year has been incredibly strong in terms of both large deal activity, but just in total ARR added for office. I'm just curious, if there's any change in the seasonality? Or is it being spread more evenly across the year? Or is it -- how should we think about that the seasonality of adding that net new ARR dollars, maybe especially in the context of partners contributing more and more? Thanks again and eventually take my question and congrats on the quarter.

Mitesh Dhruv -- Chief Financial Officer

Sure, Samad. So, yes, I mean look that's a fair observation. As we are getting more and more enterprise skewed, I think the seasonality is starting to emerge a little bit where Q2 and Q4 are seasonally stronger, and then Q1 and Q3 and that's what we saw. So, I think that's -- an even within that if you double click, it is getting more and more backend loaded. So again, this is a -- you can see the glass half full or half empty, we should see the glass half full we're OK. We're getting fair and square enterprise. And so, I think this trend is here to stay.

Operator

Our next question is from Terry Tillman, SunTrust Robinson Humphrey. Please proceed with your question.

Terry Tillman -- SunTrust Robinson Humphrey. -- Analyst

Hey, good afternoon, gentlemen and congrats on the quarter from me as well. Maybe Mitesh, the first question is this was the largest dollar beat on revenue ever that we can tell. And also some of that did fall nicely through to the bottom line and at least in terms of the margins. Anything you can think about, I know beyond just 2019, you gave us updated guidance, but like going forward longer term, any kind of balance here or shifting balance between investing for growth versus showing margin leverage? And then I have a follow-up for Dave.

Mitesh Dhruv -- Chief Financial Officer

Sure, Terry. So yes, this is, we did have a pretty strong quarter on the top and the bottom line. And if you look at, if you zoom out to what Vlad said, it is a ginormous market and we are in very, very early innings. So the buyers would be to leverage our position and invest for growth in both innovation and go-to-market but we are maniacally focused on growth at not at all costs, but profitable growth. So we are very, very focused as you know on unit economics, which includes cost of acquisitions, churn and up sell. We did see, we are seeing customers stay longer, our gross channel was like a record low, and we are seeing customers are buying more.

So with that backdrop, that's the inherent leverage in the model, which you saw where the beat of $10 million, 30% incrementally flowed to the bottom line. Now treat that as a proxy for your long-term recurring revenue install base margin. And so we've given those kind of unit economics of 30% incremental margin, the buyers would be to redeploy that upside into to further fuel our growth and, but that said, that's dial in our guidance of 50 to 60 basis points of operating margin expansion on a higher revenue dollar and a higher growth rate.

Terry Tillman -- SunTrust Robinson Humphrey. -- Analyst

Okay. All right. Thanks. And Dave, maybe just a follow-up question on enterprise. Aside from just the go-to-market initiatives and vertical selling, what about on the product side, anything you can highlight in terms of just further hardening of the product for enterprise whether its embeddable or persist? Or anything else you can call out that also seems to be a dial that's working in terms of getting more and more of the larger enterprises to adopt? Thank you.

David D. Sipes -- Chief Operating Officer

Yes, the expansion of the platform that we mentioned, that Vlad mentioned 60% increase year-over-year and is really a key contributor as we've gone into some of these larger accounts like Waitrose & Partners and Columbia and done key integrations into core enterprise applications on workflows for their employees. And the open platform continually gets cited as one of the core benefits or key distinctive advantages, and I think that's really critical on the enterprise push for us.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

I also wanted to just may be even to double click on this a little and back to Will Moxley, the GPO announcement. This is the one area which sales force has frankly pioneered in the space. And to what Dave said we are really excited to get those learnings from Will and how to further fortify our open platform and also how to position it as a best-in-class in our segment. So, this is our front and central for our roadmap.

Operator

Our next question is from Michael Turrin, Deutsche Bank. Please proceed with your question.

Michael Turrin -- Deutsche Bank. -- Analyst

Thanks and good afternoon. Mitesh, a question for you in terms of international expansion, you announced a big Waitrose win last quarter. You also have now Westcon helping out overseas. Can you help us to frame the international opportunity and where it is today? Anything you are able to add in terms of contribution and how that business is tracking is helpful?

Mitesh Dhruv -- Chief Financial Officer

Sure, Michael. International -- yeah, international is emerging growth vector for us and this quarter again we saw it's sub 10% of business still but it's growing faster than the overall growth rate. So it is pulling up the growth rate. We did see multiple million dollar deals come from the international side, that's one. Dimelo is turning out to be an interesting growth vector for us. Its opening doors for us in the omni-channel space, where we don't have to replace contact center. We did announce a win in Netherlands for that, so that international.

And capitalizing on those trends, we are doubling down here both in terms of direct sales capacity and channel where direct sales force we have doubled the sales force internationally. It will take some time to reap the productivity benefits but I think we are seeing that, A. B, you saw the Wescon announcement on the channel side. So, I think this international story is yet to play out and is going to be in my mind a tailwind as we look at longer term 2020 and beyond.

Michael Turrin -- Deutsche Bank. -- Analyst

Great. We will be watching. And then may be on vertical strategy, I know it's still early, but seems like it's already yielding, plenty of low-hanging fruits. Dave, can we just revisit any lessons learnt so far? How repeatable is that playbook across different industries? And how would you create your effectiveness there so far?

David D. Sipes -- Chief Operating Officer

Yeah, so, I would say, our effectiveness is showing but it's still very early. We've brought in key industry experts that help with these sales cycle itself and as we get look-a-like wins such as in university, higher education and financial services where we had a Fortune 500 win. Last quarter, we had Higginbotham this quarter. So, we're seeing that happen and we're also looking for product integration opportunities like Canvas that are specific to specific verticals, to help distinguish the product and offering. So having success and we're seeing it in the numbers I still think a long ways to go and opportunity there.

Michael Turrin -- Deutsche Bank. -- Analyst

Thanks. Thanks to all.

Operator

Our next question is from George Sutton, Craig-Hallum. Please proceed with your question.

George Sutton -- Craig-Hallum -- Analyst

Thank you. First, I would like to get ahead of the crowd and congratulate you on your upcoming great Q3 results. So, congratulations. I wanted to specifically, just ask one question wanted to focus on the messaging team, messaging side, you mentioned and I'm not sure I heard the number correctly, it was either 15% or 50% of your deals were influenced by that offering. Can you explain why that is the result and whether it was 15% or 50%? And how are your customers deploying growth versus slack and teams and other options like that? Thanks.

David D. Sipes -- Chief Operating Officer

Yes. So, it was 50 or 50% attributed messaging. And we do see user growth on that up over triple digits year-over-year. The key aspect is unifying the experience across the users momentum, a great example or they're standardizing across messaging, video and telephony with the RingCentral app. And Columbia also is another example of that. And so, and we do see examples of replacing existing solutions, in that regard, as they're looking for usability for the end users and the employees, to make them more productive and more effective in the market.

Operator

Our next question is from Heather Bellini, Goldman Sachs. Please proceed with your question.

Heather Bellini -- Goldman Sachs -- Analyst

Hi, great, thank you so much for taking my question. Mitesh, one of the areas I wanted to focus on. You said strong ARR growth in a number of areas, but the one I wanted to focus on was the strong growth on the partner website. I was wondering if you could talk to us about the ramping as a partner community. How you're seeing new partner signing trends, and also when they're involved are you seeing higher average deal sizes? And I just had a quick follow up, please.

David D. Sipes -- Chief Operating Officer

Yeah, I'll take the partner side of that. So partner momentum is very strong, as you've seen in the numbers, growing over 60% of our channel business. And that team is a very strong team continues to grow and we're getting awareness within the channel. We just passed 10,000 partners this quarter, and continue to add kind of record number of partners every quarter. So there's good momentum, good awareness and for us it's really continuing penetrating a lot of the current accounts and getting the sellers within those organizations very familiar with the differentiation distinction of our product offering.

Mitesh Dhruv -- Chief Financial Officer

[Speech Overlap] And Heather, hi, it's Mitesh.

Heather Bellini -- Goldman Sachs -- Analyst

Yes, sorry. Hi Mitesh. [Speech Overlap]

Mitesh Dhruv -- Chief Financial Officer

Just to add more financing color, we did see that as the average deal sizes are getting larger in that vector, and that's what led to our channel business being up 25% sequentially quarter-over-quarter. If you look at top channel partners, they are increasingly contributing to larger deals and higher deals. So, I think we have seen two vectors here more channel partners being signed up and then within the channel partners, we are seeing higher penetration.

Heather Bellini -- Goldman Sachs -- Analyst

Okay, great. And then just one quick follow up on any change in duration to note to the TCV commentary we were giving earlier? Are you seeing customers commit to longer deals just they're deciding to make a bigger commitment to the RingCentral platform?

Mitesh Dhruv -- Chief Financial Officer

You know, it's at the margin Heather, all this TCV deals are multi-year deals. I didn't see a big pick up one way or the other in terms of duration. So, I think nothing to read there.

Heather Bellini -- Goldman Sachs -- Analyst

Okay, great. Thank you.

Mitesh Dhruv -- Chief Financial Officer

Thank you, Heather.

Operator

Our next question is from Nandan Amladi, Guggenheim Partners. Please proceed with your question.

Nandan Amladi -- Guggenheim Partners -- Analyst

Hi, good afternoon. Thanks for taking my questions. So first question for Mitesh and I'll follow up with Dave. So, you had said historically that 40% of new bookings come from existing customers, now as your customer base expands and your product portfolio is also expanded. How is this mix trending?

Mitesh Dhruv -- Chief Financial Officer

Sure, Nandan. So, yes, we have said about 40% of our new business do come from existing customers, so meaning an up-sell. This quarter it was very consistent with prior quarters. We did see a slight uptick in that actually. So, it was a positive trend. And, the other trend we are seeing in that same vain is that, the biggest driver for up-sell for us is seats, have been seats. We are seeing again customers adopting different products now being contact centers and this is again tied back to this multi-product strategy we are embarking on where if you look at this public storage examples, which Dave said in the call.

Public storage started out with the locations then we got the headquarters and then this quarter we got the contact center. So that a trend it's early days, but that's another existing emerging growth vector for us. So, that's part one.

And part two if you look at the precursor to expansion is the landing part. So, we are seeing more new logo getting landed especially on the million dollar TCV, 70% of our million-dollar deals were new logos which should help for the expansion in the future. So, we are seeing new customers come to RingCentral and existing customers, ramp up their deployments with RingCentral.

Nandan Amladi -- Guggenheim Partners -- Analyst

And a follow-up for Dave, on the go-to-market side, again, as a business scales up from $1 billion say to $2 billion over the next several years. What should we expect the mix of your direct channel and carrier driven sales to look like?

David D. Sipes -- Chief Operating Officer

Yes. So, I think we have said that direct channel are kind of split today between that and we expect that to continue as we get into the largest enterprise, we do see a little bit heavier on the channel side so we could see a tick up a little bit from where we're at today.

Nandan Amladi -- Guggenheim Partners -- Analyst

And sorry, what is your comment on the carrier?

David D. Sipes -- Chief Operating Officer

Carriers, it still early days, but there is some positive performance so, as Mitesh mentioned on AT&T. So, I think that's definitely an opportunity as we expand within our current accounts and look to add additional accounts overtime.

Nandan Amladi -- Guggenheim Partners -- Analyst

Thank you.

David D. Sipes -- Chief Operating Officer

Thank you, Nandan.

Operator

Our next question comes from Meta Marshall, Morgan Stanley. Please proceed with your question.

Meta Marshall -- Morgan Stanley -- Analyst

Thanks, guys. I wanted to circle back to the comment on the regional airline win on Engage. And you mentioned that it wasn't necessarily as the use case that you had thought of. And I just wanted to kind of dive a little bit deeper into that of, who came up with that kind of use case? Is it something that you can kind of market to multiple customers, just some detail there? And then second, just on the maybe circling back to the AT&T question of just, see is that customer types that came in from AT&T, what you expected just any early reads on kind of what you're seeing from AT&T? Thanks guys.

Mitesh Dhruv -- Chief Financial Officer

Yes, on the regional carrier, the use case was the flight crews that are messaging among themselves as well as with corporate, so it tends to be more of an employee communication use case, where Engage Digital is often utilized with consumers of large brands and customer digital engagement tool.

But the interesting use case there was they wanted to enable their flight crews to message through standard messaging apps such as Apple iBusiness and just communicate within the organization that way. So that may be a trend, we see it in the consumer space and it may obviously creep into the employee base over time. And that's why it's a new interesting use case.

And the same question on AT&T types of customers. It is similar to what we typically see similar to what we normally work with AT&T in the past. Obviously, the largest accounts have longer sales cycles and were newer with AT&T. So those are probably coming later than the current mid-market business that we're seeing there.

Meta Marshall -- Morgan Stanley -- Analyst

Got it. Thanks.

Operator

Our next question is from Jonathan Kees, Summit Insights Group. Please proceed with your question.

Jonathan Kees -- Summit Insights Group -- Analyst

Great, thanks for taking my questions. I just want to talk about two areas. First, congratulations on the quarter. The first area I want to ask about is. i'm sure as testament to your ability to execute, you've already deployed the fix for your webcam in terms of your video meetings. Did that actually impact any of your turn-ons, any of the activations of your enterprise? Did you do any damage control with that? That's the first area.

Mitesh Dhruv -- Chief Financial Officer

No, that was very quick fix patch that went out and happened within 48 hours type of thing. And we don't have any customer instances or identified issues with that.

Jonathan Kees -- Summit Insights Group -- Analyst

Okay, super, super. And then second, I want to ask. A competitor of yours has purchased a CPaaS provider. So just curious what your thoughts are on CPaaS? Is that a market data customers are asking for? Is that something which they considered as part of that integrated portfolio? Yes, just what your thoughts are on that particular market? Thank you, and again congratulations.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Yeah, Vlad here. No, look great question. Sure. So our thoughts are that as far as, so that particular transaction, look, we're just going to stick to our guns, and we need to be best-in-class. So if and it's a big if, but if we were to consider entering the CPaaS market we thought we want to do it in a differentiated way and in a way that would establish us you know at or near the top of that pyramid.

Now having said that, CPaaS is quite a different market, it's a very different emotion. Obviously there is a very well established leader there and other people have tried to sort of take them on head-to-head and I don't think with fantastic results. So, our path is a little bit different. We do see quite a bit of differentiation between CPaaS and SaaS, and we are doubling down, tripping down SaaS again linked back to the Will Moxley announcement on salesforce.

They're not a CPaaS leader in that space. They're a SaaS leader. So, we like this a lot and that's what we have to continue. And just to declare, the difference here is recurrent revenue model versus transactional as well as. And another way to say that is we enable our paying customers to recurrent revenue paying customer to create custom integrations, create custom apps, and support custom workflows based on data and controls provided by Ring, as opposed to just having a flat platform where people can sort of do other use cases.

Jonathan Kees -- Summit Insights Group -- Analyst

Got it. That make sense. Thank you gain.

Operator

Our next question is from Richard Valera, Needham & Company. Please proceed with your question.

Nate Hitchcock -- Needham & Company -- Analyst

Hi. Good afternoon. This is Nate Hitchcock on for Rich Valera. Thank you for taking my question. Can you hear me alright?

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Yes.

Nate Hitchcock -- Needham & Company -- Analyst

Thank you. You guys have spoken about the channel success year-over-year, I'm wondering if you experience any change in the channel compensation dynamics? And then I do have one quick follow up.

David D. Sipes -- Chief Operating Officer

We remained competitive in the channel compensation and pretty standard and we don't see significant changes in that over time.

Nate Hitchcock -- Needham & Company -- Analyst

And you are not able to elaborate much clear there that is helpful, but trying to understand as best I can.

Mitesh Dhruv -- Chief Financial Officer

This is Mitesh. No. I think what Dave said, the channel compensation range is certain and we play really within the band and we have not seen the band change much at least for us. There are other competitors who do increase compensation but we did not have a reason to increase and we are still seeing really good demand from the channel.

Nate Hitchcock -- Needham & Company -- Analyst

Okay. Thank you very much. That's helpful. And then on quick follow up question. Can you elaborate on any changes that you have seen recently or that you foresee in the competitive landscape and specifically any developments in regards to Zoom phone?

David D. Sipes -- Chief Operating Officer

So, on the competitive landscape, we continue to get recognized for the robustness of the product, any new solution as to the one you mentioned tend to not be at the higher end of the or ability to replace legacy PBX solution that have traditionally serviced by Cisco and Avaya, I wouldn't say there is a significant change in the competitive environment.

Nate Hitchcock -- Needham & Company -- Analyst

Okay. Thank you very much. That's helpful. Thank you.

Operator

Our next question is from Will Power from Robert W. Baird & Company. Please proceed with your question.

Will Power -- Robert W. Baird & Company -- Analyst

Okay, great. Yes, I'll try to sneak in a couple here. I guess maybe just coming back to enterprise churn some of the commentary there. I know that was one of the factors cited in the enterprise strength. Can you kind of point to what the key drivers of that record low enterprise churn are? I mean how much of that's maybe product mix as you move up-market, is it quality of service? Is it product integration? Just any kind of further color there would be great.

David D. Sipes -- Chief Operating Officer

I think it's all the above, Will. You're hitting on a lot of key things. As we've moved into enterprise, we continue to evolve the product capabilities, from everything, from durability to integrations to billing, enhancements. And those are all contributing to greater satisfaction and the customer base. And we augment that obviously, with key customers, success managers and other kind of go-to-market service level capabilities. But I think it's the product evolving to a strong product customer fit over time.

Will Power -- Robert W. Baird & Company -- Analyst

Okay, that makes sense. Okay, I just the other one I want to come back to is contact center. I think you also call that as a real driver. What's behind that? Are customers actively coming to you more than they were in the past for contact center, or you just putting more of a sales effort behind it? Maybe just talk about some of the underpinnings of that strength.

David D. Sipes -- Chief Operating Officer

We see it as there's kind of a latent demand for the buyers to have a unified solution across contact center and UCaaS. And in our largest deals, we get close to 50% of those deals, utilizing contact center, as they're typically add-ons to buying UCaaS. But we do see later in the cycle, like with public storage, adding contact center, later, and those are continue to be opportunities, especially as we've move into larger enterprises who utilize larger contact centers, it becomes a bigger opportunity for us.

Will Power -- Robert W. Baird & Company -- Analyst

Okay, great. Thank you all.

Operator

[Operator instructions] Our next question comes from Sterling Auty with JP Morgan. Please proceed with your question.

Sterling Auty -- JP Morgan -- Analyst

Thanks. Hi, guys. I'm wondering, you mentioned that the contact center upgrade or replacement was critical in the one very large deal that you did. Looking at the 30 deals with seven-figure TCVs. Can you give us a sense of what the driving factor across most of those look like? So in other words, what was the trend in the large deals in terms of why they chose now to go ahead and make the move?

David D. Sipes -- Chief Operating Officer

In a lot of the deals, they're on legacy solutions that are reaching end-of-life. We have some deals where they're on that platform for 15 years another where they feel like support for the platform will be going away over time, as well as they don't want to manage on-premise equipment and solutions and be responsible for deliverability, uptime. Those are kind of key that we're just seeing the lifespan of those solutions and the investments in those platforms have dropped to almost nothing. So there's no longer a future path to stay on those legacy platforms.

Sterling Auty -- JP Morgan -- Analyst

Got it.

Operator

Our next question is from Brian Schwartz, Oppenheimer. Please proceed with your question.

Koji Ikeda -- Oppenheimer -- Analyst

This is Koji Ikeda on for Brian Schwartz. Thanks for taking question. Just one for me from, it's on the enterprise segment, the 100 KAR segment. Just grew 88% here now sitting at $230 million, which is really incredible. And on top of that RingCentral's operating in a really big TAM. I guess, what is the right way to think about the opportunity and penetration in the enterprise segment at this point? I mean, is it really a lot of Greenfield still out there and are enterprise organizations really just embracing UCaaS at this point? Or is there some evangelism that still needs to be done by RingCentral during the sales process? Thanks for taking my question.

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

Yes, Vlad here. Look, it's both. Clearly market is coming to us. Clearly we are able to get larger and larger wins and deployments. And every one of these is a reference case, and it begets us more leads, more opportunities and in them, more wins. So there's definitely that reality out there. And if you think about, many of these are channel led. So every time we secure, call it a seven-digit TCV deal, but that's not the only metric, obviously, but a large deal, it's a feather in our caps for sure, but it's also a great way for a channel partner and we give them additional confidence to bring us into their next deal and next and so forth. So it is very much a virtuous cycle that way.

So having said all of that, there is still clearly a lot of education to be done and that's ongoing. There are still some myths to be busted. And as you look at us quarter-over-quarter-over-quarter, you just see this constant march toward larger and larger wins and with greater and greater frequency. And the only way to continue that is to continue for us to educating the market, continue not only within these deals, but hanging on to them expanding within the footprint. Mitesh addressed that before already.

So again, we think of it as a virtuous circle. And I wouldn't be probably myself without having, without mentioning this next point is. In the end, it really all rooted in the product. We are able to have this momentum and this success rate, fundamentally, because of our products being right, right place, right time addressing actual customer needs. And for as long as that's going to continue, we are very, very optimistic about the future.

Operator

Our next question is from Mike Latimore, Northland Capital Markets. Please proceed with your question.

Mike Latimore -- Northland Capital Markets -- Analyst

Great. Thanks. Just few clarification questions. Mitesh, you said, maybe 2Qs and 4Qs are seasonally a little stronger, I think, what you said. Does that refer to bookings or sequential revenue growth or both? And then on the Fortune 1,000 customer, of the 10,000 seats, how many are kind of voice PBXs?

Mitesh Dhruv -- Chief Financial Officer

So, the first one, I think I was referring more to the booking strength. Again, revenue trends if you look at the entire installed base, it may move a smidge but doesn't quite move as much. But it does impact a little bit, depending upon how back-end loaded the quarter is. That's one. And what's your second question?

Mike Latimore -- Northland Capital Markets -- Analyst

On a big deal hub?

Mitesh Dhruv -- Chief Financial Officer

How many were UC seats on the big deal. There both key contributors on the decision process, UC and CC. The CC is literally in the hundreds, so the UC is bulk of that number of the 10,000.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay.

Operator

Our next question is from Catharine Trebnick, Dougherty & Company. Please proceed with your question.

Catharine Trebnick -- Dougherty & Company -- Analyst

Thank you for taking my question, a clarification and a question. One is when you had given the numbers on your open API and how many developers you have? What was that number again? And then the question around that really is. How are you recruiting and how do you see this as a key tool in your mid-market? Is that a pretty big factor in the decision to move toward RingCentral when it comes down to it? Thank you.

David D. Sipes -- Chief Operating Officer

We had over 23,000 developers on the platform. It was the first point of question and 2,500 certified app integrations. The second question was.

Mitesh Dhruv -- Chief Financial Officer

How is it driving larger deals? So, I think I'll answer that Catharine. Yes, I think it's a key component, right. As we said, there is open platform is a key differentiator, if you look at the large million dollar TCO deals, over 80% of these deals were driven by a component for the open platform. So, I think it's when you look at larger customers, the custom workflow integration are really key for them feel comfortable to future proof their UC footprint.

Catharine Trebnick -- Dougherty & Company -- Analyst

All right. Thanks.

Mitesh Dhruv -- Chief Financial Officer

Yeah.

Operator

Our next question from Matt VanVliet, Stifel. Please proceed with your question.

Matt VanVliet -- Stifel , Nicolaus & Co. -- Analyst

Yes. Thanks for fitting me in here. You mentioned that you have much higher mix of direct sales that are fully ramped and your efficiency is strong there. When you look at the US market and may be some of the other well-developed markets. Where do you see headcount growth on the direct sales front trending? Is it in line with overall bookings expectations? Or do you start to gain quite a bit of leverage on that and where do you feel like overall account coverage is in those developed markets?

Mitesh Dhruv -- Chief Financial Officer

Sure, I'll take the second part of the question first. So, I think the account penetration is just still a lot of room to go here. We are somewhat covered in all the NFL cities, but we are actively densifying, all our sales footprint. So I think if you look at the amount of TAM there is, of 300 million to 400 million seats and RingCentral call it at sub 2 million fees there is a lot of penetration that can happen. So, we have been pretty deliberate in our move forward.

Where we just don't want to spend the money and not see the return, which leads me to the next question which is how do we see the headcount growth? We typically now given that the segment is more ramped and matured, we will see productivity gains eek out from the segment itself given the ramp. So you should expect the overall sales headcount growth, below the bookings growth rate and we'll see some leverage there.

Matt VanVliet -- Stifel , Nicolaus & Co. -- Analyst

Wonderful. Thank you.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Ryan Goodman -- Head of Investor Relations

Vlad Shmunis -- Founder, Chairman & Chief Executive Officer

David D. Sipes -- Chief Operating Officer

Mitesh Dhruv -- Chief Financial Officer

Bhavan Suri -- William Blair -- Analyst

Brian Peterson -- Raymond James -- Analyst

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Samad Samana -- Jefferies. -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Michael Turrin -- Deutsche Bank. -- Analyst

George Sutton -- Craig-Hallum -- Analyst

Heather Bellini -- Goldman Sachs -- Analyst

Nandan Amladi -- Guggenheim Partners -- Analyst

Meta Marshall -- Morgan Stanley -- Analyst

Jonathan Kees -- Summit Insights Group -- Analyst

Nate Hitchcock -- Needham & Company -- Analyst

Will Power -- Robert W. Baird & Company -- Analyst

Sterling Auty -- JP Morgan -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

Mike Latimore -- Northland Capital Markets -- Analyst

Catharine Trebnick -- Dougherty & Company -- Analyst

Matt VanVliet -- Stifel , Nicolaus & Co. -- Analyst

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