RingCentral, Inc. (RNG) Earnings Call Transcript
June 1, 2021
Earnings Call Speaker Segments
Good afternoon, and thank you all for being here. My name is Bhavan Suri. I'm the analyst that covers RingCentral at William Blair. You can find the appropriate disclosure on our website at www.williamblair.com. It is, as always, a great pleasure to have 3 gentlemen I've known a long, long time now, Vlad Shmunis, who is the Founder, Chairman and CEO of RingCentral; Mitesh Dhruv, CFO; and Anand Eswaran, President and COO of RingCentral. Gentlemen, always good to see you. I think this might be the year we're actually going to see each other in person again. It's been too long. But thank you for your support, and thank you for being here.
We're going to do a fireside chat and so if investors have questions, feel free to throw them in the chat. And as we go through, I'll read them out for the management team. But I'll kick it off maybe with Vlad. I guess, Vlad, just at a high level -- it feels like no one should be new to the story, but there may be some who are newer to the story. Maybe let's start with a quick introduction of RingCentral, the markets you serve and the problem you solve.
Yes, Bhavan, great to see you. Do hope to meet in person this year -- not meet in person, see you in person. Okay. Without further ado, for those of you potentially new to the story, RingCentral is a leader in the UCaaS segment that stands for unified communications as a service. We started out by replacing on-prem legacy PBX equipment with a pure cloud-based solution. As I mentioned, we are one of the pioneers in the space. I founded the company just a bit over 20 years ago. And we have been fortunate enough to basically wait for the market to mature to the point that is now. We are now, give or take, a $1.5 billion recurrent revenue business, consistently growing in the 30-plus percent range. I think last quarter, we did a bit over that, approximately 33%, 34%. And why is all of this? Market is huge. We're talking about replacing or reimagining 400 million to 500 million seats of installed on-prem base, replacing with the pure cloud-based solution. We, at RingCentral, are leading [ this charge ] with approximately 3.5 million to 4 million seats. That's out of about 12 million seats in total between all of the cloud providers. So as you can see, greenfield is still quite immense. And we had a very good, strong growth as a prepublic company and as a -- for our 8 years as a public entity, whereby we've beaten race every time. We have slightly accelerated into COVID, but we see some very, very long-term effects, positive effects, tailwinds for us as the world is returning back to the office. And yet, more people are exposed to what cloud can do for productivity when people go from work from home to work from anywhere, which is our strong point and a big differentiator for us.
I think that's helpful. Maybe obviously, lots of interesting things happening. Earlier this morning, you made a great announcement with another partnership with Deutsche Telekom. Can you just frame the overall partnership strategy? I'm sure you've been on calls with investors about it. We have. It'd be great to get a little more color about how you frame it and how you're thinking about that partnership.
We like it. We like all of them. We like all of them. Actually, yes, so look, our success, we think, is based on several major counts, if you will, yes. And they're not unusual. It's people, it's product and its partnerships, okay? People will let results speak for themselves, but we do believe we have a very strong handpicked team that has been consistently executing. Some of us have been together for over 2 decades now. Some people are newer. Everybody has pretty interesting backgrounds. We can talk about that more, if you want. But we'll talk about product as well, I'm sure. But since you started with partnerships, this is something that makes RingCentral absolutely unique in the space is our very strong and successful [ orientation ] towards strategic partnerships. So Ryan, if you don't mind, maybe what we can do is illustrate where we are currently. Right. So this is, believe it or not, a partial list. But if you look at our go-to-market motion, then it is fundamentally threefold. We have a direct capability. And of course, we started out as a direct-to-customer company. And we have been and are successful at that. But what makes us very unique is the fact that we have partnered with now 4 out of top 10 global service providers. So this would be from the top line, AT&T, Verizon, Vodafone Business and the latest announcement just this morning is Deutsche Telekom. And the other names on this list, while not top 10, are not too shabby. Is there -- one being British Telecom and another TELUS, which is a leading Canadian provider, okay? Now on the road below is -- this is what we call the 3 As, okay? So this is our 3 As, if you will. And yes, was there any more As? There are no more As left in the alphabet. But Avaya, Atos and Alcatel-Lucent are 3 of the top 5 on-prem incumbents with on-prem PBXs. All of these companies have selected RingCentral as their go-forward partner to power their -- as they transition their customers from on-prem to the cloud. So we have a co-branded product with all of the great brands that you see on the slide. Again, as I mentioned, this is just a partial list. We have a number of smaller providers that we have also announced. But given it at a high level, just given this community, the time we're presenting here, showing here, we have -- we are currently in the preferential position to 200 million-plus of the installed base, okay? So this is now approaching 50% of the entire worldwide installed base is now with -- has RingCentral powering up those platforms. So that's quite a unique position to be in. We think a very, very unique moat. And what makes it also very interesting is that all of them chose us not just for our PBX or voice replacement capability, but also for messaging. And very importantly, with Deutsche Telekom now for RingCentral Video, okay? So this is the first major endorsement we have for our new RingCentral Video product, obviously, we could not be more excited or happier about that. We do think that there is a good chance that we will have additional successes in that direction.
Now that's great to hear. And I think the most exciting thing for me was that it was for video, right? This is a video-led partnership which I think demonstrated the strength of the product. I think if we touch on another set of partnerships, contact center has become an increasingly critical part of large deal wins, as I referenced in the last few quarters. And you've just recently expanded the partnership with NICE inContact there, too. Maybe -- and I'll let you guys coordinate who's answering which question. But would love an update on the contact center side of the business. And what is driving increased demand for those solutions?
That's a great question. Firstly, Bhavan, such a good opportunity to be here and have this chat. I'll probably answer it in like 3 different ways, right? I'll first share some data on why you see these trends. And then I'll talk about the trend itself, and then I'll just reflect that on how all of these are manifesting in our results at this point. So if I just look at the data, if I look at employee productivity, if I look at revenue and if I look at NPS, all 3 are having a huge positive impact. Aragon Research published that companies who make joint decisions on contact center, UCaaS and CCaaS see a 30%-plus increase in productivity. That's huge. Metrigy shared that 63% of companies have performed some level of UCaaS and CCaaS integration, and almost 1/3 of them are actually using the same company, the same provider. But actually, what is really important is they're saying that for those companies, they see a 55% improvement in revenue and a 37% improvement in NPS compared to companies just seeing 25% and 29% improvement in revenue and NPS, if they do not use the same provider. So huge trend on integrations, but even more so on companies buying it from the same provider is making a huge difference on productivity, revenue and NPS. And so that's the trend we see. That's why UC and CC are coming together as a converged product and a converged platform. Now what we are pretty proud about is, we saw this before it became a fashionable trend of today. That's why we actually integrated NICE inContact with our UCaaS solutions 5 years back, long time back. And then we've been deliberate about buying specific IP, Connect First and Dimelo, which is now Engage Voice and Engage Digital for us. And so we saw this and we've been on this journey for a long time, reflecting the results, triple-digit growth in new logo business. 60% of large deals include the contact center for us. The number of large deals with the contact center in these more than doubled year-on-year, and we've just reached 1,000 customer mark as we go on. That's why we have doubled down on our partnership with NICE inContact, extending it by several years because enterprise customers -- these are longer-term deals. You're embedded into the company's workflow And enterprise customers need this comfort of a longer-term horizon. That's why we have doubled down and we are excited about our partnership with NICE inContact.
If I may, I'd like to add just one quick thing to it is, look, there are other offerings out there, some are from the same company, but most leaders are simply playing Switzerland and just allowing the customer to pick and choose, look -- which is just fine. But again, it's not what we're hearing from our customers. They really do want to buy from a single provider. And there is only one such offering in the world today where from a single provider, you can buy both Gartner Magic Quadrant leading UCaaS as well as Gartner Magic Quadrant leading CCaaS, cloud center as a service (sic) [ contact center as a service ], and buy from the same company on the same invoice and same SLA, et cetera. This is what really makes it unique. And frankly, it's driving a lot of growth, certainly for us, but I believe for NICE inContact as well, which is why it made a lot of sense for us to extend our partnership as we have done what -- I believe last week, we've made the announcement. And we see a very fruitful road and a lot of cooperation between the 2 companies moving forward.
Got you. Got you. Let's talk about the COVID impact. If I look at Zoom, they clearly benefited from COVID or DocuSign benefit from COVID as a tailwind. You've continued to have strong growth throughout the pandemic, but I think it's fair to say the near-term impact last year was mixed. I'd love to hear quickly just some dynamics in terms of where you saw headwinds and then the offsetting tailwinds through the COVID impact and sort of what we're seeing play out now.
Good question, Bhavan. I'll take a quick shot at it. Prepandemic, you always had a slow and steady movement of communication solutions to the cloud. As we look at it right now, it's no longer a siloed IT decision. It's critical to the digital transformation of every company in a postpandemic world. As we entered COVID, we saw the impact. We saw some headwinds from small customers, specific verticals like retail and so on impacted by the early onset of the pandemic. They are back. They're back with a vengeance. COVID has really showed people what technology can do and how we can make people more productive and democratize geographies for talent they need to hire. So as we see us enter the postpandemic, every company -- this is a bold decision for every company. They're being deliberate. I mean we're talking about only 12 million, 13 million of the total 400 million-plus on-premise seats are on the cloud. Every company is making a deliberate decision now, accelerated by this pandemic, creating a structural tailwind and accelerating awareness. So that's what we see. What does matter right now in a postpandemic world, reliability, trust partnerships because this is where we are getting into -- this is core to the transformation of the company, a global footprint, an open ecosystem. And that's what we are excited about. Because as a company, I feel, RingCentral has always been talking about this work-from-anywhere environment, not just the pandemic work-from-home environment, and it feels like our journey has been for the postpandemic world we are going to get into.
Got you. Got you. So we talked about the TAM. Vlad touched on 200 million seats. Let's talk about the competitive landscape you operate in. How has that involved? Obviously, there's a couple of big players that there's a lot of noise being made on. So I'd love to talk about how that's evolved and what you're seeing on the competitive front on the ground as opposed to investors or partners. What do you actually see on the ground would be helpful?
Let me take a quick stab and perhaps Anand can provide more color. Look, what we're seeing on the ground is the fact that numbers don't lie. And our growth continues, and our growth has actually accelerated. And I think I made a note on it on our last call, we are now growing at a level percentage-wise, where we last [ grow-ed ] when we were something like 1/3 our size. Mitesh will keep me honest. So this is fairly rare, I think, if you would agree with me. So look, we're seeing a lot of the same in competitive landscape, but obviously some notable changes as well. So what do we see same? People who were -- who started along with us in simply replacing the PBX. And this is simple, but it's not simple at all, okay? But -- so this will be people like 8x8, people like Vonage from public companies, some of the better funded start-ups, at least in their time, [ few was dial type, people like that. In a word, they're free game. ] They're still out there. We still see them. But it seems that it's increasingly hard for them to compete and keep up just given the amount of resource it now takes to provide a world-class product, okay? So that's one cohort. Another cohort, and really, I should have started with that, are the incumbents, yes? So these incumbents basically came in 2 flavors. One, of course, PBX manufacturers themselves So that's your Cisco, your Avaya and et cetera, Mitel, right? And the other one, interestingly enough, is global service providers or carriers, whereby they wanted to provide an over-the-top solution -- going back, if some of you may remember, the eCentric's product, but evolving on that. And many of them have standardized for the time being, at least, on a BroadSoft-based product, software product that has since been acquired by Cisco. So in that community, we're seeing definite tailwinds now because as I indicated, the 3 As we call it, so again, 3 out of the top 5 PBX manufacturers, are now on RingCentral moving forward. And 4 out of 10 and counting global service providers. So we're definitely seeing some movement at this point away from BroadSoft or at least diversifying from BroadSoft and specifically into RingCentral. So that's very positive. Now as far as direct cloud competitors who we do see out there, so there are 2 companies. There is Microsoft and the new entrant is Zoom. With Microsoft, we are seeing -- it's mixed, but we are seeing them doing really well in messaging with Teams. With video, but mostly for intracompany, less for intercompany or company-to-customer interactions but still some. And on the phone part of PBX replacement, at this point, we're not seeing that much progress. So their product seems to be meaningfully deficient feature set-wise, geographic reach-wise, yes? And in recognition of that fact, they have relatively recently introduced something called Direct Connect (sic) [ Direct Routing ], whereby they actually allow people like ourselves to integrate into Teams, which if you think about it opens up a huge market for us as an incremental opportunity, which is all of what is the 70 million Team seats out there and counting, yes? So that, for us, probably more positive than not. As far as Zoom is concerned, they're -- they would be the latest engine in this space. And look, we see them out there. So how do we differentiate against Zoom? Firstly, we were founded to replace PBXs, and then -- and we'll talk about it some more as time allows, then we've extended into messaging and video. And what it does, what it gives us is world's best, no questions asked, cloud PBX, okay? And now bundled together with native messaging and now native video. So we call it the MVP approach, Message Video Phone. So first and foremost, again, Zoom, their messaging, they don't really have a structured messaging product like we do. The video is obviously pretty good, and people are -- many people are quite comfortable using it. I have to say we're catching up very rapidly as is now evidenced by today's Deutsche Telekom announcement. On the phone, we're simply ahead. Now sometimes people ask, okay, what does it mean, ahead? How many features is enough? Et cetera. And the answer is maybe twofold. One is sometimes people talk of the 80-20. And yes, 80% satisfy the demand, we need that last 20%. Not so much in PBX replacements. The last 20% really do matter. And the fact that we have been at it for such a long time, and now we are supercharged, our product road map is supercharged by these intimate relationships with 3 out of the top 5 providers, so we just know more about PBX use cases. We have these partners who are very vigilant in ensuring that we actually do implement those use cases correctly so as to not change customer experience, customer behavior. And it's been working extremely well for us. But I would say, more importantly, is the stuff that's not feature related, okay? And that is what Anand mentioned about trust. So what is trust? Trust is reliability. Trust is security. Trust is about quality of experience. And trust is about data management and guarding customer data as you would your own, if not better. And I can tell you that if we did not have -- if we were not winning on the trust aspect, then none of our strategic partnerships would have happened, especially none with the global service providers because each of AT&T, Verizon, Vodafone, Deutsche Telekom, et cetera, everyone, their primary concern is security and customer data management. And we have simply been excellent on that. And we'll let other people's record speak for itself, and ours will speak for itself as well. And I know we're really short on time, but, Ryan, if you don't mind, I just want to double click on the reliability angle. So RingCentral is currently the only provider that is offering Five 9s reliability. Five 9s means 99.999% uptime. That translates into 5.3 minutes of downtime per year. So that's under 30 seconds per month, okay? And as far as competition is concerned, best we see out there is three 9s which is 100 difference or almost 9 hours of downtime per year. So if you're an enterprise and you are given a choice, of getting 30 seconds per month or almost 9 hours per year, divided by 12, most enterprises will say that, "Look, this is mission-critical. A missed phone call is unacceptable and almost an hour of downtime per month, if there is an alternative, we'll take that." And then I want to say that not all competition is even offering SLA on telephony at all. Some of them simply have no SLA. And you can look at people's websites and what the community is saying as far as who is able to deliver what. So again, this is something we're particularly proud of. It's not an accident. We have been architected specifically to be a Sherman tank or a modern airline, if you will, okay? And sometimes these things take a little bit longer to get to market, but you don't want -- you really don't want the system to fail and for there to be no backup and we are there now.
Yes. Let me ask -- there's a lot of investor questions, I'm going to take one because it's a follow-up to this point. And the question is a little nuanced and so maybe you and Anand can split it up. So the question is, what do you think is the current future risk of Zoom Phone being disruptive by splitting the market, right, within a client? So one customer says, "For certain employees, like traders, I need to have Ring because it's Five 9s. But then for someone who's working between 9 to 5 and is maybe inputting data, I can take something less reliable, like a -- whatever, Zoom -- Ring -- a Zoom, Teams or whatever. And then Ring with full UCaaS for some, Zoom Phone for others." I guess, given the way that Zoom is pricing their Phone, which we all know is quite -- let's say, they're willing to take some hits on the Phone pricing, can they split within a customer of your opportunity? Is that something to think through? Could they do that? Is that a long-term risk? How should we think about that?
Well, let me give you a very high-level answer and then, of course, Anand and Mitesh, you do need to pitch in here. Look, at a high level, it's a very, very large market, okay? Nobody is going to win it all. And sometimes, Zoom is the right solution, sometimes Ring, sometimes Microsoft and sometimes, it's a combination. And that's fine, okay? We'll be quite happy in continuing our march and leveraging our partnerships and the breadth of our product and security and other moats. We believe we can build a very, very sizable multi, multibillion-dollar business on this and continued strong growth for many years to come, okay? Now another quick note and maybe Anand can even pitch in on that is I think it's a little bit of a common misconception that Zoom has been giving their Phone away. You got to really take into account the entire suite. They're for now, at least, only selling it in combination with Zoom Video. And if you look at their pricing for the package and you look at our pricing for the package, they're quite comparable. Of course, difference being is that we do offer Five 9s reliability. And again, we'll let them speak for themselves. Anand, Mitesh, anything to add to that, please.
You said a lot, Vlad. You said a lot. I'll just add a couple of things. Number one is there's other things which matter. One, a company is trying to replace their PBX, and you just have to have the minimum feature set to be able to replace the PBX. So it's -- what's the point on buying something at no cost if it can't do what you need to get done. So that's number one. The second is just the open integrations. If you look at where we are, we have 5,000 integrations and 50,000 developers in our ecosystem. The last time I checked Zoom's website, they had 2 pages of a list of integrations. And as you look at companies trying to make this a productivity tool, your integrations matter. It is really important. And so that's -- those are the 2 things I'd quickly add there. And finally, Vlad talked about this many times, which is we are innovating rapidly. We just announced with AT&T, the cloud and mobile convergence, IMS integrations with AT&T. It's just an industry first. So when you look at where we are heading, it's not just where we are, we have a huge technology moat, and we are expanding that moat based on the innovations we are putting in. So when I basically have these UCaaS conversations in enterprise customers, our win rates have actually at worst been stable, but likely, that's what you see the momentum of the large deals for us.
Bhavan, let me just take it a couple of notches up here. I agree with what Vlad and Anand said. At the ultimate level, right, the way the PBX works, it's one single source of tools, right? [ If we thought -- you can have different lines of businesses, swiping the cards for different video components at a centralized nervous system. It's like an e-mail system. You cannot split your corporate e-mail. So much like that, it's very hard to have a single pain of -- through -- across the global footprint if you were to split it. So it's a -- really possible ], but practically not a great choice as...
Got you. Got you. Now we're running out of time, gentlemen. We can take this conversation for another hour. And I -- you know, Mitesh, I know we'd love to talk to you about sort of how you drive sustainable, long-term growth of drivers, but we'll postpone that for hopefully an NDR. I'm already selling my NDR solution here to you.
You know you get to hear from the CEO and COO, CFOs are -- we always talk. So yes, happy to do NDR with you.
I appreciate your time. I appreciate all 3 of your gentlemen's support. Thank you all. And to the investors, thank you for being on. Have a great afternoon, everyone.
Awesome. Thank you, Bhavan. Thanks for hosting us.
Thank you, Bhavan. Thanks so much.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete RingCentral, Inc. transcript - plus 251,000+ transcripts from 12,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to RingCentral, Inc. earnings transcripts and 251,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $105 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.