RingCentral, Inc. Price & Performance (RNG)

And welcome to the RingCentral Fourth Quarter twenty twenty four Earnings Conference Call. All participants will be in a listen only mode. Please note that this event is being recorded. I would now like to turn the conference over to Will Wong, Vice President of Investor Relations. Thank you. Good afternoon and welcome to RingCentral's RingCentral fourth quarter twenty twenty four earnings conference call. Joining me today are Vlad Schmootis, Founder, Chairman and CEO Kara Makagan, President and COO and Avaya Lamba, CFO. Our format today will include prepared remarks by Vlad, Kara and Abay. Followed by Q and A. We also have a slide presentation available on our Investor Relations website that will coincide with today's call. Which you can find under the Financial Results section at ir.ringcentral.com RingCentral.

Some of our discussion and responses to your questions will contain forward looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties some of which are beyond our RingCentral, are not guarantees of future performance. Actual results may differ materially from our forward looking statements and we undertake no obligation to update these statements after this call. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings release. Unless otherwise indicated, all measures that follow are non GAAP year over year comparison. A reconciliation of all GAAP to non GAAP results is provided with our earnings release and in the slide deck. For certain forward looking guidance, a reconciliation of the non GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website. With that, I'll turn the call over to Vlad.

Good afternoon, and welcome to our fourth quarter twenty twenty four earnings call. We had a good close to 2024.

And could not be more excited about the year ahead. I'd like to start by congratulating Kiera Meckagon on her elevation to RingCentral President and Chief Operating Officer. Kiera has been with the company for over a decade and has been our Chief Innovation Officer for a number of years.

She has been in charge of all product and technology, and has been the driving force behind turning RingCentral into an open air platform and our evolution into a multiproduct company that now includes contact center and AI. [indiscernible] Kiera will be responsible for the company's product and technology organization, and will add direct in channel sales customer success marketing and business operations organizations. Kiera's expertise in driving product vision and innovation Coupled with your deep understanding of customer needs and our company's Sculpture.

Makes sure the idea leader to help guide RingCentral into our next phase of AI fueled multiproduct growth. Now let me share with you some highlights about the quarter and the year. Before Sharing more about our AI strategy and the traction we're seeing with our new product. Q4 total revenue of $615,000,000 and operating margins of 21.3% were both above our guidance. We also generated free cash flow of $112,000,000 in Q4. A quarterly record. For the full year, total revenue rose 9% to $2,400,000,000 While still early, our multiproduct strategy is clearly working. With new products such as our native contact center [indiscernible] and our flagship AI product, RingSense, already making meaningful contributions to our growth. Operating margins [indiscernible] 21% up from 90.1% in 2023. And for the first time, we achieved positive GAAP operating profitability for the full year. We also generated $4.00 $3,000,000 of free cash flow up 24% versus 2023. We expect to generate $500,000,000 of levered free cash flow in 2025. In addition to our strong free cash flow growth, I am pleased with the progress we have made on stock based compensation. In 2024, SBC as RingCentral revenue declined over five percentage points year over year 14%.

Importantly, we reduced the value of net new shares granted by about 40% year over year. With similar improvements slated for 2025. This should set us up for another year of healthy free cash flow per share growth. Our strong financial profile and culture innovation puts us in a strong position to supercharge our product portfolio through AI. AI is a mother of all megatrends. And the future of RingCentral. In this new era, our vision is to empower every business with an AI first platform that not only connects but also enhances conversations between businesses and consumers. Thus driving better outcomes for our customers. This brings me to our exciting product announcement today. We just unveiled RingCentral AI receptionist [indiscernible] which we believe will deliver tremendous value to businesses everywhere. Building on our history of industry leading innovations, [indiscernible] is an innovative generative AI phone agent that is seamlessly integrated into the phone system.

It acts as a true digital employee. That enables our customers to do more with less. Kiera will provide more details about this exciting new product. With respect to our new product announcement last year, I am particularly pleased with the success we're seeing with RingCX. Our native AI first cloud contact center solution. We now have over 700 customers on Big CX, up from roughly 500 last quarter. This success is no accident. According to Metrigy, over 75% of customers prefer UCaaS and CCaaS from the same vendor to close silos and create more connected employee We are seeing it firsthand from our customers. A good example of the power of an integrated UCaaS and CCaaS solution is a large new customer win this quarter with Jetpack. A global advanced technology services and solutions company. Genpact has More than 25,000 employees serving over 800 clients. [indiscernible] 30 plus countries. Gentag selected our full communication suite across RingEX, and RingCX is a look to foster greater collaboration amongst both employees and clients, who are spread across many time zones. Importantly, Ring CX will be replacing cloud contact center solutions as JEMPEC looks to continuously improve and streamline their platforms. Another key reason why GMPAT selected RingCentral was our ability to deliver fully regulatory compliant UCaaS and CCaaS solutions across all 22 telecommunications circles in India.

Another important proof point offering CX's success is its adoption by our GSP partners. Most recently, BT has selected RingCX power CCaaS offering Joining Cox Communications Vodafone UK, and Zalu USA has GSPs that are now selling RingCX. We expect more GSPs We also continue to see strong traction with our other new product, 2,000 RingSense customers up over 65% sequentially. We also have 700 RingCentral Events RingCentral, up from about 600 in the third quarter twenty twenty four.

With this, we're already halfway towards reaching our goal of at least $100,000,000 in new products ARR by the end of twenty twenty five. [indiscernible] we closed out 2024 on solid footing. We look forward to continuing to drive profitable growth in 2025 and beyond. With strong free cash flow generation, and further free cash flow per share improved. I could not be more excited about our future. As we continue expanding our portfolio via our new [indiscernible] The opportunities ahead us are huge, and we have the right people product and partners to take us to the next level. With that, let me turn the call over to Kiera to discuss our product and go to market [indiscernible] Thanks, Vlad.

It has been an exciting journey to be at RingCentral since P IPO.

And I'm excited to drive the next phase of our growth with responsibility for our product and technology organization direct and channel sales, customer success, marketing and operations. What has always been my guide is listening to our customers and partners.

This shapes our strategy and innovation.

And here are my key priorities. First, Build upon our UCaaS leadership, infusing AI across our entire portfolio, Second, expand TAM through our multi product portfolio [indiscernible] our native AI powered CCaaS solution. Third, drive profitable growth and improve customer engagement across our entire [indiscernible] Now let me share more about each priority. First, build upon our U. Test leadership in fusing AI across our entire portfolio. We have built a leading business communications platform Customers choose us because of our market leading cloud business system. Which also includes text, collaboration, fax, and video capabilities. Which are built on a secure, compliant and highly scalable global open class These are key differentiators a competitive advantage for us. We are recognized by numerous industry analysts such as Gartner, IDC, and Frost.

One of our largest wins this quarter is an international public [indiscernible] that purchased over 10,000 RingEX seats RingCentral enables them to replace their legacy voice system with our leading [indiscernible] that will connect their large network of locations on our unified platform.

We're also seeing that enterprise customers are choosing GreenCentral to complement the use of Microsoft Teams messaging NVIDIA. Teams customers turn to RingCentral for advanced enterprise grade phone capabilities. In Q4, we won numerous $1,000,000 TCV deals, or our integration with Teams was one of the key factors.

An example is a leading Australian retailer that purchased 6,000 seats of BringuiX to leverage our best in class voice capabilities alongside teams. Looking ahead, we have an unprecedented opportunity to expand our leadership in voice with AI. Voice continues to be a dominant and preferred mode of customer communications and an untapped opportunity for AI to automate and create unique customer experiences.

We are focused on infusing AI across our entire product portfolio. Starting with our flagship product, Ping EX, we are building and delivering an AI powered solution every phase of the voice conversation.

Before during and after the call. Today, we announced our new AI receptionist for Ring DX. [indiscernible] Air is a generative AI phone agent that is seamlessly integrated into our phone system. Air is an important step in our broader AI strategy. And a powerful extension of our U. K. S. Portfolio. It addresses the before phase [indiscernible] While giving businesses the ability to do more [indiscernible] Customers like dental offices, restaurants, or repair businesses they now have their own digital employee to handle invalid phone calls answer urgent questions, provide directions schedule appointments, and route calls were needed. One early customer example of Air is Southswire. A leading manufacturer of electric wires and cables. They said handling call transfers across 67 locations use to slow us down.

IVRs [indiscernible] Live agents were costly and hard to scale while maintaining The essential AI receptionists changed that. It now answers call understands caller intent and transfers them to the right person instantly. We're reducing costs significantly. While maintaining service quality, reducing this [indiscernible] it's like having a 20 fourseven receptionist at a fraction of the cost. Next, for during conversations, last quarter, we announced AIS System [indiscernible] It captures notes generates conversation recaps, and summarizes actions enabling employees to focus on their conversations. While AI takes care of the rest.

We're seeing good early traction and positive customer feedback. For after the call phase, [indiscernible] automatically scores calls generates coaching insights and provides scope performance metrics that empower businesses to improve how their employees engage with customers. We now have over 2,000 customers on GreenSense, up over 60% The initial customer feedback we're seeing from our AI solutions for RingX underscores the growth potential and shows that AI innovation applied to every phase of conversation is a catalyst for better business outcomes and improved productivity for our customers. Second, Expensem through our multiproduct portfolio led by CX, Last year marked the first full year of us selling Green CX. And I'm proud to say that our team has delivered strong results that exceeded our initial expectations. Many of our customers are choosing native GreenGX because it is seamless integrated with GreenGX and is easy to use and simple to deploy. Building on these strengths, last year we rolled out [indiscernible] AI quality management for BMCx customers This solution automatically scores BMCx and identify scotching opportunities In fact, we're seeing more than 50% attach rate AI quality management with Ring CX, This is a strong proof point of the demand and increased wallet share.

A good example of our multiproduct wins in Q4 is ECA Global Logistics. A Forbes top 200 private company and a leading provider of technology enabled transportation and supply chain management services. They selected GreenCX and AI quality management because they wanted to seamlessly connect their employees and customers. While also providing the insights they needed to scale more efficiently. Echocobal describes FinCentral products as more intuitive, and easier to use compared to other solutions. Third, I am focused on driving profitable growth and improved customer engagement across our entire business. I intend to apply rigorous discipline with a metrics based approach use of AI tools, to optimize the business for our next phase of growth. This includes people, [indiscernible] And Technology. In summary, I'm excited to lead GreenCentral's go to market and innovation in this new era of AI. Stay tuned for more updates at Enterprise Connect in Orlando next month. And for those who can, please join us in our product session for investors on Tuesday, March 18, at Enterprise Connect.

With that, let me turn it over [indiscernible] Thank you, Kiara. I'm excited to be here on my first earnings call as RingCentral's RingCentral CFO. In my first ninety days, I'm very impressed with the strong prospects and financial profile of the company, 2021 to 2024, we have tripled our operating profit and grown free cash flow from $80,000,000 to $4.00 $3,000,000 representing a CAGR of 72%.

During this time, we have returned over $700,000,000 to investors via buybacks plus reduced stock based compensation driving a basic share count to 2020 levels. Moving to Q4, we delivered strong results with all key metrics above our guidance range and record free cash flows. Total revenue of $615,000,000 up 8% year over year was above our guidance range. EBITDA increased to approximately $2,500,000,000 up 7% year over year or 8% on a constant currency basis. Large scale equity was strong with us signing over $30,000,000 plus TCV deals with strong Ring CX attach, This is a testament to our multi product strategy with customers now purchasing more products from us allowing us to gain a larger wallet share, Our new products are also showing good early traction with our small business customers driving its ARR growth of 7%, or 8% on a constant currency basis. Which is an acceleration over the last three quarters. Now moving to profitability, I will be referring to non GAAP results unless otherwise noted. Subscription gross margin was 81% overall ARPU remained above $30 Please note, we do not intend to share this metric going forward, as it is no longer a meaningful indicator of our performance as we transition into a multiproduct portfolio.

Operating margin expanded approximately 100 basis points year over year to 21.3% which was above our guidance. This was driven by disciplined spending, especially in sales and marketing and where we expect to drive further incremental improvements. Notably, we also reduced stock based compensation as a percent of revenue by almost 700 basis as a result of disciplined new grant activity. This along with improvements in operating margin resulted in us achieving GAAP operating profitability Moving to our cash flows and balance sheet. Our strong operating performance combined with increased rigor in driving efficiencies and working capital improvements resulted in record quarterly free cash flow of $112,000,000 up 19% versus last year.

During the quarter, we also repurchased approximately 2,200,000.0 shares for $77,000,000 Now turning to the full year, we delivered another year of strong revenue growth turned GAAP operating income positive and reduced our fully diluted share count for the first time in our history. For the full year, we drove meaningful improvement in profitability while continuing to grow. Our 2024 revenue increased 9% to $2,400,000,000 Operating margin improved by 200 basis points to 21% and we generated over $400,000,000 of free cash flow up 24% year over year.

In addition, we also drove a material reduction in stock based SPC as a percent of total revenue declined to 14% down from 20% in 2023. Moving to our balance sheet, we repurchased approximately 9,700,000.0 shares during the year for $322,000,000 resulting in the reduction of our diluted and basic share count. Our Board recently approved an incremental $100,000,000 in share repurchases this brings our total available authorization to approximately $270,000,000 We also grew EBITDA 17% to $590,000,000 reducing our net debt leverage ratio to 2.2 from 2.6. Before providing guidance, let me share our framework with you. Approximately 85% of our business is UCaaS, Consistent with the last few years, we expect to maintain our leading UCaaS market share of approximately 20% based on Synergy Research's latest research report. With respect to CCaaS, We are seeing strong adoption of our new RingCX product which is expected to more than double in revenue in 2025. While its aggressive pricing impacts the top line in the near term, it is a higher margin product and net accretive on a unit economic basis due to our full technology ownership. The Ring CX is also simpler product and easier to deploy thus necessitating less professional services Additionally, we are seeing less hardware phone sales because our app adoption is continuing to take share.

Both of these items affect the top line but not the bottom line as they are low margin businesses for us. Regarding capital allocation, we remain committed to delevering the balance sheet and reducing our gross debt to $1,000,000,000 by the end of twenty twenty six. With this, for the full year, we expect subscription revenue to grow approximately 5% to 7% year over year, or 6% to 8% on a constant currency basis.

Total revenue to grow approximately 4% to 6% year over year or 5% to 7% on a constant currency basis.

Operating margins of approximately 22.5% representing expansion of approximately 150 basis points. Stock based compensation of $300,000,000 to $310,000,000 representing approximately 12% of total revenue down from 14% last year.

The value of net new stock grants are expected to decline about 40% year over year will result in further SPC declines going forward. Non GAAP EPS of $4.13 to $4.27 representing approximately 14% growth at the midpoint our non GAAP EPS estimate is based on a fully diluted share count of $93.5 to $94,500,000 Free cash flow of $500,000,000 to $510,000,000 up 25% at the midpoint versus 2024. For the first quarter, which has two fewer days than Q4, we expect subscription revenue range of $587,000,000 to $592,000,000 representing year over year growth of 5% to 6% or 6% to 7% on a constant currency basis.

Total revenue of $6.00 $7,000,000 to $612,000,000 representing year over year growth of 4% to 5% on a reported and constant currency basis. Operating margins of 21% to 21.5% non GAAP EPS of $0.93 to $0.97 based on fully diluted shares of $0.93 to $93,500,000 Our strong financial profile provides us with many capital allocation options We plan to generate $500,000,000 of free cash flow in 2025 combined with $350,000,000 of incremental capacity on our term loan base and $225,000,000 on our revolver, we have over $1,000,000,000 in available capital. Given our projected internally generated cash flow, and external sources of liquidity, we believe we can extinguish our 2025 convertible notes which we expect to pay off with available cash in the next few weeks. And have the capacity to also address the entirety of our remaining 2026 convertible notes on a timely basis as is contractually required. In summary, let me conclude with four key takeaways. [indiscernible] we continue leading and holding market share in a mission critical segment of Business Voice Communication. Two, our new AI first products are all growing strong double digits sequentially. Three our new President and COO is a proven innovation leader committed to growing our overall TAM.

Four, we expect to generate $500,000,000 of free cash flow, which will allow us to reduce debt repurchase shares and invest heavily into innovation. With that, let's open the call up to questions.

We will now begin the question and answer session. And your first question today will come from Kash Rangan with Goldman Sachs. Please go ahead.

Hi. Thank you very much. Congrats Kiera. Congrats, Abey, on taking over your positions.

Respectively. And one for you, Vlad.

You had a slide in your presentation about market share RingCentral is still top of the heap. Looks like the market share seem to be stabilizing roughly after a period of moves here and there. So what are we to make of that market share presentation Is this a sign that you 85% of your revenue comes from UCaaS, another 15% is in growth areas. Does this set you up to re regain market share from this point going forward? And one for you Abay, congratulations on I think it's your first public company CFO position.

What imprint do you bring to bear based on your prior experiences you've been at high growth companies like AWS, you were at Autodesk, you were at Cisco and prior that you were an amazing self-service software end. So what what do these experiences bring to bear to you as you approach your CFO job and how does Abhay add value here? Thank you so much. Great, Kash. Thank you. And thanks for the questions. Okay, look, regarding market share, very happy you asked. Because I tell you, we've been hearing this persistent rhetoric that RingCentral is losing market share and in particular losing to Microsoft and Zoom. That is simply not the case. And now we have third party data that makes this case very clear and I think without any [indiscernible] RingCentral has been a 20% market shareholder plus or minus a few basis points. For the last number of years four, five years plus. [indiscernible] was the risk motion in the marketplace is smaller players as a whole are getting weaker. We are holding our own You can look at the chart and the data we've provided. This is from a third party synergy, which [indiscernible] known, I think, respected industry analyst As far as people, who are actually paying for their business phone service through the cloud, We are in the clear lead.

We have been and we have every intent of continuing our lead.

We would very much like to But I have to say that 20% in the competitive space is not the worst position to be. It is holding steady. Regarding new products, look, it's very, very early to speak of us of market share at this point. But our new products are growing in strong double digits if not better, sequentially quarter over quarter.

So we are very, very happy with the progress they made. They're making. We think that there is a huge opportunity and this opportunity is I would say, twofold and it's unique to us. At RingCentral. RingCentral and this is not necessarily in order because it all goes together. But one is UCaaS and CCaaS combined together into a single suite. We had early success with it.

With an OEM based approach we've built a sizable base We are sitting on a very sizable RPO from that base. We've also gained tons and tons of experience as far as what it takes and what is really needed. By those customers that value employee communications and their customer communications to come from the same vendor. Which I think as we've noted, third party research suggests that it's well over half of companies have actually I think MetroG said was 65% And we have some other estimates from other analysts that are higher than this. Again, Cisco, Avaya of all have been selling their UC and CC together.

And we know that there is a very healthy appetite for UCaaS and CCaaS together. Okay? So this is one angle.

We believe we are best positioned to satisfy that demand through a combination of partner based, but now also in house developed products. Okay? The other leg of the stool is AI. And I don't know if I knew if you had a chance to catch my CNBC interview. Just about half an hour ago, But this very question was asked and I'll repeat the answer, which is we, RingCentral, we are the global leader in UCaaS. We have hundreds of thousands of customers millions upon millions of seatsend users and we're moving billions of minutes of voice traffic through our network. Voice continues to be the dominant means of communications and preference between consumers and the brands that provide okay? And GreenCentral is in the absolute world position in satisfying that demand. So what this means is that we are in a very good position to take the advances and promises that AI has to offer and deploying it across the base. And just today, we introduced RingCentral AI receptionist. We call it AIR. It's not Nike Air, it's RingCentral RingCentral. And RingCentral Air we believe is the first close integration between a major service provider and an AI receptionist digital employee that will answer calls, that will provide directions that will block spam, very importantly, will direct calls not just based on a name or extension of an employee, but based on context of what's being said, Please connect me your collections department please connect me to your shipping department.

Those types of questions We know that with Southwire, for example, the customer we've highlighted, the customer we are able to save them substantial Time and money, effort and most importantly, make them more productive through this product. So very, very excited about that. And maybe to preempt your next question or if somebody would ask, yes, we absolutely see this as a paid add in at this point. We think we're delivering value digital employees, are a lot less expensive than physical employees and that will simply free up people for doing what people do best but yet businesses can save money, time and become more efficient and more proficient with their customers. So future is bright.

Thanks Kash for your questions and the congratulations. Really appreciate them. And also thank you for listing my CV. Yes, what I've it's been great to be here.

And what I can see similarities with all the companies and differences is the pace of innovation here. We have a really strong pace of innovation and that's kind of showing up in some of the AI based products that we're launching. So my experiences from other companies are going to really be helpful in driving profitable growth here. We've come a long way in improving efficiencies and also improving the balance sheet we have. And we think we're going to continue to build on the strong foundation financial foundation that we have to keep driving free cash flows higher So a lot of those lessons that I've learned in the other companies are going to be highly valuable here as we drive innovation, and keep improving on the on our debt leverage as well as free cash flow generation capabilities. This is Kiera. And I think as I outlined a lot of the answers to the that you have. And just to double down, our continued base of innovation, we announced a number of new products over the last year. And they are just now and we'll continue to look to drive forward and build upon market share that we have today.

That is outside question today will come from Siti Panagrei with Mizuho. Please go ahead.

Thanks for taking my question. Again, Congrats, Awe and Kiera on your first earnings call as a new role.

So I want to ask definitely Zvi exciting to see the RingCS adoption doubling revenue And you talked about some of your, I think, Genpact and some of those large deals. Help us understand like what kind of e sales like they are doing using it? And in terms of the CCaaS, how are you positioning now, Brink's versus NICE?

And then another there and you guys didn't disclose CCAS ARR, what was that?

End of Q4?

Yes. Great.

Great question. Let me Let me take at least some of that and let Abeyas financial partners. But look, RingCX, we introduced it last year. I think I already mentioned it's doing well and exceeding our expectation. It's addressing a wide swath of markets It has good traction and it was specifically designed to be seamlessly integrated, AI first, And very importantly, easy to deploy, use and manage It's also priced aggressively. So short summary is it does very well down market. Where we were less successful with our prior products before. But I have to say, it's also play quite well in the market. And Genpact is just the latest example. But we do have a number of thousand seat or so accounts that are choosing RingCX for those reasons. That I've mentioned. Having said this, it's great to have a full quiver We have BrinkCS as our homegrown products. Certainly, we are putting much muscle behind it. For obvious reasons, owner economics, control of the roadmap, much better quicker ability for us to serve customer needs that we are hearing directly. We obviously have our original product powered by NICE that has been a very, very successful partnership and a very [indiscernible] It's been in the we've been doing business for about ten years.

We've built a substantial base. We're sitting on a large RPO from that base. And we believe that by and large, that base is going to be satisfied by one of the products in our portfolio at least.

Least.

Now having said that, we have other partnerships I think last quarter, I believe, we've announced a Verint relationship that's again, it's early. But early signs are quite promising. We are beginning to adopt it within our own company. And we are a large company, if you will, with a sizable contact center. We're a good use case. We're also building a pipe with Variant based products. And it's early, but there is a definite interest So we absolutely expect to be making hay there. But I got to say, we have other partners Whenever we don't have in house technology, and it's a very dynamic market, nobody can own it all really. We have a number of other folks we're doing business with. And we expect that to continue as well. So overall, it's customer first. And over years, I believe, we have clearly proven our ability to deliver to the market. The exact combination of products and technologies that's needed for the moment.

Yes. And thanks, Trudy. Essentially, our CCAS kind of grew in low double digits. In the quarter. But as Vlad indicated, we should be focused more on what's driving it out of new product CRR. And RingCX is the biggest driver of our new product ARR, which we just mentioned to you. It's over $50,000,000 as we call it and we are well on our track to deliver on our our 2025 target of at least $100,000,000 To clarify what we disclosed is our new products are $150,000,000 and it's led by RCF. And also just to remind everyone, [indiscernible] Ring CX, while it is fantastic for our bottom line, On the economics, it is priced aggressively in the market. And top line, may be impacted because of that. This is something we flagged last quarter as well. August as we're now guiding for the year. We took all of those considerations into account. But and we absolutely are positive that having our own AI first contact center product is exactly the right thing to do. But again, really don't want people to fixate on our overall CCAS revenue at this point. But look at the growth of our of our new products and CX and also very importantly our emerging AI portfolio.

Your next question today will come from Ryan McWilliams with Barclays.

Hey, guys. This is Damon on for Ryan. Thanks for taking the question. At a high level, how should investors think about quantifying the potential impact to results from the prioritization of Brink CX for SpringCentral's RingCentral partnership?

I mean, it's all in the guide.

It's all in the guide. I think we already said it a few times now. There is a base This base is largely under contract. Actually, I would think I believe it's exclusively under contract, but let's take this larger for the record. There is a large RPO. So people are in contracts and with payment stream guaranteed, you all know what RPO means. And as far as puts and takes, there is a guide.

Got it. Thanks a lot. And then as I can you help us understand the non GAAP operating margin progression throughout 2025 just what's driving the operating leverage that you expect in the latter half of the year? Thank you.

Yes. Thank you. Most of the improvements in the cost structure and the discipline spend that we have You've seen us deliver that over the last few years. We've delivered we've nearly doubled our operating margin in the last few years and you should expect a similar discipline to continue. And during the year, some of the work we're doing internally to optimize our cost structure using AI to bring in more efficiencies. Some of the stuff that Kiera talked about a lot of those all of those are going to generate margin leverage as we go along the year.

Your next question today will come from Brian Peterson with Raymond James. Please go ahead.

Hi, guys. Thanks for taking the question.

As we're thinking about ARR, I think a lot of investors look at this sequential change in that metric as a method to just track kind of the overall business activity? I know FX was an incremental headwind. Is there any way to look at what that figure would have done adjusted for FX? Or is it just fair to maybe take a 100 basis points out of the year over year? Any help on how to look at that?

Yes. I think you're thinking about it the right way. We called out about one point. So it was actually about a $30,000,000 impact from currency here. So you can make the adjustment that was the biggest factor there. The other element is what Vlad talked about the RingCX doing really well. So when you adjust for all those things, you can see our performance was relatively in line with the last few years.

Great. And Vlad, maybe just one for you. As we think about the incremental GSP partnerships, how do you think about the importance of that channel in the go to market motion going forward?

Thanks, guys.

Yes. No, Sensorat asking. Look, our GSP practice, we believe is up industry. There is simply no one I can think of in our segment that has nearly the depth and breadth of relationships and proven success with the GSPs that we have. Very importantly, we are seeing these GSPs also buy in and line up behind our multiproduct portfolio strategy and in particular we have a number of major service providers and we have just now, I think, today or yesterday announced that British Telecom is the latest is the largest partner to do this. So they are now reselling RingCX. This is by and large net new okay, to that entire industry. But they're also seeing an opportunity with their very, very large installed bases. To expand the reach to offer more value So I think GSVs are great for our core UCaaS business. They will be pivotal in making RingCX RingCentral Air, our AI assistant, RingSense, our entire portfolio we absolutely expect to sell not only directly and so the traditional channel, but via our GSP partners as well. And this is in this new and unique positions that I don't think anyone else can Your next question today will come from Meta Marshall with Morgan Stanley.

Please go ahead.

Great.

Thanks.

Maybe building on kind of that last question. Just obviously getting leverage out of the global service partners on kind of selling the multiproduct strategy. But just are there any additional kind of go to market investments or kind of more direct kind of overlay sales that you'll have to kind of sell some of the new portfolio that we should be mindful of going throughout the year? And then just as a second question, if we think of sources of upside potentially during the year, does it come from exceeding that $100,000,000 ARR target on kind of the new products or more kind of stability on the RingEX product? Thanks. So Jaime, on the on the new products and specifically as we take these products to JSPs and and all our other partners, strategic partners We already have a number of JSPs that are BT Release just went out yesterday, are taking Link CX to market. Vodafone is Cox is in the process. Zia, we announced. So we are seeing what we haven't seen before as we are relatively new to multiproduct portfolio, a native multiproduct that they are adopting all of our products and very eager to adopt more and that includes air that we announced today and that will include every single AI base station that we have planned for 02/1945 and there's a number that's in the pipeline.

And we'll be announcing them as they come out. Of course, including a number of AI enabled add ons that we have, for example, with Zringi X such as our [indiscernible] for RingCX Quality Management, which helps agents be more productive and gives management the dashboard in better way to manage agents. Those are just a couple of examples. And what was the second part of your question?

Just on sources of upside as think about the year, would you think of those coming from kind of beating the $100,000,000 ARR target around new products or kind of more stability growth on the EX side?

Well, I think it's kind of a combination of both. It's new broad with exceeding 100,000,000 ARR that we have good visibility into of already. And also being able to sell new products into installed base, which is frankly a relatively new motion for us And we're seeing early sex not monetizing that [indiscernible] We're seeing very good adoption and customers like users like the product. They complement us on the quality of the product. So expect us to then everything that's out there that's that is not even monetizable today, we will be adding capabilities to So we'll call it in a category of new products. But they really fit across our installed base. And so we expect that to accelerate. I mean, I think last time [indiscernible] our future in terms of adding new capabilities led by CX, but augmented by many AI capabilities which is what customers expect today from us and we'll continue to innovate and lead there.

Your next question today will come from Michael Funk with Bank of America. Please go ahead.

Yes. Thank you for the question.

Maybe this one is for Vlad. But we've seen some very divergent results in the last week or two across the space in terms of the actual reported and then and then guidance as well. So hoping to put your your guidance for the year in the context of market growth, right? For CX. And that implies market share gain, and then in which areas that it does that you believe that it implies market share gains? Well, I mean CX is most definitely taking share because market is not growing strong double digits like I say quarter over quarter. So of course, [indiscernible] Both at small and I think it's a little early to speak of market share for CX. But it's a product that's well received It hit a nerve It's not a niche product because that's I think already indicated. It has a number of customers. Of all sizes and the latest large win with Genpact shows that it is quite capable of hunting upmarket as well. Having said that, look, there are more fully featured products out there. So we're not trying to measure them off feature for feature. But we went for ease of use, ease of deployment.

We went for ease of ownership, which includes but is not limited to the price point itself, Very, very importantly, it's a NextGen product that's been put together in the era of AI. So it works very well with AI AI some of them are plug ins, and some of them are core features. But things that we can do with RingCS before call, during call, So AfterCall would be RingCentral, CFs for example. [indiscernible] agent assist for CS by way of example. So those are all well received. It's an investment that took us a few years to bring to market But once we did, it's doing well.

And then you mentioned mid market, Vlad, some of the B of A Data credit card data is showing some relative weakness and in midsized business based on spending and hiring. Does your guidance in caps like conservatism or the midsized business market or other factors?

Yes. Well, look, I think we specifically called out that we're seeing stabilization in small business. I know you're saying mid, But let's start with small. And that's actually been doing well for us and we're optimistic it will continue to do so.

As far as mid adopt, look, I mean, we are seeing our our acquisition patterns. We're seeing retention patterns. And yes, look, you can't you can't run away from the fact that there is still macro out there which is not quite certain yet. We've experienced some currency headwinds as well. I mean, not we, but everyone's head. All I can say is to the best of our ability, we put it all together. And this is a guide we provided. We feel good about our ability there. But very, very importantly, nobody has asked this question I don't want to lose track of this. Is one thing we do control a lot better is is the cost side of things.

And we've had really very, very strong margin expansion and free cash flow generation, but this coming the first year that will do over $500,000,000 of levered cash flow We feel very good about that. We are able to do this as we're growing. The top line And as we are drastically, drastically decreasing stock based comp SBC, So put it all together, and our earnings per share story is beginning to shape up quite well. And we believe there will be continual strength there. And look, there is markets wise, there is good weather, there is bad weather, eventually everything preverts. Once economy turns [indiscernible] we should be doing even better. We have not baked that into our guide, let's put it that way. One thing I do want to add about the guide here is that keep in mind, there's about one point of currency headwind that we've talked about. And the other revenues also has an impact on our [indiscernible] Just if you adjust for all that in your models.

Your last question today will come from Ryan Koonz with Needham. Please go ahead.

Great. Thanks for the question. Appreciate the color on your EX position there and how CXS traction down market. Could you maybe also reflect on some of the traction you have with some of your new products you're talking about as part of your new product rollout?

Yes. Well, overall, I think we said we are at a bit over $50,000,000 in ARR with the new product. So that makes us a bit better than halfway towards the $100,000,000 mark or target that I set a year ago we feel really, really good about this. To be already a bit over halfway there. As far as color is concerned, well, Brink CS being a new product, I think we already said that in the enterprise, for example, where we had a really, really good quarter with over 30 deals with $1,000,000 TCV or better. RingCX attached was over 50%. So this is one good measure. We are also seeing very strong attach of AI add ons within RingCX with RingSense being over 50% attached to RingCX. As an example, okay? As far as the white base is concerned, Look, it's very, very early. We are seeing early results, early traction with our various AI add ons But in fact, the one that I'm personally extremely excited about which is RingCentral Air, we've introduced today. So we already have some very, very heavy customers with it. We've highlighted Southwire, which is a sizable company.

That's able to save quite a bit of efficiencies with this product, but it's early. I have to say that for the guide, on this.

We took it down the middle. I would not say that we were overly aggressive at this point. These things take time and people need to get look, we got what's of customers and people need to get to this technology and learn what they can do with this new tool. But it will happen. And very importantly also, we ourselves are using we are eating our own dog So we are using all of the stuff in house And we can see firsthand the type of improvements this technology brings and Kiera maybe you can provide some more details here. Yes. Just on deploying internal in CX and Inference in our own contact center, we're seeing basically improved agent response rates improved just call wait times and just ability to simplify workflows. Which we were able to do even within our own contact center. And in terms of order shows in terms of efficiency, overall, we're seeing something on the order of 10% to efficiency and moving upward from there. And that's a good benchmark to take to our customers as well.

That's great, Paul. I really appreciate it and look forward to learning more of Janna Press today.

Thanks so much. Thank you. That concludes our call