RINGCENTRAL, INC. Piper Sandler 5th Annual Growth Frontiers Conference
Review the key takeaways and the transcript of this earnings call.
Transcript
Preview the first fifteen paragraphs, organized by speaker.
All righty. Good afternoon, everybody. James Fish with Piper Sandler, and now we start the afternoon post-lunch. Hope you had a good meal there. With us, we have Vivek from RingCentral.
Thanks for joining us. Thank you for having me here.
My first time, so looking forward to the conversation today.
Yeah. We turned up the temperature for you outside, so it is a little hot out there now. But one of the questions that we are asking everybody, just to kick things off, is just the health of IT spending and what you are seeing. And you guys have this unique view in the sense of you have some large customers as well as down at the SMB kind of level. So I guess, what are you seeing on IT spending, and how is AI impacting how budgets are flowing?
Yeah. That is a great question to begin with. So look, IT spending from what we are seeing remains healthy, is growing at the macro level. I think the color underneath is AI is definitely becoming a larger share of that budget, the existing budget and incremental budgets, if you will. I think what we are seeing is that customers are incrementally looking at solutions where they can drive real ROI. I think customers are beyond the experimentation phase, so they are looking for solutions that can drive outcomes, drive productivity, they can measure ROI. And then the third trend that we are also seeing emerge is customers want to buy AI from existing software vendors versus having to put point solutions together. And those are some of the trends we are seeing in the business frankly. Our demand is stable. No material changes in sales cycles.
We anyway play in the communications and customer engagement space, which is mission-critical for our customers, and AI is rising to be a priority within that. That plays well into our strengths because for us, AI is natively integrated into our communications platform, and we are applying it through the entire journey of the communications life cycle. Overall, trends remain healthy. Demand, sales cycles are remaining healthy, and customers are increasingly focused on buying AI.
Yeah, makes sense. I want to get to AI in a few minutes here, but one of the things that seemed to pop up here on the off-calendar earnings cycle was this notion around SMB top of funnel. As I said, you guys have a decent viewpoint into how SMBs are thinking about it. What are you seeing in terms of how SMBs are acting differently, potentially? How you are approaching that side of the market in terms of website traffic being impacted by AI and this sort?
Yeah. Certainly there is an evolution in terms of how customers are discovering and evaluating software now with the lens of AI. We are evolving our investments and broadening our investments from the traditional, call it, search engine optimization, and we are investing or reallocating spend into making branding and content more available for AI-led search. Having said that, in our case, we have a multifaceted customer discovery process and motions wherein we go through the, obviously the search engines and the AI tools, but we also have a direct motion. We have a large customer base where we can go and upsell, and we have a large network of channel and global service carriers who help us get to the customers.
In our case, while we are evolving the way we are discovering and reaching the customers, we also have a multifaceted motion. In fact, the SMB portion of our business is growing in double digits. There is strong demand, and it is a highly optimized motion for us. It is almost a rule of 40 business.
Got it. One of the more exciting parts, I think, to the RingCentral story here is you guys have 600,000-plus customers. Meanwhile, you have a couple of new, I'll say, toys to play with between CX or AIR. How should we think about that opportunity, that white space opportunity within your install base? What sort of penetrations you and the team are kind of thinking about, not just for this year, but over the next couple of years here?
Yeah, no, we are very excited. Look, one of the metrics we had disclosed at earnings was the cohort of customers or ARR of customers that have bought at least one paid AI product is 13% of the total base. So our total base is, call it, $2.5 billion-plus, so that mathematically gets you to $350 million odd. I guess there's a couple points there. The first point is, we are very early on. It's only 13%, so by definition, there's a long runway to be had. We are still in the early innings. The reason we provided that metric was to show the AI penetration, the customer adoption. To my earlier point, I think what we are seeing is customers are moving beyond experimentation now. They see real value in our products.
They see value in AI being integrated and tethered to a platform versus having to stitch together multiple point solutions, if you will. So they are seeing the benefit of that, and therefore they're willing to pay for it. Within that cohort of customers, we are seeing higher net retention rates, higher ARPU, and it's being driven by the AI uplift for the most part. So we are seeing that. So there's a lot of runway ahead of us. We are still very early on. While AI is contributing to our growth today, it's growing off a small base, and it's small relative to the overall size of the business.
So our expectation, and where we are working very hard, is to come out with products, innovate, and come out with a product suite that can address real use cases for customers so that that AI adoption grows, and over time, it'll become a more meaningful contributor to overall growth.
Yeah. Is there a way to think about how much AI is an uplift here? The crux of my question is, we are getting this feedback as to if you take the 13% versus this point last year, the rest of the business seems still growing, but kind of flattish. How much of an uplift are we getting there and additionally, how do we balance the growth between AI versus that core business?
Yeah. Both sides of the business are growing. The core business is growing in line with the market. We are continuing to maintain our number one market positioning in the UCaaS space. AI, the AI product portfolio is growing faster than that. It is a question of mix. The core product is about, call it 80% of our business. The AI products are still relatively young and still early in their contributing cycle. As adoption grows, as they become a bigger part of the mix, they have the potential to take the growth profile of the company up.
FULL TRANSCRIPT
Continue the full translated transcript in StockNow.
Access every statement, the English original, and speaker-by-speaker history with StockNow Pro.
View the full transcript with ProCall participants
2 people spoke on this call — only 1 are shown here.
PARTICIPANT LIST
View participant details in StockNow.
Log in to see executives and analysts, their roles, and complete speaking history.
Log in to view all participantsKeep exploring