Hello, everybody. Tim Horan here. I am the Communications and Digital Infrastructure Analyst here at Oppenheimer. Good afternoon, everybody. My pleasure to be hosting RingCentral once again. RingCentral has been our top pick, luckily, the last few months. Hopefully, many of you have read our research. We think for a few reasons. It's a fairly amazing turnaround story that was incredibly undervalued, but we still think it's very, very undervalued. Luckily, we have a CFO who I admire and respect quite a bit. Vaibhav has been talking to me for years and years, and when we were a little bit concerned with some of the trends, he was a gracious gentleman. Now that we've gotten substantially more positive, he's still a very gracious gentleman and has answered all my questions and been incredibly professional and very knowledgeable. Vaibhav, how long have you been at RingCentral now? I know it's been a long time. Yeah. Thank you, first of all, for giving me the opportunity to join the fireside today, and thanks for the kind words. I'm finishing up on my 10-year anniversary here at RingCentral in July, actually, as we speak. You know basically more about the industry and the company than almost anybody out there, and I know you worked your way up from the bottom up, and have, frankly, we'll get into it, but amazing turnaround in the free cash flow generation, and we still think there's quite a bit to go. At the same time, we're starting to see a pretty amazing grassroots turnaround in the revenue and in the product. We'll get into that. One of my big thesis, when I got a lot more positive on the stock a little over a year ago, was the fact that the utility of business voice lines, thanks to AI, is improving dramatically. I think the usefulness for people, and I think the willingness to keep business voice lines, grow them, and pay more for business voice lines because the utility is going to improve pretty dramatically. You guys are at the center, really, of applying AI onto business voice communications. Can you give us your thoughts on what you've seen so far, what AI is just meaning for the overall industry and business communications? Yeah, absolutely. Look, business lines have always been mission critical in our strongest verticals like healthcare, financial services, retail, and others. If you look at our daily lives, whether it's a healthcare provider, whether it's a financial advisor, whether you're calling your gym or a furniture store, generally those interactions are still happening either through a call or a text message on a daily basis. I think AI, what we are seeing is that AI will make business communications more useful, not less, because it turns a business line from a simple voice endpoint into an intelligent customer engagement channel. Essentially that's what we've been doing over the last 12- 18 months is to transform from a pure communications company into a complete customer engagement platform so we can handle, or our customers can handle all form of interactions. Now, interactions today are very different than they were several years ago. Today, they are person to person, could be person to a non-dedicated contact center agent, could be with a dedicated contact center agent, and increasingly, we are talking more to AI agents. I think AI will frankly be a tailwind. It's a generational shift, and I think Vlad talked about this extensively at our prior earnings. AI is just making business interactions more and more kind of efficient, more intelligent. This handoff between humans and agents is kind of incredible. I think Vlad coined this term, humans in the loop, and we are seeing that in practice on a day-to-day basis. Essentially net, AI will just increase the value of a business line because it'll become tied into productivity. It leads into better customer experience and better outcomes rather than just being a business line. I think that's where we fit in well with our broader strategy of bringing voice messaging, contact center, and AI together into one platform. And you are also doing this on an integrated, or I am not sure the right word, hybrid, where you can either get it on your smartphone or your business phone or your soft phone, almost any different device. A little bit like over-the-top television where you can kind of watch it anywhere. You are going to be able to use your business voice line basically anywhere. Can you talk about customer adoption of that and how important that is? Yeah. I think when you look at the genesis of RingCentral was to bring communications in the cloud. And what that meant was those communications or interactions were device agnostic, they were location agnostic. And obviously we went through the generational shift of internet, of mobility, and AI is this basically next shift. Here is what we are seeing. I think there are three trends, or maybe four trends that are very evident to us. Number one, voice continues to be a primary mode of communication in B2C settings. Like as consumers, when you want to reach your businesses, voice and SMS is the primary mode, and we are seeing voice traffic on our platform continue to grow. That is one trend, and we are acknowledged leaders in voice, so essentially we are Voice is going strong, and we are strong in voice, if you will. That is one trend. Number two is, there is also this buying behavior wherein we are seeing customers wanting a bundled solution with a single provider, wherein they can manage all forms of communications and can seamlessly transfer between humans and AI. Because with the humans in the loop, it is not either/or, it is both. AI is making calls more efficient, more intelligent. But for more complex, and judgmental type situations, you need a human. So customers want a singular platform versus, I think there is this fatigue that is setting in, wherein you could have a lot of applications from different vendors, and then it becomes eventually more expensive and difficult to manage. So customers are looking for one solution, which we are offering through our Customer Engagement Bundle. And again, to my earlier point, customers will be able to manage all forms of communications, whether it is with humans or with AI agents. That is the second trend. The third trend is, for AI to be successful, you need a strong infrastructure layer. We have built a telephony infrastructure layer over the years that is now trusted by over 600,000 customers. There is a lot of traffic that is flowing through the platform, so there are 40+ billion calls that are happening on an annualized basis, billions of, sorry, minutes and billions of calls and SMS messages that are going through the platform. So for AI to be successful, you need data, and that data on the system, as consumers, you are able to utilize AI from the get-go, and you are able to train your models on your own data. So that is the third thing. And the fourth trend is, customers need to see measurable ROI. So what we are seeing through our AI product portfolio, which we coined as three A's, AIR, AVA, and ACE, customers are seeing measurable ROI. Customers are using AIR to capture more demand. They are automating more repetitive work, like note-taking with our AVA product, and improving the quality of interactions through our ACE product. These products are all working in tandem with each other and improving on a daily basis. So I think those are some of the trends, Tim, that we are seeing, and those trends are getting reflected in the traction that we are seeing in our AI product portfolio. Yeah. It all kind of ties together, obviously, being able to communicate on any device, be able to communicate more effectively. That flexibility is fairly incredible. Where do you think we are in adoption of all four of these trends? What inning are we in? I think, from a market opportunity standpoint, it is still large. The market is large. It is still growing. I think Gartner estimates the whole market that is broken between UCaaS, CCaaS, and AI to be a $150+ billion market, and that is growing. So the market opportunity is large. We are seeing a trend wherein these disparate markets are now converging into a singular category of customer engagement. Again, it comes back to my prior point of consumers are looking for a singular platform for all of their interaction needs. Having said that, I think there is still a lot of opportunity for on-prem to cloud migrations, just on the core UCaaS side. There are still, by different measures, tens of millions, if not hundreds of millions of seats still on on-prem. What customers are realizing is that to be able to benefit from AI, they need to be on a cloud solution. I think number one, the on-prem to the cloud migration is continuing to be there. We are capturing our fair share of it, and we are adding new logos at a healthy clip. In terms of the AI adoption, we are still in the early innings. One metric that we disclosed was that the portion of our customers that adopt at least one of our paid AI product is about 13%. By definition, there's a long way to go, there's 87% to go. We are still in the very early innings of this. Our product portfolio, we've done a good job at releasing products at a very fast pace. The velocity has been high, and we've come out with a portfolio over the last 12-1 8 months that is showing a lot of good early traction. Yeah, I- Yeah. I think two years ago, the AI products were a little immature, the ones that I saw. Yeah. Uh-huh. They have improved dramatically, but do you think they will be substantially better in two or three years from now? Yeah, I think the velocity of development is very high, especially with the use of AI. Customer needs are evolving fast. I think what we are seeing is eventually everyone will need some form of AI. They will need AI agents to kind of sit alongside with humans and kind of make business interactions better. Customers will also need a productivity suite to reduce the manual work. Overall, look, the product set will continue to improve. We are spending over a quarter billion dollars in R&D spend on an annual basis, and a large majority of that is going into AI product development. The idea is not necessarily to come out with more products, but to keep improving the quality of the product sets and the features that we have through our current product set that we have introduced. Well, it makes a lot of sense, and I know you touched on ROI. Your AI Receptionist product, AIR, what type of savings can customers get, do you think? If they are spending $1 on you, are they saving, like, $10? Yeah, I think, look, it depends on the use cases. But the reason AIR, I think we have what, 16,000 customers now, growing almost 4x, the reason we have seen that kind of traction is the ROI is immediate and it is measurable. What does AIR do? When calls are coming in, and we recently had a customer from a healthcare institution that she ran, I think she spoke at our Analyst Day. When we spoke to her, the feedback we got was they were getting, call it, thousands of calls on a daily basis, and they had two receptionists. The two human receptionists cannot answer those thousands of calls, and then some calls are more important than others, so not everything is created equal. They implemented AIR, and by implementing AIR, they were able to filter out spam calls. AIR was able to answer some of the basic questions, like if you wanted to book an appointment, know hours and directions, AIR was handling those calls. Then it was really transferring on calls wherein patients needed more in-depth consultation. So what that did for this customer was they were capturing more leads, they were filtering out non-essential calls, and it was saving them, call it, millions of dollars in terms of not saving, but creating opportunities for millions of dollars of additional revenue, which they were able to then invest back into the business. We also recently ran a survey, and AIR customers told us that they are reducing their missed calls from roughly 20% to zero, and others cited saving thousands of dollars per month in savings. For a lot of businesses, these dollars are very big, and they're able to then take these additional revenue dollars and put it back into their business, expand their business, and maybe, yeah, expand into new areas, if you will. That's interesting. So what you're saying is maybe more of the benefits coming from many customers, it won't be obviously across the board, is coming from incremental revenue opportunities they were missing. Absolutely. Yeah. It's actually both in a way wherein our AI products are creating more revenue opportunities as well as cost savings opportunities. The revenue savings is the example I gave you from a cost savings perspective. As businesses are growing, they're utilizing AI, and therefore, they don't have to keep adding people costs or additional costs as they are scaling. So in that sense, it kind of helps them save costs. You are also using AI on the contact center side, and that is also extremely measurable. Just get back to the receptionist for a second. How much would it, I hate to put it this way, but instead of adding a new receptionist, that might cost me $70,000 a year. How much would the AIR cost me versus the $70,000? Our AIR is priced at $39 for 100-minute entitlement, so it is, call it, $0.39 a minute, if you will, less price. When you do a comparison to an equivalent human agent, I think the cost differential is big. Very good. Where do you think we are with penetration? What do you think the ultimate number of seats you can have for AIR? I think, again, it comes back to today we have the cohort of customers that is utilizing one paid AI product, which includes AIR, is about 13%, so there is a long way to go. I think there is a lot of opportunity, and the way we are addressing that opportunity is when we are acquiring new logos, our sales teams, our channel teams, and our GSP motion is all enabled to sell new products and AI. They are offering these AI products as part of new sales. We have a large customer support organization and a customer success organization that is pitching these products to customers in the installed base. As customers are coming up for renewal, we are also engaging into conversations around these products. Net, look, there is clear ROI. There are measurable use cases at customers that these products are able to address, they are seeing real ROI, that's slowly translating into the trends that we are highlighting. Sorry, Vaibhav, how much a minute is it again for the AIR product? $39 for 100 minutes, for 100-minute entitlement. Got it. That's list price. Is there term in volume discounts? Yeah. I'm sure depending on the volume that you're buying, there are discounts offered. Lastly, are you also finding that it's better than a human receptionist over time, and is it self-training as it gets used more? Yes, absolutely. Look, what it's doing for customers is two things. A, it works 24/7 versus a human receptionist is working like a 9:00- 5:00, right? AIR is doing, it's working 24/7, and it can handle multiple calls at the same time. It can handle several hundreds and thousands of calls that are coming in, and it can dispose of those calls and then transfer to a human as needed. In that sense, it can address more capacity, if you will. Secondly, it's training on these. It's constantly training, and our three products are constantly training together. AIR will also look at transcripts of the calls over time to see what types of questions customers are asking, and then it'll kind of improve its ability to kind of answer questions. Then it will also train off the ACE product. It'll look at, again, customer sentiment and deeper analytics from customer calls, and it's training so as to be able to better handle and address calls and deflect calls over time. This is almost like what you are describing is almost like a little mini contact center, which I know you are in the contact center business. Obviously, contact center would have a lot more capabilities, but maybe not. Are they converging over time where AIR might be able to tie into back-office data or databases? How do those two look over the long term? Yeah, I think there is a convergence that is happening. Again, it comes back to my opening remarks on there is a convergence that is happening across UCaaS and CCaaS in the sense that the lines are getting blurry, in that customers are looking for a platform, and there are a lot of cases in which employees are acting as non-dedicated agents. Then there are customers who have smaller contact centers, and then there are customers who have very large contact centers. So I think there is clearly a convergence that is happening across the industry. The idea is to have a product suite or a customer engagement platform that can handle all of these types of conversations through a mix of humans and AI together. The reason it is important to have an integrated platform is it is easier to do integrations. It is easier to transfer calls as needed. The handoffs become more seamless. The AI is kind of seamlessly embedded into the contact center work. So in that sense, it is kind of all the lines are getting blurry, and it is converging in that sense. Just while we are on the contact center, your pricing is substantially below what a lot of legacy carriers are charging, and in many ways, it has got better features and functionality. How are you able to do that? How is the AI improvements going there? Yeah. Look, we offer actually three products in the contact center space. Our product portfolio has evolved over time. Obviously for the very high end, where customers have dedicated contact centers and large contact centers that may be geographically dispersed and are handling a lot of calls, we offer our RingCentral Contact Center product through our white label relationship with NICE. Over time, what we also saw was this greenfield opportunity in some sense of customers who were looking for a much simpler contact center solution. There are a lot of customers who do not have large contact centers. They may have smaller teams, and they were looking for a simpler solution. That is where RingCX plays really well, and it plays well in two different ways. One, it is meant for simpler use cases, so it is easier to deploy, versus a full-on contact center can sometimes take 6-12 months to deploy these. The RingCX can be deployed within a matter of days and weeks and months, if you will, depending on the use case. So it is simpler to deploy. Customers who are requiring a simpler solution do not want to pay triple-digit kind of seat prices. That is why the pricing is the way it is. It is a lot more disruptive in that sense. The reason we are able to do it is, again, the power of the platform. We have the scale on our cloud PBX platform, so we are able to translate some of that scale onto the RingCX solution. Before we get off this topic, because I want to talk about some of the fears about the whole SaaS concerns out there, the SaaS business model. The AI assistant, or admin, I think you call it assistant. Are you seeing much traction there, and how are you pricing that product? Yeah. The AI, I think you're referring to the virtual assistant, AVA? Yes. Yeah. AI virtual assistant. AI virtual assistant is available to all of our customers as part of the core EX product. Essentially what the product does is, back in the day, if you and I were having a call or an interaction, we had to each take notes, and then we would go and follow up on those notes and do kind of things manually. AVA is essentially transcribing the call. It's taking action items and meetings, follow-up appointments. In a contact center setting, it's helping agents and supervisors get more effective. Essentially, there is an agent assist and a supervisor assist capability for agents as they are in the live call with a customer. The agent assist will help them answer calls in a better way by making knowledge articles and other kind of integrations available to them. For supervisors, it gives them the ability to kind of get real-time alerts and whatnot as the live call is going. Again, it's a product. The AVA for RingEX is not priced separately today. That could change in the future. But that's an example of where it's helping customers be more efficient and effective by reducing the manual wo rk. Will it filter calls for you, too? Will it know this is a priority call, I better let it through no matter what happens? That is more of the AIR product. I think AIR does that filtering, so it will filter out spam calls. It will try to answer questions and deflect calls and try to resolve calls, then to the extent needed, it will transfer it to a human agent, at which point AVA will kick in. Will those two converge over time? Because me, as just my regular business line, I would like to have all those capabilities, right? I think over time, I think our AI portfolio will converge into one broad, call it RingCentral AI category. The idea will be to provide customers with different skills-based agents so that they can create their own agents, they can address whatever use cases are important for them. Because again, different use cases are important for different settings. It will give customers the ability to do that. Just to bring up the negative for a minute. A lot of investors have been worried about, broadly speaking, the software will get disrupted by AI. Can you describe why you're maybe not in that same category? Top of mind reasons. Yeah. No, I think that's a great question. I heard the pause you had because even I'm not able to kind of pronounce that word, the SaaS apocalypse or however. Yeah, I can't pronounce it. It's being phrased. Yeah. But I think it's a question that we get asked a lot. I think there's a few different reasons why we believe we are uniquely differentiated. Number one is voice ain't going away. Voice interactions are increasing. Number two is AI is increasing the value of voice rather than replacing it, and it's a structural advantage for us. The future, to my earlier comment, is it's increasingly AI plus humans working together, not AI versus humans, at least in the near to the medium term. AI can automate routine interactions. It can assist live agents, analyze conversations while humans in the loop will be there for judgment and for more complex issues, right? So that makes the communication layer a lot more valuable because businesses will continue to need to orchestrate those conversations seamlessly across humans and AI agents. And we believe we are well-positioned because we combine carrier-grade voice infrastructure. We have a large install base. We have deep integrations. There's a lot of data that's flowing through the platform, and a broad product portfolio that we have that is addressing all these needs on a singular platform. Again, we built one of the largest and the most reliable and feature-rich voice infrastructure globally. Again, there are 600,000 customers, billions of minutes. So it's a very unique asset. It's very difficult, and it's not cost-effective to replicate. The simple of it is, it's very difficult to wipe code a telephony network. So that's a unique asset for us. Our platform is therefore a natural bedrock for AI. The other thing that we get asked a lot is, what about point AI solutions from other companies and startups? And I think our differentiation there is that unlike point AI solutions that have to plug into somebody else's telephony network, our AI is built directly on top of our communications layer, and that is helping us. It helps kind of with the seamless nature of the services. There is no latency. There is preservation of context, and the handoffs are a lot easier. So overall, look, we think we are different. We are positioned uniquely in this AI transition, and we do not think AI will completely disintermediate voice. We think it raises the value of voice by making every interaction more automated, intelligent, and creating better outcomes for our customers. So, one of the most amazing things about the company is the expense discipline you've brought to the company, or the most amazing things about you becoming CFO. You guys, not too long ago, were burning 15% of revenue and cash per year, just three, four years ago. Now your 20% of revenue now is free cash flow. I do not think the Street fully recognizes that yet. Can the trends continue here? That is after stock-based comp, by the way, the way we measure it. Is there more operating improvements to come? Yeah, absolutely. Thank you for the call-out on that. We are very proud of the improvements we've made. We were called a 10% operating margin company. We've more than doubled over the last two to three to four years, call it. The recent quarter where we've guided to is another proof point of that. We are on a quarter by quarter, on a yearly basis, we are consistently showing improvements in operating margins. I think one important thing to note is that these margin expansion trends you are seeing are structural. When you look at our base, we have a scaled recurring revenue model. We have this large base. Our pools are generally strong. Net retention rates are stable. We have industry-leading gross margins at 80%. Every dollar of revenue that we are adding is resulting in $0.80 Of gross margins. Below the gross margin line, our fixed cost base does not need to increase in the same proportion. There is embedded operating leverage in the model. Revenue growth is consistently outpacing expense growth. On top of that, we are just being disciplined on costs. There is a lot of discipline around hiring, offshoring, vendor consolidation, and frankly, just as we are selling AI to our customers, we are also using AI internally to make things more efficient. To your other point, we are also looking at operating margin expansion in conjunction with SBC, free cash flow, and free cash flow per share. SBC, again, we've been very disciplined in terms of new share grants, and we are consistently bringing that down by about 200 basis points or so. That is resulting in our GAAP profitability going faster than non-GAAP now. We've laid out a target of reaching 20% of GAAP profitability in two to three years, which is one year ahead of our original target. The other important thing is operating margin is also translating well into free cash flow. We are producing over $600 million of free cash flow, which is expected for this year. That is allowing us to frankly be, a lot of optionality in terms of investing back in the business and be disciplined on capital allocations. Again, the net is, what I want to leave you with is there is obviously more room for margin expansion. We have not laid out long-term targets, but I certainly expect the direction of travel to be up and to the right. Again, our focus is on finishing this year, and as we draw up the plan for next years and the next few years, we always make investment decisions. We will come out with specific targets, but my expectation is the journey will continue in terms of expanding margins, expanding free cash flow, expanding GAAP operating margins, and reducing SBC. Well, not to put words in Vaibhav's voice in the presentation here, but I was beating him up quite a bit just three years ago when sales and marketing expenses were 45% of revenue. We are down to 37% this last quarter. Amazing improvement there, in large part because I think you were in agreement with me at the time. We are not looking for you to give us new guidance here on the call, but for what it is worth, I think there is amazing opportunity there. I guess, lastly, and probably most importantly, you had some headwinds here lately from COVID on the revenue growth. Now you have all these new products that are going to, I think, enable ARPU and maybe just enable more share gains. Do you think you can get back to double-digit revenue growth longer term and the timing on that? Yeah. Again, look, I will be careful in not giving out long-term guidance here, but we are working very hard to execute. I think you should not think of the 4%-5% or the 5%-6% as a structural cap on the growth rate of the business. I think we are still in the early innings of a very large opportunity. Look, we are working hard. We are doing everything we can from our standpoint. Again, it comes back to I will wrap it up with four points, Tim, that will kind of answer your question. But we have a large, durable kind of communications platform, which is our core, continues to be mission-critical. We will do everything, or we are doing everything to preserve that base, and that is reflected in our strong net retention rates. That also is a unique asset, gives us an opportunity to kind of land and expand into that base. Number two is on top of that core. The portfolio of AI products is expanding. Again, we are early in these products, and we are seeing very encouraging signs. We are working hard to kind of improve what these products can do and expand the go-to-market reach on these products. We also have a differentiated advantage in terms of our global voice infrastructure, the data, the product breadth, and the go-to-market reach. All of this positions us well in the new kind of AI era. Last but not the least, we are translating all this business strength into a high-quality financial model, right? Expanding margins, free cash flow, disciplined capital allocation. The key takeaway is there is a powerful flywheel. There's a durable recurring base which funds innovation. AI is expanding that growth opportunity. Operating leverage will improve margins, and stronger free cash flows will enable us to have the capacity to reinvest and return capital to shareholders. I think that's how we are delivering $7 again in free cash flow per share, or we are expected to deliver that for this year, which is one of the highest in our peer set. Performance translate into long-term shareholder value, and valuations will catch up. Well, Vaibhav, I think that's a good note to end it on. Great job as usual. Thanks for your support, and thanks for all the hard work, and I hope it continues. Yeah. Thank you. Thank you for your kind words. Okay. Good day, everybody. Thank you. Have a good day. Bye.