RingCentral, Inc. (RNG) Q3 2026 Earnings Call Transcript

Operator: Good day, and welcome to the RingCentral Third Quarter 26 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Steven Horwitz, VP of Investor Relations. Please go ahead.

Steven Horwitz: Thank you. Good afternoon, and welcome to RingCentral's third quarter 26 conference call. Joining me today are Vladimir G. Shmunis, Founder, Chairman and CEO Kira Makagon, president and COO, and Vaibhav Agarwal, CFO. Our remarks today include 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 control and 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. If the call is replayed after today, the information presented may not contain current or accurate information. 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 with year over year comparisons. A reconciliation of all GAAP to non GAAP results is provided with our earnings release and in the slide presentation. Which you can find under the financial results section at ir.ringcentral.com. With that, I will turn the call over to Vlad.

Vladimir G. Shmunis: Good afternoon, and thank you for joining us. We delivered another strong quarter in Q3. With subscription and total revenue above the high end of our guidance. We also achieved record GAAP and non GAAP operating margins. Free cash flow generation remains strong, which enabled us to reach an important milestone of reducing gross debt to under $1 billion as of today. Which is ahead of schedule. These results reflect RingCentral's leadership in agentic Voice AI, healthy demand, and our continued focus on expanding operating margins through disciplined execution. We are building on this momentum by investing in innovation that strengthens our market position and brings AI and human agents together on a complete integrated customer engagement platform. Our strong momentum with agentic Voice AI has been recognized by Business Insider, which named RingCentral to its America's most innovative businesses list. Innovation has always been a driving force behind RingCentral's success. We pioneered the shift from legacy communication systems to the cloud. The mega-trend of AI represents an even larger opportunity and the powerful tailwind for RingCentral. We are leading this next transformation with agentic Voice AI, making customer interactions more efficient, intelligent, and actionable. Our AI results provide strong proof points for our building success. AI Receptionist, or AIR, now has more than 22 thousand customers. Up nearly 4x year over year. Ace, our AI conversation expert, is approaching 7 thousand customers, up 60% year over year. And our newest lightweight contact center offering CEB, or customer engagement business solution, has reached more than 14 thousand paying customers. Growing nearly 50% quarter over quarter. Nearly 2 thirds of CEB customers have also purchased 1 or more of our AI products. Importantly, RingCentral AI which we define as customers using at least 1 native paid AI product, now represent approximately 15% of total ARR or over $400 million. Doubling year over year. This cohort of customers also has meaningfully higher ARPU and net retention. These trends demonstrate how AI is expanding wallet share strengthening retention, and creating a more durable foundation for profitable growth. The momentum we are seeing is rooted in our wealth established position as a leader in consumer to business communications. Voice and SMS remain central to how consumers engage with their business providers. Such as doctors, bankers, insurance agents, and a host of other service providers. RingCentral is a leader in consumer to business communications with the platform carrying approximately 40 billion minutes, 14 billion calls, and 4 billion text messages annually. Importantly, our customers can utilize the bridge context in their own conversations to generate actionable insights, automate tasks, and drive resolutions through the use of our AI products. Our carrier grade network global scale, security, and decades of operating expertise in invoice, creates an opportunity for us to become a critical infrastructure layer for business communications, and is a significant barrier to entry. Our ability to connect consumers with their service providers at scale well positions us to deploy AI agents across all stages of a consumer-business interaction. Whether it be human to human, human to AI, or human to AI and back to human. Otherwise known as a human in the loop. For a little more color, AI agents can handle routine inquiries automate workflows, and resolve issues autonomously. When judgment, empathy, or specialized expertise is required, a human can step in. In health care, for example, AI can help manage routine interactions while bringing in a qualified professional when a patient needs medical advice. Another strong competitive moat for us is our distribution reach. Along with our direct sales force, we have a global ecosystem of more than 6 thousand channel partners and resellers. Including some of the leading global service providers such as AT&T, British Telecom, Charter Communications, Optus, TELUS, and Vodafone, amongst others. Our GSP and channel partners are increasingly incorporating our AI portfolio into their product line. Their established customer relationships and local expertise create a distribution advantage that is difficult to replicate. Let me close with 3 key points. First, RingCentral has a deep and defensible mode in a large and expanding market. Our global voice infrastructure, billions of calls, text messages, and minutes that we process every year, and integrated customer engagement platform provides a distinct foundation for strengthening our leadership through agentic Voice AI. Our partner ecosystem gives us the reach to scale these capabilities globally. Second, our investments in agentic Voice AI strategy are delivering tangible results. Growing paid adoption, broader use of our AI portfolio, and stronger customer economics demonstrate how AI is expanding the value of our platform and accelerating our business. Third, our large and growing TAM combined with execution and operating model leverage is resulting in a strong and improving financial profile. We are growing revenue, expanding profitability, and generating substantial free cash flow and free cash flow per share. With our gross debt, now below our stated $1 billion target, we now have the balance sheet strength to continue investing in innovation, while also delivering sustained long term shareholder value via share buybacks and dividends. I want to thank our employees for their innovation and execution our customers and partners for their trust, and our shareholders for their continued support. I am excited about the opportunity ahead and confident in our ability to deliver. With that, I will turn it over to Kira.

Kira Makagon: Thank you, Vladimir and good afternoon, everyone. As Vladimir highlighted, RingCentral brings together a complete and integrated customer engagement platform with agentic Voice AI and humans working together. Our leadership in voice puts us at the heart of consumer to business conversations. And gives RingCentral AI the foundation to turn those conversations into better outcomes. We are building on that foundation to meet customers wherever they work. Including the LLMs they use every day. This quarter, we introduced plug ins for OpenAI's ChatGPT and CP connectors for Anthropic's Claude. We were also selected as a Claude for Small Business launch partner. RingCentral provides the conversation context and the AI models provide reasoning. it is great to see how our innovation is helping our customers turn conversations into action. As part of their everyday workflows. In less than a month, we are already seeing early traction with thousands of active customers. Enabling humans and AI to work together is core to our strategy. And where we are uniquely positioned because we bring voice contact center, and AI into 1 platform so AI can either handle the entire task or hand off to humans as needed. For example, an industrial parts manufacturer and supplier replaced its fragmented copiers with our CEB our customer engagement business solution. Bringing advanced call queues SMS live agent tracking and virtual callbacks onto 1 place. Customers now spend less time on hold get issues resolved in fewer handoffs, and report higher satisfaction, which means lower cost to serve, stronger retention. They are also leveraging ACE our AI conversation expert, for rough scorecard reading, and coaching. Plus, they are deploying AIR our AI receptionist, for handling inquiries with context aware routing. We see this in action with customers across all segments, including 1 million TCV deals. Such as a rapidly growing national fitness operator with millions of members, are all using RingEX, this customer added ACE to identify key call drivers then AIR to handle a high volume recurring inquiries. This illustrates our AI flywheel. Ace uncovers opportunities, and AIR automates interactions. Giving calls immediate answers while freeing staff to build member relationships. Lead club tours, and support membership enrollments. As they have recognized value, they have expanded their investment with us by 4x. This past quarter, we also saw strong adoption of AIR Pro, AIR Pro extends the value of our agentic Voice AI. Delivering voice first omnichannel AI agents that autonomously complete multistep workflows and bring in human agents when judgment and empathy are needed. As an example, 1 of the largest technology equipment and procurement providers for senior living in The United States already uses RingEX, RingCX, and ACE. This quarter, they added AirPro to help them take their customer experience to the next level. AirPro understands intent and automates more complex workflow. When a customer calls, AirPro verifies the caller's identity, matches the caller to their record, and identifies the reason for the call. Then takes action. When needed, AirPRO hands off to a human with full context and then follows up. In just the first month, this customer achieved an over 95% accuracy rate in end to end workflow completion. We are also delighted to see our existing customer Destination Pet, a nationwide pet care provider, extend their use case of our RCAI. They started with ACE to analyze call transcripts, and identify opportunities to improve service. And recently expanded to AirPro to automate workflows around scheduling appointments sending confirmations, and updating records for customers across locations. This supports destination pets goal of capturing every opportunity improving customer experience, increasing revenue and lowering labor costs. When our solutions work together, as they do for these customers it creates a virtuous loop that turns conversation context into action. that is the value of RingCentral's agentic Voice AI. it is changing the game for businesses. and that is, something we are really excited about. Speaking of changing the game, today we announced the extension of our decade long partnership with Golden State Warriors. To be named the official agentic Voice AI platform for fan engagement. Together, the 2 organizations will work to elevate fan experiences from ticket inquiries to game day questions and ongoing engagement. We continue to expand our agentic Voice AI solutions to more businesses around the world through a network of 17 global service providers. This quarter, we extended our partnership with BT Business, This extension enables BT customers to seamlessly layer native intelligent automation over their existing telephony setups. Together, we are empowering UK organizations to capture lost revenue, and drive operational efficiency. Additionally, we added 2 new partners to our GSP portfolio. Digital Island our first partner in New Zealand, will sell, implement, and support our agentic Voice AI. In Italy, Iliad Italia, our first partner there, will bring RingEX with the full suite of RCAI agents onto its network. These partnerships are key to our overall go to market strategy, and international reach. In closing, our customer wins show our vision in action. Humans and AI working together on 1 platform to turn conversations into better outcomes. With growing AI adoption, expanding global reach, we are bringing that opportunity to more businesses around the world. With that, I will turn it over to Vaibhav.

Vaibhav Agarwal: Thank you, Kira, and good afternoon, everyone. Q3 was a solid quarter with key metrics above the high end of our guidance. Reflecting continued execution against the financial framework and commitments we have outlined. Our core business remains resilient, with growing contributions from our AI portfolio. Just as importantly, we are expanding margins and free cash flow. Reducing SBC, and making meaningful progress towards our target of 20% GAAP operating margin and steady state SBC of 3% to 4% of revenue. We also reached an important milestone reducing gross debt to below $1 billion, as of now, significantly strengthening our balance sheet, while continuing to return capital to shareholders through share repurchases and dividends. This combination of growth, improving profitability, and disciplined capital allocation is translating into stronger free cash flow per share growth. With that context, let me turn to our third quarter performance. Starting with growth, subscription revenue was approximately $653 million up 6% year over year while total revenue was approximately $676 million up 5.9%. Underlying customer trends remain healthy with steady new customer additions and monthly net retention above 99%, underscoring the mission critical nature of our platform. Notably, our RCAI portfolio, continues to gain traction which reinforces the role of AI not only as an incremental growth driver, but also as a meaningful contributor to strong customer economics. We believe these trends, combined with our established competitive position provide a solid foundation for durable growth over time. Turning to profitability. We delivered another quarter of record GAAP and non GAAP operating margins alongside further reductions in SBC. Subscription gross margin remains strong, at above 80% Non GAAP operating margin reached 24.7% up nearly 200 basis points and SBC as a percent of revenue declined 50 basis points reflecting our continued discipline around equity compensation. The combination of stronger non GAAP margin and lower SBC drove a record GAAP operating margin of 8%. An improvement of 23 basis points. GAAP EPS was $6.50 per share, which included a noncash benefit of $545 million from the release of a valuation allowance against certain domestic deferred tax assets. This adjustment was driven by an improvement in GAAP profitability The valuation allowance release had no impact on non GAAP results and we do not expect material changes to our near term cash taxes as we continue to utilize deferred tax assets. Excluding this benefit, diluted EPS was $0.28, an improvement of 47% year over year. Non GAAP EPS increased about 18% to $1.33. Our margin expansion trend is driven by multiple drivers, such as strong gross margins, operating leverage, disciplined cost management, broader internal adoption of AI, and a focus on our highest return investments. Together with SBC reduction, these drivers reinforce our confidence in long term sustainability and durability of margin expansion while investing in growth. Turning to cash flow. We generated $157 million in free cash flow in Q3. Up 21% year over year. Our recurring revenue model strong gross margins, and improving operating efficiency continue to translate into substantial cash generation. Reflecting this performance, we are raising our full year free cash flow outlook to $625 million at the midpoint, representing nearly 24% of revenues. This represents over $7 of free cash flow per share up about 23% year over year. We believe the durability of our recurring revenue base AI tailwinds, structural margin expansion, disciplined capital allocation, and continued reduction in SBC provide a strong foundation for sustained free cash flow generation over time. Turning to capital allocation. In Q3, we prioritized repayment of our highest cost debt the 8.5% high-yield notes that became callable reducing gross debt by just over $110 million and bringing net leverage to 1.3x. In fact, as of today, our gross debt is now below $1 billion, As a reminder, there are no debt maturities until 2030. And we have $305 million of undrawn credit capacity. We also continue to return capital to shareholders spending approximately $18 million on share repurchases during the quarter and paying a dividend of $0.0125 per share. Diluted share count declined about 5% year over year to approximately 87.7 million shares. We have over $300 million remaining under our share repurchase authorization. Our substantial cash generation and our stronger balance sheet gives us the flexibility on capital allocation, while maintaining a consistent focus on long term value creation. With that, let me turn to guidance. For fiscal 26, we are raising subscription revenue to be $2.563 billion to $2.569 billion, representing growth of 5.6% to 5.9%. Raising total revenue to $2.650 billion to $2.657 billion, representing growth of 5.4% to 5.6%. GAAP operating margin of 9.2% to 9.6% expanding by 460 basis points. Raising non GAAP operating margin to 24% to 24.2% raising free cash flow to $620 million to $630 million up 18% SBC in the range of approximately $240 million to $245 million representing 9% of revenues. Fully diluted share count of approximately 87.5 million shares, raising non GAAP EPS to be $5.07 to $5.12 up about 17%. This results in free cash flow per share of $7.09 to $7.20 per share for the year up 23%. For Q4 26, we expect subscription revenue of approximately $653 million to $659 million total revenue of approximately $673 million to $680 million GAAP operating margin of 13.3% to 14.7% up 740 basis points. Non GAAP operating margin of 25% to 25.5% up 250 basis points Non GAAP EPS of $1.32 to $1.37 up 14% fully diluted share count of approximately 89 million shares. As we look ahead, our execution is delivering tangible results with a durable core business, growing momentum across our AI portfolio and continued improvement in profitability and cash generation. Together with a stronger balance sheet and disciplined capital allocation, we believe these fundamentals position RingCentral to compound free cash flow per share and drive meaningful long term shareholder value. With that, let's open the call for questions.

Operator: Thank you. Will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. First question comes from Elizabeth Porter with Morgan Stanley. Please go ahead.

Elizabeth Porter: Great. Thank you so much for the question. So and congrats on the quarter. Subscription revenue growth has been mostly improving for several quarters now and the beat was more pronounced in Q3. So could you just help us unpack what drove the upside in the quarter? I am curious if there were any specific drivers to call out, whether it was any stronger AI driven demand or potentially starting to see some easing of those enterprise renewal headwinds you guys briefly discussed? Thanks.

Vaibhav Agarwal: Yeah. Thanks, Elizabeth, for the for the question. And look, the beat was driven by product mix execution across. We had a solid quarter. We did. We delivered results on top line and the bottom line. Fundamentally, we are executing with discipline results from all our commitments And as you called out, we are showing a sustainable and a stabilized growth profile. And that is what is getting reflected in our full year guide, basically reflecting the confidence in the underlying growth drivers, particularly AI. On the top line, our core business continues to be a scaled recurring revenue business that is durable. Supported by strong retention metrics and steady customer demand. Usage on the platform continues to be healthy, and it just underscores the mission-critical nature. Of our solutions. And on top of the core, we are seeing growing contribution from our AI-led products As we called out in our prepared remarks, adoption is strong across the board. We are seeing strong customer engagement. Customers who are using 1 or more paid AI products are now approaching 15% of ARR. Doubling year over year. And within these cohorts, very importantly, we see strong customer economics in terms of increased ARPUs and over 100% net retention rate So net, it reinforces both the monetization opportunity as well as it demonstrates the stickiness of the base. And very importantly, we are not only growing, but we are also very focused on the quality of the growth that we deliver. Record GAAP and non GAAP operating margins and a strong free cash flow profile. So, net, we have a recurring model We have a diversified customer base from small to enterprise customers. Our solutions are mission critical. We have a deep competitive moat that is built on platform scale, you know, the depth of our product and differentiated GTM. And these fundamentals are frankly contributing to you know, the durability and the sustainability of our ability to expand both margins and free cash flow.

Elizabeth Porter: Great. And then just as a follow-up, I wanted to hit on capital allocation. It was great to see that the gross debt target was ahead of schedule, and you have free cash flow to grow faster than revenue. When we think about this set of opportunities, how should we think about the case for increasing any sort of organic investment to go after AI and contact center? Relative to pursuing acquisitions or prioritizing further capital returns.

Vladimir G. Shmunis: Yeah. Hi, Elizabeth. Vladimir here. Look, this question comes up fairly regularly. Look. Fundamentally, we are a very tech heavy organization. We view ourselves as an innovator at heart. I think that you all know my background is quite technical. Many of the original contributors including the CTO, are still with us. Which I think is not that common. So we feel we have a lot of talent. now in-house. And our commitment and spend on product technology continues to be quite healthy over $250 million per year. So we can do a lot ourselves Now having said that, we are always looking out opportunistically. People are calling us. We do have an m and a function in house, and we are evaluating multiple opportunities always. You know? And as things clear the bar, we consider them, and then we move forward. So I am not going to tell you that we will never do a sizable acquisition. But I am also saying that we are very confident in our ability to deliver on our roadmap using, the capacity we have at hand. So we will just have to see what the future brings. But as you can see for now, we are able to deliver the results without having to go outside. Great. Great. Thank you.

Operator: The next question comes from Siti Panigrahi with Mizuho. Please go ahead.

Siti Panigrahi: Thank you. Thanks for taking my question and congrats on a good quarter. Just wanted to ask you about the new product ARR that you guys talked about, 100 million run rate exiting 25. How fast that is been growing in Q3? And how should we think about that exiting this year? And I have a follow-up.

Vaibhav Agarwal: Yeah. Hey, Siti. Thanks for the question. This is Vaibhav. So in terms of the ARR for new products, the metric we provided this quarter was customers adopting at least 1 paid AI product wherewhich we call it RCAI. So that is approaching 15% or $400 million. And it is doubling year over year. And as I mentioned, in my previous comment, the customer economics are very healthy. ARPUs are higher. Net retention rates are above 100%. And the reason that we are focused on that metric and we manage the business, frankly, based on that metric is it is a very. it is the clearest proof point of AI adoption and penetration both into the base as well as with new sales And what that metric is clearly showing is that there is healthy customer demand Customers are moving beyond experimentation You know, they are getting tangible ROI benefits from the use of AI. And it is leading to the base being more sticky. So, over time, this metric has been continuously growing, and we provided an update on this every quarter. So our expectation is that as adoption continues to grow, and as customers adopt more AI products, that this metric will continue to grow.

Siti Panigrahi: that is great. Just on the margin side, I think what is impressive is your subscription margin still holding well. You know, despite AI investment. Can you help us, like, how should we think about the gross margin as you ramp on AI?

Vaibhav Agarwal: Yeah. So, look, overall gross margins as you called out are strong at 80% plus. And our gross margins on AI products are generally holding in line with the corporate average as well. And, really, we are optimizing with 2 levers there. 1 is pricing, and the other 1 is cost. So on the pricing front relative to AI, we are being very deliberate in our pricing strategy. You know, the idea is to charge customers for the value and the usage that they receive. And customers are willing to pay because they are getting tangible ROI benefits both from a revenue standpoint as well as a cost avoidance or cost savings standpoint And that is the uplift as indicated in the metric that I just talked about. In terms of the costs, we are optimizing against model selection, call it inference efficiency, and infrastructure. So in terms of inference, as it is getting better, with the. With the different models, the price per unit is coming down. In terms of model selection, we are currently using Frontier models. And over time, we will benefit from the use of open source models And a very important point is that these AI products are being delivered through the same platform. And through the same engine. Therefore, we get very good incremental unit of economics. So I think, overall, our expectation is that gross margins will continue to hold at around 80%. Thank you.

Operator: The next question comes from Brian Peterson with Raymond James. Please go ahead.

Brian Peterson: Hey, guys. Thanks for taking my question. So I wanted to hit on the AI adoption a bit. I am curious if there is any part of the customer segment, whether that is enterprise or U. S. Or SMB that is really kind of embracing some of that portfolio? And where do you think that next unlock may come as we think about that expanding beyond the mid to high teens number you just gave us?

Kira Makagon: Yeah. Hi. This is Kira. So we see adoption across all segments. from enterprise to the same customers for AI. And for all our products. for AIR, ACE, and our other offerings. So, Brian, this is really. We were happy to see that it is across the board. What was the second part of the question?

Brian Peterson: Just as we think about, you know, where the incremental adoption is coming from, is there a certain part of a geography or customer base or maybe even thinking about some partner channels where you could see that leverage kind of expanding beyond the number you just gave us?

Vladimir G. Shmunis: Yeah. I can take that out here. Yeah. The good question. Look. So we have been on record with our. what we call our golden verticals. Which is fundamentally health care and financial services. So as we continue, we are seeing more AI within those sectors that were stronger for us to begin with. And, again, as we have been saying for quite some time now, our best traction is in consumer to business interactions. Many of which are by voice and text. and we are very strong in both of those channels. Moving, you know, billions and tens of billions of minutes through our platform. Okay? So that as far as verticals is concerned, On the partnership side, it is also very interesting. Because we are seeing increasing adoption of our AI portfolio, by the partner community and in particular, global service providers. And there were some releases, relatively recently for example, with British Telecom. Some others. So, as a word of caution when we say that it is still pretty early, very early, with AI in general, for this type of an application. It is yet earlier, through the channel in particular with GSPs. They just tend to move a little slower. But once they move, they move, with very strong force. So we are pretty optimistic that as we get our formula down, that we will be able to propagate it, through our channel, which, as is large and unique. Thanks, Vladimir.

Brian Peterson: And, by the way, maybe just a follow-up. I know the margins have been ramping up. Can you remind us just from a GAAP perspective, how are you thinking about goals like stock comp and targeting that? And how should we be thinking about kind of the non GAAP and GAAP operating margins going forward? Thanks, guys.

Vaibhav Agarwal: Yes. Thank you, Brian. So look, we are very pleased with the work that we have done on both operating margins from a GAAP standpoint as well as a non GAAP standpoint over the years. So we laid out a medium term target of reaching 20% in GAAP operating margins. And we remain confident in our ability to get there And the proof point there is if you look at our guide for 2026, we are expanding GAAP operating margins by about roughly 400 basis points or so. And about half of that is coming from improvements in non GAAP operating margins. And the other half is coming from SBC. So roughly 200 basis points each And if you were to project these out into the outer years, that is how we remain confident in our ability to reach the 20% target. In terms of the non GAAP operating margin, look, we have a lot of structural drivers behind that. You know, we have a scale recurring revenue model that is producing gross margins at 80%, which is industry leading. So we inherently get a lot of leverage in our operating model, and that is coupled with the discipline and cost across the board that we have. It is resulting in material improvements in non GAAP operating margins. And then on the SBC side, we are continuing our discipline in terms of managing grants, managing SBC, And what is flowing through the SBC model now is also the prior grants. As well as the new grants and as the impact of the prior grants that were given at higher prices as that kind of tails off. That gives us the confidence to continue to reduce SBC over time. And that is where we have laid out a target of getting to 3% to 4%. In the next 3 to 4 years. So net, it is a combination of expansion in non GAAP operating profit as well as reductions in FPC you know, that will allow us to kind of make those targets. And we remain on track to achieve that. Thanks, guys.

Operator: The next question comes from Peter Levine with Evercore. Please go ahead.

Peter Levine: Maybe the first 1 I have, if you think about you know, I guess, the trajectory of subscription revenue growth into 2027? I know you have not guided, but how should we think about, I think, distinguishing between, I think, the underlying performance of, the core UCaaS business versus how much of that is coming from, like, newer AI, you know, some of your customer engagement, consumer customer engagement products. So I am just trying to understand, like, how much growth is dependent on, like, upsell, cross sell of AI versus, you know, stabilization in your in your core business?

Vladimir G. Shmunis: I think we have been sharing this before. That it is roughly 50%,, from the base and, you know, the other half from new customers. And I think we will always also saying that as of new customers, also about half of them take AI and the other ones do not yet take AI, but they may well be upgraded or cross sold to AI over time. But for now, those are the metrics.

Vaibhav Agarwal: And then with the AI receptionist, sorry. Go on, please. Yeah. Peter, just to add to I think what Vladimir was mentioning is the is the contribution from. On bookings from the AI product. In terms of 2027, look. We are not providing formal guidance here today. But I think the underlying growth drivers similar to what I talked about before. Which is the core business continues to be durable. You know, margins are high. it is a recurring revenue base. And the retention metrics that are strong and AI will be a layer on the top, and that is growing rapidly today. And it is becoming an increasing contributor to growth. The thing is that it is growing off a smaller base relative to the size of the overall subscription business. But net, we are seeing strong adoption to Vladimir's point in customer engagement across the platform. And, you know, we talked about the margin expansion, the progress there in free cash flow. And we expect to continue to kind of do a lot of the same.

Peter Levine: Great. Yeah, it is a good segue to my You know, the question. You know,, AI receptionist is gained a lot of traction. How do you think about the opportunity, I guess, then to expand monetization within that installed base? Like, what are other avenues usage or use cases pricing mechanisms, that you think you could use with an AI receptionist or even AIR. Thank you.

Vaibhav Agarwal: Yeah. So thanks for the question on the momentum in AIR. So it now has over 22 thousand customers. So the reason it is seeing this momentum is the ROI that we hear from customers is real. Customers are able to address missed calls and they are capturing more leads, which is resulting in more revenue. So from a pricing standpoint, Peter, it is usage based pricing. So the more customers use the product, the more they consume it. You know, it kind of contributes to revenue it is currently selling I think, in a big part in our small- to medium-sized business segment. And over time, it is also going up market. To the midmarket and the enterprise customers. So that is 1 of way to think of it.

Kira Makagon: In terms of the use cases, you know, customers are looking for more and more AI agents. AIR is a form of an AI agent that helps customers address missed calls. And over time, the idea is for AIR to of handle more sophisticated use cases and workflows over time and integrate into more kind of platforms and workflows to do more and more, if you will. And as we just announced, and as we mentioned in our prepared remarks, we have AirPro that addresses more complex use cases. Those more complex use cases usually have, more workflow attached to them and take on sort of more turns in the conversation. So they are more autonomous. And the big thing for our AI, whether it is AIR, AIR Pro, any of our products that we think of. As we think about, we think about human in the loop. Think about handling as much as possible by AI. But also making sure that for judgment sentiment or more complex questions and require, those are handed off to a human being, and then they work together in preserving that context, which our customers are telling us is very important. We provided some of those, scenarios in our prepared remarks. Of where customers are finding that to be especially valuable to be able to do the warm handoff with full context. And if necessary, hand it off from a human being and then back to AI where you have this virtuous continuous loop. And those create additional use cases for us. And we see those are. As expansion opportunities as customers get more and more comfortable adopting AI for what initially we went to market with, AI Receptionist, also known as AIR, for missed calls, which continues to be a big driver because businesses do miss calls and miss opportunities, but then it gets into handoffs within the business. And more involved use cases as such as handling more complex billing inquiries, returns, appointment settings that require dips into database knowledge bases. So those are being now handled with, AIR Pro. And the use cases will continue as we see from our customers. So they will continue to grow. They are almost growing, as incrementally 1 by 1, as customers are realizing value with our products. Great. Thank you very much for the questions.

Operator: Ladies and gentlemen, in the interest of The next question comes from Ryan MacWilliams with Wells Fargo. Please go ahead.

Ryan MacWilliams: Thanks for taking my question. This drafts off the last question. Vladimir, I thought your comments on the Voice AI potential for RingCentral was interesting. As AI agents become more of the inbound call volume for business how do you think RingCentral Air benefits from businesses wanting an AI line of defense from inbound calls from other AI agents. Like, AirPro seems like it could fit here. Like, let AIR talk with a human agent or another VoiceAI agent, and then if a human calls, then you can flip it over for another human to chat. How do you think the soon to be increase in voice AI means for the demand for your AI products? Thanks.

Vladimir G. Shmunis: Yeah, so if I understand the question, look. So there are 2 fundamental growth drivers for RingCentral. 1 is more calls. And the other 1 is more AI. So they tend to go together. that is a good news. So the more calls through the system, the more AI we have a chance to apply and the larger the percentage of AI assisted calls on the network, the better off we are because, obviously, we are able to extract better value. Deliver better value, but also extract better value for the intelligence and insight that AI brings. So they work they work together. I can tell you that our, you know, traffic has. Growth has been strong, but linear. Our AI growth has been explosive, obviously. But overall penetration of AI and AI answered calls on our network is still very, very small percentage wise. So we think that there is a very meaningful opportunity to simply if you will, in the very simplest terms, help our customers assigned AI to more of their traffic. And this is very much front and center what our teams are working on. As well as overall. As well as obviously increasing overall traffic, you know, adding new logos, and better engagement with the base in general.

Operator: The next question comes from James Fish with Piper Sandler. Please go ahead.

James Fish: Hey, guys. Hey, guys. Good morning. To build off of the last couple of questions here. Really, what I am trying to understand is what you guys view as the opportunity in terms of the ability to cross sell CB, ACE, and AIR, in terms of where we could see that penetration go over the next 2, 3 years. And you kind of alluded to this in 1 answer, but how does penetration differ between sort of major customer accounts versus the more SMB commercial customer base? Thanks, guys.

Vladimir G. Shmunis: So CEB, I will start with the second part of the question. CEB is fundamentally smaller business product. Because it is basically an informal contact center and larger enterprises tend to have formal contact center. So they would be a better fit for our Ring CX product. Which is a full-fledged contact center. Okay? Now how do we deliver it to them, you know, each and every way we can? But, fundamentally, certainly, our sales teams are well aware We have — look, it is been growing, you know, really, really well for us. That means that we have you know, lots of satisfied customers and lots of reference cases. So our sales teams are able to leverage that. And, of course, we are doubling down on product led growth, PLG, and that is showing results as well. So we are also working on ways on specifically, explaining to customers what CEB can do for them, And in as much as possible, we try to make them understand. That RingCentral does not need to be sort of as a cost center, just a cost center. But we can actually help them generate revenues capture more leads, do better leads processing. CEB does that in particular, the flavor of CEB that we sell with AI. That really is our most explosive new offering. This year.

Operator: Our next question comes from Andrew King with Rosenblatt Securities. Please go ahead.

Andrew King: Congrats on the quarter. I just wanted to touch base quickly on 2 of your partnerships NICE obviously began reselling RingEX in July. Any early pipeline wins to share to call out there? And then also, if you just touch base on ACO transition, if you are seeing any increased churn as you go through that transition, that would be great. Thanks.

Vladimir G. Shmunis: Yeah. So I think second question is no. It was very orderly. Remember, those customers their experience does not change. You know? it is just a small tweak in the logo, in the upper-left corner, and that is about it. That is it. So there is no friction whatsoever. So I am not aware of any churn related to that. As far as partnerships in general, Yeah, look, definitely, there is NICE. that is kind of new, and, again,, it is early. And remember, they are very much high end enterprise. So we do not expect, many logos there just because they do not have that many logos, basically. But we are, hoping for traction, with some whales. So the rest of the channel, you know, it is performing. Look. it is all edged up, and as you know, various folks are doing channel checks. On the industry and us in particular. And, you know, the signs are pretty positive at this point. I think people understand that voice is here to stay. In business. And as long as voice stays in business, ring stays in business. Because we are the voice leader.

Operator: The next question comes from Shablish Sarathy with FBN Securities. Please go ahead.

Shablish Sarathy: Yeah. Thank you very much. So, related to the NICE partnership, what is your plan for RingCentral Contact Center when the 1 year NICE extension ends? And it seems to me that 1 year is rather small. Why would not you have, like, a 3-year extension or something like that?

Vladimir G. Shmunis: So first, I am not sure, where you got 1 year from. I do not think that we have ever disclosed. Any specifics. But be that as it may, and I am not, you know, suggesting that it is 1 year, by the way. But in any case, it is an extension to the whatever term was there to begin with. So we still have very much multiple years left on this contract. But to fast forward it, you know, a number of years. Look. Number of things. You know, this partnership could continue being extended as it has been for the last, I do not know, 10, 12 years. But, also, very importantly, our RingCX product is getting stronger and stronger. We believe that we have a very robust offering already today with RingCX for the mid market. And moving forward, we think that we will be, you know, quite viable and attractive for the larger enterprise as well. Especially if you take into account the fact that the world is changing. And that these, gigantic, call centers that traditionally were utilized by large enterprises, you know,, AI will change, the situation there for sure. You know? While smaller businesses, very much pride themselves and differentiate on their ability to you know, answer customer inquiries with a human being. and that is, at least for the time being, basically, regardless of how good AI gets because that is part of the service that they provide. You know, larger enterprises, you know, it is a cost center. And they can do a very good job there, and we are seeing that as well. You know, in our own case as well as through our customers. So, net, we are very confident that this base will be taken care of. Well taken care of. And increasingly, so with AI involved while still keeping human while still keeping human in the loop. The next question comes from Taylor McGinnis with UBS.

Operator: Please go ahead.

Taylor McGinnis: Yes, hi. Thanks so much for taking my question, and sorry for any background noise. But if I look at the 4Q subscription revenue guide, it is a bit stronger than what we saw in 3Q and 2Q. It seems like there is a little bit more of an unlock or an uptick in growth that you guys are seeing. So could you just unpack for us what is driving that? Is that more stability with the UCaaS business, but now we are starting to see the strength in AI revenue, start to show through. Any contribution from the NICE partnership? Maybe you could just unpack that as we think about that potential momentum going into next year. Thanks.

Vaibhav Agarwal: Yes. Thanks, Taylor, for the question. So I think it is most of what you said. Look. Our core business continues to be durable. Retention metrics there are strong, and it is a recurring revenue base for us, which, as Vladimir said, you know, the usage metrics on the platform are very healthy. Which underscore the mission-critical. And then on top of that, AI is continuing to add more contributions. it is growing off a smaller base, but it is already additive, and as it becomes a larger part of the mix, its contribution will grow to the overall number will grow over time. So I think it is a combination of a durable core, growing contributions from our AI products, strong retention are kind of all the drivers for growth. And then in addition to that, I called out, we had growth, and at the same time, we are also expanding margins and free cash flow in a very meaningful way. And we are being very disciplined in terms of how we are using that money and allocating that capital So, all in all, the goal for us is to be a compounding free cash flow per share story. And you know, our free cash flow per share that we have guided to this year is over $7 and growing faster than free cash flow at above 20%. So I think that is how I would characterize the quarter and things kind of going forward.

Operator: that is all the time we have for questions today. This concludes the question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.