Good day and welcome to the RingCentral third quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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.

Thank you. Good afternoon and welcome to RingCentral's third quarter 2026 conference call. Joining me today are Vlad 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 risk and uncertainty, 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'll turn the call over to Vlad.

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 remained 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're 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 megatrend of AI represents an even larger opportunity and a powerful tailwind for Incentral. We're 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 22,000 customers, up nearly 4x year-over-year. ACE, our AI conversation expert, is approaching 7,000 customers, up 60% year-over-year. And our newest lightweight contact center offering, CEB, or Customer Engagement Business Solution has reached more than 14,000 paying customers, growing nearly 50% quarter over quarter. Nearly two-thirds of CEB customers have also purchased one or more of our AI products. Importantly, RingCentral AI, which we define as customers using at least one 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 ARR pool and net retention. These trends demonstrate how AI is expanding wallet share The momentum we're seeing is rooted in our well-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 the leader in consumer-to-business communications with a 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 positioned 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 healthcare, for example, AI can help manage routine interactions while bringing in a qualified professional when a patient needs medical advice. Another strong competitive mode for us is our distribution reach. Alongside our direct sales force, we have a global ecosystem of more than 16,000 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 lines. Their established customer relationships and local expertise create a distribution advantage that is difficult to replicate. Let me close with three key points. First, RingCentral has a deep and defensible mold 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 provide 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 disciplined 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 growth 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'm excited about the opportunity ahead and confident in our ability to deliver. With that, I will turn it over to Kira.

Thank you, Vlad. and Good Afternoon Everyone. As Vlad 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 plugins for OpenAI's ChatGPT and MCP connectors for Anthropix Cloud. We were also selected as a Cloud for Small Business lunch partner. Incentral provides the conversation context and the AI models provide reasoning. It's 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 one 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 cold use with AICB, our customer engagement business solution. bringing advanced call queues, SMS, live agent tracking, and virtual callbacks onto one place. Customers now spend less time on hold, get issues resolved in fewer handoffs, and report higher satisfaction, which means lower cost to serve and stronger retention. They are also leveraging ACE, our AI conversation expert, for rough scorecard grading and coaching. Plus, their deploying heir are AI receptionists 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. Already using Ringy apps, this customer added ACE to identify key call drivers. then AIR to handle a high volume of recurring inquiries. This illustrates our AI flywheel. AIR uncovers opportunities and AIR automates interactions, giving callers immediate answers while freeing staff to build member relationships, lead club tours, and support membership roles. As they've recognized value, they've 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 multi-step workflows and bring in human agents when judgment and empathy are needed. As an example, one of the largest technology equipment and procurement providers for senior living in the United States already uses Ring EX, 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 workflows. 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're also delighted to see our existing customer, Destination Pet, a nationwide pet care provider, extend their use case of our CAI. They started with ACE to analyze cold 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 Pet's 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 where it turns conversation context into action. That's the value of RingCentral's Igentic Voice AI. It's changing the game for businesses, and that is something we're really excited about. Speaking of changing the game, today we announced the expansion of our decade-long partnership with Golden State Warriors to be named the official Igentic Voice AI platform for fan engagement. Together, the two organizations will work to elevate fan experiences from Ticket inquiries to game day questions and ongoing engagement. We continue to expand our Igentic Voice AI solutions to more businesses around the world through a network of 17 global service providers. This quarter, we expanded our partnership with BT Business. This expansion enables BT customers to seamlessly layer native intelligent automation over their existing telephony setups. Together, we're empowering UK organizations to capture lost revenue and drive operational efficiency. Additionally, we added two new partners to our GSP portfolio. Digital Island, our first partner in New Zealand, will sell, implement, and support our Igentic Voice AI. In Italy, Allnet Italia, Our first partner there will bring Ring EX with the full suite of RCEI 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 onto one platform to turn conversations into better outcomes. was growing AI adoption and expanding global reach or bringing that opportunity to more businesses around the world. With that, I will turn it over to Vaibhav.

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 SPC, and making meaningful progress towards our target of 20% gap operating margin and steady state SPC 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 gap and non-gap operating margins alongside further reductions in SPC. Subscription gross margin remains strong at above 80%, non-GAAP operating margin reached 24.7%, up nearly 200 basis points, and SPC as a percent of revenue declined 50 basis points, reflecting our continued discipline around equity compensation. The combination of stronger non-GAAP margins and lower SPC drove a record GAAP operating margin of 8%, an improvement of 320 basis points. GAAP EPS was $6.50 per share, which included a non-cash benefit of $545 million from the release of a valuation allowance against certain domestic deferred tax answers. 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 structural 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 SPC 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 SPC 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 1.3 times. 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 12.5 cents 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 2026, 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%. Gap 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%. SPC in the range of approximately 240 to 245 million. representing 9% of revenues, fully diluted share count of approximately 87.5 million shares, raising non-GAAP EPS to be between 5.07 to 5.12 cents, 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, gap 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.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're 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. The first question comes from Elizabeth Porter with Morgan Stanley. Please go ahead.

Great. Thank you so much for the question. 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'm curious if there were any specific drivers to call out, whether it was, you know, any stronger AI-driven demand or potentially starting to see some easing of those enterprise renewal headwinds you guys previously discussed.

Thanks. Thanks, Elizabeth, for the call-out. Look, the beat was driven by Broadge's execution across. We had a solid quarter. We delivered results on both the top line and the bottom line. Fundamentally, we are executing discipline and consistent results on all our commitments. And as you called out, we are showing a sustainable and a stabilized growth profile. And that's what's getting reflected in our Fulier 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 contributions from our AI-led products. As we called out in our prepared remarks, you know, adoption is strong across the board. We are seeing strong customer engagement. Customers who are using one plus 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-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. So we delivered record gap and non-gap operating margins and a strong free cash flow profile. So, you know, net-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's 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 product and our ability to expand both margins and free cash flows.

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 growing faster than revenue. And 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?

Yeah. Hi, Elizabeth. 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, as 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 in-house. And our commitment and spend on product technology continues to be quite healthy, over a quarter billion dollars per year. So we can do a lot ourselves. Now, having said that, we're always looking out opportunistically. People are calling us. We do have an M&A function in-house and we are evaluating multiple opportunities always. And if things clear the bar, we consider them and then we move forward. So I'm not gonna tell you that we will never do a sizable acquisition, but I'm also saying that we're very confident Thank you. Yeah.

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

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's growing in Q3 and how should we think about that exiting this year? And I have a follow-up.

Yeah, hey, Citi, 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 one paid AI product, or as we call it, RCAI. So that's approaching 15% or $400 million, and it's doubling year over year. And as I mentioned in my previous comment, you know, the customer economics there are very healthy. Our pools 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's 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. You know, customers are moving beyond experimentation. You know, they're getting tangible ROI benefits from the use of AI, and it's leading to the base being more sticky. So, you know, 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, this metric will continue to grow.

That's correct. Just on the margin side, I think what's impressive is your subscription margin still holding well despite AI investment. Can you help us by how should we think about the gross margin as you ramp on AI?

Yeah. So look, overall growth margins, as you called out, are strong at 80% plus. And our growth margins on AI products are generally holding in line with the corporate average as well. And really, we are optimizing with two levers there. One is pricing, and the other one is cost. So on the pricing front, relative to AI, we are being very deliberate in our pricing strategy. The idea is to kind of charge customers for the value and the usage that they receive. And customers are willing to pay because they're getting tangible ROI benefits, both from a revenue standpoint as well as a cost avoidance or cost savings standpoint. And that's the uplift as indicated in the metric that I just talked about. In terms of the costs, we are optimizing against model selection, and many more. and a very important point is that these AI products are being delivered through the same platform and engines, and therefore we get a very good incremental unit of economics. I think overall our expectation is that growth margins will continue to hold at around 80%.

Thank you.

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

Hey, guys. Thanks for taking the question. So I wanted to hit on the AI adoption a bit. I'm curious if there's any part of the customer segment, whether that's, you know, enterprise or U.S. or S&B, that's 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?

Hi, this is Kira. So, we see adaption across all segments from enterprise to customer for AI and for all our products, for ARAs and AROs. So, Brian, this is really, we're happy to see that and show that the product is across the board. What was the second part of the question?

As we think about 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?

Yeah, I can take that thought here. Yeah, very good question. Look, so we've been on record with our what we call golden verticals. which is fundamentally healthcare 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've been saying for quite some time now, our best traction is in consumer to business interactions. Many of them, Most are by voice and text, and we are very strong in both of those channels, moving billions and tens of billions of minutes through our platform. Okay, so that as far as verticals is concerned. On the partnership side, it's 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 when we say, as maybe a word of caution, when we say that it's still pretty early, very early, with AI in general for this type of an application, It is yet earlier through the channel, and in particular with GSPs. They just move a little slower, but once they move, they move with very strong force. So we're pretty optimistic that as we get our formula down, we'll be able to propagate it through our channel, which, as you know, is large and unique.

Thanks, Vlad. And Vaibhav, maybe just to follow up, I know the margins have been ramping up. Can you remind us, just from a GAAP perspective, you know, 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.

Yeah, thank you, Brian. So, look, we are very pleased with the work that we've 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, call it 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 call it 200 basis points each. And if you were to project these out into the outer years, that's 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's producing gross margins at 80%, which is industry leading. So we inherently get a lot of leverage in our operating model and that 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's 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's where we've laid out a target of getting to three to four percent in the next three to four years. So net-net it's a combination of Expansion in Non-Gap Operating Profit, as well as reductions in SPC, you know, that allowed us to kind of make those targets. And we remain on track to achieve that.

Thanks, guys.

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

Great. Thank you for taking my questions. Maybe the first one I have, if you think about, you know, Thank you for joining us.

that is roughly 50-50. 50% from the base and the other half from new customers. And I think we will always also think 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.

There was an AI receptionist. I'm sorry, go on, please.

Yeah, Peter, just to add upon that, I think what Vlad was mentioning is the contribution 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 would be similar to what I talked about before. which is the core business continues to be durable you know margins are high it's a recurring revenue base and the retention metrics there are strong and AI will be a layer on the top and that is growing rapidly today and it's becoming an increasing contributor to growth the thing is that it's growing of a smaller base relative to the size of the overall subscription business But net-net, we are seeing strong adoption to Vlad'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 there.

All right. Yeah, that's a good segue. Another question is, you know, AI receptionists have gained a lot of traction. How do you think about the opportunity, I guess, then to expand monetization within that install base? What are other avenues, usage or use cases, pricing mechanisms that you think you could use within AI Receptionist or even AIR? Thank you.

Yeah, so thanks for the call out on the momentum in AIR. So it now has over 22,000 customers. So the reason it's kind of seeing this momentum is the ROI that we hear from customers is real. You know, customers are able to address missed calls and they're capturing more leads, which is resulting in more revenue. So from a pricing standpoint, Peter, it's usage-based pricing. So the more customers use the product, the more they consume it, you know, it kind of contributes to revenue. It's currently selling, I think, in a big part in our small segment, small business segment. And over time, you know, it's also kind of going up market to the mid market and the enterprise customers. So that's one kind of way to think of it. 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 kind 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 mentioned in our prepared remarks, we have AIR Pro 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 a conversation, so they're more autonomous. And the big thing for our AI, whether it's AIR, AIR Pro, any of our products, as we think about, we think about human in the loop. We think about handling as much as possible by AI, but also making sure that for AI, Judgment Sentiment, or more complex questions are required. Those are handled often to a human being, and then they work together in preserving that context. Our customers are telling us it's very important. We provided some of those scenarios in our prepared remarks of where customers are finding that it's especially valuable to be able to do this warm handoff with context and if necessary, take it off from human being and then back to AI where you kind of have this virtuous continuous loop. And those create additional use cases for us and we see those as expansion opportunities as customers get more and more comfortable adopting AI for what initially we went to market with as AI receptionists, no missed calls, which continues to be a big driver because businesses do miss calls, miss opportunities but then it gets into handoffs within the business and more involved use cases such as handling more complex billing inquiries, returns, appointment settings that require dips into databases, knowledge bases. So those are being now handled with ARPRO and the use cases will continue as we see from our customers so they will continue to go, they're almost growing Think of it as incremental, a one-way one, as customers are realizing value with our products.

Great. Thank you very much for the questions.

Ladies and gentlemen, in the interest of time, we ask that you please limit yourself to one question. Thank you. The next question comes from Ryan McWilliams with Wells Fargo. Please go ahead.

Thanks for your big question, and this drafts off the last question. Vlad, I thought your comments on the voice AI potential for Ring was interesting. As AI agents become more of the inbound call volume for businesses, how do you think RingCentral Air benefits from businesses wanting like 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 Muse agent or another voice AI agent, and then if a human calls, then you can flip it over to another even the chat like how do you think like the soon-to-be increase in voice AI means for the demand for your AI proxies? Thanks.

Yeah so yeah if I understand the question look so there are two fundamental growth drivers for RingCentral. One is more calls and the other one is more AI so they tend to go together, that's the 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're able to extract better value, deliver better value, but also extract better value for intelligence and insights that AI brings. So they work together. I can tell you that our traffic 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, have our customers assign AI to more of their traffic. And this is very much front and center what our teams are working on, as well as obviously increasing Overall traffic, you know, adding new logos, new, better engagement with the base in general.

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

Hey guys, wanting to work off of the last couple of questions here. Really, what I'm trying to understand is what you guys view as the opportunity in terms of the ability to cross-sell CEB, ACE, and AIR in terms of where we could see that penetration go over the next two, three years. And you kind of alluded to this in the one answer, but how does penetration differ between sort of major customer accounts versus the more S&B commercial customer base? Thanks, guys.

So CEB, I'll start with the second part of the question. CEB is fundamentally a smaller business product because it is basically an informal contact center, and larger enterprises tend to have formal contact center, so they would be more ripe to buy our RingCX product, which is a full-app contact center. Okay? Now, how do we... Delivery to them, you know, each and every way we can. But fundamentally, certainly our sales teams are well aware. We have, look, it's 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 thought 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, and in particular, the flavor of CEB that we sell with AI. That really is our most explosive new offering this year.

The next question comes from Andrew King with Rosenblatt Securities. Please go ahead.

Hey there. Thanks for taking my question and congrats on the good quarter and guidance. Just want to touch base quickly on two of your partnerships. NICE obviously began reselling Ring EX in July. Any early pipeline wins to share to call out there? And then also, if you just touch base on the ACO transition, If you're seeing any increased churn as you go through that transition, that would be great. Thanks.

Yeah, so I think the second question is no. It was very orderly. Remember, those customers, you know, their experience does not change. You know, it's just a small tweak in the logo in the upper left corner, and that's about it. Not about it, that is actually. So there is no friction whatsoever. So I'm not aware of any churn related to that. As far as partnerships in general, yeah, look, definitely there is nice. That's kind of new and, you know, it's early and, you know, they're very much high in enterprise. So we don't expect, you know, many logos there just because they don't have that many logos, basically. But we are, you know, coping for friction, for traction, not friction, traction with some, you know, whales through that. Rest of the channel, you know, it's performing. Look, it's all leading up and, you know, as you know, various folks are doing channel checks on the industry and us in particular.

And, you know, signs are pretty up 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.

The next question comes from Shibley Serapi with FBN Securities. Please go ahead.

Yeah, thank you very much. So related to the NICE partnership, what's your plan for RingCentral Contact Center When the one-year NICE extension ends, and it seems to me that one year is rather small. Why wouldn't you have like a three-year extension or something like that?

So first, I'm not sure, you know, where you got the one year from. I don't think that we've ever disclosed any specifics, but visit as it may, and I'm not, you know, suggesting that it's one year, by the way. But in any case, it's an extension to 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 12 years. but also very importantly our Ring CF product is getting stronger and stronger. We believe that we have a very robust offering already today with Ring CF for the mid-market and moving forward we think that will be 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 larger enterprises, that AI will bend the situation there for sure. 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 call center and they I can do a very good job there and we're seeing that as well you know in our own case as well as you know through our customers So, net-net is, we're very confident that this base will be taken care of, well taken care of, and increasingly so with AI involved while still keeping human as well.

Next question comes from Taylor McGinnis with UBS. Please go ahead.

Yeah. Yeah, 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's a bit stronger than what we saw in 3Q and 2Q. So it seems like there's a little bit more of like an unlock or an uptick in growth that you guys are seeing. So could you just unpack for us what's driving that? Is that more stability with the UCAS business that now we're 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.

Yeah, thanks, Taylor, for the question. So I think it's kind of most of what you said. Look, our code business continues to be durable. Retention metrics there are strong, and it's a recurring revenue base for us, which for And as Vlad said, you know, the usage metrics on the platform are very healthy, which underscore the mission criticality of the platform. And then on top of that, the AI is continuing to add more contributions. It's growing off a smaller base, but it's 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's 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, you know, we are growing 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 Thank you. Thank you.

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