Thank you. Good afternoon. And welcome to RingCentral’s first quarter 2023 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Mo Katibeh, President and Chief Operating Officer; and Sonalee Parekh, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Mo, and Sonalee, followed by Q&A. We also have a slide presentation available on our investors' website that will coincide with today’s call, which you can find under the Financial Results section at ir.ringcentral.com. Some of our discussion and responses to your questions will contain forward-looking statements regarding the company’s business operations, financial performance, and outlook. These statements are subject to risks and uncertainties, some of which are beyond our 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. 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 deck. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website. With that, I will turn the call over to Vlad.

Good afternoon, and thank you for joining our first quarter earnings conference call. We had a solid start to the year. Q1 results demonstrate that our strategy of driving healthy, profitable growth is paying off. Total revenue grew 14% to $534 million, above the high end of our guidance range, and ARR grew 14% to $2.2 billion. Operating margin rose almost 700 basis points year-over-year to 17.2%. This was also above our guidance and was once again a quarterly record. Our higher margin was driven by continued cost discipline, improved operational efficiencies, and the benefits of the actions we took last year. Those actions position us to emerge stronger and more focused when the macro environment improves. While the macro remains uncertain, we continue to be laser-focused on what we can control. This includes driving continued innovation and maintaining our disciplined approach towards increasing profitability and free cash flow. Sonalee will provide more color on our profitability shortly. You have heard me talk about trust, innovation, and partnerships being the cornerstone of our success. As to trust, we achieved 99.999% availability for the 19th straight quarter. With respect to partnerships, Mo will provide more color on our progress with the channel, strategic partners, and global service providers. I will now highlight some of our key innovation accomplishments this quarter. We believe these innovations over time will increase our customer value proposition and create additional expansion opportunities within our large customer base. These include; RingCentral for Teams 2.0, our next-generation Microsoft Teams Embedded App; RingSense, our new AI platform and its first commercial application, RingSense for Sales; RingCentral for Frontline Workers, which combines new Push to Talk functionality with RingCentral Video and Messaging, and in partnership with Vodafone Business, we have released RingCentral Overlay, which enables our messaging and video collaboration capabilities on top of legacy voice services. Let me now provide more details. First, we recently announced RingCentral for Teams 2.0. This solution brings RingCentral’s world-class cloud PBX capabilities into Microsoft Teams with a fully native experience, without requiring a second application. This means that end customers can now enjoy RingCentral’s renowned 99.999% reliability, global availability, advanced analytics, industry-leading features, and third-party integration capabilities entirely within Teams' single pane of glass. Second, RingSense. In the past, I have talked about four megatrends driving our business: the shift to hybrid work; ongoing adoption of mobility by businesses; increasing reliance on distributed workforces; and the desire for an integrated, cloud-based UC and CC solution from a single provider. A fifth megatrend has now emerged that is truly revolutionary, and that is AI. With RingSense, we now have the ability to inject AI capabilities across the entire RingCentral portfolio. As one of the world’s largest UCaaS providers, we are in a unique position to offer our customers powerful insights into their conversations. With RingSense for Sales, our first offering in this portfolio, we will be able to offer sales teams features such as engagement scoring, keyword analysis, and AI-generated recommendations. We are currently transitioning our own sales team from a third-party conversational intelligence solution to RingSense for Sales, as well as testing it with a number of customers in closed beta. Third is RingCentral for Frontline Workers. This powerful solution combines new push-to-talk capabilities with RingCentral Video and Messaging. Gartner estimates there are 2.7 billion frontline workers, more than two times the number of desk-based workers. With our solution, frontline workers across all industries can use any smart mobile device to seamlessly and efficiently connect with their front and back-office teams. It is available in beta today as either a standalone solution or as an add-on to RingCentral MVP. Mo will provide more details. And fourth, RingCentral Overlay, which enables RingCentral messaging and video collaboration capabilities for legacy customers. This innovation, in partnership with Vodafone Business, enables hybrid workforces and serves as a stepping stone for those customers to move to our complete UCaaS communications solution in the future. In summary, it was a solid quarter across growth, profitability, and innovation. We continue to innovate, enhancing our differentiation. We are also laser-focused on efficiency, which we expect will generate robust free cash flow going forward. This sets us up well for the future and is why I am so excited about the opportunity in front of us. Now, let me turn the call over to Mo to go over the quarter in more detail.

Thanks, Vlad. We had a solid quarter, with healthy growth across the portfolio. An example of a win contributing to this healthy growth is a Fortune 500 company that purchased five thousand seats of UCaaS and five thousand seats of CCaaS. They selected RingCentral for three main reasons. First, our ability to integrate seamlessly into Teams, providing 99.999% reliability and deep integrations into ServiceNow, Salesforce, and other key aspects of their employees’ workflows. Second, our integrated UC and CC platform. Beyond the simplicity of having a single vendor to manage, the entire organization can now use a single communications platform. This results in increased customer satisfaction and potential new revenue opportunities. For example, if no one at a local branch location picks up after a certain number of rings, the call can now be easily forwarded to its contact center. And finally, the company is projecting to save millions of dollars by standardizing on a single platform, removing maintenance costs, shadow IT, and telco fees. Reducing costs is a key value proposition for all of our customers, especially in today’s environment. We continue to see good traction within our core business because of our ability to help customers save money. Forrester, a third-party research firm, recently published a report on the total economic impact of using RingCentral MVP and Contact Center together. This report concluded that customers are seeing a 211% return on investment, with an average payback of under six months. In addition, Forrester concluded that using RingCentral UCaaS and CCaaS together had three key benefits. First, call handling time was reduced by 45% versus 20% for a standalone contact center. Second, internal contact center and UCaaS IT support tickets were reduced by 30%. And third, time to close each ticket was reduced by 60%. Moving on to our Teams practice. In Q1, seats within our Teams business more than doubled year-over-year. With our updated RingCentral for Teams 2.0 solution, which is available in beta today and will be generally available this summer, we are able to provide an even better user experience and that’s not all. Most Teams users are on E1 or E3 licenses, including many in key customer-facing verticals such as healthcare, retail, and professional services. Those customers chose RingCentral versus Teams Phone given our deep integrations, reliability, and advanced feature sets, all at a very attractive price point. For example, UKG, a leading provider of HR, payroll, and workforce management solutions, is currently using RingCentral with Microsoft Teams. We integrate seamlessly within their existing workflows, enhancing both their internal employee experience and their customer communications. Now, let me give you an update on our go-to-market. First, strategic partners. Avaya just emerged from bankruptcy a few days ago, and we expect their contribution to ramp in the latter part of the year. Also, Mitel continues to perform in line with expectations and closed a $1 million TCV transaction in Q1. We are also seeing good traction with many of our GSP partners. Charter, one of our newest partners, performed well. We also launched with Vodafone Business in additional European geographies. Lastly, our new partnership with AWS, while still in early days, is developing well and we expect to be on the AWS Marketplace later this year. Now, Channel partners. They represent about 40% of our ARR base and continue to help us broaden our reach. The channel is an important part of our go-to-market and we continue to ensure that incentives are aligned with the value they bring. In fact, we recently launched our RingCentral Ignite program that enables partners to manage all go-to-market and customer lifecycle activities without RingCentral sales assistance, which in turn provides economic benefit for all parties. Moving to international, I’d like to highlight two international deals that we closed with our partners. The first is with a European athletic retailer with over 2,000 stores. They selected a RingCentral solution to help them streamline communications across their retail stores in France. They purchased thousands of MVP seats and also added our new frontline push-to-talk capabilities. This will allow store members to easily and securely communicate through voice, video, or messaging with the push of a button, and all without additional hardware. The other is a regional government body in Europe that recently selected RingCentral to provide video and messaging to more than 55 thousand users. This was a great win and demonstrated the power and value RingCentral Video and Messaging can provide a large organization on a standalone basis. Lastly, I want to discuss the current demand environment. The macro remains consistent with the trends we have been seeing over the last few quarters. Also, sales cycles remain elevated versus last year as customer buying decisions continue to receive significant internal scrutiny and additional layers of approval. We are also seeing less upsell within our existing base as customers have slowed hiring and rationalized their employee counts. However, win rates remain stable and lead flow remains consistently strong, demonstrating continued demand for on-prem to cloud conversion. With that, let me turn the call over to Sonalee to discuss our financials.

Thanks, Mo. I will provide highlights from the first quarter and then discuss our business outlook for the second quarter and full year. Subscriptions revenue of $508 million was up 16% year-over-year and above our guidance range. On a constant currency basis, subscriptions revenue rose 17% year-over-year. ARR rose 14% versus last year to $2.2 billion. On a constant currency basis, ARR rose 15%. We continue to expect ARR growth to outpace subscription revenue growth in 2023. This is due to our enterprise business being more back half weighted. Moving to profitability. I will be referring to non-GAAP results unless otherwise noted. Our subscription gross margin was solid, at 81.8%. Overall ARPU was again resilient and above $30, supporting our strong gross margin. Operating margin rose 680 basis points versus last year to 17.2%, another quarterly record. The increase was driven by efficiencies generated across the business, most notably in sales and marketing, which was down 420 basis points versus last year. Q1 demonstrated good progress on our path to driving best-in-class profitability and free cash flow commensurate with our scale. Regarding free cash flow, we generated $54 million in Q1 2023, which includes roughly $7 million related to one-time restructuring items. The improvements to our cost of customer acquisition, collections activity, vendor management, and continued focus on driving efficiencies is leading to strong free cash flow conversion, and we expect continued improvement throughout the year. Our focus on growing free cash flow generation allows us to employ a dynamic capital allocation strategy that includes evaluating organic and inorganic investments, repurchasing shares, and importantly, addressing our convertible debt maturities. Regarding our debt, our free cash flow provides us many options in terms of how we address our convertible maturities. While our two converts both carry a zero percent coupon and are not due until 2025 and 2026, still two years and three years out, respectively, they are a top priority for us and for me personally. Based on our 2023 outlook and assuming our current capital structure, our net leverage will be less than 3 times net debt to EBITDA for the trailing twelve months ending December 31, 2023, which we expect will continue to improve. Given the deleveraging profile, we believe we have a number of attractive choices to address our outstanding convertible maturities. Now, turning to guidance. While we outperformed our Q1 revenue outlook, we are still early in the year. Given the macro uncertainty, we are remaining prudent in our guidance. Taking this into account, for the second quarter of 2023, we expect: subscriptions revenue growth of 10% to 11%; total revenue growth of 10%; non-GAAP operating margin of 17.5%; and non-GAAP EPS of $0.74 to $0.76. For the full year 2023, we now expect: subscriptions revenue growth of 11%, up from 10% to 11%; total revenue growth of 10% to 11%; non-GAAP operating margin of at least 18.5%, up from our prior outlook of at least 18.0%. Based on the midpoint of our revenue guidance, we expect operating profit dollars to grow at least 65%, up from at least 60%. Non-GAAP EPS of $3.19 to $3.25, up from our prior outlook of $3.04 to $3.10. In summary, Q1 was a solid quarter. We exceeded guidance on both topline and bottom line. We continue to see healthy growth in our business despite the current macro backdrop. We believe the market opportunity, our leading and differentiated product, and a laser focus on balancing growth with increased profitability positions us well for continued success. With that, let’s open the call for questions.

Thank you very much. The first question today comes from Samad Samana with Jefferies. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. Good to see the stable results. Vlad, maybe for you. I just was curious, you talked about a number of new products and increased innovation. And I am curious, how do you think about those products? Do you see them as ways to expand ARPU or drive cross-sell upsell or do you see those as features that add value that will make it easier to acquire customers? Just maybe how should we think about whether there’s a direct monetization opportunity or is this a way to continue to attract more and more customers to the RingCentral platform?

Hi, Samad. That's a great question. It’s a mix of both, and it varies. For instance, RingSense, our AI initiative, is definitely a growth driver. It will be monetized separately. It’s designed not just as an add-on for current customers or RingCentral users, but also as a standalone product that can work with other UCaaS and CCaaS solutions. This applies to frontline workers as well, where the push-to-talk feature is a separate SKU that can function independently or as an addition for customers. Our work on overlays is particularly exciting because it represents clear progress beyond our core PBX in the cloud. The purpose of the overlay is to integrate with legacy on-prem providers while enhancing customer experience with our video and messaging solutions. This presents a monetizable opportunity and provides an easier migration path for these customers to transition to the cloud. I hope that covers everything. To summarize, it's a mix of both, but also worth mentioning is our collaboration with Teams, specifically RingCentral for Teams 2.0. This is a significant advancement, and we believe we currently have the best Teams integration available. Customers have communicated their preference to operate within the Teams interface, but Teams lacks a fully viable UCaaS solution, which we have. This close integration positions us ahead of the competition and opens up new opportunities for revenue while also enhancing the experience for our existing Teams customers.

The next question comes from Sterling Auty with Moffett. Please go ahead.

Yeah. Thanks. Hi, guys. I just wondered if you could go maybe one layer deeper in terms of your discussion around how you are going to handle the convertible debt, maybe you don’t want to get into too much specifics. But anything that you can give around timing and how proactive you want to be with managing it, as well as just what are some of the options that to be the most obvious for managing through? Thank you.

Thanks for the question. This is a key focus for our management team and for me personally. I want to highlight that we anticipate increasing free cash flow over the next several years. As noted in today’s report, we achieved a significant operating margin expansion of nearly 700 basis points year-over-year and reached a quarterly record of $61 million in free cash flow, despite incurring around $7 million in restructuring charges. We are certainly not finished with free cash flow generation. We have multiple strategies to address the convertible debt, including using the cash we are generating, which we expect to improve throughout the year. Additionally, last quarter, we announced a $400 million Term Loan A, which is a delayed draw facility available to us until November 2023. We will decide when to draw on that based on market conditions. Given our financial performance and our EBITDA profile, we will have more financing options available, including access to traditional debt markets if needed. Currently, the coupon on the convertible debt is zero percent, which is very favorable. We will manage the convertible debt carefully while balancing it with other capital allocation priorities, ensuring we do not allow the converts to go current.

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

Thanks for taking my question. And definitely I just want to focus on profitability and cash flow. It’s good to see that progress even on the margin expansion side, Sonalee. So I understand that you are benefiting from some of the cost cutting and the headcount reduction you did announce earlier. But could you talk about some of the other drivers and progress there and driving margin expansion and also further cash flow conversion? How sustainable is that? How should we think about for the next few quarters or years?

Sure, Siti. I am just going to hit the second part of your question right off the bat. It is very sustainable, and again, I am going to repeat, there’s more to come. We are not done yet. You saw the 700 basis point improvement year-over-year this quarter. But you also know that we raised our OP margin guidance for the full year. We are now targeting at least 18.5% operating margins and still very much exiting at least 20% in Q4. So not only is it sustainable, it’s going to get better from here. Yes, we did take some actions at the end of last year, difficult actions that you are seeing flow through the numbers in the current quarter. I think the profit potential of our business model at scale is really starting to shine through, and we are continuing to focus on the productivity of our workforce and optimizing and driving down the cost of customer acquisition. This is something you have heard Mo and I talk about in the past, and that’s an area that we are still really investing in. Another personal example I will give you, just from the finance side around efficiency actions is in the procurement project that we are running. We had many manual processes from procurement to payment, as you might understand for a company that scaled and grew as quickly as we did. At the moment, within my finance team, we are implementing a software that will automate a lot of these processes, and that procurement initiative alone will be saving high single-digit millions, just that one initiative within finance. There’s also the operating leverage inherent in the business. We are focusing on higher ROI programs. We are really prioritizing how and when and where we are investing our dollars. We are actively managing the workforce. So that includes opening up hubs in Dallas and Charlotte, which are lower-cost geos versus making incremental hires in Belmont. For example, in my team, I am not making incremental hires on the finance side in Belmont. Any of those new hires would be in lower-cost geos. And then Mo will probably talk a little bit about what we are doing on the channel side. But we are very much looking at how we pay our partners and how we work with those partners and that will drive further efficiencies and incremental savings. As partners really take on a larger role in the overall soup to nuts sale process. And then, finally, the vendor management consolidation where we are reviewing every contract, rationalizing licenses, bidding out our vendor contracts, everything to really get to best-in-class best practices. And one last thing I will share just because you were pushing on the sustainability of this profitability, and I do want to also make a strong point on free cash flow. We shared last quarter that we would double free cash flow generation from a normalized level of $140 million in 2022 to at least $280 million by 2024 by fiscal year-end. I am now confident we can achieve this level of free cash flow generation much earlier than the end of fiscal year 2024. And this level of free cash flow generation gives us a lot of flexibility around capital allocation, and importantly, addressing our convertible debt in a cost-efficient manner.

The next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Great. Thanks. I just wanted to see if you could kind of break down with some of the upside that you saw to the quarter, that lower churn, is that better pricing on renewals, is that just slightly better that adds? It appeared kind of the mid-market was the greatest source of incremental ARR growth. So just trying to see if that churn came in a little bit less than expected. Just any details on kind of that context would be helpful? Thanks.

Thanks, Meta. Yeah. So I think I will start off just by addressing net retention, which again is a big focus for this management team. So we produced net retention, we came in at above 100%. And within that, churn remains stable on a percentage basis, so annualized churn on a percentage basis. What I will call out is, stable churn on a larger base does actually mean higher dollar churn, but overall churn stable and within plan. Again, we are actively focused on it. We have invested in CSM, so customer success and analytics in this area as this is a big renewal year as COVID laps. What I would say is that we saw some pressure in upsell due to the macro we believe, and that was mostly in enterprise. So you are absolutely right to call out that SMB was a bright spot. So we saw no material change to the dynamics in that business. And some customers within enterprise are starting to rationalize seats, given the headcount actions that they are taking internally. But we are very much focused on maintaining the logos and again, just investing actively in that area. Mo may want to add a bit in terms of the strength we are seeing on SMB.

Yeah. Sonalee, I think you nailed it; at the end of the day strength in SMB. We are seeing that market stabilize. It’s continuing to do well for us. Acquisition broadly across the board was strong. And then, as Sonalee pointed out, stable churn, and these are the factors that we have utilized as we think about our go-forward guide as well.

The next question comes from Ryan Koontz with Needham. Please go ahead.

Thanks for the question. I wanted to ask about the Teams' environment. I had a chance to see your 2.0 at Enterprise Connect, and I was really interested in that. We have also heard anecdotally that Teams Phone is really slowing. I am sure that’s due to the macro in general. But I wonder if you are seeing any impact on that in terms of your upside opportunity to sell the turnkey Ring UCaaS solution versus opportunities to sell into Teams as your own app inside Teams. I appreciate any color on that? Thank you.

Thank you, Ryan, for visiting and checking out the demos. As mentioned in our prepared remarks, we are experiencing strong growth with our Teams 1.0 business, showing over 100% seat growth year-over-year. When we look at Teams 2.0, we see it as an opportunity to gain traction with our already substantial Teams base by providing a significantly improved experience compared to our 1.0 product and what competitors are offering. Our focus is on targeting E1 and E3 users who do not have a Teams Phone license, which constitutes the majority of Teams users. This aligns with our business-as-usual sales strategy, where we engage customers about their current solutions. If they are on an on-prem legacy system, we may find that they are Teams users, and we can then highlight the value and benefits of our integrations and analytics, all at a straightforward and valuable price. Additionally, if a customer requires contact center solutions, we can integrate that as well. To directly answer your question, there is a significant number of Teams users today, and we see this as a key growth opportunity as we move forward, especially with our 2.0 solution.

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

Congrats on the strong quarter, guys. So I just wanted to start on the enterprise in the top of the funnel. I know you mentioned that ARR growth and the revenue growth in Enterprise was the delta there. What are you guys seeing in the top of the funnel that gives you confidence that the enterprise will step up in the back half of the year? Thanks, guys.

Thanks for the question, Brian. Appreciate it. As we think about the top of the funnel, our lead flow is still quite strong. And as I mentioned a few minutes ago, we are seeing broad acquisition strength across the board. The dynamic that’s in play and quite obviously driven by the macro environment is the upsell-downsell; two sides of the same coin are impacting our enterprise business. As the macro improves, our ability to sell our traditional product set into the enterprise, organically, will improve with it, one; and then two, and obviously, this takes a little bit longer. But as you think about the new innovations that Vlad articulated, they become new cross-sell, upsell opportunities, as well as an acquisition wedge strategy, if you will, the ability to go sell these new products as a standalone and then pull through our UCaaS and CCaaS solutions along with it. So those are the dynamics that are playing out. Thanks for the question.

The next question comes from Matt Niknam with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking the question. I am just curious if you can talk about the cadence of bookings over the course of the quarter. More specifically, I guess, was there any drop-off in March or any spillover into April? And then just one quick follow-up on small business ARR, obviously, very resilient. I am just wondering if you can comment on what’s driving the relative resiliency there maybe relative to just midsize and enterprise? Thanks.

Sure. Hey, Matt, Sonalee here. I will address the first part of your question, and then I may pass it over to Mo to discuss specifically on SMB. Regarding the timing of bookings, while we don’t provide specific guidance on bookings, I think it’s useful to share some insights given the current situation. I won’t detail it month by month, but we did see a significant amount of bookings concentrated towards the end of the quarter, with March representing the majority of our bookings. We previously indicated that ARR growth would outpace total revenue growth for the year, and we still anticipate that to hold true. Additionally, enterprise bookings tend to be more back-end loaded, which aligns with the current trends we are observing. Now, I will pass it over to Mo to discuss SMB trends.

Yeah. So thanks for the question. As you think about the opportunity to close cycle time dynamics, we articulated that we are still continuing to see elongated cycle times vis-à-vis Q1 of last year. Now as you think about SMB/SOHO and SMB space, obviously, that opportunity to close is significantly faster. And one of the dynamics that played out for us during the quarter was, frankly, very good execution by our marketing organization that we have talked about historically. We were going to rationalize brand spend, we are going to improve the efficacy of our marketing demand gen motion, and that is playing out. With less, they were able to drive more pipeline. That pipeline closes fairly quickly down market and is one of the reasons that you are seeing the strength in the numbers that we were able to put up. Thanks for the question.

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

Thank you for taking my question. Mo, I wanted to ask about Avaya reemerging from bankruptcy. Did you observe any impact from the channel during their bankruptcy? If so, can you quantify that impact for the first half? Also, with ARPU above $30 million, could you break down what core UCaaS pricing looks like if we exclude contact center from that number? Thank you.

Thanks for the question, Peter. So to talk about Avaya, look, they just emerged from bankruptcy a few days ago at the very beginning of May. As we have said before, we are expecting that their contribution will ramp in the latter part of this year, obviously tied to putting the restructuring behind them. We are comfortable that the contractual provisions that we have in place are going to allow us to achieve the minimum commitment volumes that we talked about last quarter, as well as the enablement of new go-to-market motions including wholesale, and additional integrations that we are building tied to Avaya's legacy contact center, et cetera. And frankly, to the degree that they are not able to achieve those commitments, if that ever happens, then we are comfortable that there’s mechanisms in place to address that as well. So, with that, Sonalee, I will turn it over to you to talk about ARPU.

Yeah. Thanks for the question, Peter. So as you know, we look at and run the business and disclose ARPU on a blended basis, and I am happy to say that the trend was stable there. As you know, CCaaS has a higher ARPU, a significantly higher ARPU than UCaaS. But even when you take out the CCaaS number from overall ARPU, they are generally holding steady. There was a little bit of weakness in UCaaS relative to CCaaS, but it’s very, very mild. Overall, very stable and stable within a range. And there was some of that was actually, to be clear, some of the softness was FX, but it was very marginal.

Yeah. Spot on. Yeah.

And no material change.

The next question comes from Michael Funk with Bank of America. Please go ahead.

Hi. This is Matt on for Mike. Thanks for taking the question. It’s great to hear that the demand environment is broadly holding up. Can you call out any incremental strength or weakness you saw in specific verticals this quarter?

Yeah. Thanks, Matt, for the question. As we have talked about in previous quarters, the strength that we are seeing relative to verticals really ties back to areas that are very focused on what we call business-to-consumer, a.k.a., verticals and companies that sell or service end consumers as their customers. So healthcare, financial services, retail, professional services, public are generally the areas that value UCaaS and the services that we provide, frankly, because voice reliability, service uptime, et cetera, has got to be rock solid, because it’s the difference between happy customers driving revenue, et cetera. Those are still the verticals that are doing really, really well for us and provide meaningful opportunities as we look ahead.

The next question comes from Matt Stotler with William Blair. Please go ahead.

Hi, everybody. Thanks for taking the question. Maybe just a follow-up and maybe this one for Mo, but it’s based on something Sonalee mentioned earlier. We talked about last quarter some efficiency improvement initiatives around partners specifically and shipping incentive structures and those relationships. Just maybe give an update on the level of acceptance you are seeing with those changes at partners and then any kind of early indications on the impact on productivity of the relationships?

Broadly, we did not observe any year-over-year impact related to our partnerships due to the changes we implemented. As mentioned last quarter, ALE and Atos are no longer exclusive partners. We still work with them; they maintain a significant on-premises customer base and will receive compensation as seats are sold. This model has been effective for us, as it encourages the right incentives and behaviors. Additionally, our channel partners are consistently generating leads with no significant changes from quarter to quarter. Furthermore, I want to highlight the launch of the RingCentral Ignite program. We have had a variant in place for some time, but we are now fully committed to it. This program serves as another avenue to help direct our sales and marketing revenue in a positive direction over time. It provides financial incentives for our partners to manage more of the sales and marketing efforts independently of our direct sales team. This approach is beneficial; many of our channel partners have established relationships with legacy on-premises customers, enabling them to transition these clients to RingCentral without needing extra incentives. This creates economic advantages for everyone involved, and although it's still early, we're noticing strong interest from the channel partner community regarding this initiative.

The next question comes from Ryan MacWilliams with Barclays. Please go ahead.

Hi. This is Dan Cogman on for Ryan MacWilliams. Thanks for taking my question. I was just curious how your renewals fared in the first quarter maybe compared to the fourth quarter and if you have seen any changes in these customer renewals as a result of macro.

Well, we don’t guide on renewals, but what I will bring you back to is a comment that Sonalee made, which is we are seeing the churn as a percentage is stable and doing well. As we mentioned in the enterprise space, upsell and down-sell, frankly, two sides of the same coin. There is some pressure on the down-sell side at the renewal time frame as our enterprise customers, who have been impacted themselves by the macro, are doing some degree of rationalization of seats tied to their own needs. But again, broadly speaking, the churn percentage has remained stable quarter-over-quarter, year-over-year.

The next question comes from Catharine Trebnick with Rosenblatt Securities. Please go ahead.

Great. Thanks for taking the question. This is Bobby Dee on for Terry. Just one on contact center. For those larger million-dollar-plus deals, is contact center attached still in the over 60% range, or has there been any notable up or downtick in attach year-to-date? Thank you.

Stable. We are continuing to see our $1 million-plus TCV deals have more than 60% attach of CCaaS, and really this boils back to what we have seen historically, which is in the legacy UC-CC base about 60% of all of the CC seats sold were from the same vendors that were selling UC to those customers. It’s a very obvious buying motion. It drives significant economic benefits to customers, as I laid out in my prepared remarks, recently validated by Forrester, an independent third-party consulting company.

Today’s last question comes from Michael Turrin with Wells Fargo Securities. Please go ahead.

Hey, there. Thanks for sneaking me in. Sonalee, I just want to go back to margin. You are unlocking a lot of margin expansion in fairly quick order. You had some useful commentary around the sustainability of those improvements. Is there anything you can add around how you ensure you are driving the right level of optimization and still leaving enough in the tank for growth to hold in above double digits going forward as well? Just curious on how you manage the balance through this? Thanks.

Yeah. Sure. I mean, you have heard us say that we are focused on driving healthy, profitable growth. So we absolutely are and always will be a growth company. What I said in previous calls and tried to reiterate today is, we are seeing the benefit of scale in the model. We are actually seeing the profit potential of the business model starting to shine through, and that’s from lots of efficiencies we found within the workforce, optimizing our cost of customer acquisition. You may remember last quarter when we talked about the actions we were taking, we were very specific not to touch frontline salespeople, and that is something that is still very much part of the RingCentral playbook in terms of becoming significantly more profitable and significantly more cash generative. We are protecting the P times Q selling motions within the portfolio. Some of the things that we have talked about, Mo was talking about lowering customer acquisition within the channel. I talked about vendor consolidation, reviewing contracts, rationalizing licenses, and being disciplined about expense, being disciplined about hiring in some of the G&A areas where we still have a bit of work to do, but we feel like we have come a long way. So what I would say is that, we feel like we are getting the balance right, and I very much believe that we need to invest for growth. One of the great things about optimizing your cost base is it frees up cash to be able to invest in future, and that’s what this team will be focused on.

Thank you all. And that concludes our call for today. You may now disconnect.