Hello, and welcome to the RingCentral Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. As a reminder, this conference is being recorded. I would now like to hand the call to Will Wong, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Third Quarter 2021 Earnings Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; and Vaibhav Agarwal, Senior Vice President of FP&A and Chief Accounting Officer. Our format today will include prepared remarks by Vlad and Vaibhav followed by Q&A. We have a slide presentation available on our Investor Relations 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 GAAP to non-GAAP results is provided with our earnings release and in the slide deck. 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'll turn the call over to Vlad.

Good afternoon, everyone, and welcome to our third quarter earnings conference call. Before I discuss our results and highlights from the quarter, I'd like to provide a management update. I want to extend a warm welcome to Abhey Lamba, who we announced today as our new Chief Financial Officer. Building from Keystart as a software engineer at Better Systems, Abhey is a seasoned finance and technology leader with over 30 years of experience. Abhey joins us from Amazon Web Services, where he was Vice President of Finance for Global Infrastructure, including GM AI investments. Prior to Amazon, he held financial leadership roles at Cisco Systems and Autodesk. In his various positions, he has driven growth and profitability for multibillion-dollar businesses. Previously, he served as a sell-side analyst on Wall Street for over 15 years, where he covered enterprise technology, hardware, and SaaS companies at UBS, ISI Group, and Mizuho Securities. Abhey will join in his new role in the coming weeks. I would also like to sincerely thank Vaibhav Agarwal, our SVP of FP&A and Chief Accounting Officer, for his valuable contributions to our company during this transition. His dedication and outstanding leadership ensured that we did not miss a beat during the transition period. Vaibhav partnered with Abhey and myself as we scale the company in the next stage of growth. Now moving to results. We had a solid third quarter. Revenue was above our guidance range. Our outperformance was driven by continued strength in our core UCaaS market combined with strong traction from our new products, particularly RingCX. We also delivered on our profitability goals, including achieving GAAP operating profitability in the quarter. The combination of strong growth and operating margin expansion, a material reduction in SBC, and the return of capital via buybacks has driven a 56% year-over-year increase in free cash flow per share this quarter. Our results demonstrate we are executing against our strategic priorities. They are: one, solidifying our UCaaS leadership by infusing AI across our entire portfolio among other initiatives. Two, expanding TAM through new AI-powered products. These include: RingCX, our native AI-powered CCaaS solution; RingSense, our conversation intelligence offering; and RingCentral Events, our virtual and hybrid events platform. Third, broadening our reach by nurturing and growing our large and diverse partner network and expanding into new geographies. We believe these priorities will drive long-term profitable growth through increased wallet share, improved retention, and more efficient new logo acquisition. Let me share more about each priority and how we performed against it during the quarter. First, solidifying our UCaaS leadership. We have built a leading business communications platform grounded in TIP, which stands for Trust, Innovation, and Partnerships. On Trust, we’ve been delivering five nines or better reliability for over six years. Customers of all sizes, including some of the world’s best-known brands, choose us because of our robust feature set, ease of deployment and use, and carrier-grade reliability, all built on our secure, standards-compliant, and highly scalable global platform. This continues to be a key differentiator and a competitive advantage for us, which is why we have been named by Gartner for the tenth consecutive year as a Leader in the 2024 Magic Quadrant for UCaaS report. Core to this recognition is our leadership in voice. Voice continues to be mission critical. We see this in our user base, where voice minutes per user remains consistent with historical trends. This is supported by a recent IDC survey which concluded that 78% of organizations agree that voice calling will remain a priority mode of communication in their employee and customer interactions. Given our leadership in voice, enterprises are choosing RingCentral’s business phone platform to complement their use of Microsoft Teams messaging and video. Teams customers turn to RingCentral for advanced phone capabilities that are not available with Teams. These include but are not limited to SMS, fax, call monitoring, call queue management, IVR, rich communication APIs, broader global reach, native integrations with major CRMs, and robust analytics and reporting. Based on these advantages and our deep integration with Teams, this quarter we booked a $1 million plus TCV win with a large European healthcare provider, who is also a chief customer. This customer will deploy in their 35-plus offices across Europe. Voice is the primary mode of business communication and AI is a tailwind for voice. Businesses can now unlock the power of their voice conversations and the resource of data that enables more insights and smarter decisions. This is why we recently announced RingCentral AI Assistant, which is now included at no additional cost for all RingEX customers. RingCentral AI Assistant magically generates detailed real-time notes for voice calls, helps write and translate text, and summarizes meetings to create action items, reducing time spent on mundane tasks and freeing up employee time for more critical work. Omdia Research recently cited the subscription by RingCentral AI Assistant as 'amazingly accurate'. A long-time RingCentral customer, the Detroit distance is already implementing AI-powered note-taking for their key meetings and strategy sessions. Paul Reiter, their VP of IT said, 'It has been a game-changer for the business operations. Previously, we worried about missing crucial details, especially during fast-paced pre-game preparations. It has significantly enhanced our ability to stay organized and aligned. This technology isn't just improving our administrative efficiency; it is giving us a competitive edge by ensuring no valuable insights or strategy falls through the cracks.' To further our competitive moat, we recently achieved a significant milestone by receiving a pan-India license from the Indian Department of Telecommunications. This commercialization allows us to operate across all 22 telecommunication circles in India, making us the first cloud providers to deliver fully compliant UCaaS and CCaaS solutions throughout the country. Multinational organizations can now seamlessly connect their global offices with Indian branches, facilitating efficient communication and collaboration. Now let's move on to the new products. First, our new native CCaaS product, RingCX. IDC recently highlighted that over 80% of organizations believe it is important that their UCaaS solution includes CCaaS capabilities. Benefits of a joint UCaaS and CCaaS solution include improved collaboration between call center agents and the rest of the organization, resulting in overall improved customer experience, integrated conversation intelligence, unified usage analytics, a better overall user and administrative experience, and uniform SLAs for all internal and external communications. RingCX is a modern AI-powered omnichannel CCaaS platform, offering native conversation intelligence and quality management across our 20 digital channels in addition to voice and SMS. It is seamlessly integrated with our industry-leading RingEX platform and differentiates itself by combining ease of deployment and use with depth of functionality, reliability, and security. Based on these trends, this quarter, we booked a $1 million-plus TCV deal with one of North America’s largest manufacturers of automotive replacement tires who will be deploying RingEX, RingCX, and RingSense across their entire international footprint. As an additional proof point of RingCX’s ability to scale, including more advanced use cases, we have also recently moved the entire RingCentral customer service team of over 1,000 support agents to RingCX. This transition was accomplished cost-efficiently, in a few short weeks, and without disruption. We now have over 500 customers on the platform, up over 45% sequentially. In addition to strong customer growth, we are also seeing strong ARPU expansion, which was up sequentially. The RingCX AI Quality Management Add-On has been a key driver of this ARPU expansion, with a nearly 50% attach rate to new bookings in the quarter. AUTOPAY, an auto loan specialist, stated, 'Since we migrated to RingCX, we estimate a 20% time savings for customer success reps due to the sophisticated AI-based technology that RingCX delivers.' To further enhance the value proposition of RingCX in the mid-market and enterprise segments, today we have announced a strategic partnership with Verint. Through this partnership, RingCX customers will be able to leverage Verint’s leading WEM and CX automation solutions, which complement RingCentral’s native AI capabilities. This is to enhance employee productivity and improve customer experiences, ultimately driving competitive advantage and operational efficiency for our customers. With the ability to address a full range of use cases, we will be prioritizing our native CCaaS platform, RingCX. The strong traction we are seeing with RingCX has validated its value proposition in the market. As RingCX grows its base, it has the potential to capture a meaningful share of the multi-billion-dollar CCaaS TAM with beneficial economics for RingCentral. Second, RingSense, our conversation intelligence platform that was formerly called RingSense for Sales, now has over 1,200 customers, up over 45% sequentially. The RingSense customer base and use cases are diverse. For example, legal firms are using it to simplify case management, and healthcare organizations such as REE Medical are using it to automatically review approximately 75,000 calls a month for specific keywords, versus previously only being able to manually review a few hundred calls per month. Third, our virtual and hybrid events solution, RingCentral Events, added over 100 new customers during the quarter. These included Trimble, a Fortune 500 technology company. Trimble selected RingCentral Events for its ability to easily create high-production quality branded events. We also renewed relationships with key RingCentral Events customers such as Block, DHL, eBay, NYU, Rutgers, and TELUS, among others. In February of this year, we set a target of achieving at least $100 million of exit ARR from our new products by the end of 2025. We are encouraged by our results so far and believe we are well on our way to achieving this target. Now on to partnerships. Our differentiated go-to-market includes a large direct sales force, top global service providers (GSPs), and a large partner and reseller network. This allows us to have access to multiple customer groups, geographies, and verticals. It is an important part of our competitive moat that allows us to successfully scale our multi-product business. Let me give you some highlights from the quarter. First, GSP. Our GSP business again grew faster than our overall business. This network of GSP partners and the deep engagement that we have built with them on both product and go-to-market strategies are unmatched by our UC and CC peers. A great example of this deep engagement is our 10-year-plus partnership with AT&T, the nation's premier fiber, fixed wireless, and wireless provider, which we recently renewed. We're also leveraging our large GSP network to grow internationally. We recently added Optus, a leading service provider in Australia, and are now seeing early traction together. We also continue to see success with Vodafone, British Telecom, and TELUS internationally. Leveraging our unique GSP network is also a significant opportunity and differentiator for our RingCX growth. Vodafone, Cox, and Zayo have already chosen RingCX as a CCaaS solution to bring to their diverse customer bases, and we're optimistic about further progress with these and other key partners on this front. In summary, we had a strong quarter in delivering against our strategic priorities. RingCentral is a proven leader in UCaaS, where the opportunity remains large. Our new CCaaS, AI, and event products are showing good early traction. We are also executing on our efficiency initiatives, which is resulting in expanded profitability and free cash flow as well as reducing SBC. We are on an exciting path, and I'm confident that we can continue to execute in the quarters and years ahead. With that, I would like to again thank Vaibhav for his outstanding contributions and will now turn the call over to him to discuss our financial results in more detail.

Thanks, Vlad. Now I'll provide highlights from the third quarter and then discuss our business outlook for the fourth quarter and full year. In 3Q, we executed well across all our key financial metrics. Revenue growth, operating profit, SBC and share count reduction, and we are raising our full-year revenue and free cash flow guidance. In Q3, subscription revenue of $583 million was up 10% year-over-year, solidly above the high end of our guidance range. ARR of $2.48 billion was up 9% year-over-year on a reported and a constant currency basis. On a sequential basis, currency was a moderate tailwind. By customer group, enterprise ARR rose 11%, with both mid-market and small business up 8% versus last year. As Vlad noted, new products, particularly RingCX, continue to perform well with sequential ARR growth in 3Q consistent with 2Q. Moving to profitability, I will be referring to non-GAAP results unless otherwise noted. Subscription gross margin was 81%, down slightly sequentially as we invest in infrastructure to support the strong growth of our new products as they scale. Overall ARPU remained over $30, with new product ARPU meaningfully higher than overall ARPU. Over time, as the contribution from new products grows and their penetration within our large base increases, we expect new products to be accretive to overall ARPU. Operating margin rose approximately 2 points year-over-year to 21%. The year-over-year increase is driven by continued spending discipline and a focus on operating efficiency. Sales and marketing expense as a percent of total revenue declined 220 basis points to 39% as we continue to drive down costs in the sales and marketing organization and optimize for higher-margin routes to market. Overall, we view operating margin expansion in conjunction with reducing stock-based compensation as both ultimately drive higher free cash flow and free cash flow per share. During the third quarter, we generated free cash flow of $105 million, up 51% versus last year. Free cash flow margin was 17.3%, up 480 basis points year-over-year. In addition to continued operating leverage and disciplined spending, free cash flow has also benefited from working capital efficiencies. Moving to stock-based compensation, stock-based compensation was $85 million or 14% of total revenue, down 630 basis points versus last year. Through the first three quarters of 2024, net new share grants are down more than 60% versus last year, and we are on track to exceed our goal to reduce share grants by 50% of 2023 levels. The reduction in grants is important as the lower number of shares granted and lower grant values will result in continued improvement in SBC going forward. Importantly, free cash flow again exceeded SBC and reflects our discipline in meaningfully reducing stock-based compensation while significantly growing free cash flow. Moving on to our balance sheet and capital allocation. We will continue to employ a balanced and disciplined approach to returning cash to shareholders through both debt repayment and share repurchase. Net debt to adjusted EBITDA improved to 2.3 times, down from 3 times last year as we meaningfully increased our profitability. Consistent with what we shared last quarter, we plan to address our $161 million of 2025 convertible notes with available cash and cash flow. In Q3, we secured an additional $275 million delayed draw commitment to our Term Loan A, bringing total commitments to $350 million. We have until May 2025 to draw down on this commitment. We plan to address our convertible notes coming due in March 2026 with this commitment plus the free cash flow we expect to generate between now and March 2026. As part of deploying a dynamic capital allocation approach, we continue to target reducing our gross debt from $1.5 billion today to no more than $1 billion before the end of 2026. Note, our liquidity as of Q3 stands at $788 million, which is comprised of cash on hand plus the undrawn commitments on our Term Loan A and revolver. We believe that share repurchase continues to provide attractive relative returns. In Q3, we repurchased 2.6 million shares for $83 million. So far in 2024, we have repurchased 7.5 million shares for $245 million and have approximately $243 million remaining on our authorization at September 30, 2024. Our recent share buybacks, combined with continued discipline on stock-based compensation, will result in our fully diluted share count continuing to decline further. We are making good progress with the fully diluted share count declining by 1% sequentially and 3% versus last year. Going forward, we plan to continue to at least fully offset dilution from SBC via buybacks, all while preserving financial flexibility with respect to excess cash. Overall, our results this quarter demonstrate our ability to execute on our plan to deliver growth from our core and new products, expand margins through continued spending efficiencies, reduce stock-based compensation, and deploy a balanced capital allocation approach that includes share repurchase and debt paydown. With this strategy, we believe we can continue to strengthen our financial profile and believe we are well-positioned for the future. Now let me turn to guidance. Embedded in our guidance is the expectation that the macro environment and the current business trends remain relatively stable with no further material improvement or deterioration in conditions. With that backdrop, for the fourth quarter of 2024, we expect subscription revenue growth of 7% to 8% and total revenue growth of 7%, non-GAAP operating margin of approximately 21% and non-GAAP EPS of $0.96 to $0.97 based on a fully diluted share count of 92.5 million to 93 million shares. For the full year, we are raising our revenue outlook. We now expect subscription revenue of $2.295 billion to $2.297 billion, representing growth of 9% and total revenue of $2.397 billion to $2.399 billion, representing annual growth of 9%. We continue to expect a non-GAAP operating margin of 21% as we balance profitability with reinvesting back into the business. Importantly, we now expect stock-based compensation of $350 million to $355 million, down from $370 million to $380 million previously. We also expect non-GAAP EPS of $3.69, up from $3.62 to $3.67, driven in part by our lower share count outlook as we now expect 94.5 million fully diluted shares outstanding in 2024, down from 95 million to 96 million shares previously. Regarding free cash flow, we now expect free cash flow of $400 million to $405 million, up from $395 million to $400 million. Our outlook includes capitalized expenditures of $85 million, cash paid for interest of $60 million, restructuring and other payments of $27 million, as well as $25 million of cash received from certain strategic partners. As Vlad noted, prioritizing RingCX will be a key long-term growth driver with a significantly better margin profile given its economics. We are excited about the opportunity to meet the emerging customer demand for our fully scaled native UC plus CC solution. RingCX is our proprietary technology that will allow us to innovate faster and better serve our customer needs. While it's still early for RingCX, we believe that over time, its bookings will eventually meet or exceed those of RingCentral Contact Center bookings at its peak levels. In summary, we had a good quarter. We are executing against our strategy of delivering growth from our core, expanding our addressable markets through our new products, and driving a strong financial profile while reducing our reliance on third parties for core competencies that will result in continued free cash flow generation while materially lowering our share count. We believe this strategy will maximize returns for all our shareholders. With that, let's open up the call for questions.

We will now begin the question-and-answer session. Today's first question comes from Kash Rangan with Goldman Sachs. Please go ahead.

Hi. Thank you very much, Vlad. Great hire with Abhey, great guy, known him for a long time. It looks like you have a pattern for hiring former sell-side people, starting with Mitesh. So great job. On the business itself, I wanted to just get a better understanding of how you would evaluate your own AI strategy. So we have a bunch of hypotheses we develop and we develop these products, we test them out in the market. What are the things that you have learned from the introduction of your AI products into the marketplace? And what is your best prediction as to when we hit an inflection point where the products are good enough, that is AI and growing parts of the portfolio, including RingCX, etc., that you could get a reacceleration in the top-line growth rate, which is something I know that is very near and dear to you? And you've sort of intimated that that's your plan ultimately. But how is it all playing out near term with respect to AI and how that could be positive for your business? Thank you so much.

Yes. Thank you. And yes, hopefully, it will be a very good run with him as well. So look, to your question, the engineer in me says that good is never good enough, but probably that's not what you want to hear. Look, AI is real. It's transformative. It is indeed the mother of all megatrends, if you heard me say that. We are now seeing firsthand that there is real demand, real traction, real usage. It's early, so we're not ready to share numbers yet. But everything is growing not just quarter-over-quarter, but literally day over day. This is new technology that's going to affect many people, probably most, if not all people, and certainly the vast majority of our customers. We are now at a stage where we're not just experimenting with AI, but we've started monetizing. I think that if you look at our corporate deck that's available online, you will see that we are specifically calling out a number of AI-first or even AI-specific products that are already being monetized. RingSense is one of them, but there are some newer entrants. For example, RingCentral Agent Assist for RingCX comes to mind and some related technologies. I think we've already mentioned that it's pulling up ARPU and it's also a very high attach rate, okay? So all of those are extremely positive signs. And it's very, very early, but we expect that over time, AI will be a major growth driver and ARPU driver for RingEX because with AI, it does not replace person-to-person communications, it only augments and enhances it. In the contact center space, while it will likely have an effect on the number of agents, in our case, we are the drop store because we have some agents, but certainly, we can bring in a lot more value and a lot more revenue by automating deflected calls. This is where our AI agents will come into play. Some we will develop ourselves. I'm sure you noticed, we've announced a new strategic relationship with Verint. That is very serious about it. I believe between RingCX and Verint, we are now well on our way to offering a wide-based contact center solution, spanning from very small accounts to some of the largest accounts because world-class enterprise-grade workforce management and automation only a few companies on the globe have it and Verint is actually in the lead. Look, qualitatively, it is very, very positive and promising can happen to the right. Quantitatively, we have, what's our run rate? $2.5 billion almost, so we have this business, which is significant. It's 100% recurring revenues. And to really move the needle on an entity of this size, it simply takes time. So it will absolutely be contributing. I think you will see AI's contributions to ARPU and over time, they will translate into overall growth, but not quite ready to guide on that point as it is very, very early in the cycle.

Thank you so much, Vlad.

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

Thank you. Great to see Abhey joining us as new CFO. Now Vlad, it looks like there is a lot of emphasis on CCaaS and you talked about RingCX with the partnership with Verint. A few questions. What kind of trends are you seeing in CCaaS, SMB versus enterprise? And now that you have RingCX with the Verint partnership, how are you going to position the solution against NICE? How are you going to position in the market?

Sure. Great question, and again, thank you for Abhey. Look, we've conceived RingCX initially as an SMB product. It is indeed doing very well in SMB and it is showing very strong growth quarter-over-quarter. But what we're realizing now is that it is a much wider solution than just for smaller businesses. We are indeed getting accounts with hundreds and thousands of seats and as a great proof point, we are now becoming our own customer. We have migrated well over half, actually closer to three quarters, of our internal contact center to RingCX. And this was a direct migration from RingCC, which is, as we all know, NICE inContact. This transition took a few weeks and went smoothly without any loss in productivity. So we now know firsthand that RingCX can handle use cases not only for smaller and simpler businesses, but also for enterprises. Our use case is internally, it's not simple. We have hundreds of cues that we're managing to optimize. We are running a sizable call center and processing large volumes of traffic with an agent count of well over 1,000, okay, now have well over 1,000 agents on RingCX as well. To answer the second part of your question, look, and I think I said that in my prepared remarks, RingCX is our future. RingCentral is uniquely positioned and has unique experience worldwide in combining top-level UC with top-level UCaaS and top-level CC or CCAP, okay? Over the years, we've been combining our Cloud PBX product, which is a pure-play leader in this market with an in-context Cloud Contact Center, which I have to say, is a very good product. But now with RingCX in the fray, we believe that we can get all or maybe at this point, almost all but eventually all of the benefits of a high-end UCaaS, high-end CCaaS together. Only this time around, it will be with beneficial economics, basically the entire user experience will be under our control. And of course, pricing and packaging will be such that we expect to win our fair share, maybe a little bit more, in the overall CCaaS space. So we're very optimistic. RingCX is our go-forward solution. RingCentral Contact Center, RingCC is still out there. We still have time left in our in-context relationship. Perhaps it may even be extended, who knows? Never say never; I'm not saying it will or will not, just to be clear. Because look, it's a very good product, and they've been at it for a while, and I'm sure that there are customers who will want that particular feature set, which we are not trying to replicate. What we are doing is disrupting the entire CCaaS space with our new AI-driven and AI-first RingCX product. And just to finish my very long sentence here, with Verint as our new strategic partner, we truly believe that we can address the entire stack of use cases from very small to very, very large.

Vlad, thanks for that color. And a quick follow-up. We see gross margin downtick in the last two quarters. I'm wondering how should we think about that going forward? What drives that?

Thanks, Siti, for the question. Look, overall gross margin is still very strong at about 81%. Our ARPUs continue to be stable, and we are seeing scale benefits from our cost base. So things like transport costs and our fixed costs are spreading over a bigger base. There is a slight sequential headwind as we ramp up our new products, particularly RingCX, so we're investing in the infrastructure to support these products as they scale.

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

Yeah. Hi. This is Damien Grangeon on from Ryan MacWilliams. Thanks for taking my question. Great to hear that you guys remain on track to hit the $100 million from new products by the end of next year. As we begin to think about total revenue for 2025, I was just curious if the 4Q growth rate would be a good starting point. Any other puts and takes that we should keep in mind?

Yeah. Let me take the first part of that question, and then Vaibhav will provide more color. Look, number one, we are not yet ready to guide for 2025. To be honest, we are laser-focused on having a good Q4 here. And of course, we are in the planning stages, but it's relatively early. So we're not ready to guide. And on top of this, as you all know, we have just announced a new CFO. He is not officially in the building yet, so certainly, like him to have his stakes have hands in. Now, here inside all of this, look, we see many positives happening out there. Again, some of what I mentioned is in our earnings and in our prepared remarks. Some of it, I would refer you to our investor deck, which has been updated lately. Fundamentally, what we see is continued strong use of voice. We see third-party proof points from the analyst community, but we also see it in our own user base to where voice minutes per user are steady and are at least keeping pace with our overall growth of the company. This is a very positive sign for us. We know there is still huge greenfield left in the UC space. We are adding a lot of new logos, so let me say that we are willing to leverage this opportunity. In the Contact Center space, it is also good news with RingCX doing well, and I would say, maybe a bit better than expected. But there is also the reality that for a number of years, we've been selling a combined UCaaS, CCaaS product based on NICE inContact Technology. We have a trained sales force, and our outside channel is well trained in selling that combined solution. Moving forward, as I just indicated, we will be leading with RingCX, and the RingCentral Contact Center, the OEM solution, will still be part of the portfolio, but that will not be our front foot forward. This may create, maybe, in the operative word, but it may create a bit of friction, and it could potentially result in a bit of a headwind in the near term. It is hard to quantify. What we know for sure, however, is that we are well on our way of having RingCX bookings be on their way but not quite there to address or to the level where RingCC was at its peak. Some of this is net new because it is a wider product. It's addressing the needs of smaller businesses as well as larger enterprises. But some of it is in replace. So what I would urge you to do is give us a bit of time. We will be, of course, providing a full outlook for 2025 at our next earnings call, and we should have substantially more information at that time.

Thanks, Vlad. And if I could just one more. How did the Microsoft Teams opportunities perform in 3Q compared to 2Q? And is this helping you land larger customers? Also, is it helping pull through more Contact Center deals with RingCX?

Good questions. Look, Teams itself, is generally for larger customers. Most of our larger customers are Teams users. You are seeing that our enterprise growth is still ahead of our company growth and is still in double-digits. From my limited understanding, this is unique in the industry at this point to be growing anything at this level in double-digits. So we feel super good about that. So with that in mind, yeah, many of our enterprise customers are Teams customers, and they're still choosing RingCentral RingEX, in particular, as an add-on to Teams. Again, I will refer you to our investor deck, where we have added some very specific information on exactly why people are choosing to use RingEX on top of Teams. And again, I just want to reiterate, especially if we have similar people on this call, that Teams is not a competitor to us. It is a potential channel and it's an ecosystem like an operating system that we simply need to be part of, okay? As far as RingCX, historically, and with some notable examples to the contrary, RingCentral itself included, but historically has been more slated for smaller businesses, which is where there is not so much Teams. What I would say is that at this point, RingCX and Teams integration, it's not a needle mover. We expect it to become that over time, and I can tell you that just like we have RingEX for Teams, we expect to have RingCX for Teams in the not-too-distant future to add that to the portfolio.

Thank you. In the interest of time, we ask that you please limit yourself to just one question. The next question comes from Michael Turrin with Wells Fargo. Please go ahead.

Hey, great. Thanks very much. I appreciate all the color thus far. Vlad, you had a comment on ARPU expansion that I wanted to spend some time on. Can you just speak to the drivers of that? How much of that is cross-sell from some of the newer products you're focusing on? Or are you seeing base price improvements as well? And as you continue to focus on selling the newer products, can you continue to also drive leverage on the sales and marketing line? Thank you.

Certainly. Cross-sell can be viewed as introducing new products to our existing customer base. One example of this is RingCX, which is contributing positively to the overall Average Revenue Per User (ARPU). While I don’t have the precise figures at the moment, I believe it is already reflected in our ARPU numbers. Additionally, we have newer offerings, especially our AI-based products, which are also beginning to influence our metrics. We previously referred to RingSense as RingSense for Sales, but we’ve renamed it to reflect its broader applications beyond just sales, enhancing quality management across various contact center types. We also have AI assistants, some developed in-house and others through OEM partnerships. Our goal is to eventually phase out reliance on OEM solutions where possible, focusing on our proprietary technology. All these elements contribute positively to ARPU. Historically, we have maintained our ARPU at about $30 for quite a while. We sometimes hear doubts about this figure against competitive prices found online, but our response is that we offer exceptional value for what customers pay. What might be overlooked is that our $30 rate provides a comprehensive, high-quality PDX solution that some customers utilize independently as a small to mid-sized contact center, leading to increased ARPU and guaranteed value. We include analytics and reporting without additional fees, which many competitors charge for. With the advent of AI, we're unlocking new avenues for revenue, as our AI assistant for employee experience is offered at no additional cost. Moreover, we are developing various bots for tasks related to quality management during and after calls, creating additional revenue opportunities. While I won't provide specific guidance regarding ARPU, I can assert that the value a user derives from RingCentral at our current price point is challenging to match in the industry. For perspective, Microsoft’s standalone Copilot also costs $30, and we are integrating elements of that into our offerings. Moving forward, we will continue to deliver exceptional value.

Yes. And on the sales and marketing side, Michael, as a percentage of total revenue, it has declined by about 200 basis points in the quarter. So it's now below 40%, used to be in the 45% range back in 2022. It continues to be an area of focus for us, and we are continuously lowering our CAC, which has significantly improved over the past two years. We are doing that in a couple of different ways. It's driving higher sales productivity, remaining disciplined on cost, and we are mindful of the business that we are taking by shifting to routes to market that have a favorable unit economics.

The next question comes from Samad Samana with Jefferies. Please go ahead.

Hey, guys. This is Billy Fitzsimmons on for Samad. Maybe if I could double-click on some of the macro and go-to-market dynamics. If I go back to the second quarter print, the strengths were cited as large deals and upsells at the high end with maybe some relative softness in SMB. How do those dynamics progress in the third quarter? And what's kind of implied in the fourth quarter guide? Any material changes, positive or negative in terms of enterprise versus SMB demand? And then any material changes quarter-over-quarter in terms of customer vertical demand?

Hey, Samad, thanks for the question. Look, in Q3, we are quite pleased with the results that we delivered. What we saw in Q3 was enterprise ARR growing in double digits. We continue to add larger customers, and we provided a couple of examples of customers buying multiple products and for longer duration contracts. So that continues to be a positive trend for us. Having said that though, enterprise continues to be more back-end loaded, and there is some variability in the timing of the deals. SMB is showing some early signs of stabilization in terms of the macro, but we are still seeing macro headwinds. We expect that as conditions improve and the macro subsides, this could be a higher growth segment for us. In terms of our new products, Vlad provided commentary about the strong early traction we are seeing, and we are very encouraged there in terms of some of the early momentum, especially considering the potential for improved margins from the owner economics. NRR continues to be above 99%. We see churn and downsell to be stable, but new seats upsells continues to be an opportunity as companies are rationalizing headcount growth. So that will be an area of opportunity for us. Other revenue continues to be impacted with cloud phone adoption, and we are making some investments to enable our customers, particularly as they are buying new products to onboard seamlessly. When we put all of those things together, that’s what's incorporated in the guidance and in terms of the trends we are seeing today.

Today's last question comes from indiscernible with Rosenblatt Securities.

Thank you so much. Could you please provide some insight on how the relationship with AWS is progressing? And are you guys observing additional revenue from this partnership? Thank you.

Yes. The relationship is live and healthy. We are a big customer of theirs, but in addition to that, we are seeing some deal flow from them because in the end, our technology is complementary to theirs. We are not able to break out these numbers on this call. Part of the reason is that, in many cases, we have multiple sources of referral, and they are all working together, but it's certainly helpful to have someone like AWS on your side, and they are on our side. So we're happy with the relationship. Hopefully, they feel the same way. We do believe that there is more to do there, and I can tell you that we have teams working on making our solutions even more appealing to AWS as a very large customer base.

This concludes our call for today. Thank you for attending today's presentation. You may now disconnect your lines.