RingCentral, Inc. Q3 FY2025 Earnings Call

Good afternoon, and welcome to the RingCentral Third Quarter 2025 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Steven Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to RingCentral's Third Quarter 2025 Earnings Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and Chief Operating Officer; and Vaibhav Agarwal, CFO. Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. 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 in the financial results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Thank you, Steven. Good afternoon, everyone, and thank you for joining our third quarter earnings conference call. Let me begin by welcoming the talented people from CommunityWFM to the RingCentral family. We have now added AI-driven workforce engagement management capabilities that strengthen our RingCX contact center solution. This also lays the foundation for a new stand-alone product line. We delivered another strong quarter in Q3 with subscription revenue growth at 6% year-over-year. These results reflect continued execution in our core business coupled with strong progress from our AI-led new product portfolio. In fact, our pure AI ARR is growing at a strong double-digit rate sequentially, while also making meaningful contributions to overall ARR from these AI-enabled customers. Importantly, we are also delivering expanding margins, meaningfully lowering stock-based compensation and generating strong free cash flows. This strong performance is rooted in our leadership in voice, the most mission-critical mode of communication for businesses. While voice continues to be an important means of intercompany communications, it is critical for consumers engaging with businesses or B2C. This is particularly true in our top verticals, such as health care, financial services, retail, and professional services. Revenue from these verticals represents over half of our entire business. As further proof, overall voice usage on our platform remains robust and is growing in double digits. In short, voice remains a critical modality for business communications as missed calls result in lost revenues, missed opportunities, or worse. RingCentral has built a $2.5 billion business from the ground up by providing a robust, secure, and reliable voice-first cloud communications platform that is trusted by over 0.5 million businesses with tens of billions of minutes of annual use. RingCentral has been at the forefront of moving business communications to the cloud. If you think about our initial offering as RingCentral 1.0, it was about enabling digital transformation for businesses worldwide by transitioning their communications from on-prem to the cloud. By leveraging our voice-first, global, secure, and reliable cloud communications platform, we have built a strong leadership position over the last two decades. This remains to be the case to this day. In the next phase of our journey, which I call RingCentral 2.0, we built on this foundation to become a multiproduct platform provider. Many customers prefer to purchase both their business communications and contact center solutions from the same vendor. Increasingly, organizations also need seamless interaction between contact center agents and other company employees to resolve customer inquiries. RingCentral has purpose-built solutions to meet these needs. There are situations where consumer inquiries are handled by employees who are not dedicated contact center agents. To support these scenarios, we enhanced RingEX with call queues, analytics, and other contact center-like functions. This has been extremely well received with over one-third of our overall inbound traffic now being consumed by such informal contact center use. As for dedicated customer engagement needs, we've introduced our own native AI first contact center solution, RingCX. It is a fully integrated offering that is intuitive to use, easy to deploy, and is infused with AI from the start. This product has been well received with strong traction and double-digit growth. And now we are entering the era of RingCentral 3.0. We are innovating rapidly with the majority of our $250 million annual spend on innovation now being dedicated to our new AI-led products. We are now expanding and extending our platform by adding a host of voice-first AI agents as well as infusing AI across our entire product portfolio for a better customer experience and engagement. Why are we well positioned to win in this new AI era? RingCentral is the first point of contact between businesses and their consumers. This puts us in a unique position to deploy AI agents from the get-go, thus giving us a natural advantage as we lead the shift to intelligent business communications via agentic voice AI. To elaborate, our agentic AI product portfolio covers every phase of the customer journey before, during, and after an interaction. Before the interaction, our AI Receptionist or AIR handles inbound calls, routes them intelligently, and automates routine interactions before they reach a human. Since its launch, AIR has seen strong early traction and is growing rapidly. For during the interaction, today, we announced our new AI Virtual Assistant or AVA. AVA is an AI agent that helps employees and agents in real time, surfacing insights, summarizing key points, and automating tasks to enhance productivity. And for after the conversation, our AI Conversation Expert, or ACE, formerly known as RingSense, analyzes calls, extracts insights, and provides actionable intelligence. ACE is growing at a healthy double-digit pace and is helping customers understand and improve their customer experiences. Together, these AI-driven solutions AIR, AVA, and ACE complement RingEX and RingCX and are already contributing meaningfully to growth. We're investing significantly with over 50% of our approximately $250 million R&D spend now focused on our new product portfolio. And we remain on track to exceed the $100 million in ARR from new products by the end of 2025. Adoption of our new AI-led products is broad-based across various customer cohorts from small businesses to large enterprises. Our GSP partners are also beginning to sell these new offerings, expanding our reach and accelerating adoption. Importantly, we have recently expanded our partnership with AT&T which began offering AIR to their customers, highlighting our shared commitment to intelligent communications experiences. Our small business and GSP businesses together now represent over $1 billion in ARR and continue to grow in double digits. With strong unit economics and increasing adoption of our AI portfolio. In summary, we are executing well across the board. Our core voice platform remains durable and mission-critical, and we are expanding into new high-growth markets through RingCX and our AI-led product suite. We've evolved from a UCaaS leader into a multiproduct AI-powered communications platform with multiple growth levers. We are excited about the road ahead as we enter the era of agentic voice AI, driving smarter, more efficient communications for our customers and sustainable profitable growth for our shareholders. I want to thank our employees for their dedication and focus on driving innovation and our customers for trusting us to be the voice of their business. With a tenured and talented management team in place, a strong commitment to innovation, and a loyal and growing customer and partner base, we are well positioned for this next phase of our AI-led evolution. With that, I'll turn the call over to Kira to tell you more. Thank you.

Thank you, Vlad. I'm looking forward to meeting many of you at our investor product briefing on Wednesday. It's a great opportunity for you to see our AI portfolio in action. I'll start by giving you an update on my strategic priorities. First, build upon our leadership in business voice with agentic voice AI. As Vlad noted, RingCentral is uniquely positioned here. Voice is mission-critical and is the richest source of business intelligence. We're turning voice data into insights that elevate customer experiences, automate work, and drive faster outcomes. I'm proud of how quickly we're executing against our agentic AI roadmap, delivering value throughout the entire conversation before, during, and after. Before the conversation, we are seeing fast adoption of RingCentral AI receptionist or AIR. Since our launch earlier this year, we now have more than 5,800 paying customers and over 80% increase quarter-over-quarter. AIR ensures businesses never miss a call or an opportunity. And today, we rolled out new features in AIR, including lead capture, enhanced appointment settings, and contextual handover. We're thrilled to see that AIR is having a material impact on our customers' businesses. For example, with AIR, Televero Health now answers 100% of their calls and achieved a 15% increase in monthly appointment volume within just the first month of deployment. This resulted in a $200,000 uplift in monthly revenue, providing meaningful ROI. During the conversation, today, we unveiled RingCentral's next-generation AI virtual assistant or AVA. For example, Trinity Logistics, a leading freight and logistics provider, is saving 30 seconds to 1 minute per call by using AI to capture real-time notes and action items from every customer interaction. This frees up their salespeople to focus on building relationships and driving new business. For after the conversation, AI conversation expert or ACE, formerly known as RingSense, unifies customer and employee conversations into one powerful analytics dashboard. We now have more than 4,300 customers using it, up from approximately 3,600 customers, reflecting solid growth. Our customers are using it to coach their agents and improve efficiency. For example, Modisoft, a point-of-sale cloud software company, is using ACE to gain clear visibility into customer sentiment, behavior patterns, and emerging trends, insights that they did not have before. ACE enables them to turn voice data into business outcomes. AIR, AVA, and ACE, together with our core RingEX and RingCX products, create a fully integrated agentic voice AI workflow before, during, and after every interaction. This is the power of our unified AI-first platform. The second priority is to expand TAM through our multiproduct portfolio. We're seeing strong traction with RingCX. Customers value its simplicity, omnichannel flexibility, seamless integration with RingEX and a rich set of AI capabilities. As Vlad said, this product is enjoying double-digit sequential growth and makes up nearly half of our $1 million-plus TCV deals this quarter. The strong land-and-expand motion of AI-first RingCX with RingEX demonstrates our ability to increase our share of wallet. A good example of an expansion deal is one of Canada's largest insurance companies, which was already using RingEX and chose to add RingCX with various AI modules. Together, these solutions are expected to improve outbound performance, reduce agent turnover, and ultimately contribute to their revenue growth as they transform their contact center operations. Today, we also announced the integration of CommunityWFM into our workforce engagement management suite, a major step towards helping organizations optimize contact center performance. By harnessing AI across three key pillars: agent performance, customer sentiment, and operational planning, we're empowering smarter, more efficient operations. These capabilities are available as add-ons for the core RingCX package and are now included in the new RingCX Advanced and Ultra packages. In parallel, we are expanding our core UCaaS offering. As Vlad said, a meaningful portion of RingEX inbound call minutes and SMS usage are used for customer engagement. To capitalize on this, we are introducing new paid add-ons for enhanced call queues and advanced SMS. We're bringing together RingEX and these add-ons into one integrated package called Customer Engagement Bundle. This expansion opens a new growth avenue and extends our total addressable market. Now onto my third priority. We're harnessing AI across our organization to work smarter, move faster, and do more with less. While we're using a number of third-party tools to improve efficiency across all departments, we're particularly happy with adoption and internal use of our own products within our company. We call it RingCentral on RingCentral. Let me give you some examples. First, we transitioned our 2,000-plus customer support agents to RingCX and deployed CommunityWFM for workforce engagement management to this entire organization in just a few short weeks. With AI quality management, we're driving faster resolution through our automated coaching with nearly 100% of calls being scored. Combined with agent and supervisor assist capabilities, we're reducing average handle time by 15%. In sales, ACE has improved sales rep performance and customer satisfaction. ACE now coaches 100% of our prospect partner and customer calls in North America. This has improved sales quota attainment by 10%. These operational gains are translating into greater scalability, workforce efficiency, better customer experiences, and improved margins. In summary, our multiproduct AI strategy is working. We're delivering measurable customer value, expanding our market opportunity, and improving profitability. I'm incredibly proud of our teams and excited for what's next. With that, I'll hand it over to Vaibhav.

Thank you, Kira, and good afternoon, everyone. Q3 was another solid quarter with disciplined execution across key metrics and the three priorities I outlined last quarter. First, driving sustainable, profitable growth while investing in new product innovation; second, expanding margins and free cash flow through disciplined cost management; third, executing on capital allocation strategy focused on investing in innovation, paying down debt, returning capital through share repurchases, and reducing stock-based compensation and dilution. Together, these priorities aim to expand free cash flow per share and position RingCentral for durable long-term value creation. With that, let me turn to our third quarter performance. Starting with growth. Total revenue was $639 million, up 5% year-over-year and at the high end of our guidance. Subscription revenue grew 6% to $616 million, reflecting the durability of our core business and increasing traction from our AI-led products. As Vlad highlighted, we have multiple growth levers across the business. We delivered continued growth in our core business with healthy new customer adds and stable over 99% monthly net retention rates. As for our AI-led new products, we are growing at a strong double-digit rate sequentially, putting us well on track to exceed $100 million in ARR by year-end. In keeping with our philosophy of profitable growth, we drove record margins and free cash flow per share. This was made possible as we continue to drive efficiencies with hiring discipline, extended use of offshoring, vendor consolidation, and increasing use of AI internally. Subscription gross margin remained strong at about 81%. Operating margin was 22.8%, up 180 basis points year-over-year and above the high end of our guidance. Sales and marketing expense as a percent of revenue improved 140 basis points, driven by ongoing go-to-market efficiencies. Non-GAAP EPS increased 19% to $1.13 per diluted share. Reducing SBC remains a key focus. Through the first three quarters of 2025, new share grants have declined year-over-year as we can achieve more with less through offshoring and the use of AI. As a result of this, we are updating our 2025 SBC outlook to 11% of revenue, a 350 basis points improvement year-over-year. Our annual grants this year are expected to be about $150 million or 6% of revenue, which we expect to further improve upon in the years ahead. We expect SBC as a percent of revenue to trend lower over time as the older grants roll off. With the reduction in SBC and improved profitability, we delivered another quarter of positive GAAP operating and net income, which we expect to continue. Moving to free cash flow, we generated $130 million of free cash flow in Q3, up 23% year-over-year. This reflects ongoing efficiency gains and disciplined working capital management. As a result, we are raising our full-year free cash flow outlook to be between $525 million and $530 million, which represents over 30% year-over-year growth and a free cash flow margin of 21%. Lower SBC, coupled with our share repurchase program, is driving a meaningful reduction in share count. We now expect fully diluted share count for 2025 to be approximately 92 million shares, returning to 2020 levels. We are optimistic to drive this further down in the years ahead. We now expect 2025 free cash flow of over $570 per share, which is an increase of about 35% year-over-year. We are delivering strong and compounding free cash flow per share and driving long-term shareholder value. Moving to capital allocation. Following the framework I outlined earlier, year-to-date, we have paid down $275 million of debt and repurchased $200 million of stock. We also acquired CommunityWFM, which is consistent with our strategy of accelerating innovation by adding capabilities that enhance our product portfolio. During the quarter, we expanded and extended our credit agreement. The facility now totals $1.26 billion, of which $955 million remains undrawn. This refinancing was a proactive step to address our $609 million convertible notes due in March 2026. The refinancing maintains our current leverage profile and extends all debt maturities until 2030. Following our earlier upgrades from Fitch Ratings and Moody's, S&P has also upgraded our ratings, recognizing our improving leverage and free cash flow profile. Going forward, we remain committed to reducing gross debt to $1 billion by the end of 2026. We also view share repurchases as an attractive use of cash at current valuation levels. In Q3, we repurchased 3.9 million shares for $117 million, with $384 million remaining under the current authorization. Moving to guidance. For the fourth quarter, we expect subscription revenue of $618 million to $626 million, total revenue of $638 million to $646 million. Non-GAAP operating margin of 22.8%, up approximately 145 basis points year-over-year. Non-GAAP EPS of $1.12 to $1.15 based on approximately 90 million fully diluted shares. Share-based compensation range of $64 million to $69 million. As a result, we expect our full year 2025 to include subscription revenue growth year-over-year of approximately 5.5% to 6% and total revenue growth year-over-year of approximately 4.5% to 5%, operating margin at approximately 22.5%, raising non-GAAP EPS to $4.29 to $4.33 per diluted share, and improving share-based compensation range to $275 million to $280 million while raising free cash flow per share to approximately $5.71 to $5.79 per diluted share based on approximately 92 million shares. Let me conclude with three key takeaways. First, we delivered another quarter of profitable growth with revenue at the high end, margins reaching record levels, and expected annualized free cash flow growth of over 30% year-over-year. Second, we are scaling our AI-led products, which are well on track to exceed $100 million in ARR by year-end. Third, we are delivering on our capital allocation strategy. We are on track to generate well over $500 million in annual free cash flow, resulting in more than $5.70 in free cash flow, which is best in class among the peer group. We are looking forward to meeting many of you at our investor product briefing on Wednesday at the NYSE. With that, let me open up the call for questions.

Our first question today is from Kash Rangan with Goldman Sachs.

Thank you very much, team. This may be the last time for me on our RingCentral earnings conference call. I want to say it's been great working with you Vlad and the team. You've been resilient, you pivoted the company hard during the downturn, went for profitability and also steered the ship once again, not just from a financial standpoint, but from a technological standpoint to be ready for the AI world ahead. I wish you really well in that journey ahead, and you've been once again validating the view that you're a very resilient leader and a very resilient company. Vlad, as you look ahead, I mean the product discussion certainly is thoughtful, but it also represents a lot of rebranding changes, etc., and I hear the term RingCentral 3.0 being thrown about. So as you project ahead, if a customer, a large Fortune 500 customer, were to buy into your vision of RingCentral 3.0 and were to implement your full family and portfolio of products under the 3.0 banner, what are the business benefits that this Fortune 500 company would stand to benefit from that they couldn't get with RingCentral 1.0 or 2.0? That's it for me and best wishes for the team.

Yes. Yes, firstly, thank you very much for your very kind words. And obviously, I'm very, very sorry to understand that this might be your last call with us. However, never say never. Never is a long time, so who knows? In any case, I certainly wish you and yours the very best in this next chapter of your life. To your question, RingCentral 3.0 is a very, very big deal. It is taking voice communications, which is truly the most ubiquitous, commonly used means of consumers reaching their business providers, service providers, brands, however you want to look at it, and establishing contact. When you are reaching out to your doctor, you are probably calling him or her and maybe increasingly texting. Same applies to your financial advisor. Same applies to your architect or another business service provider, your mechanic, and so forth. With voice, as a global leader in voice and increasingly text communications, RingCentral is uniquely positioned to deploy AI at the very onset of every consumer-to-business interaction. We process tens of billions of minutes on our platform annually, and billions of text messages, for each and every one of those with agentic AI. At this point, we're really pivoting hard to agentic voice AI. We are in a great position to enhance human-to-human interactions throughout the entire life cycle of a transaction, which includes offering assistance and AI agent before a human picks up the phone. So we call it AIR, AI receptionist, during the call, and we call it AVA, AI virtual assistant that, if you will, is our version of a co-pilot. Lastly, but not least, is the AI expert, our conversation expert, which we call ACE. This is where after a call, in a contact center use, most calls are recorded and transcribed. This gives us an opportunity to analyze or enable our customers to analyze these calls at a deeper level, understanding caller intent and sentiment, providing all kinds of deep analytics and very, importantly, feeding all of this data and knowledge right back into the cycle. Through ACE, both AIR and AVA become smarter and more powerful with increased use. So this is a watershed moment. It is on par for us with the creation of the cloud itself that, as you know, we had a bit to do with, and we have pioneered the use of cloud in business voice and PBX in the cloud. Now, with the advent of AI, our application of agentic AI to voice and text gives us the ability to not only move these interactions and transactions to the cloud but to also deeply enhance the experience for both callers, which is really a significant population of this world, as well as parties being called, which is the entire global business community. So I could not be more excited.

The next question is from Elizabeth Porter with Morgan Stanley.

I wanted to follow up on the strength in your global service provider partnerships. Can you speak to which products are gaining the most traction and the durability of that growth? Are the GSP contributions becoming more recurring and predictable or are they somewhat concentrated in the new deployments? And then just as a follow-up, as those partners scale, how should we think about the revenue mix and margin implications versus the direct sales?

Great question. I believe we have mentioned that our GSP business accounts for over 10% of our revenues. It is also providing a tailwind for our overall growth, as this segment is experiencing double-digit growth, which surpasses our company's overall performance. In terms of predictability, it is as stable as the rest of our business since it operates as SaaS, in the cloud, and generates recurring revenue, similar to our direct business. Recently, we have been pleasantly surprised by how quickly GSPs are adopting our new product offerings. They began with RingCX, which was our first significant product following our original flagship RingEX product. Now, with our current offerings known as the 3As—AIR, AVA, and ACE—there is notable enthusiasm from GSPs. We just announced that AT&T, our largest and long-standing GSP partner, is now adopting and deploying AIR on their version of RingCentral. This is significant. While it's still very early, considering the success and insights from AIR in our direct business, we are optimistic that this success will extend to AT&T given their scale, along with several other service providers.

Just to add to the profitability point, we have disclosed that GSPs, from a time-to-breakeven standpoint, are under 18 months. So they, in addition to growth, are also demonstrating strong unit economics.

The next question is from Brian Peterson with Raymond James.

So really nice job on free cash flow again this quarter. I guess, as we think about the durability of that metric going forward, is there anything that you guys can share in terms of long-term drivers or long-term targets? Would appreciate any context there.

Yes. Thanks, Brian, for the question. This is Vaibhav, and I'll address that. So thanks for the call out on the free cash flow expansion. Look, we've done a lot of work over the last couple of years, and I'm very proud of what we have delivered. As you saw, we raised our free cash flow outlook today for the rest of the year to over $525 million, or 30% growth. When you look at the last two to three years, we've driven a 5x expansion. We've gone from $100 million to $500 million. So we have a track record now of several years of driving expansion. Where is the expansion coming from? It's a concerted effort and a disciplined approach that we are taking in rightsizing the cost base. We are very disciplined when it comes to hiring. There is offshoring that we are using, vendor consolidation, and there's increasing use of AI internally. So net-net, long story short, we are doing more with less. So that's point number one. I expect that this will continue as we look ahead. Point number two is from the quality of a free cash flow standpoint. We are also making meaningful improvements. What I mean is that operating margins are now converging with free cash flows, and that's a result of working capital efficiencies. So we've taken a number of steps there. Point number three is we look at free cash flow also in conjunction with SBC as a driver of free cash flow per share growth. Again, we've taken steps. We are bringing in a lot of discipline around new share grants, and as a result, SBC is going down, and that when combined with share buybacks is resulting in share count going down. Overall, the net-net result of all of this is our free cash flow per share, which for 2025 is almost at over $5.70, is growing faster, and it's the best in the peer class. Overall, we believe there is more to be had here. We have a strong foundation with our recurring business model and our diversified customer base that will give us an anchor to sustain and improve free cash flows over time.

I would like to expand on that. While everything mentioned is accurate, looking at it from the product perspective, I'm primarily focused on actual usage of the platform. My fundamental belief is that if people are using your product, the provider can derive value from it. Conversely, if usage declines, no financial strategies can counter that trend. To be frank, we often hear that the entire market is in decline, with many believing that voice is losing its prominence as video and other communication methods take over. However, we see that is far from the reality. Our platform usage is on the rise and is even outpacing our revenue growth. More calls are being placed, more texts are being sent, and voice minutes are being consumed at higher rates. This gives us significant confidence that our margins will continue to improve, as we believe our costs will rise at a slower rate than our revenues. In this context, we are realizing cost efficiencies, and we are leveraging AI internally to achieve more with less. As long as we see increased usage of our platform, we are optimistic that free cash flow will increase as well. We anticipate that our financial flow per share will also rise, likely even exceeding revenue growth, which we expect to persist. We believe we might be at the beginning of another positive cycle here.

Next question is from Siti Panigrahi with Mizuho.

I just have two quick questions. Starting with the contact center momentum. How are you seeing the trends following your renewal with the partnership with NICE and both in the upmarket and RingCX momentum in the downmarket? And a quick follow-up for Vaibhav. How are you thinking about your capital allocation framework given that you have to pay down some of the debt? And how should we think about the buyback going forward?

Great. So I guess I'll take the first one. So you mentioned CX and NICE. As you all know, we were happy to report last quarter that we've extended the resale agreement with NICE. So that's in place. The user installed base that we have with NICE is stable. We are seeing upsells. We are re-educating the channel on the fact that this partnership is alive and well because there was quite a bit of misinformation from joint competitors. That is being addressed. But these are longer sales cycles. We see some positive movement, but certainly not at the level where it used to be at its peak. Having said that, quite a bit of that slowdown is being picked up by RingCX, which is a lighter weight product, a less expensive product but also a lot easier to deploy. We are showing very strong growth with that product with double-digit growth sequentially, which is a lot to be said for a product that's in strong tens of millions of dollars and still showing double-digit sequential growth. So we feel very, very good about that. We also think that with our introduction of our new Agentic Voice AI family. Again, AIR, AVA, and ACE are all applicable to RingCX as well as to RingEX. This is a very important point. Our agentic AI cloud covers both EX and CX. We expect that to be a further accelerator. We also know what customer and partner requests are. We have enough of a history with this product now. And whatever people are asking for is on our immediate roadmap. I want to mention, we have an annual spend on R&D that is not insignificant. The majority of that spend is now dedicated towards new products, which is RingCX, AIR, AVA, and ACE. The fact also is that we are using quite a bit of AI for code development. We're seeing some amazing results being able to, in certain cases, develop by factors faster than using traditional methods. So expect rapid innovation. We have introduced more products this year than at any point, more new products than at any point in our 20-plus-year history. I'm not going to say that we'll be introducing 3, 4 new products every quarter; that probably will get too confusing, if nothing else. But now expect quick iteration and quick improvements in what we have. We really believe that we have a unique suite addressing needs of consumers contacting their business service providers. We expect to go wide and deep on that.

Yes. And Siti, in terms of capital allocation, look, our approach has always been a disciplined one, aimed at improving free cash flow per share. The benefit of having over $525 million in free cash flow is that it opens up a lot of flexibility and provides opportunistic benefits for capital allocation. First, our priority is always investing in innovation and growth. As Vlad said, over $250 million spend on product innovation, over half of which is going into new products. That's a use of cash. We are also opportunistic in terms of M&A where it accelerates our product roadmap, case in point being the recent acquisition of CommunityWFM. From there, our strategy involves paying down debt and share buyback, which depends upon the conditions such as valuation as well as interest rates. In terms of leverage, we are committed to deleveraging and strengthening the balance sheet. If you look at our leverage ratios over the last three years, we've gone down from 4x to under 2x. We've continued that in 2025, we've reduced the debt and addressed near-term convertible maturities so that there will be no debt due until 2030. Overall, we remain committed on that path of reducing gross debt to $1 billion by 2026. In terms of buybacks, it remains an attractive use of cash at current valuation levels. This year, we've bought back roughly $200 million of shares, and we still have close to $380 million remaining in authorization, which we plan to execute on. Discipline in stock-based compensation as well as buyback stock will result in lowering share count, which we are committed to. So our overall framework is to prioritize actions to enhance long-term shareholder value while maintaining a strong balance sheet and financial flexibility, net-net of which is all aimed at improving free cash flow per share.

Next question is from Ryan MacWilliams with Wells Fargo.

I'd love to hear your thoughts on how RingCentral has an advantage compared to start-ups in servicing the voice AI and AI receptionist use case. To me, these voice use cases are complex from a telephony standpoint and require call routing expertise from AI to human. That would be difficult to build without a history of providing telephony services. But is there more that comes to mind that gives RingCentral an advantage versus others in going after this agentic voice AI opportunity?

Yes. Yes. Fantastic question. So look, RingCentral used to be a startup. To be blunt and fair, I still do everything I can in my power to continue to behave like a startup. But it is a $2.5 billion startup now. Startups have good ideas, smart people, and I am sure some of them will do well. But I don't believe that most of them will do well. The reason is they do not have a network. They do not have decades of know-how and data of actual behavior and calling patterns that we have. They do not have the extended go-to-market capabilities. We have tens of thousands of reseller partners, close to if not over 200,000 feet on the street that have been trained with RingCentral. We have this unique GSP network. Very importantly, there are things that they don't have: with maybe one or two exceptions, they do not have $250 million of annual spend that they can dedicate to this area, where we are laser-focused on. But I tell you what, the most important things they don't have is they do not have a 2,000 strong engineering team and product team that has been doing business communications at scale and globally for years, in certain cases for a couple of decades. I also want to bring up this point: sometimes what people underappreciate about RingCentral is how deep our roots are and how stable the core team has been over literally 2.5 decades from our inception back in 1999. Engineering team, engineering leadership, the CTO who is my co-founder, and many senior directors and VPs have been with us for over 10 years. I believe these factors give us unique know-how and depth and talent pool in being able to out-innovate anyone in the space. I believe that this is likely to continue. AI, this AI revolution explosion is really the best thing that ever happened to us as a company and I think to the industry as a whole. But because we are at scale and we're a clear leader in a key communications modality, which is voice, I think that we will stand to gain a lot, including market share in the space.

Totally handling one or a handful of voice AI calls a day is a lot different than handling 10,000 voice calls a day. I appreciate the color.

I think yes, and I...

What way more.

Next question is from Peter Levine with Evercore ISI.

Maybe I want to just talk about the acquisition of CommunityWFM. How does that strengthen your end-to-end offering on RingCX? Can you compare that to some of the stand-alone offerings out there in the market? And then, secondly, can you just walk us through your Q4 guidance? I know there was a bit of a tick-down for the full year, so could you just walk us through the puts and takes, whether deals that got pulled forward into Q3, or is it macro? Is the government shutdown just impacting how we think about Q4?

Okay. So this is Kira. Let me handle the WFM. Our RingCX suite today contains a number of modules, the core CX product and several AI modules that work together with that base product for quality management, for agent assist, interaction analytics, streaming, recording, all these work together, and this works together with RingEX. With the acquisition of the CommunityWFM product, we've completed that suite. Today, we've announced something that we now call the WEM Power suite. That includes the acquisition from CommunityWFM, which is workforce management. That component was not part of our core product and something that is now absolutely integrated and has actually been deployed at RingCentral just over the last couple of weeks. It went live and completes that offering that makes us a complete suite for CX deployments. In terms of how does this interact with existing customers, all existing customers can buy any of these modules in addition to the base modules that they've got. So the suite works together and is available a la carte.

I want to mention that we actually handle over 10,000 calls a day, which amounts to roughly 100 million calls and about 100 million minutes daily. This translates into tens of millions of calls each day. To reiterate, we operate one of the world's largest business voice platforms by usage.

This concludes our question-and-answer session. I would like to turn the conference back over to Steven Horwitz for any closing remarks.

Thank you, everyone, for attending today. We're looking forward to seeing many of you on Wednesday for our investor product briefing. For those who can't make it, it will be webcast on RingCentral IR site, and there will also be a replay there. Thank you. And for those of you who aren't there, we'll see you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.