RingCentral, Inc. Q1 FY2026 Earnings Call

Good day, and welcome to the RingCentral First Quarter 2026 Earnings Conference Call. Please note today's event is being recorded. I'd now like to turn the conference over to Al Petrie, Investor Relations for RingCentral. Please go ahead.

Good afternoon, and welcome to RingCentral's First Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO. Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the Financial Results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. We are off to a strong start to the year as we delivered another solid quarter with total revenue at the high end of our guidance. Importantly, we are also making meaningful progress in the quality of our operating model. We delivered record GAAP and non-GAAP operating margins, reduced stock-based compensation, paid down debt and returned capital to shareholders, including our first ever dividend. These are important milestones and reflect the business that is becoming more efficient, more profitable and more durable over time. As to free cash flows, we now expect approximately $600 million of free cash flow this year, which is approaching $7 per share that we believe is among the best in our peer group. Moving forward, we plan to continue to reduce SBC with a path towards our medium-term target of 3% to 4% of revenue. And we are steadily building toward our goal of 20% GAAP operating margin in the next 3 to 4 years. Our strong financial performance is rooted in operational discipline that is underpinned by our unwavering commitment to innovation and a strong competitive position. As one of the original cloud-native SaaS providers, we revolutionized customer communications by taking it from on-prem legacy infrastructure to the multi-tenant cloud. On the strength of that innovation, we've built a $2.7 billion ARR business that is growing, generating a healthy amount of cash and is returning value to shareholders in a meaningful way. RingCentral's original success was rooted in the convergence of broadband, mobility and cloud computing. We leveraged these megatrends to transform how hundreds of thousands of businesses and millions of users worldwide communicate with their customers. Today, we're at the start of an even bigger innovation namely AI, and specifically the rise of agentic voice AI. AI builds on top of all the world-class assets that RingCentral has created over the years. It plays directly to our strengths. With our robust platform, massive amounts of rich data, omnichannel communication capabilities and global GTM and innovation at scale, we are well positioned to leverage AI as a key driver of our long-term growth and profitability. While agentic AI is very powerful and will be transformational to how businesses interact with consumers, our core belief is that it won't replace all humans. AI can and will do a lot and it will make remaining humans in the loop more effective. RingCentral's secret sauce is to deliver agentic voice AI experiences at every stage of consumer-to-business interactions, while enabling businesses to get human agents involved at the right time. RingCentral's differentiated approach is to make both AI agents and human agents smarter by working together seamlessly, resulting in better customer outcomes and greater cost efficiencies. This hybrid human-in-the-loop model is where RingCentral excels. More specifically, our ability to orchestrate AI and human interactions at scale on a single platform across voice, text and video and do this at a global scale with industry-leading reliability, security and quality of service. This is our structural advantage and a defensible competitive moat. RingCentral processes tens of billions of minutes and billions of calls and messages each year. As the front door to consumer to business interactions at scale, we are uniquely positioned to deploy AI across every stage of the journey before, during and after human involvement. We offer a modern end-to-end customer engagement platform spanning all consumer-to-business interactions. Our portfolio includes RingEX for Cloud PBX, RingCX and RingCentral Workforce Engagement Management or RingWEM for full featured contact centers, and our recently introduced Customer Engagement Bundle or CEB for informal contact center capabilities. We embed agentic voice AI across our entire platform. Our agentic voice AI portfolio or RCAI is currently comprised of AI Receptionist or AIR and AIR Pro, which automate customer interactions from the get-go; AI Virtual Assistant or AVA, which assist the human agent in real time; and AI Conversation Experts or ACE, for deep conversational analysis and coaching. Overall, we are good at helping businesses connect with more customers, resolve issues faster and more cost effectively, capture more leads and make remaining human agents more effective. Adoption of our AI product portfolio is strong. Customers using our AI adopt more products, spend more with us and stay longer, driving higher ARPU and net retention well above 100%. ARR from customers who utilize at least one of our RCAI products has more than doubled year-over-year and is growing in double digits sequentially with favorable ARPU and retention metrics. Kira and Vaibhav will provide more details. In summary, I'd like to leave you with these 4 takeaways. First, RingCentral has a deep and defensible moat in an expanding market. We have built a carrier-grade communications platform with the scale, reliability and trust required for mission-critical customer interactions. As AI expands the scope of customer engagement, we believe that our market opportunity is only getting larger, and we are uniquely positioned to capture it. We are currently investing over $0.25 billion per year in innovation with a meaningful and increasing portion dedicated to RCAI. This is another sustainable competitive advantage, and we're confident in our ability to keep investing in innovation while continuing to further improve our operating metrics moving forward. Second, we are at the front door and top of the funnel for consumer-to-business communications. We sit where interactions begin, where customer intent is first expressed and where routing and resolution decisions are made. This gives us access to the real-time context and workflow intelligence that are increasingly valuable in the AI era. Third, we have a complete customer engagement platform powered by RCAI. This allows us to bring together AI agents and human agents on a single platform across voice, messaging and video. This is delivering real value for customers, and we are already seeing solid early adoption, growing monetization, higher ARPU and strong retention across our RCAI utilizing customer base. Important to note is that all of our RCAI and customer engagement products are fully owned by RingCentral with attendant benefits to control over the roadmap, time to market and owner economics. We believe this to be another important competitive moat. And fourth, we're delivering strong financial performance. We're improving non-GAAP and GAAP profitability, reducing SBC, generating meaningful free cash flow and free cash flow per share that is among the best-in-class and returning capital to shareholders via buybacks and dividends. Our results speak for themselves, and we could not be more excited about the road ahead. With this, let me turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone. Vlad laid out our vision, a complete customer engagement platform built on a hybrid model of AI and humans working together, delivering seamless customer experiences and better business outcomes. Here's an example of this vision becoming reality. Meet Cartelligent, a California-based automotive broker, deployed our entire RCA portfolio, AIR, AVA and ACE. Previously, their high-value leads were being routed to an answering service where many calls were dropped. With AIR, they decreased lead abandonment to 0, connecting 100% of live leads during business hours and achieved an 85% lead to sign-up target. AVA eliminated manual note taking, ACE delivered visibility and coaching to keep improving. As the result of all three working together with human in the loop, they achieved a 9.85 out of 10 customer satisfaction score. Let me unpack these solutions further. AI Receptionist, or AIR, is designed for front office workers who demand it just works, deployable in minutes, no developers required, built for businesses of any size. AIR can now receive customer inquiries over voice and text messages. AIR is also integrated into call queues, handling overflow and missed calls to improve responsiveness without adding operational overhead. The market is responding well. We ended Q1 with more than 11,800 paying AIR customers, up more than 40% quarter-over-quarter. For customers requiring more complex configurable use cases, we recently introduced AIR Pro. With AIR Pro, customers can create a multitude of fit-to-purpose agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing. Users simply describe what they need their AI agents to do. AIR Pro builds and deploys it, executing multistep workflows. We already have our first paying customers with health care emerging as a natural early fit given AIR Pro's ability to address rich workflows while maintaining ease of deployment. One example is a federally qualified health center that was already running RingEX, RingCX and ACE. They added AIR Pro to handle real-time shuttle routing for patients. The agent recognizes the caller's location, appointment time and live shuttle status to guide patients to the right pickup point. It sounds simple. The underlying workflow is not. That's exactly the point. AIR Pro makes complex orchestration effortless for the customer and for the business, and once the conversation ends, ACE takes over. ACE now has more than 5,200 customers, up 85% year-over-year. Sales, marketing and compliance leaders use it to automate interruption reviews, connect conversation intelligence into their CRM and ticketing systems, and replace manual evaluations with complete visibility across every call. Take ATB, the largest financial institution in Canada. They added RingEX seats and ACE to eliminate the time lost on manual analysis, a strong example of AI and humans working together. With human agents handling customer interactions, ACE delivers the post-call analysis, surfacing sentiment, gaps and next steps, giving supervisors a clear picture of every conversation, scoring agents and the coaching data to continuously improve human agent performance. As Vlad mentioned, we have an extensive R&D spend with a wave of new innovations opening up new use cases and expanding our TAM. These investments are leading to tangible results. Last week, we introduced branded messaging via Rich Communication Services, also known as RCS, delivering a verified business identity directly into customers' native messaging app. This pairs up with enterprise branded calling, which displays a company's name and logo on outbound calls, driving higher answer rates from the first moment of contact. We also expanded support for SMS notifications with local numbers to 190 countries, so businesses can engage their customers wherever they are with the same reliability they expect from RingCentral. Building upon our hybrid model of AI and humans working together, SMS is an important customer engagement channel for both. Customer Engagement Bundle or CEB is our latest product introduction, and it is off to a strong start. CEB already has more than 5,000 customers with nearly 40% attach rate of our paid AI products. CEB brings informal contact center capabilities to RingEX, including contact center-grade voice and SMS shared inboxes. One example of a customer using these capabilities is Worldwide Steel Buildings, a Missouri-based company already using RingEX and ACE. They added CEB to manage queues, eliminate missed inquiries, and now get a complete view into every interaction, all on one platform. Importantly, CEB is now available for Microsoft Teams, embedding voice, call queues, SMS inbox, intelligent routing and analytics inside Teams, effectively turning Teams into an informal contact center. As to formal contact centers, RingCX now has more than 1,700 customers, up over 70% year-over-year with more than half utilizing AI. For example, Excelsior Orthopaedics in Amherst, New York was struggling with a 22% call abandonment rate and hold times averaging 30 minutes. With RingCX and ACE Quality Management, they cut abandonment to 8% and reduced wait times tenfold, down to just 3 minutes. Together, CEB and RingCX give customers powerful right-sized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve. The combination of our RingEX, RingCX and AI portfolio, robust platform, omnichannel capabilities is fueling ongoing migrations from on-prem to cloud. For example, this quarter, Coca-Cola United, the third largest Coca-Cola bottler in the U.S. with 60 locations is migrating thousands of seats to RingEX. A large Fortune 500 insurance company replaced their on-prem system and is further expanding RingCentral enterprise-wide deployment with tens of thousands of RingEX seats. The New York Mets are replacing a decade-old on-prem system with RingEX, RingCX and our call queues booster. A major Internet and streaming provider added RingEX to their existing RingCX deployment, along with AI capabilities, including ACE to drive greater operational efficiency. Casio, an iconic consumer electronics company, consolidated their legacy systems onto RingEX and RingCX and added ACE quality management to automatically score calls and improve visibility across every customer interaction. Our innovations continue to be well received by the channel and our GSP partner community, in particular. Multiple GSP partners are now extending their offerings to include our AI products. Cox Communications recently began deploying our native AI-powered contact center to their customer base. And this quarter, TELUS and Spectrum Business have also started bringing our AI portfolio to their customers, expanding our reach and reinforcing the platform's value at scale. In summary, we're delivering significant value to businesses and the industry analysts are recognizing this. This quarter, we were named a leader in both the inaugural 2026 IDC MarketScape for worldwide communications engagement platforms and the 2026 Omdia Universe for customer engagement platforms. From serving SMBs to enterprise and addressing simple to complex needs, and with our unwavering commitment to innovation and a well-differentiated GTM, we're in a strong position to deliver a modern, complete, AI-first customer engagement platform at scale. And with that, I will turn it over to Vaibhav.

Thank you, Kira, and good afternoon, everyone. We started 2026 with another solid quarter and delivered against all the commitments we laid out entering the year. Q1 reflected continued consistency in our execution and further strengthening of our financial profile. Let me turn to our first quarter results. Starting with growth. Total revenue was approximately $644 million, up 5.3% year-over-year and at the upper end of our guidance. Subscription revenue was approximately $623 million, up 5.6% year-over-year. Customer trends remained healthy, including steady new customer additions and monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers. As Vlad noted, we are seeing encouraging early momentum in our AI-led new products. Customers using at least one AI product now represent more than 10% of the base, have doubled year-over-year and are growing in double digits sequentially. Within these cohorts, we see stronger ARPU and net retention rates above 100%. Our growth profile remains durable and newer products are increasingly contributing to both expansion and overall revenue quality. Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached approximately 23%, up 110 basis points year-over-year and at the high end of guidance. We continue to view this margin expansion as structural. It is being driven by the underlying leverage in a high recurring revenue model at scale, combined with disciplined hiring, expanded offshoring, vendor consolidation, greater internal use of AI and continued focus on our highest return go-to-market and products. SBC as a percentage of revenue declined approximately 400 basis points year-over-year to 9% in Q1. For the full year, we now expect SBC to be approximately 9% of revenue in 2026, down from approximately 11% in 2025. This continued improvement reflects our disciplined approach to equity management and gives us confidence in our path forward toward a steady-state level of 3% to 4% in the medium term. The combination of stronger non-GAAP margin and lower SBC drove a record GAAP operating margin of 7.8%, improving by more than 600 basis points year-over-year in Q1. For the full year, we now expect GAAP operating margin to improve from 4.8% in 2025 to more than 9% in 2026. That is a meaningful step forward and reinforces our confidence in reaching our target of 20% over the next 3 to 4 years. Turning to cash flow. We generated more than $140 million of free cash flow in the quarter, up 8% year-over-year. This reflects strong operating performance, continued efficiency gains and improvements in working capital. We generated free cash flow per share of $1.62, up 15.4% year-over-year. Recurring revenue, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. As a result, we are now raising our full year free cash flow outlook to approximately $600 million or a 13% improvement year-over-year. Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we addressed the $609 million convertible maturity by refinancing it with the undrawn Term Loan A. We reduced overall debt by approximately $46 million and lowered net leverage to 1.6x. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. Importantly, we now have no maturities until 2030, and we maintained $355 million of undrawn credit capacity. We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.5 million shares for $81 million. At the end of Q1, we had approximately $418 million remaining under our repurchase authorization. The diluted share count declined 6% year-over-year to approximately 87 million shares, and we paid our first quarterly dividend of $0.075 per share during the quarter. With that, let me turn to guidance. For fiscal 2026, we are raising subscription revenue to be $2.54 billion to $2.56 billion, representing growth of 4.7% to 5.5%, raising total revenue to be $2.62 billion to $2.64 billion, representing growth of 4.2% to 5%, raising GAAP operating margin to 8.9% to 9.6%, expanding 450 basis points year-over-year, raising non-GAAP operating margin to 23.3% to 23.7%, expanding 100 basis points year-over-year, raising free cash flow to $590 million to $605 million, up 13% year-over-year. SBC in the range of approximately $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.85 to $5.01, up 13% year-over-year. This results in free cash flow per share of $6.78 to $6.99 for the year, up 18% year-over-year. For Q2 2026, we expect subscription revenue of approximately $628 million to $633 million. Total revenue of approximately $648 million to $653 million. GAAP operating margin of 6.6% to 7.6%, up 110 basis points year-over-year. Non-GAAP operating margin of approximately 23% to 23.2%, up 50 basis points year-over-year. Non-GAAP EPS of $1.15 to $1.17, up 10% year-over-year. SBC in the range of approximately $58 million to $62 million, improving 130 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 87 million shares, lower by 6% year-over-year. In closing, Vlad has stated 4 key takeaways, namely deep and defensible moat in an expanding market, RingCentral as the front door and the top of the funnel for consumer-to-business interactions, complete customer engagement platform powered by RCAI and strong financial performance. To double-click on the last point, we have an efficient business at scale and a durable compounding free cash flow model. With approaching $600 million of expected free cash flow in 2026, we have the flexibility to reinvest for growth, strengthen the balance sheet, all while returning capital to shareholders, and I couldn't be more excited about the opportunities ahead. With that, let's open the call for questions.

Today's first question comes from Tim Horan at Oppenheimer.

Great quarter, and congratulations on expanding the margins and creating a lot of new products. Vlad, you were, in a sense, the inventor of the UCaaS industry and had great vision there. Can you talk about where this new AI hybrid agent communications industry will be in five or ten years? How pervasive will AI be in voice communications? Can you talk about any new products and services we might see? And how rapidly are AI models improving at this point, and how rapidly are your services improving right now as you see it?

Yes. Great. Tim, you're too kind, but thank you. I'll go right to left. How fast are things improving? Extremely fast. These models are getting progressively better and more independent, and they are changing how things are done across the board. At RingCentral, we are both heavy internal users of AI and are devoting significant attention and effort to providing frontline, customer-facing AI tools. Some of these tools are designed to remove the human from the loop, while others are specifically designed to enhance human productivity. For the foreseeable future, we expect a hybrid world. Some interactions will be best handled by AI, and that will increase as AI becomes more powerful, but there will still be substantial room for humans in the loop. AI is unlikely to handle every inquiry, and there are legal and practical limits. For example, AI likely will not be allowed to provide medical advice on behalf of a licensed provider or to act as a practicing physician who can prescribe. In a medical scenario, AI can handle many tasks — answering billing questions, setting appointments, or reading test results without offering clinical commentary — but when specific medical advice is needed, AI should connect the person to a human clinician. This is why our AI portfolio addresses three phases: AI before a human gets involved, AI while a human is involved, and AI after an AI agent or human agent finishes the interaction. We process recordings and transcripts to extract learnings, and those learnings are fed back so that both AI agents and human agents become smarter, more productive, and more efficient for the next call. We believe the future will be a mix of AI and human work. RingCentral is fortunate to be one of the very small number of providers that can serve both needs on the same platform. Many legacy on-prem providers offer little or no AI capability, and many startups provide AI but cannot natively connect to human agents without third-party integrations. RingCentral can deliver a single platform, single invoice, single SLA, and single bill, offering efficiencies and cost savings while supporting a fully integrated hybrid human-agent and AI-agent portfolio. That's what we're banking on.

Our next question today comes from Catharine Trebnick at Rosenblatt.

Nice quarter. So I have two questions, and I'll be brief with them. One is it looks like you've really stabilized your revenue growth, roughly 5% in the last several quarters and full year guide implies at the same range, same dance. So you cited AI ARR more than doubled year-over-year, now approaching 10% of total ARR. RingCX is gaining traction. You've got Mitel, Avaya pipeline. So can you explain to me where you think the business is going to break decisively above 5%?

I'll take a stab. Hi Catharine, a really good question. Look, one is thank you for noticing. Yes, I mean, the numbers speak for themselves. I don't need to really cite them. So look, we're a large company. We're still growing. We are growing steadily. To restate what you all are extremely well aware of right now, we have made a major pivot toward profitability, including GAAP profitability and free cash flow and free cash flow per share. We're very proud of all of the positive changes that we were able to effect, and we really are pretty close to best-in-class at this point on a free cash flow basis. And as far as growth is concerned, we have meaningful portions of the portfolio growing in strong double digits and in triple digits, and in certain cases double or triple digits sequentially. When I was taking this company public back in 2013, if you were to take our AI portfolio or our customer engagement portfolio, they'd be independent publicly traded companies just based on that, probably worth more than RingCentral was worth at the time of our IPO. So we absolutely have these green shoots. But it is a $2.6 billion business. The industry is going through transformation. We are certainly seeing price rationalization, especially at the high end. And as we discussed before, we are still lapping some COVID contracts even to this day, so they are being repriced as they come up for renewals. I think the future is bright. We are hitting on all cylinders. Eventually, our AI-led products, and by the way all of our products are AI-led given the growth vectors and size of the market that we're seeing, will drive further growth. There is still obviously execution to do; we are not taking anything for granted. We have a market and a strong team. We're spending more than $250 million on R&D alone. We have a differentiated channel, literally tens of thousands of feet on the street between our direct sales force, partners, and global service providers that is unique in the industry. We're in a good position to continue delivering shareholder value, which in our view is a combination of growth and returning value to shareholders in other ways as well.

And our next question today comes from Siti Panigrahi with Mizuho.

This is Sameer calling in for Siti. I was just wondering, as you make investments in the AI initiatives, how do you balance growth and margin priorities in those? And how does that square off against your overall 20% GAAP operating margin targets? And if you can share like a glide path or kind of like your view into how are you going to achieve those targets, that would be great.

Thank you, Sameer, for the question. From an operating margin standpoint, we are very pleased with the trajectory we’ve been on for the last three to four years. We’ve doubled our operating margins from about 12.5% to almost 23–24% now. Q1 was another proof point of that; we ended the quarter with record operating margin, and we are raising our guide for the full year, further expanding margins by 100 basis points. We are doing this while investing in innovation. It’s the power of “and”: we are growing, investing in innovation, and expanding margins and free cash flow at the same time. The margin expansion is structural. Vlad talked about a large recurring base. We have a $2.5 billion recurring revenue model, ARPUs are strong, net retention rate is strong, gross margins are high, so that gives us leverage. There is embedded operating leverage in the model wherein our revenue growth continues to outpace expense growth. It’s also driven by disciplined cost management. We are disciplined in hiring and offshoring, vendor consolidation, and increasingly using AI within the company, so the margin drivers are structural. We are also looking at operating margins in the context of reducing SBC, GAAP profitability, free cash flow, and free cash flow per share. As you saw, we further reduced SBC this quarter. Our trajectory for this year will take down SBC by 200 basis points, and we have outlined a medium-term outlook of 3% to 4%. We are well on our way to doing that. As a result, GAAP operating margins are growing faster. In Q1, we expanded GAAP operating margins by almost 600 basis points, ending the quarter at nearly 8%. This year we’ll be close to 9.5%, doubling year-over-year. That puts us on a trajectory to get to our GAAP operating margin target of 20% as well. These structural improvements and reduction in SBC are also converting into free cash flow and eventually free cash flow per share, which we guided to close to $7. And again, as Vlad noted, it’s the best in our peer group. Overall, we feel good about how we’ve guided. We have structural drivers in our recurring revenue model, a large sticky base, a diversified customer base, and an improving GAAP and non-GAAP operating margin profile. Overall, we feel good about where we are.

I just want to add that, yes, thank you, Vaibhav. At a high level, maybe the question behind the question is: isn't AI good for growth but eating margins? We don't think that's necessarily the case. Customers are willing to pay for AI if it's good. We have a very deep moat with our ability to deliver both AI and human-to-human services at scale globally. We also have many very smart engineers whose task is to optimize AI, in plain terms to use the right model for the right job. It's all just a toolset. In the foundational AI community and ecosystem, what used to be state-of-the-art is quickly surpassed, and very soon, often within months, it becomes open source. There's a lot happening. We don't think AI will commoditize or become free or virtually free. For now, we've been able to keep approximately the same gross margins even for our RCAI products, and we're working hard to make that continue. As Vaibhav said, we're confident we will continue to grow, adopt more AI, which means more stickiness, better ARPUs, and importantly continued margin expansion and cash flow generation. Fingers crossed.

Our next question today comes from Brian Peterson at Raymond James.

This is John on for Brian. I wanted to ask on the free cash flow. Really strong quarter of free cash flow, raised the outlook here. But I think if we look at the trajectory and the potential run rate, it suggests you guys are on path to generate cumulatively like multiple billion dollars of free cash flow over the next several years. So first, am I thinking about the trajectory of free cash flow right as we move forward? And then maybe talk about how you're prioritizing the deployment of capital. And then I have a quick follow-up.

Yes. Thank you, John, for the question. We are very pleased with the trajectory we have been on and now have a consistent track record of expanding free cash flows over the years. Three to four years ago we were a sub-$100 million free cash flow generating company, and we've guided to $600 million, a sixfold improvement. Q1 was another proof point with strong free cash flow and free cash flow per share, and we raised the guide for the full year while continuing to invest in innovation. The free cash flow we are driving is the result of the structural drivers I mentioned earlier, and the quality of those free cash flows is improving. Our operating margins are converting very closely into free cash flow now due to working capital efficiency. While we are not providing targets beyond 2026, the $600 million of free cash flow gives us a lot of optionality in capital allocation. Our disciplined approach includes reinvesting dollars back into the business to fuel innovation, and as Vlad noted, we are seeing traction with our AI products, so we are balancing free cash flow expansion with investing in growth. We have outlined a target of reaching $1 billion of gross debt by the end of 2026, which is a second use of cash as we continue to delever the balance sheet. At current valuation levels, buybacks remain an attractive opportunity, and we returned cash through buybacks in Q1; we have approximately $400 million remaining on our authorization. We also paid our inaugural dividend this quarter, which we expect to continue. Overall, the takeaway is multiple structural drivers supporting free cash flow through operating leverage and cost discipline. We are becoming a compounding free cash flow story built on a durable operating foundation, with a large base, a recurring customer base, and a growing portfolio of AI products.

Okay. That was really good color there. And then on GSPs, I did want to ask, it's been a really good growth vector for you guys. I think it's been growing above the sort of the company average there. You guys have been expanding the product set. So can you maybe talk about the early receptivity you're seeing from GSPs around your newer solutions? Maybe what's contemplated in the guidance from GSPs? And maybe talk about like medium-term targets of where that can go to with the new solutions.

We see good receptivity. As we mentioned in the prepared remarks, multiple GSPs are lining up and expanding their footprint with us by reselling some or all of our RCAI products. Directionally, we are very pleased, but it is still very early and we are not in a position to change guidance at this point. I would say they are performing as expected right now. Historically, GSPs are powerful amplifiers while we act as the starter engine; we still have to get everything working and tuned with our direct customers, and fortunately we have many of those. We then take that playbook to the GSPs, who have massive brands and networks to further amplify the offering. Overall, the RCAI-in-GSP story is likely more meaningful in 2027 and 2028 than in this year.

And our next question today comes from Michael Funk at Bank of America.

Two for you, Vlad. First, wondering how you see the pricing model changing over time with AI? And then also AI related, just wondering if you could talk a little bit about the barriers to competition in AI. What's going to prevent other AI solutions from decoupling your own AI and becoming a competitive threat, whether integration or capability?

Well, again, taking the second question first, nothing prevents them except that they don't have this global network that's processing tens of billions of minutes per year and billions of calls and SMS stacks. We continue our leadership in the UCaaS space, and we are making major inroads in the CCaaS space, now both equipped with AI. This gives us a pretty strong competitive footing. As I said in response to the first question on this call, in a hybrid world it's very hard to see any start‑up being able to replicate what we have when the task is to get AI agents and human agents on the same platform without involving third parties. That's a huge competitive advantage. We can come in with a turnkey Swiss Army Knife solution and tell the customer the right tool for the right job, and you only get a deal with us. At minimum, that gives us pricing power and flexibility because we don't have third parties to pay. And I want to double‑click: when we talk about RCAI, this is our native AI. We're consuming tokens, of course, and we pay foundational LLMs, but these are not third‑party products that we sell. So that's the second part of the question. Sorry, can you repeat the first one, please?

Pricing model.

Yes, pricing model. Look, people talk about this a lot. I can tell you what we're seeing. We're seeing, again, more of a hybrid combination model. I think people initially got all excited that it would be all outcomes-based. I'm not personally aware of too many people who are actually truly pricing outcomes. If anything, people are pricing usage. More and more what's coming into focus are these hybrid approaches where there is some minimal commitment the company makes, whether it's seat-based or some other measure. In our case, maybe minutes consumed or questions answered. Customers need some predictability and providers do as well. This is what we started out with. So when you look at our AIR portfolio, it's very simple. It's still a monthly subscription plan. You get a certain allocation of minutes, so the unit of measurement is minutes. If you're over that allocation, you upgrade into the next tier or you buy another basket of minutes. What we find with our customers is that this business model resonates with smaller customers because it gives them predictability. It also works for larger customers because they have enough analytics to know exactly what they're using. For them, it doesn't matter whether you price per seat or per minute. Enterprises know what they're consuming. We know our costs. They understand their spend. It's all open book anyway. So short answer: still hybrid and the right tool for the job, depending on the customer and the use case.

And our final question today comes from Elizabeth Porter at Morgan Stanley.

This is Jamie on for Elizabeth. Great to see the continued momentum that you're seeing with the AIR solution and realizing that it's still super early days for the Pro variant. Just curious how you view the opportunity to maybe upsell some of those existing customers to the Pro tier.

It's existing customers of both AIR and also non-AIR are both opportunities to upsell AIR Pro. AIR fundamentally is a preconfigured fit-to-purpose agent, very easy to deploy, reception can deploy, meant to do very simple tasks, answer questions, route calls, book appointments. AIR Pro comes to studio and has ability to do much more complex workflows, complex tasks, and they complement each other. So we're right now in the process with AIR Pro being an early access program, open to select customers and seeing those customers actually with AIR also buy into AIR Pro for different use cases, work in tandem, work together. So generally, the two products will be sold in parallel out there and one can talk to another as well.

Thank you. That does conclude today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.