RingCentral Second Quarter 2026 Earnings Conference Call

Good day, and welcome to the RingCentral Second Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Stephen Horwitz, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to RingCentral's second quarter, 2026 conference call. Joining me today are Vlad Shmounis, Founder, Chairman, and CEO, Kira Makhigan, President and COO, and Veibov Avrawal, 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 our non-GAAP with year-over-year comparisons. A reconciliation of all GAAP-to-non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the financial results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad.

Good afternoon, and thank you for joining us. We delivered another strong quarter, exceeding the high end of guidance across all key metrics. Total revenue, subscription revenue, and both GAAP and non-GAAP operating margins surpassed expectations. Free cash flow generation also remains strong, and we now expect to deliver more than $7 per share for the full year. Given our quarterly performance and our confidence in the longer-term sustainability of our operating model and free cash flow profile, I am excited to announce that our board has approved an increase to our quarterly dividend to $0.12.5 per share. We are also making meaningful progress toward our medium-term target of reducing SBC to a range of 3% to 4% of total revenue. Our disciplined focus on profitability has put us ahead of schedule on gap operating margin. And we now expect to reach our 20% target within two to three years, a year ahead of schedule. We also remain on track to reduce gross debt to a billion dollars by this year end. This performance reflects a multi-year effort to strengthen our financial profile while transforming the company into an agentic voice AI leader. RingCentral is becoming an intelligence layer where AI agents and human agents work together to manage customer interactions end-to-end for better business outcomes. We believe the market opportunity is large, spanning UCAS, CCAS, and conversational AI, totaling more than $150 billion. This is based on estimates from IDC and Gartner. Further, we believe that the convergence of these disparate markets into a broader category of AI-powered customer engagement plays to our strengths, and that we are well-positioned to address this shift with one of the industry's broadest AI-powered customer engagement portfolios. We are investing over a quarter billion dollars annually in R&D to expand our portfolio, deepen our mode, and accelerate innovation. Voice is at the center of this transformation. It remains the primary way customers engage with businesses through both human-to-human conversations and, increasingly, interactions between people and AI agents. Our carrier-grade platform serves approximately 600,000 businesses across 45 countries and supports international numbers in nearly 100 countries. It carries roughly 40 billion voice minutes annually and more than 3 billion text messages, both growing faster than our user base. Adding to our mode are billions of recorded and transcribed conversations that reside on our platform. This gives us invaluable learnings in delivering AI-native solutions that are best tailored to address our customers' needs. This wealth of data, combined with our infrastructure, scale, reliability, and decades of operating experience, create a high barrier to entry. In addition, the breadth of our product portfolio gives us the ability to cover all aspects of customer-to-business interactions, including person-to-person, person-to-informal contact center agent, person-to-a-dedicated contact center agent, and, of course, increasingly, person-to-an AI agent. It is this ability to freely intermix AI and human agents while having both learn from the other that gives RingCentral a sustainable structural advantage. Unlike many AI point solutions that depend on third-party telephony or contact center stacks, RingCentral's Agentic Voice AI is built on our own global business voice network that is hard to replicate. It also integrates closely with our well-established cloud-native product portfolio. This matters because most businesses want a single platform that can support, connect, and orchestrate across every customer interaction, whether to a human or an AI agent. This constitutes a clear competitive advantage for RingCentral. This advantage translates into strong adoption, broader portfolio penetration, and meaningful customer expansion. We're seeing the demand across every part of our go-to-market engine, direct, channel, and GSP, with customers and partners increasingly leaning in to adopt AI across the entire platform. Numbers don't lie. ARR from customers who utilized at least one of our native paid AI products now represent approximately 13% of ARR, having doubled year over year. These customers have net retention well above 100% and meaningfully higher ARPU than the rest of our base. This momentum spans our entire AI portfolio. We ended Q2 with more than 16,000 paying AIR or AI receptionist customers, which is up 400% year-over-year. ACE, our AI conversation expert, has more than 6,300 customers, growing more than 70% year-over-year. More broadly, ARR from our AI-led new products grew nearly 60% during the first half of the year. These new products also help us increase wallet share. One example is a large U.S. automotive dealership group with approximately 30,000 employees. Beginning with RingX in 2024, they later expanded into RingCX and AI quality management, and more recently rolled out AR and call queues across its dealerships. This has more than doubled their AR over the last several months. Our new customer engagement solution, or CEB, is another standout. out. CEB adds lightweight contact center capabilities to RingEx, such as call queues, shared SMS inbox, and analytics. CEB now serves more than 9,600 customers and has grown more than 80% sequentially. Our progress on product innovation wouldn't be possible without transforming ourselves into an AI-native company. This quarter, most of our product and technology employees, in partnership with OpenAI, executed an AI-native project with over a 99% success rate. This marks a major milestone towards RingCentral becoming an AI-native company. We'd like to thank OpenAI for their guidance and support in making this happen. Another core strength in mode is our differentiated go-to-market, which includes direct sales, over 16,000 channel partners and resellers, and global service providers. Our AI and new products are resonating with channel partners. In fact, about half of our AI ARR originated from the channel. Partners investing in AI services and outcomes are winning, and we're building out programs around that momentum. We also have 16 leading global service providers in our network, and they remain an important part of our go-to-market strategy. These partners are increasingly bringing our AI products to the market. Recent wins include BT selling RingCX and AI quality management to one of the UK's largest electricity and gas brokers. and Vodafone UK recently deploying AI-powered RingEX at PwC, one of the big four consulting firms. To firstly build on our momentum, I am delighted to welcome NICE to our family of strategic resellers. Today, RingCentral and NICE announced an extension and expansion of our partnership, whereby Nice will begin marketing and selling Ring EX in combination with CX-1 while RingCentral continues to offer Nice CX-1 to our customers. We now have a symmetrical, mutually reinforcing partnership that brings together two market leaders to deliver the future of AI-powered customer and employee experiences to businesses of all sizes. Also, in an effort to streamline customer experience and to better align with our respective strategic directions moving forward, we have recently restructured our relationship with Avaya. While RingCentral will remain Avaya's exclusive multi-tenant cloud UCAS offering, existing Avaya cloud office customers and partners will transition to the RingCentral platform and brand directly. We see this restructuring as a win-win for RingCentral, Avaya, and most importantly, for ACO customers and partners alike. We look forward to continuing to serve the ACO community under the RingCentral brand and working with them directly. Last, but by far not least, this progress would not be possible without our outstanding people. I am delighted to announce that RingCentral was recently named to Times' list of America's best companies for 2026, recognizing employee satisfaction, financial performance, and sustainability over a three-year period. This important award recognizes the passion of our employees, the trust of our customers, and our focus on culture, innovation, and execution. I could not be more excited about the road ahead. With that, I'll turn it over to Kira.

Thank you, Vlad, and good afternoon, everyone. As Vlad said, RingCentral is uniquely positioned as the most complete customer engagement platform with the agentic voice AI woven across the portfolio. This quarter, we saw customers accelerate their adoption of RingCentral AI. For example, VGM Group, a national post-acute healthcare organization, deployed our full RingCentral AI portfolio, AIR, AVA, and ACE, on top of RingDX. AIR recovered 45% of their calls previously lost to abandonment. AVA eliminated manual note-taking. ACE delivered the call visibility and coaching to help them improve their customer interactions. They are now rolling out AI solutions to every department across the company. This example highlights the flywheel effect of more calls recaptured, less time spent on manual work, and more insights that make each interaction better than the last. Now let me unpack our AI portfolio further. Handles inbound voice calls and text messages, deploys in minutes, and works for businesses of any size. This quarter, we enhanced AIR with new spam blocking filters and lead capture that collects information at the right moment and syncs with Salesforce, HubSpot, and Zoho. Customers are seeing the impact of using AIR. Based on a recent survey, AIR customers reduced missed call rate from an average of 20% to close to zero. For example, GTR Insurance, a family-owned insurance business, said they are no longer buried in 50 calls a day, and AIR is saving them $6,000 a month. That's time and money we are putting back into growing their small business. with more complex use cases, enables businesses to create fit-to-purpose agents, leveraging over 100 pre-built integrations, including EHR, CRM, scheduling, e-commerce, and billing. We advanced our AI agents to handle multiple intents, retain context across conversations, and ask targeted follow-up questions to improve accuracy. We are excited about the traction with AIR Pro since launching just a few months ago in early access. One example is a leading BPO achieved a containment rate of above 85% with no live agent transfers after using AIR Pro together with their CRM integration. Another example is a healthcare customer which added AIR Pro and ACE for integrated scheduling and customized lead qualification. The deployment succeeded quickly, and they're already expanding AR Pro to new use cases. That kind of rapid time to value is exactly what we're seeing across our portfolio. Our conversation expert gives sales, marketing, and compliance leaders complete visibility across every call, automating reviews, replacing manual evaluations, and feeding conversation intelligence directly into their CRM and ticketing systems. In the last quarter, we saw a record ACE adoption with the number of calls processed jumping at double digits quarter over quarter. An example of a customer win this past quarter is one of the nation's largest healthcare workforce providers, which purchased nearly 700 licenses of ACE to improve their nursing placement conversation rate and enhance the recruitment, training, and coaching. CEB, our customer engagement bundle solution, is also scaling fast with a healthy attach rate of our AI products. A recent customer win is a financial services firm that chose CEB attached with Ace to manage inbound calls and SMS with automation, AI support agent coaching, and to have full visibility into call queue volume with robust analytics. This example underscores the growing attach motion of AI with CEB. We need to invest in strengthening our AIR Pro offering with VCX. We added autonomous outreach, enabling AI to proactively initiate conversations on its own. And when human judgment is needed, intelligent handoffs transfer full context to a live agent seamlessly. The market is taking notice. This quarter, both Aragon Research and Nucleus Research, namely CX, a leader in their respective contact center reports, recognizing our AI investment, workforce engagement capabilities, and embedded contact center experiences. We are proud of this industry recognition and our ability to give customers