RingCentral(RNG) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q2 2020 grew to $278 million, representing a 29% increase year-over-year, exceeding guidance [15][49] - Total annual recurring revenue (ARR) grew 33% year-over-year to $1.1 billion, with ARR for RingCentral Office surpassing $1 billion for the first time, growing 36% year-over-year [15][49] - Overall subscription revenue increased by 32% year-over-year, with an operating margin of over 10% [49] Business Line Data and Key Metrics Changes - The enterprise segment saw a record number of seven-figure total contract value (TCV) wins, with significant contributions from the contact center portfolio [30][51] - Channel ARR increased 60% year-over-year to $375 million, indicating strong performance from channel partners [31] Market Data and Key Metrics Changes - Mid-market and enterprise customers (defined as $25,000 or more in ARR) had ARR growth of 50% [52] - Churn rates for small businesses in sectors like retail, travel, and hospitality improved consistently throughout the quarter, although still not at historical levels [53] Company Strategy and Development Direction - The company is focused on expanding its market reach and enhancing its product offerings, including the launch of RingCentral Video and RingCentral Rooms [32][24] - Strategic partnerships with Atos and Avaya are expected to enhance global reach and capture market opportunities [17][36] - The company aims to leverage its MVP platform to assist businesses in transitioning to cloud-based communications [27][22] Management's Comments on Operating Environment and Future Outlook - Management noted that the COVID-19 pandemic has accelerated the demand for cloud-based communication solutions, positioning RingCentral favorably in the market [10][56] - The company raised its annual guidance based on strong Q2 performance and a predictable recurring revenue model, expecting total revenue growth of 26% to 27% [55] Other Important Information - RingCentral was named to the Forbes Global 2000 list, highlighting its status among the largest and most valuable companies globally [13] - The company has seen double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on its MVP platform [22] Q&A Session Summary Question: Thoughts on gross cash margin balance going forward - Management indicated a strong unit economics with close to a 50% margin flow-through from revenue, focusing on profitable growth while investing in innovation [62][63] Question: Engagement with partners regarding RingCentral Video - The company reported robust progress with around 10,000 accounts enabled with RingCentral Video, with most new customers adopting the platform [65] Question: Highlights of the quarter's performance - Management noted strong growth in new logos, larger deal sizes, and improved customer commitment to UCaaS during the pandemic [72] Question: Impact of Microsoft’s recent announcements - Management views Microsoft as a long-term strategic partner, emphasizing complementary strengths in moving customers to the cloud [75][77] Question: Guidance for Q3 and the rest of the year - Management provided a conservative outlook based on macroeconomic conditions, with assumptions of lower close rates and churn [80][82] Question: Quality of install base for Atos versus Avaya - Management noted that Atos has a more direct engagement with customers, which may lead to a shorter sales cycle compared to Avaya [83] Question: Demand for contact center solutions - Management characterized demand as strong, with a roadmap focused on enhancing capabilities to meet this demand [124]