RingCentral, Inc. (NYSE:RNG) Q1 2024 Earnings Call Transcript

RingCentral, Inc. (NYSE:RNG) Q1 2024 Earnings Call Transcript May 7, 2024

RingCentral, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. This is the conference operator. Welcome to the RingCentral First Quarter 2024 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After your presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Will Wong, Vice President, Investor Relations. Please go ahead.

Will Wong: Good afternoon. And welcome to RingCentral’s first quarter 2024 earnings conference call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; and Sonalee Parekh, CFO. Our format today will include prepared remarks by Vlad and Sonalee, followed by Q&A. We also have a slide presentation available on our Investor Relations website that will coincide with today’s call, which you can find under the Financial Results section at ir.ringcentral.com. Some of our discussion and responses to your questions will contain forward-looking statements regarding the company’s business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance.

Actual results may differ materially from our forward-looking statements and we undertake no obligation to update these statements after this call. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission, as well as today’s earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available as discussed in detail in the slide deck posted on our Investor Relations website.

With that, I’ll turn the call over to Vlad.

Vlad Shmunis: Good afternoon and welcome to our first quarter conference call. We had a solid start to the year. In Q1, total revenue rose 9% to $584 million, above the high end of our outlook. ARR rose 10% to $2.4 billion, with Enterprise up 13% for the fourth consecutive quarter. Consistent with our strategy of driving profitable growth, we delivered a record quarter of profitability, with operating margin rising to approximately 21%, which was well above our outlook for Q1. I’m also proud of the material progress we have made on reducing stock-based compensation, as we have delivered another quarter of year-over-year improvement in SBC as a percent of revenue. Our execution in driving profitable growth has already resulted in an approximately 4x year-over-year increase in non-GAAP operating profit less SBC.

Improvements in SBC, combined with our share repurchase program is expected to result in our full year fully diluted share count declining year-over-year for the first time in our history. Speaking of making history, I’m excited to share that in Q1 we signed our largest UCaaS seat deal ever. We won a competitive RFP and sold 40,000 seats to a Fortune 500 retailer with over $20 billion in revenue. With RingCentral, this customer will be able to address their main pain points, which include dropped calls, long hold times, inadequate call reporting and lack of advanced voice features. In this mega deal win, RingCentral will be replacing their legacy solution, Skype for Business, demonstrating our ability to win against Teams Phone while operating within the Teams ecosystem.

In fact, the majority of our Enterprise customers have Teams, and in Q1, more than half of our large $1 million TCV deals were to customers that are utilizing our solutions integrated with and alongside Microsoft Teams. Importantly, this win was in one of our gold verticals, which include healthcare, financial and professional services, retail and public sector. We are mission critical in these verticals and we win given our unmatched reliability, ability to solve complex use cases, our integrated UCaaS and CCaaS platform and our thousands of available integrations. These verticals have been a key growth driver, especially in Enterprise, and we believe that there are at least 100 million seats in these verticals that we can convert over time.

Let me now give you more color on why we win, which is centered around our guiding principles of trust, innovation and partnerships or TIP, as we call it. First, trust, we achieved 5 9s uptime for the 23rd straight quarter. In fact, over the past year we’ve reached a new milestone of 6 9s. Our cloud platform is carrier grade, secure, standards compliant and battle tested, and continues to be a wide competitive moat and a key differentiator. Another core strength is our ability to solve complex use cases and integrate into customers commonly used horizontal and vertical-specific applications, especially in our gold verticals. We offer these customers a large breadth of business communication APIs as well as industry specific integrations, workflows and certifications.

For example, within the healthcare vertical, we integrate into patient data management applications such as Epic and Cerner, as well as meet HITRUST and HIPAA compliance requirements. These customers can create workflows based on the specific needs of their business. For example, healthcare providers can use RingCentral’s APIs to send prescriptions directly to the pharmacy’s system electronically and automatically trigger appointment reminders via SMS. Additionally, our market leading UCaaS solution integrated with a CCaaS platform that supports a wide variety of use cases and is also a vital differentiator. With RingCentral, companies have the ability to streamline workflows with our advanced tools and integrations. This was a key factor in why Sanitas, a Fortune 500 operator of medical centers in the U.S., selected RingCentral this quarter to power its communications platform.

With RingCentral, Sanitas will be able to provide their customers with a unified, seamless experience across interactions such as scheduling, billing and general inquiries. We believe this should drive increased revenue and patient retention from improved customer experiences, as well as lower costs from the increase in employee efficiency that our industry leading, integrated UCaaS and CCaaS platform provides. These are just two examples of our robust progress in new customer acquisition activity in Q1. But equally as important is our ability to retain existing customers and maximize customer lifetime value. On this point, our renewed focus on customer care is resulting in improved gross retention and better NPS scores. The combination of better gross retention, improving macro trends and the introduction of our new products should drive higher net retention going forward.

Now, on to innovation. This past quarter we announced a name change of our flagship, industry leading UCaaS solution from MVP to RingEX, which stands for RingCentral Employee Experience. With this change, we are signaling our commitment to continuous innovation based on emerging generative AI technologies. We started off on a high note with RingEX with RingSense AI, as we won the Overall Best of Enterprise Connect Award in March. One key reason we won is because of our differentiated, industry first, real-time AI for voice interactions. With this feature, users are able to capture key decisions and track action items in real time, enabling on-the-spot referencing and heightened accuracy. It is early days, but users are already seeing significant time savings.

For example, one customer highlighted that for an average 20-minute call, real time notes saves them 5 minutes post call, while also keeping all their notes attached to the contact to allow for easy referencing in future interactions. Voice-driven data historically has been largely inaccessible at scale as the data has been siloed. With RingSense AI now being an integral part of RingEX, we empower customers to take advantage of the billions of minutes of conversations that take place on our platform. Our customers will thus be able to automate manual tasks, unlock deeper insights and create more streamlined employee and customer workflows. Continuing on the theme of innovation, let me now share progress on our new products. First, RingCX, our AI-powered contact center, which is simple to use and easy to deploy, and which provides agents with all-in-one capabilities across 20 plus digital channels, automatic screen pops, contact matching in the CRM, case and ticket creation and interaction logging for all voice and digital interactions, all from an intuitive user interface.

We now have over 200 RingCX customers, almost double versus fourth quarter 2023. RingCX is now available in six countries, the U.S., Canada, the U.K., France, Germany and most recently Australia. In fact, one of our newest RingCX customers is from outside the U.S. Rotherham Metropolitan Borough Council in the United Kingdom. They purchased over 200 RingCX seats and over 3,000 RingEX licenses in Q1. Two key factors for our win; one, our unmatched reliability, as their prior cloud provider had consistent outages; and two, our fully integrated RingEX and RingCX solution. They will be using RingCX to provide a range of services for their almost 300,000 residents, including addressing incoming social care, planning, housing and business regulation and enforcement questions.

We are rapidly innovating with RingCX. We added over 300 features in Q1, bringing the total to over 1,000. Among the new features of RingCX are native integrations into Salesforce, HubSpot, ServiceNow, Zendesk and Microsoft Dynamics. We have also opened the RingCX platform to enable a growing ecosystem of partners such as Google, Dialogflow, Cognigy, Yellow.ai, Balto, and Calabrio. Our strength in voice, ease of deployment, use and maintenance and our attractive pricing and packaging give us confidence that we will continue to see positive results from RingCX going forward. We also continue to see good traction with RingSense for Sales, our first product in the RingSense portfolio. We have more than doubled our customer count sequentially in Q1 to over 600.

Many customers are benefiting from the automated interaction summaries, follow up notifications, call scoring, sentiment analysis and performance measure — management. This frees up salespeoples’ time, allowing them to focus on selling versus performing administrative tasks. For example, an insurance agency in the Midwest is using the AI-driven insights from RingSense for Sales to gain visibility into what’s working and not working in the agency’s sales and client-service practices. RingSense is able to monitor and glean insights from all their voice data, tone, word choice, energy, sentiment, helping the customer identify valuable insights they would not have caught by listening to a random selection of agent conversations. And within our own sales organization, we are seeing RingSense for Sales deliver both productivity and efficiency gains.

Our employees are now able to save at least 2 hours a week or about one full workday a month, from using RingSense’s automated note summary features. That is one extra day to speak with customers and potentially win more deals. Lastly, Events, which provides us with the opportunity to expand into new personas outside of our typical base, including line of business decision makers. RingCentral Events saw a roughly 25% sequential increase in new logos in the first quarter. New AI features for Events such as our AI writer and Q&A categorization further enhance the value that customers receive. These features also continue to differentiate RingCentral from the competition, and were important contributors to customers such as the Detroit Pistons, Vanderbilt University, a Fortune 50 technology company and one of the largest media companies in the world selecting RingCentral Events during the first quarter.

Last but not least, partnerships, which are key to continuing to scale our multi-product business. We have a diverse network of partners which includes over 15,000 channel partners, a number of large, strategic OEM partners, AWS and some of the largest global service providers, which include AT&T, BT, Charter Communications, Deutsche Telecom, Telus and Vodafone. We also continue to expand this network and announced our new partnership with Optus, Australia’s second largest provider of telecommunications services, during the first quarter. GSPs are a key growth driver for RingCentral, and are growing above our overall growth rate. We saw good traction with this cohort in Q1, including with Vodafone, where we won a 1,000 seat plus deal with a large European retailer.

Regarding Avaya, they continue to be the world’s largest holder of on-prem UC and CC seats. RingCentral continues to be Avaya’s exclusive UCaaS provider and in Q1 we extended the term of our multiyear agreement and enhanced our GTM and innovation collaboration model. We expect to work even more closely with Avaya to position, market and sell Avaya Cloud Office by RingCentral to the millions of existing Avaya on-prem users. Stay tuned for additional joint product announcements at the upcoming Avaya ENGAGE conference next week. We believe that as a whole our broad partner network will be an important contributor to our continued, profitable growth. In closing, Q1 was solid. We are executing on all our strategic priorities. Our core growth is stabilizing, our new products are demonstrating traction, our SBC is improving, and our free cash flow is expanding, demonstrating the strength of our business and its inherent profitability.

I am very excited about our future. With that, let me turn the call over to Sonalee.

Sonalee Parekh: Thanks Vlad. I’ll provide highlights from the first quarter and then discuss our business outlook for the second quarter and full year. In Q1, subscription revenue of $557 million was up 10% year-over-year, above the high end of our guidance range. ARR of $2.37 billion was up 10% versus last year. On a year-over-year basis, currency was neutral, while on a sequential basis, currency represented an almost $10 million headwind. Enterprise ARR continues to perform well, and rose 13% versus last year to $1.02 billion. We saw good traction with large customers, winning many $1 million plus TCV deals in our gold verticals. As Vlad highlighted, this includes a new Fortune 500 retailer that has committed to spending more than eight figures with us over the next few years.

Now moving to profitability. I’ll be referring to non-GAAP results unless otherwise noted. Subscription gross margin was 82%, consistent with prior quarters. Overall ARPU was again above $30. Our new product ARPUs are solidly higher than current overall ARPUs. Over time, we expect new products to become increasingly accretive to overall ARPU and retention. Operating margin rose 350 basis points versus last year to 20.7%, solidly above our guidance of 19.5%. The outperformance was driven by upside to our revenue guidance, as well as the timing of certain operating expenses. Importantly, we continue to remain disciplined in our spending, in particular within sales and marketing. Moving to free cash flow. We are now reporting and will guide to free cash flow defined as net cash provided by operating activities less capitalized expenditures.

This more closely reflects the cash flow generation of our business in a given period and includes cash paid for interest and other non-recurring items such as restructuring, which we will call out separately. In the first quarter of 2024, we generated free cash flow of $77 million. This is net of cash paid for interest of $23 million and non-recurring payments of $15 million, as well as $10 million of cash received from certain strategic partners. Excluding the impact of interest and these non-recurring items, free cash flow would have been $105 million, compared to $61 million in the first quarter of 2023, representing over 70% growth. Moving to stock-based compensation. As a percent of total revenue, stock-based compensation fell to 15.6%, down 340 bps versus last year.

We also remain disciplined on stock grants to both new and existing employees, and continue to expect new grants, net of forfeitures in 2024 to be about half of 2023 levels. Moving to our balance sheet. During the quarter, we repurchased 2.4 million shares for $80 million under the plans previously authorized by our Board of Directors. Recently our Board increased our repurchase authorization by an incremental $250 million. We currently have approximately $375 million remaining on our total authorization. Given our current valuation, strong and growing free cash flow and the significant progress we have made to bring down our leverage, we believe that share repurchase provides an attractive relative return. Moving to our converts. We had $161 million of our 2025 convertible notes outstanding on March 31st.

There is no change in our plan shared last quarter to utilize our existing liquidity sources and a portion of our free cash flow to retire the 2025 convert prior to its maturity date in March 2025. Our net leverage ratio, which declined year-over-year by over one turn to 2.5 times at the end of Q1 2024, continues to trend downwards as we expand our adjusted EBITDA and reduce gross debt. Our low and improving leverage ratio, strong BB credit rating, significant liquidity and strong free cash flow growth gives us flexibility and a range of alternatives for addressing our 2026 convertible notes. Now let me turn to guidance. Embedded in our guidance is the expectation that the macro environment and current business trends remain relatively stable, with no further material improvement or deterioration in conditions.

With that backdrop, for the second quarter of 2024, we expect subscription revenue growth of 9%; total revenue growth of 8% to 9%; non-GAAP operating margin of 20.7%, flat versus the first quarter of 2024; and non-GAAP EPS of $0.87 to $0.88. For the full year, we are raising our revenue outlook to reflect our Q1 revenue outperformance. We now expect subscription revenue of $2.267 billion to $2.287 billion, representing growth of 8% to 9%; and total revenue of $2.379 billion to $2.399 billion, representing annual growth of 8% to 9% We continue to expect non-GAAP operating margin of 21% and stock-based compensation as a percentage of total revenue of approximately 16%. We are raising our non-GAAP EPS to $3.59 to $3.67, up from $3.50 to $3.58, as we now expect 96 million to 97 million fully diluted shares outstanding in 2024, down from 98 million to 99 million shares previously.

Regarding free cash flow, under our updated definition, we expect free cash flow of $385 million to $390 million. Our outlook for $385 million to $390 million includes cash paid for interest of $60 million and cash paid for non-recurring restructuring and other items of $20 million, as well as $25 million of cash received from certain strategic partners. Excluding interest and these non-recurring items, we are raising our free cash flow outlook from $415 million to $420 million to $440 million to $445 million, up $25 million from our prior outlook. Our updated free cash flow guidance reflects the benefit we are seeing from better cash collections and lower commissions. We are also benefiting from a shift to annual, upfront billings for some contact center customers.

In summary, we had a strong start to the year and are raising our revenue and free cash flow outlook. Our leading, differentiated products and unique GTM, combined with our scale and laser focus on driving profitability and free cash flow position us well for creating long-term shareholder value. With that, let’s open up the call for questions.

See also 20 States with the Highest Fertility Rates in the US and 16 Best US Stocks To Invest In Under $10.

Q&A Session

Operator: Thank you. [Operator Instructions] First question comes from Kash Rangan of Bank of America. Please go ahead.

Kash Rangan: Hi. Thank you very much. Goldman Sachs. Vlad, a question for you. It looks like Enterprise ARR is growing faster than the overall company. It looks like that’s an area of relative strength for the company, as evidenced by the 40,000 UCaaS deals that you signed. Can you tell us what is driving the strength in the Enterprise, be it product or competitiveness or execution standpoint? One for you, if I could slip in, Sonalee. You raised free cash flow guidance by a pretty meaningful amount. Can you tell us — congratulations and can you tell us how sustainable is the free cash flow growth rate of the company going forward? Thank you so much.

Vlad Shmunis: Great. Hi, Kash, and thank you. Okay. To the first question. Look, we have a good product. It continues to be an industry-leading product. We continue innovating. As we mentioned, we have just and for the first time ever won Best of the Show Overall Award at Enterprise Connect. That’s a big deal and we won it specifically on the strength of our differentiated AI offerings. With respect to both Enterprise as a whole, but this one particular 40 seat deal in particular. Look, what are we known for? We’re known for reliability. We’re known for and it is bulletproof, nothing would. It’s multiple, multiple years of 5 9s availability and now, I think what, about a year and a half of 6 9s. That has not been matched, I don’t think, in history.

I can tell you it has not come by accident. There was a lot of blood, sweat and tears that went into this over many, many years by many people, okay? And it makes you look pretty good at it. We have — we are uniquely positioned to complex — to address complex use cases. As noted in prepared remarks, we were chosen in this particular case our reliability, as well as use cases and some of the examples, ability to handle messages and just hold times in general. Hold times, what’s happening during the hold is a big deal for many enterprises. This one in particular is a meaningful retailer. They also have, as part of their retail establishment, they host pharmacies. So what’s happening during on hold times is incredibly important and we just have better ways of handling that.

But I want to turn the mic over to Sonalee here in a sec, but I also want to give you the big picture. The big picture is why do we win in the Enterprise is, again, good product, robust, reliable, fully featured, but very importantly, huge amount of green fields still left. I really want people to internalize the fact that in spite of all of the rhetoric about videos taking over, messaging taking over, collab taking over, which by the way, we have all of those modalities as well, but voice continues to be the primary mission critical medium of communications for people. And especially in our gold verticals, which includes retail, includes healthcare, includes financial, et cetera, we can easily see 100 million seats out there. Salesforce just published a report saying that prevalent modes of E2V communications are voice and email and does not need messaging and this is where we shine.

And last but by far not least, why we continue winning there and we have stabilized our growth in double digits still is focus. There was rhetoric, as you know, relatively recently that RingCentral is abandoning Enterprise. Well, this is our way of showing that not quite. We’re not abandoning Enterprise. We’re doubling down on Enterprise. We absolutely see our right to win there. And I’ll tell you what, as we have focused on Enterprise and will continue to focus, we will also be redoubling our efforts on SMB. It’s been relatively underperforming in a very challenging micro for SMB, but we think that there is still a lot of juice left there. We also have a very strong position and a very strong and protectable right to win. So let’s say I’m cautiously optimistic that we’ll be showing good results there as well moving forward.

Sonalee?

Sonalee Parekh: Thanks a lot. And thanks, Kash, for the call out on free cash flow. So, yes, we are very, very proud of what we’ve delivered. So as you know, last year, we took really important steps to transform the profile of our cost base and we expanded operating margins by nearly 700 basis points year-over-year. And the efficiencies and productivity benefits realized are now reflecting in a big way not only on operating margins, but we’re seeing it in the free cash flow, with — if you look at where I’ve guided today, our unlevered adjusted free cash flow is expected to grow 34% this year and free cash flow margins are expanding by about 370 basis points based on that updated guidance. So free cash flow margins are really starting to converge with operating margin.

This is a trend that we sort of telegraphed because we’re realizing the positive impact of the lower intensity of deferred commissions that we’re amortizing over the last couple of years through the P&L. And we’ve also realized significant working capital efficiencies and shifting more of our long-term contractual commitments to upfront payments. So the power of the growing free cash flow coupled with our focus on driving SBC down, which hopefully you noticed as well, provides a real opportunity to drive significant free cash flow per share growth and driving that growth in excess of both revenue and overall free cash flow growth. So this year, we expect based on the midpoint of our guide on free cash flow that our free cash flow per share will grow about 36% and that outlook has improved by about 10 percentage points since we last reported last quarter.

So given the improvements in our free cash flow and the updated outlook we’ve given you on share count, which we now expect to reduce year-over-year, we hope that you will judge us on the strong confidence in the free cash flow per share growth that we will continue to deliver on a sustainable basis.

Operator: The next question comes from Samad Samana of Jefferies. Please go ahead.

Samad Samana: Hi. Good afternoon. Thanks for taking my questions. Also honored to go after Kash. So I love the order of the Q&A. Hope you guys are doing well. Maybe first question, just, Vlad, as I think about the large deal, it’s obviously small in the overall context of the millions of seats that RingCentral has. But when I think about that’s got to be one of your larger individual deals. So could you help us maybe double click into, what the timeline looks like in terms of winning the deal? What led it, maybe in terms of like the features, so on and so forth. And what they expect to roll out of a deal of this size looks like just given how big the deal is and it’s a signature win. And then certainly just I’ll squeeze in a sub-question for you upfront as well.

It’s just on the upfront billing, does that — is there any discounting that’s going on to drive the upfront collections or is that just the customers are agreeing to that and the timing doesn’t really matter to them? Thank you both for taking my questions.

Vlad Shmunis: Yeah. Hi, Samad. Okay. Yes. Glad to have you in a full position here on the Q&A list. Okay, so as far as the deal, it wasn’t one of the largest, it was the largest. So this is especially interesting given again all of the especially more recent rhetoric about our positioning in the Enterprise and the Teams and all of that. Look, as far as how long these types of deals are generally one-year to two-year cycles. This particular one happened to be right in the middle, 18 months, okay? And it’s — I already mentioned some of the differentiated features. This customer is rotating out of Skype for Business. So it was a competitive RFP process. We don’t always know who else is involved but you can probably imagine the usual suspects and as I already mentioned to Kash, it really has to do with reliability and features, okay?

And again, we don’t think that this is such an aberration. 40 seat deal, there are only so many of them out there to be had, but we do have other large installments. We have 20% of GDK which is — which we count as part of our Enterprise segment so they’re spending more 100,000 ARR with us. So we are very much active in large accounts. We continue this we believe we have a good chance to continue this being the case. And I really want to stress this one more thing. Again, this is getting going back into Enterprise and Teams, and how do we coexist there and we need to understand that there is Team and then there is Teams Phone. We compete with Team Phone and as you can see we have some success competing against Team Phone. We work and partner with Team itself, okay?

So we are an integral part or extension to Teams via available APIs. We provide or support the single payment for us and that’s a major strength. We have really what we believe one of the best if not the best Team integrations on the market today. So I hope I answered the question.

Sonalee Parekh: Yeah. And Samad, just Sonalee here. On your question with respect to discounting, no, there’s nothing to call out there. It’s really a mix shift, so as we grow in Enterprise and the composition of Enterprises total increases in our overall revenue it tilts us to more upfront billing and long-term contracts and that’s obviously much more common in enterprise to bill upfront than say SMB which is often month-to-month.

Operator: The next question comes from Ryan MacWilliams of Barclays. Please go ahead.

Ryan MacWilliams: Thanks for the question. I’ll also continue with the trend of the two-part question. One for Vlad and one for Sonalee. For Vlad, just given the macro uncertainty, how does your pipeline look like for the rest of this year and have you noticed any trends in the pipeline whether between SMB and enterprise or UCaaS and CCaaS opportunities? And then for Sonalee, NICE revenue result in free cash to step up, but looks like the non-GAAP full year operating margin guide was maintained. Can we just use this as conservative as we’re going to start the year or are you leaving room for more additional sales and marketing and R&D investment this year? Thanks.

Vlad Shmunis: Okay. Great. Yeah. Hi, Ryan. Okay. Look, pipeline, so UCaaS was over guided. We had a good quarter and what we believe is a strong guide as well and so that should tell you that, we feel relatively good and optimistic about the pipe. You asked between Enterprise and SMB. They’re very different, because Enterprise, again, is a year plus cycle. SMB could be under six months in many cases, once three months. So, pipe there is a lot less, it’s not important, but it’s just a very different dynamic there. But, again, overall, we feel that we are finding bottom if you will and you have seen our Enterprise rate stabilize over multiple quarters. You have not yet seen this from us in SMB but we are optimistic that we’re not far from that as well.

And given the size of the green field opportunity which is still, we’re still under 10 million seats ourselves, right, and we’re in the lead by pure seat count according to third-party research. Some of you may have got our Wall Street Journal ad recently which details some of this research. The overall opportunity just in the Enterprise, okay, being $100 million, that’s a long way to go and given that we’re still doubling up and down on innovation, we’re infusing AI across the entire portfolio and not just limiting it to our new products for example. Again, we are pretty optimistic that we will continue holding our own and not be disappointing people. Okay, I think that was the question, yeah.

Sonalee Parekh: Yeah. So on the margin question, so overall, we’re really happy with the improvements we’ve driven in profitability over the last two years or so. Margins have gone from 10% to as you say, 21% to where I’ve held the guide today. I think really we feel we need to balance growth versus profitability and we need to maintain some flexibility to be able to go after attractive investments in either product, innovation, on the marketing side. We talked about the gold verticals, vertical specific campaigns. So, yeah, we really see it as a balancing act. And on operating margin I would say I’ve guided closer to the 10%. Hopefully what you’ve seen is we took up free cash flow margins from 17.5% to 18.5%. That’s adjusted on levers. Hopefully that answers the question.

Operator: The next question…

Vlad Shmunis: Operator?

Operator: Yes. The next question comes from Siti Panigrahi of Mizuho. Please go ahead.

Siti Panigrahi: Thanks for taking my question. I want to ask you about the new products you expect to hit $100 million ARR by the end of next year. Which one do you feel more excited about between RingCX, RingSense and RingCentral Events? And also, how do you — as you keep adding features to RingCX, how do you try to position your product versus your partner product within the install base?

Vlad Shmunis: Yeah. Sure. Okay. Well, for those of you with multiple kids, it’s like asking which daughter you like best. So there’s no politically correct answer to that. We like them all. Well, probably, we will not be taking some of them. As far as they’re very different. We’re talking about three products, one of which is a really not a product but family of product. It’s RingCX, which is our native contact center. It’s RingCentral Events and it’s RingSense for Sales, but it’s the first in the family product for us, because we expect to be introducing RingSense for other verticals and industry specific solutions. I think it’s easiest to quantify RingCX, because the UCaaS market is relatively well covered and well understood.

And this will get into the second part of your question. RingCX differentiates on ease of use, pricing and packaging, and very importantly, it’s an AI native product, so AI is infused there from day one, and of course, it seamlessly integrates with RingCX, which is our flagship UCaaS product. So we have internal projections, which we are not going to share at this point, but suffice to say that we feel confident that our goal of $100 million ARR across all three products is achievable, okay? We mentioned some numbers. We have approximately doubled or even more than doubled customer counts on both RingCX and RingCentral Events, and that’s just quarter-over-quarter, so what we saw is, obviously, very strong growth, very strong demand for both of them.

Events, I think what you will share Sonalee with that. You share Sonalee, okay? We can do it with the mic. I think we have 25%…

Sonalee Parekh: Correct.

Vlad Shmunis: … quarter-over-quarter growth, which is still very, very strong. So, again, it’s very early for all of them, but very promising, okay? And I tell you what, I like having multiple courses in the three. They all help each other. When we have an Event sale, for example, it absolutely opens opportunities for us with CX, with RingSense, and with EX itself. So it’s a virtuous cycle.

Operator: The next question comes from Meta Marshall of Morgan Stanley. Please go ahead.

Unidentified Analyst: Hey. This is Jamie [ph] on for Meta. I appreciate you taking the question. I think, maybe just following up on that last point, great to see the traction you are getting with RingCX. Are you able to provide any detail on how much of that base comes from existing customers versus new? And then just a follow up to that, have you seen any conflicts with the partnership you have with NICE? Are you running into any challenges in terms of what presenter or customer or as you have seen NICE try to take any of those customers direct?