RingCentral, Inc. Q4 FY2025 earnings call

• Vlad Shmunis welcomed Mahmoud ElAssir to the Board. • 2025 had strong results with total revenue growth nearly 5%, subscription revenue growth just over 5.5%, record free cash flow over $0.5 billion, and achieved full year GAAP operating margin. • RingCentral is transforming into an agentic voice AI company, with AI ARR revenues almost tripling year-over-year, RCAI utilizing customers more than doubling year-over-year. • AIR, AVA, and ACE are key AI offerings: AIR is fastest-growing, with 8,300 customers in Q4; AVA assists in real-time; ACE analyzes interactions. • Examples of customer deployments of AI solutions show improved operations and customer experiences. • Announced first quarterly dividend of $0.075 per share. • Board approved a $250 million increase in share repurchase plan, totaling $500 million.

Total revenue for 2025 grew nearly 5%, subscription revenue grew just over 5.5%. In Q4, subscription revenue was $622 million, up 5.5% year-over-year; total revenue was $644 million, up 4.8%. Subscription gross margin in Q4 remained above 80%. For 2026, subscription revenue growth is expected to be 4.5% - 5.5%, total revenue growth 4% - 5%. RCAI utilizing customers (those using at least one monetized AI product) are approaching 10% of overall ARR, more than doubling year-over-year. AIR customer count reached 8,300 in Q4, up 44% sequentially; ACE customer count exceeded 4,800, up 144% year-over-year.

• 2026 full year: subscription revenue growth 4.5% - 5.5%, total revenue growth 4% - 5%, GAAP operating margin 8.6% - 9.6%, non-GAAP operating margin 23% - 23.5%, free cash flow $580 million - $600 million, SBC $240 million - $250 million, free cash flow per share $6.67 - $6.94, non-GAAP EPS $4.76 - $4.97. • Q1 '26: subscription revenue $622 million - $625 million, total revenue $640 million - $645 million, GAAP operating margin 7.1% - 8.2%, non-GAAP operating margin 22.8% - 22.9%, non-GAAP EPS $1.16 - $1.19, SBC $60 million - $65 million.

Q: Congrats on above consensus free cash flow outlook for '26. What are your capital allocation priorities?

A: First priority is investing in growth, especially in AI-led products. Second is strengthening balance sheet to achieve investment-grade credit rating by reducing gross debt to $1 billion by end of 2026. Third is returning capital through balanced combination of share buybacks and dividends.

Q: How is demand across enterprise, mid-market, SMB?

A: Demand strong across all segments. Small business growing in double digits and accelerated year-over-year. Enterprise has pricing pressures due to COVID lapping contracts, expected to subside in 2027.

Q: Talk about levers for profitability.

A: Gross margins strong above 80%, disciplined spend, operating leverage with revenue growth outpacing expense growth, disciplined hiring, offshoring, vendor consolidation, and increasing internal use of AI. SBC reduction target is 3% - 4% of revenue in next 3 - 4 years.

Q: Average contract value for AIR customers and ARPU difference vs non-AI?

A: RCAI utilizing customers contribute almost 10% of ARR, showing better retention and net retention substantially above 100%.

Q: Uptake of AI across different go-to-market channels?

A: Uptake good across segments on direct and channel. AIR has good uptake in smaller customers, AVA in mid-sized, ACE across the board. GSPs also taking AI products to market.

Q: Adjustments to partner program for AI priorities?

A: Partner network is well-established, focusing on partners in golden verticals like health care, financial services, and SLED, with GSPs also playing a role.