Greetings and welcome to the RingCentral fourth quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Darren Yip, Director of Investor Relations for RingCentral. Thank you, Mr. Yip. You may begin.

Thank you. Good afternoon and welcome to RingCentral's fourth quarter 2015 earnings conference call. I'm Darren Yip, RingCentral's Director of Investor Relations. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; and Clyde Hosein, Chief Financial Officer. Our format today will include prepared remarks by Vlad and Clyde followed by Q&A. The primary purpose of today's call is to provide you with information regarding our performance for the fourth quarter 2015 along with our financial outlook for our first quarter and full-year 2016. Some of our discussions and responses to your questions may contain forward-looking statements including statements regarding our expected financial results for the first quarter and full-year 2016, our future plans, prospects and opportunities, trends in the business communications market, our expectations regarding our expansion internationally and up-market, our service provider and other reseller relationships, our integrated partnerships, open platform, the Glip and contact center product and our global office solution, our new phone distribution model, our plans to enhance our platform, further our enterprise capabilities and expand our international reach, and our growth strategies, current and future market position and expected growth. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements and projections for a variety of reasons, including but not limited to, general, economic and market conditions, the effects of competition and technological change; the success of our marketing, sales and retention efforts; and customer demand for our acceptance of our products and services. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. We disclaim any obligation to update information contained in our forward-looking statements whether as a result of new information, future events or otherwise. I encourage you to visit our Investor Relations Web site at ir.ringcentral.com to access our third quarter 2015 earnings press release and Slide presentation, our non-GAAP to GAAP reconciliation, our periodic SEC reports, a webcast replay of today's call and to learn more about RingCentral. With that, let me turn the call over to Vlad.

Thank you, Darren. And welcome to everyone joining us today for our fourth quarter and full year 2015 earnings call. We had a strong fourth quarter which capped a great 2015 for RingCentral. 2015 was a solid year exhibiting a combination of consistent top line growth on the larger revenue base, consistent execution across all our major initiatives combined with meaningful margin expansion, culminating in the company reaching profitability on a non-GAAP basis one quarter ahead of guidance. 2015 has been a watershed year for us on multiple fronts, including beating and raising projections every quarter. Successfully launching two new major carriers. Successfully completing our third acquisition as a public company and being selected by Gartner as the UCaaS Magic Quadrant leader. We have also grown the team substantially. Moved our headquarters into a new campus and established a new East Coast location in Charlotte, North Carolina. I want to thank all of our employees, customers and partners, for making this an outstanding year for RingCentral. In 2015 we continued our disruption of the legacy on premise system provider in the still largely underpenetrated $50 billion global market. We extended our market leadership by organically growing at a clip of 35% year-over-year to nearly $300 million. Very importantly, we grew across all our market segments and product lines with our office product, a quarter billion dollar recurrent revenue business in its own right, leading the charge with over 45% year-over-year growth. Our leading market position and growth is first and foremost rooted in our strong commitment to innovation. We extended the RingCentral platform by adding a number of core enterprise capability which now puts us on par with best in class legacy vendor from a functionality perspective while offering unsurpassed flexibility, ease of use, mobility and total cost of ownership…

Thank you, Vlad and good afternoon everyone. Before I begin, I want to ask that you refer to the Slide deck on our investor relations Web site which will help summarize the key points in our call today as well as provide some supplemental information for you. 2015 was a tremendous year for RingCentral highlighted by 36% software subscription revenue growth and manifold expansion of market. All while achieving profitability for the second half. We also had a great Q4 to finish off a strong year with our second consecutive quarter of non-GAAP profitability. Accelerated revenue growth well ahead of guidance and record bookings in up market. We are seeing strong growth across both SMB and up market segments as the market moves along with the adoption curve and embraces the cloud for efficient communications. As a testament to our business model, we continue to see attractive unit economics with each of dollar invested in sales and marketing contributing $8 of revenue and $5 of contribution margin over the projected life of an Office customer. As Vlad discussed, we have meaningfully expanded up market, the effect of which we experienced in Q4. In that quarter, we added over $6 million to our software subscription revenue which is the most we have ever added in a single quarter. This expanded our software subscription revenue to $77 million representing an organic growth rate of 26% year-over-year and up 9% sequentially from Q2. Total revenue for the fourth quarter was $83 million, up 35% year-over-year and 9% sequentially. This was above our guidance of $80 million to $81 million. Product revenue grew to $7 million and contributed 8% of revenue in the quarter. As a reminder, we do not develop, manufacture or otherwise touch the delivery of physical phones, but provide these as…

[Operator Instructions] Our first question comes from the line of Mike Latimore from Northland Capital. Please proceed with your question.

Great quarter there. Just a clarification on the, you say the small business segment. Did you say the small business segment revenue grew 35%?

Correct, Mike.

Okay. All right. And then in terms of the telco channel, as you look throughout this year, how are you thinking about the telco channel in terms of overall potential growth rate.

You are talking about all our carrier partners. Right, Mike?

Right. Correct.

Yes. We don’t break that out separately. Obviously you saw the results last year and keep in mind a couple of things, one is AT&T as a percent of revenue increased by one point. Even as the company grew revenues 35%, so you could do that math. And we just started ramping up TELUS and BT. So without giving away stuff that we are restricted by the confidentiality, you could assume that this should continue to grow.

Got it. And did the contact center business, did that grow sequentially?

Yes, very healthy. I think the combination of contact center and a PBX, our sales team is very excited by that and we are getting very good traction.

Okay. And just last quick question on the Global Office. I know you guys have had a number of deployments where there is kind of global reach to the deployment. Can you just clarify what is different about the Global Office versus your prior global deployment?

Yes. Hi, Mike. So it is really the next step forward. So prior we did have a global footprint. We had customers in a large number of countries. But what the Global Office does is very important. It's really a, you know, we think an important step forward for the industry. We now enable full local presence for those countries that are included in our current Global Office footprint. So what this mean is that if you are a customer in one of those countries, say Germany, than your phone experience is the same as if you are to use a local phone service. So your caller ID is a local caller ID. People call you on a local number. You are perceived as if you are using a fully local phone while you are in that geography. And we really feel that we are pushing the envelope with this. We expect good reception by multinational enterprises.

[Operator Instructions] Our next question comes from the line of Terry Tillman from Raymond James. Please proceed with your question.

I guess with that in mind, I will limit myself to a few questions but have a ton of questions. The first question just for Vlad, kind of philosophically or strategically, as you add more value and obviously with Glip that adds that important component around messaging. Where are you now in terms of the potential monetization around products like that? As well as, what about like embedded communications? We are hearing a lot about these apps, like salesforce introduced a click to call type dynamic. And so is that relevant? So it's kind of a two part question.

Yes. Hi, Terry. Okay. So as far as monetization of Glip is concerned. So we are monetizing Glip. We are monetizing in both directly and indirectly. But the best way to look at it is we have major customer wins. For example last quarter, we have announced Columbia University which has chosen to go with RingCentral because of the team collaboration and messaging capabilities that Glip brings to the table. Now, clearly, they also want a full op business communication system but Glip was a bit differentiator. So we see a number of companies and especially as you are going towards up market, more into the enterprise arena, where people are interested in communicating within the company and also with our customer outside of pure voice. And that’s what Glip has to add. And another recent example, for example, we just talked about now is Aptos which is another sizable company also interested in Glip. So we expect for more of this to come. Okay. And Terry, what was the second part of the question?

Yes. Thank you. So the second part Vlad was just the idea of this platform you have and as we hear more and more in this turnaround embedded communication, we are hearing a lot of companies, particularly in areas like sales, sales ops and marketing, introduced capabilities where it's part of the workflow there as the communication dynamic, they term it as like of like click to call. What are you doing in terms of with your APIs and your platforms, to try to leverage opportunities like that or is that not a big opportunity for you all in terms of a better communication?

Well, as we have been talking about, I think for some time now. So we consider our platform and our open API to be an absolute differentiator and extremely important part of our strategy. And, frankly, as we look at other cloud communications providers, we just don’t see any kind of motion in that direction. So just like when we talked about Glip, it's a great enabler and a great differentiator. We have a number of companies that specifically chose RingCentral with the idea in mind to integrate whatever data and communications capabilities that we have in the system or have stored in the system, to integrate those into their custom workflow. And that, like I say, either way for us to secure and maintain larger account. I guess one recent example is Amalgamated Bank which is a sizable institution that specifically wants to integrate growth data into their custom workflows. So, yes, expect more of this to come. Again, very similar to kind of how salesforce did things for a long time. Right. Enabling their customer with data that resided within the sales cloud.

Our next question comes from the line of Bhavan Suri from William Blair. Please proceed with your question.

So just, first turning to looking overall on the deferred revenue line. That’s been growing really nicely and actually faster than revenue growth over here. How should we think about the deferred revenue growth into '16 and then beyond and then a quick follow up on that, which is you have been providing the 50 plus seat customer count for a metric now and it's consistently growing nicely above 100%. Can you just provide some context at how big that plus number is getting. Sort of the average number of seats within this customer base. I think that would be really helpful.

So on deferred revenue we showed a very good growth above our overall average. That is the result of us moving up to larger customers, which is essentially the second part of your question. Because what we find is larger customers tend to sign more long-term contracts. I think about two-thirds of them sign contracts and more of them, as you would expect, as what we see with other SaaS providers like us, are prepaying. So trend wise, our intention is to continue with that trend and as you saw, growing over a 100% 50 plus. That’s the kind of customers that would do. In terms of size, Bhavan, the size is increasing. We don’t have a metric to provide to you on it but if you look at the three market segments, we have always done really, really well and continue to do really well on this SMB space. That’s still a young market that has a lot of penetration and our product has already been great there. The mid-market inflection point, I think Vlad described a quarter or two ago, has happened and you could see just from the few examples we gave, that they have more and more, 100s of customers, companies with 100s of customer adopting that. And I think that’s going to continue to do very well. I think the adoption rate is becoming very prevalent for that group. The enterprise which we define as 1000 plus, early stages we have had a fair amount of success. We announced a few on the call today and we see around the industry that happening. That’s probably the next area of inflection point that would happen in the future. Although, you will see from time to time, a fair amount of deal. So don’t have a metric to provide to you but overall, as you can see, whether it's from the 50 plus revenues, which now represents about 30% of our overall bookings, up from 20% a year ago. But it's overall bookings, whether it's deferred revenue, all of those metrics are pointed in the direction of a larger customer size.

Our next question comes from the line of Nikolay Beliov from Bank of America. Please proceed with your question.

I wanted to dig a little bit deeper into Global Office. My first question around Global Office was, is there as technological reason or other reasons to maintain to different brands Office and Global Office. And secondly, just wanted to -- can you walk us through the pricing, looking at your Web site, the pricing looks about the same as Office, but then you have per country pricing that’s significant less than the $25 to $45 for the core modules.

Yes. Hi, Nikolay, Vlad here. Okay. Taking the questions in reverse order. So the way that we came up with the pricing model. So, firstly the overriding criteria was simplicity and really avoiding any type of surprises with the customers as a telephone or service. So when you look at our international pricing, so this is a in addition to the standard per seat pricing that they are getting. So those are additive. Basically what we are saying is if you are in one of those regions, then you will have to pay this much extra for, say $15 extra for more countries, for a RingCentral seat. And based on our competitive analysis we believe that this pricing will actually be disruptive in the industry. So that’s one. As far as maintaining two brands. So, honestly, there is only one brand, and that’s RingCentral. We just feel that it's important for a multinational organization to understand that with RingCentral, we can solve their needs globally and thus the Global Office name. But really what our sales forces are trained to sell and what our marketing materials are all about, it's really about the RingCentral.

Got it. Thank you. My last question is around Skype for business. Are you seeing any impact from Microsoft making a bigger push in this space in the marketplace?

Well, we hear about that but they don’t seem to have a product ready for market at this point. So people talk about it but nothing to buy from Microsoft yet. As you know, Gartner seems to think that there is two to three year gap and [indiscernible]. So no, we are certainly continuing our growth unabated as you can tell by the result.

Our next question comes from the line of John DiFucci from Jefferies. Please proceed with your question.

Hi, this is Julian Serafini in for John DiFucci. So I want to follow up on the question on the Global Office specifically. I guess what I am trying to understand is, does global office, like impact your ability to maintain your run rate profitability. What I am getting at is, is there additional spending required for this offering. Do you need like local salesman support for geographies? I am interested in hearing your thoughts on that?

Yes. Thank you, Julian. For the near-term, no. Most of the customers that you will see, U.S. customers that have wanted to deploy this in different country. So that’s a positive for us. We have been clear, as we invest to fill out the footprint, we will have to invest in some CapEx in other geographies to fill out the serviceability of it. But net is, our operating margins should show some moderate improvement next year as we guided to.

Our next question comes from the line of Heather Bellini from Goldman Sachs. Please proceed with your question.

This is Nicole Hayashi in for Heather. My first question is for Clyde. You were just talking about Global Office and your continued expansion internationally. Could you just talk about the top countries you hope to expand further into in 2016?

Well, this will explain a couple of things. We have already a footprint in U.S., Canada, U.K., so that will continue. What Global Office allows us to is to serve customers who have offices in, and if you go on the Web site, Nicole, you will see it includes many, many countries of service. So it's hard to predict where those countries will come up. But what it does it gives us the capability to serve customers globally in their branch offices.

Okay. Got you. And, I guess in terms of total CapEx, do you think that will increase then in calendar '16?

No, I think we have encouraged people over time to dial in 5% to 8%ish of revenues and CapEx. I think that’s probably a fair reasonable rate.

Okay. Great. And for Vlad, Cisco also talked about their cloud PBX [inter-quarter] [ph]. Could you compare Ring's offerings to theirs as well? Thanks.

Yes. It's a little bit hard. We don’t see Cisco cloud in the field all that much. We don’t believe that they have a product or are frankly even trying to sell into our segment, which we span everything from very small business all the way into multiple thousands of seats. Cisco actually seems to be positioning itself above even that. Again, we don’t see them in our space and we just don’t, frankly, are unaware of them having anything that can realistically be used by a business who has, say 5000 employees. And this has to do with the packaging price, ease of administration, ease of deployment, channel that they are using. All kinds of things. Our mobile first approach really plays well for us. So, no, we don’t see them as a competitive threat at the present at this point.

Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed with your question.

Vlad, I wanted to ask you two questions on the up market, on the operations and what you are seeing out there. The first question really is on the sales cycle trend. Are you seeing any compression at all in the up market sales cycle as you are gaining more up market referencability as well as in the industry analyst recognition?

Well, certainly seeing an improvement in market acceptance up market and you can see this in our numbers. Triple digit growth for seventh quarter in a row, kinds of speaks for itself as well. So those are all very positive signs. As far as cycle compression is concerned, that’s a harder one. We are also growing the sales team quite a bit, so we are dealing with maybe better market acceptance but also there is a dynamic that the team is fairly new, the up market team, as to grow this. But, frankly, the larger the company, the more likely they are to go through a more of a process and you know with an RFP maybe issued. So they tend to take their time. Again, what really gives us solace is the fact that we are clearly being accepted. We don’t need to explain to people why the cloud is the way to go, like we used to. And we think there is more of this to come. And look, needless to say, it really really sells a lot. That Gartner recognized our progress. Named us the leader in the UCaaS Quadrant. So the one, both most innovative as well as most likely to execute. So that all plays very nicely with our up market niche

And the follow up question I have, maybe it's for Clyde here. I just wanted to tap into to see how you guys are felling by your implementations capacity. You have had a lot of strong momentums here. Gosh, over many quarters right now in terms of larger deals that you are signing up. And just wondering at all if you may need to step up your implementation capacity next year. I am making this assumption that given this trend, there is probably more and more larger deal opportunities that are filling up in your pipeline. Just wanted to know if that’s included in the guidance and how you guys are feeling by your implementation capacity for these larger deals?

Brian, I think you are talking about professional services. The short answer is, yes. We will see more for the reasons we described, which is larger customers tend to want them. Fundamentally, RingCentral could work without it but as we transition from some of the on-premise PBX and the like, they want turnkey solution. So we see more and more of that. And next year we would expect to see more. The team is building a reasonable basis. Our guidance does contemplate some increase in this but, yes, we are ramping up that team.

We have time for one last question. Our last question comes from the line of James Faucette from Morgan Stanley. Please proceed with your question.

Most of my questions have been answered but just two quick ones there to wrap. First, you mentioned on the sales cycle on up market. Can you talk about if there has been any change in sales in your historical markets in that process? Just wondering on the period you are seeing better close rates or any changes in close rates for the same. Secondly, when you talk about kind of the land and expand opportunities, specifically looking at expand. Is that expansion typically coming from increased seats or up sell of existing seats and how does that kind of cause this to change over time. Thank you very much.

Yes, James, Vlad here. Again, taking in reserve order. Land and expand, I would say has more to do with additional seats which tend to come in either in a trial situation and then once the customer gets comfortable, expand through the organization. Or not uncommon for us, to convene into a situation where we would get a region or maybe a number of locations and then just expand across the footprint. So that’s continuing. Now as far as our, what you said traditional business, I think you meant the core business. Core business, every business we are in is core and it certainly includes the up market. But if we are talking about smaller customers, look you are seeing improved profitability across the board and some of it is margin related and some of it is not. So we are being, ask for more efficient with our marketing dollar, or I should say sales and marketing dollar, as we have ever been. Our ratios that we keep on closing of $8 of revenue and $5 of profit, that continues to hold. So we are certainly not seeing any degradation there. And I would say we are generally improving our situation as a company across the board, which, again includes the go to market.

That concludes our Q&A session for today. I would like to hand the call back over to management for closing comments.

Thank you very much for joining us today. We appreciate the interest that you have expressed in RingCentral. We will be seeing you at several conferences in the next couple of months. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.